NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
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Note
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14
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15
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16
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21
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the interim statements reflect all adjustments (including normal recurring accruals) which are considered necessary for the fair statement of the results for the periods presented. Results from interim periods should not be considered indicative of results for the full year. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, collectively referred to as the “2019 Annual Report.” The interim Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained.
Impact of the Novel Coronavirus (“COVID-19”) Pandemic
The COVID-19 pandemic has resulted in significant economic disruption and continues to adversely impact the broader global economy. The extent of the impact on the Company's operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak and its impact on the Company's customers and suppliers. As of the date of issuance of these interim Consolidated Financial Statements, the full extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.
Basis of Presentation
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 EID") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Historical Dow and Historical EID became subsidiaries of DowDuPont (the "Merger"). Prior to the Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the Merger Agreement. Historical Dow was determined to be the accounting acquirer in the Merger.
Except as otherwise indicated by the context, the term "Historical Dow" includes Historical Dow and its consolidated subsidiaries, "Historical EID" includes Historical EID and its consolidated subsidiaries, and "Dow Silicones" means Dow Silicones Corporation, a wholly owned subsidiary of Historical Dow.
Distributions
Effective as of 5:00 p.m. on April 1, 2019, the Company completed the 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 (the “Dow Common Stock”), to holders of the Company’s common stock (the “DowDuPont common stock”), as of the close of business on March 21, 2019 (the “Dow Distribution”).
Effective as of 12:01 a.m. on June 1, 2019, the Company completed the separation of its agriculture business into a separate and independent public company by way of a distribution of Corteva, Inc. (“Corteva”) through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Corteva’s common stock (the “Corteva Common Stock”), to holders of the Company’s common stock as of the close of business on May 24, 2019 (the “Corteva Distribution” and, together with the Dow Distribution, the “Distributions”).
Following the Corteva Distribution, DuPont holds the specialty products business. On June 1, 2019, DowDuPont changed its registered name from "DowDuPont Inc." to "DuPont de Nemours, Inc." doing business as "DuPont." Beginning on June 3, 2019, the Company's common stock is traded on the NYSE under the ticker symbol "DD".
The results of operations of DuPont for the three months ended March 31, 2019 present the historical financial results of Dow and Corteva as discontinued operations. The cash flows and comprehensive income related to Dow and Corteva have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim Consolidated Statements of Comprehensive Income, respectively, for the applicable period. Unless otherwise indicated, the information in the notes to the interim Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of Dow or Corteva.
On December 15, 2019, the Company entered into definitive agreements to separate and combine the Nutrition & Biosciences business segment (the "N&B Business") with International Flavors & Fragrances Inc. ("IFF") in a tax-efficient Reverse Morris Trust transaction, (the "Proposed N&B Transaction"). The transaction is expected to close by the end of the first quarter of 2021, subject to approval by IFF shareholders and other customary closing conditions, including regulatory approvals and receipt by
DuPont of an opinion of tax counsel. The financial results of the N&B Business are included in continuing operations for the periods presented.
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and associated ASUs related to Topic 326. The new guidance introduces the current expected credit loss (“CECL”) model, which requires organizations 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 became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
The Company adopted the new standard in the first quarter of 2020, which required a modified retrospective transition approach, applying the new standard's cumulative-effect adjustment at the date of initial adoption. This cumulative-effect has been reflected as of January 1, 2020 and prior periods have not been restated. The impact of initial adoption was not material to the Company’s interim Condensed Consolidated Balance Sheet, interim Consolidated Statements of Operations, and interim Consolidated Statement of Cash Flows.
NOTE 3 - DIVESTITURES
Separation Agreements
In connection with the Dow Distribution and the Corteva Distribution, the Company entered into certain agreements that, among other things, effected the separations, provides 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 provides a framework for DuPont’s relationship with Dow and Corteva following the Distributions. Effective April 1, 2019, the Parties entered into the following agreements: the Separation and Distribution Agreement; the Tax Matters Agreement; the Employee Matters Agreement; and the Intellectual Property Cross-License Agreement (the “DuPont-Dow IP Cross-License 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: the Intellectual Property Cross-License Agreement (the “DuPont-Corteva IP Cross-License Agreement”); the Letter Agreement; and the Amended and Restated Tax Matters Agreement.
Materials 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:
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|
|
|
|
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Three Months Ended
March 31, 2019
|
In millions
|
Net sales
|
$
|
10,867
|
|
Cost of sales
|
8,917
|
|
Research and development expenses
|
163
|
|
Selling, general and administrative expenses
|
329
|
|
Amortization of intangibles
|
116
|
|
Restructuring and asset related charges - net
|
157
|
|
Integration and separation costs
|
44
|
|
Equity in earnings of nonconsolidated affiliates
|
(13
|
)
|
Sundry income (expense) - net
|
99
|
|
Interest expense
|
240
|
|
Income from discontinued operations before income taxes
|
987
|
|
Provision for income taxes on discontinued operations
|
261
|
|
Income from discontinued operations, net of tax
|
726
|
|
Income from discontinued operations attributable to noncontrolling interests, net of tax
|
37
|
|
Income from discontinued operations attributable to DuPont stockholders, net of tax
|
$
|
689
|
|
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Materials Science Division:
|
|
|
|
|
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Three Months Ended
March 31, 2019
|
In millions
|
Depreciation and amortization
|
$
|
744
|
|
Capital expenditures
|
$
|
597
|
|
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 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:
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|
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Three Months Ended
March 31, 2019
|
In millions
|
Net sales
|
$
|
3,368
|
|
Cost of sales
|
2,192
|
|
Research and development expenses
|
287
|
|
Selling, general and administrative expenses
|
617
|
|
Amortization of intangibles
|
102
|
|
Restructuring and asset related charges - net
|
59
|
|
Integration and separation costs
|
158
|
|
Equity in earnings of nonconsolidated affiliates
|
(1
|
)
|
Sundry income (expense) - net
|
65
|
|
Interest expense
|
63
|
|
Income from discontinued operations before income taxes
|
(46
|
)
|
Provision for income taxes on discontinued operations
|
34
|
|
Income from discontinued operations, net of tax
|
(80
|
)
|
Income from discontinued operations attributable to noncontrolling interests, net of tax
|
10
|
|
Income from discontinued operations attributable to DuPont stockholders, net of tax
|
$
|
(90
|
)
|
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Agriculture Division:
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
In millions
|
Depreciation and amortization
|
$
|
249
|
|
Capital expenditures
|
$
|
222
|
|
Indemnifications
In connection with the Distributions, Dow and Corteva indemnify the Company against, and DuPont indemnifies Dow and Corteva against certain litigation, environmental, income taxes, workers' compensation and other liabilities that arose prior to the Distributions, as applicable. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. At March 31, 2020, the indemnified assets were $134 million within "Accounts and notes receivable, net" and $141 million within "Deferred charges and other assets" and indemnified liabilities were $80 million within "Accrued and other current liabilities" and $95 million within "Other noncurrent obligations."
Refer to Note 13 for additional information regarding treatment of litigation and environmental related matters under the Separation and Distribution Agreement and the Letter Agreement.
