Washington, D.C. 20549
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Throughout this Quarterly Report on Form 10-Q, except as otherwise noted by the context, the terms "Company""DuPont" or "DowDuPont""Company" used herein mean DowDuPontDuPont de Nemours, Inc. and its consolidated subsidiaries. On June 1, 2019, DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”) (for certain events prior to June 1, 2019, the Company may be referred to as DowDuPont). Beginning on June 3, 2019, the Company's common stock is traded on the New York Stock Exchange under the ticker symbol "DD".
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 Inc. (“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”). DowDuPont expectsDow's historical financial results for periods prior to completeApril 1, 2019 are reflected in DuPont's interim Consolidated Financial Statements as discontinued operations.
disasters and weather events and patterns which could result in a significant operational event for DowDuPont,DuPont, adversely impact demand or production; ability to discover, develop and protect new technologies and to protect and enforce DowDuPont’sDuPont's intellectual property rights; failure to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio changes; unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’smanagement's response to any of the aforementioned factors. These risks are and will be more fully discussed in DowDuPont’sDuPont's current, quarterly and annual reports and other filings made with the U.S. Securities and Exchange Commission, ("SEC"), in each case, as may be amended from time to time in future filings with the SEC. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on DowDuPont’s or Corteva, Inc.’sDuPont’s consolidated financial condition, results of operations, credit rating or liquidity. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. DowDuPontDuPont assumes no obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. A detailed discussion of some of the significant risks and uncertainties which may cause results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A) of DowDuPont’s 2018 Annual Report on Form 10-K and in the section titled "Risk Factors" (Part II, Item 1A of this Form 10-Q).
ITEM 1. FINANCIAL STATEMENTS
See Notes to the Consolidated Financial Statements.
Effective August 31, 2017, pursuant to the merger of equals transaction 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 DuPont"EID") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Historical Dow and Historical DuPontEID 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.
Except as otherwise indicated by the context, the term "Historical Dow" includes Historical Dow and its consolidated subsidiaries, "Historical DuPont"EID" includes Historical DuPontEID and its consolidated subsidiaries, "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of Historical Dow, and "Dow Silicones" means Dow Silicones Corporation, a wholly owned subsidiary of Historical Dow.
The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in "Deferred charges and other assets" on the consolidated balance sheets.interim Condensed Consolidated Balance Sheets. Operating lease liabilities are included in "Accrued and other current liabilities" and "Other noncurrent obligations" on the consolidated balance sheets.interim Condensed Consolidated Balance Sheets. Finance lease ROU assets are included in "Property""Property, plant and equipment - net" and the corresponding lease liabilities are included in "Long-term debt due within one year""Short-term borrowings and finance lease obligations" and "Long-term debt" on the consolidated balance sheets.interim Condensed Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide the lessor's implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statementsinterim Consolidated Statements of income,Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, "LeasesLeases (Topic 842)," and associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and measurement in the financial statements will dependdepends on its classificationwhether the lease is classified as a finance or operating lease. In addition, the new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from legacyprevious U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance, "Revenue from Contracts with Customers (Topic 606),referred to as "Topic 606," issued in 2014.
The Company adopted the new standard in the first quarter of 2019, which allows for a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial adoption. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statement as its date of initial application. The Company has elected to apply the transition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods are not restated and continue to be reported in accordance with historic accounting under ASC 840 "Leases"(Leases). In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company chose to not apply the standard to certain existing land easements, excluded short-term leases (term of 12 months or less) from the balance sheet and accounts for nonlease and lease components in a contract as a single component for all asset classes. The following table summarizes the impact of adoption to the consolidated balance sheet:
1.2. The net impact to retained earnings was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction.
The adoption of the new guidance did not have a material impact on the Company's consolidated statementinterim Consolidated Statement of incomeOperations and had no impact on the consolidation statementinterim Consolidated Statement of cash flows.Cash Flows.
Accounting Guidance Issued But Not Adopted at March 31,June 30, 2019
In August 2018, the FASB issued ASU 2018-13, "FairFair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in ASC 820, "FairFair Value Measurement." The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements,
with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.
In August 2018, the FASB issued ASU 2018-15, "IntangiblesIntangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," whichContract. This new standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350, "IntangiblesIntangibles - Goodwill and Other"Other, to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance.guidance and does not expect there to be a significant impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further updated in November 2018 and May 2019. The new guidance introduces the current expected credit loss (CECL) model, which will require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including trade receivables, based on expected losses rather than incurred losses. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on the Consolidated Financial Statements and related disclosures.
NOTE 3 - INTENDED BUSINESS SEPARATIONSDIVESTITURES
As discussedSeparation Agreements
In connection with the Dow Distribution and the Corteva Distribution, the Company has entered into certain agreements that, among other things, effect the separations, provide for the allocation of assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among DuPont, Dow, and Corteva (together, the “Parties” and each a “Party”), and provide a framework for DuPont’s relationship with Dow and Corteva following the Distributions. Effective April 1, 2019, the Parties entered into the following agreements:
Separation and Distribution Agreement - The Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Separation and Distribution Agreement").
Tax Matters Agreement - The Parties entered into an agreement that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.
Intellectual Property Cross-License Agreement - DuPont entered into an Intellectual Property Cross-License Agreement with Dow (the “DuPont-Dow IP Cross-License Agreement”). The DuPont-Dow IP Cross-License Agreement sets forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
In addition to the agreements above, DuPont has entered into certain various supply agreements with Dow. These agreements provide for different pricing than the historical intercompany and intracompany practices prior to the Distributions.
Effective June 1, 2019, in connection with the Corteva Distribution, DuPont and Corteva entered into the following agreements:
Intellectual Property Cross-License Agreement - DuPont and Corteva entered into an Intellectual Property Cross-License Agreement (the “DuPont-Corteva IP Cross-License Agreement”). The DuPont-Corteva IP Cross-License Agreement sets forth the terms and conditions under which the applicable parties may use in their respective businesses, following the Corteva Distribution, certain know-how (including trade secrets), copyrights, software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
Letter Agreement - The Company entered into a letter agreement (the "Letter Agreement") with Corteva that sets forth certain additional terms and conditions related to the Corteva Distribution, including certain limitations on DuPont’s and Corteva's ability to transfer certain businesses and assets to third parties without assigning certain of such Party’s indemnification obligations under the Separation and Distribution Agreement to the other Party to the transferee of such businesses and assets or meeting certain other alternative conditions. The Letter Agreement further outlines the allocation between DuPont and Corteva of liabilities associated with certain legal and environmental matters, including liabilities associated with discontinued and/or divested operations and businesses of Historical EID. See Note 15 for more information regarding the allocation.
Amended and Restated Tax Matters Agreement - The Parties entered into an amendment and restatement of the Tax Matters Agreement, between DuPont, Corteva and Dow, effective as of April 1, 2019 (as so amended and restated, the “Amended and Restated Tax Matters Agreement”). The Amended and Restated Tax Matters Agreement governs the Parties’ rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. The Parties amended and restated the Tax Matters Agreement in connection with the Corteva Distribution in order to allocate between DuPont and Corteva certain rights and obligations of the Company provided in the Company’s Annual Reportoriginal form of the Tax Matters Agreement. See Note 7 for additional information 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 (the “Intended Business Separations”Tax Matters Agreement and the transactions to accomplish the Intended Business Separations, the “separations”). 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,Amended and Corteva, Inc., to serve as a holding company for its agriculture business. Following the separations, DowDuPont will continue to hold the specialty products business and operate as "DuPont".Restated Tax Matters Agreement.
Effective as of 5:00 p.m. onMaterials Science Division
On April 1, 2019, DowDuPont completed the separation of its Materials Science businesses, including the businesses and operations that comprised the Company's former Performance Materials & Coating, Industrial Intermediates & Infrastructure and the Packaging & Specialty Plastics segments, (the "Materials Science Division") through the consummation of the Dow Distribution.
On April 1, 2019, prior to the Dow Distribution, the Company contributed $2,024 million in cash to Dow.
The results of operations of the Materials Science Division are presented as discontinued operations as summarized below:
|
| | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| In millions | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Net sales | $ | 12,750 |
| $ | 10,867 |
| $ | 24,890 |
|
| Cost of sales | 10,266 |
| 8,917 |
| 20,055 |
|
| Research and development expenses | 188 |
| 163 |
| 361 |
|
| Selling, general and administrative expenses | 370 |
| 329 |
| 704 |
|
| Amortization of intangibles | 116 |
| 116 |
| 235 |
|
| Restructuring and asset related charges - net | 42 |
| 157 |
| 128 |
|
| Integration and separation costs | 32 |
| 44 |
| 53 |
|
| Equity in earnings of nonconsolidated affiliates | 194 |
| (13 | ) | 395 |
|
| Sundry income (expense) - net | 21 |
| 99 |
| 117 |
|
| Interest expense | 263 |
| 240 |
| 524 |
|
| Income from discontinued operations before income taxes | 1,688 |
| 987 |
| 3,342 |
|
| Provision for income taxes on discontinued operations | 369 |
| 261 |
| 686 |
|
| Income from discontinued operations, net of tax | 1,319 |
| 726 |
| 2,656 |
|
| Income from discontinued operations attributable to noncontrolling interests, net of tax | 29 |
| 37 |
| 48 |
|
| Income from discontinued operations attributable to DuPont stockholders, net of tax | $ | 1,290 |
| $ | 689 |
| $ | 2,608 |
|
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Materials Science Division:
|
| | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| In millions | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Depreciation and amortization | $ | 698 |
| $ | 743 |
| $ | 1,407 |
|
| Capital expenditures | $ | 482 |
| $ | 597 |
| $ | 868 |
|
The carrying amount of major classes of assets and liabilities classified that were included in discontinued operations at December 31, 2018 related to the Material Science Division consist of the following:
|
| | | |
| Dec 31, 2018 |
| In millions |
| Assets | |
| Cash and cash equivalents | $ | 2,723 |
|
| Marketable securities | 100 |
|
| Accounts and notes receivable - net | 8,839 |
|
| Inventories | 6,891 |
|
| Other current assets | 722 |
|
| Investment in nonconsolidated affiliates | 3,321 |
|
| Other investments | 2,646 |
|
| Noncurrent receivables | 358 |
|
| Property, plant, and equipment - net | 21,418 |
|
| Goodwill | 9,845 |
|
| Other intangible assets - net | 4,225 |
|
| Deferred income tax assets | 2,197 |
|
| Deferred charges and other assets | 742 |
|
| Total assets of discontinued operations | $ | 64,027 |
|
| Liabilities | |
| Short-term borrowings and finance lease obligations | $ | 636 |
|
| Accounts payable | 6,867 |
|
| Income taxes payable | 557 |
|
| Accrued and other current liabilities | 2,931 |
|
| Long-Term Debt | 19,254 |
|
| Deferred income tax liabilities | 917 |
|
| Pension and other post employment benefits - noncurrent | 8,929 |
|
| Asbestos-related liabilities - noncurrent | 1,142 |
|
| Other noncurrent obligations | 4,706 |
|
| Total liabilities of discontinued operations | $ | 45,939 |
|
Agriculture Division
On June 1, 2019, the Company completed the separation of its Agriculture business, including the businesses and operations that comprised the Company's former Agriculture segment (the "Agriculture Division"), through the consummation of the Corteva Distribution.
In 2019, prior to the distribution of Dow.Corteva, the Company contributed $7,139 million in cash to Corteva, a portion of which was used to retire indebtedness of Historical EID.
The results of operations of the Agriculture Division are presented as discontinued operations as summarized below:
|
| | | | | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Net sales | $ | 3,776 |
| $ | 5,638 |
| $ | 7,144 |
| $ | 9,411 |
|
| Cost of sales | 2,026 |
| 3,622 |
| 4,218 |
| 6,352 |
|
| Research and development expenses | 183 |
| 345 |
| 470 |
| 666 |
|
| Selling, general and administrative expenses | 677 |
| 795 |
| 1,294 |
| 1,373 |
|
| Amortization of intangibles | 74 |
| 106 |
| 176 |
| 196 |
|
| Restructuring and asset related charges - net | 58 |
| 101 |
| 117 |
| 224 |
|
| Integration and separation costs | 272 |
| 98 |
| 430 |
| 169 |
|
| Equity in earnings of nonconsolidated affiliates | (3 | ) | 2 |
| (4 | ) | 1 |
|
| Sundry income (expense) - net | (7 | ) | 75 |
| 58 |
| 192 |
|
| Interest expense | 28 |
| 97 |
| 91 |
| 186 |
|
| Income from discontinued operations before income taxes | 448 |
| 551 |
| 402 |
| 438 |
|
| Provision for income taxes on discontinued operations | 48 |
| 97 |
| 82 |
| 106 |
|
| Income from discontinued operations, net of tax | $ | 400 |
| $ | 454 |
| $ | 320 |
| $ | 332 |
|
| Income from discontinued operations attributable to noncontrolling interests, net of tax | 25 |
| 8 |
| 35 |
| 20 |
|
| Income from discontinued operations attributable to DuPont stockholders, net of tax | $ | 375 |
| $ | 446 |
| $ | 285 |
| $ | 312 |
|
Restructuring Charges related to the Agriculture Division
Restructuring charges associated with the Agriculture Division were designed to integrate and optimize the organization following the Merger and in preparation for the Distributions. The complete DowDuPont expectsAgriculture Division Restructuring Program is included in the results of operations of the Agriculture Division within discontinued operations, as well as restructuring charges related to complete the intended separationDowDuPont Cost Synergy Program related to the Agriculture Division.
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Agriculture Division:
|
| | | | | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Depreciation and amortization | $ | 136 |
| $ | 246 |
| $ | 385 |
| $ | 470 |
|
| Capital expenditures | $ | 161 |
| $ | 94 |
| $ | 383 |
| $ | 207 |
|
The carrying amount of major classes of assets and liabilities classified that were included in discontinued operations at December 31, 2018 related to the Agriculture Division consist of the following:
|
| | | |
| Dec 31, 2018 |
| In millions |
| Assets | |
| Cash and cash equivalents | $ | 2,211 |
|
| Marketable securities | 5 |
|
| Accounts and notes receivable - net | 5,109 |
|
| Inventories | 5,259 |
|
| Other current assets | 1,000 |
|
| Investment in nonconsolidated affiliates | 138 |
|
| Other investments | 27 |
|
| Noncurrent receivables | 72 |
|
| Property, plant and equipment - net | 4,543 |
|
| Goodwill | 14,691 |
|
| Other intangible assets - net | 12,055 |
|
| Deferred income tax assets | (651 | ) |
| Deferred charges and other assets | 1,789 |
|
| Total assets of discontinued operations | $ | 46,248 |
|
| Liabilities | |
| Short-term borrowings and finance lease obligations | $ | 2,151 |
|
| Accounts payable | 3,627 |
|
| Income taxes payable | 185 |
|
| Accrued and other current liabilities | 3,883 |
|
| Long-Term Debt | 5,784 |
|
| Deferred income tax liabilities | 520 |
|
| Pension and other post employment benefits - noncurrent | 5,637 |
|
| Other noncurrent obligations | 1,708 |
|
| Total liabilities of discontinued operations | $ | 23,495 |
|
Indemnifications
Pursuant to the Separation and Distribution Agreement and the Letter Agreement, DuPont indemnifies both Dow and Corteva against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. At June 30, 2019, the indemnified assets are $172 million within "Accounts and notes receivable, net" and $166 million within "Deferred charges and other assets" offset by the corresponding liabilities of $127 million within "Accrued and other current liabilities" and $96 million within "Other noncurrent obligations."
For additional information regarding treatment of litigation and environmental related matters under the Separation and Distribution Agreement and the Letter Agreement refer to Note 15.
Other Discontinued Operations Activity
For the three and six months ended June 30, 2019, the Company recorded "Income from discontinued operations, net of tax" of $86 million related to the adjustment of certain unrecognized tax benefits for positions taken on June 1, 2019. See Note 24items from prior years from previously divested businesses and $80 million related to changes in accruals for additional information.certain prior year tax positions related to the divested crop protection business and research and development assets of Historical EID.
Integration and Separation Costs
The Company incurred "IntegrationIntegration and separation costs" of $813 million and $457 million for the three months ended March 31, 2019 and 2018, respectively, recorded in the consolidated statements of income. These costscontinuing operations to date primarily have consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger post-merger integrationand the Distributions. These costs are recorded within "Integration and separation andcosts" within the ownership restructureinterim Consolidated Statements of Dow Silicones. Integration and separation costs related to post-Merger integration and Intended Business Separation activities are expected to continue to be significant throughout 2019.Operations.
|
| | | | | | | | | | | | |
| | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Integration and separation costs | $ | 347 |
| $ | 428 |
| $ | 958 |
| $ | 793 |
|
NOTE 4 - REVENUE
Revenue Recognition
The majorityProducts
Substantially all of the Company'sDuPont's revenue is derived from product sales. In the three months ended March 31, 2019, 98 percent of the Company's sales related to product sales (98 percent in the three months ended March 31, 2018) with the remaining balance primarily related to licensing of patents and technologies and Historical Dow's insurance operations. Product sales consist of sales of the Company'sDuPont's products to supply manufacturers distributors and farmers anddistributors. DuPont considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contractsa contract with a customer. The Company enters into licensing arrangements in which it licenses certain rightsContracts with customers are considered to be short-term when the time between order confirmation and satisfaction of its patents and technology to customers. Revenue from the Company's licenses for patents and technology is derived from sales-based royalties and licensing arrangements based on billing schedules established in each contract.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocatedis equal to unsatisfied or partially unsatisfied performance obligations. At March 31, 2019, the Company had remaining performance obligations related to material rights granted to customers for contract renewal options of $100 million ($102 million at December 31, 2018) and unfulfilled performance obligations for the licensing of technology of $519 million ($407 million at December 31, 2018). The Company expects revenue to be recognized for the remaining performance obligations over the next one to six years.
The remaining performance obligations are for product sales that have expected durations of one year or less product sales of materials delivered through a pipeline for which the Company has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 22 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.than one year.
Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by segment and business or major product line and geographic region, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. On June 1, 2019, the Company realigned certain businesses resulting in changes to its management and reporting structure, including the creation of a new Non-Core segment ("Second Quarter Segment Realignment") (refer to Note 23 for additional details). In conjunction with the Second Quarter Segment Realignment, DuPont made the following changes to its major product lines:
Realigned its product lines within Nutrition & Biosciences as Food & Beverage, Health & Biosciences, and Pharma Solutions;
Renamed its product lines within Transportation & Industrial (formerly known as Transportation & Advanced Polymers) as Mobility Solutions, Healthcare & Specialty, and Industrial & Consumer (formerly known as Engineering Polymers, Performance Solutions, and Performance Resins, respectively); and
Realigned and renamed its product lines within Safety & Construction as Safety Solutions, Shelter Solutions, and Water Solutions.
|
| | | | | | |
Net Trade Sales by Segment and Business or Major Product Line 1 | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Crop Protection | $ | 1,425 |
| $ | 1,495 |
|
| Seed | 1,972 |
| 2,313 |
|
| Agriculture | $ | 3,397 |
| $ | 3,808 |
|
| Coatings & Performance Monomers | $ | 890 |
| $ | 941 |
|
| Consumer Solutions | 1,365 |
| 1,363 |
|
| Performance Materials & Coatings | $ | 2,255 |
| $ | 2,304 |
|
| Industrial Solutions | $ | 1,103 |
| $ | 1,155 |
|
| Polyurethanes & CAV | 2,296 |
| 2,556 |
|
| Other | 3 |
| 4 |
|
| Industrial Intermediates & Infrastructure | $ | 3,402 |
| $ | 3,715 |
|
| Hydrocarbons & Energy | $ | 1,380 |
| $ | 1,800 |
|
| Packaging and Specialty Plastics | 3,730 |
| 4,210 |
|
| Packaging & Specialty Plastics | $ | 5,110 |
| $ | 6,010 |
|
| Advanced Printing | $ | 119 |
| $ | 122 |
|
| Display Technologies | 84 |
| 60 |
|
| Interconnect Solutions | 238 |
| 281 |
|
| Photovoltaic & Advanced Materials | 254 |
| 289 |
|
| Semiconductor Technologies | 383 |
| 401 |
|
| Electronics & Imaging | $ | 1,078 |
| $ | 1,153 |
|
| Industrial Biosciences | $ | 494 |
| $ | 541 |
|
| Nutrition & Health | 1,165 |
| 1,179 |
|
| Nutrition & Biosciences | $ | 1,659 |
| $ | 1,720 |
|
| Engineering Polymers | $ | 663 |
| $ | 668 |
|
| Performance Resins | 308 |
| 351 |
|
| Performance Solutions | 384 |
| 406 |
|
| Transportation & Advanced Polymers | $ | 1,355 |
| $ | 1,425 |
|
| Aramids | $ | 424 |
| $ | 393 |
|
| Construction | 327 |
| 385 |
|
| TYVEK® Enterprise | 310 |
| 292 |
|
| Water Solutions | 261 |
| 229 |
|
| Safety & Construction | $ | 1,322 |
| $ | 1,299 |
|
| Corporate | $ | 71 |
| $ | 76 |
|
| Total | $ | 19,649 |
| $ | 21,510 |
|
| |
1. | Beginning in the third quarter of 2018, DowDuPont realigned certain global businesses and product lines in preparation for the Intended Business Separations. These changes have been retrospectively reflected in the results presented. |
|
| | | | | | | | | | | | |
| Net Trade Revenue by Segment and Business or Major Product Line | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Advanced Printing | $ | 121 |
| $ | 136 |
| $ | 240 |
| $ | 258 |
|
| Display Technologies | 74 |
| 82 |
| 159 |
| 142 |
|
| Interconnect Solutions | 282 |
| 298 |
| 520 |
| 579 |
|
| Semiconductor Technologies | 381 |
| 405 |
| 764 |
| 806 |
|
| Electronics & Imaging | $ | 858 |
| $ | 921 |
| $ | 1,683 |
| $ | 1,785 |
|
| Food & Beverage | $ | 746 |
| $ | 783 |
| $ | 1,501 |
| $ | 1,527 |
|
| Health & Biosciences | 604 |
| 618 |
| 1,174 |
| 1,236 |
|
| Pharma Solutions | 208 |
| 220 |
| 418 |
| 435 |
|
| Nutrition & Biosciences | $ | 1,558 |
| $ | 1,621 |
| $ | 3,093 |
| $ | 3,198 |
|
| Mobility Solutions | $ | 588 |
| $ | 648 |
| $ | 1,213 |
| $ | 1,269 |
|
| Healthcare & Specialty | 388 |
| 424 |
| 772 |
| 830 |
|
| Industrial & Consumer | 293 |
| 345 |
| 601 |
| 696 |
|
| Transportation & Industrial | $ | 1,269 |
| $ | 1,417 |
| $ | 2,586 |
| $ | 2,795 |
|
| Safety Solutions | $ | 657 |
| $ | 639 |
| $ | 1,322 |
| $ | 1,251 |
|
| Shelter Solutions | 398 |
| 471 |
| 755 |
| 894 |
|
| Water Solutions | 286 |
| 262 |
| 547 |
| 491 |
|
| Safety & Construction | $ | 1,341 |
| $ | 1,372 |
| $ | 2,624 |
| $ | 2,636 |
|
| Biomaterials | $ | 53 |
| $ | 74 |
| $ | 112 |
| $ | 144 |
|
| Clean Technologies | 76 |
| 79 |
| 141 |
| 153 |
|
| DuPont Teijin Films | 42 |
| 51 |
| 79 |
| 98 |
|
| Photovoltaic & Advanced Materials | 230 |
| 283 |
| 484 |
| 571 |
|
| Sustainable Solutions | 41 |
| 39 |
| 80 |
| 74 |
|
| Non-Core | $ | 442 |
| $ | 526 |
| $ | 896 |
| $ | 1,040 |
|
| Total | $ | 5,468 |
| $ | 5,857 |
| $ | 10,882 |
| $ | 11,454 |
|
| | | Net Trade Sales by Geographic Region | Three Months Ended | |
| Net Trade Revenue by Geographic Region | | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | Mar 31, 2019 | Mar 31, 2018 | 2019 | 2018 | 2019 | 2018 |
| U.S. & Canada | $ | 7,014 |
| $ | 7,909 |
| $ | 1,826 |
| $ | 1,857 |
| 3,602 |
| 3,643 |
|
EMEA 1 | 6,269 |
| 6,919 |
| 1,291 |
| 1,492 |
| 2,671 |
| 2,957 |
|
| Asia Pacific | 4,639 |
| 4,790 |
| 2,034 |
| 2,178 |
| 3,979 |
| 4,211 |
|
| Latin America | 1,727 |
| 1,892 |
| 317 |
| 330 |
| 630 |
| 643 |
|
| Total | $ | 19,649 |
| $ | 21,510 |
| $ | 5,468 |
| $ | 5,857 |
| $ | 10,882 |
| $ | 11,454 |
|
| |
| 1. | Europe, Middle East and Africa. |
Contract Balances
TheFrom time to time, the Company enters into arrangements in which it receives payments from customers based upon contractual billing schedules. Accounts receivable are recordedThe Company records accounts receivables when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are realized when the associated revenue is recognized under the contract. "Contract liabilities - current" primarily reflectsreflect deferred revenue from prepayments in the Agriculture segment for contracts with customers where the Company receives advance payments for product to be delivered in future periods. "Contract liabilities - noncurrent" includes advance payment for product that the Company has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract.customers. The Company classifies deferred revenue as current (12 months or less) or noncurrent based on the timing of when the Company expects to recognize revenue.
Revenue recognized in the first threesix months of 2019 from amounts included in contract liabilities at the beginning of the period was approximately $525$25 million (approximately $640$23 million in the first threesix months of 2018). The increase in contract liabilities from December 31, 2018 to March 31, 2019 was primarily due to advanced payments received from customers for product supply agreements related to Agriculture and one customer related to Packaging & Specialty Plastics, partially offset by Agriculture seed deliveries to customers for the North America growing season, which were delayed due to weather conditions. In the first three months of 2019, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was insignificant (insignificant in the first three months of 2018).insignificant. The Company did not recognize any asset impairment charges related to contract assets during the period.
|
| | | | | | |
| Contract Balances |
Mar 31, 2019 |
Dec 31, 2018 |
| In millions |
| Accounts and notes receivable - Trade | $ | 13,963 |
| $ | 12,376 |
|
Contract assets - current 1 | $ | 62 |
| $ | 85 |
|
Contract assets - noncurrent 2 | $ | 47 |
| $ | 47 |
|
Contract liabilities - current 3 | $ | 2,266 |
| $ | 2,092 |
|
Contract liabilities - noncurrent 4 | $ | 1,767 |
| $ | 1,420 |
|
|
| | | | | | |
| Contract Balances | June 30, 2019 | Dec 31, 2018 |
| In millions |
Accounts and notes receivable - trade 1 | $ | 3,346 |
| $ | 2,960 |
|
Contract assets - current 2 | $ | 38 |
| $ | 48 |
|
Deferred revenue - current 3 | $ | 106 |
| $ | 71 |
|
Deferred revenue - noncurrent 4 | $ | 15 |
| $ | 7 |
|
| |
| 1. | Included in "Other current assets""Accounts and notes receivable - net" in the consolidated balance sheets.Condensed Consolidated Balance Sheets. |
| |
| 2. | Included in "Deferred charges and other"Other current assets" in the consolidated balance sheets.Condensed Consolidated Balance Sheets. |
| |
| 3. | Included in "Accrued and other current liabilities" in the consolidated balance sheets.Condensed Consolidated Balance Sheets. |
| |
| 4. | Included in "Other noncurrent obligations" in the consolidated balance sheets.Condensed Consolidated Balance Sheets. |
NOTE 5 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and other asset related charges, which includes other asset impairments, were $287$137 million and $208 million in the three and six months ended June 30, 2019 ($46 million and $99 million for the three and six months ended March 31, 2019 ($262 million for the three months ended March 31,June 30, 2018). These charges were recorded in "Restructuring and asset related charges - net" in the consolidated statementsinterim Consolidated Statements of incomeOperations and consist primarily of the following:
2019 Restructuring Program
During the second quarter of 2019 and in connection with the ongoing integration activities, DuPont approved restructuring actions to simplify and optimize certain organizational structures following the completion of the Distributions (the "2019 Restructuring Program"). As a result of these actions, the Company expects to record total pre-tax restructuring charges of $85 million to $130 million, comprised of approximately $55 million to $80 million of severance and related benefits costs; $30 million to $45 million of asset related charges; and up to $5 million of costs related to contract terminations. For the three and six months ended June 30, 2019, DuPont recorded a pre-tax charge of $53 million, recognized in "Restructuring and asset related charges - net" in the Company's interim Consolidated Statement of Operations comprised of $50 million of severance and related benefit costs and $3 million of asset related charges. The Company expects actions related to this program to be substantially complete by mid-2020. At June 30, 2019, total liabilities related to the program were $50 million for severance and related benefit costs.
The following table details restructuring charges recorded at our reportable segments for the three and six months ended June 30, 2019:
|
| | | |
| 2019 Restructuring Program Charges by Segment | Three and Six Months Ended June 30, 2019 |
| In millions |
| Electronics & Imaging | $ | 7 |
|
| Nutrition & Biosciences | 14 |
|
| Transportation & Industrial | 12 |
|
| Safety & Construction | 17 |
|
| Non-Core | — |
|
Corporate | 3 |
|
| Total | $ | 53 |
|
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPontthe Company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program, (the “Synergy Program”), which was designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations.Distributions of Dow and Corteva. The portions of the charges, costs and expenses attributable to integration and optimization within the Agriculture and Materials Sciences Divisions are reflected in discontinued operations. The Company expects to record total pretax restructuring charges of approximately $2,200 million of which the Companyhas recorded pretax restructuring charges attributable to the continuing operations of $2,027DuPont of $466 million inception-to-date, consisting of severance and related benefit costs of $1,045$222 million, asset write-downs and write-offs of $695 million and costs associated with exit and disposal activities of $287 million.
For the three months ended March 31, 2019, the Company recorded pretax restructuring charges of $280 million of which $279 million was recorded in "Restructuring and asset related charges - net"of $184 million and $1contract termination charges of $60 million was recorded in "Equity in earnings of nonconsolidated affiliates" inrelated to charges. The Company does not expect to incur further significant charges related to this program and the consolidated statements of income. program is considered substantially complete at June 30, 2019.
The chargefollowing tables summarize the charges incurred related to the DowDuPont Cost Synergy Program for the three and six months ended March 31,June 30, 2019 consisted of severance and related benefit costs of $112 million, asset write-downs and write-offs of $116 million, and costs associated with exit and disposal activities of $52 million. For the three months ended March 31, 2018, the Company recorded pretax restructuring charges of $260 million in "Restructuring and asset related charges - net." The charge for the three months ended March 31, 2018 consisted of severance and related benefit costs of $172 million, asset write-downs and write-offs of $48 million and costs associated with exit and disposal activities of $40 million. The Company expects to substantially complete the Synergy Program by the end of 2019.2018:
|
| | | | | | | | | | | | |
| | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Severance and related benefit costs | $ | 6 |
| $ | 37 |
| $ | 49 |
| $ | 77 |
|
| Contract termination charges | — |
| 3 |
| 16 |
| 15 |
|
| Asset related charges | 16 |
| 6 |
| 29 |
| 7 |
|
Total restructuring and asset related charges - net1 | $ | 22 |
| $ | 46 |
| $ | 94 |
| $ | 99 |
|
| |
| 1. | The charge for the three and six months ended June 30, 2019 includes $21 million and $92 million which was recognized in "Restructuring and asset related charges - net" and $1 million and $2 million which was recognized in "Equity in earnings of nonconsolidated affiliates" in the interim Consolidated Statements of Operations. |
|
| | | | | | | | | | | | |
| DowDuPont Cost Synergy Program Charges by Segment | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Electronics & Imaging | $ | — |
| $ | 1 |
| $ | — |
| $ | 2 |
|
| Nutrition & Biosciences | 8 |
| — |
| 35 |
| — |
|
| Transportation & Industrial | — |
| — |
| — |
| (1 | ) |
| Safety & Construction | 3 |
| 12 |
| 5 |
| 19 |
|
| Non-Core | 1 |
| (5 | ) | — |
| (6 | ) |
Corporate 1 | 10 |
| 38 |
| 54 |
| 85 |
|
| Total | $ | 22 |
| $ | 46 |
| $ | 94 |
| $ | 99 |
|
| |
| 1. | Severance and related benefit costs were recorded at Corporate. |
The following table summarizessummarized the activities related to the DowDuPont Cost Synergy Program.
|
| | | | | | | | | | | | |
| DowDuPont Cost Synergy Program | Severance and Related Benefit Costs | Contract Termination Charges | Asset Related Charges | Total |
| In millions |
| Reserve balance at Dec 31, 2018 | $ | 126 |
| $ | 16 |
| $ | — |
| $ | 142 |
|
| 2019 restructuring charges | 49 |
| 16 |
| 29 |
| 94 |
|
| Charges against the reserve | — |
| — |
| (29 | ) | (29 | ) |
| Cash payments | (55 | ) | (28 | ) | — |
| (83 | ) |
| Reserve balance at June 30, 2019 | $ | 120 |
| $ | 4 |
| $ | — |
| $ | 124 |
|
At March 31,June 30, 2019, $464$107 million was included in "Accrued and other current liabilities" ($490129 million at December 31, 2018) and $99$17 million was included in "Other noncurrent obligations" ($8413 million at December 31, 2018) in the consolidated balance sheets.interim Condensed Consolidated Balance Sheets.
Equity Method Investment Impairment Related Charges |
| | | | | | | | | | | | |
| Synergy Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
| In millions |
| Reserve balance at Dec 31, 2018 | $ | 491 |
| $ | — |
| $ | 83 |
| $ | 574 |
|
| 2019 restructuring charges | 112 |
| 116 |
| 52 |
| 280 |
|
| Charges against the reserve | — |
| (115 | ) | — |
| (115 | ) |
| Cash payments | (140 | ) | — |
| (36 | ) | (176 | ) |
| Reserve balance at Mar 31, 2019 | $ | 463 |
| $ | 1 |
| $ | 99 |
| $ | 563 |
|
Restructuring charges recordedIn preparation for severancethe Corteva Distribution, Historical EID completed the separation of the assets and related benefit costs wereliabilities related to Corporate.its specialty products businesses into separate legal entities (the “SP Legal Entities”) and on May 1, 2019, Historical EID distributed the SP Legal Entities to DowDuPont (the “Internal SP Distribution”). The Internal SP Distribution served as a triggering event requiring the Company to perform an impairment analysis related to equity method investments held by the Company as of May 1, 2019. The Company recorded $116 millionapplied the net asset value method under the cost approach to determine the fair value of restructuring charges for asset write-downs and write-offs for the three months ended March 31, 2019, related toequity method investments in the Nutrition & Biosciences ($10 million), Agriculture ($28 million), Safety & Construction ($2 million) Transportation & Advanced Polymers ($1 million), Packaging & Specialty Plastics ($1 million)segment. Based on updated projections, the Company determined the fair value of the equity method investment was below the carrying value and Corporate ($74 million). The asset write-downs and write-offs primarily relatedhad no expectation the fair value would recover in the short-term due to the impairment of leased, non-manufacturing facilities and the write down of inventory.
The Company recorded restructuring charges of $52 million for costs associated with exit and disposal activities for the three months ended March 31, 2019, related to Agriculture ($19 million), Nutrition & Biosciences ($18 million) and Corporate ($15 million).
The Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs which will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
DowDuPont Agriculture Division Restructuring Program
During the fourth quarter of 2018 and in connection with the ongoing integration activities, DowDuPont approved restructuring actions to simplify and optimize certain organizational structures within the Agriculture segment in preparation for the Intended Business Separations ("Agriculture Division Program").current economic environment. As a result, management concluded the impairment was other-than-temporary and recorded an impairment charge of these actions, the Company expects to record total pretax charges of approximately $96$63 million comprised of $83 million of severance and related benefit costs, $11 million of asset write-downs and write-offs and $2 million of costs associated with exit and disposal activities.
For the three months ended March 31, 2019, DowDuPont recorded a net pretax restructuring benefit of $1 million, consisting of a favorable adjustment of $4 million to the severance and related benefit costs reserve and asset write-downs and write-offs of $3 million. The impact of these items are shown as "Restructuringin “Restructuring and asset related charges - net"net” in the consolidated statementsinterim Consolidated Statements of income. The Company expects actionsOperations related to the Agriculture Division Program to be substantially complete by mid 2019.Nutrition & Biosciences segment. See Notes 13 and 22 for additional information.
The Company recorded pretax restructuring charges of $83 million inception-to-date under the Agriculture Division Program, consisting of severance and related benefit costs of $74 million and asset write-downs and write-offs of $9 million.
The following table summarizes the activities related to the Agriculture Division Program. At March 31, 2019, $58 million ($77 million at December 31, 2018) was included in "Accrued and other current liabilities" in the consolidated balance sheets.
|
| | | | | | | | | |
| Agriculture Division Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Total |
| (In millions) |
| Reserve balance at Dec 31, 2018 | $ | 77 |
| $ | — |
| $ | 77 |
|
2019 restructuring charges and adjustments 1 | (4 | ) | 3 |
| (1 | ) |
| Charges against the reserve | — |
| (3 | ) | (3 | ) |
| Cash payments | (15 | ) | — |
| (15 | ) |
| Reserve balance at Mar 31, 2019 | $ | 58 |
| $ | — |
| $ | 58 |
|
1. Included in "Restructuring and asset related charges - net" in the consolidated statements of income.
Restructuring adjustments recorded for severance and related benefit costs and charges recorded for asset write-downs and write‑offs were related to Corporate and Agriculture, respectively.
NOTE 6 - SUPPLEMENTARY INFORMATION
The Company uses "Sundry income (expense) – net" to record a variety of income and expense items such as foreign currency exchange gains and losses, interest income, dividends from investments, gains and losses on sales of investments and other assets, non-operating pension and other postretirement benefit plan credits or costs, and certain litigation matters. For the three months ended March 31, 2019, "Sundry income (expense) - net" was income of $248 million (income of $115 million for the three months ended March 31, 2018).
The following table provides the most significant transactions recorded in "Sundry income (expense) - net" for the three months ended March 31, 2019 and 2018:
| | | Sundry Income (Expense) - Net | Three Months Ended | Three Months Ended
June 30, | Six Months Ended
June 30, |
| In millions | Mar 31, 2019 | Mar 31, 2018 | 2019 | 2018 | 2019 | 2018 |
| Non-operating pension and other postretirement benefit plan net credit | $ | 108 |
| $ | 110 |
| |
| Non-operating pension and other post employment benefit credits | | $ | 18 |
| $ | 28 |
| $ | 39 |
| $ | 55 |
|
| Interest income | $ | 75 |
| $ | 55 |
| 9 |
| 11 |
| 49 |
| 21 |
|
Gains on sales of other assets and investments, net 1 | $ | 50 |
| $ | 34 |
| |
Foreign exchange losses, net 2 | $ | (11 | ) | $ | (148 | ) | |
Net gain on sales of other assets and investments 1 | | 10 |
| — |
| 63 |
| 6 |
|
Foreign exchange (losses) gains, net 2 | | (17 | ) | 53 |
| (78 | ) | (122 | ) |
| Net loss on divestiture and changes in joint venture ownership | | — |
| (21 | ) | — |
| (21 | ) |
Miscellaneous income (expenses) - net 3 | | (39 | ) | 11 |
| (8 | ) | 45 |
|
| Sundry income (expense) - net | | $ | (19 | ) | $ | 82 |
| $ | 65 |
| $ | (16 | ) |
| |
| 1. | IncludesThe six months ended June 30, 2019 includes a $51 million gain related to a sale of assets by Historical DuPont and $24 million loss related to Historical Dow's sale of a joint venture inwithin the first quarter of 2019. Includes a $20 million gain in the first quarter of 2018 related to Historical Dow's sale of its equity interest in MEGlobal.Electronics & Imaging product lines. |
| |
| 2. | Includes a $50 million foreign exchange loss infor the first quarter ofsix months ended June 30, 2018 related to adjustments to Historical DuPont'sEID's foreign currency exchange contracts as a result of U.S. tax reform. |
| |
| 3. | Miscellaneous income and expenses - net, for the three months and six months ended June 30, 2019 includes a $48 million charge reflecting a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement. The miscellaneous income for the three month and six month ended 2018 primarily relates to legal settlements. |
Cash, Cash Equivalents and Restricted Cash
The Company is required to set aside funds for various activities that arise in the normal course of business including, but not limited to, insurance contracts, legal matters and other agreements. These funds typically have legal restrictions associated with them and are deposited in an escrow account or held in a separately identifiable account by the Company. At March 31, 2019, the Company had restricted cash of $523 million ($540 million at December 31, 2018), included in "Other current assets" in the consolidated balance sheets.
Historical DuPontEID entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring Historical DuPontEID to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. At March 31, 2019, $480 millionAfter the distribution of Corteva, DuPont continues to be responsible for funding the portion of the restricted cash balance wasTrust related to the TrustDuPont employees. At June 30, 2019, the Company had restricted cash of $40 million ($50043 million at December 31, 2018). included in "Other current assets" in the interim Condensed Consolidated Balance Sheets which was completely attributed to the Trust.
Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets were $1,652 million at June 30, 2019 and $1,129 million at December 31, 2018. Accrued payroll, which is a component of "Accrued and other current liabilities," was $366 million at June 30, 2019 and $506 million at December 31, 2018. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.
NOTE 7 - INCOME TAXES
For periods between the Merger and the Distributions, DuPont's consolidated federal income tax group and consolidated tax return included the Dow and Corteva entities. Generally, the consolidated tax liability of the DuPont U.S. tax group for each year was apportioned among the members of the consolidated group in accordance with the terms of the Amended and Restated Tax Matters Agreement. DuPont, Corteva and Dow intend that to the extent Federal and/or State corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with the Amended and Restated Tax Matters Agreement.
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves towards a territorial system. At December 31, 2018, the Company had completed its accounting for the tax effects of The Act.
As a result of The Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. InFor the first quarter ofthree and six months ended June 30, 2018, the Company recorded a charge of $17$7 million and $24 million, respectively, to “Provision for income taxes on continuing operations" in the consolidated statementsinterim Consolidated Statements of incomeOperations to adjust the provisional amount related to the remeasurement of the Company's deferred tax balance.
InFor the first quarter ofsix months ended June 30, 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to the inventory was a $54 million charge to "Provision for income taxes on continuing operations."
During the first and second quarters of 2019, in connection with the Intended Business Separations,Distributions, the Company has and expects to continue repatriatingrepatriated certain funds from its foreign subsidiaries that arewere not needed to finance local operations or separation activities. DuringFor the three months ended March 31,first quarter of 2019, the Company recorded a tax charge of $13$10 million, associated with these repatriation activities to "Provision for income taxes on continuing operations." There were no charges associated with these repatriation activities in the second quarter of 2019. Beyond these expected repatriations, the Company is still assertingcontinues to assert indefinite reinvestment related to certain investments in foreign subsidiaries.
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 second quarter of 2019 was (16.4) percent, compared with an effective tax rate of 76.2 percent for the second quarter of 2018. For the first six months of 2019, the effective tax rate on continuing operations was (5.8) percent, compared with 134.4 percent for the first six months of 2018. The negative 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 impairments impacting the Nutrition & Biosciences and Non-Core segments.
Each year the Company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.
NOTE 8 - EARNINGS PER SHARE CALCULATIONS
On May 23, 2019, stockholders of DowDuPont approved a reverse stock split of the Company's common stock at a ratio of not less than 2-for-5 and not greater than 1-for-3, with the exact ratio determined by and subject to final approval of the Company’s board of directors. The board of directors approved the Reverse Stock Split with a ratio of 1 new share of DowDuPont common stock for 3 shares of current DowDuPont common stock with par value of $0.01 per share. The Reverse Stock Split became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
The following tables provide earnings per share calculations for the three and six months ended March 31,June 30, 2019 and 2018:
|
| | | | | | | | | | | | |
| Net Income for Earnings Per Share Calculations - Basic & Diluted | Three Months Ended | Six Months Ended |
In millions | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| (Loss) income from continuing operations, net of tax | $ | (1,103 | ) | $ | 31 |
| $ | (1,177 | ) | $ | (42 | ) |
| Net income (loss) from continuing operations attributable to noncontrolling interests | 9 |
| (2 | ) | 13 |
| 11 |
|
Net income from continuing operations attributable to participating securities 1 | — |
| 7 |
| 1 |
| 13 |
|
| (Loss) income from continuing operations attributable to common stockholders | $ | (1,112 | ) | $ | 26 |
| $ | (1,191 | ) | $ | (66 | ) |
| Income from discontinued operations, net of tax | 566 |
| 1,773 |
| 1,212 |
| 2,983 |
|
| Net income from discontinued operations attributable to noncontrolling interests | 25 |
| 37 |
| 72 |
| 68 |
|
| Income from discontinued operations attributable to common stockholders | 541 |
| 1,736 |
| 1,140 |
| 2,915 |
|
| Net (loss) income attributable to common stockholders | $ | (571 | ) | $ | 1,762 |
| $ | (51 | ) | $ | 2,849 |
|
|
| | | | | | |
| Net Income for Earnings Per Share Calculations - Basic | Three Months Ended |
In millions | Mar 31, 2019 | Mar 31, 2018 |
| Income from continuing operations, net of tax | $ | 571 |
| $ | 1,153 |
|
| Net income attributable to noncontrolling interests | (51 | ) | (44 | ) |
Net income attributable to participating securities 1 | (1 | ) | (6 | ) |
| Income from continuing operations attributable to common stockholders | $ | 519 |
| $ | 1,103 |
|
| Loss from discontinued operations, net of tax | — |
| (5 | ) |
| Net income attributable to common stockholders | $ | 519 |
| $ | 1,098 |
|
|
| | | | | | | | | | | | |
| Earnings Per Share Calculations - Basic | Three Months Ended | Six Months Ended |
| June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Dollars per share |
| (Loss) income from continuing operations attributable to common stockholders | $ | (1.48 | ) | $ | 0.03 |
| $ | (1.59 | ) | $ | (0.09 | ) |
| Income from discontinued operations, net of tax | 0.72 |
| 2.26 |
| 1.52 |
| 3.78 |
|
| Net (loss) income attributable to common stockholders | $ | (0.76 | ) | $ | 2.29 |
| $ | (0.07 | ) | $ | 3.69 |
|
|
| | | | | | |
| Earnings Per Share Calculations - Basic | Three Months Ended |
| Mar 31, 2019 | Mar 31, 2018 |
| Dollars per share |
| Income from continuing operations attributable to common stockholders | $ | 0.23 |
| $ | 0.47 |
|
| Loss from discontinued operations, net of tax | — |
| — |
|
| Net income attributable to common stockholders | $ | 0.23 |
| $ | 0.47 |
|
|
| | | | | | | | | | | | |
| Earnings Per Share Calculations - Diluted | Three Months Ended | Six Months Ended |
| June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Dollars per share |
| (Loss) income from continuing operations attributable to common stockholders | $ | (1.48 | ) | $ | 0.03 |
| $ | (1.59 | ) | $ | (0.09 | ) |
| Income from discontinued operations, net of tax | 0.72 |
| 2.24 |
| 1.52 |
| 3.78 |
|
| Net (loss) income attributable to common stockholders | $ | (0.76 | ) | $ | 2.27 |
| $ | (0.07 | ) | $ | 3.69 |
|
|
| | | | | | |
| Net Income for Earnings Per Share Calculations - Diluted | Three Months Ended |
| Mar 31, 2019 | Mar 31, 2018 |
| In millions |
| Income from continuing operations, net of tax | $ | 571 |
| $ | 1,153 |
|
| Net income attributable to noncontrolling interests | (51 | ) | (44 | ) |
Net income attributable to participating securities 1 | (1 | ) | (6 | ) |
| Income from continuing operations attributable to common stockholders | $ | 519 |
| $ | 1,103 |
|
| Loss from discontinued operations, net of tax | — |
| (5 | ) |
| Net income attributable to common stockholders | $ | 519 |
| $ | 1,098 |
|
|
| | | | | | |
| Earnings Per Share Calculations - Diluted | Three Months Ended |
| Mar 31, 2019 | Mar 31, 2018 |
| Dollars per share |
| Income from continuing operations attributable to common stockholders | $ | 0.23 |
| $ | 0.47 |
|
| Loss from discontinued operations, net of tax | — |
| — |
|
| Net income attributable to common stockholders | $ | 0.23 |
| $ | 0.47 |
|
| | | Share Count Information | Three Months Ended | Three Months Ended | Six Months Ended |
| Mar 31, 2019 | Mar 31, 2018 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Shares in millions |
| Weighted-average common shares - basic | 2,250.1 |
| 2,317.0 |
| 749.0 |
| 769.6 |
| 749.6 |
| 771.0 |
|
| Plus dilutive effect of equity compensation plans | 9.1 |
| 17.3 |
| — |
| 4.9 |
| — |
| — |
|
| Weighted-average common shares - diluted | 2,259.2 |
| 2,334.3 |
| 749.0 |
| 774.5 |
| 749.6 |
| 771.0 |
|
Stock options and restricted stock units excluded from EPS calculations 2 | 19.2 |
| 5.3 |
| 2.5 |
| 3.2 |
| 2.4 |
| 2.5 |
|
| |
| 1. | Historical Dow restricted stock units are considered participating securities due to Historical Dow's practice of paying dividend equivalents on unvested shares. |
2. These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.
NOTE 9 - ACCOUNTS AND NOTES RECEIVABLE - NET
|
| | | | | | |
| In millions | June 30,
2019 | Dec 31,
2018 |
Accounts receivable – trade 1 | $ | 3,288 |
| $ | 2,891 |
|
| Notes receivable – trade | 58 |
| 69 |
|
Other 2 | 868 |
| 431 |
|
| Total accounts and notes receivable - net | $ | 4,214 |
| $ | 3,391 |
|
| |
| 1. | Accounts receivable – trade is net of allowances of $9 million at June 30, 2019 and $10 million at December 31, 2018. Allowances are equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions, and review of the current status of customers' accounts. |
| |
| 2. | These outstanding optionsOther includes receivables in relation to purchase sharesvalue added tax, fair value of common stockderivative instruments, indemnification assets, and restricted stock units were excluded from the calculationgeneral sales tax and other taxes. No individual group represents more than ten percent of diluted earnings per share because the effect of including them would have been antidilutive.total receivables. |
Accounts and notes receivable are carried at amounts that approximate fair value.
NOTE 910 - INVENTORIES
|
| | | | | | |
| Inventories | June 30, 2019 | Dec 31, 2018 |
| In millions |
| Finished goods | $ | 2,645 |
| $ | 2,599 |
|
| Work in process | 888 |
| 833 |
|
| Raw materials | 623 |
| 560 |
|
| Supplies | 234 |
| 115 |
|
| Total inventories | $ | 4,390 |
| $ | 4,107 |
|
Effective June 1, 2019, after the Corteva Distribution, the Company changed its method of valuing certain inventories of the specialty products business from the LIFO method to the average cost method. Management believes that the change in accounting is preferable as it results in a consistent method to value inventory across all regions of the business, it improves comparability with industry peers, and it more closely resembles the physical flow of inventory. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to all periods presented. This change resulted in an unfavorable adjustment to "(Accumulated Deficit) Retained Earnings" of $280 million as of January 1, 2018. In addition, certain financial statement line items in the Company’s interim Consolidated Statement of Operations for the three and six months ended June 30, 2018 and interim Condensed Consolidated Balance Sheet as of December 31, 2018 were adjusted as follows:
|
| | | | | | | | | | | | | | | | | | |
| Consolidated Statement of Operations | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 |
| In millions | As Computed under LIFO | As Computed under Average Cost | Effect of Change | As Computed under LIFO | As Computed under Average Cost | Effect of Change |
| Cost of sales | $ | 4,086 |
| $ | 4,085 |
| $ | (1 | ) | $ | 7,882 |
| $ | 7,890 |
| $ | 8 |
|
| Provision for income taxes on continuing operations | $ | 99 |
| $ | 99 |
| $ | — |
| $ | 162 |
| $ | 164 |
| $ | 2 |
|
| Net income | $ | 1,803 |
| $ | 1,804 |
| $ | 1 |
| $ | 2,951 |
| $ | 2,941 |
| $ | (10 | ) |
|
| | | | | | | | | |
| Consolidated Balance Sheet | December 31, 2018 |
| In millions | As Computed under LIFO | As Computed under Average Cost | Effect of Change |
| Inventories | $ | 4,472 |
| $ | 4,107 |
| $ | (365 | ) |
| Deferred income tax liabilities | $ | 3,998 |
| $ | 3,912 |
| $ | (86 | ) |
| Retained earnings | $ | 30,536 |
| $ | 30,257 |
| $ | (279 | ) |
Basic and diluted earnings per share from continuing operations were not materially effected for the three and six months ended June 30, 2018, as a result of the above accounting policy change.
There was no impact on cash used by operating activities for prior year periods as a result of the above policy change.
The following table providescompares the amounts that would have been reported under LIFO with the amounts recorded under the average cost method in the Consolidated Financial Statements as of March 31, 2019 and for the three months then ended:
|
| | | | | | | | | |
| Consolidated Statement of Operations | Three Months Ended March 31, 2019 |
| In millions | As Computed under LIFO | As Computed under Average Cost | Effect of Change |
| Cost of sales | $ | 3,617 |
| $ | 3,621 |
| $ | 4 |
|
| Benefit from income taxes on continuing operations | $ | (86 | ) | $ | (91 | ) | $ | (5 | ) |
| Net income | $ | 571 |
| $ | 572 |
| $ | 1 |
|
|
| | | | | | | | | |
| Consolidated Balance Sheet | March 31, 2019 |
| In millions | As Computed under LIFO | As Computed under Average Cost | Effect of Change |
| Inventories | $ | 4,717 |
| $ | 4,348 |
| $ | (369 | ) |
| Deferred income tax liabilities | $ | 3,679 |
| $ | 3,588 |
| $ | (91 | ) |
| Retained earnings | $ | 29,764 |
| $ | 29,486 |
| $ | (278 | ) |
The following table compares the amounts that would have been reported under LIFO with the amounts recorded under the average cost method in the Consolidated Financial Statements as of June 30, 2019 and for the three and six months then ended:
|
| | | | | | | | | | | | | | | | | | |
| Consolidated Statement of Operations | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
| In millions | As Computed under LIFO | As Reported under Average Cost | Effect of Change | As Computed under LIFO | As Reported under Average Cost | Effect of Change |
| Cost of sales | $ | 3,498 |
| $ | 3,496 |
| $ | (2 | ) | $ | 7,115 |
| $ | 7,117 |
| $ | 2 |
|
| Provision for income taxes on continuing operations | $ | 152 |
| $ | 155 |
| $ | 3 |
| $ | 66 |
| $ | 64 |
| $ | (2 | ) |
| Net (loss) income | $ | (536 | ) | $ | (537 | ) | $ | (1 | ) | $ | 35 |
| $ | 35 |
| $ | — |
|
|
| | | | | | | | | |
| Consolidated Balance Sheet | June 30, 2019 |
| In millions | As Computed under LIFO | As Reported under Average Cost | Effect of Change |
| Inventories | $ | 4,763 |
| $ | 4,390 |
| $ | (373 | ) |
| Deferred income tax liabilities | $ | 3,750 |
| $ | 3,662 |
| $ | (88 | ) |
| Accumulated deficit | $ | (8,014 | ) | $ | (8,299 | ) | $ | (285 | ) |
Basic and diluted earnings per share from continuing operations were not materially effected for the three months ended March 31, 2019 nor for either the three or six months ended June 30, 2019, as a breakdownresult of inventories:the above accounting policy change.
There was no impact on cash used by operating activities for current year periods as a result of the above policy change.
NOTE 11 - PROPERTY, PLANT, AND EQUIPMENT |
| | | | | | |
| Inventories | Mar 31, 2019 | Dec 31, 2018 |
| In millions |
| Finished goods | $ | 10,060 |
| $ | 9,814 |
|
| Work in process | 3,561 |
| 3,969 |
|
| Raw materials | 1,461 |
| 1,419 |
|
| Supplies | 1,276 |
| 1,321 |
|
| Total | $ | 16,358 |
| $ | 16,523 |
|
| Adjustment of inventories to a LIFO basis | 246 |
| 98 |
|
| Total inventories | $ | 16,604 |
| $ | 16,621 |
|
|
| | | | | | | | | |
| | Estimated Useful Lives (Years) | June 30, 2019 | Dec 31, 2018 |
| In millions |
| Land and land improvements | 0 | - | 25 | $ | 795 |
| $ | 944 |
|
| Buildings | 1 | - | 50 | 2,656 |
| 2,581 |
|
| Machinery, equipment, and other | 1 | - | 25 | 9,580 |
| 9,133 |
|
| Construction in progress | | | | 1,442 |
| 1,458 |
|
| Total property, plant and equipment | | | | $ | 14,473 |
| $ | 14,116 |
|
| Total accumulated depreciation | | | | $ | 4,667 |
| $ | 4,199 |
|
| Total property, plant and equipment - net |
| | | $ | 9,806 |
| $ | 9,917 |
|
|
| | | | | | | | | | | | |
| | Three Months Ended
June 30, | Six Months Ended
June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Depreciation expense | $ | 255 |
| $ | 285 |
| $ | 526 |
| $ | 571 |
|
NOTE 1012 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates"), by classification in the consolidated balance sheets,Condensed Consolidated Balance Sheets, are shown in the following table:
|
| | | | | | |
| Investments in Nonconsolidated Affiliates | June 30, 2019 | Dec 31, 2018 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,653 |
| $ | 1,745 |
|
| Accrued and other current liabilities | (81 | ) | (81 | ) |
| Other noncurrent obligations | (635 | ) | (495 | ) |
| Net investment in nonconsolidated affiliates | $ | 937 |
| $ | 1,169 |
|
Subsequent to the Distributions, the Company maintained an ownership interest in 22 nonconsolidated affiliates at June 30, 2019. The following table reflects the Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at June 30, 2019:
|
| | | | | | |
| Investments in Nonconsolidated Affiliates | Mar 31, 2019 | Dec 31, 2018 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 4,687 |
| $ | 5,204 |
|
| Accrued and other current liabilities | (81 | ) | (81 | ) |
| Other noncurrent obligations | (870 | ) | (495 | ) |
| Net investment in nonconsolidated affiliates | $ | 3,736 |
| $ | 4,628 |
|
|
| | | |
| Country | Ownership Interest |
| 6/30/2019 |
| The HSC Group: | | |
DC HSC Holdings LLC 1 | United States | 50.0 | % |
| Hemlock Semiconductor L.L.C. | United States | 50.1 | % |
| |
| 1. | DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations LLC. |
HSC Group
The carrying value of the Company's investments in the HSC Group, which includes Hemlock Semiconductor L.L.C. and DC HSC Holdings LLC, was adjusted as a result of the HSC Group's adoption of Topic 606.606 on January 1, 2019 in accordance with the effective date of Topic 606 for non-public companies. The resulting impact to the Company's investments in the HSC Group was a reduction to "Investment in nonconsolidated affiliates" of $71 million and an increase to "Other noncurrent obligations" of $168 million, as well as an increase to "Deferred income tax assets" of $56 million and a reduction to "Retained"(Accumulated Deficit) Retained earnings" of $183 million in the consolidated balance sheet at January 1, 2019. The following table reflects the carrying value of the HSC Group investments at March 31,June 30, 2019 and December 31, 2018:
| | | Investment in the HSC Group | | Investment | | Investment |
| In millions | Balance Sheet Classification | Mar 31, 2019 | Dec 31, 2018 | Balance Sheet Classification | June 30, 2019 | Dec 31, 2018 |
| Hemlock Semiconductor L.L.C. | Other noncurrent obligations | $ | (658 | ) | $ | (495 | ) | Other noncurrent obligations | $ | (635 | ) | $ | (495 | ) |
| DC HSC Holdings LLC | Investment in nonconsolidated affiliates | $ | 485 |
| $ | 535 |
| Investment in nonconsolidated affiliates | $ | 495 |
| $ | 535 |
|
EQUATEThe following is summarized financial information for the Company's significant nonconsolidated equity method investments. The amounts shown below represent 100 percent of these equity method investment’s results of operations:
In the first quarter of 2019, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") paid a dividend of $440 million, reflected in "Earnings of nonconsolidated affiliates less than dividends received" in the consolidated statements of cash flows. As a result, the Company had a negative investment balance in EQUATE of $212 million at March 31, 2019, classified as "Other noncurrent obligations" in the consolidated balance sheets. At December 31, 2018, the Company had an investment balance in EQUATE of $131 million, classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. |
| | | | | | |
| Results of Operations | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 |
| Revenues | $ | 312 |
| $ | 400 |
|
| Costs of good sold | $ | 167 |
| $ | 258 |
|
| Income from continuing operations | $ | 135 |
| $ | 164 |
|
| Net income attributed to entities | $ | 119 |
| $ | 145 |
|
NOTE 1113 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table reflectschanges in the carrying amounts of goodwill by reportable segment:
during the six months ended June 30, 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | Agri-culture | Perf. Materials & Coatings | Ind. Interm. & Infrast. | Pack. & Spec. Plastics | Elect. & Imaging | Nutrition & Biosciences | Transp. & Adv. Polymers | Safety & Const. | Total |
| In millions |
| Net goodwill at Dec 31, 2018 | $ | 14,689 |
| $ | 3,650 |
| $ | 1,096 |
| $ | 5,101 |
| $ | 8,188 |
| $ | 12,643 |
| $ | 6,967 |
| $ | 6,698 |
| $ | 59,032 |
|
| Foreign currency impact | 11 |
| (20 | ) | (2 | ) | (7 | ) | (3 | ) | (29 | ) | (15 | ) | (19 | ) | (84 | ) |
| Net goodwill at Mar 31, 2019 | $ | 14,700 |
| $ | 3,630 |
| $ | 1,094 |
| $ | 5,094 |
| $ | 8,185 |
| $ | 12,614 |
| $ | 6,952 |
| $ | 6,679 |
| $ | 58,948 |
|
Other Intangible Assets
The following table provides information regarding the Company's other intangible assets:
|
| | | | | | | | | | | | | | | | | | |
| Other Intangible Assets | Mar 31, 2019 | Dec 31, 2018 |
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | | | | | |
Developed technology 1 | $ | 8,179 |
| $ | (2,731 | ) | $ | 5,448 |
| $ | 7,761 |
| $ | (2,562 | ) | $ | 5,199 |
|
| Software | 1,539 |
| (900 | ) | 639 |
| 1,529 |
| (876 | ) | 653 |
|
| Trademarks/tradenames | 1,763 |
| (773 | ) | 990 |
| 1,772 |
| (745 | ) | 1,027 |
|
| Customer-related | 14,208 |
| (3,095 | ) | 11,113 |
| 14,236 |
| (2,895 | ) | 11,341 |
|
| Microbial cell factories | 384 |
| (26 | ) | 358 |
| 386 |
| (22 | ) | 364 |
|
Favorable supply contracts | 493 |
| (136 | ) | 357 |
| 475 |
| (111 | ) | 364 |
|
Other 2 | 612 |
| (204 | ) | 408 |
| 620 |
| (203 | ) | 417 |
|
| Total other intangible assets with finite lives | $ | 27,178 |
| $ | (7,865 | ) | $ | 19,313 |
| $ | 26,779 |
| $ | (7,414 | ) | $ | 19,365 |
|
| Intangible assets with indefinite lives: | | | | | | |
IPR&D 1 | 149 |
| — |
| 149 |
| 594 |
| — |
| 594 |
|
Germplasm 3 | 6,265 |
| — |
| 6,265 |
| 6,265 |
| — |
| 6,265 |
|
| Trademarks/tradenames | 4,740 |
| — |
| 4,740 |
| 4,741 |
| — |
| 4,741 |
|
| Total other intangible assets | $ | 38,332 |
| $ | (7,865 | ) | $ | 30,467 |
| $ | 38,379 |
| $ | (7,414 | ) | $ | 30,965 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Total |
| In millions |
Balance at December 31, 2018 1 | $ | 6,960 |
| $ | 12,109 |
| $ | 6,967 |
| $ | 6,698 |
| $ | 1,762 |
| $ | 34,496 |
|
| Impairments | — |
| (933 | ) | — |
| — |
| (242 | ) | (1,175 | ) |
| Currency Translation Adjustment | (1 | ) | (17 | ) | 8 |
| (6 | ) | — |
| (16 | ) |
| Other Goodwill Adjustments | — |
| (13 | ) | — |
| — |
| 38 |
| 25 |
|
| Balance at June 30, 2019 | $ | 6,959 |
| $ | 11,146 |
| $ | 6,975 |
| $ | 6,692 |
| $ | 1,558 |
| $ | 33,330 |
|
| |
| 1. | DuringUpdated for changes in reportable segments effective in the firstsecond quarter of 2019, Historical DuPont announced an expanded launch of its Qrome® corn hybrids following the receipt of regulatory approval from China. As a result, Historical DuPont reclassified the amounts from indefinite-lived IPR&D2019. Refer to developed technology. |
| |
2. | Primarily consists of sales and grower networks, marketing and manufacturing alliances and noncompetition agreements. |
| |
3. | Germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual or other factors which limit its useful life.Note 23 for additional information. |
The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. As a result of the related acquisition method of accounting in connection with the Merger, Historical EID’s assets and liabilities were measured at fair value resulting in increases to the Company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the Company’s reporting units and assets, and therefore could result in an impairment.
In preparation for the Corteva Distribution, Historical EID completed the separation of the assets and liabilities related to its specialty products businesses into separate legal entities (the “SP Legal Entities”) and on May 1, 2019, Historical EID completed the Internal SP Distribution. The Internal SP Distribution served as a triggering event requiring the Company to perform an impairment analysis related to goodwill carried by its Historical EID existing reporting units as of May 1, 2019. Subsequent to the Corteva Distribution, on June 1, 2019, the Company realigned certain businesses resulting in changes to its management and reporting structure, including the creation of a new Non-Core segment. As part of the Second Quarter Segment Realignment, the Company assessed and re-defined certain reporting units effective June 1, 2019, including reallocation of goodwill on a relative fair value basis as applicable to new reporting units identified. Goodwill impairment analyses were then performed for reporting units impacted by the Second Quarter Segment Realignment.
In connection with the analyses described above, the Company recorded aggregate, pre-tax, non-cash impairment charges of $1,175 million for the three and six months ended June 30, 2019 impacting the Nutrition & Biosciences and Non-Core segments. As part of this analysis, the Company determined that the fair value of its Industrial Biosciences reporting unit was below carrying value resulting in a pre-tax, non-cash goodwill impairment charge of $933 million. The Industrial Biosciences reporting unit, part of the Nutrition & Biosciences segment prior to the Second Quarter Segment Realignment, was comprised solely of Historical EID assets and liabilities, the carrying values of which were measured at fair value in connection with the Merger, and thus considered at risk for impairment. Revised financial projections of the Industrial Biosciences reporting unit reflect unfavorable market conditions, driven by slowed demand in the biomaterials business unit which was realigned to the new Non-Core segment effective June 1, 2019, coupled with challenging conditions in U.S. bioethanol markets. These revised financial projections resulted in a reduction in the long-term forecasts of sales and profitability as compared to prior projections. The $242 million in goodwill impairment charges impacting the Non-Core segment also relates to multiple reporting units comprised solely of Historical EID assets and liabilities, the carrying values of which were measured at fair value in connection with the Merger, and thus considered at risk for impairment. The impairment charges impacting Non-Core were determined through utilization of the market approach which was considered most appropriate as the Company continues to evaluate strategic options for these businesses.
The Company analyses above using discounted cash flow models (a form of the income approach) utilizing Level 3 unobservable inputs. The Company’s significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future periods. As referenced, the Company also uses a form of the market approach (utilizes Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, the Company believes the current assumptions and estimates utilized are both reasonable and appropriate.
Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
|
| | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | December 31, 2018 |
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | | | | | |
| Developed technology | $ | 4,342 |
| $ | (1,179 | ) | $ | 3,163 |
| $ | 4,362 |
| $ | (1,010 | ) | $ | 3,352 |
|
| Trademarks/tradenames | 1,244 |
| (369 | ) | 875 |
| 1,245 |
| (328 | ) | 917 |
|
| Customer-related | 9,007 |
| (1,973 | ) | 7,034 |
| 9,029 |
| (1,720 | ) | 7,309 |
|
| Other | 329 |
| (120 | ) | 209 |
| 306 |
| (114 | ) | 192 |
|
| Total other intangible assets with finite lives | $ | 14,922 |
| $ | (3,641 | ) | $ | 11,281 |
| $ | 14,942 |
| $ | (3,172 | ) | $ | 11,770 |
|
| Intangible assets with indefinite lives: | | | | | | |
| IPR&D | $ | — |
| $ | — |
| $ | — |
| $ | 15 |
| $ | — |
| $ | 15 |
|
| Trademarks/tradenames | 2,869 |
| — |
| 2,869 |
| 2,870 |
| — |
| 2,870 |
|
| Total other intangible assets | 2,869 |
| — |
| 2,869 |
| 2,885 |
| — |
| 2,885 |
|
| Total | $ | 17,791 |
| $ | (3,641 | ) | $ | 14,150 |
| $ | 17,827 |
| $ | (3,172 | ) | $ | 14,655 |
|
The following table provides the net value of other intangible assets by segment:
|
| | | | | | |
| Net Intangibles by Segment | June 30, 2019 | Dec 31, 2018 |
| In millions |
| Electronics & Imaging | $ | 1,925 |
| $ | 2,037 |
|
| Nutrition & Biosciences | 4,664 |
| 4,823 |
|
| Transportation & Industrial | 3,722 |
| 3,833 |
|
| Safety & Construction | 3,145 |
| 3,244 |
|
| Non-Core | 694 |
| 718 |
|
| Total | $ | 14,150 |
| $ | 14,655 |
|
The following table provides information regarding amortization expense related to other intangible assets:
|
| | | | | | | | | | | | |
| Amortization Expense | Three Months Ended | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Other intangible assets | $ | 252 |
| $ | 266 |
| $ | 508 |
| $ | 531 |
|
|
| | | | | | |
| Amortization Expense | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Other intangible assets, excluding software | $ | 474 |
| $ | 474 |
|
| Software, included in "Cost of sales" | $ | 25 |
| $ | 23 |
|
Total estimated amortization expense for the remainder of 2019 and the five succeeding fiscal years is as follows:
|
| | | |
| Estimated Amortization Expense | |
| In millions | |
| Remainder of 2019 | $ | 512 |
|
| 2020 | $ | 1,015 |
|
| 2021 | $ | 1,007 |
|
| 2022 | $ | 993 |
|
| 2023 | $ | 961 |
|
| 2024 | $ | 856 |
|
|
| | | |
| Estimated Amortization Expense | |
| In millions | |
| 2019 | $ | 2,008 |
|
| 2020 | $ | 1,893 |
|
| 2021 | $ | 1,851 |
|
| 2022 | $ | 1,760 |
|
| 2023 | $ | 1,612 |
|
| 2024 | $ | 1,500 |
|
NOTE 1214 - TRANSFERS OF FINANCIAL ASSETS
Historical Dow sold trade accounts receivable of select North American entities and qualifying trade accounts receivable of select European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). The proceeds received were comprised of cash and interests in specified assets of the conduits (the receivables sold by Historical Dow) that entitled Historical Dow to the residual cash flows of such specified assets in the conduits after the commercial paper was repaid. Neither the conduits nor the investors in those entities had recourse to other assets of Historical Dow in the event of nonpayment by the debtors.
In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In September and October 2018, the North American and European facilities, respectively, were amended and the terms of the agreements changed from off-balance sheet arrangements to secured borrowing arrangements. See Note 13 for additional information on the secured borrowing arrangements.
SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The following representstables summarize the cash flows between Historical DowCompany's short-term borrowings and the conduits:
finance lease obligations and long-term debt:
|
| | | | | | | |
| | Cash Proceeds | Three Months Ended |
| | In millions | Mar 31, 2019 | Mar 31, 2018 |
| |
| | Interests in conduits 1 | $ | — |
| $ | 445 |
|
|
| | | | | | |
| Short-term borrowings and finance lease obligations | | |
| In millions | June 30, 2019 | Dec 31, 2018 |
| Commercial paper | $ | 1,610 |
| $ | — |
|
| Notes payable to banks and other lenders | 5 |
| 4 |
|
Long-term debt due within one year1 | 6 |
| 11 |
|
| Total short-term borrowings and finance lease obligations | $ | 1,621 |
| $ | 15 |
|
| |
| 1. | Includes finance lease obligations due within one year. |
The weighted-average interest rate on notes payable and commercial paper at June 30, 2019 and December 31, 2018 was 2.72 percent and 8.25 percent, respectively. The decrease in the interest rate from 2018 is primarily due to commercial paper issuance at lower interest rates. The Company issued $1,610 million of commercial paper in the second quarter of 2019, of which approximately $1,400 million was issued in anticipation of the Corteva Distribution (the “Funding CP Issuance”).
|
| | | | | | | | | | |
| Long-Term Debt | June 30, 2019 | December 31, 2018 |
| In millions | Amount | Weighted Average Rate | Amount | Weighted Average Rate |
| Promissory notes and debentures: | | | | |
| Final maturity 2020 | $ | 2,000 |
| 3.63 | % | $ | 2,000 |
| 3.68 | % |
| Final maturity 2023 | 2,800 |
| 4.14 | % | 2,800 |
| 4.16 | % |
| Final maturity 2024 and thereafter | 7,900 |
| 4.98 | % | 7,900 |
| 4.98 | % |
| Other facilities: | | | | |
| Term loan due 2022 | 3,000 |
| 3.51 | % | — |
| — | % |
| Other loans | 14 |
| 4.18 | % | 14 |
| 4.32 | % |
| Finance lease obligations | 3 |
| | 25 |
| |
| Less: Unamortized debt discount and issuance costs | 103 |
| | 104 |
| |
Less: Long-term debt due within one year 1, 2 | 6 |
| | 11 |
| |
| Total | $ | 15,608 |
| | $ | 12,624 |
| |
| |
| 1. | Presented in "Investing Activities" in the consolidated statementsnet of cash flows.current portion of unamortized debt issuance costs. |
| |
| 2. | Includes finance lease obligations due within one year. |
NOTE 13 - NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
A summaryPrincipal payments of Historical Dow's and Historical DuPont's notes payable, long-term debt for the remainder of 2019 and available credit facilities can be foundthe five succeeding fiscal years is as follows:
|
| | | |
| Maturities of Long-Term Debt for Next Five Years at June 30, 2019 | Total |
| In millions |
| Remainder of 2019 | $ | 4 |
|
| 2020 | $ | 2,005 |
|
| 2021 | $ | 6 |
|
| 2022 | $ | 3,001 |
|
| 2023 | $ | 2,800 |
|
| 2024 | $ | — |
|
The estimated fair value of the Company's long-term borrowings was determined using Level 2 inputs within the fair value hierarchy, as described in Note 1522. Based on quoted market prices for the same or similar issues, or on current rates offered to the Consolidated Financial Statements included inCompany for debt of the Company’s Annual Report on Form 10-K forsame remaining maturities, the fair value of the Company's long-term borrowings, not including long-term debt due within one year, endedwas $17,163 million and $13,080 million at June 30, 2019 and December 31, 2018. If applicable, updates have been included in2018, respectively.
Available Committed Credit Facilities
The following table summarizes the respective section below.Company's credit facilities:
|
| | | | | | | | | |
| Committed and Available Credit Facilities at June 30, 2019 | | |
| In millions | Effective Date | Committed Credit | Credit Available | Maturity Date | Interest |
| Term Loan Facility | May 2019 | $ | 3,000 |
| $ | — |
| May 2022 | Floating Rate |
| Revolving Credit Facility, Five-year | May 2019 | 3,000 |
| 2,982 |
| May 2024 | Floating Rate |
| 364-day Revolving Credit Facility | June 2019 | 750 |
| 750 |
| June 2020 | Floating Rate |
| Total Committed and Available Credit Facilities | | $ | 6,750 |
| $ | 3,732 |
| | |
2019 Activity
In the first three months of 2019, Historical Dow redeemed an aggregate principal amount of $72 million of International Notes at maturity.
In March 2019, Historical DuPont fully repaid $262 million of 5.75 percent coupon bonds at maturity.
DowDuPontSenior Notes
In contemplation of the separations and distributions and in preparation to achieve the intended credit profiles of Corteva, Dow and DuPont, in the fourth quarter of 2018, DowDuPontthe Company consummated a public underwritten offer of eight series of senior unsecured notes (the "DowDuPont"2018 Senior Notes") in an aggregate principal amount of $12.7 billion. The DowDuPont2018 Senior Notes are a senior unsecured obligation of the Company and will rank equally with the Company's future senior unsecured debt outstanding from time to time. On November 1, 2018, the Company announced a $3.0$3 billion share buyback program, which expired on March 31, 2019. In the first quarter of 2019, proceeds from the DowDuPont2018 Senior Notes were used to purchase $1.6 billion of shares. As a result, the share buyback program was complete at March 31, 2019.
Historical Dow Committed Credit Facilities
On March 9, 2019, Historical Dow renewed a $100 million Bilateral Revolving Credit Facility agreement, which has a maturity date in March 2020 and provides for interest at floating rates, as defined in the agreement.
Historical Dow Term Loan Facility
In connection with the ownership restructure of Dow Silicones on May 31, 2016, Dow Silicones incurred $4.5 billion of indebtedness under a certain third party credit agreement ("Historical Dow Term Loan Facility"). Historical Dow subsequently guaranteed the obligations of Dow Silicones under the Historical Dow Term Loan Facility and, as a result, the covenants and events of default applicable to the Historical Dow Term Loan Facility are substantially similar to the covenants and events of default set forth in Historical Dow's Five Year Competitive Advance and Revolving Credit Facility. In the second quarter of 2018, Dow Silicones exercised the 19 month extension option making amounts borrowed under the Historical Dow Term Loan Facility repayable on December 30, 2019. In addition, Dow Silicones amended the Historical Dow Term Loan Facility to include an additional two-year extension option, at Dow Silicones' election, upon satisfaction of certain customary conditions precedent. On April 5, 2019, Dow Silicones voluntarily repaid $2.0 billion of principal, which was classified as "Long-term debt due within one year" in the
consolidated balance sheets at March 31, 2019. Dow Silicones also intends to exercise the two-year extension option on the remaining principal balance of $2.5 billion.
Historical DuPont Term Loan and Revolving Credit Facilities
In March 2016, Historical DuPontMay 2019, the Company fully drew the two term loan facilities it entered into a credit agreement that provides for a three-year, senior unsecured term loan facilityin the fourth quarter of 2018 (the “Term Loan Facilities”) in the aggregate principal amount of $4.5 billion (as may be$3,000 million. In May 2019, the Company amended from timeits $3,000 million five-year revolving credit facility (the “Five-Year Revolver”) entered into in the fourth quarter of 2018 to time,become effective and available as of the "Historical DuPont Term Loanamendment. In addition, in June 2019, the Company entered into a $750 million, 364-day revolving credit facility (the "364-day Revolving Credit Facility") under which Historical DuPont may make up.
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were $597 million at June 30, 2019. These lines are available to seven term loan borrowingssupport short-term liquidity needs and amounts repaid or prepaid are not available for subsequent borrowings. The proceeds from the borrowings under the Historical DuPont Term Loan Facility were used for Historical DuPont's general corporate purposes including debt repayment, working capital and funding a portionletters of the Company's costs and expenses. At March 31, 2019, Historical DuPont hadcredit. Outstanding letters of credit were $133 million at June 30, 2019. These letters of credit support commitments made six term loan borrowings in an aggregate principal amount of $3.0 billion and had unused commitments of $1.5 billion under the Historical DuPont Term Loan Facility. See Note 24 for further discussion on the repayment of the Historical DuPont Term Loan Facility in May 2019.
Historical DuPont Repurchase Facility
In February 2019, Historical DuPont entered into a new committed receivable repurchase facility of up to $1,300 million (the "2019 Repurchase Facility") which expires in December 2019. Under the 2019 Repurchase Facility, Historical DuPont may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agree to repurchase at a future date. The 2019 Repurchase Facility is considered a secured borrowing with the customer notes receivable inclusive of those that are sold and repurchased, equal to 105 percent of the outstanding amounts borrowed utilized as collateral. Borrowings under the 2019 Repurchase Facility have an interest rate of LIBOR plus 0.75 percent.
At March 31, 2019, $20 million of notes receivable, recorded in "Accounts and notes receivable - Trade," were pledged as collateral against outstanding borrowings under the 2019 Repurchase Facility of $19 million, recorded in "Notes payable" in the consolidated balance sheets.ordinary course of business.
Debt Covenants and Default Provisions
The Company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations, subject to certain limitations. The 2018 Senior Notes also contain customary default provisions. There were no material changes to the debt covenants and default provisions related to DowDuPont's, Historical Dow's and Historical DuPont's outstanding Notes, long-term debt and primary, private credit agreements for the three months ended March 31, 2019.provisions.
See Note 24 for details of actions taken to achieve credit profiles of DuPont, Corteva and Dow.
NOTE 1415 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation and Environmental Matters
Asbestos-Related Matters of Union Carbide Corporation
A summary of Asbestos-Related Matters of Union Carbide Corporation can be found in Note 16Under the Separation and Distribution Agreement, liabilities, including cost and expenses, associated with litigation and environmental matters that primarily related to the Consolidated Financial Statements includedmaterials science business, the agriculture business or the specialty products business were generally allocated to or retained by Dow, Corteva or the Company, respectively, through retention, assumption or indemnification. Related to the foregoing, at June 30, 2019, DuPont has recorded (i) a liability of $36 million (although it is reasonably possible that the ultimate cost could range up to $108 million above the amount accrued) for retained or assumed environmental liabilities, (ii) a liability of $2 million for retained or assumed litigation liabilities, and (iii) an indemnification liability related to legal and environmental matters of $64 million. Liabilities associated with discontinued and/or divested operations and businesses of Historical Dow generally were allocated to or retained by Dow. The allocation of liabilities associated with the discontinued and/or divested operations and businesses of Historical EID is discussed below.
The liabilities allocated to and assumed by Dow and Corteva are reflected as discontinued operations of the Company at December 31, 2018. Such liabilities assumed by Dow as of the consummation of the Dow Distribution on April 1, 2019, include the following matters discussed in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2018.
Introduction
Union Carbide is2018, (the “Annual Report”) and has been involved in a large number of asbestos-related suits filed primarily in state courts duringQuarterly Report on Form 10-Q for the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”three-month period ended March 31, 2019, (the “First Quarterly Report”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.
Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
Estimating the: Asbestos-Related Liability
Since 2003, Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review Union Carbide's historical asbestos-related claim and resolution activity in order to assist Union Carbide's management in estimating the asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study.
Based on the December 2018 Ankura review, and Union Carbide's own review of the data, Union Carbide's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was $1,260 million at December 31, 2018, and included in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.
Each quarter, Union Carbide reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. Union Carbide also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experienceMatters of Union Carbide and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. Union Carbide's management considers all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on Union Carbide's review of 2019 activity, it was determined that no adjustment to the accrual was required at March 31, 2019.
Union Carbide's asbestos related liability for pending and future claims and defense and processing costs was $1,243 million at March 31, 2019. Approximately 17 percent of the recorded liability related to pending claims and approximately 83 percent related to future claims.
Summary
The Company's management believes the amounts recorded by Union Carbide for the asbestos-related liability (including defense and processing costs) reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year and the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for Union Carbide to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.
Because of the uncertainties described above, Union Carbide cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. As a result, it is reasonably possible that an additional cost of disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position.
Dow Silicones Chapter 11 RelatedCorporation, Urethane Matters,
A summary of the Rocky Flats Matter, Dow Silicones Chapter 11 Related Matters, can be found in Note 16 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Introduction
In 1995,Midland Off-Site Environmental Matters, Dow Silicones then a 50:50 joint venture between Historical DowMidland, Michigan, Freeport, Texas, Plaquemine, Louisiana and Corning Incorporated ("Corning"), voluntarily filed for protection under Chapter 11St. Charles, Louisiana Steam-Assisted Flares Matters, Freeport, Texas, Facility Matter, Mt. Meigs, Alabama Matter, Union Carbide Matter and Union Carbide - Seadrift, Texas and, with indemnity from DuPont and Corteva, the Sabine Plant, Orange Texas-EPA Multimedia Inspection.Such liabilities assumed by Corteva as of the U.S. Bankruptcy Code in order to resolve Dow Silicones' breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Silicones emerged fromconsummation of the Chapter 11 ProceedingCorteva Distribution on June 1, 2004 (the “Effective Date”) and is implementing2019, include the Joint Plan of Reorganization (the “Plan”). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claimsfollowing matters discussed in the Chapter 11 Proceeding. As of June 1, 2016, Dow Silicones is a wholly owned subsidiaryCompany’s Annual Report and the First Quarterly Report: La Porte Plant, La Porte, Texas - Crop Protection-Release Incident Investigation and La Porte Plant, La Porte, Texas - EPA Multimedia Inspection.
Discontinued and/or Divested Operations and Businesses ("DDOB") Liabilities of Historical Dow.
Breast Implant and Other Product Liability ClaimsEID
Under the Plan, a product liability settlement program administered by an independent claims office (the “Settlement Facility”) was created to resolve breast implantSeparation and other product liability claims. Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Dow Silicones has an obligation to fund the Settlement FacilityDistribution Agreement and the Litigation Facility overLetter Agreement between Corteva and DuPont, DDOB liabilities of Historical EID primarily related to Historical EID’s agriculture business were allocated to or retained by Corteva and those primarily related to Historical EID’s specialty products business were allocated to or retained by the Company. Historical EID DDOB liabilities not primarily related to Historical EID’s agriculture business or specialty products business (“Stray Liabilities”), are allocated as follows
Generally, indemnifiable losses as defined in the Separation and Distribution Agreement, (“Indemnifiable Losses”) for Stray Liabilities, to the extent they do not arise out of actions related to or resulting from the development, testing, manufacture or sale of PFAS, defined below, (“Non-PFAS Stray Liabilities”) that are known as of April 1, 2019 are borne by Corteva up to a 16-year period, commencing atspecified amount set forth in the Effective Date. At March 31, 2019, Dow Siliconesschedules to the Separation and Distribution Agreement and/or Letter Agreement. Non-PFAS Stray Liabilities in excess of such specified amounts and any Non-PFAS Stray Liabilities not listed in the schedules to the Separation and Distribution Agreement or Letter Agreement are borne by Corteva and/or DuPont up to separate, aggregate thresholds of $200 million each to the extent Corteva or DuPont, as applicable, incurs an Indemnifiable Loss. Once Corteva’s or DuPont’s $200 million threshold is met, the other would generally bear all Non-PFAS Stray Liabilities until meeting its $200 million threshold. After the respective $200 million thresholds are met, DuPont will bear 71 percent of such losses and Corteva will bear 29 percent of such losses.