Sale of Compound Semiconductor Solutions
In the first quarter of 2020, the Company completed the sale of its Compound Semiconductor Solutions business unit, a part of the Electronics & Imaging segment, to SK Siltron. The proceeds received in the first quarter of 2020 related to the sale of the business were approximately $420 million. The sale resulted in a pre-tax gain of $197 million ($102 million net of tax) recorded in "Sundry income (expense) - net" in the Company's interim Consolidated Statements of Operations for the three months ended March 31, 2020.
Integration and Separation Costs
Integration and separation costs for continuing 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 integration, the Distributions, and beginning in the fourth quarter of 2019, the intended separation of the Nutrition & Biosciences business.
These costs are recorded within "Integration and separation costs" within the interim Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Integration and separation costs
|
$
|
197
|
|
$
|
611
|
|
NOTE 4 - REVENUE
Revenue Recognition
Products
Substantially all of DuPont's revenue is derived from product sales. Product sales consist of sales of DuPont's products to supply manufacturers and distributors. DuPont considers purchase orders, which in some cases are governed by master supply agreements, to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less 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.
|
|
|
|
|
|
|
|
Net Trade Revenue by Segment and Business or Major Product Line
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Image Solutions
|
$
|
148
|
|
$
|
154
|
|
Interconnect Solutions
|
266
|
|
238
|
|
Semiconductor Technologies
|
470
|
|
433
|
|
Electronics & Imaging
|
$
|
884
|
|
$
|
825
|
|
Food & Beverage
|
$
|
738
|
|
$
|
755
|
|
Health & Biosciences
|
605
|
|
570
|
|
Pharma Solutions
|
208
|
|
210
|
|
Nutrition & Biosciences
|
$
|
1,551
|
|
$
|
1,535
|
|
Healthcare & Specialty
|
$
|
359
|
|
$
|
384
|
|
Industrial & Consumer
|
266
|
|
308
|
|
Mobility Solutions
|
519
|
|
625
|
|
Transportation & Industrial
|
$
|
1,144
|
|
$
|
1,317
|
|
Safety Solutions
|
$
|
631
|
|
$
|
665
|
|
Shelter Solutions
|
348
|
|
357
|
|
Water Solutions
|
297
|
|
261
|
|
Safety & Construction
|
$
|
1,276
|
|
$
|
1,283
|
|
Biomaterials
|
$
|
34
|
|
$
|
59
|
|
Clean Technologies
|
60
|
|
65
|
|
DuPont Teijin Films
|
43
|
|
37
|
|
Photovoltaic & Advanced Materials
|
229
|
|
254
|
|
Sustainable Solutions 1
|
—
|
|
39
|
|
Non-Core
|
$
|
366
|
|
$
|
454
|
|
Total
|
$
|
5,221
|
|
$
|
5,414
|
|
1. The Sustainable Solutions business was divested in the third quarter of 2019.
|
|
|
|
|
|
|
|
Net Trade Revenue by Geographic Region
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
U.S. & Canada
|
$
|
1,742
|
|
$
|
1,776
|
|
EMEA 1
|
1,271
|
|
1,380
|
|
Asia Pacific
|
1,913
|
|
1,945
|
|
Latin America
|
295
|
|
313
|
|
Total
|
$
|
5,221
|
|
$
|
5,414
|
|
|
|
1.
|
Europe, Middle East and Africa.
|
Contract Balances
From time to time, the Company enters into arrangements in which it receives payments from customers based upon contractual billing schedules. The 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 primarily reflect deferred revenue from advance payment for product that the Company has received from customers. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue.
Revenue recognized in the first three months of 2020 from amounts included in contract liabilities at the beginning of the period was approximately $14 million (approximately $10 million 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. The Company did not recognize any asset impairment charges related to contract assets during the period.
|
|
|
|
|
|
|
|
Contract Balances
|
March 31, 2020
|
December 31, 2019
|
In millions
|
Accounts and notes receivable - trade 1
|
$
|
3,156
|
|
$
|
3,007
|
|
Contract assets - current 2
|
$
|
32
|
|
$
|
35
|
|
Deferred revenue - current 3
|
$
|
69
|
|
$
|
43
|
|
Deferred revenue - noncurrent 4
|
$
|
29
|
|
$
|
34
|
|
|
|
1.
|
Included in "Accounts and notes receivable - net" in the interim Condensed Consolidated Balance Sheets.
|
|
|
2.
|
Included in "Other current assets" in the interim Condensed Consolidated Balance Sheets.
|
|
|
3.
|
Included in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets.
|
|
|
4.
|
Included in "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheets.
|
NOTE 5 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and asset related charges, which includes other asset impairments, were $404 million for the three months ended March 31, 2020 ($71 million for the three ended March 31, 2019). These charges were recorded in "Restructuring and asset related charges - net" in the interim Consolidated Statements of Operations. The total liability related to restructuring programs was $230 million at March 31, 2020 ($162 million at December 31, 2019). Restructuring activity consists of the following:
2020 Restructuring Program
In the first quarter of 2020, the Company approved restructuring actions designed to capture near-term cost reductions and to further simplify certain organizational structures in anticipation of the expected closure of the Proposed N&B Transaction (the "2020 Restructuring Program"). As a result of these actions, the Company expects to record total pre-tax restructuring charges up to $180 million, comprised of $125 million of severance and related benefit costs, $50 million of asset related charges, and $5 million of costs related to contract terminations. For the three months ended March 31, 2020, DuPont recorded a pre-tax charge related to the 2020 Restructuring Program in the amount of $111 million, recognized in "Restructuring and asset related charges - net" in the Company's interim Consolidated Statement of Operations, comprised of $96 million of severance and related benefit costs and $15 million of asset related charges. At March 31, 2020, total liabilities related to the 2020 Restructuring Program were $96 million for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets.
The following table summarizes the charges incurred by segment related to the 2020 Restructuring Program:
|
|
|
|
|
2020 Restructuring Program Charges by Segment
|
Three Months Ended March 31, 2020
|
In millions
|
Electronics & Imaging
|
$
|
4
|
|
Nutrition & Biosciences
|
6
|
|
Transportation & Industrial
|
24
|
|
Safety & Construction
|
20
|
|
Non-Core
|
—
|
|
Corporate
|
57
|
|
Total
|
$
|
111
|
|
The Company expects actions related to this program to be substantially complete by the end of 2020.
2019 Restructuring Program
During the second quarter 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"). The Company has recorded pre-tax restructuring charges of $156 million inception-to-date, consisting of severance and related benefit costs of $122 million and asset related charges of $34 million.
The Company incurred charges for severance and related benefit costs of $18 million related to the 2019 Restructuring Program during the three months ended March 31, 2020. These charges consisted of $1 million related to the Transportation & Industrial segment and $17 million related to Corporate.
The following table summarizes the activities related to the 2019 Restructuring Program:
|
|
|
|
|
2019 Restructuring Program
|
Severance and Related Benefit Costs
|
In millions
|
Reserve balance at December 31, 2019
|
$
|
86
|
|
Current quarter restructuring charges
|
18
|
|
Non-cash compensation
|
(6
|
)
|
Cash payments
|
(23
|
)
|
Reserve balance at March 31, 2020
|
$
|
75
|
|
At March 31, 2020, the $75 million for severance and related benefit costs was included in "Accrued and other current liabilities" ($86 million at December 31, 2019) in the interim Condensed Consolidated Balance Sheets. The Company expects actions related to this program to be substantially complete in the second quarter of 2020.