Generally, Corteva and the Company will each bear 50 percent of the first $300 million (up to $150 million each) for Indemnifiable Losses arising out of actions to the extent related to or resulting from the development, testing, manufacture or sale of per- or polyfluoroalkyl substances, which include collectively perfluorooctanoic acids and its insurers have made life-to-date payments of $1,762 millionsalts (“PFOA”), perfluorooctanesulfonic acid (“PFOS”) and perfluorinated chemicals and compounds (“PFCs”) (all such substances, “PFAS” and such Stray Liabilities referred to as “PFAS Stray Liabilities”). Indemnifiable Losses to the Settlement Facilityextent related to PFAS Stray Liabilities in excess of $300 million generally will be borne 71 percent by the Company and 29 percent by Corteva, unless either Corteva or DuPont has met its $200 million threshold. In that event, the Settlement Facility reportedother company would bear all PFAS Stray Liabilities until that company meets its $200 million threshold, at which point DuPont will bear 71 percent of such losses and Corteva will bear 29 percent of such losses.
Indemnifiable Losses incurred by the companies in relation to PFAS Stray Liabilities up to $300 million (e.g., up to $150 million each) will be applied to each company’s respective $200 million threshold.
Non-PFAS Stray Liabilities
While DuPont believes it is probable that it will incur a liability related to Non-PFAS Stray Liabilities, such liability is not reasonably estimable at June 30, 2019. Therefore, at June 30, 2019, DuPont has not recorded an unexpended balance of $110 million.accrual related to Non-PFAS Liabilities.
Dow Silicones'PFAS Stray Liabilities
DuPont expects to incur costs and expenses such as attorneys’ fees and expenses and court costs in connection with the Chemours suit, described below. While such costs and expenses are Indemnifiable Losses, the Company will expense them as incurred in accordance with its accounting policy for litigation matters. The Company believes the probability of ultimate liability for breast implantwith respect to the Chemours suit is remote.
Generally, The Chemours Company (“Chemours”), with reservations, including as to alleged fraudulent conveyance and other product liability claims ("Implant Liability") was $263 million at March 31, 2019voidable transactions, is defending and December 31, 2018, of which $157 million at March 31, 2019 ($111 million at December 31, 2018) was included in "Accrued and other current liabilities" and $106 million at March 31, 2019 ($152 million at December 31, 2018) was included in "Other noncurrent obligations"indemnifying Historical EID in the consolidated balance sheets. Dow Silicones is not aware of circumstances that would changePFAS Matters discussed below. Although Chemours has refused the factors used in estimating the Implant Liability and believes the recorded liability reflects the best estimatetender of the remaining fundingCompany’s defense in the limited actions in which the Company has been named, DuPont believes it is remote that it will ultimately incur a liability in connection with these PFAS Matters. However, in the highly improbable event that Chemours is unable to pay or is successful in limiting its obligations under the Plan; however,Chemours Separation Agreement, defined below, it could impact the estimate relies upon a numberCompany’s business, financial condition, results of significant assumptions, including: future claim filing levels in the Settlement Facility will be similar to those in a prior settlement program, which management uses to estimate future claim filing levels for the Settlement Facility; future acceptance rates, disease mix,operations and payment values will be materiallycash flows.
consistent with historical experience; no material negative outcomes in future controversies or disputes over Plan interpretation will occur; and the Plan will not be modified. If actual outcomes related to any of these assumptions prove to be materially different, the future liability to fund the Plan may be materially different than the amount estimated. If Dow Silicones was ultimately required to fund the full liability up to the maximum capped value, the liability would be $2,148 million at March 31, 2019.
Commercial Creditor Issues
The Plan provides that each of Dow Silicones' commercial creditors (the “Commercial Creditors”) would receive in cash the sum of (a) an amount equal to the principal amount of their claims and (b) interest on such claims. The actual amount of interest that will ultimately be paid to these Commercial Creditors is uncertain due to pending litigation between Dow Silicones and the Commercial Creditors regarding the appropriate interest rates to be applied to outstanding obligations from the 1995 bankruptcy filing date through the Effective Date, as well as the presence of any recoverable fees, costs, and expenses. Upon the Plan becoming effective, Dow Silicones paid approximately $1,500 million to the Commercial Creditors, representing principal and an amount of interest that Dow Silicones considers undisputed.
On May 10, 2017, the U.S. District Court for the Eastern District of Michigan entered a stipulated order resolving pending discovery motions and established a discovery schedule for the Commercial Creditors matter. As a result, Dow Silicones and its third party consultants conducted further analysis of the Commercial Creditors claims and defenses. This analysis indicated the estimated remaining liability to Commercial Creditors to be within a range of $77 million to $260 million. No single amount within the range appeared to be a better estimate than any other amount within the range. Therefore, Dow Silicones recorded the minimum liability within the range. At March 31, 2019, the liability related to Dow Silicones' potential obligation to its Commercial Creditors in the Chapter 11 Proceeding was $83 million and is included in "Accrued and other current liabilities" in the consolidated balance sheets ($82 million at December 31, 2018). The actual amount of interest that will be paid to these creditors is uncertain and will ultimately be resolved through continued proceedings in the District Court.
Indemnifications
In connection with the June 1, 2016 ownership restructure of Dow Silicones, Historical Dow is indemnified by Corning for 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability and Commercial Creditors matters described above, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnification assets were insignificant at March 31, 2019 (zero at December 31, 2018).
Summary
The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.
Separation of Historical DuPont's Performance Chemicals SegmentChemours Suit
On July 1, 2015, Historical DuPontEID completed the separation of itsHistorical EID’s Performance Chemicals segment through the spin-offspinoff of all of the issued and outstanding stock of The Chemours Company (the "Chemours Separation"(“Chemours”). to holders of Historical EID common stock. In connection with the Chemours Separation,spin, Historical DuPontEID and The Chemours Company (“Chemours”) entered into a Separation agreementAgreement (as amended, the "Chemours Separation Agreement"). Pursuant to the Chemours Separation Agreement, Chemours indemnifiesis obligated to indemnify Historical DuPontEID, including its current or former affiliates, against certain litigation, environmental workers' compensation and other liabilities that arose prior to the Chemours Separation. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, Historical DuPont records an indemnification asset when recovery is deemed probable. At March 31, 2019, the indemnification assets were $84 million included in "Accounts and notes receivable - Other" and $289 million included in "Noncurrent receivables" along with the corresponding liabilities of $84 million recorded in "Accrued and other current liabilities" and $289 million included in "Other noncurrent obligations" in the consolidated balance sheets.
PFOA Liabilities
Historical DuPont is a party to legal proceedings relating to the use of PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) by its former Performance Chemicals segment. While it is reasonably possible that Historical DuPont could incur liabilities related to PFOA, any such liabilities are not expected to be material. Pursuant to the Chemours Separation Agreement discussed above, Historical DuPont is indemnified by Chemours for the PFOA matters discussed below and has recorded a total liability of $22 million and a total indemnification asset of $22 million at March 31, 2019, primarily related to testing drinking water in and around certain Historical DuPont sites and offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the national health advisory level established from time to time by the EPA.
Leach Settlement and MDL Settlement
Historical DuPont has residual liabilities under its 2004 settlement of a West Virginia state court class action, Leach v. DuPont, which alleged that PFOA from Historical DuPont’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. The settlement class has about 80,000 members. In addition to relief that was provided to class members years ago, the settlement requires Historical DuPont to continue providing PFOA water treatment to six area water districts and private well users and to fund, through an escrow account, up to $235 million for a medical monitoring program for eligible class members. At March 31, 2019, approximately $2 million had been disbursed from the account since its establishment in 2012 and the remaining balance is approximately $1 million.
The Leach settlement permits class members to pursue personal injury claims for six health conditions (and no others) that an expert panel appointed under the settlement reported in 2012 had a “probable link” (as defined in the settlement) with PFOA: pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol. After the expert panel reported its findings, approximately 3,550 personal injury lawsuits were filed in federal and state courts in Ohio and West Virginia and consolidated in multi-district litigation in the U.S. District Court for the Southern District of Ohio (“MDL”). The MDL was settled in early 2017 for $671 million in cash, with Chemours and Historical DuPont (without indemnification from Chemours) each paying half.
Post-MDL Settlement PFOA Personal Injury Claims
The MDL settlement did not resolve claims of plaintiffs who did not have claims in the MDL or whose claims are based on diseases first diagnosed after February 11, 2017. At March 31, 2019, about 57 lawsuits were pending alleging personal injury, including kidney and testicular cancer, thyroid disease and ulcerative colitis, from exposure to PFOA through air or water, only three of which are not part of the MDL or were not otherwise filed on behalf of Leach class members.
Other PFOA Actions
Historical DuPont is a party to other PFOA lawsuits that do not involve claims for personal injury. Chemours, pursuant to the Chemours Separation Agreement, is defending and indemnifying with reservations Historical DuPont in these lawsuits.
New York. Historical DuPont is a defendant in about 52 lawsuits, including a putative class action, brought by persons who live in and around Hoosick Falls, New York. These lawsuits assert claims for medical monitoring and property damage based on alleged PFOA releases from manufacturing facilities owned and operated by co-defendants in Hoosick Falls and allege that Historical DuPont and 3M supplied some of the materials used at these facilities. Historical DuPont is also one of more than ten defendants in a lawsuit brought by the Town of East Hampton, New York alleging PFOA and perfluorooctanesulfonic acid ("PFOS") contamination of the town’s well water.
New Jersey. At December 31, 2018, two lawsuits were pending, one brought by a local water utility and the second a putative class action, against Historical DuPont alleging that PFOA from Historical DuPont’s former Chambers Works facility contaminated drinking water sources. The putative class action was dismissed without prejudice by the plaintiffs.
In late March of 2019, the New Jersey State Attorney General (the “NJAG”) filed four lawsuits against2017, Historical DuPont, Chemours, 3M and others alleging that former Historical DuPont operations at the Chambers Works, Pompton Lakes Works, Parlin and Repauno sites in New Jersey, caused damage to the State’s natural resources. Two of these lawsuits (those involving the Chambers Works and Parlin sites) allege contamination from per- and polyfluoroalkyl substances (“PFAS”). The lawsuit related to Parlin names an additional DowDuPont subsidiary. The Ridgewood Water District in New Jersey filed suit in the first quarter of 2019 against Historical DuPont alleging losses related to the investigation, remediation and monitoring of polyfluorinated surfactants (“PFS”), including PFOA, in water supplies.
Alabama. Historical DuPont is one of more than thirty defendants in a lawsuit by a local water utility alleging contamination from perfluorinated chemicals and compounds (“PFCs”), including PFOA, used by co-defendant carpet manufacturers to make their products more stain and grease resistant.
Ohio. Historical DuPont is a defendant in three lawsuits: an action by the State of Ohio based on alleged damage to natural resources, a putative nationwide class action brought on behalf of anyone who has detectable levels of perfluorinated chemicals, including PFOA, in their blood, and an action by the City of Dayton claiming losses related to the investigation, remediation and monitoring of PFAS, including PFOA, in water supplies.
Other. Dozens of cases have been filed against 3M and other defendants primarily alleging property damage from contamination in connection with the use of firefighting foams that contain PFOS. At March 31, 2019, Historical DuPont
was named in 4 of these cases. Historical DuPont did not make firefighting foam and has never made or supplied PFOS or products that contained PFOS.
Chemours Separation Agreement Amendment
Concurrent with the MDL Settlement, Historical DuPontEID and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future PFOA liabilities for a five-year period that began on July 6, 2017. DuringThe amended agreement provides that during that five-year period, Chemours will annually pay the first $25 million of future PFOA liabilities and, if that amount is exceeded, Historical DuPontEID will pay any excess amount up to the next $25 million, with Chemours annually bearing any excess liabilities above that amount. At the end of the five-year period, this limited sharing agreement will expire, and Chemours’ indemnification obligations under the Chemours Separation Agreement will continue unchanged. As part
On May 13, 2019, Chemours filed suit in the Delaware Court of this amendment,Chancery against Historical EID, Corteva and the Company in an attempt to limit its responsibility for the litigation and environmental liabilities allocated to and assumed by Chemours also agreed that it would not contest its liability for PFOA liabilities on the basis of certain ostensible defenses it had previously raised, including defenses relating to punitive damages, and would waive any such defenses with respect to PFOA liabilities. Chemours has, however, retained defenses as to whether any particular PFOA claim is within the scope of the indemnification provisions ofunder the Chemours Separation Agreement. Chemours is asking the court to rewrite the Chemours Separation Agreement by either limiting Chemours’ liabilities or, alternatively, ordering the return to Chemours of all or a portion of a $3.91 billion dividend that Chemours paid to Historical EID, Chemours’ then-sole-shareholder, just prior to the spin of Chemours. DuPont and Corteva, acting jointly, have filed a motion to dismiss the lawsuit for lack of subject matter jurisdiction and have initiated an arbitration of the dispute as required under the Chemours Separation Agreement. Indemnifiable Losses related to the Chemours suit are PFAS Stray Liabilities subject to the sharing arrangement between DuPont and Corteva, described above.
PFAS Matters
Historical EID is a party to legal proceedings relating to the use of PFOA and PFCs by its former Performance Chemicals segment. Indemnifiable Losses related to PFAS liabilities allocated to and assumed by Chemours under the Chemours Separation Agreement generally are PFAS Stray Liabilities subject to the sharing arrangement between DuPont and Corteva, described above.
Personal Injury and Other PFAS Actions
DuPont, which was formed after the spinoff of Chemours as a subsidiary of Historical EID and Historical Dow, is not named in the personal injury and other PFAS actions discussed below.
Personal Injury
In 2004. Historical EID settled a West Virginia state court class action, Leach v. DuPont, which alleged that PFOA from Historical EID’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. Historical EID has residual liabilities under the Leach settlement related to providing PFOA water treatment to six area water districts and private well users and to fund, through an escrow account, up to $235 million for a medical monitoring program for eligible class members.
Members of the Leach class have standing to pursue personal injury claims for just six health conditions that an expert panel appointed under the Leach settlement reported in 2012 had a “probable link” (as defined in the settlement) with PFOA: pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol. In 2017, Chemours and Historical EID each paid $335 million to settle the multi-district litigation in the U.S. District Court for the Southern District of Ohio (“Ohio MDL”), thereby resolving claims of about 3,550 plaintiffs alleging injury
from exposure to PFOA in drinking water. The Ohio MDL settlement did not resolve claims of plaintiffs who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. There are several dozen claims pending in the Ohio MDL.
Lawsuits have been no charges incurred byfiled against Historical DuPont under this arrangement through March 31, 2019.EID and Chemours in New York federal and state courts, including a putative class action, alleging exposure to PFOA from third-party defendant manufacturing operations and seeking compensatory, consequential and punitive damages, medical monitoring and attorneys’ fees, expenses and interest.
Fayetteville Works Facility, North CarolinaOther PFAS Actions
PriorA case is pending in the Southern District of Ohio seeking certification of a nationwide class of individuals who have detectable levels of PFAS in their blood serum. The suit was filed against several defendants in addition to Chemours and Historical EID. The complaint specifically seeks, among other things, the separationcreation of a “PFAS Science Panel” to study the effects of PFAS, but expressly states that the class does not seek compensatory damages for personal injuries.
There are several actions pending in federal court against Historical EID and Chemours, Historical DuPont introducedrelating to discharges of PFCs, including GenX, asinto the Cape Fear River. GenX is a polymerization processing aid and a replacement for PFOA introduced by Historical EID which Chemours continues to manufacture at theits Fayetteville Works facility in Bladen County, North Carolina. The facility is now owned and operated by Chemours, which continues to manufacture and use GenX. In 2017, the facility became and continues to be the subject of inquiries and government investigations relating to the alleged discharge of GenX and certain similar compounds into the air and Cape Fear River.
In August 2017, the U.S. Attorney’s Office for the Eastern District of North Carolina served Historical DuPont with a grand jury subpoena for testimony and documents related to these discharges. Historical DuPont was served with additional subpoenas relating to the same issue and in the second quarter of 2018, received a subpoena expanding the scope to any PFCs discharged from the Fayetteville Works facility into the Cape Fear River. It is possible that these ongoing inquiries and investigations, including the grand jury subpoena, could result in penalties or sanctions, or that additional litigation will be instituted against Chemours, Historical DuPont, or both.
At March 31, 2019, several actions are pending in federal court against Chemours and Historical DuPont. One of these actions is a consolidated putative class action that asserts claims for medical monitoringdamages and property damageother relief on behalf of putative classes of property owners and residents in areas near or who draw drinking water from the Cape Fear River. Another action is a consolidated action brought by various North Carolina water authorities, including the Cape Fear Public Utility Authority and Brunswick County, that seek actual and punitive damages as well as injunctive relief. In addition, an action is pending in North Carolina state court on behalf of about 100 plaintiffs who own wells and property near the Fayetteville Works facility. The plaintiffs seek damages for nuisance allegedly caused by releases of certain PFCs from the site.
While itNatural Resource Damage Claims and Other Claims for Environmental Damages
DuPont, which was formed after the spinoff of Chemours as a subsidiary of Historical EID and Historical Dow, is reasonably possible thatnamed in certain of the actions discussed below.
Drinking Water
Since May 2017, a number of municipal water districts and state attorneys general have filed lawsuits against Historical EID, Chemours, 3M, and others, claiming contamination of public water systems by certain PFAS compounds. Such actions are currently pending in Alabama, Ohio, New Jersey, New Hampshire, South Dakota and Vermont. Generally, the states seek economic impact damages for alleged harm to natural resources, punitive damages, and present and future costs to cleanup contamination from certain PFAS compounds and to abate the alleged nuisance.
DuPont could incur liabilitiesis a named party in the New Jersey suit related to its site in Parlin, New Jersey. In addition, the actions described above, any suchNew Jersey Attorney General and New Jersey State Department of Environmental Protection filed two directives, one of which names DuPont. The directives seek information on the historical and current use of PFAS. DuPont is also a named party to the Vermont suit. The complaints filed in New Jersey and Vermont were recently amended to introduce additional causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities are not expected to be material.Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction.
Firefighting Foam
Historical DuPont has an indemnification claim againstEID and Chemours with respect to currentare named in about 20 cases originally filed in Louisiana, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, South Dakota, Tennessee and future inquiries and claims, including lawsuits, related to the foregoing. At March 31, 2019, Chemours, with reservations,Texas. The Company is defending and indemnifying Historical DuPontnamed in the pending civil actions.New Hampshire action. These cases were transferred to a multi-district litigation docket in federal district court in South Carolina (the “SC MDL”), which includes approximately 150 cases. The suits allege contamination of neighboring drinking and groundwater from the use of aqueous firefighting foams on military installations, air force bases, commercial airports and refineries. The claims against Historical EID and Chemours involve alleged sales of PFOA and PFOS products to foam manufacturers, including 3M, who are also defendants in the SC MDL. Historical EID and the Company have never made or sold firefighting foam, PFOS or PFOS containing products.
Other Litigation Matters
In addition to the specific matters described above, Historical Dow and Historical DuPont are partiesthe Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, governmental regulation, contract and commercial litigation, and other actions. Certain of these actions may purport to be class actions and seek damages in very large amounts. All such claims are being contested. Historical Dow and Historical DuPont have active risk management programs consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.
Gain Contingency - Historical Dow v. Nova Chemicals Corporation Patent Infringement Matter
On December 9, 2010, Historical Dow filed suit in the Federal Court in Ontario, Canada ("Federal Court") alleging that Nova Chemicals Corporation ("Nova") was infringing Historical Dow's Canadian polyethylene patent 2,106,705. Nova counterclaimed on the grounds of invalidity and non-infringement. On June 29, 2017, the Federal Court issued a Confidential Supplemental Judgment, concluding that Nova must pay $645 million Canadian dollars (equivalent to $495 million U.S. dollars) to Historical Dow, plus pre- and post-judgment interest, for which Historical Dow received payment of $501 million from Nova on July 6, 2017. Although Nova is appealing portions of the damages judgment, certain portions of it are indisputable and will be owed to Historical Dow regardless of the outcome of any further appeals by Nova. At March 31, 2019, Historical Dow had $341 million ($341 million at December 31, 2018) included in "Other noncurrent obligations" in the consolidated balance sheets related to the disputed portion of the damages judgment. Historical Dow is confident of its chances of defending the entire judgment on appeal, particularly the trial court's determinations on important factual issues, which will be accorded deferential review on appeal. See Note 16 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. At March 31,June 30, 2019, the Company had accrued obligations of $1,197$78 million for probable environmental remediation and restoration costs, including $213inclusive of $36 million forretained and assumed following the remediationDistributions and $42 million of Superfund sites.indemnified liabilities. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.interim Condensed Consolidated Balance Sheets. This is management’s currentbest estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount.$170 million above the amount accrued at June 30, 2019. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2018, the Company had accrued obligations of $1,201$51 million for probable environmental remediation and restoration costs, including $210 million for the remediation of Superfund sites.costs.
Pursuant to the Chemours Separation and Distribution Agreement, Historical DuPontthe Company's is required to indemnify certain clean-up responsibilities and associated remediation costs. The accrued environmental obligations of $78 million as of June 30, 2019 includes amount for which the Company indemnifies Dow and Corteva. At June 30, 2019, the Company has indemnified by ChemoursDow and Corteva $8 million and $34 million, respectively.
Guarantees
Obligations for certain environmental matters, includedEquity Affiliates & Others
The Company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, and customers. At June 30, 2019 and December 31, 2018, the Company had directly guaranteed $185 million and $199 million, respectively, of such obligations. These amounts represent the maximum potential amount of future (undiscounted) payments that the Company could be required to make under the guarantees. The Company would be required to perform on these guarantees in the liabilityevent of $1,197default by the guaranteed party.
The Company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.
In certain cases, the Company has recourse to assets held as collateral, as well as personal guarantees from customers. Assuming liquidation, these assets are estimated to cover approximately 11 percent of the $19 million that have an estimated liability of $185 million at March 31, 2019, and a potential exposure that ranges up to approximately $355 million above the current accrual. As such, Historical DuPont has recorded an indemnification assetguaranteed obligations of $185 million corresponding to its accrual balance related to these matters at March 31, 2019, including $35 million related to Superfund sites.
Guarantees
customers. The following table provides a summary of the final expiration year and maximum future payments and recorded liability reflected in the consolidated balance sheets for each type of guarantee:
|
| | | | | | | | | | | | | | | |
| | Guarantees | Mar 31, 2019 | Dec 31, 2018 |
| | In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
| |
| | Historical Dow guarantees | 2023 | $ | 4,514 |
| $ | 15 |
| 2023 | $ | 4,523 |
| $ | 25 |
|
| | Historical DuPont guarantees | 2022 | 239 |
| — |
| 2022 | 255 |
| — |
|
| | Total guarantees | | $ | 4,753 |
| $ | 15 |
| | $ | 4,778 |
| $ | 25 |
|
|
| | | | |
| Guarantees at June 30, 2019 | Final Expiration Year | Maximum Future Payments |
| In millions |
Obligations for customers1: | | |
| Bank borrowings | 2020 | $ | 19 |
|
Obligations for non-consolidated affiliates2: | | |
| Bank borrowings | 2019 | $ | 166 |
|
| Total guarantees | | $ | 185 |
|
| |
| 1. | Existing guarantees for select customers, as part of contractual agreements. The terms of the guarantees are equivalent to the terms of the customer loans that are primarily made to finance customer invoices. Of the total maximum future payments, $18 million had terms less than a year. |
| |
| 2. | Existing guarantees for non-consolidated affiliates' liquidity needs in normal operations. |
Guarantees
Historical Dow and Historical DuPont (the "Subsidiaries") have entered into guarantee agreements arising in the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Subsidiaries undertake an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Subsidiaries to make payments to the beneficiary of the guarantee. The majority of these guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to less than four years, and trade financing transactions in Latin America, which typically expire within one year of inception. The Subsidiaries current expectation is that future payment or performance related to the non-performance of others is considered remote.
Historical Dow has entered into guarantee agreements ("Guarantees") related to project financing for Sadara Chemical Company ("Sadara"), a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately $12.5 billion. Sadara had $11.7 billion of Total Project Financing outstanding at March 31, 2019 ($11.7 billion at December 31, 2018). Historical Dow's guarantee of the Total Project Financing is in proportion to Historical Dow's 35 percent ownership interest in Sadara, or up to approximately $4.2 billion when the project financing is fully drawn. Sadara successfully completed an extensive operational testing program in December 2018, however, the Guarantees will be released upon the satisfactory fulfillment of certain project completion conditions, which is expected by the middle of 2019, and must occur no later than December 2020.
NOTE 1516 - LEASES
The Company has operating and finance leases for sales and administrative offices, power plants, production facilities, warehouses and tanks for product storage, airplanes,real estate, an airplane, railcars, motor vehicles,fleet, certain machinery and equipment, and information technology assets. The Company’s leases have remaining lease terms of approximately 1 year to 5040 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options.that option. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability. The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating and finance leases for the three months ended March 31, 2019 were as follows:
|
| | | |
| Lease Cost | Three Months Ended Mar 31, 2019 |
| (In millions) |
| Operating lease cost | $ | 201 |
|
| Finance lease cost | |
| Amortization of right-of-use assets | $ | 41 |
|
| Interest on lease liabilities | 7 |
|
| Total finance lease cost | $ | 48 |
|
| Short-term lease cost | $ | 60 |
|
| Variable lease cost | 89 |
|
| Sublease income | (9 | ) |
| Total lease cost | $ | 389 |
|
New leases entered into during the three months ended March 31, 2019 were not considered material. Supplemental cash flow information related to leases was as follows:
|
| | | |
| Other Lease Information | Three Months Ended Mar 31, 2019 |
| (In millions) |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | $ | 210 |
|
| Operating cash flows from finance leases | $ | 7 |
|
| Financing cash flows from finance leases | $ | 23 |
|
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2019:
|
| | | |
| Lease Position | Mar 31, 2019 |
| (In millions) |
| Operating Leases | |
|
Operating lease right-of-use assets 1 | $ | 3,287 |
|
Current operating lease liabilities 2 | $ | 690 |
|
Noncurrent operating lease liabilities 3 | 2,620 |
|
| Total operating lease liabilities | $ | 3,310 |
|
| | |
| Finance Leases | |
|
| Property | $ | 589 |
|
| Accumulated depreciation | (181 | ) |
| Net Property | $ | 408 |
|
| Long-term debt due within one year | 63 |
|
| Long-Term Debt | 432 |
|
| Total finance lease liabilities | $ | 495 |
|
| |
1. | Included in "Deferred charges and other assets" in the consolidated balance sheet. |
| |
2. | Included in "Accrued and other current liabilities" in the consolidated balance sheet. |
| |
3. | Included in "Other noncurrent obligations" in the consolidated balance sheet. |
DowDuPont utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
|
| | |
Lease Term and Discount Rate | Mar 31, 2019 |
Weighted-average remaining lease term (years) | |
Operating leases | 7.98 |
|
Finance leases | 15.54 |
|
Weighted-average discount rate | |
Operating leases | 3.97 | % |
Finance leases | 6.25 | % |
The following table provides the maturities of lease liabilities at March 31, 2019:
|
| | | | | | |
| Maturity of Lease Liabilities at Mar 31, 2019 | Operating Leases | Finance Leases |
| (In millions) |
| 2019 | $ | 621 |
| $ | 74 |
|
| 2020 | 686 |
| 78 |
|
| 2021 | 553 |
| 73 |
|
| 2022 | 450 |
| 71 |
|
| 2023 | 346 |
| 80 |
|
| 2024 and thereafter | 1,286 |
| 315 |
|
| Total future undiscounted lease payments | $ | 3,942 |
| $ | 691 |
|
| Less: Interest | 632 |
| 196 |
|
| Present value of lease liabilities | $ | 3,310 |
| $ | 495 |
|
At March 31, 2019, the Company had additional leases of approximately $45 million, primarily for buildings and equipment, which had not yet commenced. These leases are expected to commence later in 2019, with lease terms of 10 years.
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
| | | |
| Minimum Lease Commitments at Dec 31, 2018 |
| (In millions) |
| 2019 | $ | 654 |
|
| 2020 | 497 |
|
| 2021 | 418 |
|
| 2022 | 363 |
|
| 2023 | 297 |
|
| 2024 and thereafter | 1,063 |
|
| Total | $ | 3,292 |
|
Certain of the Company's leases include residual value guarantees. These residual value guarantees are based on a percentage of the lessor's asset acquisition price.price and the amount of such guarantee declines over the course of the lease term. The portion of residual value guarantees that are probable of payment areis included in the related lease liability on the accompanying consolidated balance sheet other than certain finance leases that include the maximum residual value guarantee amount in the measurement of the related liability given the election to use the package of practical expedients at the date of adoption. At June 30, 2019, the Company has future maximum payments for residual value guarantees in operating leases of $19 million with final expirations through 2024. The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating and finance leases for the three and six months ended June 30, 2019 were as follows:
|
| | | | | | |
| In millions | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
| Operating lease cost | $ | 46 |
| $ | 90 |
|
| Finance lease cost | | |
| Amortization of right-of-use assets | (3 | ) | 3 |
|
| Interest on lease liabilities | — |
| — |
|
| Total finance lease cost | (3 | ) | 3 |
|
| Short-term lease cost | 1 |
| 2 |
|
| Variable lease cost | 2 |
| 3 |
|
| Sublease income | 5 |
| 12 |
|
| Total lease cost | $ | 41 |
| $ | 86 |
|
New leases entered into during the six months ended June 30, 2019 were not considered material. Supplemental cash flow information related to leases was as follows:
|
| | | |
| In millions | Six Months Ended June 30, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | $ | 92 |
|
| Operating cash flows from finance leases | $ | — |
|
| Financing cash flows from finance leases | $ | 3 |
|
Supplemental balance sheet information related to leases was as follows:
|
| | | |
| In millions | June 30, 2019 |
| Operating Leases | |
|
Operating lease right-of-use assets1 | $ | 539 |
|
Current operating lease liabilities2 | 144 |
|
Noncurrent operating lease liabilities3 | 394 |
|
| Total operating lease liabilities | $ | 538 |
|
| | |
| Finance Leases | |
|
| Property, plant, and equipment, gross | $ | 13 |
|
| Accumulated depreciation | 5 |
|
| Property, plant, and equipment, net | $ | 8 |
|
| Short-term borrowings and finance lease obligations | $ | 1 |
|
| Long-Term Debt | 2 |
|
| Total finance lease liabilities | $ | 3 |
|
| |
| 1. | Included in "Deferred charges and other assets" in the interim Condensed Consolidated Balance Sheet. |
| |
| 2. | Included in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheet. |
| |
| 3. | Included in "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheet. |
DuPont utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
|
| | |
| Lease Term and Discount Rate | June 30, 2019 |
| Weighted-average remaining lease term (years) | |
| Operating leases | 5.12 |
|
| Finance leases | 4.72 |
|
| Weighted average discount rate | |
| Operating leases | 3.40 | % |
| Finance leases | 3.32 | % |
Maturities of lease liabilities were as follows:
|
| | | | | | |
| Maturity of Lease Liabilities at June 30, 2019 | Operating Leases | Finance Leases |
| In millions |
| 2019 | $ | 92 |
| $ | 1 |
|
| 2020 | 126 |
| 1 |
|
| 2021 | 95 |
| 1 |
|
| 2022 | 77 |
| — |
|
| 2023 | 43 |
| — |
|
| 2024 and thereafter | 179 |
| 1 |
|
| Total lease payments | $ | 612 |
| $ | 4 |
|
| Less: Interest | 74 |
| 1 |
|
| Present value of lease liabilities | $ | 538 |
| $ | 3 |
|
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
| | | |
| Minimum Lease Commitments at December 31, 2018 |
| In millions |
| 2019 | $ | 654 |
|
| 2020 | 497 |
|
| 2021 | 418 |
|
| 2022 | 363 |
|
| 2023 | 297 |
|
| 2024 and thereafter | 1,063 |
|
| Total | $ | 3,292 |
|
| Total minimum lease commitments from discontinued operations | 2,980 |
|
| Total minimum lease commitments from continuing operations | $ | 312 |
|
NOTE 17 - STOCKHOLDERS' EQUITY
On May 23, 2019, stockholders of DowDuPont approved a 1-for-3 reverse stock split of DowDuPont shares of common stock with par value of $0.01 per share, which became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
Treasury Stock
On June 25, 2019, the Company retired 37 million shares of its common stock held in treasury. The shares were returned to the status of authorized but unissued shares. As a result, the treasury stock balance decreased by $7,102 million. As a part of the retirement, the Company reduced "Common stock" and "(Accumulated Deficit) Retained Earnings" by $0.04 million and $7,102 million, respectively.
The following table provides a summaryreconciliation of DuPont Common Stock activity for the final expiration, maximum future paymentsix months ended June 30, 2019:
|
| | | | |
| Shares of DuPont Common Stock | Issued | Held in Treasury |
| In thousands |
| Balance at December 31, 2018 | 784,143 |
| 27,818 |
|
| Issued | 2,112 |
| — |
|
| Repurchased | — |
| 10,993 |
|
| Retired | (38,811 | ) | (38,811 | ) |
| Balance at June 30, 2019 | 747,444 |
| — |
|
Share Repurchase Program
On June 1, 2019, the Company's Board of Directors approved a new $2 billion share buyback program, which expires on June 1, 2021. At June 30, 2019, the Company had repurchased and recorded liability reflected in the consolidated balance sheets for residual value guarantees.retired 1.4 million shares under this program at a total cost of $102 million.
|
| | | | | | | | | | | | | | |
| Lease Guarantees | Mar 31, 2019 | Dec 31, 2018 |
| (In millions) | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
| Residual value guarantees | 2028 | $ | 931 |
| $ | — |
| 2028 | $ | 889 |
| $ | 130 |
|
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE LOSSAccumulated Other Comprehensive Loss
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the threesix months ended March 31,June 30, 2019 and 2018:
| | | Accumulated Other Comprehensive Loss | Unrealized Gains (Losses) on Investments | Cumulative Translation Adj | Pension and Other Postretire Benefits | Derivative Instruments | Total Accum Other Comp Loss | Unrealized Gains (Losses) on Investments | Cumulative Translation Adj | Pension and OPEB | Derivative Instruments | Total |
| In millions |
| Balance at Jan 1, 2018 | $ | 17 |
| $ | (1,935 | ) | $ | (6,923 | ) | $ | (111 | ) | $ | (8,952 | ) | |
| Other comprehensive income (loss) before reclassifications | (26 | ) | 1,333 |
| 4 |
| (4 | ) | 1,307 |
| |
| Amounts reclassified from accumulated other comprehensive income | 1 |
| — |
| 126 |
| 21 |
| 148 |
| |
| Net other comprehensive income (loss) | $ | (25 | ) | $ | 1,333 |
| $ | 130 |
| $ | 17 |
| $ | 1,455 |
| |
| Balance at Mar 31, 2018 | $ | (8 | ) | $ | (602 | ) | $ | (6,793 | ) | $ | (94 | ) | $ | (7,497 | ) | |
| | | | |
| Balance at Jan 1, 2019 | $ | (51 | ) | $ | (3,785 | ) | $ | (8,476 | ) | $ | (82 | ) | $ | (12,394 | ) | |
| 2018 | | | |
| Balance at January 1, 2018 | | $ | 17 |
| $ | (1,935 | ) | $ | (6,923 | ) | $ | (111 | ) | $ | (8,952 | ) |
| Other comprehensive income (loss) before reclassifications | 68 |
| (79 | ) | (7 | ) | (65 | ) | (83 | ) | (41 | ) | (1,058 | ) | 9 |
| 75 |
| (1,015 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | (1 | ) | (18 | ) | 142 |
| (10 | ) | 113 |
| 2 |
| (2 | ) | 248 |
| 44 |
| 292 |
|
| Net other comprehensive income (loss) | $ | 67 |
| $ | (97 | ) | $ | 135 |
| $ | (75 | ) | $ | 30 |
| $ | (39 | ) | $ | (1,060 | ) | $ | 257 |
| $ | 119 |
| $ | (723 | ) |
| Balance at Mar 31, 2019 | $ | 16 |
| $ | (3,882 | ) | $ | (8,341 | ) | $ | (157 | ) | $ | (12,364 | ) | |
Reclassification of stranded tax effects 1 | | $ | (1 | ) | $ | (107 | ) | $ | (927 | ) | $ | (22 | ) | $ | (1,057 | ) |
| Balance at June 30, 2018 | | $ | (23 | ) | $ | (3,102 | ) | $ | (7,593 | ) | $ | (14 | ) | $ | (10,732 | ) |
| | | | |
| 2019 | | | |
| Balance at January 1, 2019 | | $ | (51 | ) | $ | (3,785 | ) | $ | (8,476 | ) | $ | (82 | ) | $ | (12,394 | ) |
| Other comprehensive income (loss) before reclassifications | | 68 |
| (117 | ) | 49 |
| (43 | ) | (43 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | (1 | ) | (18 | ) | 142 |
| (15 | ) | 108 |
|
| Net other comprehensive income (loss) | | $ | 67 |
| $ | (135 | ) | $ | 191 |
| $ | (58 | ) | $ | 65 |
|
| Spin-offs of Dow and Corteva | | $ | (16 | ) | $ | 3,179 |
| $ | 8,196 |
| $ | 139 |
| $ | 11,498 |
|
| Balance at June 30, 2019 | | $ | — |
| $ | (741 | ) | $ | (89 | ) | $ | (1 | ) | $ | (831 | ) |
| |
| 1. | Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which was adopted April 1, 2018. The ASU allowed a reclassification from AOCL to retained earnings for stranded tax effects resulting from The Act. |
The tax effects on the net activity related to each component of other comprehensive income (loss) for the three and six months ended March 31,June 30, 2019 and 2018 were as follows:
|
| | | | | | | | | | | | |
Tax Benefit (Expense) 1 | Three Months Ended
June 30, | Six Months Ended
June 30, |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Unrealized gains (losses) on investments | $ | — |
| $ | 3 |
| $ | (18 | ) | $ | 9 |
|
| Cumulative translation adjustments | — |
| (25 | ) | (1 | ) | (20 | ) |
| Pension and other post employment benefit plans | 34 |
| (34 | ) | 2 |
| (64 | ) |
| Derivative instruments | (8 | ) | (7 | ) | 16 |
| (8 | ) |
| Tax expense from income taxes related to other comprehensive income items | $ | 26 |
| $ | (63 | ) | $ | (1 | ) | $ | (83 | ) |
|
| | | | | | |
Tax Benefit (Expense) 1 | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Unrealized (losses) gains on investments | $ | (18 | ) | $ | 6 |
|
| Cumulative translation adjustments | (1 | ) | 5 |
|
| Pension and other postretirement benefit plans | (32 | ) | (30 | ) |
| Derivative instruments | 24 |
| (1 | ) |
| Tax expense from income taxes related to other comprehensive income items | $ | (27 | ) | $ | (20 | ) |
| |
| 1. | Prior period amounts were updated to conform with the current year presentation. |
A summary of the reclassifications out of AOCL for the three and six months ended March 31,June 30, 2019 and 2018 is provided as follows:
| | | Reclassifications Out of Accumulated Other Comprehensive Loss | Three Months Ended | Consolidated Statements of Income Classification | Three Months Ended
June 30, | Six Months Ended
June 30, | Income Classification |
| Mar 31, 2019 | Mar 31, 2018 | |
| In millions | 2019 | 2018 | 2019 | 2018 | Income Classification |
| Unrealized (gains) losses on investments | $ | (1 | ) | $ | 2 |
| See (1) below | $ | — |
| $ | 1 |
| $ | (1 | ) | $ | 3 |
|
| Tax benefit | — |
| (1 | ) | See (2) below | |
| Tax expense (benefit) | | — |
| — |
| — |
| (1 | ) | See (2) below |
| After tax | $ | (1 | ) | $ | 1 |
| | $ | — |
| $ | 1 |
| $ | (1 | ) | $ | 2 |
| |
| Cumulative translation adjustments | $ | (18 | ) | $ | — |
| See (3) below | $ | — |
| $ | (2 | ) | $ | (18 | ) | $ | (2 | ) | See (3) below |
| Pension and other postretirement benefit plans | $ | 167 |
| $ | 154 |
| See (4) below | |
| Pension and other post employment benefit plans | | $ | (25 | ) | $ | 156 |
| $ | 142 |
| $ | 310 |
| See (4) below |
| Tax benefit | (25 | ) | (28 | ) | See (2) below | 25 |
| (34 | ) | — |
| (62 | ) | See (2) below |
| After tax | $ | 142 |
| $ | 126 |
| | $ | — |
| $ | 122 |
| $ | 142 |
| $ | 248 |
| |
| Derivative Instruments | $ | (11 | ) | $ | 26 |
| See (5) below | $ | (7 | ) | $ | 26 |
| $ | (18 | ) | $ | 52 |
| See (5) below |
| Tax expense (benefit) | 1 |
| (5 | ) | See (2) below | |
| Tax benefit | | 2 |
| (3 | ) | 3 |
| (8 | ) | See (2) below |
| After tax | $ | (10 | ) | $ | 21 |
| | $ | (5 | ) | $ | 23 |
| $ | (15 | ) | $ | 44 |
| |
| Total reclassifications for the period, after tax | $ | 113 |
| $ | 148 |
| | $ | (5 | ) | $ | 144 |
| $ | 108 |
| $ | 292 |
| |
| |
| 1. | "Net sales" and "Sundry income (expense) - net." |
| |
| 2. | "Provision for income taxes on continuing operations." |
| |
| 3. | "Sundry income (expense) - net." |
| |
| 4. | These AOCL components are included in the computation of net periodic benefit cost of the Company's defined benefit pension and other postretirementpost employment benefit plans. See Note 1819 for additional information. |
| |
| 5. | "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."expense". |
NOTE 1718 - NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheetsCondensed Consolidated Balance Sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statementsinterim Consolidated Statements of income.Operations.
The following table summarizes the activity for equity attributable to noncontrolling interests for the three and six months ended March 31,June 30, 2019 and 2018:
| | | Noncontrolling Interests | Three Months Ended | Three Months Ended June 30, | Six Months Ended June 30, |
| In millions | Mar 31,
2019 | Mar 31,
2018 | 2019 | 2018 | 2019 | 2018 |
| Balance at beginning of period | $ | 1,608 |
| $ | 1,597 |
| $ | 1,654 |
| $ | 1,664 |
| $ | 1,608 |
| $ | 1,597 |
|
| Net income attributable to noncontrolling interests | 51 |
| 44 |
| 34 |
| 35 |
| 85 |
| 79 |
|
| Distributions to noncontrolling interests | (11 | ) | (27 | ) | |
Noncontrolling interests from Merger 1 | — |
| 56 |
| |
Distributions to noncontrolling interests 1 | | (1 | ) | (46 | ) | (12 | ) | (73 | ) |
| Noncontrolling interests from Merger | | — |
| — |
| — |
| 56 |
|
| Cumulative translation adjustments | 7 |
| (6 | ) | 9 |
| (34 | ) | 16 |
| (40 | ) |
| Spin-off of Dow and Corteva | | (1,124 | ) | — |
| (1,124 | ) | — |
|
| Other | (1 | ) | — |
| (2 | ) | 1 |
| (3 | ) | 1 |
|
| Balance at end of period | $ | 1,654 |
| $ | 1,664 |
| $ | 570 |
| $ | 1,620 |
| $ | 570 |
| $ | 1,620 |
|
| |
| 1. | RelatesNet of dividends paid to Mergera joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the interim Consolidated Statements of Operations, totaled zero for the three months ended June 30, 2019 ($6 million for the three months ended June 30, 2018) and subsequent measurement period adjustments.zero for the six months ended June 30, 2019 ($6 million for the six months ended June 30, 2018). |
NOTE 1819 - PENSION PLANS AND OTHER POSTRETIREMENTPOST EMPLOYMENT BENEFITS
A summary ofIn connection with the Distributions, the Historical Dow U.S. qualified defined benefit plan and the Historical EID U.S. principal qualified defined benefit plan were separated from the Company to Dow and Corteva, respectively. The Company retained a portion of pension liabilities and select other post employment benefit plans relating to foreign benefit plans for both Historical EID and Historical DuPont'sDow. The Company also retained an immaterial portion of the non-qualified US pension liabilities and other post employment benefit plans relating to Historical EID US benefit plans.
The Employee Matters Agreement with Dow and Corteva provides that employees of Dow and Corteva no longer participate in benefit plans sponsored or maintained by the Company, and that employees of the Company no longer participate in benefit plans sponsored or maintained by either Dow or Corteva, as of the effective time of the Dow Distribution and Corteva Distribution, respectively. At June 30, 2019, the Company's pension and other post employment benefit plans retained an underfunded status of $980 million after certain assets and obligations were separated from the Company to Dow and Corteva plans effective as of the Dow Distribution and Corteva Distribution, respectively.
The following sets forth the components of the Company's net periodic benefit (credit) cost for defined benefit pension plans and other postretirement benefits can be found in Note 19post employment benefits:
|
| | | | | | | | | | | | |
| Net Periodic Benefit (Credit) Cost for All Plans | Three Months Ended | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Defined Benefit Pension Plans: | | | | |
| Service cost | $ | 18 |
| $ | 165 |
| $ | 149 |
| $ | 332 |
|
| Interest cost | 144 |
| 406 |
| 591 |
| 814 |
|
| Expected return on plan assets | (206 | ) | (705 | ) | (919 | ) | (1,414 | ) |
| Amortization of prior service credit | (1 | ) | (6 | ) | (7 | ) | (12 | ) |
| Amortization of net loss | 2 |
| 169 |
| 135 |
| 340 |
|
Curtailment/settlement 1 | (2 | ) | (4 | ) | (2 | ) | (4 | ) |
| Net periodic benefit (credit) cost - total | $ | (45 | ) | $ | 25 |
| $ | (53 | ) | $ | 56 |
|
| Less: discontinued operations | 41 |
| (35 | ) | 45 |
| (73 | ) |
| Net periodic benefit credit - continuing operations | $ | (4 | ) | $ | (10 | ) | $ | (8 | ) | $ | (17 | ) |
| Other Post Employment Benefits: | | | | |
| Service cost | $ | 1 |
| $ | 5 |
| $ | 5 |
| $ | 10 |
|
| Interest cost | 15 |
| 33 |
| 52 |
| 65 |
|
| Amortization of net gain | — |
| (6 | ) | (6 | ) | (12 | ) |
| Net periodic benefit cost - total | $ | 16 |
| $ | 32 |
| $ | 51 |
| $ | 63 |
|
| Less: discontinued operations | (16 | ) | (32 | ) | (50 | ) | (63 | ) |
| Net periodic benefit cost - continuing operations | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
|
1. The 2018 impact relates to the Consolidated Financial Statementscurtailment and settlement of pension plans in the U.S. and Australia all of which have been transferred to Corteva and included in Discontinued Operations. The 2019 impact relates to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Historical Dowcurtailment of pension plans in Canada which have been retained by DuPont and Historical DuPont did not merge their defined benefit pension and other postretirement benefit plans as a result of the Merger. The following table provides the components of net periodic benefit cost (credit) for Historical Dow and Historical DuPont's significant plans:included in Continuing Operations.
|
| | | | | | |
| Net Periodic Benefit Cost (Credit) for All Significant Plans | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Defined Benefit Pension Plans: | | |
| Service cost | $ | 131 |
| $ | 167 |
|
| Interest cost | 447 |
| 408 |
|
| Expected return on plan assets | (713 | ) | (709 | ) |
| Amortization of prior service credit | (6 | ) | (6 | ) |
| Amortization of net loss | 133 |
| 171 |
|
| Net periodic benefit cost (credit) | $ | (8 | ) | $ | 31 |
|
| Other Postretirement Benefits: | | |
| Service cost | $ | 4 |
| $ | 5 |
|
| Interest cost | 37 |
| 32 |
|
| Amortization of net gain | (6 | ) | (6 | ) |
| Net periodic benefit cost | $ | 35 |
| $ | 31 |
|
Net periodic benefit (credit) cost, (credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statementsinterim Consolidated Statements of income.Operations.
DowDuPontDuPont expects to make additional contributions in the aggregate of about $500approximately $240 million by year-end 2019 to itscertain non-US pension plansand other than the principal U.S. pension plan.post employment benefit plans.
NOTE 1920 - STOCK-BASED COMPENSATION
A summaryOn May 23, 2019, stockholders of DowDuPont approved a reverse stock split of DowDuPont shares of common stock. DowDuPont's Board of Directors established a reverse stock split ratio of 1 new share of DowDuPont common stock for every 3 shares of current DowDuPont common stock with par value of $0.01 per share. The stock split became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
Historical Dow and Historical DuPont's stock-based compensation plans can be found in Note 20 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Historical Dow and Historical DuPontEID did not merge their equity incentive plans as a result of the Merger. The Historical Dow and Historical DuPontEID stock-based compensation plans were assumed by DowDuPont and continueremained in place with the ability to grant and issue DowDuPont Common Stock.common stock until the Distributions.
Historical Dow Stock Incentive Plan
Historical Dow grants stock-based compensation to employees and non-employee directorsThere was minimal grant activity in the first five months of 2019 under Thethe Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Plan"). In connection with the Merger, on August 31, 2017, all outstandingfirst quarter of 2019, Historical Dow stock options andEID granted 1.1 million restricted stock unit awards were converted into stock options and restricted stock unit awardsunits ("RSUs") with respect to DowDuPont Common Stock. The stock options and restricted stock unit awards have the same terms and conditionsa weighted-average fair value of $70.52 per share under the applicable plansE. I. du Pont de Nemours and award agreements prior to the Merger.Company Equity and Incentive Plan (the "DuPont EIP"). There was minimal grant activity in April and May of 2019 under the first quarterDuPont EIP.
Effect of 2019.the Distributions on Equity Awards
In accordance with the Employee Matters Agreement between DuPont, Dow and Corteva, certain executives and employees were entitled to receive equity compensation awards of DuPont in replacement of previously outstanding awards granted under Historical Dow and Historical EID equity incentive plans. At the time of the Dow Distribution, equity awards denominated in DowDuPont common stock held by DuPont employees were adjusted using a formula designed to preserve the intrinsic value of the awards immediately prior to the Dow Distribution, and either remained denominated in DowDuPont common stock, or were adjusted into a combination of equity awards denominated in both DowDuPont common stock and Dow common stock. For employees of Dow Inc., outstanding share-based compensation awards denominated in DowDuPont common stock were adjusted to equity awards denominated in either Dow common stock, or into a combination of equity awards denominated in both DowDuPont common stock and Dow common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Dow Distribution.
Historical
At the time of the Corteva Distribution, equity awards denominated in DowDuPont common stock held by DuPont Equityemployees were adjusted using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution, and were either adjusted into DuPont common stock, or were adjusted into a combination of equity awards denominated in both DuPont common stock and Corteva common stock. For Corteva employees, outstanding share-based compensation awards denominated in DowDuPont common stock were adjusted to equity awards denominated in either Corteva common stock, or into a combination of equity awards denominated in both DuPont common and Corteva common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution. For Dow employees, outstanding DowDuPont equity awards at the time of the Corteva Distribution were adjusted into a combination of equity awards denominated in both DuPont common stock and Corteva common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution.
Immediately following the Corteva Distribution, on June 1, 2019, DuPont adopted the Dupont Omnibus Incentive Plan
Historical ("DuPont OIP") which grants stock-based compensation to certain employees, directors, independent contractors and consultants through grants of stock options, time-vested restricted stock units ("RSUs"),RSUs, and performance-based restricted stock units (“PSUs”) underother stock-based awards. The DuPont OIP has two subplans to reflect the Historical DuPont Equity Incentive Plan ("Historical DuPont EIP").EIP and the 2012 Plan. The previous Historical DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock. The awardsunder these subplans have the same terms and conditions asthat were applicable to such equitythe awards under the DuPont EIP and 2012 Plan immediately prior to the Merger closing date. MostDistributions. Under the DuPont OIP, a maximum of these awards have been15 million shares of common stock may be awarded. From the period June 1 to June 30, 2019, there was minimal grant activity under the DuPont OIP.
DuPont recognized share-based compensation expense in continuing operations of $34 million and $32 million during the three months ended June 30, 2019 and 2018, respectively, and $55 million and $52 million during the six months ended June 30, 2019 and 2018, respectively. The income tax benefits related to stock-based compensation arrangements were $7 million and $12 million for the three and six months ended June 30, 2019, respectively, and $7 million and $11 million for the three and six months ended June 30, 2018, respectively.
Performance Stock Units
In June 2019, DuPont approved performance stock units ("PSUs") to certain members of senior leadership. The approved PSU's are expected to be granted annually in the firstthird quarter of each calendar year. In the first quarter of 2019, Historical DuPont granted 2.6 million RSUs with a weighted-average fair value of $52.66 per share under the Historical DuPont EIP.2019.
NOTE 2021 - FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments, risk management policies, derivative instruments and hedging activities can be found in Note 21 of the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. If applicable, updates have been included in the respective section below.
The following table summarizes the fair value of financial instruments at March 31,June 30, 2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments | Mar 31, 2019 | Dec 31, 2018 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Cash equivalents | $ | 7,384 |
| $ | 9 |
| $ | — |
| $ | 7,393 |
| $ | 9,951 |
| $ | 12 |
| $ | — |
| $ | 9,963 |
|
Restricted cash equivalents 1 | $ | 480 |
| $ | — |
| $ | — |
| $ | 480 |
| $ | 500 |
| $ | — |
| $ | — |
| $ | 500 |
|
| Marketable securities: | | | | | | | | |
Available-for-sale 2 | $ | 101 |
| $ | — |
| $ | — |
| $ | 101 |
| $ | 100 |
| $ | — |
| $ | — |
| $ | 100 |
|
Held-to-maturity 3 | 18 |
| — |
| — |
| 18 |
| 34 |
| — |
| — |
| 34 |
|
| Total marketable securities | $ | 119 |
| $ | — |
| $ | — |
| $ | 119 |
| $ | 134 |
| $ | — |
| $ | — |
| $ | 134 |
|
| Other investments: | | | | | | | | |
| Debt securities: | | | | | | | | |
Government debt 4 | $ | 694 |
| $ | 17 |
| $ | (9 | ) | $ | 702 |
| $ | 714 |
| $ | 9 |
| $ | (23 | ) | $ | 700 |
|
| Corporate bonds | 1,051 |
| 43 |
| (21 | ) | 1,073 |
| 1,026 |
| 20 |
| (63 | ) | 983 |
|
| Total debt securities | $ | 1,745 |
| $ | 60 |
| $ | (30 | ) | $ | 1,775 |
| $ | 1,740 |
| $ | 29 |
| $ | (86 | ) | $ | 1,683 |
|
Equity securities 5 | $ | 17 |
| $ | 5 |
| $ | — |
| $ | 22 |
| $ | 17 |
| $ | 1 |
| $ | (2 | ) | $ | 16 |
|
| Total other investments | $ | 1,762 |
| $ | 65 |
| $ | (30 | ) | $ | 1,797 |
| $ | 1,757 |
| $ | 30 |
| $ | (88 | ) | $ | 1,699 |
|
| Total cash and restricted cash equivalents, marketable securities and other investments | $ | 9,745 |
| $ | 74 |
| $ | (30 | ) | $ | 9,789 |
| $ | 12,342 |
| $ | 42 |
| $ | (88 | ) | $ | 12,296 |
|
Long-term debt including debt due within one year 6 | $ | (38,975 | ) | $ | 102 |
| $ | (2,470 | ) | $ | (41,343 | ) | $ | (38,299 | ) | $ | 390 |
| $ | (1,457 | ) | $ | (39,366 | ) |
| Derivatives relating to: | | | | | | | | |
| Interest rates | $ | — |
| $ | — |
| $ | (181 | ) | $ | (181 | ) | $ | — |
| $ | — |
| $ | (64 | ) | $ | (64 | ) |
Foreign currency 7 | — |
| 128 |
| (17 | ) | 111 |
| — |
| 157 |
| (49 | ) | 108 |
|
Commodities 7 | — |
| 88 |
| (147 | ) | (59 | ) | — |
| 91 |
| (178 | ) | (87 | ) |
| Total derivatives | $ | — |
| $ | 216 |
| $ | (345 | ) | $ | (129 | ) | $ | — |
| $ | 248 |
| $ | (291 | ) | $ | (43 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments | June 30, 2019 | December 31, 2018 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents | $ | 532 |
| $ | — |
| $ | — |
| $ | 532 |
| $ | 8,226 |
| $ | — |
| $ | — |
| $ | 8,226 |
|
Restricted cash equivalents 1 | $ | 40 |
| $ | — |
| $ | — |
| $ | 40 |
| $ | 43 |
| $ | — |
| $ | — |
| $ | 43 |
|
| Marketable securities | $ | 8 |
| $ | — |
| $ | — |
| $ | 8 |
| $ | 29 |
| $ | — |
| $ | — |
| $ | 29 |
|
Equity securities 2 | $ | 4 |
| $ | — |
| $ | — |
| $ | 4 |
| $ | 2 |
| $ | — |
| $ | — |
| $ | 2 |
|
| Total cash and restricted cash equivalents, marketable securities and other investments | $ | 584 |
| $ | — |
| $ | — |
| $ | 584 |
| $ | 8,300 |
| $ | — |
| $ | — |
| $ | 8,300 |
|
| Long-term debt including debt due within one year | $ | (15,614 | ) | $ | — |
| $ | (1,555 | ) | $ | (17,169 | ) | $ | (12,635 | ) | $ | 5 |
| $ | (461 | ) | $ | (13,091 | ) |
| Derivatives relating to: | | | | | | | | |
Foreign currency 3 | — |
| 11 |
| (6 | ) | 5 |
| — |
| 37 |
| (6 | ) | 31 |
|
| Total derivatives | $ | — |
| $ | 11 |
| $ | (6 | ) | $ | 5 |
| $ | — |
| $ | 37 |
| $ | (6 | ) | $ | 31 |
|
| |
| 1. | Classified as "Other current assets" in the consolidated balance sheets.Condensed Consolidated Balance Sheets. |
| |
| 2. | Available-for-sale securities with maturities of less than one year at the time of purchase. |
| |
3. | Held-to-maturity securities with maturities of more than three months to less than one year at the time of purchase. |
| |
4. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations. |
| |
5. | Equity securities with a readily determinable fair value. |
| |
6. | Cost includes fair value adjustments Presented in accordance with ASU 2016-01. "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of $69 million at March 31, 2019Financial Assets and $78 million at December 31, 2018, related to the accounting for the Merger. Cost also includes fair value hedge adjustments of $17 million at March 31, 2019 and $18 million at December 31, 2018 on $2,290 million of debt at March 31, 2019 and December 31, 2018. |
| |
7. | Presented net of cash collateral where master netting arrangements allow.Financial Liabilities." |
3. Presented net of cash collateral where master netting arrangements allow.
Debt Securities
Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the Company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks. The Company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the Company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. The Company has not designated any derivatives or non-derivatives as hedging instruments.
The Company's investmentsfinancial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The Company is exposed to credit loss in debt securitiesthe event of nonperformance by these counterparties. The Company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The Company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are primarily classifiedregularly reported to management.
The notional amounts of the Company's derivative instruments were as available-for-sale. Forfollows:
|
| | | | | | |
| Notional Amounts | June 30, 2019 | Dec 31, 2018 |
| In millions |
| Derivatives not designated as hedging instruments: | | |
| Foreign currency contracts | $ | (80 | ) | $ | 2,057 |
|
| Commodity contracts | $ | 8 |
| $ | 9 |
|
Derivatives not Designated in Hedging Relationships
Foreign Currency Contracts
The Company routinely uses forward exchange contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the three months ended March 31, 2019, $35 millionuse of marketable securities matured.hedge accounting; however, the required revaluation of the forward contracts and the associated foreign currency-denominated monetary assets and liabilities intends to achieve a minimal earnings impact, after taxes. The following table providesCompany also uses foreign currency exchange contracts to offset a portion of the investing results from available-for-sale securities forCompany's
exposure to certain foreign currency-denominated revenues so that gains and losses on the three months ended March 31, 2019contracts offset changes in the USD value of the related foreign currency-denominated revenues.
Commodity Contracts
The Company utilizes options, futures and 2018:swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as soybeans, soybean oil and soybean meal.
Fair Value of Derivative Instruments
Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the interim Condensed Consolidated Balance Sheets. The presentation of the Company's derivative assets and liabilities is as follows:
|
| | | | | | | | | | |
| | June 30, 2019 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | |
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | 27 |
| (16 | ) | 11 |
|
| Total asset derivatives | | $ | 27 |
| $ | (16 | ) | $ | 11 |
|
| | | | | |
| Liability derivatives: | | | | |
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Accrued and other current liabilities | $ | 20 |
| $ | (14 | ) | $ | 6 |
|
| Total liability derivatives | | $ | 20 |
| $ | (14 | ) | $ | 6 |
|
|
| | | | | | |
| Investing Results | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Proceeds from sales of available-for-sale securities | $ | 159 |
| $ | 348 |
|
| Gross realized gains | $ | 6 |
| $ | 7 |
|
| Gross realized losses | $ | (5 | ) | $ | (9 | ) |
Equity Securities
The Company's investments in equity securities with a readily determinable fair value totaled $22 million at March 31, 2019 ($16 million at December 31, 2018). The aggregate carrying value of the Company’s investments in equity securities where fair value is not readily determinable totaled $260 million at March 31, 2019 ($258 million at December 31, 2018), reflecting the carrying value of the investments. There were no material adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the three months ended March 31, 2019 and 2018. The net unrealized gain recognized in earnings on equity securities totaled $5 million for the three months ended March 31, 2019 ($8 million net unrealized gain for the three months ended March 31, 2018).
Derivatives
The following tables provide the fair value and balance sheet classification of derivative instruments at March 31, 2019 and December 31, 2018:
|
| | | | | | | | | | |
| Fair Value of Derivative Instruments | Mar 31, 2019 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | $ | 161 |
| $ | (89 | ) | $ | 72 |
|
| Commodity contracts | Other current assets | 31 |
| (5 | ) | 26 |
|
| Commodity contracts | Deferred charges and other assets | 57 |
| (4 | ) | 53 |
|
| Total | | $ | 249 |
| $ | (98 | ) | $ | 151 |
|
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | $ | 87 |
| $ | (31 | ) | $ | 56 |
|
| Commodity contracts | Other current assets | 8 |
| (1 | ) | 7 |
|
| Commodity contracts | Deferred charges and other assets | 4 |
| (2 | ) | 2 |
|
| Total | | $ | 99 |
| $ | (34 | ) | $ | 65 |
|
| Total asset derivatives | | $ | 348 |
| $ | (132 | ) | $ | 216 |
|
| | | | | |
| Liability derivatives: | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate swaps | Other noncurrent obligations | $ | 181 |
| $ | — |
| $ | 181 |
|
| Foreign currency contracts | Accrued and other current liabilities | 98 |
| (89 | ) | 9 |
|
| Commodity contracts | Accrued and other current liabilities | 93 |
| (6 | ) | 87 |
|
| Commodity contracts | Other noncurrent obligations | 60 |
| (8 | ) | 52 |
|
| Total | | $ | 432 |
| $ | (103 | ) | $ | 329 |
|
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Accrued and other current liabilities | $ | 37 |
| $ | (29 | ) | $ | 8 |
|
| Commodity contracts | Accrued and other current liabilities | 8 |
| (4 | ) | 4 |
|
| Commodity contracts | Other noncurrent obligations | 7 |
| (3 | ) | 4 |
|
| Total | | $ | 52 |
| $ | (36 | ) | $ | 16 |
|
| Total liability derivatives | | $ | 484 |
| $ | (139 | ) | $ | 345 |
|
|
| | | | | | | | | | |
| | December 31, 2018 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | |
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | $ | 72 |
| $ | (35 | ) | $ | 37 |
|
| Total asset derivatives | | $ | 72 |
| $ | (35 | ) | $ | 37 |
|
| | | | | |
| Liability derivatives: | | | | |
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Accrued and other current liabilities | $ | 21 |
| $ | (15 | ) | $ | 6 |
|
| Total liability derivatives | | $ | 21 |
| $ | (15 | ) | $ | 6 |
|
| |
| 1. | Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty. |
|
| | | | | | | | | | |
| Fair Value of Derivative Instruments | Dec 31, 2018 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheet |
| Asset derivatives: | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | $ | 98 |
| $ | (42 | ) | $ | 56 |
|
| Commodity contracts | Other current assets | 47 |
| (13 | ) | 34 |
|
| Commodity contracts | Deferred charges and other assets | 18 |
| (3 | ) | 15 |
|
| Total | | $ | 163 |
| $ | (58 | ) | $ | 105 |
|
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Other current assets | $ | 200 |
| $ | (99 | ) | $ | 101 |
|
| Commodity contracts | Other current assets | 41 |
| (1 | ) | 40 |
|
| Commodity contracts | Deferred charges and other assets | 4 |
| (2 | ) | 2 |
|
| Total | | $ | 245 |
| $ | (102 | ) | $ | 143 |
|
| Total asset derivatives | | $ | 408 |
| $ | (160 | ) | $ | 248 |
|
| | | | | |
| Liability derivatives: | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate swaps | Other noncurrent obligations | $ | 64 |
| $ | — |
| $ | 64 |
|
| Foreign currency contracts | Accrued and other current liabilities | 46 |
| (42 | ) | 4 |
|
| Commodity contracts | Accrued and other current liabilities | 111 |
| (18 | ) | 93 |
|
| Commodity contracts | Other noncurrent obligations | 86 |
| (9 | ) | 77 |
|
| Total | | $ | 307 |
| $ | (69 | ) | $ | 238 |
|
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency contracts | Accrued and other current liabilities | $ | 124 |
| $ | (79 | ) | $ | 45 |
|
| Commodity contracts | Accrued and other current liabilities | 7 |
| (4 | ) | 3 |
|
| Commodity contracts | Other noncurrent obligations | 8 |
| (3 | ) | 5 |
|
| Total | | $ | 139 |
| $ | (86 | ) | $ | 53 |
|
| Total liability derivatives | | $ | 446 |
| $ | (155 | ) | $ | 291 |
|
| |
1. | Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty. |
Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are netted with corresponding assets or liabilities, when applicable. The Company posted cash collateral of $20 million at March 31, 2019 ($26 million at December 31, 2018). Counterparties posted cash collateral of $2 million with the Company at March 31, 2019 ($54 million at December 31, 2018).
Net Foreign Investment Hedges
Historical Dow
For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or loss on the derivative is included in “Cumulative Translation Adjustments” in AOCL. Historical Dow had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $181 million at March 31, 2019 ($182 million at December 31, 2018). The results of hedges of Historical Dow’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss of $36 million after tax for the three months ended March 31, 2019 (net loss of $43 million after tax for the three months ended March 31, 2018). For the three months ended March 31, 2019, Historical Dow recognized after tax gains of $86 million related to excluded components of net foreign investment hedges included in "Cumulative Translation Adjustments" in AOCL. For the three months ended March 31, 2019, gains of $25 million were amortized to “Sundry income (expense) - net” in the consolidated statements of income.
Fair Value Hedges
Historical Dow
Subsequent to March 31, 2019, Historical Dow entered into interest rate contracts designated as a fair value hedge of underlying fixed rate debt obligations with maturity dates extending through 2048.
Income Statement Effect of Derivative Instruments
Foreign currency derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominatedcurrency-denominated assets and liabilities. The amount charged on a pretax basis related to foreign currency derivatives not designated as a hedge, which was included in “Sundry income (expense) - net” in the consolidated statementsinterim Consolidated Statements of income,Operations, was a gainloss of $22$13 million for the three months ended March 31,June 30, 2019 (loss of $198($177 million gain for the three months ended March 31,June 30, 2018) and a loss of $60 million for the six months ended June 30, 2019 ($4 million loss for the six months ended June 30, 2018). The income statement effects of other derivatives were immaterial.
Reclassification from AOCL
The net after-tax amountsCompany does not expect to be reclassifiedreclassify gains related to foreign currency contracts from AOCL to income within the next 12 months are a $1 million gain for interest rate contracts, a $52 million loss for commodity contracts, an $11 million gain for foreign currency contracts and a $57 million gain for excluded components.months.
NOTE 2122 - FAIR VALUE MEASUREMENTS
A summary of the Company's recurring and nonrecurring fair value measurements can be found in Note 22 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. If applicable, updates have been included in the respective section below.
Fair Value Measurements on a Recurring Basis
The following tables summarize the basesbasis used to measure certain assets and liabilities at fair value on a recurring basis:
|
| | | | | | | | | |
| Basis of Fair Value Measurements on a Recurring Basis at Mar 31, 2019 | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Total |
| In millions |
| Assets at fair value: | | | |
Cash equivalents 1 | $ | — |
| $ | 7,393 |
| $ | 7,393 |
|
Restricted cash equivalents 1 | — |
| 480 |
| 480 |
|
Marketable securities 2 | — |
| 119 |
| 119 |
|
Equity securities 3 | 21 |
| — |
| 21 |
|
Debt securities: 3 | | | |
Government debt 4 | — |
| 702 |
| 702 |
|
| Corporate bonds | 19 |
| 1,054 |
| 1,073 |
|
Derivatives relating to: 5 | | | |
| Foreign currency | — |
| 247 |
| 247 |
|
| Commodities | 10 |
| 90 |
| 100 |
|
| Total assets at fair value | $ | 50 |
| $ | 10,085 |
| $ | 10,135 |
|
| Liabilities at fair value: | | | |
Long-term debt including debt due within one year 6 | $ | — |
| $ | 41,343 |
| $ | 41,343 |
|
Derivatives relating to: 5 | | | |
| Interest rates | — |
| 181 |
| 181 |
|
| Foreign currency | — |
| 134 |
| 134 |
|
| Commodities | 13 |
| 155 |
| 168 |
|
| Total liabilities at fair value | $ | 13 |
| $ | 41,813 |
| $ | 41,826 |
|
|
| | | |
| Basis of Fair Value Measurements on a Recurring Basis at June 30, 2019 | Significant Other Observable Inputs (Level 2) |
| In millions |
| Assets at fair value: | |
Cash equivalents and restricted cash equivalents 1 | $ | 572 |
|
Marketable securities 2 | 8 |
|
Equity securities 3 | 4 |
|
Derivatives relating to: 4 | |
| Foreign currency contracts | 27 |
|
| Total assets at fair value | $ | 611 |
|
| Liabilities at fair value: | |
Long-term debt including debt due within one year 5 | $ | 17,169 |
|
Derivatives relating to: 4 | |
| Foreign currency contracts | 20 |
|
| Total liabilities at fair value | $ | 17,189 |
|
| |
| 1. | Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Other current assets" in the consolidated balance sheetsinterim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value. |
| |
| 2. | Primarily time deposits with maturities of greater than three months at time of acquisition. |
| |
| 3. | The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets.interim Condensed Consolidated Balance Sheets. |
| |
| 4. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.See Note 21 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets. |
| |
| 5. | See Note 20 for the classification of derivatives in the consolidated balance sheets. |
| |
6. | See Note 2021 for information on fair value measurements of long-term debt. |
|
| | | | | | | | | |
| Basis of Fair Value Measurements on a Recurring Basis at Dec 31, 2018 | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Total |
| In millions |
| Assets at fair value: | | | |
Cash equivalents 1 | $ | — |
| $ | 9,963 |
| $ | 9,963 |
|
Restricted cash equivalents 1 | — |
| 500 |
| 500 |
|
Marketable securities 2 | — |
| 134 |
| 134 |
|
Equity securities 3 | 16 |
| — |
| 16 |
|
Debt securities: 3 | | | |
Government debt 4 | — |
| 700 |
| 700 |
|
| Corporate bonds | — |
| 983 |
| 983 |
|
Derivatives relating to: 5 | | | |
| Foreign currency | — |
| 298 |
| 298 |
|
| Commodities | 17 |
| 93 |
| 110 |
|
| Total assets at fair value | $ | 33 |
| $ | 12,671 |
| $ | 12,704 |
|
| Liabilities at fair value: | | | |
Long-term debt including debt due within one year 6 | $ | — |
| $ | 39,366 |
| $ | 39,366 |
|
Derivatives relating to: 5 | | | |
| Interest rates | — |
| 64 |
| 64 |
|
| Foreign currency | — |
| 170 |
| 170 |
|
| Commodities | 23 |
| 189 |
| 212 |
|
| Total liabilities at fair value | $ | 23 |
| $ | 39,789 |
| $ | 39,812 |
|
|
| | | |
| Basis of Fair Value Measurements on a Recurring Basis at Dec 31, 2018 | Significant Other Observable Inputs (Level 2) |
| In millions |
| Assets at fair value: | |
Cash equivalents and restricted cash equivalents 1 | $ | 8,269 |
|
Marketable securities 2 | 29 |
|
Equity securities 3 | 2 |
|
Derivatives relating to: 4 | |
| Foreign currency contracts | 72 |
|
| Total assets at fair value | $ | 8,372 |
|
| Liabilities at fair value: | |
Long-term debt including debt due within one year 5 | $ | 13,091 |
|
Derivatives relating to: 4 | |
| Foreign currency contracts | 21 |
|
| Total liabilities at fair value | $ | 13,112 |
|
| |
| 1. | Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Other current assets" in the consolidated balance sheetsinterim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value. |
| |
| 2. | Primarily time deposits with maturities of greater than three months at time of acquisition. |
| |
| 3. | The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets.interim Condensed Consolidated Balance Sheets. |
| |
| 4. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.See Note 21 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets |
| |
| 5. | See Note 20 for the classification of derivatives in the consolidated balance sheets. |
| |
6. | See Note 2021 for information on fair value measurements of long-term debt. |
For equity securities calculated at net asset value per share (or its equivalent), the Company had $121 million in private market securities and $29 million in real estate at March 31, 2019 ($120 million in private market securities and $29 million in real estate at December 31, 2018). There are no redemption restrictions and the unfunded commitments on these investments were $87 million at March 31, 2019 ($89 million at December 31, 2018).
Fair Value Measurements on a Nonrecurring Basis
As partDuring the second quarter of the Synergy Program,2019, the Company has or will shut downrecorded goodwill impairment charges related to the Nutrition & Biosciences and the Non-Core segments. See Note 13 for further discussion of these fair value measurements.
The Internal SP Distribution served as a number of manufacturing, R&D and corporate facilities around the world. In the first three months of 2019, inventory associated with this plan was written downtriggering event to zero. In addition, impairments of leased, non-manufacturing facilities, which wereassess equity method investments for impairment. The Company recorded an other-than-temporary impairment, classified as Level 3 measurements, resulted in a write-down of right-of-use assets to $80 million using unobservable inputs.on an equity method investment for the three and six months ended June 30, 2019. The impairment charges related to the Synergy Program, totaling $100charge of $63 million were includedwas recorded in "Restructuring and asset related charges - net" in the consolidated statementsinterim Consolidated Statements of income.Operations. See Note 5 for additional information on the Company's restructuring activities.
NOTE 22 - VARIABLE INTEREST ENTITIES
A summary of Historical Dow and Historical DuPont's variable interest entities ("VIEs") can be found in Note 23 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Historical DuPont did not hold a variable interest in any joint ventures at March 31, 2019, for which it is the primary beneficiary. In addition, the maximum exposure to loss related to the nonconsolidated VIEs for which Historical DuPont did hold a variable interest at March 31, 2019, is not considered material to the consolidated financial statements. The followingfurther discussion addresses variable interests held by Historical Dow.
Assets and Liabilities of Consolidated VIEs
The Company's consolidated financial statements include the assets, liabilities and results of operations of VIEs for which Historical Dow is the primary beneficiary. The other equity holders’ interests are reflected in "Net income attributable to noncontrolling interests" in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.
The following table summarizes the carrying amounts of these entities’ assets and liabilities included in the Company’s consolidated balance sheets at March 31, 2019 and December 31, 2018:fair value measurements.
|
| | | | | | |
| Assets and Liabilities of Consolidated VIEs | Mar 31, 2019 | Dec 31, 2018 |
| In millions |
| Cash and cash equivalents | $ | 109 |
| $ | 82 |
|
| Other current assets | 116 |
| 114 |
|
| Net property | 718 |
| 734 |
|
| Other noncurrent assets | 60 |
| 45 |
|
Total assets 1 | $ | 1,003 |
| $ | 975 |
|
| Current liabilities | $ | 318 |
| $ | 334 |
|
| Long-term debt | 43 |
| 75 |
|
| Other noncurrent obligations | 46 |
| 31 |
|
Total liabilities 2 | $ | 407 |
| $ | 440 |
|
| |
1. | All assets were restricted at March 31, 2019 and December 31, 2018. |
| |
2. | All liabilities were nonrecourse at March 31, 2019 and December 31, 2018. |
Amounts presented in the consolidated balance sheets and the preceding table as restricted assets or nonrecourse obligations relating to consolidated VIEs at March 31, 2019 and December 31, 2018, are adjusted for intercompany eliminations and parental guarantees.
Nonconsolidated VIEs
The following table summarizes the carrying amounts of assets and liabilities included in the consolidated balance sheets at March 31, 2019 and December 31, 2018, related to variable interests in joint ventures or entities for which Historical Dow is not the primary beneficiary. The Company's maximum exposure to loss is the same as the carrying amounts, unless otherwise noted below.
|
| | | | | | | |
| Carrying Amounts of Assets and Liabilities Related to Nonconsolidated VIEs | | Mar 31,
2019 | Dec 31,
2018 |
| In millions | Description of asset or liability |
| Hemlock Semiconductor L.L.C. | Equity method investment 1 | $ | (658 | ) | $ | (495 | ) |
| Silicon joint ventures | Equity method investments 2 | $ | 96 |
| $ | 100 |
|
| AgroFresh Solutions, Inc. | Equity method investment 2 | $ | 45 |
| $ | 48 |
|
Other receivable 3 | $ | 8 |
| $ | 8 |
|
| |
1. | Classified as "Other noncurrent obligations" in the consolidated balance sheets. The Company's maximum exposure to loss was zero at March 31, 2019 (zero at December 31, 2018). |
| |
2. | Classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. |
| |
3. | Classified as "Accounts and notes receivable - Other" in the consolidated balance sheets. |
NOTE 23 - SEGMENTS AND GEOGRAPHIC REGIONS
Effective June 1, 2019, DuPont changed its management and reporting structure resulting in the creation of a new Non-Core segment ("Second Quarter Segment Realignment").
The Second Quarter Segment Realignment resulted in the following being realigned to Non-Core:
| |
| ◦ | Photovoltaic and Advanced Materials business unit (including the HSC Group joint ventures: DC HSC Holdings LLC and Hemlock Semiconductor L.L.C) from the Electronics & Imaging segment; |
| |
| ◦ | Biomaterials and Clean Technologies business units from the Nutrition & Biosciences segment; |
| |
| ◦ | DuPont Teijin Films joint venture from the Transportation & Industrial (formerly known as Transportation & Advanced Polymers) segment; and |
| |
| ◦ | Sustainable Solutions business unit from the Safety & Construction segment. |
•In addition, the following changes have occurred:
| |
| ◦ | Consolidation of the Nutrition & Health business with the Industrial Biosciences business within the Nutrition & Biosciences reportable segment. Previously, Nutrition & Health and Industrial Biosciences were separate operating segments which did not meet the quantitative thresholds. |
| |
| ◦ | Pre-commercial activities related to the Biomaterials business unit was realigned from Corporate to Non‑Core, with the remaining pre-commercial activities realigned to the Nutrition & Biosciences segment. |
The reporting changes have been retrospectively reflected in the segment results for all periods presented.
Prior to April 1, 2019, the Company's measure of profit/loss for segment reporting purposes is pro forma Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assessed performance and allocates resources. The Company defines pro forma Operating EBITDA as pro forma earnings (i.e. pro forma "Income (loss) from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / other post employment benefits (“OPEB”) / charges, and foreign exchange gains/losses, excluding the impact of costs historically allocated to the materials science and agriculture businesses that did not meet the criteria to be recorded as discontinued operations and adjusted for significant items. Effective April 1, 2019, the Company's measure of profit/loss for segment reporting purposes is Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBITDA as earnings (i.e., “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains (losses), excluding the impact of/ losses, adjusted for significant items. A reconciliationReconciliations of these measures isare provided on the following pages.
Pro forma adjustments were determined in accordance with Article 11 of Regulation S-X. Pro forma financial information is based on the Consolidated Financial Statements of DuPont, adjusted to give effect to the impact of certain items directly attributable to the Distributions, and the Term Loan Facilities, the 2018 Senior Notes and the Funding CP Issuance (together, the "Financings"), including the use of proceeds from such Financings (collectively the "Transactions"). The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Transactions, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the results. Events that are not expected to have a continuing impact on the combined results are excluded from the pro forma adjustments. Pro forma adjustments impacting consolidated results are outlined in the Supplemental Unaudited Pro Forma Combined Financial Information section contained in Management's Discussion and Analysis ("MD&A"). Those pro forma adjustments include the impact of various supply agreements entered into in connection with the Dow Distribution ("supply agreements") and are outlined in the Supplemental Unaudited Pro Forma Combined Information section of the MD&A as adjustments to "Cost of sales". The impact of these supply agreements are reflected in pro forma Operating EBITDA for the periods noted above as they are included in the measure of profit/loss reviewed by the CODM in order to show meaningful comparability among periods while assessing performance and making resource allocation decisions. There were no pro forma adjustments for the three months ended June 30, 2019.
| | | Segment Information | Agri-culture | Perf. Materials & Coatings | Ind. Interm. & Infrast. | Pack. & Spec. Plastics | Elect. & Imaging | Nutrition & Biosciences | Transp. & Adv. Polymers | Safety & Const. | Corp. | Total | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Corp. | Total |
| In millions |
| Three months ended Mar 31, 2019 | | | |
| Three months ended June 30, 2019 | | | |
| Net sales | $ | 3,397 |
| $ | 2,255 |
| $ | 3,402 |
| $ | 5,110 |
| $ | 1,078 |
| $ | 1,659 |
| $ | 1,355 |
| $ | 1,322 |
| $ | 71 |
| $ | 19,649 |
| $ | 858 |
| $ | 1,558 |
| $ | 1,269 |
| $ | 1,341 |
| $ | 442 |
| $ | — |
| $ | 5,468 |
|
Operating EBITDA 1 | $ | 667 |
| $ | 481 |
| $ | 448 |
| $ | 993 |
| $ | 385 |
| $ | 390 |
| $ | 414 |
| $ | 411 |
| $ | (170 | ) | $ | 4,019 |
| $ | 246 |
| $ | 391 |
| $ | 357 |
| $ | 382 |
| $ | 99 |
| $ | (53 | ) | $ | 1,422 |
|
| Equity in earnings (losses) of nonconsolidated affiliates | $ | — |
| $ | — |
| $ | (48 | ) | $ | 38 |
| $ | 29 |
| $ | 4 |
| $ | 2 |
| $ | 7 |
| $ | (6 | ) | $ | 26 |
| $ | 5 |
| $ | — |
| $ | 2 |
| $ | 7 |
| $ | 35 |
| $ | — |
| $ | 49 |
|
| Three months ended Mar 31, 2018 | | | |
| Three months ended June 30, 2018 | | | |
| Net sales | $ | 3,808 |
| $ | 2,304 |
| $ | 3,715 |
| $ | 6,010 |
| $ | 1,153 |
| $ | 1,720 |
| $ | 1,425 |
| $ | 1,299 |
| $ | 76 |
| $ | 21,510 |
| $ | 921 |
| $ | 1,621 |
| $ | 1,417 |
| $ | 1,372 |
| $ | 526 |
| $ | — |
| $ | 5,857 |
|
Operating EBITDA 1 | $ | 891 |
| $ | 586 |
| $ | 654 |
| $ | 1,301 |
| $ | 398 |
| $ | 418 |
| $ | 437 |
| $ | 354 |
| $ | (168 | ) | $ | 4,871 |
| |
Pro forma operating EBITDA 1 | | $ | 290 |
| $ | 383 |
| $ | 402 |
| $ | 296 |
| $ | 123 |
| $ | (72 | ) | $ | 1,422 |
|
| Equity in earnings (losses) of nonconsolidated affiliates | $ | (1 | ) | $ | — |
| $ | 149 |
| $ | 59 |
| $ | 48 |
| $ | 3 |
| $ | 3 |
| $ | 5 |
| $ | (9 | ) | $ | 257 |
| $ | 6 |
| $ | — |
| $ | 1 |
| $ | 8 |
| $ | 39 |
| $ | — |
| $ | 54 |
|
| Six months ended June 30, 2019 | | | | | |
| Net sales | | $ | 1,683 |
| $ | 3,093 |
| $ | 2,586 |
| $ | 2,624 |
| $ | 896 |
| $ | — |
| $ | 10,882 |
|
Pro forma operating EBITDA 1 | | $ | 534 |
| $ | 744 |
| $ | 730 |
| $ | 756 |
| $ | 193 |
| $ | (105 | ) | $ | 2,852 |
|
| Equity in earnings (losses) of nonconsolidated affiliates | | $ | 8 |
| $ | — |
| $ | 2 |
| $ | 15 |
| $ | 64 |
| $ | — |
| $ | 89 |
|
| Six months ended June 30, 2018 | | | |
| Net sales | | $ | 1,785 |
| $ | 3,198 |
| $ | 2,795 |
| $ | 2,636 |
| $ | 1,040 |
| $ | — |
| $ | 11,454 |
|
Pro forma operating EBITDA 1 | | $ | 567 |
| $ | 751 |
| $ | 791 |
| $ | 622 |
| $ | 233 |
| $ | (136 | ) | $ | 2,828 |
|
| Equity in earnings (losses) of nonconsolidated affiliates | | $ | 13 |
| $ | 1 |
| $ | 3 |
| $ | 13 |
| $ | 81 |
| $ | — |
| $ | 111 |
|
| |
| 1. | A reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA and pro forma Operating EBITDA, as applicable, is provided below. |
|
| | | | | | |
| Reconciliation of "Income from continuing operations, net of tax" to Operating EBITDA | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Income from continuing operations, net of tax | $ | 571 |
| $ | 1,153 |
|
| + Provision for income taxes on continuing operations | 209 |
| 389 |
|
| Income from continuing operations before income taxes | $ | 780 |
| $ | 1,542 |
|
| + Depreciation and amortization | 1,519 |
| 1,484 |
|
- Interest income 1 | 75 |
| 55 |
|
| + Interest expense and amortization of debt discount | 454 |
| 350 |
|
- Foreign exchange gains (losses), net 1, 2 | (11 | ) | (98 | ) |
| - Significant items | (1,330 | ) | (1,452 | ) |
| Operating EBITDA | $ | 4,019 |
| $ | 4,871 |
|
|
| | | | | | |
| Reconciliation of "(Loss) Income from continuing operations, net of tax" to Operating EBITDA for the Three Months Ended June 30, 2019 and 2018 | Three Months Ended |
| In millions | June 30, 2019 | June 30, 2018 |
| (Loss) Income from continuing operations, net of tax | $ | (1,103 | ) | $ | 31 |
|
| + Provision for income taxes on continuing operations | 155 |
| 99 |
|
| (Loss) income from continuing operations before income taxes | $ | (948 | ) | $ | 130 |
|
| + Depreciation and amortization | 507 |
| 551 |
|
- Interest income 1 | 9 |
| 11 |
|
| + Interest expense | 165 |
| 171 |
|
- Non-operating pension/OPEB benefit1 | 18 |
| 28 |
|
- Foreign exchange gains (losses), net 1 | (17 | ) | 53 |
|
+ Costs historically allocated to the materials science and agriculture businesses 2 | — |
| 352 |
|
+ Pro forma adjustments 3 | — |
| (52 | ) |
| - Adjusted significant items | (1,708 | ) | (362 | ) |
Operating EBITDA 3 | $ | 1,422 |
| $ | 1,422 |
|
| |
| 1. | Included in Sundry income (expense) - net. |
2. 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.