DowDuPont Cost Synergy Program
In September and November 2017, the Company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program, which was designed to integrate and optimize the organization following the Merger and in preparation for the Distributions of Dow and Corteva. The portions of the charges, costs and expenses attributable to integration and optimization within the Agriculture and Materials Science Divisions are reflected in discontinued operations. The Company has recorded pre-tax restructuring charges attributable to the continuing operations of DuPont of $490 million inception-to-date, consisting of severance and related benefit costs of $215 million, asset related charges of $209 million and contract termination charges of $66 million related to charges.
The following tables summarize the charges incurred related to the DowDuPont Cost Synergy Program:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Severance and related benefit costs
|
$
|
—
|
|
$
|
43
|
|
Contract termination charges
|
5
|
|
16
|
|
Asset related charges
|
—
|
|
13
|
|
Total restructuring and asset related charges - net 1,2
|
$
|
5
|
|
$
|
72
|
|
1. The charges for the three months ended March 31, 2020 include $5 million related to Safety and Construction.
2. The charges for the three months ended March 31, 2019 include $27 million related to Nutrition & Biosciences, $2 million related to Safety and Construction, $44 million related to Corporate, and a benefit of $1 million related to Non Core.
Charges for the three months ended March 31, 2020 and 2019 include $5 million and $71 million, respectively, recognized in "Restructuring and asset related charges - net." The charge for the three months ended March 31, 2019 also includes $1 million recognized in "Equity in earnings of nonconsolidated affiliates" in the interim Consolidated Statements of Operations.
The following table summarizes the activities related to the DowDuPont Cost Synergy Program:
|
|
|
|
|
|
|
|
|
|
|
DowDuPont Cost Synergy Program
|
Severance and Related Benefit Costs
|
Contract Termination Charges
|
Total
|
In millions
|
Reserve balance at December 31, 2019
|
$
|
74
|
|
$
|
2
|
|
$
|
76
|
|
Current quarter restructuring charges
|
—
|
|
5
|
|
5
|
|
Cash payments
|
(22
|
)
|
—
|
|
(22
|
)
|
Reserve balance at March 31, 2020
|
$
|
52
|
|
$
|
7
|
|
$
|
59
|
|
At March 31, 2020, the $59 million was included in "Accrued and other current liabilities" ($76 million at December 31, 2019) in the interim Condensed Consolidated Balance Sheets. The DowDuPont Cost Synergy Program is considered substantially complete at March 31, 2020.
Asset Impairments
The Company reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the related carrying amount of such assets may not be recoverable and may exceed their fair value. For purposes of determining impairment, assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
In the first quarter of 2020, expectations of proceeds related to certain potential divestitures within the Non-Core segment gave rise to fair value indicators and, thus, triggering events requiring the Company to perform a recoverability assessment related to its biomaterials business unit. The Company performed a long-lived asset impairment test and determined that, based on undiscounted cash flows, the carrying amount of certain long-lived assets was not recoverable. Accordingly, the Company estimated the fair value of these assets using a market approach utilizing Level 3 unobservable inputs. As a result, the Company recognized a $270 million pre-tax impairment charge recorded within “Restructuring and asset related charges - net” in the interim Consolidated Statements of Operation for the three months ended March 31, 2020 with the charge impacting definite-lived intangible assets and property, plant, and equipment.
NOTE 6 - SUPPLEMENTARY INFORMATION
|
|
|
|
|
|
|
|
Sundry Income (Expense) - Net
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Non-operating pension and other post employment benefit (OPEB) credits
|
$
|
11
|
|
$
|
21
|
|
Interest income
|
2
|
|
40
|
|
Net gain on divestiture and sales of other assets and investments 1,2
|
197
|
|
53
|
|
Foreign exchange (losses) gains, net
|
(8
|
)
|
(61
|
)
|
Miscellaneous income (expenses) - net 3
|
9
|
|
31
|
|
Sundry income (expense) - net
|
$
|
211
|
|
$
|
84
|
|
1. The three months ended March 31, 2020 reflects income of $197 million related to the gain on sale of the Compound Semiconductor Solutions business unit within the Electronics & Imaging segment.
2. The three months ended March 31, 2019 includes income of $51 million related to a sale of assets within the Electronics & Imaging segment.
3. Miscellaneous income (expenses) - net for the three months ended March 31, 2019 includes $26 million related to licensing income within the Safety & Construction segment.
Cash, Cash Equivalents and Restricted Cash
From time to time, the Company is required to set aside funds for various activities that arise in the normal course of business. 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. Historical EID entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring Historical EID 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. After the distribution of Corteva, the Trust assets related to Corteva employees were transferred to a new trust for Corteva (the "Corteva Trust"). As a result, the Trust currently held by DuPont relates to funding obligations to DuPont employees. At March 31, 2020, the Company had restricted cash of $34 million ($37 million at December 31, 2019) 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 $1,434 million at March 31, 2020 and $1,342 million at December 31, 2019. No component of "Accrued and other current liabilities" was more than 5 percent of total current liabilities at March 31, 2020. Accrued payroll, which is a component of "Accrued and other current liabilities," was $479 million at December 31, 2019. No other component of "Accrued and other current liabilities" was more than 5 percent of total current liabilities at December 31, 2019.
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.
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. The effective tax rate on continuing operations for the first quarter of 2020 was (7.8) percent, compared with an effective tax rate of 55.2 percent for the first quarter of 2019. The effective tax rate for the first quarter of 2020 was principally the result of the non-tax-deductible goodwill impairment charge impacting the Non-core segment. See Note 11 for more information regarding the goodwill impairment charge.
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
The following tables provide earnings per share calculations for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
Net Income for Earnings Per Share Calculations - Basic & Diluted
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Loss from continuing operations, net of tax
|
$
|
(610
|
)
|
$
|
(74
|
)
|
Net income from continuing operations attributable to noncontrolling interests
|
6
|
|
4
|
|
Net income from continuing operations attributable to participating securities 1
|
—
|
|
1
|
|
Loss from continuing operations attributable to common stockholders
|
$
|
(616
|
)
|
$
|
(79
|
)
|
Income from discontinued operations, net of tax
|
—
|
|
646
|
|
Net income from discontinued operations attributable to noncontrolling interests
|
—
|
|
47
|
|
Income from discontinued operations attributable to common stockholders
|
—
|
|
599
|
|
Net (loss) income attributable to common stockholders
|
$
|
(616
|
)
|
$
|
520
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Basic
|
Three Months Ended March 31,
|
Dollars per share
|
2020
|
2019
|
Loss from continuing operations attributable to common stockholders
|
$
|
(0.83
|
)
|
$
|
(0.11
|
)
|
Income from discontinued operations, net of tax
|
—
|
|
0.80
|
|
Net (loss) income attributable to common stockholders
|
$
|
(0.83
|
)
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Diluted
|
Three Months Ended March 31,
|
Dollars per share
|
2020
|
2019
|
Loss from continuing operations attributable to common stockholders
|
$
|
(0.83
|
)
|
$
|
(0.11
|
)
|
Income from discontinued operations, net of tax
|
—
|
|
0.80
|
|
Net (loss) income attributable to common stockholders
|
$
|
(0.83
|
)
|
$
|
0.69
|
|
|
|
|
|
|
|
Share Count Information
|
Three Months Ended March 31,
|
Shares in millions
|
2020
|
2019
|
Weighted-average common shares - basic
|
738.6
|
|
750.0
|
|
Plus dilutive effect of equity compensation plans
|
—
|
|
—
|
|
Weighted-average common shares - diluted
|
738.6
|
|
750.0
|
|
Stock options and restricted stock units excluded from EPS calculations 2
|
6.4
|
|
6.4
|
|
|
|
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 - INVENTORIES
|
|
|
|
|
|
|
|
Inventories
|
March 31, 2020
|
December 31, 2019
|
In millions
|
Finished goods
|
$
|
2,731
|
|
$
|
2,621
|
|
Work in process
|
858
|
|
855
|
|
Raw materials
|
589
|
|
599
|
|
Supplies
|
232
|
|
244
|
|
Total inventories
|
$
|
4,410
|
|
$
|
4,319
|
|
NOTE 10 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates"), by classification in the interim Condensed Consolidated Balance Sheets, are shown in the following table:
|
|
|
|
|
|
|
|
Investments in Nonconsolidated Affiliates
|
Mar 31, 2020
|
Dec 31, 2019
|
In millions
|
Investments in nonconsolidated affiliates
|
$
|
1,227
|
|
$
|
1,204
|
|
Accrued and other current liabilities
|
(84
|
)
|
(85
|
)
|
Other noncurrent obligations
|
(351
|
)
|
(358
|
)
|
Net investment in nonconsolidated affiliates
|
$
|
792
|
|
$
|
761
|
|
The Company maintained an ownership interest in 21 nonconsolidated affiliates at March 31, 2020. The following table reflects the Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at March 31, 2020:
|
|
|
|
|
|
Country
|
Ownership Interest
|
|
March 31, 2020
|
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.
|
Sales to nonconsolidated affiliates represented less than 3 percent of total net sales for the three months ended March 31, 2020 and 2019. Sales to nonconsolidated affiliates are primarily related to the sale of trichlorosilane, a raw material used in the production of polycrystalline silicon, to the HSC Group. Sales of this raw material to the HSC Group are reflected in Non-Core. Purchases from nonconsolidated affiliates represented approximately 2 percent of “Cost of sales” for the three months ended March 31, 2020 and 2019.
HSC Group
The following table reflects the carrying value of the HSC Group investments at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
Investment in the HSC Group
|
|
Investment
|
In millions
|
Balance Sheet Classification
|
Mar 31, 2020
|
Dec 31, 2019
|
Hemlock Semiconductor L.L.C.
|
Other noncurrent obligations
|
$
|
(351
|
)
|
$
|
(358
|
)
|
DC HSC Holdings LLC
|
Investments in nonconsolidated affiliates
|
$
|
97
|
|
$
|
87
|
|
The following is summarized financial information for the Company's principal nonconsolidated equity method investments. The amounts shown below represent 100 percent of these equity method investments' results of operations:
|
|
|
|
|
|
|
|
Results of Operations
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Revenues 1
|
$
|
185
|
|
$
|
185
|
|
Cost of sales 1
|
$
|
127
|
|
$
|
107
|
|
Income from continuing operations
|
$
|
40
|
|
$
|
63
|
|
Net income attributed to entities
|
$
|
35
|
|
$
|
52
|
|
|
|
1.
|
Includes sales and cost of sales of $22 million and $21 million for the three months ended March 31, 2020 and 2019, respectively, that have not been eliminated between Hemlock Semiconductor L.L.C and DC HSC Holdings in the presentation of the summarized income statement information above.
|
NOTE 11 - GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amounts of goodwill during the three months ended March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Const.
|
Non-Core
|
Total
|
In millions
|
Balance at December 31, 2019
|
$
|
7,092
|
|
$
|
11,012
|
|
$
|
6,931
|
|
$
|
6,711
|
|
$
|
1,405
|
|
$
|
33,151
|
|
Acquisitions
|
—
|
|
—
|
|
—
|
|
53
|
|
—
|
|
53
|
|
Divestitures
|
(199
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(199
|
)
|
Impairments
|
—
|
|
—
|
|
—
|
|
—
|
|
(533
|
)
|
(533
|
)
|
Currency Translation Adjustment
|
(11
|
)
|
(111
|
)
|
(25
|
)
|
(26
|
)
|
—
|
|
(173
|
)
|
Measurement Period Adjustments
|
—
|
|
—
|
|
—
|
|
18
|
|
—
|
|
18
|
|
Balance at March 31, 2020
|
$
|
6,882
|
|
$
|
10,901
|
|
$
|
6,906
|
|
$
|
6,756
|
|
$
|
872
|
|
$
|
32,317
|
|
The Company tests goodwill for impairment annually during the fourth quarter as of October 1, or more frequently when events or changes in circumstances indicate that fair value is below 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 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.
Expectations of proceeds related to certain potential divestitures within the Non-Core segment gave rise to fair value indicators and, thus, served as triggering events requiring the Company to perform impairment analyses related to goodwill. As part of the analysis, the Company determined that the fair value of its Photovoltaic and Advanced Materials (“PVAM”) reporting unit was below its carry value resulting in an impairment charge to goodwill. Valuations of the PVAM reporting unit under a combination of the market approach and income approach reflect softening conditions in photovoltaics markets as compared to prior estimates. In connection with this analysis, the Company recorded a pre-tax, non-cash impairment charge of $533 million for the three months ended March 31, 2020 impacting the Non-Core segment.
The Company's analysis uses the discounted cash flow model (a form of the income approach) utilizing Level 3 unobservable inputs. The Company’s significant assumptions in this analysis 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. As such, the Company believes the current assumptions and estimates utilized are both reasonable and appropriate.
COVID-19 continues to adversely impact the broader global economy and has caused significant volatility in financial markets. If there is a of lack of recovery or further global softening in certain markets, mainly in which the Transportation & Industrial segment operates in such as automotive, oil & gas and select industrial end-markets, or a sustained decline in the value of the Company's common stock, the Company may be required to perform additional impairment assessments for its goodwill, other intangibles, and long-lived assets, the results of which could result in material impairment charges.
Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
December 31, 2019
|
In millions
|
Gross
Carrying
Amount
|
Accum Amort
|
Net
|
Gross Carrying Amount
|
Accum Amort
|
Net
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
Developed technology
|
$
|
4,356
|
|
$
|
(1,523
|
)
|
$
|
2,833
|
|
$
|
4,343
|
|
$
|
(1,361
|
)
|
$
|
2,982
|
|
Trademarks/tradenames
|
2,416
|
|
(755
|
)
|
1,661
|
|
2,433
|
|
(455
|
)
|
1,978
|
|
Customer-related
|
8,920
|
|
(2,339
|
)
|
6,581
|
|
8,986
|
|
(2,229
|
)
|
6,757
|
|
Other
|
300
|
|
(214
|
)
|
86
|
|
303
|
|
(98
|
)
|
205
|
|
Total other intangible assets with finite lives
|
$
|
15,992
|
|
$
|
(4,831
|
)
|
$
|
11,161
|
|
$
|
16,065
|
|
$
|
(4,143
|
)
|
$
|
11,922
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
Trademarks/tradenames
|
1,673
|
|
—
|
|
1,673
|
|
1,671
|
|
—
|
|
1,671
|
|
Total other intangible assets
|
1,673
|
|
—
|
|
1,673
|
|
1,671
|
|
—
|
|
1,671
|
|
Total
|
$
|
17,665
|
|
$
|
(4,831
|
)
|
$
|
12,834
|
|
$
|
17,736
|
|
$
|
(4,143
|
)
|
$
|
13,593
|
|
During the first quarter of 2020, the Company recorded non-cash impairment charges related to definite-lived intangible assets impacting the Non-Core segment. See Note 5 for further discussion.