3. For the three months ended June 30, 2018, operating EBITDA is on a pro forma basis. Refer to the Supplemental Unaudited Pro Forma Combined Financial Information contained in the MD&A for additional information related to the pro forma adjustments.
|
| | | | | | |
| Reconciliation of "(Loss) Income from continuing operations, net of tax" to Pro Forma Operating EBITDA for the Six months Ended June 30, 2019 and 2018 | Six Months Ended |
| In millions | June 30, 2019 | June 30, 2018 |
| Loss from continuing operations, net of tax | $ | (1,177 | ) | $ | (42 | ) |
| + Provision for income taxes on continuing operations | 64 |
| 164 |
|
| (Loss) Income from continuing operations before income taxes | $ | (1,113 | ) | $ | 122 |
|
| + Depreciation and amortization | 1,034 |
| 1,102 |
|
- Interest income 1 | 49 |
| 21 |
|
| + Interest expense | 345 |
| 342 |
|
| - Non-operating pension/OPEB benefit | 39 |
| 55 |
|
- Foreign exchange gains (losses), net 1, 2 | (78 | ) | (72 | ) |
+ Costs historically allocated to the materials science and agriculture businesses 3 | 256 |
| 608 |
|
+ Pro forma adjustments 4 | 122 |
| (150 | ) |
| - Adjusted significant items | (2,218 | ) | (808 | ) |
Pro Forma Operating EBITDA 4 | $ | 2,852 |
| $ | 2,828 |
|
| |
| 1. | Included in "Sundry income (expense) - net." |
| |
| 2. | Excludes a $50 million pretax foreign exchange loss significant item related to adjustments to Historical DuPont'sEID's foreign currency exchange contracts as a result of U.S. tax reform during the threesix months ended March 31,June 30, 2018. |
3. 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.
4. Refer to the Supplemental Unaudited Pro Forma Combined Financial Information contained in the MD&A section for additional information related to the pro forma adjustments.
The significant items for the three months ended June 30, 2019, are presented on an as reported basis. The adjusted significant items for the six months ended June 30, 2019 and for the three and six months ended June 30, 2018, are presented on a pro forma basis. The following tables summarize the pretax impact of adjusted significant items by segment that are excluded from Operating EBITDA and pro forma Operating EBITDA above:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Significant Items by Segment for the Three Months Ended Mar 31, 2019 | Agri-culture | Perf. Materials & Coatings | Ind. Interm. & Infrast. | Pack. & Spec. Plastics | Elect. & Imaging | Nutrition & Biosciences | Transp. & Adv. Polymers | Safety & Const. | Corp. | Total |
| In millions |
Loss on divestiture 1 | $ | (24 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (24 | ) |
Integration and separation costs 2 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (813 | ) | (813 | ) |
Inventory step-up amortization 3 | (205 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (205 | ) |
Restructuring and asset related charges - net4, 5 | (50 | ) | — |
| — |
| (13 | ) | — |
| (27 | ) | (1 | ) | (2 | ) | (195 | ) | (288 | ) |
| Total | $ | (279 | ) | $ | — |
| $ | — |
| $ | (13 | ) | $ | — |
| $ | (27 | ) | $ | (1 | ) | $ | (2 | ) | $ | (1,008 | ) | $ | (1,330 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| Significant Items by Segment for the Three Months Ended June 30, 2019 | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Corp. | Total |
| In millions |
Integration and separation costs 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (347 | ) | $ | (347 | ) |
Restructuring and asset related charges - net 2 | (7 | ) | (85 | ) | (12 | ) | (20 | ) | (1 | ) | (13 | ) | (138 | ) |
Goodwill impairment charges 3 | — |
| (933 | ) | — |
| — |
| (242 | ) | — |
| (1,175 | ) |
Income tax related items 4 | — |
| — |
| — |
| (48 | ) | — |
| — |
| (48 | ) |
| Total | $ | (7 | ) | $ | (1,018 | ) | $ | (12 | ) | $ | (68 | ) | $ | (243 | ) | $ | (360 | ) | $ | (1,708 | ) |
| |
| 1. | Reflects a loss related to Historical Dow's sale of a joint venture related to actions under the Synergy Program. |
| |
2. | Integration and separation costs related to the Merger, post-Merger integration and Intended Business Separationbusiness separation activities. |
| |
3. | Includes the amortization of the fair value step-up of Historical DuPont's inventories as a result of the Merger. |
| |
4.2. | Includes Board approved restructuring plans and asset related charges, which include other asset impairments. See Note 5 for additional information. |
| |
5.3. | Includes a $1 million restructuring charge related to an equity affiliate of Transportation & Advanced Polymers that is reflected in "Equity in earnings of nonconsolidated affiliates" in the consolidated statement of income.See Note 13 for additional information. |
4. $48 million charge included in "Sundry income (expense) - net" reflects a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Significant Items by Segment for the Three Months Ended Mar 31, 2018 | Agri-culture | Perf. Materials & Coatings | Ind. Interm. & Infrast. | Pack. & Spec. Plastics | Elect. & Imaging | Nutrition & Biosciences | Transp. & Adv. Polymers | Safety & Const. | Corp. | Total |
| In millions |
Gain on sale of business/entity 1 | $ | — |
| $ | — |
| $ | 20 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 20 |
|
Integration and separation costs 2 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (457 | ) | (457 | ) |
Inventory step-up amortization 3 | (639 | ) | — |
| — |
| — |
| — |
| (63 | ) | — |
| (1 | ) | — |
| (703 | ) |
Restructuring and asset related charges (credits) - net 4 | (58 | ) | 1 |
| (11 | ) | (6 | ) | (1 | ) | — |
| 1 |
| (7 | ) | (181 | ) | (262 | ) |
Income tax related item 5 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (50 | ) | (50 | ) |
| Total | $ | (697 | ) | $ | 1 |
| $ | 9 |
| $ | (6 | ) | $ | (1 | ) | $ | (63 | ) | $ | 1 |
| $ | (8 | ) | $ | (688 | ) | $ | (1,452 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| Adjusted Significant Items by Segment for the Three Months Ended June 30, 2018 (Pro Forma) | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Corp. | Total |
| In millions |
Merger-related inventory step-up amortization 1 | $ | — |
| $ | (4 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (4 | ) |
Net loss on divestitures and changes in joint venture ownership 2 | — |
| — |
| — |
| — |
| (21 | ) | — |
| (21 | ) |
Integration and separation costs 3 | — |
| — |
| — |
| — |
| — |
| (291 | ) | (291 | ) |
Restructuring and asset related charges - net 4 | (1 | ) | — |
| — |
| (12 | ) | 5 |
| (38 | ) | (46 | ) |
| Total | $ | (1 | ) | $ | (4 | ) | $ | — |
| $ | (12 | ) | $ | (16 | ) | $ | (329 | ) | $ | (362 | ) |
| |
| 1. | Includes the fair value step-up in Historical EID's inventories as a gain related to Historical Dow's saleresult of its equity interestthe Merger and the acquisition of FMC Corporation's Health and Nutrition business in MEGlobal.November 2017. |
| |
| 2. | Reflected in "Sundry income (expense) - net." |
| |
| 3. | Integration and separation costs related to the Merger, post-Merger integration and Intended Business Separation activities,business separation activities. |
| |
| 4. | Includes Board approved restructuring plans and asset related charges, which includes other asset impairments. See Note 5 for additional information. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Adjusted Significant Items by Segment for the Six Months Ended June 30, 2019 (Pro Forma) | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Corp. | Total |
| In millions |
Integration and separation costs 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (785 | ) | $ | (785 | ) |
Restructuring and asset related charges - net 2 | (7 | ) | (112 | ) | (12 | ) | (22 | ) | — |
| (57 | ) | (210 | ) |
Goodwill impairment charges 3 | — |
| (933 | ) | — |
| — |
| (242 | ) | — |
| (1,175 | ) |
Income tax related items 4 | — |
| — |
| — |
| (48 | ) | — |
| — |
| (48 | ) |
| Total | $ | (7 | ) | $ | (1,045 | ) | $ | (12 | ) | $ | (70 | ) | $ | (242 | ) | $ | (842 | ) | $ | (2,218 | ) |
| |
| 1. | Integration and separation costs related to the ownership restructure of Dow Silicones.Merger, post-Merger integration and business separation activities. |
| |
| 2. | Includes Board approved restructuring plans and asset related charges, which include other asset impairments. See Note 5 for additional information. |
| |
| 3. | See Note 13 for additional information. |
4. $48 million charge included in "Sundry income (expense) - net" reflects a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement.
|
| | | | | | | | | | | | | | | | | | | | | |
| Adjusted Significant Items by Segment for the Six Months Ended June 30, 2018 (Pro Forma) | Elect. & Imaging | Nutrition & Biosciences | Transp. & Industrial | Safety & Const. | Non-Core | Corp. | Total |
| In millions |
Merger-related inventory step-up amortization 1 | $ | — |
| $ | (68 | ) | $ | — |
| $ | (5 | ) | $ | — |
| $ | — |
| $ | (73 | ) |
Net loss on divestitures and changes in joint venture ownership 2 | — |
| — |
| — |
| — |
| (21 | ) | — |
| (21 | ) |
Integration and separation costs 3 | — |
| — |
| — |
| — |
| — |
| (565 | ) | (565 | ) |
Restructuring and asset related charges - net 4 | (2 | ) | — |
| 1 |
| (19 | ) | 6 |
| (85 | ) | (99 | ) |
Income tax related item 5 | — |
| — |
| — |
| — |
| — |
| (50 | ) | (50 | ) |
| Total | $ | (2 | ) | $ | (68 | ) | $ | 1 |
| $ | (24 | ) | $ | (15 | ) | $ | (700 | ) | $ | (808 | ) |
| |
| 1. | Includes the fair value step-up ofin Historical DuPont'sEID's inventories as a result of the Merger and the acquisition of FMC Corporation's Health and Nutrition business in November 2017. |
| |
| 2. | Reflected in "Sundry income (expense) - net". |
| |
| 3. | Integration and separation costs related to the H&N Business.Merger, post-Merger integration and business separation activities. |
| |
| 4. | Includes Board approved restructuring plans and asset related charges, which includes other asset impairments. See Note 5 for additional information. |
| |
| 5. | Includes a foreign exchange loss related to adjustments to Historical DuPont'sEID's foreign currency exchange contracts as a result of the U.S. tax reform. |
NOTE 24 - SUBSEQUENT EVENTS
Dow Spin-off
Effective as of 5:00 p.m. on April 1, 2019, DowDuPont completed the distribution of Dow. Additionally, Dow commenced trading “regular way” under the symbol “DOW” on the New York Stock Exchange on April 2, 2019. Prior to the commencement of trading on April 2, 2019, the stockholders of record of the Company as of the close of business on March 21, 2019 received one share of Dow Common Stock for every three shares of DowDuPont Common Stock held by such stockholders as of March 21, 2019. The Company did not issue fractional shares of Dow Common Stock in the Dow Distribution; the Company’s stockholders received cash in lieu of fractional shares.
Immediately after the Dow Distribution, DowDuPont does not beneficially own any equity interest in Dow and will no longer consolidate Dow into its financial results. Beginning in the second quarter of 2019, Dow's historical financial results for periods prior to April 1, 2019 will be reflected in the Company's consolidated financial statements as discontinued operations. Dow represents approximately one-third of the Company's assets and just over half of the Company's net sales.
In connection with the Distributions, the Company, Dow and Corteva (together, the “Parties” and each a “Party”) entered into certain agreements that will effect the separations, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property, employee benefits and tax-related assets and liabilities) among the Company, Dow, and Corteva, and provide a framework for the Company’s relationship with Dow and Corteva following the separations and Distributions. Effective April 1, 2019, the Parties entered into the following agreements:
Separation and Distribution Agreement - The Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Separation and Distribution Agreement").
Tax Matters Agreement - The Parties entered into an agreement that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.
Intellectual Property Cross-License Agreements - DowDuPont entered into an Intellectual Property Cross-License Agreement with Dow (the “DowDuPont-Dow IP Cross-License Agreement”). In addition, Dow and Corteva entered into an Intellectual Property Cross-License Agreement (the “Dow-Corteva IP Cross-License Agreement”). The Intellectual Property Cross-License Agreements set forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, and software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
In connection with the intended Corteva Distribution, the Company expects to enter into additional agreements, including an intellectual property cross-license agreement with Corteva. This agreement will set forth the terms and conditions under which the Company and Corteva may use, in their respective businesses following the Corteva Distribution, certain know-how (including trade secrets), copyrights, and software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
Actions to Achieve Credit Profiles of DuPont, Corteva and Dow
On April 1, 2019, prior to consummating the Dow Distribution, the Company contributed $2,024 million in cash to Dow.
On March 22, 2019, Historical DuPont issued notices of redemption in full of all of its outstanding notes (the “Make Whole Notes”) listed in the table below:
|
| | | |
| In millions | Amount |
| 4.625% Notes due 2020 | $ | 474 |
|
| 3.625% Notes due 2021 | 296 |
|
| 4.250% Notes due 2021 | 163 |
|
| 2.800% Notes due 2023 | 381 |
|
| 6.500% Debentures due 2028 | 57 |
|
| 5.600% Senior Notes due 2036 | 42 |
|
| 4.900% Notes due 2041 | 48 |
|
| 4.150% Notes due 2043 | 69 |
|
| Total | $ | 1,530 |
|
The Make Whole Notes were redeemed on April 22, 2019, at the make-whole redemption prices set forth in the respective Make Whole Notes. On and after the date of redemption, the Make Whole Notes were no longer deemed outstanding, interest on the Make Whole Notes ceased to accrue and all rights of the holders of the Make Whole Notes were terminated.
On May 2, 2019, Historical DuPont terminated its Term Loan Facility and repaid the aggregate outstanding principal amount of $3 billion plus accrued and unpaid interest through and including May 1, 2019.
In contemplation of the foregoing, effective May 2, 2019, the Company fully drew the two term loan facilities it entered into in the fourth quarter of 2018 (the “DWDP Term Loan Facilities” and together with the DowDuPont Notes, the “Financings”) in the aggregate principal amount of $3 billion.
The Company funded the activities above with cash from operations and proceeds from the Financings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 DuPont"EID") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont" or the "Company") and, as a result, Historical Dow and Historical DuPontEID 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 a result, the historical financial statements of Historical Dow for periods prior to the Merger are considered to be the historical financial statements of DowDuPont.
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 (the “Intended Business Separations” and the transactions to accomplish the Intended Business Separations, the “separations”).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. Following the separations, DowDuPont will continue to hold the specialty products business and operate as "DuPont".
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”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 expects to completeInc.), completed the previously announced intended separation of its agriculture business into a separate and independent public company on June 1, 2019 by way of a distribution of Corteva Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“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 DowDuPont Common Stockthe Company’s common stock, par value $0.01 per share, as of a record date to be set by the Company’s Boardclose of Directorsbusiness on May 24, 2019 (the “Corteva Distribution” and, together with the Dow Distribution, the “Distributions”).
Following the Corteva Distribution, DowDuPont will holdthe 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 and operate as "DuPont" (the "Company"). The assetsBeginning on June 3, 2019, the Company's common stock is traded on the NYSE under the ticker symbol "DD".
These interim Consolidated Financial Statements present the consolidated financial position of DuPont as of June 30, 2019 and liabilitiesDecember 31, 2018 and the results of operations attributedof DuPont for the three and six months ended June 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 includedreflected in the Company's consolidated results as of and for the periods presented herein.
Except as otherwise indicated by the context, the term "Historical Dow" includescontinuing 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.
RECENT DEVELOPMENTS
Business Separations and Separation and Distribution Agreements
DuPont completed the separation of Dow on April 1, 2019 and Corteva on June 1, 2019. In connection with the Dow Distribution and Corteva Distribution, DuPont has entered into certain agreements that provide for the allocation of DuPont’s assets, employees, liabilities and obligations (including its consolidated subsidiaries, "Historical DuPont" includes Historicalinvestments, property and employee benefits and tax-related assets and liabilities) among DuPont, and its consolidated subsidiaries, "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of Historical Dow, and "Dow Silicones" meansCorteva (together, the “Parties” and each a “Party”), and provides a framework for DuPont’s relationship with Dow Silicones Corporation, a wholly owned subsidiary of Historical Dow.and Corteva following the Distributions. Effective April 1, 2019, the Parties entered into the following agreements:
OVERVIEW
Separation and Distribution Agreement - The following is a summaryParties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the results from continuing operations forParties’ ongoing relationships after the three months ended March 31, 2019:
The Company reported net sales incompletion of the first quarter of 2019 of $19.6 billion, down 9 percent from $21.5 billion in the first quarter of 2018, with net sales declines across all geographic regionsDistributions (the "Separation and segments, except Safety & Construction. These declines were due to a decrease in local price of 4 percent, a 3 percent unfavorable currency impact and a volume decline of 2 percent.
Local price decreased 4 percent compared with the same period last year, with decreases in all geographic regions and two segments, Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure (both down 11 percent), which were partially offset by increases in Transportation & Advanced Polymers (up 7 percent), Safety & Construction (up 4 percent), Nutrition & Biosciences (up 2 percent) and Agriculture (up 1 percent). Performance Materials & Coatings and Electronics & Imaging were both flat.
Currency had an unfavorable impact of 3 percent on sales, driven primarily by Europe, Middle East and Africa ("EMEA"Distribution Agreement").
Tax Matters Agreement - The Parties entered into an agreement that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Volume decreased 2 percent comparedEmployee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.
Intellectual Property Cross-License Agreement - DuPont entered into an Intellectual Property Cross-License Agreement with Dow (the “DowDuPont-Dow IP Cross-License Agreement”). The DowDuPont-Dow IP Cross-License Agreement sets forth the first quarterterms and conditions under which the applicable Parties may use in their respective businesses, following each of 2018, with decreases in all operating segments, except Industrial Intermediates & Infrastructure (up 6 percent)the Distributions, certain know-how (including trade secrets), Safety & Construction (up 4 percent)copyrights, software, and Performance Materials & Coatings (up 1 percent). Volume decreased in U.S. & Canada (down 7 percent)certain patents and Latin America (down 1 percent),standards, allocated to another Party pursuant to the Separation and increased in Asia Pacific (up 3 percent) and EMEA (up 1 percent).Distribution Agreement.
Research and development ("R&D") expenses totaled $717 million in the first quarter of 2019, down from $768 million in the first quarter of 2018. Selling, general and administrative ("SG&A") expenses were $1,672 million in the first quarter of 2019, down from $1,714 million in the first quarter of 2018. R&D and SG&A expenses decreased primarily due to synergies.
Restructuring and asset related charges - net were $287 million in the first quarter of 2019, primarily reflecting post-merger restructuring actions under the DowDuPont Cost Synergy Program of $280 million.
Integration and separation costs were $813 million in the first quarter of 2019, up from $457 million in the first quarter of 2018, reflecting post-Merger integration and Intended Business Separation activities.
Equity in earnings of nonconsolidated affiliates was $26 million in the first quarter of 2019, down from $257 million in the first quarter of 2018, primarily due to increased equity losses from Sadara and lower equity earnings from the Kuwait joint ventures (due to lower monoethylene glycol prices), the Thai joint ventures and the HSC Group.
Sundry income (expense) - net was income of $248 million in the first quarter of 2019, up from income of $115 million in the first quarter of 2018, primarily due to a decrease in foreign exchange losses.
Net income available for common stockholders was $520 million ($0.23 per share) in the first quarter of 2019, compared with $1,104 million ($0.47 per share) in the first quarter of 2018.
On February 14, 2019, the Company announced that its Board declared a dividend of $0.38 per share, paid on March 15, 2019, to shareholders of record on February 28, 2019.
On March 8, 2019, the Company announced that its Board declared a dividend of $325 million ($0.14 per share), payable on May 28, 2019, to shareholders of record on April 26, 2019.
|
| | | | | | |
| Selected Financial Data | Three Months Ended |
| In millions, except per share amounts | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 19,649 |
| $ | 21,510 |
|
| | | |
| Cost of sales ("COS") | $ | 14,726 |
| $ | 16,315 |
|
| Percent of net sales | 74.9 | % | 75.8 | % |
| | | |
| Research and development expenses | $ | 717 |
| $ | 768 |
|
| Percent of net sales | 3.6 | % | 3.6 | % |
| | | |
| Selling, general and administrative expenses | $ | 1,672 |
| $ | 1,714 |
|
| Percent of net sales | 8.5 | % | 8.0 | % |
| | | |
| Effective tax rate | 26.8 | % | 25.2 | % |
| | | |
| Net income available for common stockholders | $ | 520 |
| $ | 1,104 |
|
| | | |
| Earnings per common share – basic | $ | 0.23 |
| $ | 0.47 |
|
| Earnings per common share – diluted | $ | 0.23 |
| $ | 0.47 |
|
In addition to the financial highlightsagreements above, DuPont has entered into certain various supply agreements with Dow. These agreements provide for different pricing than the historical intercompany and intracompany practices prior to the Distributions.
Effective June 1, 2019, in connection with the Corteva Distribution, DuPont and Corteva entered into the following events occurred subsequent toagreements:
Intellectual Property Cross-License Agreement - DuPont and Corteva entered into an Intellectual Property Cross-License Agreement (the “DuPont-Corteva IP Cross-License Agreement”). The DuPont-Corteva IP Cross-License Agreement sets forth the first quarter of 2019:
On April 3, 2019,terms and conditions under which the Company's Board of Directors approved a reverse stock split of the Company’s common stock, subject to stockholder approval which will be determined during a special meeting of stockholders scheduled for May 23, 2019. If stockholders approve the reverse stock split, the Board of Directors will select a reverse stock split ratio of not less than 2-for-5 and not greater than 1-for-3, with an exact ratio asapplicable parties may be determined by the Board of Directors at a later date so that, depending on the ratio chosen, stockholders’ shares of issued and outstanding common stock will be converted at a ratio between (i) two shares of issued and outstanding common stock for every five shares of common stock owned and (ii) one share of issued and outstanding common stock for every three shares of common stock owned. The price of each common
share is expected to increase so that a stockholder would have fewer but higher priced shares. A reverse stock split would not have any impact on the voting and other rights of stockholders and will have no impact on the Company’s business operations or any of its outstanding indebtedness. If approved, the Company expects to implement the reverse stock split effective immediatelyuse in their respective businesses, following the Corteva Distribution. Even if the reverse stock split is approved by the Company’s stockholders, the Board of Directors may delay or abandon the reverse stock split at any time priorDistribution, certain know-how (including trade secrets), copyrights, software, and certain patents and standards, allocated to another Party pursuant to the effective timeSeparation and Distribution Agreement.
Letter Agreement - The Company entered into a letter agreement (the "Letter Agreement") with Corteva that sets forth certain additional terms and conditions related to the Corteva Distribution, including certain limitations on DuPont’s and Corteva's ability to transfer certain businesses and assets to third parties without assigning certain of such Party’s indemnification obligations under the Separation and Distribution Agreement to the other Party to the transferee of such businesses and assets or meeting certain other alternative conditions. The Letter Agreement further outlines the allocation between DuPont and Corteva of liabilities associated with certain legal and environmental matters, including liabilities associated with discontinued and/or divested operations and businesses of Historical EID. See Note 15 to the interim Consolidated Financial Statements for more information regarding the allocation.
Amended and Restated Tax Matters Agreement - The Parties entered into an amendment and restatement of the reverse stock split ifTax Matters Agreement, between DuPont, Corteva and Dow, effective as of April 1, 2019 (as so amended and restated, the Board“Amended and Restated Tax Matters Agreement”). The Amended and Restated Tax Matters Agreement governs the Parties’ rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of Directors determines thattax returns, the reverse stock split is no longercontrol of audits and other tax proceedings and other matters regarding taxes. The Parties amended and restated the Tax Matters Agreement in connection with the best interestsCorteva Distribution in order to allocate between the DuPont and Corteva certain rights and obligations of the Company or its stockholders.provided in the original form of the Tax Matters Agreement.
On May 2,Segment Realignment
Effective June 1, 2019, in anticipation of becoming an independent, specialty products company following the intended Corteva Distribution, DowDuPont announced changes toDuPont changed its management and reporting structure resulting in the creation of a new Non-Core segment ("Second Quarter Segment Realignments"Realignment").
These changes result in the following being realigned to Non-Core:
•Photovoltaic and Advanced Materials business unit (including the HSC Group joint ventures: DC HSC Holdings LLC and Hemlock Semiconductor L.L.C) from the Electronics & Imaging segment;
•Biomaterials and Clean Technologies business units from the Nutrition & Biosciences segment;
•DuPont Teijin Films joint venture from the Transportation & Industrial (formerly Transportation & Advanced PolymersPolymers) segment; and
•Sustainable Solutions business unit from the Safety & Construction segment.
In addition, the following changes will occur:have occurred:
•Consolidation of the Nutrition & Health business with the Industrial Biosciences business within the Nutrition & Biosciences reportable segment. Previously, Nutrition & Health and Industrial Biosciences were separate operating segments which did not meet the quantitative thresholds.
•Pre-commercial activities related to the Biomaterials business unit will bewas realigned from Corporate to Non-Core, with the remaining pre-commercial activities realigned to the Nutrition & Biosciences segment.
The changes become effectiveRefer to Notes 4 and 23 to the interim Consolidated Financial Statements for additional information.
Nutrition & Biosciences and Non-Core Goodwill Impairments
During the three months ended June 1,30, 2019, the Company was required to perform interim impairment tests of its goodwill due to the internal distribution of the specialty products legal entities from Historical EID to DowDuPont (the "Internal SP Distribution") and the Second Quarter Segment Realignment. As a result of the analyses performed, the Company will report financial results under this new structure beginningrecorded pre-tax, non-cash impairment charges during the three and six months ended June 30, 2019 totaling $1,175 million, of which $933 million related to the Nutrition & Biosciences segment and $242 million related to the Non-Core segment. The charges were recognized in "Goodwill impairment charge" in the interim Consolidated Statements of Operations. Refer to Note 13 of the interim Consolidated Financial Statements.
Equity Method Investment Impairment
During the second quarter of 2019, in connection with the Internal SP Distribution and the impairment of the Industrial Biosciences reporting unit, the Company performed an impairment analysis on the reporting unit's equity method investments. As a result of the analysis performed, the Company recorded pre-tax, non-cash impairment charges of $63 million to write-down the value of an equity method investment. The charge was 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.
Reverse Stock Split
On May 23, 2019, stockholders of DowDuPont approved a 1-for-3 reverse stock split of DowDuPont shares of common stock with par value of $0.01 per share, which became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
Share Buyback Program
On June 1, 2019, the Company's Board of Directors approved a new $2 billion share buyback program, which expires on June 1, 2021. At June 30, 2019, the Company had repurchased 1.4 million shares under this program at a total cost of $102 million.
Dividends
On February 14, 2019, the Company announced that its Board declared a pro rata dividend of $851 million, paid on March 15, 2019, to shareholders of record on February 28, 2019. On March 8, 2019, the Company announced that its Board declared a pro rata dividend of $325 million, paid on May 28, 2019, to shareholders of record on April 26, 2019.
On June 27, 2019, the Company announced that its Board declared a third quarter dividend of $0.30 per share payable on September 13, 2019, to shareholders of record on July 31, 2019.
2019 Restructuring Program
During the second quarter of 2019 and in connection with the ongoing integration activities, DuPont approved restructuring actions to simplify and optimize certain organizational structures following the completion of the Distributions. As a result of these actions, the Company expects to record total pre-tax restructuring charges of $85 million to $130 million, comprised of approximately $55 million to $80 million of severance and related benefits costs; $30 million to $45 million of asset related charges; and up to $5 million of costs related to contract terminations. For the three and six months ended June 30, 2019, DuPont recorded a pre-tax charge of $53 million, recognized in "Restructuring and asset related charges - net" in the Company's interim Consolidated Statements of Operations. At June 30, 2019, total liabilities related to the program were $50 million. Future cash payments related to this program are anticipated to be approximately $55 million to $85 million, primarily related to the payment of severance and related benefits and contract termination costs.
DowDuPont Cost Synergy Program
In September and November 2017, the Company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), adopted by the DowDuPont Board of Directors. The Synergy Program was designed to integrate and optimize the organization following the Merger and in preparation for the Distributions. The Company has recorded pre-tax restructuring charges of $466 million inception-to-date, consisting of severance and related benefit costs of $222 million, asset related charges of $184 million and contract termination charges of $60 million. The Company does not expect to incur further significant charges related to the DowDuPont Cost Synergy program and at June 30, 2019 the program is considered substantially complete.
In connection with these actions, the Company recorded pre-tax charges of $22 million and $94 million for the three and six months ended June 30, 2019, respectively. Future cash payments related to this program are anticipated to be approximately $124 million, primarily related to the payment of severance and related benefits.
SELECTED FINANCIAL DATA
|
| | | | | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| In millions, except per share amounts | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Net sales | $ | 5,468 |
| $ | 5,857 |
| $ | 10,882 |
| $ | 11,454 |
|
| | | | | |
| Gross Margin | $ | 1,972 |
| $ | 1,772 |
| $ | 3,765 |
| $ | 3,564 |
|
| Gross Margin Percentage | 36.1 | % | 30.3 | % | 34.6 | % | 31.1 | % |
| | | | | |
| Research and development expenses | $ | 232 |
| $ | 270 |
| $ | 499 |
| $ | 544 |
|
| Percent of net sales | 4.2 | % | 4.6 | % | 4.6 | % | 4.7 | % |
| | | | | |
| Selling, general and administrative expenses | $ | 642 |
| $ | 768 |
| $ | 1,368 |
| $ | 1,570 |
|
| Percent of net sales | 11.7 | % | 13.1 | % | 12.6 | % | 13.7 | % |
| | | | | |
| Effective tax rate - continuing operations | (16.4 | )% | 76.2 | % | (5.8 | )% | 134.4 | % |
| | | | | |
| Net (loss) income available for DuPont common stockholders | $ | (571 | ) | $ | 1,769 |
| $ | (50 | ) | $ | 2,862 |
|
| | | | | |
| (Loss) earnings per common share – basic | $ | (0.76 | ) | $ | 2.29 |
| $ | (0.07 | ) | $ | 3.69 |
|
| (Loss) earnings per common share – diluted | $ | (0.76 | ) | $ | 2.27 |
| $ | (0.07 | ) | $ | 3.69 |
|
RESULTS OF OPERATIONS
| | | Summary of Sales Results | Three Months Ended | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 |
| Net sales | $ | 19,649 |
| $ | 21,510 |
| $ | 5,468 |
| $ | 5,857 |
| $ | 10,882 |
| $ | 11,454 |
|
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 Mar 31, 2019 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total |
| Agriculture | 1 | % | (5 | )% | (7 | )% | — | % | (11 | )% | |
| Performance Materials & Coatings | — |
| (3 | ) | 1 |
| — |
| (2 | ) | |
| Industrial Intermediates & Infrastructure | (11 | ) | (3 | ) | 6 |
| — |
| (8 | ) | |
| Packaging & Specialty Plastics | (11 | ) | (2 | ) | (2 | ) | — |
| (15 | ) | |
| Electronics & Imaging | — |
| (1 | ) | (6 | ) | — |
| (7 | ) | — | % | (2 | )% | (5 | )% | — | % | (7 | )% | — | % | (2 | )% | (4 | )% | — | % | (6 | )% |
| Nutrition & Biosciences | 2 |
| (3 | ) | (2 | ) | (1 | ) | (4 | ) | 1 |
| (3 | ) | (1 | ) | (1 | ) | (4 | ) | 1 |
| (3 | ) | (1 | ) | — |
| (3 | ) |
| Transportation & Advanced Polymers | 7 |
| (3 | ) | (9 | ) | — |
| (5 | ) | |
| Transportation & Industrial | | 5 |
| (3 | ) | (12 | ) | — |
| (10 | ) | 6 |
| (3 | ) | (10 | ) | — |
| (7 | ) |
| Safety & Construction | 4 |
| (2 | ) | 4 |
| (4 | ) | 2 |
| 4 |
| (3 | ) | 1 |
| (4 | ) | (2 | ) | 4 |
| (2 | ) | 2 |
| (4 | ) | — |
|
| Non-Core | | — |
| (2 | ) | (14 | ) | — |
| (16 | ) | (2 | ) | (2 | ) | (10 | ) | — |
| (14 | ) |
| Total | (4 | )% | (3 | )% | (2 | )% | — | % | (9 | )% | 2 | % | (3 | )% | (5 | )% | (1 | )% | (7 | )% | 3 | % | (3 | )% | (4 | )% | (1 | )% | (5 | )% |
| U.S. & Canada | (4 | )% | — | % | (7 | )% | — | % | (11 | )% | 1 | % | — | % | (3 | )% | — | % | (2 | )% | 1 | % | — | % | (2 | )% | — | % | (1 | )% |
EMEA 1 | (3 | ) | (6 | ) | 1 |
| (1 | ) | (9 | ) | 3 |
| (6 | ) | (6 | ) | (4 | ) | (13 | ) | 4 |
| (6 | ) | (4 | ) | (4 | ) | (10 | ) |
| Asia Pacific | (4 | ) | (2 | ) | 3 |
| — |
| (3 | ) | 2 |
| (3 | ) | (6 | ) | — |
| (7 | ) | 2 |
| (3 | ) | (5 | ) | — |
| (6 | ) |
| Latin America | (6 | ) | (2 | ) | (1 | ) | — |
| (9 | ) | 4 |
| (4 | ) | (3 | ) | (1 | ) | (4 | ) | 5 |
| (4 | ) | (2 | ) | (1 | ) | (2 | ) |
| Total | (4 | )% | (3 | )% | (2 | )% | — | % | (9 | )% | 2 | % | (3 | )% | (5 | )% | (1 | )% | (7 | )% | 3 | % | (3 | )% | (4 | )% | (1 | )% | (5 | )% |
| |
| 1. | Europe, Middle East and Africa. |
The Company reported net sales infor the first quarter ofthree months ended June 30, 2019 of $19.6$5.5 billion, down 97 percent from $21.5$5.9 billion infor the first quarter ofthree months ended June 30, 2018, primarily due to decreased selling prices, negativea 5 percent decrease in volume, a 3 percent unfavorable currency impact and lower demand. Sales declines were broad-based with decreasesa 1 percent decline in most segmentsportfolio actions slightly offset a by 2 percent increase in local price. Volume declined across all geographic regions and all geographic regions.segments with the exception of Safety & Construction (up 1 percent). The most notable volume decreases were in Non-Core (down 14 percent) and Transportation & Industrial (down 12 percent). Portfolio and other changes contributed 1 percent of the sales decrease which impacted Safety & Construction (down 4 percent; within EMEA) and Nutrition & Biosciences (down 1 percent). Local price was down 4up 2 percent compared with the same period last year as decreasesyear. Local price increased in Packaging & Specialty Plasticsall geographic regions and Industrial Intermediates & Infrastructure (both down 11 percent) more than offset increases in Transportation & Advanced Polymers (up 7 percent), Safety & Construction (up 4 percent), Nutrition & Biosciences (up 2 percent) and Agriculture (up 1 percent). Performance Materials & Coatings andall segments except Electronics & Imaging were both flat. Local price decreasedand Non-core (flat in all geographic regions.both). Currency unfavorably impacted saleswas down 3 percent compared with the same period last year, driven primarily by EMEA currencies (down 6 percent).
Net sales for the six months ended June 30, 2019 were $10.9 billion, down 5 percent from $11.5 billion for the six months ended June 30, 2018, due to a 4 percent decrease in volume, a 3 percent unfavorable currency impact and a 1 percent decline in portfolio actions slightly offset by a 3 percent increase in local price. Volume decreased 2 percent as decreasesdeclined across all geographic regions and in Transportation & Advanced Polymers (down 9 percent), Agriculture (down 7 percent), Electronics & Imaging (down 6 percent) and Packaging & Specialty Plastics and Nutrition & Biosciences (both down 2 percent) more than offset gains in Industrial Intermediates & Infrastructure (up 6 percent),all segments with the exception of Safety & Construction (up 42 percent). The most notable volume decreases were in Transportation & Industrial (down 10 percent) and Performance MaterialsNon-Core (down 10 percent). Portfolio and other changes decreased 1 percent due to a 4 percent decrease related to Safety & Coatings (up 1 percent). Volume decreased in U.S. & Canada (down 7 percent) and Latin America (down 1 percent), andConstruction within EMEA. Local price was up 3 percent compared with the same period last year. Local price increased in Asia Pacific (upall geographic regions and in most segments except Electronics & Imaging (flat) and Non-core (down 2 percent). Currency was down 3 percent) andpercent compared with the same period last year, driven primarily by EMEA (up 1currencies (down 6 percent). Portfolio & Other was flat.
Cost of Sales
Cost of sales was $14.7$3.5 billion infor the first quarter ofthree months ended June 30, 2019, down from $16.3$4.1 billion infor the first quarter ofthree months ended June 30, 2018. Cost of sales decreased infor the first quarter ofthree months ended June 30, 2019 primarily due to lower sales volume, lower feedstockcost synergies, currency impacts, and other raw materialthe absence of costs decreased planned maintenance turnaround costs, lower commissioningpreviously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to U.S. Gulf Coast growth projectsdiscontinued 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 June 30, 2019 was 64 percent compared with 70 percent for the three months ended June 30, 2018.
For the six months ended June 30, 2019, cost synergies.of sales was $7.1 billion, down from $7.9 billion for the six months ended June 30, 2018. Cost of sales decreased for the six months ended June 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 first quarterDistributions. Cost of sales for the six months ended June 30, 2018 was also negatively impacted by a $703$73 million charge forrelated to amortization of the fair value step-up in Historical DuPont'sEID's inventories as a result of the Merger and the acquisition of the H&N Business,FMC Corporation's Health and Nutrition business in November 2017; there were no charges related to Agriculture ($639 million), Nutrition & Biosciences ($63 million) and Safety & Construction ($1 million); compared with a $205 million chargethis fair value step-up during the first quarterhalf of 2019 related to Agriculture.2019.
Cost of Salessales as a percentage of net sales infor the first quarter ofsix months ended June 30, 2019 was 74.965 percent compared with 75.869 percent infor the same period last year.six months ended June 30, 2018.
Research and Development Expenses ("R&D")
R&D expenses totaled $717$232 million in the second quarter of 2019, down from $270 million in the second quarter of 2018. R&D as a percentage of net sales was 4 percent and 5 percent for the three months ended June 30, 2019 and 2018, respectively.
For the first six months of 2019, R&D expenses totaled $499 million, down from $544 million in the first six months of 2018. R&D as a percentage of net sales was 5 percent for both the six months ended June 30, 2019 and 2018.
The decrease for the three months ended June 30, 2019 as 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 $642 million in the second quarter of 2019, down from $768 million in the firstsecond quarter of 2018. R&D expenses decreased primarily due to synergies.SG&A as a percentage of net sales was 12 percent and 13 percent for the three months ended June 30, 2019 and 2018, respectively.
Selling, General and Administrative Expenses
For the first six months of 2019, SG&A expenses were $1,672totaled $1,368 million, down from $1,570 million in the first quarter of 2019, down from $1,714 million in the first quartersix months of 2018. SG&A expenses decreasedas a percentage of net sales was 13 percent and 14 percent for the six months ended June 30, 2019 and 2018, respectively.
The decrease for the three months ended June 30, 2019 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. In addition to the absence of similar SG&A costs related to the discontinued operations for the six months ended June 30, 2019, SG&A decreased due to cost synergies.
Amortization of Intangibles
Amortization of intangibles was $474$252 million in the firstsecond quarter of 2019, anddown from $266 million in the second quarter of 2018. In the first six months of 2019, amortization of intangibles was $508 million, down from $531 million in the same period last year. See Note 1113 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 $287 million in the first quarter of 2019, up from $262 million in the first quarter of 2018 and consisted primarily of the following:
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), which is designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations. The Company expects to record total pretax restructuring charges of approximately $2.2 billion of which $2.0 billion has been recorded inception-to-date.
For the three months ended March 31, 2019 and 2018, the Company recorded pretax restructuring charges of $280$137 million and $260$46 million respectively. The charge for the three months ended March 31,June 30, 2019 consistedand 2018, respectively. The activity in the second quarter of severance2019 was primarily related to a $63 million impairment charge related to an equity method investment, a $53 million charge related to the new 2019 Restructuring Program and a $21 million charge related benefit coststo the DowDuPont Cost Synergy Program. The charges in the second quarter of $112 million, asset write-downs and write-offs of $116 million and costs associated with exit and disposal activities of $52 million. The charge for2018 related to the three months ended March 31, 2018 consisted of severance and related benefit costs of $172 million, asset write-downs and write-offs of $48 million and costs associated with exit and disposal activities of $40 million. The impact of these charges is shown as "RestructuringDowDuPont Cost Synergy Program.
Restructuring and asset related charges - net"net were $208 million and $99 million for the six months ended June 30, 2019 and 2018, respectively. The activity for the six months ended June 30, 2019 was 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 DowDuPont Cost Synergy Program. The charges in the consolidated statementsfirst half of income. The Company expects2018 related to substantially complete the DowDuPont Cost Synergy Program byProgram.
See Note 5 to the end of 2019.interim Consolidated Financial Statements for additional information.
The restructuringGoodwill Impairment Charges
Goodwill impairments charges forwere $1,175 million in the three and six months ended March 31, 2019 were relatedJune 30, 2019. The goodwill impairment charges relate to each segment as follows: $47 million in Agriculture, $28 million inthe Nutrition & Biosciences $2 millionand Non-Core segments. There were no goodwill related impairments in Safety & Construction, $1 million in Packaging & Specialty Plastics, $1 million in Transportation & Advanced Polymer and $201 million in Corporate.
DowDuPont Agriculture Division Restructuring Program
During the fourth quartersame periods of 2018 and in connection with the ongoing integration activities, DowDuPont approved restructuring actions to simplify and optimize certain organizational structures within the Agriculture segment in preparation for the Intended Business Separations ("Agriculture Division Program"). As a result of these actions, the Company expects to record total pretax charges of approximately $96 million, comprised of $83 million of severance and related benefit costs, $11 million of asset write-downs and write-offs and $2 million of costs associated with exit and disposal activities. The Company has recorded restructuring charges of $83 million inception-to-date under the Agriculture Division Program.