The following table provides the net carrying value of other intangible assets by segment:
|
|
|
|
|
|
|
|
Net Intangibles by Segment
|
Mar 31, 2020
|
Dec 31, 2019
|
In millions
|
Electronics & Imaging
|
$
|
1,764
|
|
$
|
1,833
|
|
Nutrition & Biosciences
|
3,989
|
|
4,377
|
|
Transportation & Industrial
|
3,524
|
|
3,590
|
|
Safety & Construction
|
3,048
|
|
3,082
|
|
Non-Core
|
509
|
|
711
|
|
Total
|
$
|
12,834
|
|
$
|
13,593
|
|
The following table provides information regarding amortization expense related to other intangible assets:
|
|
|
|
|
|
|
|
Amortization Expense
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Other intangible assets
|
$
|
533
|
|
$
|
256
|
|
Total estimated amortization expense for the remainder of 2020 and the five succeeding fiscal years is as follows:
|
|
|
|
|
Estimated Amortization Expense
|
|
In millions
|
|
2020
|
$
|
1,595
|
|
2021
|
$
|
1,008
|
|
2022
|
$
|
968
|
|
2023
|
$
|
925
|
|
2024
|
$
|
826
|
|
2025
|
$
|
789
|
|
NOTE 12 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
Debt Offering
On May 1, 2020, the Company completed an underwritten public offering of senior unsecured notes (the “Notes”) in the aggregate principal amount of $2 billion of 2.169 percent fixed rate Notes due May 1, 2023 (the “May Debt Offering”). The proceeds from the May Debt Offering are expected to be used by the Company to repay or redeem the Company’s $0.5 billion in floating rate notes due November 2020 and $1.5 billion of 3.77 percent fixed-rate notes due November 2020 (collectively, the “2020 Notes”). Upon consummation of the Proposed N&B Transaction, the Company will be required to mail a notice of redemption to holders of the Notes, with a copy to the Trustee, setting forth the date of redemption of all of the Notes on the date (“Special Mandatory Redemption Date”) that is the later of (i) three (3) Business Days after the consummation of the Proposed N&B Transaction and (ii) May 1, 2021. On the Special Mandatory Redemption Date, the Company will be required to redeem all of the Notes at a redemption price equal to 100% of the aggregate principal amount of the Notes plus accrued and unpaid interest, if any, up to but excluding the Special Mandatory Redemption Date. The Indenture also contains certain limitations on the Company’s ability to incur liens and enter into sale lease-back transactions, as well as customary events of default.
Revolving Credit Facility
In June 2019, the Company entered into a $750 million, 364-day revolving credit facility (the "Old 364-Day Revolving Credit Facility"). In March 2020, the Company drew down on the Old 364-Day Revolving Credit Facility in the aggregate principal amount of $250 million. In April 2020, the Company repaid the $250 million draw on the Old 364-Day Revolving Credit Facility with interest. On and effective as of April 16, 2020, the Company entered into a new $1.0 billion 364-day revolving credit facility (the “$1B Revolving Credit Facility"). As of the effectiveness of the $1B Revolving Credit Facility, the Old 364-Day Revolving Credit Facility was terminated.
Nutrition & Biosciences Financing
In connection with the Proposed N&B Transaction, DuPont and Nutrition & Biosciences, Inc. (presently a wholly owned subsidiary of DuPont) (“N&B Inc.”) entered into a Bridge Commitment Letter (the “Bridge Letter”) in an aggregate principal amount of $7.5 billion (the “Bridge Loans”) to secure committed financing for a one-time $7.3 billion cash payment, subject to adjustment, to DuPont (the "Special Cash Payment") and related financing fees. The aggregate commitment under the Bridge Letter is reduced by, among other things, (1) the amount of net cash proceeds received by N&B Inc. from any issuance of senior unsecured notes pursuant to a Rule 144A offering or other private placement (the "N&B Notes Offering") and (2) certain qualifying term loan commitments under senior unsecured term loan facilities.
In January 2020, N&B Inc. entered into a senior unsecured term loan agreement in the amount of $1.25 billion split evenly between three- and five-year facilities. As a result of entry into the term loan agreement, the commitments under the Bridge Commitment Letter were reduced to $6.25 billion.
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation and Environmental Matters
As of March 31, 2020, the Company had recorded liabilities of $24 million associated with litigation matters and $77 million associated with environmental matters. These recorded liabilities include the Company’s indemnification obligations to each of Dow and Corteva.
Under the Separation and Distribution Agreement, liabilities, including cost and expenses, associated with litigation and environmental matters that primarily related to the materials 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 March 31, 2020, DuPont has recorded (i) a liability of $35 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 $3 million for retained or assumed litigation liabilities, and (iii) an indemnification liability related to legal and environmental matters of $58 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.
Discontinued and/or Divested Operations and Businesses ("DDOB") Liabilities of Historical EID
Under the Separation and Distribution Agreement and the Letter 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 specified amount set forth in the schedules 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 salts (“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 extent 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 other 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 March 31, 2020. Therefore, at March 31, 2020, DuPont has not recorded an accrual related to Non-PFAS Liabilities.
PFAS Stray Liabilities
DuPont expects to continue to incur costs and expenses such as attorneys’ fees and expenses and court costs in connection with the matters described below, which the Company will expense as incurred in accordance with its accounting policy for litigation matters.
Chemours Suit
On July 1, 2015, Historical EID completed the separation of Historical EID’s Performance Chemicals segment through the spinoff of all the issued and outstanding stock of The Chemours Company (“Chemours”) to holders of Historical EID common stock. In connection with the spin, Historical EID and Chemours entered into a Separation Agreement (as amended, the "Chemours Separation Agreement"). Pursuant to the Chemours Separation Agreement, Chemours is obligated to indemnify Historical EID, including its current or former affiliates, against certain litigation, environmental 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 2017, Historical EID 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. The 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 EID will pay any excess amount up to the next $25 million, with Chemours annually bearing any excess liabilities above that amount. If Historical EID were required to pay PFOA liabilities pursuant to the amended agreement, fifty percent of such obligation would be borne by the Company in accordance with the Letter Agreement. In connection with the foregoing, the Company has not recorded or paid a PFOA liability. 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.