For the three months ended March 31, 2019, DowDuPont recorded a net pretax restructuring benefit of $1 million, consisting of a favorable adjustment of $4 million2018. See Note 13 to the severance and related benefit costs reserve and asset write-downs and write-offs of $3 million. The impact of these items was shown as "Restructuring and asset related charges - net" in the consolidated statements of income. The Company expects actions related to the Agriculture Division Program to be substantially complete by mid 2019.interim Consolidated Financial Statements for additional information.
Restructuring adjustments recorded for severance and related benefit costs and charges recorded for asset write-downs and write‑offs were related to Corporate and Agriculture, respectively.
Integration and Separation Costs
Integration and separation costs, whichprimarily reflect costs related to the Merger and the ownership restructure of Dow Silicones, as well as post-Merger integration and Intended Business Separation activities related to the Distributions, were $813$347 million in the firstsecond quarter of 2019, updown from $457$428 million in the firstsecond quarter of 2018. IntegrationIn the first six months of 2019, integration and separation costs are related towere $958 million, up from $793 million in the Corporate segment.same period last year.
Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $26$49 million in the firstsecond quarter of 2019, down from $257$54 million in the second quarter of 2018. In the first six months of 2019, the Company's share of the earnings of nonconsolidated affiliates was $89 million, down from $111 million in the first quartersix months of 2018,2018. The decrease in the 2019 periods is primarily due to increased equity losses from Sadara and lower equity earnings from the Kuwait joint ventures (due to lower monoethylene glycol and polyethylene prices), the Thai joint ventures and 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 postretirementpost employment benefit plan credits or costs, and certain litigation matters. Sundry income (expense) –- net in the firstsecond quarter of 2019 was incomea loss of $248$19 million, compared with income of $115$82 million in the firstsecond quarter of 2018. The firstsecond quarter of 2019 included income related to non-operating pension and other postretirementpost employment benefit plans, interest income and gainscredits of $18 million, a gain on the sale of assets of $10 million and other investments, which includes a $51interest income of $9 million gain related to an asset salepartially offset by Historical DuPont. These gains more than offset a $24 million loss on a Historical Dow divestiture (related to Agriculture) and foreign currency exchange losses.
losses of $17 million and 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. The firstsecond quarter of 2018 included income related to non-operating pension and other postretirementpost employment benefit credits of $28 million and foreign currency exchange gains of $53 million partially offset by the loss on divestiture and changes in joint venture ownership of $21 million.
In the first six months of 2019, sundry income (expense) - net was income of $65 million compared with a loss of $16 million in the first six months of 2018. In addition to the amounts previously discussed, the first six months of 2019 included income related to non-operating pension and other post employment benefit plans of $39 million, a gain on sale of assets of $63 million and interest income and a $20of $49 million gain for post-closing adjustments on Historical Dow's sale of its equity interest in MEGlobal (related to Industrial Intermediates & Infrastructure). These gains more thanpartially offset by foreign currency exchange losses whichof $78 million. The first six months of 2018 included foreign currency exchange losses of $122 million, including a $50 million foreign currency exchange loss related to adjustments to foreign currency exchange contracts for the change in theas a result of U.S. tax rate (relatedreform. The loss was offset by income related to Corporate).non-operating pension and other post employment benefit plans of $55 million and miscellaneous income of $45 million. See Notes 6 and 1819 to the interim Consolidated Financial Statements for additional information.
Interest Expense and Amortization of Debt Discount
Interest expense was $165 million and amortization of debt discount$316 million for the three and six months ended June 30, 2019, respectively. There was $454 million inno interest expense related to continuing operations for the first quarter of 2019, up from $350 million inthree and six months ended June 30, 2018 as the first quarter of 2018. The increase primarily relates to higher debt balances as a result of DowDuPont debt issuedCompany did not have outstanding borrowings until the 2018 Senior Notes issuance in the fourth quarter of 2018. See Note 13 to the Consolidated Financial Statements and the discussion of the DowDuPont Notes in Changes in Financial Condition in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.
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 attributes and the level of equity earnings.attribute. The effective tax rate for the firstsecond quarter of 2019 was 26.8(16.4) percent, compared to 25.2with an effective tax rate of 76.2 percent for the second quarter of 2018. For the first six months of 2019, the effective tax rate was (5.8) percent, compared with 134.4 percent for the first quartersix months of 2018.
The negative tax rate in the firstsecond quarter of 2019 and for the first six months of 2019, was unfavorably impacted by non-tax-deductible amortization ofprincipally the fair value step-up in Historical DuPont’s inventories as a result of the Merger as well as non-deductible restructuring costsnon-tax-deductible goodwill impairment charges impacting the Nutrition & Biosciences and Non-Core segments. See Note 13 for more information regarding the goodwill impairment charges.
Income from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax impacts related to spin preparation activities.was $566 million and $1,773 million for the three months ended June 30, 2019 and 2018, respectively, and $1,212 million and $2,983 million for the six months ended June 30, 2019 and 2018, respectively. The tax rate was favorably impacted by net tax benefits relateddecreases are attributable to the issuance of stock-based compensation as well as deferred tax remeasurement in foreign jurisdictions.
The tax rate in the first quarter of 2018 was unfavorably impacted by certain integration, separation and restructuring costs associated with the Intended Business Separations as well as non-deductible amortizationtiming of the fair value step-up in Historical DuPont’s inventories as a result of the Merger, partially offset by the tax benefits relatedDistributions. Refer to Note 3 to the issuance of stock-based compensation.interim Consolidated Financial Statements for additional information.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests, including the portion attributable to discontinued operations, was $51$34 million in the firstsecond quarter of 2019, updown from $44$35 million in the firstsecond quarter of 2018. For the first six months of 2019, net income attributable to noncontrolling interests, including the portion attributable to discontinued operations, was $85 million, compared with $79 million for the same period last year.
Net Income Available for DowDuPont Inc. Common Stockholders
Net income availableattributable to noncontrolling interests of continuing operations for common stockholdersthe three and six months ended June 30, 2019 was $520$9 million or $0.23 per share,and $13 million, respectively, as compared to a loss of $2 million and income of $11 million for the same periods in the first quarter of 2019, compared with $1,104 million, or $0.47 per share, in the first quarter of 2018. See Note 8 to theprior year, respectively.
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following supplemental unaudited pro forma financial information (the “unaudited pro forma financial statements”) are 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 detailsthe six months ended June 30, 2019 and for three and six months ended June 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 Company's earnings per share calculations.results. The unaudited pro forma statements of operations for the six months ended June 30, 2019 and for three and six months ended June 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 June 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.
|
| | | | | | | | | |
Unaudited Pro Forma Combined Statement of Operations | Three Months Ended June 30, |
| 2018 |
| In millions, except per share amounts | DuPont 1 | Pro Forma Adjustments2 | Pro Forma |
| Net sales | $ | 5,857 |
| $ | — |
| $ | 5,857 |
|
| Cost of sales | 4,085 |
| 18 |
| 4,103 |
|
| Research and development expenses | 270 |
| — |
| 270 |
|
| Selling, general and administrative expenses | 768 |
| — |
| 768 |
|
| Amortization of intangibles | 266 |
| — |
| 266 |
|
| Restructuring and asset related charges - net | 46 |
| — |
| 46 |
|
| Integration and separation costs | 428 |
| (137 | ) | 291 |
|
| Equity in earnings of nonconsolidated affiliates | 54 |
| — |
| 54 |
|
| Sundry income (expense) - net | 82 |
| — |
| 82 |
|
| Interest expense | — |
| 171 |
| 171 |
|
| Income (Loss) from continuing operations before income taxes | 130 |
| (52 | ) | 78 |
|
| Provision (Credit) for income taxes on continuing operations | 99 |
| (10 | ) | 89 |
|
| Income (Loss) from continuing operations, net of tax | 31 |
| (42 | ) | (11 | ) |
| Net loss attributable to noncontrolling interests of continuing operations | (2 | ) | — |
| (2 | ) |
| Net income (loss) from continuing operations attributable to DuPont | 33 |
| (42 | ) | (9 | ) |
| | | | |
| Per common share data: | | | |
| Earnings (Loss) per common share from continuing operations - basic | $ | 0.03 |
| | $ | (0.02 | ) |
| Earnings (Loss) per common share from continuing operations - diluted | $ | 0.03 |
| | $ | (0.02 | ) |
| | | | |
| Weighted-average common shares outstanding - basic | 769.6 |
| | 769.6 |
|
| Weighted-average common shares outstanding - diluted | 774.5 |
| | 769.6 |
|
| |
| 1. | See the historical U.S. GAAP Consolidated Statements of Operations. |
| |
| 2. | Certain pro forma adjustments were made to illustrate the estimated effects of the Transactions, assuming that the Transactions had occurred on January 1, 2018. The adjustments include the impact to "Cost of sales" of different pricing than historical intercompany and intracompany practices related to various supply agreements entered into with the Dow Distribution, adjustments to "Integration and separation costs" to eliminate one time transaction costs directly attributable to the Distributions, and adjustments to "Interest expense" to reflect the impact of the Financings. |
|
| | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Combined Statement of Operations | Six Months Ended June 30, |
| 2019 | 2018 |
| In millions, except per share amounts | DuPont 1 | Pro Forma Adjustments2 | Pro Forma | DuPont 1 | Pro Forma Adjustments2 | Pro Forma |
| Net sales | $ | 10,882 |
| $ | — |
| $ | 10,882 |
| $ | 11,454 |
| $ | — |
| $ | 11,454 |
|
| Cost of sales | 7,117 |
| 22 |
| 7,139 |
| 7,890 |
| 36 |
| 7,926 |
|
| Research and development expenses | 499 |
| — |
| 499 |
| 544 |
| — |
| 544 |
|
| Selling, general and administrative expenses | 1,368 |
| — |
| 1,368 |
| 1,570 |
| — |
| 1,570 |
|
| Amortization of intangibles | 508 |
| — |
| 508 |
| 531 |
| — |
| 531 |
|
| Restructuring and asset related charges - net | 208 |
| — |
| 208 |
| 99 |
| — |
| 99 |
|
| Goodwill impairment charge | 1,175 |
| — |
| 1,175 |
| — |
| — |
| — |
|
| Integration and separation costs | 958 |
| (173 | ) | 785 |
| 793 |
| (228 | ) | 565 |
|
| Equity in earnings of nonconsolidated affiliates | 89 |
| — |
| 89 |
| 111 |
| — |
| 111 |
|
| Sundry income (expense) - net | 65 |
| — |
| 65 |
| (16 | ) | — |
| (16 | ) |
| Interest expense | 316 |
| 29 |
| 345 |
| — |
| 342 |
| 342 |
|
| (Loss) Income from continuing operations before income taxes | (1,113 | ) | 122 |
| (991 | ) | 122 |
| (150 | ) | (28 | ) |
| Provision (Credit) for income taxes on continuing operations | 64 |
| 30 |
| 94 |
| 164 |
| (31 | ) | 133 |
|
| (Loss) Income from continuing operations, net of tax | (1,177 | ) | 92 |
| (1,085 | ) | (42 | ) | (119 | ) | (161 | ) |
| Net income attributable to noncontrolling interests of continuing operations | 13 |
| — |
| 13 |
| 11 |
| — |
| 11 |
|
| Net (loss) income from continuing operations attributable to DuPont | (1,190 | ) | 92 |
| (1,098 | ) | (53 | ) | (119 | ) | (172 | ) |
| | | | | | | |
| Per common share data: | | | | | | |
| Loss per common share from continuing operations - basic | $ | (1.59 | ) | | $ | (1.47 | ) | $ | (0.09 | ) | | $ | (0.24 | ) |
| Loss per common share from continuing operations - diluted | $ | (1.59 | ) | | $ | (1.47 | ) | $ | (0.09 | ) | | $ | (0.24 | ) |
| | | | | | | |
| Weighted-average common shares outstanding - basic | 749.6 |
| | 749.6 |
| 771.0 |
| | 771.0 |
|
| Weighted-average common shares outstanding - diluted | 749.6 |
| | 749.6 |
| 771.0 |
| | 771.0 |
|
| |
| 1. | See the historical U.S. GAAP Consolidated Statements of Operations. |
| |
| 2. | Certain pro forma adjustments were made to illustrate the estimated effects of the Transactions, assuming that the Transactions had occurred on January 1, 2018. The adjustments include the impact to "Cost of sales" of different pricing than historical intercompany and intracompany practices related to various supply agreements entered into with the Dow Distribution, adjustments to "Integration and separation costs" to eliminate one time transaction costs directly attributable to the Distributions, and adjustments to "Interest expense" to reflect the impact of the Financings. |
SEGMENT RESULTS
Prior to April 1, 2019, the Company's measure of profit/loss for segment reporting purposes is pro forma Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines pro forma Operating EBITDA as pro forma earnings (i.e., pro forma “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / other post employment benefits (“OPEB”) / charges, and foreign exchange gains / losses, excluding the impact of costs historically allocated to the materials science and agriculture businesses that did not meet the criteria to be recorded as discontinued operations and adjusted for significant items. Effective April 1, 2019, the Company's measure of profit/loss for segment reporting purposes is Operating EBITDA as this is the manner in which the Company's chief operating decision makerCODM assesses performance and allocates resources. The Company defines Operating EBITDA as earnings (i.e., “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains (losses), excluding the impact of/ losses, adjusted for significant items. Reconciliations of these measures can be found in Note 23 to the interim Consolidated Financial Statements. Prior year data has been updated to conform with the current year presentation.
AGRICULTURE
The Agriculture segment leverages the Company’s technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply and the global production agriculture industry. Land available for worldwide agricultural production is increasingly limited so production growth will need to be achieved principally through improving crop yields and productivity. The segment’s two global businesses, Seed and Crop Protection, deliver a broad portfolio of products and services that are specifically targeted to achieve gains in crop yields and productivity, including well-established brands of seed products, crop chemicals, seed treatment, agronomy and digital services. R&D focuses on leveraging germplasm and plant science technology to increase farmer productivity and to enhance the value of grains and oilseeds through improved seed traits, superior seed germplasm and effective use of crop protection solutions.
|
| | | | | | |
| Agriculture | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 3,397 |
| $ | 3,808 |
|
| Operating EBITDA | $ | 667 |
| $ | 891 |
|
| Equity losses | $ | — |
| $ | (1 | ) |
|
| | |
Agriculture | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | 1 | % |
Currency | (5 | ) |
Volume | (7 | ) |
Portfolio & other | — |
|
Total | (11 | )% |
Agriculture net sales were $3,397 millionPro forma adjustments used in the first quartercalculation of 2019, downpro forma Operating EBITDA were determined in accordance with Article 11 percentof Regulation S-X and were derived from $3,808 million inDuPont's historical Consolidated Financial Statements and accompanying notes, adjusted to give effect to the first quarter ofDistributions as if they had been consummated on January 1, 2018. The decrease was primarily due to a 7 percent decline in volume and a 5 percent decline in currency, partially offset by a 1 percent increase in local price.
The decline in volume was driven by weather related delays and flooding in the U.S. which impacted both Seed and Crop Protection, a change in the route to market in the Pacific Northwest, which delayed sales recognition to the second quarter, and early deliveries of seed in the fourth quarter of 2018. These declines were partially offset by favorable demand and weather conditions leading to a strong corn season in EMEA and strong demand for insecticides in Latin America and EMEA.
Unfavorable currency impacts due to the Euro, other Eastern European currencies, and the Brazilian Real were partially offset by increases in local price in Crop Protection to offset currency pressure, as well as price gains in EMEA due to changes in route to market.
pro forma adjustments impacting pro forma Operating EBITDA was $667 million in the first quarter of 2019, compared with $891 million in the same quarter last year. Volume declines primarily driven by weather related delays in the U.S., higher input costs, and the unfavorable impact of currency were partially offset by cost synergies.
PERFORMANCE MATERIALS & COATINGS
Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumer and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings, home care and personal care end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.
|
| | | | | | |
| Performance Materials & Coatings | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 2,255 |
| $ | 2,304 |
|
| Operating EBITDA | $ | 481 |
| $ | 586 |
|
| Equity earnings | $ | — |
| $ | — |
|
|
| | |
Performance Materials & Coatings | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | — | % |
Currency | (3 | ) |
Volume | 1 |
|
Portfolio & other | — |
|
Total | (2 | )% |
Performance Materials & Coatings net sales were $2,255 million in the first quarter of 2019, down from net sales of $2,304 million in the first quarter of 2018. Net sales decreased 2 percent compared with the first quarter of 2018 driven by currency headwinds, which had an unfavorable impact on sales of 3 percent, which was partially offset by a 1 percent increase in volume. Local price was flat compared with the same quarter last year. Consumer Solutions sales were flat, as volume growth was offset by local price declines in siloxanes, the shedding of low-margin business in home and personal care and the unfavorable impact of currency. Coatings & Performance Monomers sales were down, as volume improvement for vinyl acetate monomer was more than offset by a decline in volume for architectural binders and functional coatings and the unfavorable impact of currency.
Operating EBITDA was $481 million, down 18 percent from Operating EBITDA of $586 million in the first quarter of 2018, primarily due to lower prices for siloxanes and shipping restrictions from a Performance Monomers facility in Deer Park, Texas, due to a fire at a nearby third-party storage and terminal facility, which more than offset lower feedstock and other raw material costs and cost synergies.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & CAV - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide, propylene oxide derivatives, cellulose ethers, redispersible latex powders and acrylic emulsions that are aligned to market segments as diverse as appliances, coatings, infrastructure, oil and gas and building and construction. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others. This segment also includes a portion of the results of EQUATE Petrochemical Company K.S.C.C. ("EQUATE"), The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.
Historical Dow is responsible for marketing a majority of Sadara products outside of the Middle East zone through Historical Dow's established sales channels. As part of this arrangement, Historical Dow purchases and sells Sadara products for a marketing fee.
|
| | | | | | |
| Industrial Intermediates & Infrastructure | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 3,402 |
| $ | 3,715 |
|
| Operating EBITDA | $ | 448 |
| $ | 654 |
|
| Equity earnings (losses) | $ | (48 | ) | $ | 149 |
|
|
| | |
Industrial Intermediates & Infrastructure | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | (11 | )% |
Currency | (3 | ) |
Volume | 6 |
|
Portfolio & other | — |
|
Total | (8 | )% |
Industrial Intermediates & Infrastructure net sales were $3,402 million in the first quarter of 2019, down from net sales of $3,715 million in the first quarter of 2018. Net sales decreased 8 percent compared with the same quarter last year, with volume up 6 percent, currency down 3 percent and local price down 11 percent. Local price decreased in all geographic regions and all businesses. Local price decreases were primarily driven by price declines in isocyanates. Currency had an unfavorable impact on sales of 3 percent, primarily in EMEA. Volume increased in all geographic regions and all businesses. Polyurethanes & CAV reported volume increases in all geographic regions, with double-digit volume growth in Asia Pacific. Volume growth was driven by increased supply from Sadara and higher demand for propylene glycols and industrial, comfort and energy efficiency products. Industrial Solutions reported volume gains in U.S. & Canada and EMEA, reflecting increased demand for industrial and oil and gas applications as well as strong demand for de-icing fluids, lubricants and fuels, and greater production from Sadara.
Operating EBITDA was $448 million in the first quarter of 2019, down 31 percent compared with Operating EBITDA of $654 million in the first quarter of 2018. Operating EBITDA decreased asreflect the impact of margin compressionvarious supply agreements ("supply agreements") entered into in isocyanates products, lower equity earnings fromconnection with the Kuwait joint venturesDow Distribution and increased equity losses from Sadara more than offset lower feedstock and other raw material costs, cost synergies and demand growth.
PACKAGING & SPECIALTY PLASTICS
Packaging & Specialty Plastics is a world leaderare outlined in plastics and consiststhe preceding section, Supplemental Unaudited Pro Forma Combined Financial Information, as adjustments to "Cost of two highly integrated global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics.sales". The segment employsimpact of these supply agreements are reflected in pro forma Operating EBITDA for the industry’s broadest polyolefin product portfolio, supportedperiods noted above as they are included in the measure of profit/loss reviewed by the Company’s proprietary catalystCODM in order to show meaningful comparability among periods while assessing performance and manufacturing process technologies, to work atmaking resource allocation decisions. There were no pro forma adjustments for the customer’s design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; and infrastructure. This segment also includes the results of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group, as well as a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.three months ended June 30, 2019.
Historical Dow is responsible for marketing a majority of Sadara products outside of the Middle East zone through Historical Dow’s established sales channels. As part of this arrangement, Historical Dow purchases and sells Sadara products for a marketing fee.
|
| | | | | | |
| Packaging & Specialty Plastics | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 5,110 |
| $ | 6,010 |
|
| Operating EBITDA | $ | 993 |
| $ | 1,301 |
|
| Equity earnings | $ | 38 |
| $ | 59 |
|
|
| | |
Packaging & Specialty Plastics | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | (11 | )% |
Currency | (2 | ) |
Volume | (2 | ) |
Portfolio & other | — |
|
Total | (15 | )% |
Packaging & Specialty Plastics net sales were $5,110 million in the first quarter of 2019, down from net sales of $6,010 million in the first quarter of 2018. Net sales decreased 15 percent compared with the same quarter last year, with local price down 11 percent, volume down 2 percentand currency unfavorably impacting sales 2 percent, primarily in EMEA. Local price decreased in both businesses and across all geographic regions driven by reduced polyethylene prices and lower prices for Hydrocarbons & Energy by-products. Volume decreased across all geographic regions, except Asia Pacific, and in Hydrocarbons & Energy which more than offset volume increases in Packaging and Specialty Plastics. Volume decreased in Hydrocarbons & Energy due to increased internal consumption of ethylene on the U.S. Gulf Coast. In addition, lower volumes of by-products were available for sale due to the use of lighter feedslates. Volume increased in Packaging and Specialty Plastics driven by higher demand in Asia Pacific and EMEA, supported by new capacity adds. Packaging and Specialty Plastics volume growth was driven by increased demand for industrial and consumer packaging, food and specialty packaging and elastomer applications.
Operating EBITDA was $993 million in the first quarter of 2019, down 24 percent from Operating EBITDA of $1,301 million in the first quarter of 2018. Operating EBITDA decreased as the impact of lower selling prices, lower sales volume and reduced equity earnings, driven by lower equity earnings at the Kuwait joint ventures due to lower polyethylene pricing and increased turnaround costs, more than offset lower feedstock and other raw material costs, cost synergies, lower start-up and commissioning costs and decreased planned maintenance turnaround spending.
ELECTRONICS & IMAGING
The Electronics & Imaging segment is a leading global supplier of differentiated materials and systems for a broad range of consumer electronics including mobile devices, television monitors, personal computers and electronics used in a variety of industries. The segment is a leading provider of materials and solutions for the fabrication of semiconductors and integrated circuits, and also provides innovative metallization processes for metal finishing, decorative, and industrial applications. Electronics & Imaging is a leading global supplier of key materials for the manufacturing of photovoltaics and solar cells, including innovative metallization pastes and back sheet materials for the production of solar cells and solar modules and in the advanced printing and packaging graphics industry providingprovides flexographic printing inks, photopolymer plates, and platemaking systems used in digital printing applications for textile, commercial and home-office use. In addition, the segment provides cutting-edge materials for the manufacturing of rigid and flexible displays for liquid crystal displays ("LCD"), advanced-matrix organic light emitting diode ("AMOLED"), and quantum dot ("QD") applications. The segment also includes the Company's share of the results of the HSC Group, a U.S.-based group of companies that manufacture and sell polycrystalline silicon products.
In March 2019, DowDuPontthe Company announced plans to invest more than $200 million in its Electronics & Imaging segment to increase capacity for the manufacture of KAPTON® film at its Circleville, Ohio, site due to growing global demand.
| | | Electronics & Imaging | Three Months Ended | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2019 | Jun 30, 2018 |
| Net sales | $ | 1,078 |
| $ | 1,153 |
| $ | 858 |
| $ | 921 |
| $ | 1,683 |
| $ | 1,785 |
|
| Operating EBITDA | $ | 385 |
| $ | 398 |
| |
Operating EBITDA 1 | | $ | 246 |
| $ | 290 |
| $ | 534 |
| $ | 567 |
|
| Equity earnings | $ | 29 |
| $ | 48 |
| $ | 5 |
| $ | 6 |
| $ | 8 |
| $ | 13 |
|
|
| | |
Electronics & Imaging1. | Three Months Ended |
Percentage change from prior year | Mar 31,For the six months ended June 30, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | — | % |
Currency | (1 | ) |
Volume | (6 | ) |
Portfolio & other | — |
|
Total | (7 | )% and for the three and six months ended June 30, 2018, operating EBITDA is on a pro forma basis. |
|
| | | | |
| Electronics & Imaging | Three Months Ended | Six Months Ended |
| Percentage change from prior year | Jun 30, 2019 | Jun 30, 2019 |
| Change in Net Sales from Prior Period due to: | | |
| Local price & product mix | — | % | — | % |
| Currency | (2 | ) | (2 | ) |
| Volume | (5 | ) | (4 | ) |
| Portfolio & other | — |
| — |
|
| Total | (7 | )% | (6 | )% |
Electronics & Imaging net sales were $1,078$858 million infor the first quarter ofthree months ended June 30, 2019, down 7 percent from $1,153$921 million infor the first quarter ofthree months ended June 30, 2018. Net sales decreased due to a 65 percent volume decline and a 12 percent unfavorable currency impact, driven primarily by Asia Pacific. Volume gains in Asia PacificDisplay Technologies were more than offset by softer volumes in Semiconductor Technologies and EMEA.Interconnect Solutions. Volume growth in Display Technologies reflects increased demand for organic light emitting diode ("OLED") materials. Increased demand for semiconductor packaging materials in Semiconductor Technologies was more than offset by weakened demand in the memory sector. Demand for advanced materials for smartphones remained strong but overall volumes in Interconnect Solutions were down due to soft circuit board demand.
Operating EBITDA was $246 million for the three months ended June 30, 2019, down 15 percent compared with pro forma Operating EBITDA of $290 million for the three months ended June 30, 2018. Cost synergies were more than offset by volume decline and higher raw material costs in the second quarter of 2019 compared with the second quarter of 2018.
Electronics & Imaging net sales were $1,683 million for the six months ended June 30, 2019, down from $1,785 million for the six months ended June 30, 2018. Net sales decreased due to a 4 percent volume decline and a 2 percent unfavorable currency impact, driven primarily by Asia Pacific. Volume growth in Display Technologies driven by increased OLED demand in display technology which was more than offset by volume declines primarily in interconnect solutionsInterconnect Solutions and photovoltaic & advanced materials, due to lower demand for consumer electronics and photovoltaics, mainly in Asia Pacific.Semiconductor Technologies.
Pro forma Operating EBITDA was $385$534 million infor the first quarter ofsix months ended June 30, 2019, down 36 percent compared with $398$567 million infor the first quarter ofsix months ended June 30, 2018. Favorable impacts from an asset sale and cost synergies were more than offset by higher raw material costs and volume declines and lower equity earnings.declines.
NUTRITION & BIOSCIENCES
The Nutrition & Biosciences segment is an innovation-driven and customer-focused segment that provides solutions for the global food and beverage, dietary supplements, pharma, home and personal care, energy, and animal nutrition and pharma markets. The segment consists of two operating segments: Nutrition & Health and Industrial Biosciences. The Nutrition & Health business is one of the world's largest producers of specialty ingredients, developing and manufacturing solutions for the global food and beverage, dietary supplements, enzymes and pharmaceutical excipient markets. The Industrial Biosciences businessAdditionally, the segment is an industry pioneer and innovator that works with customers to improve the performance, productivity and sustainability of their products and processes, through differentiated technology in ingredients applications, fermentation, biotechnology, chemistry and engineering solutions including enzymes, biomaterials, biocides and antimicrobial solutions andmanufacturing process technology.excellence.
| | | Nutrition & Biosciences | Three Months Ended | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2019 | Jun 30, 2018 |
| Net sales | $ | 1,659 |
| $ | 1,720 |
| $ | 1,558 |
| $ | 1,621 |
| $ | 3,093 |
| $ | 3,198 |
|
| Operating EBITDA | $ | 390 |
| $ | 418 |
| |
Operating EBITDA 1 | | $ | 391 |
| $ | 383 |
| $ | 744 |
| $ | 751 |
|
| Equity earnings | $ | 4 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
| $ | 1 |
|
1. For the six months ended June 30, 2019 and for the three and six months ended June 30, 2018, operating EBITDA is on a pro forma basis.
|
| | |
Nutrition & Biosciences | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | 2 | % |
Currency | (3 | ) |
Volume | (2 | ) |
Portfolio & other | (1 | ) |
Total | (4 | )% |
|
| | | | |
| Nutrition & Biosciences | Three Months Ended | Six Months Ended |
| Percentage change from prior year | Jun 30, 2019 | Jun 30, 2019 |
| Change in Net Sales from Prior Period due to: | | |
| Local price & product mix | 1 | % | 1 | % |
| Currency | (3 | ) | (3 | ) |
| Volume | (1 | ) | (1 | ) |
| Portfolio & other | (1 | ) | — |
|
| Total | (4 | )% | (3 | )% |
Nutrition & Biosciences net sales were $1,659$1,558 million infor the first quarter ofthree months ended June 30, 2019, down 4 percent from $1,720$1,621 million infor the first quarter ofthree months ended June 30, 2018, due to a 21 percent increase in local price, which was more than offset by a 3 percent unfavorable currency impact, a 21 percent decrease in volume and a 1 percent decrease from portfolio actions. Volume gains in Health & Biosciences were more than offset by lower volumes in Food & Beverage and Pharma Solutions. Volume gains in Health & Biosciences were led by increased probiotics and microbial control demand partially offset by volume declines in bioactives resulting from ongoing challenged conditions in U.S. energy markets. Food & Beverage volumes were lower than the same quarter of last year as volume gains in specialty proteins driven by growing demand in the meat-free market were more than offset by declines in functional solutions and emulsifiers & sweeteners. Pharma Solutions volumes declined due to capacity constraints and product mix shift.
Operating EBITDA was $391 million for the three months ended June 30, 2019, up 2 percent compared with pro forma Operating EBITDA of $383 million for the three months ended June 30, 2018 due to cost synergies and pricing gains which were partially offset by unfavorable currency impacts, higher raw material costs and volume declines.
Nutrition & HealthBiosciences net sales were $3,093 million for the six months ended June 30, 2019, down from $3,198 million for the six months ended June 30, 2018. The decrease was due to a 1 percent increase in local price, which was more than offset by a 3 percent unfavorable currency impact and a 1 percent decrease in volume. Volume gains in Food & Beverage as a result of increased demand in cellulosic and proteins were more than offset by volume declines in Industrial Biosciences.Volume gains in NutritionHealth & Health were led by increased protein solutions and systems and texturants demand. This increase was partially offset by a decrease in probioticsBiosciences due to higher than historical average sales in the first quarter of 2018. Industrial Biosciences volume declines were primarily the result of on-going challenged conditions in U.S. energy markets negatively impacting demand in bioactivesdecreased biorefinery and microbial control.control demand.
Pro forma Operating EBITDA was $390$744 million infor the first quarter ofsix months ended June 30, 2019, down 71 percent compared with $418$751 million infor the first quarter of 2018, driven by cost savings whichsix months ended June 30, 2018. Cost synergies and pricing gains were more than offset by unfavorable currency impacts, higher raw material costs and unfavorable currency impacts.volume declines.
TRANSPORTATION & ADVANCED POLYMERSINDUSTRIAL
The Transportation & Advanced PolymersIndustrial segment provides high-performance engineering resins, adhesives, silicones, lubricants and parts to engineers and designers in the transportation, electronics, healthcare, industrial and consumer end-markets to enable systems solutions for demanding applications and environments. The segment delivers a broad range of polymer-based high-performance materials in its product portfolio, including elastomers and thermoplastic and thermoset engineering polymers which are used by customers to fabricate components for mechanical, chemical and electrical systems. In addition, the segment produces innovative engineering polymer solutions, high performance parts, specialty silicones and differentiated adhesive technologies to meet customer specifications in automotive, aerospace, electronics, industrial, healthcare and consumer markets. Transportation & Advanced PolymersIndustrial is a global leader of advanced materials that provides technologies that differentiate customers’ products with improved performance characteristics.
characteristics enabling the transition to hybrid-electric-connected vehicles, High Speed High Frequency connectivity and smart Healthcare.
| | | Transportation & Advanced Polymers | Three Months Ended | |
| Transportation & Industrial | | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2019 | Jun 30, 2018 |
| Net sales | $ | 1,355 |
| $ | 1,425 |
| $ | 1,269 |
| $ | 1,417 |
| $ | 2,586 |
| $ | 2,795 |
|
| Operating EBITDA | $ | 414 |
| $ | 437 |
| |
Operating EBITDA 1 | | $ | 357 |
| $ | 402 |
| $ | 730 |
| $ | 791 |
|
| Equity earnings | $ | 2 |
| $ | 3 |
| $ | 2 |
| $ | 1 |
| $ | 2 |
| $ | 3 |
|
1. For the six months ended June 30, 2019 and for the three and six months ended June 30, 2018, operating EBITDA is on a pro forma basis.
|
| | |
Transportation & Advanced Polymers | Three Months Ended |
Percentage change from prior year | Mar 31, 2019 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | 7 | % |
Currency | (3 | ) |
Volume | (9 | ) |
Portfolio & other | — |
|
Total | (5 | )% |
|
| | | | |
| Transportation & Industrial | Three Months Ended | Six Months Ended |
| Percentage change from prior year | Jun 30, 2019 | Jun 30, 2019 |
| Change in Net Sales from Prior Period due to: | | |
| Local price & product mix | 5 | % | 6 | % |
| Currency | (3 | ) | (3 | ) |
| Volume | (12 | ) | (10 | ) |
| Portfolio & other | — |
| — |
|
| Total | (10 | )% | (7 | )% |
Transportation & Advanced PolymersIndustrial net sales were $1,355$1,269 million infor the first quarter ofthree months ended June 30, 2019, down 5 percent from $1,425$1,417 million infor the first quarter ofthree months ended June 30, 2018. The change in net sales was due to a 75 percent increase in local price which was more than offset by a 912 percent decrease in volume and a 3 percent unfavorable currency impact, primarily in EMEA and Asia Pacific. TheVolume declines were primarily due to decreased demand in automotive and electronics markets as trade and tariff concerns impact Asia Pacific and EMEA. Local price increased in all regions compared to the same quarter of last year.
Operating EBITDA was $357 million for the three months ended June 30, 2019, down 11 percent compared with pro forma Operating EBITDA of $402 million for the three months ended June 30, 2018 as pricing gains and cost synergies were more than offset by volume declines and unfavorable currency impacts.
Transportation & Industrial net sales were $2,586 million for the six months ended June 30, 2019, down from $2,795 million for the six months ended June 30, 2018 as a 6 percent increase in local price, primarily in engineering polymers, reflectedled by Mobility Solutions, was more than offset by a tight polymer supply10 percent of volume decline and higher feedstock costs.a 3 percent unfavorable currency impact. Volume declines were primarily due to decreased demand in automotive and electronics markets.
Pro forma Operating EBITDA was $414$730 million infor the first quarter ofsix months ended June 30, 2019, down 58 percent from $437compared with $791 million infor the first quarter ofsix months ended June 30, 2018 due to pricing gains and cost synergies, which were more than offset by volume declines, higher raw material costs volume declines and unfavorable currency impacts.
SAFETY & CONSTRUCTION
The Safety & Construction segment is a leading provider of engineered products and integrated systems for a number of industries including construction, worker safety, energy, oil and gas, transportation, medical devices and water purification and separation. The segment satisfies the growing global needs of businesses, governments, and consumers for solutions that make life safer, healthier, and better. By uniting market-driven science with the strength of highly regarded brands, the segment strives to bring new products and solutions to solve customers' needs faster, better and more cost effectively.
|
| | | | | | | | | | | | |
| Safety & Construction | Three Months Ended | Six Months Ended |
| In millions | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2019 | Jun 30, 2018 |
| Net sales | $ | 1,341 |
| $ | 1,372 |
| $ | 2,624 |
| $ | 2,636 |
|
Operating EBITDA 1 | $ | 382 |
| $ | 296 |
| $ | 756 |
| $ | 622 |
|
| Equity earnings | $ | 7 |
| $ | 8 |
| $ | 15 |
| $ | 13 |
|
1. For the six months ended June 30, 2019 and for the three and six months ended June 30, 2018, operating EBITDA is on a pro forma basis.
|
| | | | |
| Safety & Construction | Three Months Ended | Six Months Ended |
| Percentage change from prior year | Jun 30, 2019 | Jun 30, 2019 |
| Change in Net Sales from Prior Period due to: | | |
| Local price & product mix | 4 | % | 4 | % |
| Currency | (3 | ) | (2 | ) |
| Volume | 1 |
| 2 |
|
| Portfolio & other | (4 | ) | (4 | ) |
| Total | (2 | )% | — | % |
Safety & Construction net sales were $1,341 million for the three months ended June 30, 2019, down from $1,372 million for the three months ended June 30, 2018 as a 4 percent increase in local price and 1 percent of volume growth were more than offset by portfolio declines of 4 percent and a 3 percent unfavorable impact from currency. Volume growth in the segment was led by gains in Water Solutions partially offset by declines in Shelter Solutions due to construction slowdown in the U.S. residential market. Safety Solutions volumes were flat compared with the prior year driven by supply constraints.
Operating EBITDA was $382 million for the three months ended June 30, 2019, up 29 percent compared with pro forma Operating EBITDA of $296 million for the three months ended June 30, 2018 due to local price gains, cost synergies, productivity improvements and volume gains partially offset by an unfavorable impact from currency.
Safety & Construction net sales were $2,624 million for the six months ended June 30, 2019, slightly down from $2,636 million for the six months ended June 30, 2018 as a 4 percent increase in local price and 2 percent of volume growth were offset by portfolio declines of 4 percent and a 2 percent unfavorable impact from currency. Volume growth in the segment was led by gains in Water Solutions and Safety Solutions. Safety Solutions growth was driven by strong industrial markets and increased demand in medical packaging and garments. These gains were partially offset by volume declines in Shelter Solutions, primarily due to weakness in the construction global residential market.
Pro forma Operating EBITDA was $756 million for the six months ended June 30, 2019, up 22 percent compared with $622 million for the six months ended June 30, 2018, due to pricing gains, cost synergies and volume growth, partially offset by unfavorable currency impacts.
NON-CORE
The Non-Core segment is a leader inleading global supplier of key materials for the manufacturing of photovoltaics and solar cells, including innovative metallization pastes and backsheet materials for the production of solar cells and solar modules, and components and films for consumer electronics, automotive, and aerospace markets. The segment also includes the Company's share of the results of the HSC Group, a U.S.-based group of companies that manufacture and sell polycrystalline silicon products. In addition, the segment provides sustainable materials and services for sulfuric acid production and regeneration technologies, alkylation technology for production of clean, high-octane gasoline, and a comprehensive suite of aftermarket service and solutions offerings, including safety consulting selling training products as well as consultingand services, to improve the safety, productivity, and sustainability of organizations across a range of industries. The Non-Core segment is also a leading producer of specialty biotechnology materials for residential carpet and stretch comfort apparel markets as well as polyester films for the healthcare, photovoltaics, electronics, packaging and labels, and electrical insulation industries.
| | | Safety & Construction | Three Months Ended | |
| Non-Core | | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2019 | Jun 30, 2018 |
| Net sales | $ | 1,322 |
| $ | 1,299 |
| $ | 442 |
| $ | 526 |
| $ | 896 |
| $ | 1,040 |
|
| Operating EBITDA | $ | 411 |
| $ | 354 |
| |
Operating EBITDA 1 | | $ | 99 |
| $ | 123 |
| $ | 193 |
| $ | 233 |
|
| Equity earnings | $ | 7 |
| $ | 5 |
| $ | 35 |
| $ | 39 |
| $ | 64 |
| $ | 81 |
|
1. For the six months ended June 30, 2019 and for the three and six months ended June 30, 2018, operating EBITDA is on a pro forma basis.
|
| | | | |
| Non-Core | Three Months Ended | Six Months Ended |
| Percentage change from prior year | Jun 30, 2019 | Jun 30, 2019 |
| Change in Net Sales from Prior Period due to: | | |
| Local price & product mix | — | % | (2 | )% |
| Currency | (2 | ) | (2 | ) |
| Volume | (14 | ) | (10 | ) |
| Portfolio & other | — |
| — |
|
| Total | (16 | )% | (14 | )% |
Non-Core net sales were $442 million for the three months ended June 30, 2019, down from $526 million for the three months ended June 30, 2018 due to a 14 percent volume decline and a 2 percent unfavorable impact from currency. Volume declines were driven by weak demand for trichlorosilane due to historically low polysilicon pricing and lower paste sales into electronic component end markets. Biomaterials volume declines were primarily a result of a slow-down in demand in the U.S. residential carpet market.
Operating EBITDA was $99 million for the three months ended June 30, 2019, down 20 percent compared with pro forma Operating EBITDA of $123 million for the three months ended June 30, 2018 mainly due to volume declines and an unfavorable impact from currency.
Non-Core net sales were $896 million for the six months ended June 30, 2019, down from $1,040 million for the six months ended June 30, 2018. Net sales declined due to a 10 percent decline in volume, a 2 percent decline in local price and a 2 percent unfavorable impact from currency. Volume declines were driven by weak demand for trichlorosilane due to historically low polysilicon pricing and lower paste sales into electronic component end markets. Biomaterials volume declines were primarily a result of a slow-down in demand in the U.S. residential carpet market.
Pro forma Operating EBITDA was $193 million for the six months ended June 30, 2019, down 17 percent compared with $233 million for the six months ended June 30, 2018 as cost synergies were more than offset by higher raw material costs, volume declines and an unfavorable impact from currency.
CHANGES IN FINANCIAL CONDITION
Liquidity & Capital Resources
The Company continually reviews its sources of liquidity and debt portfolio and occasionally may make adjustments to one or both to ensure adequate liquidity. The Company’s primary source of incremental liquidity is cash flows from operating activities. Management expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company’s and its subsidiaries obligations as they come due.
|
| | | | | | |
| In millions | June 30, 2019 | December 31, 2018 |
| Cash, cash equivalents and marketable securities | $ | 1,669 |
| $ | 8,577 |
|
| Total debt | $ | 17,229 |
| $ | 12,639 |
|
In November 2018, DuPont consummated the offering of the senior unsecured notes (the "2018 Senior Notes") in an aggregate principal amount of $12.7 billion. The offering consisted of $0.5 billion in floating rate notes due November 2020, $0.3 billion in floating rate notes due November 2023, and six tranches of fixed-rate notes: $1.5 billion due November 2020, $2.5 billion due November 2023, $1.85 billion due November 2025, $2.25 billion due November 2028, $1.65 billion due November 2038 and $2.15 billion due November 2048. The net proceeds of the offering after the underwriting discount was $12.6 billion. See Note 14 to the interim Consolidated Financial Statements for additional information on the interest related to the 2018 Senior Notes.