On May 13, 2019, Chemours filed suit in the Delaware Court of 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 under 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, filed a motion to dismiss the lawsuit for lack of subject matter jurisdiction and initiated an arbitration of the dispute as required under the Chemours Separation Agreement. In December 2019, following argument, the Delaware Court of Chancery stayed arbitration pending resolution of the motion to dismiss. On March 30, 2020, the Court of Chancery granted the motion to dismiss and rejected Chemours’ arguments in their entirety. Chemours filed a notice of appeal on April 17, 2020 and may file a motion to stay the arbitration process pending consideration of such an appeal by the Delaware Supreme Court. In the interim, the confidential arbitration process will proceed.
Indemnifiable Losses related to the Chemours suit are PFAS Stray Liabilities subject to the sharing arrangement between DuPont and Corteva, described above. The Company believes the probability of a final unappealable judgment of liability with respect to the Chemours suit to be remote; the defendants continue to vigorously defend full indemnity rights as set forth in the Chemours Separation Agreement.
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.
Generally, Chemours, with reservations, including as to alleged fraudulent conveyance and voidable transactions, is defending and indemnifying Historical EID in the PFAS Matters discussed below. Although Chemours has refused the tender of the Company’s defense in the 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.
Personal Injury and Other PFAS Actions
DuPont, which was formed after the spin-off of Chemours, 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 2017 settlement did not resolve claims of Leach class members who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. About 80 claims alleging personal injury, including kidney and testicular cancer claims, have been filed since the 2017 settlement. These claims are currently pending in the Ohio MDL. The first two cases, one captioned “Abbott v E. I. du Pont de Nemours and Company” and the other “Swartz v. E. I. du Pont de Nemours and Company”, involving a testicular cancer and a kidney cancer claim, respectively, proceeded to trial in January 2020. In the Abbott case, the jury returned a verdict in March 2020 against Historical EID, awarding $50 million in compensatory damages to the plaintiff and his wife, who claimed that exposure to PFOA in drinking water caused him to develop testicular cancer. Historical EID will appeal the verdict. The plaintiffs also sought but were not awarded punitive damages. In the Swartz matter, the jury could not reach a verdict. Therefore, the court declared a mistrial and the matter will be retried at a later date. The trials in the cases originally scheduled for June 2020 have been postponed to August 2020 due to the COVID-19 pandemic.
Natural Resource Damage Claims and Other Claims for Environmental Damages
In addition to the actions described above, there are about 100 cases alleging damages to natural resources, the environment and/or property as well as various other allegations. DuPont is named as a defendant in certain of these actions as 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 Ohio, Michigan, New Jersey, New Hampshire, New York, 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 is a named party in the New Jersey suit related to its site in Parlin, New Jersey. In addition, the New 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 and the Michigan suit. The amended complaints in the New Jersey and Vermont cases and the complaint filed by Michigan include additional causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities to Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction.
Lawsuits have been filed by residents and several water districts against Historical 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.
Other PFAS Actions
There are several actions pending in federal court against Historical EID and Chemours, relating to discharges of PFCs, including GenX, into 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 its Fayetteville Works facility in Bladen County, North Carolina. One of these actions is a consolidated putative class action that asserts claims for damages and other 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.
Aqueous Film Forming Foam
Beginning in April 2019, several dozen lawsuits involving water contamination arising from the use of PFAS-containing aqueous firefighting foams (“AFFF”) were filed against Historical EID, Chemours, 3M and other AFFF manufacturers and in different parts of the country. Most were consolidated in multi-district litigation docket in federal district court in South Carolina (the “SC MDL”). Many of those cases also name DuPont as a defendant. Those actions largely seek remediation of the alleged PFAS contamination in and around military bases and airports as well as medical monitoring of affected residents.
As of the latter part of April 2020, approximately 600 personal injury cases have been filed directly in the SC MDL and assert claims on behalf of individual firefighters and others who allege that exposure to PFAS in firefighting foam caused them to develop cancer, including kidney and testicular cancer. DuPont has been named as a defendant in approximately 565 personal injury AFFF cases. DuPont is seeking the dismissal of DowDuPont and DuPont from these actions. Historical EID and the Company have never made or sold aqueous film forming foam, PFOS or PFOS containing products.
Additionally, a case filed by a former firefighter 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 3M and several other defendants in addition to Chemours and Historical EID. The complaint specifically seeks, among other things, the creation 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. In February 2020, the court denied the defendants' motion to transfer this case to the SC MDL.
Other Litigation Matters
In addition to the specific matters described above, the Company is party to 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. 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.
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, 2020, the Company had accrued obligations of $77 million for probable environmental remediation and restoration costs, inclusive of $35 million retained and assumed following the Distributions and $42 million of indemnified liabilities. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheets. This is management’s best 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 $171 million above the amount accrued at March 31, 2020. 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, 2019, the Company had accrued obligations of $77 million for probable environmental remediation and restoration costs.
Pursuant to the Separation and Distribution Agreement, the Company is required to indemnify certain clean-up responsibilities and associated remediation costs. The accrued environmental obligations of $77 million as of March 31, 2020 includes amount for which the Company indemnifies Dow and Corteva. At March 31, 2020, the Company has indemnified Dow and Corteva $8 million and $34 million, respectively.
Guarantees
Obligations for Equity Affiliates & Others
The Company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates and customers. At March 31, 2020 and December 31, 2019, the Company had directly guaranteed $185 million and $187 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 event of default 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 10 percent of the $21 million of guaranteed obligations of customers. The following table provides a summary of the final expiration year and maximum future payments for each type of guarantee:
|
|
|
|
|
|
Guarantees at March 31, 2020
|
Final Expiration Year
|
Maximum Future Payments
|
In millions
|
Obligations for customers 1:
|
|
|
Bank borrowings
|
2020
|
$
|
21
|
|
Obligations for non-consolidated affiliates 2:
|
|
|
Bank borrowings
|
2020
|
$
|
164
|
|
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, $21 million had terms less than a year.
2. Existing guarantees for non-consolidated affiliates' liquidity needs in normal operations.
NOTE 14 - OPERATING LEASES
Operating lease costs for the three months ended March 31, 2020 and 2019 were $42 million and $44 million, respectively. Operating cash flows from operating leases were $42 million and $41 million for the three months ended March 31, 2020 and 2019, respectively.
Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. New operating lease assets and liabilities entered into during the three months ended March 31, 2020 were $57 million and immaterial for the three months ended March 31, 2019. Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
In millions
|
March 31, 2020
|
December 31, 2019
|
Operating Leases
|
|
|
|
Operating lease right-of-use assets 1
|
$
|
589
|
|
$
|
556
|
|
Current operating lease liabilities 2
|
143
|
|
138
|
|
Noncurrent operating lease liabilities 3
|
444
|
|
416
|
|
Total operating lease liabilities
|
$
|
587
|
|
$
|
554
|
|
|
|
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.
|
NOTE 15 - STOCKHOLDERS' EQUITY
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. During the first quarter, the Company repurchased and retired 6.1 million shares for $232 million. At March 31, 2020, the Company had repurchased and retired 16.9 million shares under this program at a total cost of $982 million.
Accumulated Other Comprehensive Loss
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
Unrealized Gains (Losses) on Investments
|
Cumulative Translation Adj
|
Pension and OPEB
|
Derivative Instruments
|
Total
|
In millions
|
2019
|
|
|
|
|
|
Balance at January 1, 2019
|
$
|
(51
|
)
|
$
|
(3,785
|
)
|
$
|
(8,476
|
)
|
$
|
(82
|
)
|
$
|
(12,394
|
)
|
Other comprehensive income (loss) before reclassifications
|
68
|
|
(79
|
)
|
(7
|
)
|
(65
|
)
|
(83
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
(1
|
)
|
(18
|
)
|
142
|
|
(10
|
)
|
113
|
|
Net other comprehensive income (loss)
|
$
|
67
|
|
$
|
(97
|
)
|
$
|
135
|
|
$
|
(75
|
)
|
$
|
30
|
|
Balance at March 31, 2019
|
$
|
16
|
|
$
|
(3,882
|
)
|
$
|
(8,341
|
)
|
$
|
(157
|
)
|
$
|
(12,364
|
)
|
2020
|
|
|
|
|
|
Balance at January 1, 2020
|
$
|
—
|
|
$
|
(1,070
|
)
|
$
|
(345
|
)
|
$
|
(1
|
)
|
$
|
(1,416
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
(396
|
)
|
(2
|
)
|
—
|
|
(398
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
—
|
|
4
|
|
—
|
|
4
|
|
Net other comprehensive (loss) income
|
$
|
—
|
|
$
|
(396
|
)
|
$
|
2
|
|
$
|
—
|
|
$
|
(394
|
)
|
Balance at March 31, 2020
|
$
|
—
|
|
$
|
(1,466
|
)
|
$
|
(343
|
)
|
$
|
(1
|
)
|
$
|
(1,810
|
)
|
The tax effects on the net activity related to each component of other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
Tax Benefit (Expense)
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Unrealized gains (losses) on investments
|
$
|
—
|
|
$
|
(18
|
)
|
Cumulative translation adjustments
|
—
|
|
(1
|
)
|
Pension and other post employment benefit plans
|
(1
|
)
|
(32
|
)
|
Derivative instruments
|
—
|
|
24
|
|
Tax expense from income taxes related to other comprehensive income items
|
$
|
(1
|
)
|
$
|
(27
|
)
|
A summary of the reclassifications out of AOCL for the three months ended March 31, 2020 and 2019 is provided as follows:
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Loss
|
Three Months Ended
March 31,
|
Income Classification
|
In millions
|
2020
|
2019
|
Unrealized gains on investments
|
$
|
—
|
|
$
|
(1
|
)
|
See (1) below
|
Tax expense (benefit)
|
—
|
|
—
|
|
See (2) below
|
After tax
|
$
|
—
|
|
$
|
(1
|
)
|
|
Cumulative translation adjustments
|
$
|
—
|
|
$
|
(18
|
)
|
See (3) below
|
Pension and other post employment benefit plans
|
$
|
3
|
|
$
|
167
|
|
See (4) below
|
Tax expense (benefit)
|
1
|
|
(25
|
)
|
See (2) below
|
After tax
|
$
|
4
|
|
$
|
142
|
|
|
Derivative Instruments
|
$
|
—
|
|
$
|
(11
|
)
|
See (5) below
|
Tax expense
|
—
|
|
1
|
|
See (2) below
|
After tax
|
$
|
—
|
|
$
|
(10
|
)
|
|
Total reclassifications for the period, after tax
|
$
|
4
|
|
$
|
113
|
|
|
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 post employment benefit plans. See Note 17 for additional information.
5. "Cost of sales," "Sundry income (expense) - net" and "Interest expense."
NOTE 16 - 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 interim Condensed Consolidated Balance Sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests is both presented on the face of the interim Consolidated Statements of Operations.
The following table summarizes the activity for equity attributable to noncontrolling interests for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Balance at beginning of period
|
$
|
569
|
|
$
|
1,608
|
|
Net income attributable to noncontrolling interests
|
6
|
|
51
|
|
Distributions to noncontrolling interests
|
(6
|
)
|
(11
|
)
|
Cumulative translation adjustments
|
(8
|
)
|
7
|
|
Other
|
5
|
|
(1
|
)
|
Balance at end of period
|
$
|
566
|
|
$
|
1,654
|
|
NOTE 17 - PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS
A summary of the Company's pension plans and other post employment benefits 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, 2019. Historical Dow and Historical EID did not merge their defined benefit pension and other post employment benefit plans as a result of the Merger.
The following sets forth the components of the Company's net periodic benefit (credit) cost for defined benefit pension plans and other post employment benefits:
|
|
|
|
|
|
|
|
Net Periodic Benefit (Credit) Cost for All Plans
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Defined Benefit Pension Plans:
|
|
|
Service cost 1
|
$
|
18
|
|
$
|
131
|
|
Interest cost 2
|
14
|
|
447
|
|
Expected return on plan assets 3
|
(28
|
)
|
(713
|
)
|
Amortization of prior service credit 4
|
(1
|
)
|
(6
|
)
|
Amortization of net loss 5
|
4
|
|
133
|
|
Net periodic benefit (credit) cost - total
|
$
|
7
|
|
$
|
(8
|
)
|
Less: Net periodic benefit (credit) cost - discontinued operations
|
—
|
|
(4
|
)
|
Net periodic benefit credit - continuing operations
|
$
|
7
|
|
$
|
(4
|
)
|
Other Post Employment Benefits:
|
|
|
Service cost 1
|
$
|
—
|
|
$
|
4
|
|
Interest cost 2
|
—
|
|
37
|
|
Amortization of net gain 5
|
—
|
|
(6
|
)
|
Net periodic benefit cost - total
|
$
|
—
|
|
$
|
35
|
|
Less: Net periodic benefit (credit) cost - discontinued operations
|
—
|
|
34
|
|
Net periodic benefit cost - continuing operations
|
$
|
—
|
|
$
|
1
|
|
1. The service cost from continuing operations was $16 million for the three months ended March 31, 2019. The activity from OPEBs was immaterial.
|
|
2.
|
The interest cost from continuing operations was $21 million for the three months ended March 31, 2019. The activity from OPEBs was immaterial.
|
3. The expected return on plan assets from continuing operations was $43 million for the three months ended March 31, 2019. The activity from OPEBs was immaterial.
4. The amortization of prior service credit from continuing operations was immaterial for the three months ended March 31, 2019 for both pensions and OPEBs.
5. The amortization of unrecognized net loss from continuing operations was $2 million for the three months ended March 31, 2019. The activity from OPEBs was immaterial.
The continuing operations portion of the net periodic benefit (credit) cost, other than the service cost component, is included in "Sundry income (expense) - net" in the interim Consolidated Statements of Operations.
DuPont expects to make additional contributions in the aggregate of approximately $60 million by year-end 2020.
NOTE 18 - STOCK-BASED COMPENSATION
A summary of the Historical Dow and Historical DuPont stock-based compensation plans can be found in Note 21 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Historical Dow and Historical EID did not merge their equity incentive plans as a result of the Merger. The Historical Dow and Historical EID stock-based compensation plans were assumed by the Company and remained in place with the ability to grant and issue DowDuPont common stock until the Distributions.