Term Loan and Revolving Credit Facilities
In November 2018, the Company entered into a term loan agreement that establishes two term loan facilities in the aggregate principal amount of $3 billion, (the “Term Loan Facilities”) as well as a five-year $3 billion revolving credit facility (the “Five-Year Revolving Credit Facility”). Effective May 2, 2019, the Company fully drew the two Term Loan Facilities in the aggregate principal amount of $3.0 billion and the Five-Year Revolving Credit Facility became effective and available. In June 2019, the Company entered into a 364-day $750 million revolving credit facility (the “364-Day Revolving Credit Facility”). The Five-Year Revolving Credit Facility is generally expected to remain undrawn, and serve as a backstop to the Company’s commercial paper and letter of credit issuance. The 364-Day Revolving Credit Facility may be drawn against for general corporate purposes, including but not limited to net working capital, costs and expenses.
Commercial Paper
In April 2019, DuPont authorized a $3 billion commercial paper program (the “DuPont Commercial Paper Program”). The Company’s issuance under the Commercial Paper Program included the Funding CP Issuance in May 2019 in anticipation of the Corteva Distribution, as well as borrowings for general corporate purposes.
The net proceeds from the 2018 Senior Notes, Term Loan Facilities, and commercial paper together with cash from operations were used to fund cash contributions to Dow and Corteva, and DowDuPont’s November 2018 $3.0 billion share repurchase program, which was completed in the first quarter of 2019. The remaining proceeds were used to reduce outstanding liabilities of Historical EID that would otherwise be attributed to Corteva; and further pay any related premiums, fees and expenses.
Credit Ratings
The Company's credit ratings impact its access to the debt capital markets and cost of capital. The Company remains committed to a strong financial position and strong investment-grade rating. At July 31, 2019, DuPont's credit ratings were as follows:
|
| | |
Safety & Construction | Three Months Ended |
Percentage change from prior yearCredit Ratings | Mar 31, 2019Long-Term Rating | Short-Term Rating | Outlook |
Change in Net Sales from Prior Period due to:Standard & Poor’s | A- | A-2 | Stable |
Local price & product mixMoody’s Investors Service | 4Baa1 | %P-2 | Stable |
CurrencyFitch Ratings | (2BBB+ | ) |
VolumeF-2 | 4 |
|
Portfolio & other | (4 | ) |
Total | 2 | %Stable |
Safety & Construction net sales were $1,322 million inThe Company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations, subject to certain limitations. The 2018 Senior Notes also contain customary default provisions. The Term Loan Facilities, the first quarter of 2019, up 2 percent from $1,299 million in the first quarter of 2018. The net sales increase was due to 4 percent volume growth and a 4 percent increase in local price, partially offset by 4 percent unfavorable portfolio actions and a 2 percent unfavorable currency impact. Volume growth in the segment was led by gains across all regions and in water, TYVEK® and KEVLAR® due to broad-based strength in industrial markets and life & personal protection and medical end-markets. These gains were partially offset by declines primarily due to weakness in the U.S. residential market.
Operating EBITDA was $411 million in the first quarter of 2019, up 16 percent compared with $354 million in the first quarter of 2018 due to cost synergies, volume growth and pricing gains, partially offset by higher raw material costs and unfavorable currency impacts.
CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, geographic management, etc.); business incubation platforms; non-business aligned joint ventures; gains and losses on the sales of financial assets; non-business aligned litigation expenses; discontinued or non-aligned businesses and pre-commercial activities.
|
| | | | | | |
| Corporate | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Net sales | $ | 71 |
| $ | 76 |
|
| Operating EBITDA | $ | (170 | ) | $ | (168 | ) |
| Equity losses | $ | (6 | ) | $ | (9 | ) |
Net sales for Corporate, which primarily relate to insurance operations, were $71 million in the first quarter of 2019, compared with net sales of $76 million in the first quarter of 2018.
Operating EBITDA was a loss of $170 million in the first quarter of 2019, essentially flat compared with an Operating EBITDA loss of $168 million in the first quarter of 2018.
SUPPLEMENTAL DIVISION INFORMATION
Discussion of segment revenue, operating EBITDA and price/volume metrics on a divisional basis for Agriculture is based on the results of the Agriculture segment; for Materials Science is based on the combined results of the Performance Materials & Coatings segment, the Industrial Intermediates & Infrastructure segmentFive-Year Revolving Credit Facility and the Packaging & Specialty Plastics segment;364-Day Revolving Credit Facility contain a financial covenant, typical for companies with similar credit ratings, requiring that the ratio of Total Indebtedness to Total Capitalization for the Company and for Specialty Products is based onits consolidated subsidiaries not exceed 0.60. At June 30, 2019, the combined results of the Electronics & Imaging segment, the Nutrition & Biosciences segment, the Transportation & Advanced Polymers segment and the Safety & Construction segment. The Corporate segment is not includedCompany was in the division metrics. The segment disclosures have been presented incompliance with this manner for informational purposes only and should not be viewed as an indication of each division’s current or future operating results on a standalone basis assuming completion of the Intended Business Separations. See the section entitled “Segment Results” for additional qualitative analysis on segment performance.financial covenant.
|
| | | | | | |
| Net Sales by Division | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Agriculture | $ | 3,397 |
| $ | 3,808 |
|
| Performance Materials & Coatings | 2,255 |
| 2,304 |
|
| Industrial Intermediates & Infrastructure | 3,402 |
| 3,715 |
|
| Packaging & Specialty Plastics | 5,110 |
| 6,010 |
|
| Materials Science | $ | 10,767 |
| $ | 12,029 |
|
| Electronics & Imaging | 1,078 |
| 1,153 |
|
| Nutrition & Biosciences | 1,659 |
| 1,720 |
|
| Transportation & Advanced Polymers | 1,355 |
| 1,425 |
|
| Safety & Construction | 1,322 |
| 1,299 |
|
| Specialty Products | $ | 5,414 |
| $ | 5,597 |
|
|
| | | | | | | | | | |
| Net Sales Variance by Division | Three Months Ended Mar 31, 2019 |
| Local Price & Product Mix | Currency | Volume | Portfolio / Other | Total |
| Percent change from prior year |
| Agriculture | 1 | % | (5 | )% | (7 | )% | — | % | (11 | )% |
| Materials Science | (9 | )% | (2 | )% | 1 | % | — | % | (10 | )% |
| Specialty Products | 3 | % | (2 | )% | (3 | )% | (1 | )% | (3 | )% |
|
| | | | | | |
| Operating EBITDA by Division | Three Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 |
| Agriculture | $ | 667 |
| $ | 891 |
|
| Performance Materials & Coatings | 481 |
| 586 |
|
| Industrial Intermediates & Infrastructure | 448 |
| 654 |
|
| Packaging & Specialty Plastics | 993 |
| 1,301 |
|
| Materials Science | $ | 1,922 |
| $ | 2,541 |
|
| Electronics & Imaging | 385 |
| 398 |
|
| Nutrition & Biosciences | 390 |
| 418 |
|
| Transportation & Advanced Polymers | 414 |
| 437 |
|
| Safety & Construction | 411 |
| 354 |
|
| Specialty Products | $ | 1,600 |
| $ | 1,607 |
|
CHANGES IN FINANCIAL CONDITION
The Company hadCompany's cash, and cash equivalents and marketable securities of $11,662 million at March 31,June 30, 2019 and $13,616 millionDecember 31, 2018 were $1.7 billion and $8.6 billion, respectively, of which $1.6 billion at June 30, 2019 and $2.1 billion at December 31, 2018 of which $5,539 million at March 31, 2019 and $5,820 million at December 31, 2018, waswere held by subsidiaries in foreign countries, including United States territories. The decrease in cash and cash equivalents held by subsidiaries in foreign countries is due to the repatriation activities discussed below. For each of its foreign subsidiaries, the Company makes an assertion
regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States.
The Tax Cuts and Jobs Act (“The Act”) requires companies to pay a one-time transition tax on earnings of foreign subsidiaries, a majority of which were previously considered permanently reinvested by the Company (see Note 7 to the interim Consolidated Financial Statements for further details of The Act). The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. The Company has the ability to repatriate additional funds to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S. state income taxes and the impact of foreign currency movements. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings due to the complexity of the hypothetical calculation. During the first and second quarters of 2019, in connection with the Intended Business Separations, the Company has and expects to continue repatriatingrepatriated certain funds from its non-U.S. subsidiaries that are not needed to finance local operations or separation activities. DuringFor the three months ended March 31,first quarter of 2019, the Company recorded tax expense of $13$10 million, associated with these repatriation activities. There were no charges associated with these repatriation activities in the second quarter of 2019.
Summary of Cash Flows
The Company’s cash flows from operating, investing and financing activities, as reflected in the consolidated statementsinterim Consolidated Statements of cash flows,Cash Flows, are summarized in the following table. The cash flows related to Dow and Corteva have not been segregated and are included in the interim Consolidated Statements of Cash Flows for all periods presented, as applicable.
| | | Cash Flow Summary | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | June 30, 2019 | June 30, 2018 |
| Cash provided by (used for): | | | | |
| Operating activities | $ | 26 |
| $ | (2,137 | ) | $ | (51 | ) | $ | (47 | ) |
| Investing activities | (1,000 | ) | 290 |
| $ | (1,657 | ) | $ | (390 | ) |
| Financing activities | (1,032 | ) | (1,543 | ) | $ | (10,661 | ) | $ | (3,602 | ) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 50 |
| 208 |
| $ | 48 |
| $ | (171 | ) |
| Summary | | | |
| Decrease in cash, cash equivalents and restricted cash | $ | (1,956 | ) | $ | (3,182 | ) | |
| Cash, cash equivalents and restricted cash at beginning of period | 14,022 |
| 14,015 |
| |
| Cash, cash equivalents and restricted cash at end of period | $ | 12,066 |
| $ | 10,833 |
| |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 523 |
| 552 |
| |
| Cash and cash equivalents at end of period | $ | 11,543 |
| $ | 10,281 |
| |
| Cash, cash equivalents and restricted cash reclassified as discontinued operations | | $ | — |
| $ | 7,961 |
|
Cash Flows from Operating Activities
In the first threesix months of 2019, cash provided byused for operating activities was $26$51 million, compared with cash used for operating activities of $2,137$47 million in the same period last year. The increase in the use of cash was primarily due to a decrease inthe impact of the Dow and Corteva Distributions to period earnings, largely counter-balanced by lesser use of cash used for net working capital higher prepayments from customer contracts, increased dividend payments received from nonconsolidated affiliates, lower pension contributions and lower tax payments.versus the prior period.
| | | Net Working Capital | Mar 31, 2019 | Dec 31, 2018 | |
| In millions | |
Net Working Capital 1 | | June 30, 2019 | Dec 31, 2018 |
| In millions (except ratio) | |
| Current assets | $ | 49,248 |
| $ | 49,603 |
| $ | 10,623 |
| $ | 16,380 |
|
| Current liabilities | 28,580 |
| 24,715 |
| 6,457 |
| 3,878 |
|
| Net working capital | $ | 20,668 |
| $ | 24,888 |
| $ | 4,166 |
| $ | 12,502 |
|
| Current ratio | 1.72:1 |
| 2.01:1 |
| 1.65:1 |
| 4.22:1 |
|
1. Net working capital has been restated to exclude the assets and liabilities related to the Distributions. The assets and liabilities related to the Distributions are presented as assets of discontinued operations and liabilities of discontinued operations, respectively, in the Condensed Consolidated Balance Sheets for all periods presented.
Cash Flows from Operating Activities - Non-GAAP
The following table reconciles cash flows from operating activities to a non-GAAP measure regarding cash flows from operating activities excluding the impact of Accounting Standards Update ("ASU") 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" and related interpretive guidance for the three months ended March 31, 2018. Management believes this non-GAAP financial measure is relevant and meaningful as it presents cash flows from operating
activities inclusive of all trade accounts receivable collection activity, which the Company utilizes in support of its operating activities.
|
| | | | |
| | Cash Flows from Operating Activities Excluding the Impact of ASU 2016-15 and Additional Interpretive Guidance (non-GAAP) | Three Months Ended Mar 31, 2018 |
| |
| | In millions |
| | Cash flows from operating activities - Updated for impact of ASU 2016-15 and additional interpretive guidance (GAAP) | $ | (2,137 | ) |
| | Less: Impact of ASU 2016-15 and additional interpretive guidance | 445 |
|
| | Cash flows from operating activities - Excluding impact of ASU 2016-15 and additional interpretive guidance (non-GAAP) | $ | (1,692 | ) |
Cash Flows from Investing Activities
In the first threesix months of 2019, cash used for investing activities was $1,000$1,657 million, reflectingcompared to cash used for investing of $390 million in the first six months of 2018. The increase in cash used was primarily attributable to increased capital expenditures, and purchases of investments, which were partially offset by proceeds from sales and maturities of investments. In the first three months of 2018, cash provided by investing activities was $290 million, reflecting proceeds froma decrease in sales and maturities of investments, and proceeds from interestsas well as a decline in trade accounts receivable conduits, which were partially offset by capital expenditures and purchases of investments. Capital spending was $1,139 million in the first three months of 2019, compared with $776 million in the first three months of 2018.conduits.
Cash Flows from Financing Activities
In the first threesix months of 2019, cash used for financing activities was $1,032$10,661 million compared with $1,543$3,602 million in the same period last year. The decrease was primarily dueprimary driver of the increased use of cash is the cash held by Dow and Corteva at the respective Distributions, reflecting cash on the balance sheet of each at the time of their respective spinoff; as well as payments of long-term debt of Historical Dow and Historical EID prior to an increase of proceeds fromthe Distributions. These uses were partly offset by issuance of long-term debt netin the form of payments and an increasethe Term Loan Facilities draw in notes payable, which were partially offset by an increase in purchases of treasury stock.May 2019.
Free Cash Flow
The Company defines free cash flow as cash from operating activities less capital expenditures. Under this definition, free cash flow represents the cash generated by the Company from operations after investing in its asset base. Free cash flow, combined with cash balances and other sources of liquidity, represent the cash available to fund obligations and provide returns to shareholders. Free cash flow is an integral financial measure used in the Company's financial planning process. This financial measure is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP financial measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the Company's free cash flow definition may not be consistent with the methodologies used by other companies.
For additional information relating to the change in cash used for operating activities, see the discussion in the previous section entitled "Cash Flows from Operating Activities."
| | | Reconciliation of "Cash From Operating Activities" to Free Cash Flow (non-GAAP) | Three Months Ended | Six Months Ended |
| In millions | Mar 31, 2019 | Mar 31, 2018 | June 30, 2019 | June 30, 2018 |
| Cash from operating activities (GAAP) | $ | 26 |
| $ | (2,137 | ) | $ | (51 | ) | $ | (47 | ) |
| Capital expenditures | (1,139 | ) | (776 | ) | (1,800 | ) | (1,586 | ) |
| Free cash flow (non-GAAP) | $ | (1,113 | ) | $ | (2,913 | ) | $ | (1,851 | ) | $ | (1,633 | ) |
Liquidity & Financial Flexibility
The Company’s primary source of incremental liquidity is cash flows from operating activities. Management expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company’s and its subsidiaries obligations as they come due.
DowDuPont's Liquidity Sources
In November 2018, DowDuPont consummated the offering of the senior unsecured notes (the "DowDuPont Notes") in an aggregate principal amount of $12.7 billion. The offering consisted of $0.5 billion in floating rate notes due November 2020, $0.3 billion in floating rate notes due November 2023, and six tranches of fixed-rate notes: $1.5 billion due November 2020, $2.5 billion due November 2023, $1.85 billion due November 2025, $2.25 billion due November 2028, $1.65 billion due November 2038 and $2.15 billion due November 2048. The net proceeds of the offering after the underwriting discount was $12.6 billion. See Note 13 to the Consolidated Financial Statements for additional information on the interest related to the DowDuPont Notes.
The DowDuPont Notes will rank equally with the Company's future senior unsecured debt outstanding from time to time. The DowDuPont Notes are not guaranteed by any of the Company's subsidiaries and are nonrecourse to the assets of Dow and Corteva. Each series of DowDuPont Notes will continue to be a senior unsecured obligation of DuPont after the separations and distributions. If each of the separations and distributions has not been completed on or before May 1, 2020, or, if prior to such date, the Company has abandoned any of the separations or distributions, the Company will be required to redeem each series of DowDuPont Notes at a redemption price equal to 101 percent of the principal amount of such series of DowDuPont Notes, plus accrued and unpaid interest, if any, up to but excluding the date of redemption.
On April 1, 2019 prior to consummating the Dow Distribution, the Company contributed $2,024 million to Dow. The remaining proceeds from the DowDuPont Notes will be used to (i) reduce outstanding liabilities of Historical DuPont that would otherwise be attributed to Corteva; and (ii) further pay any related premiums, fees and expenses.
Term Loan and Revolving Credit Facilities - DowDuPont
In November 2018, the Company entered into a term loan agreement that establishes two term loan facilities in the aggregate principal amount of $3 billion, (the “DowDuPont Term Loan Facilities”) as well as a five-year $3 billion revolving credit facility (the “DowDuPont RCF”), availability of funding for each being subject to the satisfaction or waiver or certain customary conditions, including among others the consummation of the Dow Distribution. As of March 31, 2019, the DowDuPont Term Loan Facilities and DowDuPont RCF were unfunded and not yet available. The Company amended the DowDuPont RCF to become available as of May 2, 2019. The DowDuPont RCF is intended to remain unfunded.
Effective May 2, 2019, the Company fully drew the two DowDuPont Term Loan Facilities in the aggregate principal amount of $3.0 billion.
Commercial Paper - DowDuPont
In April 2019, DowDuPont authorized a $3 billion commercial paper program (the “DowDuPont Commercial Paper Program”), to become available concurrent with the DowDuPont RCF. The DowDuPont Commercial Paper Program, along with other primary sources of liquidity including cash from operations and cash and cash equivalents balances, is intended to fund the Company’s liquidity needs, including anticipated cash requirements related to working capital, capital spending, dividend payments, debt maturities and other cash needs.
Credit Ratings - DowDuPont
Coincident with the DowDuPont notes offering in November 2018, the credit rating agencies released credit ratings for DowDuPont, prospectively assuming the consummation of the separations and distributions of Dow and Corteva. The ratings for the Company are: A- with a Stable outlook from Standard & Poor’s; Baa1 with a Stable outlook from Moody’s Investors Service; and BBB+ with a Stable outlook from Fitch Ratings.
Historical DuPont's Liquidity Sources
Commercial Paper - Historical DuPont
Historical DuPont issues promissory notes under U.S. commercial paper programs. At March 31, 2019, Historical DuPont had $2,588 million of commercial paper outstanding ($1,847 million at December 31, 2018). Historical DuPont maintains access to the commercial paper market at competitive rates. Amounts outstanding under Historical DuPont's commercial paper programs during the period may be greater, or less, than the amount reported at the end of the period.
Committed Credit Facilities - Historical DuPont
In the event the Company has short-term liquidity needs, it can access liquidity through Historical DuPont's committed and available credit facilities. At March 31, 2019, Historical DuPont had total committed credit facilities of $8.8 billion with remaining available credit facilities of $5.7 billion. See Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, for additional information on committed and available credit facilities.
Term Loan and Revolving Credit Facilities - Historical DuPont
In March 2016, Historical DuPont entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4.5 billion (as may be amended, from time to time, the "Historical DuPont Term Loan Facility") under which Historical DuPont may make up to seven term loan borrowings and amounts repaid or prepaid are not available for subsequent borrowings. The proceeds from the borrowings under the Term Loan Facility will be used for Historical DuPont's general corporate purposes including debt repayment, working capital and funding a portion of the Company's costs and expenses. The Term Loan Facility was amended in 2018 to extend the maturity date to June 2020, at which time all outstanding borrowings, including accrued but unpaid interest, become immediately due and payable, and to extend the date on which the commitment to lend terminates to June 2019. At March 31, 2019, Historical DuPont had made six term loan borrowings in an
aggregate principal amount of $3.0 billion and had unused commitments of $1.5 billion under the Term Loan Facility. In addition, in 2018, Historical DuPont amended its $3.0 billion revolving credit facility to extend the maturity date to June 2020.
On May 2, 2019 Historical DuPont terminated its Term Loan Facility ("the Termination") and repaid the aggregate outstanding principal amount of $3 billion plus accrued and unpaid interest through and including May 1, 2019.
In November 2018, Historical DuPont entered into a $3.0 billion five-year revolving credit facility and a $3.0 billion three-year revolving credit facility (the “2018 Revolving Credit Facilities”). Availability of funds was subject to a number of conditions, including Corteva becoming a party to the 2018 Revolving Credit Facilities and the consummation of the separation and distribution of Corteva. On May 2, 2019, the 2018 Revolving Credit Facilities were amended, making the 2018 Revolving Credit Facilities available for Historical DuPont, effective May 2, 2019. Corteva will become a party to the 2018 Revolving Credit Facilities upon the separation and distribution from DowDuPont. The 2018 Revolving Credit Facilities contain customary representations and warranties, affirmative and negative covenants and events of default that are typical for companies with similar credit ratings and generally consistent with those applicable to Historical DuPont’s existing term loan and revolving credit facilities. The 2018 Revolving Credit Facilities also contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Historical DuPont and its consolidated subsidiaries not exceed 0.60.
Committed Receivable Repurchase Facility - Historical DuPont
In February 2019, in line with seasonal agricultural working capital requirements, Historical DuPont entered into a committed receivable repurchase agreement of up to $1.3 billion (the "2019 Repurchase Facility") which expires in December 2019. From time to time, Historical DuPont and the banks modify the monthly commitment amounts to better align with working capital requirements. Under the 2019 Repurchase Facility, Historical DuPont may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agree to repurchase at a future date. See Note 13 to the Consolidated Financial Statements for additional information.
Credit Ratings - Historical DuPont
At April 30, 2019, Historical DuPont's credit ratings were: A- for a long-term rating and A-2 for a short-term rating with a Stable outlook from Standard & Poor’s; A3 for a long-term rating and P-2 for a short-term rating with a Stable outlook from Moody’s Investors Service; and A for a long-term rating and F1 for a short-term rating with a Stable outlook from Fitch Ratings. Downgrades in Historical DuPont's credit ratings would increase borrowing costs on certain indentures and could impact its ability to access debt capital markets.
Debt
The Company’s public debt instruments and primary, private credit agreements (collectively "Debt Instruments") reside with DowDuPont, as well as Historical Dow and Historical DuPont (together, the "Subsidiaries"). See Note 13 to the Consolidated Financial Statements for information related to the Subsidiaries' notes payable and long-term debt activity since December 31, 2018, including debt retired and issued. The following table reflects the debt of DowDuPont and the Subsidiaries:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Debt | Mar 31, 2019 | Dec 31, 2018 |
| In millions | DowDuPont1 | Historical Dow | Historical DuPont | Total | DowDuPont1 | Historical Dow | Historical DuPont | Total |
| Notes payable | $ | — |
| $ | 317 |
| $ | 2,678 |
| $ | 2,995 |
| $ | — |
| $ | 302 |
| $ | 1,863 |
| $ | 2,165 |
|
| Long-term debt due within one year | — |
| 2,369 |
| 1,640 |
| 4,009 |
| — |
| 340 |
| 297 |
| 637 |
|
| Long-term debt | 12,599 |
| 17,160 |
| 5,207 |
| 34,966 |
| 12,596 |
| 19,254 |
| 5,812 |
| 37,662 |
|
| Total debt | $ | 12,599 |
| $ | 19,846 |
| $ | 9,525 |
| $ | 41,970 |
| $ | 12,596 |
| $ | 19,896 |
| $ | 7,972 |
| $ | 40,464 |
|
| |
1. | Represents the DowDuPont holding company. |
On November 13, 2018, Historical DuPont launched a tender offer (the “Tender Offer”) to purchase $6.2 billion aggregate principal amount of its outstanding debt securities (the “Tender Notes”). The Tender Offer expired on December 11, 2018 (the “Expiration Date”). At the Expiration Date, $4,409 million aggregate principal amount of the Tender Notes had been validly tendered and was accepted for payment. In exchange for such validly tendered Tender Notes, Historical DuPont paid a total of $4,849 million, which included breakage fees and all applicable accrued and unpaid interest on such Tender Notes. DowDuPont contributed cash (generated from the offering of the DowDuPont Notes) to Historical DuPont to fund the settlement of the Tender Offer and payment of associated fees.
On March 22, 2019, Historical DuPont issued notices of redemption in full of all of its outstanding notes (the “Make Whole Notes”) listed in the table below:
|
| | | |
| (in millions) | Amount |
| 4.625% Notes due 2020 | $ | 474 |
|
| 3.625% Notes due 2021 | 296 |
|
| 4.250% Notes due 2021 | 163 |
|
| 2.800% Notes due 2023 | 381 |
|
| 6.500% Debentures due 2028 | 57 |
|
| 5.600% Senior Notes due 2036 | 42 |
|
| 4.900% Notes due 2041 | 48 |
|
| 4.150% Notes due 2043 | 69 |
|
| Total | $ | 1,530 |
|
The Make Whole Notes were redeemed on April 22, 2019, at the make-whole redemption prices set forth in the respective Make Whole Notes. On and after the date of redemption, the Make Whole Notes were no longer deemed outstanding, interest on the Make Whole Notes ceased to accrue and all rights of the holders of the Make Whole Notes were terminated.
In connection with the expected announcement of the record date for the intended Corteva Distribution, Historical DuPont will be required to mail a notice of redemption to holders of the $1,250 million aggregate principal amount of 2.200 percent Notes due 2020 and $750 million aggregate principal amount of Floating Rate Notes due 2020 (collectively, the “SMR Notes”) setting forth the date of redemption of the SMR Notes. On the date of redemption, Historical DuPont will be required to redeem all of the SMR Notes at a redemption price equal to 100 percent of the aggregate principal amount of the SMR Notes plus accrued and unpaid interest, if any, up to but excluding the date of redemption. Following the redemption, the SMR Notes will no longer be outstanding and will cease to bear interest and all rights of the holders of the SMR Notes will terminate.
The Company expects to finance Historical DuPont’s redemption of the SMR Notes with cash from operations and the remaining proceeds from both the DWDP Term Loan Facilities and DowDuPont Notes, as well as other sources of liquidity. To achieve the intended credit profiles of Corteva and DuPont, DowDuPont expects to further de-lever Historical DuPont prior to the Corteva Distribution. In connection with both of these actions, the Company expects to issue commercial paper in the second quarter 2019. The final amount of the Company’s commercial paper issuance will depend on a number of factors including results of operations, market conditions and capital structure considerations.
Covenants and Default Provisions
The Company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations, subject to certain limitations. The DowDuPont Notes also contain customary default provisions. In addition, the Company will be required to redeem all of the DowDuPont Notes at a redemption price equal to 101 percent of the principal amount of such series of DowDuPont Notes, plus accrued and unpaid interest to, but excluding, the redemption date if each of the separations and distributions has not been completed on or before May 1, 2020, or, if prior to such date, DowDuPont has abandoned the intended Corteva Distribution.
The Debt Instruments of the Subsidiaries contain, among other provisions, certain customary restrictive covenant and default provisions. Historical Dow’s Revolving Credit Agreement contains a financial covenant that Historical Dow must maintain its ratio of consolidated indebtedness to its consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under Historical Dow’s Revolving Credit Agreement equals or exceeds $500 million. The ratio of Historical Dow’s consolidated indebtedness to its consolidated capitalization was 0.41 to 1.00 at March 31, 2019. Historical DuPont’s Term Loan Facility and RCF contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for Historical DuPont and its consolidated subsidiaries not exceed 0.6667 to 1.00. At March 31, 2019, management believes each of the Subsidiaries were in compliance with all of their respective covenants and default provisions. For additional information on the Subsidiaries' debt covenants and default provisions, see Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Dividends
On February 14, 2019, the Company announced that its Board declared a dividend of $0.38 per share,$851 million in aggregate on a pro rata basis, paid on March 15, 2019, to shareholders of record on February 28, 2019. On March 8, 2019, the Company announced that its Board declared a dividend of $325 million ($0.14 per share) in the aggregate on a pro rata basis, payablewhich was paid on May 28, 2019, to shareholders of record on April 26, 2019.
On June 27, 2019, the Company announced that its Board declared a third quarter dividend of $0.30 per share payable on September 13, 2019, to shareholders of record on July 31, 2019.
Share RepurchaseBuyback Programs
On NovemberJune 1, 2018,2019, the Company announcedCompany's Board of Directors authorized a new $3.0$2 billion share buyback program. Theprogram, which expires on June 1, 2021. At June 30, 2019, the Company spent $1.4 billion in the fourth quarterhad repurchased 1.4 million shares under this program at a total cost of 2018 and spent the remaining $1.6 billion in the first quarter of 2019, thereby completing this share repurchase program.$102 million.
See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, for additional information.
Pension and Other Post Employment Plans
DowDuPontDuPont expects to make additional contributions in the aggregate of about $500approximately $240 million by year-end 2019 to itscertain non-US pension plansand other than the principal U.S. pension plan.post employment benefit plans. Any such contribution could be funded by existing cash balances and/or cash from other available sources of liquidity.
Restructuring
DowDuPont Cost SynergyFuture cash payments related to the 2019 Restructuring Program
are anticipated to be approximately $55 million to $85 million, primarily related to the payment of severance and related benefits, lease termination costs, and contract termination costs. The activities related to the DowDuPont Cost Synergy Program are expected to result in additional cash expenditures of approximately $650$124 million to $700 million, primarily by the end of 2019, consisting of severance and related benefit costs and costscontract terminations. Actions associated with exit and disposal activities,the DowDuPont Cost Synergy Program, including environmental remediationemployee separations, are considered substantially complete (see Note 5 to the interim Consolidated Financial Statements). It is possible that additional charges and future cash payments could occur in relation to the Company's restructuring actions. The Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these costs will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
Contractual Obligations
Information related to the Company’s contractual obligations, commercial commitments and expected cash requirements for interest can be found in the Company's 2018 Annual Report on Form 10-K, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources. Additional information related to these obligations can be found in Notes 15, 16 and 19 to the Consolidated Financial Statements in the Company’s 2018 Annual Report on Form 10-K. With the exception of increased borrowings under the Historical DuPont Term Loan Facility, in the first quarter of 2019, there have been no material changes in the Company's contractual obligations since December 31, 2018. See Note 13 to the interim Consolidated Financial Statements for further discussion of the Historical DuPont Term Loan Facility.
Off-balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the primary beneficiary of these joint ventures and therefore is not required to consolidate the entities (see Note 22 to the Consolidated Financial Statements).
Guarantees arise in the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Subsidiaries undertakeCompany undertakes an obligation to guarantee the performance of others if specific triggering events occur. The Subsidiaries had combined outstanding guarantees at March 31,At June 30, 2019 of $4,753 million, compared with $4,778 million atand December 31, 2018.2018, the Company had directly guaranteed $185 million and $199 million, respectively, of such obligations. Additional information related to the guarantees of the Subsidiaries can be found in the “Guarantees” section of Note 1415 to the interim Consolidated Financial Statements.
Fair Value MeasurementsContractual Obligations
See Note 21Information related to the ConsolidatedCompany's contractual obligations at December 31, 2018 can be found in the Company's 2018 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Statements for additional information concerning fair value measurements.Condition and Results of Operations, Contractual Obligations. There have been material changes in the Company's contractual obligations since December 31, 2018 as a result of the distributions of Dow and Corteva. Information related to DuPont's significant contractual obligations is summarized in the following table:
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| | | | | | | | | | | | | | | |
| | | Payments Due In |
| In millions | Total at June 30, 2019 | Remainder of 2019 | 2020-2021 | 2022-2023 | 2024 and beyond |
Long-term debt obligations 1,2 | $ | 15,713 |
| $ | 3 |
| $ | 2,009 |
| $ | 5,801 |
| $ | 7,900 |
|
Expected cash requirements for interest 3 | 7,640 |
| 345 |
| 1,306 |
| 1,062 |
| 4,927 |
|
| Finance lease obligations | 4 |
| 1 |
| 2 |
| — |
| 1 |
|
| Operating leases | 612 |
| 92 |
| 221 |
| 120 |
| 179 |
|
| Pension and other post employment benefits | 1,184 |
| 237 |
| 138 |
| 123 |
| 686 |
|
Purchase obligations 4 | 647 |
| 108 |
| 312 |
| 179 |
| 48 |
|
Other liabilities 5 | 178 |
| 27 |
| 73 |
| 24 |
| 54 |
|
| Total contractual obligations | $ | 25,978 |
| $ | 813 |
| $ | 4,061 |
| $ | 7,309 |
| $ | 13,795 |
|
| |
| 1. | Included in the interim Consolidated Financial Statements. |
| |
| 2. | Excludes unamortized debt fees of $103 million. |
| |
| 3. | Cash requirement for interest on long-term debt was calculated using current interest rates at June 30, 2019 and includes $383 million of various floating rate notes and debt instruments. |
| |
| 4. | Represents enforceable and legally binding agreements in excess of $1 million to purchase goods or services that specify fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the agreement. |
| |
| 5. | Includes liabilities related to environmental remediation, legal settlements, and other noncurrent liabilities. The table excludes uncertain tax positions due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities and deferred tax liabilities as it is impractical to determine whether there will be a cash impact related to these liabilities. The table also excludes deferred revenue as it does not represent future cash requirements arising from contractual payment obligations. |
The Company expects to meet its contractual obligations through its normal sources of liquidity and believes it has the financial resources to satisfy the contractual obligations that arise in the ordinary course of business.
OTHER MATTERS
Recent Accounting Guidance
See Note 2 to the interim Consolidated Financial Statements for a summarydescription of recent accounting guidance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statementsinterim Consolidated Financial Statements and accompanying notes. Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 10-K”Annual Report”) describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. DowDuPont’sConsolidated Financial Statements. DuPont’s accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2018 10-K.Annual Report. Since December 31, 2018, there have been no material changes in the Company’s accounting policies that are impacted by judgments, assumptions and estimates. See the discussion in this section for information regarding the valuation of assets and impairment considerations.
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.
The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants.
|
| | | | |
| Asbestos-Related Claim Activity | 2019 | 2018 |
| Claims unresolved at Jan 1 | 12,780 |
| 15,427 |
|
| Claims filed | 1,383 |
| 1,932 |
|
| Claims settled, dismissed or otherwise resolved | (1,569 | ) | (3,026 | ) |
| Claims unresolved at Mar 31 | 12,594 |
| 14,333 |
|
| Claimants with claims against both Union Carbide and Amchem | (4,509 | ) | (5,148 | ) |
| Individual claimants at Mar 31 | 8,085 |
| 9,185 |
|
Plaintiffs’ lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to Union Carbide, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide’s litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.
For additional information, see Asbestos-Related Matters of Union Carbide Corporation in Note 14 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.
Valuation of Assets and Impairment Considerations
The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures. The Company performs goodwill impairment testing at the reporting unit level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business in which discrete financial information is available and regularly reviewed by segment management. The Company aggregates certain components into reporting units based on economic similarities. The Company assessed and re-defined certain reporting units effective June 1, 2019 in connection with the Second Quarter Segment Realignment. At June 30, 2019, the Company had identified 11 reporting units, eight of which carried goodwill.
During the second quarter 2019, the Company recorded goodwill impairment charges of $1,175 million. Refer to Note 13 to the interim Consolidated Financial Statements for further information.
As a result of the Merger and related acquisition method of accounting in connection with the Merger, Historical DuPont’sEID’s assets and liabilities were measured at fair value resulting in increases to the Company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in the projected cash flowsfinancial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the Company’s reporting units and assets, particularly within the Agriculture and Specialty Products divisions, and therefore could result in an impairment.
In preparation There were no other indicators for the intended Corteva Distribution, Historical DuPont completedCompany’s other reporting units that would suggest that it is more likely than not that the separation of the assets and liabilities related tofair value is less than its specialty products businesses (the “Historical DuPont Net SP Assets”) into separate legal entities. On May 1, 2019, Historical DuPont distributed those legal entities to DowDuPont (the “Internal SP Distribution”).carrying value at June 30, 2019. The Internal SP Distribution triggers a re-assessment at the Historical DuPont level of the recoverability ofCompany will perform its annual goodwill and the overall carrying value of the Historical DuPont Net SP Assets.
In connection with the consummation of the intended Corteva Distribution, DowDuPont will assess the recoverability of the goodwill and the overall carrying value of the net assets of its agriculture business. In connection with DowDuPont’s Second Quarter Segment Realignments, the Company will reassess and may re-define its reporting units. See the Overview section of the MD&A for more information about the Second Quarter Segment Realignments.
Two of the Company’s current reporting units, Industrial Biosciences and Clean Technologies, are comprised solely of Historical DuPont assets and liabilities, the carrying values of which were measured at fair value in connection with the Merger. These reporting units are considered at risk forintangible asset impairment given the small margin of their respective fair values over their respective carrying values as of the date of the Company’s last annual impairment test. In addition, recent unfavorable market conditions slowed demandtest in the biomaterials business unit in Industrial Biosciences. The carrying amount of goodwill for the Industrial Biosciences and Clean Technologies reporting units at March 31, 2019 was $3,100 million and $461 million, respectively. As part of the Second Quarter Segment Realignments, the biomaterials business unit in Industrial Biosciences and the Clean Technologies reporting unit will be included in the Non-Core segment effective June 1, 2019.fourth quarter.
DowDuPont will assemble and review updated financial projections, including any changes to key assumptions, in connection with the Internal SP Distribution, intended Corteva Distribution and Second Quarter Segment Realignments. In connection with this activity, the outcome of which is not currently known, it is possible that non-cash impairment charges could be recorded in second quarter 2019. There can be no assurance that such charges, if any, would not be material to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SeeThe Company’s global operations are exposed to financial market risks relating to fluctuations in foreign currency exchange rates, commodity prices, and interest rates. The Company has established a variety of programs including the use of derivative instruments and other financial instruments to manage the exposure to financial market risks as to minimize volatility of financial results. In the ordinary course of business, the Company enters into derivative instruments to hedge its exposure to foreign currency, interest rate and commodity price risks under established procedures and controls. For additional information on these derivatives and related exposures, see Note 2021 to the interim Consolidated Financial Statements. SeeDecisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility and economic trends. Foreign currency exchange contracts are also Part II, Item 7A. Quantitativeused, from time to time, to manage near-term foreign currency cash requirements.
Foreign Currency Exchange Rate Risks
The Company has significant international operations resulting in a large number of currency transactions that result from international sales, purchases, investments and Qualitative Disclosures About Marketborrowings. The primary currencies for which the Company has an exchange rate exposure are the European euro ("EUR"), Chinese renminbi, Swiss franc, and South Korean won. The Company uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. In addition to the contracts disclosed in Note 21 to the interim Consolidated Financial Statements, from time to time, the Company will enter into foreign currency exchange contracts to establish with certainty the U.S. dollar ("USD") amount of future firm commitments denominated in a foreign currency.
The following table illustrates the fair values of outstanding foreign currency contracts at June 30, 2019, and the effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed at June 30, 2019. The sensitivities for foreign currency contracts are based on a 10 percent adverse change in foreign exchange rates.
|
| | | | | | |
| | Fair Value Asset/(Liability) | Fair Value Sensitivity |
| In millions | June 30, 2019 | June 30, 2019 |
| Foreign currency contracts | $ | 7 |
| $ | (285 | ) |
Since the Company's risk management programs are highly effective, the potential loss in value for each risk management portfolio described above would be largely offset by changes in the value of the underlying exposure.
Concentration of Credit Risk
The Company maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed and the Company has a policy to limit the dollar amount of credit exposure with any one institution.
As part of the Company's 2018 Annual Reportfinancial risk management processes, it continuously evaluates the relative credit standing of all of the financial institutions that service DuPont and monitors actual exposures versus established limits. The Company has not sustained credit losses from instruments held at financial institutions.
The Company's sales are not materially dependent on Form 10-K for information onany single customer. As of June 30, 2019, no one individual customer balance represented more than five percent of the Company's utilizationtotal outstanding receivables balance. Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with the Company's global product lines.
The Company also maintains strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial instrumentsguarantee in certain circumstances. Length of terms for customer credit varies by industry and an analysis of the sensitivity of these instruments.region.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
In connection with the Dow Distribution and the intended Corteva Distribution,Distributions, there are several processes, policies, operations, technologies and information systems that were integrated following the Merger which have been or will be replicated, transferred or separated. The Company continues to take steps to ensure that adequate controls are designed and maintained throughout this transition period.
|
|
DowDuPontDuPont de Nemours Inc.
PART II - OTHER INFORMATION |
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. Information regarding certain of these matters is set forth below and in Note 1415 to the Consolidated Financial Statements.
Litigation
PursuantSee Note 15 to the Separation Agreement, as of the consummation of the Dow Distribution on April 1, 2019, the Historical Dow liabilities discussed below are liabilities of Dow Inc. and, accordingly, will be reflected as discontinued operations of the Company as of the second quarter 2019.
Historical Dow
Asbestos-Related Matters of Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of Historical Dow
No material developments regarding this matter occurred in the first quarter of 2019. For a current status of this matter, see Note 14 to theinterim Consolidated Financial Statements; and Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters of Union Carbide Corporation.Statements.
Historical DuPont
PFOA: Environmental and Litigation Proceedings
For purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including the ammonium salt and does not distinguish between the two forms. Information related to this matter is included in Note 14 to the Consolidated Financial Statements under the heading PFOA Matters.
Fayetteville Works Facility, Fayetteville, North Carolina
In August 2017, the U.S. Attorney’s Office for the Eastern District of North Carolina served Historical DuPont with a grand jury subpoena for testimony and the production of documents related to alleged discharges of GenX from the Fayetteville Works facility into the Cape Fear River. Historical DuPont has been served with additional subpoenas relating to the same issue and in the second quarter of 2018, received a subpoena expanding the scope to any perfluorinated chemicals and compounds (“PFCs”) discharged from the Fayetteville Works facility into the Cape Fear River. Additional information related to this matter is included in Note 14 to the Consolidated Financial Statements under the heading "DuPont Matters: Fayetteville Works Facility, North Carolina."
La Porte Plant, La Porte, Texas - Crop Protection - Release Incident Investigations
On November 15, 2014, there was a release of methyl mercaptan at Historical DuPont's La Porte, Texas, facility. The release occurred at the site’s Crop Protection unit resulting in four employee fatalities inside the unit. Historical DuPont continues to cooperate with governmental agencies, including the U.S. Environmental Protection Agency ("EPA"), the Chemical Safety Board and the Department of Justice ("DOJ"), which are still conducting investigations. These investigations could result in sanctions and civil or criminal penalties against Historical DuPont.
Environmental Proceedings
The Company believes it is remote that the following matters will have a material impact on its financial position, liquidity or results of operations. The description is included per Regulation S-K, Item 103(5)(c) of the Securities Exchange Act of 1934. PursuantRefer to Note 15 of the Consolidated Financial Statements for additional discussion of the allocation of liabilities under the Separation Agreement, as of the consummation of the Dowand Distribution on April 1, 2019, the Historical Dow liabilities discussed below are liabilities of Dow Inc. and, accordingly, will be reflected as discontinued operations of the Company as of the second quarter 2019.
Historical Dow
Freeport, Texas, Facility Matter
On July 7, 2018, Historical Dow received an informal notice that the EPA, Region 6 was contemplating filing a Notice of Violation with a proposed penalty for alleged violations uncovered during a prior inspection related to the management of hazardous wastes at Historical Dow's Freeport, Texas, manufacturing facility, pursuant to the Risk Management Plan requirements of the Clean Air Act. On March 4, 2019, the EPA and Historical Dow entered into a Consent Agreement and Final Order, which Historical Dow agreed to pay a fine of $260,349 and certify compliance with specified regulations with the EPA.Letter Agreement.
Union Carbide Matter - Seadrift, Texas
On March 5, 2019, Union Carbide received an informal notice that the EPA, Region 6 was contemplating filing a Notice of Violation with a proposed penalty for alleged violations uncovered during a prior inspection related to the management of hazardous materials at Union Carbide's Seadrift, Texas, manufacturing facility, pursuant to the Risk Management Plan requirements of the Clean Air Act. Discussions between the EPA and Union Carbide are ongoing.
Historical DuPont
La Porte Plant, La Porte, Texas - EPA Multimedia Inspection
The EPA conducted a multimedia inspection at the La Porte facility in January 2008. Historical DuPont, the EPA and the DOJ began discussions in the fall of 2011 relating to the management of certain materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions. These discussions continue.
Sabine Plant, Orange, Texas - EPA Multimedia Inspection
In June 2012, Historical DuPont began discussions with the EPA and the DOJ related to a multimedia inspection that the EPA conducted at the Sabine facility in March 2009 and December 2015. The discussions involve the management of materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions, including leak detection and repair. These discussions continue.
Divested Neoprene Facility, La Place, Louisiana - EPA Compliance InspectionInspection
In 2016, the EPA conducted a focused compliance investigation at the Denka Performance Elastomer LLC (“Denka”) neoprene manufacturing facility in La Place, Louisiana. Historical DuPontEID sold the neoprene business, including this manufacturing facility, to Denka in the fourth quarter of 2015. Subsequent to this inspection, the EPA,U.S. Environmental Protection Agency (“EPA)”, the DOJ,U.S. Department of Justice (“DOJ”), the DEQ,Louisiana Department of Environmental Quality (“DEQ”) the Company, originally through Historical DuPontEID, and Denka began discussions in the spring of 2017 relating to the inspection conclusions and allegations of noncompliance arising under the Clean Air Act, including leak detection and repair. TheseDuPont, Denka, EPA, DOJ and DEQ are continuing these discussions, which include potential settlement options, continue. options.
FilmTec Edina, Minnesota Matter
On March 14, 2017, FilmTec Corporation ("FilmTec"), a wholly owned subsidiary of Historical Dow, received notification from the EPA, Region 5 and the DOJ of a proposed penalty for alleged violations of the Clean Air Act at FilmTec’s Edina, Minnesota, manufacturing facility. In the second quarter 2019, the EPA, the DOJ and FilmTec agreed, subject to publication and entry of a final Consent Decree, to settle the matter for a civil penalty of $250,000 and FilmTec’s agreement to undertake certain remedial actions.
New Jersey Directive PFAS
On March 25, 2019, the New Jersey Department of Environmental Protection (“NJDEP”) issued a Directive and Notice to Insurers to a number of companies, including Chemours, DowDuPont, Historical EID, and certain DowDuPont subsidiaries including Historical DuPont. Allegations against DowDuPont and its subsidiariesDuPont subsidiaries. NJDEP’s allegations relate to former operations of Historical DuPontEID involving poly- and perfluoroalkyl substances, (“PFAS”), including PFOA and PFOA- replacement products. The NJDEP seeks past and future costs of investigating, monitoring, testing, treating, and remediating New Jersey’s drinking water and waste systems, private drinking water wells and natural resources including groundwater, surface water, soil, sediments and biota. The Directive seeks certain information as to future costs and information related to the historic uses of PFAS and replacement chemicals including “information ranging from use and discharge of the chemicals through wastewater treatment plants, air emissions, and sales of products containing the chemicals to current development, manufacture, use and release of newer chemicals in the state.”
Chemours has agreed, with reservations, to defend and indemnify Historical DuPont in this matter.
New Jersey Directive Pompton Lakes
On March 27, 2019, the NJDEP issued a Directive and Notice to Insurers for Natural Resource Damages at Pompton Lakes facility in New Jersey. The directive was issued to Historical DuPont and Chemours and it alleges that former operations at the facility by Historical DuPont have caused contamination and damage to surface and ground water, soils and sediments on and off the facility. The NJDEP is seeking $125,000 as reimbursement for the preparation of a natural resource damage assessment. Depending on the results of such assessment, the parties are notified that they may be required to pay for the restoration and replacement of any damage to such natural resources.
Chemours has agreed, with reservations, to defend and indemnify Historical DuPont in this matter.
ITEM 1A. RISK FACTORS
InabilityThe Company's operations could be affected by various risks, many of which are beyond its control. Based on current information, the Company believes that the following identifies the most significant risk factors that could affect its operations. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
Risks Relating to the Separations and Distributions
DuPont is subject to continuing contingent tax-related liabilities of Dow and Corteva following the separations and Distributions.
After the separations and Distributions, there are several significant areas where the liabilities of Dow and Corteva may become the Company’s obligations, either in whole or in part. For example, to the extent that any subsidiary of the Company was included in the consolidated tax reporting group of either Historical Dow or Historical EID for any taxable period or portion of any taxable period ending on or before the effective date of the Merger, such subsidiary is jointly and severally liable for the U.S. federal income tax liability of the entire consolidated tax reporting group of Historical Dow or Historical EID, as applicable, for such taxable period. In connection with the separations and Distributions, DuPont, Dow and Corteva have entered into a Tax Matters Agreement, as amended, that allocates the responsibility for prior period consolidated taxes among Dow, Corteva and DuPont. If Dow or Corteva are unable to pay any prior period taxes for which it is responsible, however, DuPont could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.
Restrictions under the intellectual property cross-license agreements will limit the Company’s ability to develop and commercialize certain products and services and/or prosecute, maintain and enforce certain intellectual property.
Following the separations and Distributions, DuPont is dependent to a certain extent on Dow and Corteva to prosecute, maintain and enforce certain of the intellectual property licensed under the intellectual property cross-license agreements entered into by DuPont, Dow and Corteva in connection with the separations and Distributions. For example, Dow and Corteva are responsible for filing, prosecuting and maintaining (at their respective discretion) patents that Dow and Corteva, respectively, license to the Company. Dow or Corteva, as applicable, will also have the first right to enforce their respective patents, trade secrets and know-how licensed to the Company. If Dow or Corteva, as applicable, fails to fulfill its obligations or chooses to not enforce the licensed patents, trade secrets or know-how under the intellectual property cross-license agreements, DuPont may not be able to prevent competitors from making, using and selling competitive products and services.
In addition, the Company’s use of the intellectual property licensed to it under the intellectual property cross-license agreements is restricted to certain fields, which could limit the Company’s ability to develop and commercialize certain products and services. For example, the licenses granted to it under the agreements do not extend to all fields of use that DuPont may in the future decide to enter. These restrictions may make it more difficult, time consuming and/or expensive for it to develop and commercialize certain new products and services, or may result in certain of the Company’s products or services being later to market than those of the Company’s competitors.
Certain of the contracts transferred or assigned to it as part of the separations and Distributions contain provisions requiring the consent of a third party in connection with the transactions contemplated by the separations and Distributions. If such consent is not given, DuPont may not be entitled to the benefit of such contracts in the future.
Certain of the contracts transferred or assigned to it in connection with the separations and Distributions contain provisions that require the consent of a third party. Some parties may use consent requirements or other rights to seek to terminate contracts or obtain more favorable contractual terms from it. If DuPont is unable to obtain such consents on commercially reasonable and satisfactory terms, the Company’s ability to obtain the benefit of such contracts in the future may be impaired and DuPont may be required to seek alternative arrangements which may be less advantageous to it.
The Company’s customers, prospective customers, suppliers or other companies with whom DuPont conducts business may need assurances that the Company’s financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.
Some of the Company’s customers, prospective customers, suppliers or other companies with whom DuPont conducts business may need assurances that the Company’s financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them, and may require it to provide additional credit support, such as letters of credit or other financial guarantees. Obtaining such credit support could increase the Company’s costs. Any failure of parties to be satisfied with the Company’s financial stability could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Non-compete restrictions in the Separation and Distribution Agreement limit the Company’s ability to compete with certain businesses of Dow for certain periods of time and may limit strategic transactions or discourage the Company’s potential investors from purchasing the Company’s securities. Moreover, when the non-compete restrictions expire, Dow may re-enter these limited business areas, which could cause DuPont to lose market share.
Pursuant to the Separation and Distribution Agreement, and subject to specified exceptions, DuPont and Dow agree not to compete in limited areas of the other’s businesses for a period 30 months from the date of the Dow Distribution. As a result, even if market conditions or the Company’s strategic direction change, DuPont would not be able to enter the subject materials science businesses during the non-compete period. This non-compete restriction could delay, defer or prevent a change of control, merger, consolidation, takeover or other business combination involving it that the Company’s board of directors or the Company’s shareholders may otherwise support, and could also discourage a potential investor from acquiring the Company’s securities and may harm the market price of the Company’s securities, including the Notes.
Once the non-compete period terminates, Dow could elect to re-enter the Company’s subject business areas, in which case DuPont would face increased competition. This may cause it to lose market share and could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows.
In connection with the separations and Distributions, certain liabilities are allocated to or retained by DuPont through assumption or indemnification of Dow and/or Corteva, as applicable. If DuPont is required to make payments pursuant to these indemnities to Dow and/or Corteva, DuPont may need to divert cash to meet those obligations, and the Company’s financial results could be negatively impacted. In addition, certain liabilities are allocated to or retained by Dow and/or Corteva through assumption or indemnification, or subject to indemnification by other third parties. These indemnities may not be sufficient to insure the Company against the full amount of liabilities allocated to or retained by it, and Dow and/or Corteva may not be able to satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement, the Employee Matters Agreement, and the Tax Matters Agreement, as amended, (collectively, the “Core Agreements”) with Dow and Corteva, as well as the Letter Agreement between DuPont and Corteva, DuPont has agreed to assume, and indemnify Dow and Corteva for, certain liabilities. (See discussion of the Core Agreements in Note 3 to the interim Consolidated Financial Statements and Litigation and Environmental Matters in Note 15 to the interim Consolidated Financial Statements.) Payments pursuant to these indemnities may be significant and could negatively impact the Company’s business, particularly indemnities relating to the Company’s actions that could impact the tax-free nature of the distributions. Third parties could also seek to hold it responsible for any of the liabilities allocated to Dow and Corteva, including those related to Historical EID’s materials science and/or agriculture businesses, or for the conduct of such businesses prior to the distributions, and such third parties could seek damages, other monetary penalties (whether civil or criminal) and/or other remedies. Additionally, DuPont generally assumes and is responsible for the payment of the Company’s share of (i) certain liabilities of DowDuPont relating to, arising out of or resulting from certain general corporate matters of DuPont and (ii) certain separation expenses not otherwise allocated to Corteva or Dow (or allocated specifically to it) pursuant to the Core Agreements, and third parties could seek to hold it responsible for Dow’s or Corteva’s share of any such liabilities. Dow and/or Corteva, as applicable, have agreed to indemnify it for such liabilities; however, such indemnities may not be sufficient to protect it against the full amount of such liabilities or from other remedies, and Dow and/or Corteva, as applicable, may not be able to fully satisfy their indemnification obligations. Even if DuPont ultimately succeeds in recovering from Dow and/or Corteva, as applicable, any amounts for which DuPont are held liable, DuPont may be temporarily required to bear these losses. Each of these risks could negatively affect the Company’s business, financial condition, results of operations and cash flows.
Generally, as described in Litigation and Environmental Matters, losses related from liabilities related to discontinued and/or divested operations and businesses of Historical EID that are not primarily related to its agriculture business or specialty products business, (“Stray Liabilities”), are allocated to or shared by each of Corteva and DuPont. Certain Stray Liabilities are subject to third party indemnities; however, such indemnities may not be sufficient to protect the Company against the full amount of such liabilities or such third parties may refuse or otherwise claim defenses to payment. Although the Company believes it is remote, there can be no assurance that any such third party would have adequate resources to satisfy its indemnification obligation when due, or, would not ultimately be successful in claiming defenses against payment. Even if recovery from the third party is ultimately successful, DuPont may be temporarily required to bear these losses. Each of these risks could negatively affect the Company’s business, financial condition, results of operations and cash flows.
If the completed distribution of Corteva or Dow, in each case, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the Company could be subject to significant tax and indemnification liability.
The completed distributions of Corteva and Dow were each conditioned upon the receipt of an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, the Company’s tax counsel, regarding the qualification of the applicable distribution along with certain related transactions as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code,” and such opinions, collectively, the “Tax Opinions”). The Tax Opinions relied on certain facts, assumptions,
and undertakings, and certain representations from the Company, Dow and Corteva, as applicable, as well as the IRS Ruling (as defined below). Notwithstanding the Tax Opinions and the IRS Ruling, the Internal Revenue Service (the “IRS”) could determine on audit that either, or both, of the distributions and certain related transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distributions should be taxable for other reasons, including if the IRS were to disagree with the conclusions of the Tax Opinions.
Even if a distribution otherwise constituted a tax-free transaction to stockholders under Section 355 of the Code, the Company could be required to recognize corporate level tax on such distribution and certain related transactions under Section 355(e) of the Code if the IRS determines that, as a result of the Merger or other transactions considered part of a plan with such distribution, there was a 50 percent or greater change in ownership in the Company, Dow or Corteva, as relevant. In connection with the Merger, the Company sought and received a private letter ruling from the IRS regarding the proper time, manner and methodology for measuring common ownership in the stock of the Company, Historical EID and Historical Dow for purposes of determining whether there was a 50 percent or greater change of ownership under Section 355(e) of the Code as a result of the Merger (the “IRS Ruling”). The Tax Opinions relied on the continued validity of the IRS Ruling and representations made by the Company as to the common ownership of the stock of Historical Dow and Historical EID immediately prior to the Merger, and concluded that there was not a 50 percent or greater change of ownership for purposes of Section 355(e) as a result of the Merger. Notwithstanding the Tax Opinions and the IRS Ruling, the IRS could determine that a distribution or a related transaction should nevertheless be treated as a taxable transaction to the Company if it determines that any of the Company’s facts, assumptions, representations or undertakings was not correct or that a distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the Tax Opinions that are not covered by the IRS Ruling.
Generally, corporate taxes resulting from the failure of a distribution to qualify for non-recognition treatment for U.S. federal income tax purposes would be imposed on the Company. Under the Tax Matters Agreement, as amended, that the Company entered into with Dow and Corteva, Dow and Corteva are generally obligated to indemnify the Company against any such taxes imposed on it. However, if a distribution fails to qualify for non-recognition treatment for U.S. federal income tax purposes for certain reasons relating to the overall structure of the Merger and the distributions, then under the Tax Matters Agreement, as amended, the Company and Corteva, on the one hand, and Dow, on the other hand, would share the tax liability resulting from such failure in accordance with the relative equity values of the Company and Dow on the first full trading day following the distribution of Dow, and the Company and Corteva would in turn share any such resulting tax liability in accordance with the relative equity values of the Company and Corteva on the first full trading day following the distribution of Corteva. Furthermore, under the terms of the Tax Matters Agreement, as amended, a party also generally will be responsible for any taxes imposed on the other parties that arise from the failure of either distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Code or the failure of certain related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events or transactions relating to such party, or such party's affiliates’, stock, assets or business, or any breach of such party's representations made in connection with the IRS Ruling or in any representation letter provided to a tax advisor in connection with certain tax opinions, including the Tax Opinions, regarding the tax-free status of the distributions and certain related transactions. To the extent that the Company is responsible for any liability under the Tax Matters Agreement, as amended, there could be a material adverse impact on the Company's business, financial condition, results of operations and cash flows in future reporting periods.
The separations and Distributions may expose the Company to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
Although DuPont received a solvency opinion from an investment bank confirming that DuPont, Dow and Corteva would each be adequately capitalized following the separations and Distributions, the separations and Distributions could be challenged under various state and federal fraudulent conveyance laws. Fraudulent conveyances or transfers are generally defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. Any unpaid creditor could claim that DuPont did not receive fair consideration or reasonably equivalent value in the separations and distributions, and that the separations and distributions left DuPont insolvent or with unreasonably small capital or that DuPont intended or believed DuPont would incur debts beyond the Company’s ability to pay such debts as they mature. If a court were to agree with such a plaintiff, then such court could void the separations and distributions as a fraudulent transfer or impose substantial liabilities on it, which could adversely affect the Company’s financial condition and the Company’s results of operations.
The separations and Distributions are also subject to review under state corporate distribution statutes. Under the Delaware General Corporation Law, a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although DuPont’s Board of Directors made the distributions out of DuPont’s surplus and received an opinion that
DuPont had adequate surplus under Delaware law to declare the dividends of Corteva and Dow common stock in connection with the Distributions, there can be no assurance that a court will not later determine that some or all of the distributions were unlawful.
Risks Related to DuPont’s Operations After the Separations and Distributions
Changes in the Company’s credit ratings could increase the Company’s cost of borrowing or restrict the Company’s ability to access the debt capital markets could impair DowDuPont's liquidity, business or financial condition.markets. The Company’s credit ratings are important to the Company’s cost of capital.
DowDuPont’s primary sources of liquidity to finance operations, including dividendsDuPont relies on its common stock, are cash through operations, including those conducted through its subsidiaries, including Historical DuPont, DowDuPont’s direct access to the debt capital markets and through Historical DuPont’s access to the debt capital markets. In addition, Historical DuPont has relied and continues to rely on access to the debt capital marketsother short-term borrowings to finance day-to-day and long-term operations. Any limitation on the Company’s ability to raise money in the debt markets could have a substantial negative effect on liquidity. Access to the debt capital markets could be impaired as a result of the existence of material nonpublic information about the intended Corteva Distributionlong-term and other potential factors, including factors that are not specific to the Company and its subsidiaries, such as a severe disruption of the financial markets and interest rate fluctuations.
Prior to the intended Corteva Distribution, the level and quality of the respective earnings, operations, business and management, among other things, of Historical DuPont will impact its credit ratings, costs and availability of financing and those of the combined Company.day-to-day operations. A decrease in the ratings assigned to DowDuPont or Historical DuPontit by the ratings agencies may negatively impact the Company’s access to the debt capital markets and increase the Company’s cost of borrowing. The major rating agencies will routinely evaluate the Company’s credit profile and assign debt ratings to it. This evaluation is based on a number of factors, which include weighing the Company’s financial strength versus business, industry and financial risk. The addition of further leverage to the Company’s capital structure could impact the Company’s credit ratings. Failure to maintain an investment grade rating at the Company’s current level would adversely affect the Company’s cost of funding and the Company’s results of operations and could adversely affect the Company’s liquidity and access to the capital markets. Any limitation on the Company’s ability to continue to raise money in the debt capital markets could have a substantial negative effect on the Company’s liquidity. If DuPont is unable to generate sufficient cash flow or maintain access to adequate external financing, including from significant disruptions in the global credit markets, it could restrict the Company’s current operations, activities under its current and future stock buyback programs, and the Company’s growth opportunities, which could adversely affect the Company’s operating results.
A significant percentage of the Company’s net sales are generated from the Company’s international operations and are subject to economic, political, regulatory, foreign exchange and other risks.
The percentage of net sales generated by the international operations of DuPont, including U.S. exports, was approximately 65 percent of net sales on a continuing operations basis for the three months ended June 30, 2019. With Asia Pacific as the Company’s largest and currently highest growth region, DuPont expects the percentage of the Company’s net sales derived from international operations to continue to be significant. Risks related to international operations include:
difficulties and costs associated with complying with a wide variety of complex, and often conflicting, laws, treaties and regulations, including antitrust regulations;
restrictions on, as well as difficulties and costs associated with, the repatriation of cash from foreign countries to the United States and the allocation of revenues or distributions of cash between the Company’s foreign subsidiaries;
exchange control regulations;
fluctuations in foreign exchange rates;
labor compliance costs, including wage, salary and benefit controls and other costs associated with a global workforce, as will as difficulties in hiring and maintaining a qualified staff outside of the United States, especially in the Asia Pacific region;
government mandated price controls;
foreign investment laws;
potential for changes in global trade policies, including import, export and other trade restrictions (such as sanctions and embargoes) and tariffs;
trends such as populism, economic nationalism and negative sentiment toward multinational companies, as well as government takeover or nationalization of businesses; and
instability and uncertainty arising from the global geopolitical environment and the evolving international and domestic political, regulatory and economic landscape.
These and other factors can impair the Company’s flexibility in modifying product, marketing, pricing or other strategies for growing the Company’s businesses, as well as the Company’s ability to improve productivity and maintain acceptable operating margins.
The Company’s international operations expose it to fluctuations in foreign currencies relative to the U.S. dollar, which could adversely affect the Company’s results of operations. For its continuing operations as of the six months ended June 30, 2019, the Company’s largest currency exposures are the European euro and Chinese renminbi. U.S. dollar fluctuations against foreign currency have an impact to commercial prices and raw material costs in some cases and could result in local price increases if the price or raw material costs is denominated in U.S. dollar.
Sales and expenses of the Company’s non-U.S. businesses are also translated into U.S. dollars for reporting purposes and fluctuations of foreign currency against the U.S. dollar could impact U.S. dollar-denominated earnings. In addition, the Company’s assets and liabilities denominated in foreign currencies can also be impacted by foreign currency exchange rates against the U.S. dollar, which could result in exchange gain or loss from revaluation.
DuPont also faces exchange rate risk from the Company’s investments in subsidiaries owned and operated in foreign countries.
DuPont has a balance sheet hedging program and actively looks for opportunities in managing currency exposures related to earnings. However, foreign exchange hedging activities bear a financial cost and may not always be available to it or be successful in completely mitigating such exposures.
DuPont generates significant amounts of cash outside of the United States that is invested with financial and non-financial counterparties. While DuPont employs comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure the Company’s ability to fund the Company’s operations and commitments, a material disruption to the counterparties with whom DuPont transacts business could expose it to financial loss.
Any one or more of the above factors could adversely affect the Company’s international operations and could significantly affect the Company’s business, results of operations, financial condition and cash flows.
Volatility in energy and raw material costs could have a significant impact on the Company’s sales and earnings.
The Company’s manufacturing processes consume significant amounts of energy and raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond the Company’s control. Significant variations in the cost of energy, which primarily reflect market prices for oil, natural gas and raw materials, affect the Company’s operating results from period to period. Legislation to address climate change by reducing greenhouse gas emissions, creating a carbon tax or implementing a cap and trade program could create increases in energy costs and price volatility.
When possible, DuPont purchases raw materials through negotiated long-term contracts to minimize the impact of price fluctuations. Additionally, DuPont uses over-the-counter and exchange traded derivative commodity instruments to hedge the Company’s exposure to price fluctuations on certain raw material purchases, including food ingredients. DuPont also takes actions to offset the effects of higher energy and raw material costs through selling price increases, productivity improvements and cost reduction programs. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. As a result, volatility in these costs may negatively impact the Company’s business, results of operations, financial condition and cash flows.
The Company’s results will be affected by competitive conditions and customer preferences.
Demand for the Company’s products, which impacts revenue and profit margins, will be affected by (i) the development and timing of the introduction of competitive products; (ii) the Company’s response to downward pricing trends to stay competitive; (iii) changes in customer order patterns, such as changes in the levels of inventory maintained by customers and the timing of customer purchases which may be affected by announced price changes, changes in the Company’s incentive programs, or the customer’s ability to achieve incentive goals; (iv) the impact of tariffs or trade disputes on availability of raw materials; and (v) changes in customers’ preferences for the Company’s products, including the success of products offered by the Company’s competitors, and changes in customer’s designs for their products that can affect the demand for some of the Company’s products.
Additionally, success in achieving the Company’s growth objectives is significantly dependent on the timing and market acceptance of the Company’s new product offerings, including the Company’s ability to renew the Company’s pipeline of new product offerings and to bring those offerings to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, obtain adequate intellectual property protection, or gain market acceptance of new products. There are no guarantees that new products will prove to be commercially successful. The Company’s success will depend on several factors, including the Company’s ability to:
correctly identify customer needs and preferences and predict future needs and preferences;
allocate the Company’s research & development funding to products and services with higher growth prospects;
anticipate and respond to the Company’s competitors’ development of new products and services and technological innovations;
differentiate the Company’s offerings from the Company’s competitors’ offerings and avoid commoditization;
innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may have valuable applications in the Company’s served markets;
obtain adequate intellectual property rights with respect to key technologies before the Company’s competitors do;
successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively manufacture and deliver sufficient volumes of new products of appropriate quality on time;
obtain necessary regulatory approvals of appropriate scope; and
stimulate customer demand for, and convince customers, to adopt new technologies.
There are no guarantees that new product offerings will prove to be commercially successful.Additionally, the Company’s expansion into new markets may result in greater-than-expected risks, liabilities and expenses.
The costs of complying with evolving regulatory requirements could negatively impact the Company’s business, results of operations, financial condition and cash flows. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations and substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
DuPont continues to be subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company’s operations, or require modifications to the Company’s facilities. Changes to regulations or the implementation of additional regulations, especially in certain highly regulated markets served by the Company’s Nutrition & Biosciences businesses, such as regulatory modernization of food safety laws and evolving standards and regulations affecting pharmaceutical excipients, or in reaction to new or next-generation technologies, including advances in protein engineering, gene editing and gene mapping, or novel uses of existing technologies may result in significant costs or capital expenditures or require changes in business practice that could result in reduced margins or profitability.
Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities causing a negative impact on the Company’s business, cash flows and results of operations.
The Company’s business, results of operations and reputation could be adversely affected by industry-specific risks including process safety and product stewardship/regulatory compliance issues.
DuPont is subject to risks which include, but are not limited to, product safety or quality; shifting consumer preferences; federal, state, and local regulations on manufacturing or labeling; environmental, health and safety regulations; and customer product liability claims. While DuPont maintains general liability insurance, the amount of liability that may result from certain of these risks may not always be covered by, or could exceed, the applicable insurance coverage. In addition, negative publicity related to product liability, food safety, safety, health and environmental matters may damage the Company’s reputation. The occurrence of any of the matters described above could adversely affect the Company’s business, results of operations, financial condition and cash flows.
In most jurisdictions, DuPont must test the safety, efficacy and environmental impact of the Company’s products to satisfy regulatory requirements and obtain the needed approvals. In certain jurisdictions, DuPont must periodically renew the Company’s approvals, which may require it to demonstrate compliance with then-current standards. The regulatory approvals process is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. Additionally, the regulatory environment may be impacted by the activities of non-governmental organizations and special interest groups and stakeholder reactions to the actual or perceived impacts of new technology, products or processes on safety, health and the environment. Obtaining and maintaining regulatory approvals will require submitting a significant amount of information and data, which may require participation from technology providers. Regulatory standards and trial procedures are continuously changing. The pace of change together with the lack of regulatory harmony could result in unintended noncompliance. To maintain the Company’s right to produce or sell existing products or to commercialize new products, DuPont must be able to demonstrate the Company’s ability to satisfy the requirements of regulatory agencies.
The failure to meet existing and new requirements or receive necessary permits or approvals could have near- and long-term effects on the Company’s ability to produce and sell certain current and future products, which could significantly increase operating costs and adversely affect the Company’s business, results of operations, financial condition and cash flows.
The Company’s business, results of operations, financial condition and cash flows could be adversely affected by interruption of the Company’s supply chain, information technology or network systems and other business disruptions.
Supply chain disruptions, plant and/or power outages, labor disputes and/or strikes, information technology system and/or network disruptions, whether caused by acts of sabotage, employee error, malfeasance or other actions, geo-political activity, weather events and natural disasters, including hurricanes or flooding that impact coastal regions, could seriously harm the Company’s operations as well as the operations of the Company’s customers and suppliers. In addition, terrorist attacks and natural disasters have increased stakeholder concerns about the security and safety of chemical production and distribution.
Supply chain and other business disruptions may also be caused by security breaches, which could include, for example, attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error, malfeasance or other actions or other disruptions. DuPont and/or the Company’s suppliers may fail to effectively prevent, detect and recover from these or
other security breaches and, therefore, such breaches could result in misuse of the Company’s assets, loss of property including trade secrets and confidential or personal information, some of which is subject to privacy and security laws, and other business disruptions. As a result, DuPont may be subject to legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, interference with regulatory compliance which could result in sanctions or penalties, liability or penalties under privacy laws, disruption in the Company’s operations, and damage to the Company’s reputation, which could adversely affect the Company’s business, results of operations, financial condition and cash flows.
Like most major corporations, DuPont is the target of industrial espionage, including cyber-attacks, from time to time. DuPont has determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information. Although management does not believe that DuPont has experienced any material losses to date related to these security breaches, including cybersecurity incidents, there can be no assurance that DuPont will not suffer such losses in the future.
DuPont seeks to actively manage the risks within the Company’s control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, DuPont may be required to expend significant resources to enhance the Company’s control environment, processes, practices and other protective measures. Despite these efforts, such events could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
Enforcing the Company’s intellectual property rights, or defending against intellectual property claims asserted by others, could adversely affect the Company’s business, results of operations, financial condition and cash flows.
Intellectual property rights, including patents, trade secrets, know-how and other confidential information, trademarks, tradenames and other forms of trade dress, are important to the Company’s business. DuPont endeavors to protect the Company’s intellectual property rights in jurisdictions in which the Company’s products are produced or used and in jurisdictions into which the Company’s products are imported. However, DuPont may be unable to obtain protection for the Company’s intellectual property in key jurisdictions. Further, changes in government policies and regulations, including changes made in reaction to pressure from non-governmental organizations, or the public generally, could impact the extent of intellectual property protection afforded by such jurisdictions.
DuPont has designed and implemented internal controls intended to restrict access to and distribution of the Company’s intellectual property. Despite these precautions, the Company’s intellectual property is vulnerable to unauthorized access through employee error or actions, theft and cybersecurity incidents, and other security breaches. When unauthorized access and use or counterfeit products are discovered, DuPont considers the matter for report to governmental authorities for investigation, as appropriate, and take measures to mitigate any potential impact. Protecting intellectual property related to biotechnology is particularly challenging because theft is difficult to detect and biotechnology can be self-replicating. Accordingly, the impact of such theft can be significant.
Competitors are increasingly challenging the Company’s intellectual property positions, and the potential outcomes can be highly uncertain. Third parties may also claim the Company’s products violate their intellectual property rights. Defending such claims, even those without merit, is time-consuming and expensive. In addition, as a result of such claims, DuPont has and could be required in the future to enter into license agreements, develop non-infringing products or engage in litigation that could be costly. If challenges are resolved adversely, it could negatively impact the Company’s ability to obtain licenses on competitive terms, commercialize new products and generate sales from existing products.
In addition, because of the rapid pace of technological change, the confidentiality of patent applications in some jurisdictions and/or the uncertainty in predicting the outcome of complex proceedings relating to ownership or the scope of protection of patents relating to certain emerging technologies, competitors may be unexpectedly issued patents that DuPont does not anticipate. These patents could reduce the value of the Company’s commercial or pipeline products or, to the extent they cover key technologies on which DuPont has unknowingly relied, require it to seek to obtain licenses or cease using the technology, no matter how valuable to the Company’s business. If DuPont decided to obtain licenses to continue using the technology, it cannot ensure DuPont would be able to obtain such a license on acceptable terms.
Legislation and jurisprudence on patent protection is evolving, and changes in laws could affect the Company’s ability to obtain or maintain patent protection for the Company’s products.
Any one or more of the above factors could significantly affect the Company’s business, results of operations, financial condition and cash flows.
Increased concerns regarding chemicals in commerce and their potential impact on the environment have resulted in more restrictive regulations, may lead to new regulations and compliance may be costly.
Concerns about chemicals and biotechnology, as well as their potential impact on health and the environment, reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, product discontinuation, continued pressure for and adoption of more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company’s products, the Company’s reputation and the cost to comply with regulations and, as a result, could have a negative impact on the Company’s business, results of operations and financial condition.
An impairment of goodwill or intangible assets could negatively impact the Company’s financial results.
At least annually, DuPont must assess both goodwill and indefinite-lived intangible assets for impairment. Intangible assets with finite lives are tested for impairment when events or changes in circumstances indicate their carrying value may not be recoverable. If testing indicates that goodwill or intangible assets are impaired, their carrying values will be written down based on fair values with a charge against earnings. Where DuPont utilizes discounted cash flow methodologies in determining fair values, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill or intangible assets could negatively impact the Company’s results of operations.
As a result of the Merger and related acquisition method of accounting, Historical EID’s assets and liabilities were measured at fair value, and any declines in projected cash flows could have a material, negative impact on the fair value of the Company’s reporting units and assets. Future impairments of the Company’s goodwill or intangible assets also could be recorded due to changes in assumptions, estimates or circumstances and the magnitude of such impairments may be material to it.
Failure to effectively manage acquisitions, divestitures, alliances and other portfolio actions could adversely impact the Company’s business, results of operations, financial condition and cash flows.
DuPont from time to time evaluates acquisition candidates that may strategically fit the Company’s business and/or growth objectives. If DuPont is unable to successfully integrate and develop acquired businesses, DuPont could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on the Company’s financial results. DuPont expects to continually review the Company’s portfolio of assets for contributions to the Company’s objectives and alignment with the Company’s growth strategy. The Letter Agreement between the Company and Corteva limits DuPont’s ability to separate certain businesses and assets to third parties without assigning certain of its indemnification obligations under the Separation and Distribution Agreement to the transferee of such businesses and assets or meeting certain other alternative conditions. DuPont may be unable to meet the conditions under the Letter Agreement, if applicable.
Even if the conditions under the Letter Agreement are met or are not applicable, DuPont may not be successful in separating underperforming or non-strategic assets, and gains or losses on the divestiture of, or lost operating income from, such assets may affect the Company’s earnings. Moreover, DuPont might incur asset impairment charges related to acquisitions or divestitures that reduce the Company’s earnings. In addition, if the execution or implementation of acquisitions, divestitures, alliances, joint ventures and other portfolio actions is not successful, it could adversely impact the Company’s business, results of operations, financial condition and cash flows.
The Company’s results of operations could be adversely affected by litigation and other commitments and contingencies.
DuPont faces risks arising from various unasserted and asserted litigation matters, including product liability, patent infringement and other intellectual property disputes, contract and commercial litigation, claims for damage or personal injury, antitrust claims, governmental regulations and other actions. An adverse outcome in any one or more of these matters could be material to the Company’s business, results of operations, financial condition and cash flows.
In the ordinary course of business, DuPont may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and DuPont may issue guarantees of third-party obligations. If DuPont is required to make payments as a result, they could exceed the amounts accrued therefor, thereby adversely affecting the Company’s results of operations.
DuPont is subject to numerous laws, regulations and mandates globally which could adversely affect the Company’s operating results and forward strategy.
DuPont does business globally in more than 60 countries. DuPont is required to comply with the numerous and far-reaching laws and regulations administered by United States federal, state, local and foreign governmental authorities. DuPont is required to comply with other general business regulations covering areas such as income taxes, anti-corruption, anti-bribery, global trade, trade sanctions, environmental protections, product safety, and handling and production of regulated substances. DuPont expects to frequently face challenges from U.S. and foreign tax authorities regarding the amount of taxes due. These challenges may include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.
In evaluating the exposure associated with various tax filing positions, DuPont expects to record reserves for estimates of potential additional tax DuPont may owe. Any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject it to administrative, civil and criminal remedies including fines, penalties, disgorgement, injunctions and recalls of the Company’s products, and damage to the Company’s reputation.
Governmental policies, including antitrust and competition law, trade restrictions, regulations related to medical applications and devices, food safety regulations, sustainability requirements, traceability and other government regulations and mandates, can impact the Company’s ability to execute this strategy successfully. See also “-A significant percentage of the Company’s net sales are generated from the Company’s international operations and are subject to the economic, political, regulatory, foreign exchange and other risks.”
Failure to maintain a streamlined operating model and sustain operational improvements may reduce the Company’s profitability or adversely impact the Company’s business, results of operations, financial condition and cash flows.
The Company’s profitability and margin growth will depend in part on the Company’s ability to maintain a streamlined operating model and drive sustainable improvements, through actions and projects, such as consolidation of manufacturing facilities, transitions to cost-competitive regions and product line rationalizations. A variety of factors may adversely affect the Company’s ability to realize the targeted cost synergies, including failure to successfully optimize the Company’s facilities footprint, the failure to take advantage of the Company’s global supply chain, the failure to identify and eliminate duplicative programs, and the failure to otherwise integrate Historical EID’s or Historical Dow’s respective specialty products businesses, including their technology platforms. There can be no assurance that DowDuPontDuPont is be able to achieve or sustain any or all of the cost savings generated from restructuring actions.
The Company’s U.S. and Historicalnon-U.S. tax liabilities will be dependent, in part, upon the distribution of income among various jurisdictions in which DuPont will maintain their current credit worthiness or prospective credit ratings. Any actual or anticipatedoperate.
The Company’s future results of operations could be adversely affected by changes or downgrades in such credit ratings may have a negative impact on the liquidity, capital position or access to capital markets.
A detailed discussion of additional significant risks and uncertainties which may cause results and events to differ materially from is included in the section titled “Risk Factors” (Part I, Item 1A)effective tax rate as a result of DowDuPont’s 2018 Annual Report on Form 10-K.a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments of the Company’s tax exposures and various other governmental enforcement initiatives. The Company’s tax expense includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of future earnings of the Company which could impact the valuation of the Company’s deferred tax assets. Changes in tax laws or regulations, including further regulatory developments arising from U.S. tax reform legislation as well as multi-jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-operation and Development (OECD), will increase tax uncertainty and impact the Company’s provision for income taxes
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended March 31,June 30, 2019:
|
| | | | | | | | | | |
| Issuer Purchases of Equity Securities | | Total number of shares purchased as part of the Company's publicly announced share repurchase program 1 | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1 (In millions) |
| Period | Total number of shares purchased | Average price paid per share |
| January 2019 | 15,721,888 |
| $ | 55.53 |
| 15,721,888 |
| $ | 706 |
|
| February 2019 | 13,142,548 |
| $ | 53.70 |
| 13,142,548 |
| $ | — |
|
| March 2019 | — |
| $ | — |
| — |
| $ | — |
|
| First quarter 2019 | 28,864,436 |
| $ | 54.70 |
| 28,864,436 |
| $ | — |
|
|
| | | | | | | | | | |
| Issuer Purchases of Equity Securities | | Total number of shares purchased as part of the Company's publicly announced share repurchase program 1 | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1 (In millions) |
| Period | Total number of shares purchased | Average price paid per share |
| April 2019 | — |
| $ | — |
| — |
| $ | — |
|
| May 2019 | — |
| $ | — |
| — |
| $ | — |
|
| June 2019 | 1,371,450 |
| $ | 74.18 |
| 1,371,450 |
| $ | 1,898 |
|
| Second quarter 2019 | 1,371,450 |
| $ | 74.18 |
| 1,371,450 |
| $ | 1,898 |
|
| |
| 1. | On NovemberJune 1, 2018,2019, the Company announced a new $3$2 billion share buyback program, which was completed in the first quarter of 2019.expires on June 1, 2021. |
In July 2019, the Company purchased an additional 2,050,898 shares at a total cost of $148 million. Approximately $1.75 billion of the Company’s $2.0 billion share repurchase authorization is remaining.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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| | | |
| | EXHIBIT NO. | | DESCRIPTION |
| |
| | SeparationSecond Amended and Distribution Agreement,Restated Certificate of Incorporation of DowDuPont Inc. effective as of AprilJune 1, 2019, by and among DowDuPont Inc., Dow Inc. and Corteva, Inc. incorporated by reference to Exhibit 2.13.2 to the DowDuPontDuPont de Nemours, Inc. Current Report on Form 8-K filed April 2,June 3, 2019. |
| | | | The Amended and Restated Bylaws of DowDuPontDuPont de Nemours, Inc., effective as of AprilJune 1, 2019, incorporated by reference to Exhibit 3.13.3 to the DowDuPontDuPont de Nemours, Inc. Current Report on Form 8-K filed April 2,June 3, 2019. |
| | | | Tax Matters Agreement, effective as of April 1, 2019, by and among DowDuPont Inc., Dow Inc. and Corteva, Inc. incorporated by reference to Exhibit 10.1 to the DowDuPont Inc. Current Report on Form 8-K filed April 2, 2019. |
|
| | Employee Matters Agreement, effective as of April 1, 2019, by and among DowDuPont Inc., Dow Inc. and Corteva, Inc. incorporated by reference to Exhibit 10.2 to the DowDuPont Inc. Current Report on Form 8-K filed April 2, 2019. |
| | | Intellectual Property Cross-License Agreement, effective as of AprilJune 1, 2019, by and among DuPont de Nemours, Inc. and Corteva, Inc., incorporated by reference to Exhibit 10.1 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed June 3, 2019. |
| | | Letter Agreement, effective as of June 1, 2019 by and between DuPont de Nemours, Inc. and Corteva, Inc., incorporated by reference to Exhibit 10.2 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed June 3, 2019. |
| | | Amended and Restated Tax Matters Agreement, effective as of June 1, 2019, by and among DowDuPont Inc., Corteva, Inc. and Dow Inc., incorporated by reference to Exhibit 10.3 to the DowDuPontDuPont de Nemours, Inc. Current Report on Form 8-K filed April 2,June 3, 2019. |
| |
*
| | Intellectual Property Cross-License Agreement,DuPont Senior Executive Severance Plan, effective as of AprilJune 1, 2019, by and among Dow Inc. and Corteva, Inc., incorporated by reference to Exhibit 10.4 to the DowDuPontDuPont de Nemours, Inc. Current Report on Form 8-K filed April 2,June 3, 2019. |
| | | | Ankura Consulting Group, LLC's Consent.DuPont Management Deferred Compensation Plan, effective June 1, 2019. |
| | | | DuPont Stock Accumulation and Deferred Compensation Plan for Directors, effective June 1, 2019. |
| | | DuPont Deferred Variable Compensation Plan, effective June 1, 2019. |
| | | DuPont Retirement Savings Restoration Plan, effective June 1, 2019. |
| | | DuPont Pension Restoration Plan, effective June 1, 2019. |
| | | DuPont Omnibus Incentive Plan effective June 1, 2019. |
| | | Amended and Restated Employment Agreement by and between DuPont de Nemours, Inc. and Edward D. Breen, dated as of June 1, 2019. |
| | | Preferability Letter of PricewaterhouseCoopers LLP, independent registered public accounting firm. |
| | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 101.INS | | XBRL Instance Document.Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
*Filed herewith
**Upon request of the U.S. Securities and Exchange Commission, (the “SEC”), DowDuPontDuPont hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement; provided, however, that DowDuPontDuPont may omit confidential information pursuant to Item 601(b)(10) or request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule or exhibit so furnished.
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DowDuPont Inc.
Trademark Listing
|
| |
®™ | DOW, KAPTON, Qrome, TYVEK AND KEVLAR are trademarks of The Dow Chemical Company ("Historical Dow") or E. I. du PontDuPont de Nemours and Company ("Historical DuPont") or affiliated companies of Historical Dow or Historical DuPont. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DOWDUPONTDUPONT DE NEMOURS INC.
Registrant
Date: May 3,August 6, 2019
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| | | | |
| By: | /s/ JEANMARIE F. DESMONDMICHAEL G. GOSS | | | |
| Name: | Jeanmarie F. DesmondMichael G. Goss | | | |
| Title: | Chief Financial OfficerVice President and Controller | | | |
| City: | Wilmington | | | |
| State: | Delaware | | | |