Immediately following the Corteva Distribution, DuPont adopted the DuPont Omnibus Incentive Plan ("DuPont OIP") which provides for equity-based and cash incentive awards to certain employees, directors, independent contractors and consultants in the form of stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs"). Upon adoption of the DuPont OIP, the Historical Dow and Historical EID plans were maintained and rolled into the DuPont OIP as separate subplans. The equity awards under these subplans have the same terms and conditions that were applicable to the awards under the Historical Dow and Historical EID plans immediately prior to the Distributions. All new awards will be granted by the OIP. Under the DuPont OIP, a maximum of 10 million shares of common stock are available for award as of March 31, 2020.
DuPont recognized share-based compensation expense in continuing operations of $41 million and $21 million for the three months ended March 31, 2020 and 2019, respectively. The income tax benefits related to stock-based compensation arrangements were $9 million and $4 million for the three months ended March 31, 2020 and 2019, respectively.
In the first quarter of 2020, the Company granted 1.0 million RSUs, 0.8 million stock options and 0.3 million PSUs. The weighted-average fair values per share associated with the grants were $53.49 per RSU, $8.84 per stock option and $50.23 per PSU. The stock options had a weighted-average exercise price per share of $53.50.
NOTE 19 - FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
March 31, 2020
|
December 31, 2019
|
In millions
|
Cost
|
Gain
|
Loss
|
Fair Value
|
Cost
|
Gain
|
Loss
|
Fair Value
|
Cash equivalents
|
$
|
771
|
|
$
|
—
|
|
$
|
—
|
|
$
|
771
|
|
$
|
417
|
|
$
|
—
|
|
$
|
—
|
|
$
|
417
|
|
Restricted cash equivalents 1
|
$
|
34
|
|
$
|
—
|
|
$
|
—
|
|
$
|
34
|
|
$
|
37
|
|
$
|
—
|
|
$
|
—
|
|
$
|
37
|
|
Total cash and restricted cash equivalents
|
$
|
805
|
|
$
|
—
|
|
$
|
—
|
|
$
|
805
|
|
$
|
454
|
|
$
|
—
|
|
$
|
—
|
|
$
|
454
|
|
Long-term debt including debt due within one year
|
$
|
(15,620
|
)
|
$
|
38
|
|
$
|
(1,209
|
)
|
$
|
(16,791
|
)
|
$
|
(15,618
|
)
|
$
|
—
|
|
$
|
(1,633
|
)
|
$
|
(17,251
|
)
|
Derivatives relating to:
|
|
|
|
|
|
|
|
|
Foreign currency 2
|
—
|
|
12
|
|
(11
|
)
|
1
|
|
—
|
|
6
|
|
(7
|
)
|
(1
|
)
|
Total derivatives
|
$
|
—
|
|
$
|
12
|
|
$
|
(11
|
)
|
$
|
1
|
|
$
|
—
|
|
$
|
6
|
|
$
|
(7
|
)
|
$
|
(1
|
)
|
|
|
1.
|
Classified as "Other current assets" in the interim Condensed Consolidated Balance Sheets.
|
|
|
2.
|
Presented net of cash collateral where master netting arrangements allow.
|
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. As of the first quarter of 2020, the Company has not designated any derivatives or non-derivatives as hedging instruments.
The Company's financial 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 the 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 regularly reported to management.
The notional amounts of the Company's derivative instruments were as follows:
|
|
|
|
|
|
|
|
Notional Amounts
|
March 31, 2020
|
Dec 31, 2019
|
In millions
|
Derivatives not designated as hedging instruments:
|
|
|
Foreign currency contracts 1
|
$
|
(344
|
)
|
$
|
26
|
|
Commodity contracts
|
$
|
12
|
|
$
|
11
|
|
|
|
1.
|
Presented net of contracts bought and sold.
|
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 use of 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 Company may use foreign currency exchange contracts to offset a portion of the Company's
exposure to certain foreign currency-denominated revenues so that gains and losses on the contracts offset changes in the USD value of the related foreign currency-denominated revenues.
Commodity Contracts
The Company utilizes options, futures and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
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
|
$
|
34
|
|
$
|
(22
|
)
|
$
|
12
|
|
Total asset derivatives
|
|
$
|
34
|
|
$
|
(22
|
)
|
$
|
12
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
33
|
|
$
|
(22
|
)
|
$
|
11
|
|
Total liability derivatives
|
|
$
|
33
|
|
$
|
(22
|
)
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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 not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
16
|
|
$
|
(10
|
)
|
$
|
6
|
|
Total asset derivatives
|
|
$
|
16
|
|
$
|
(10
|
)
|
$
|
6
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
17
|
|
$
|
(10
|
)
|
$
|
7
|
|
Total liability derivatives
|
|
$
|
17
|
|
$
|
(10
|
)
|
$
|
7
|
|
|
|
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.
|
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-denominated assets and liabilities. The amount charged on a pre-tax basis related to foreign currency derivatives not designated as a hedge, which was included in “Sundry income (expense) - net” in the interim Consolidated Statements of Operations, was a gain of $4 million for the three months ended March 31, 2020 ($47 million loss for the months ended March 31, 2019). The income statement effects of other derivatives were immaterial.
Reclassification from AOCL
The Company does not expect to reclassify gains or losses related to foreign currency contracts from AOCL to income within the next 12 months and there are currently no such amounts included within AOCL.
NOTE 20 - FAIR VALUE MEASUREMENTS
Fair Value Measurements on a Recurring Basis
The following tables summarize the basis used to measure certain assets and liabilities at fair value on a recurring basis:
|
|
|
|
|
Basis of Fair Value Measurements on a Recurring Basis at March 31, 2020
|
Significant Other Observable Inputs
(Level 2)
|
In millions
|
Assets at fair value:
|
|
Cash equivalents and restricted cash equivalents 1
|
$
|
805
|
|
Derivatives relating to: 2
|
|
Foreign currency contracts
|
34
|
|
Total assets at fair value
|
$
|
839
|
|
Liabilities at fair value:
|
|
Long-term debt including debt due within one year 3
|
$
|
16,791
|
|
Derivatives relating to: 2
|
|
Foreign currency contracts
|
33
|
|
Total liabilities at fair value
|
$
|
16,824
|
|
|
|
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 interim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
|
|
|
2.
|
See Note 19 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets.
|
|
|
3.
|
Fair value is based on quoted market prices for the same or similar issues, or on current rates offered to the company for debt of the same remaining maturities and terms.
|
|
|
|
|
|
Basis of Fair Value Measurements on a Recurring Basis at December 31, 2019
|
Significant Other Observable Inputs
(Level 2)
|
In millions
|
Assets at fair value:
|
|
Cash equivalents and restricted cash equivalents 1
|
$
|
454
|
|
Derivatives relating to: 2
|
|
Foreign currency contracts
|
16
|
|
Total assets at fair value
|
$
|
470
|
|
Liabilities at fair value:
|
|
Long-term debt including debt due within one year 3
|
$
|
17,251
|
|
Derivatives relating to: 2
|
|
Foreign currency contracts
|
17
|
|
Total liabilities at fair value
|
$
|
17,268
|
|
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 interim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. See Note 19 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets
3. Fair value is based on quoted market prices for the same or similar issues, or on current rates offered to the company for debt of the same remaining maturities and terms.
Fair Value Measurements on a Nonrecurring Basis
During the first quarter of 2020, the Company recorded impairment charges related to goodwill and long-lived assets within the Non-Core segment. See Notes 11 and 5 for further discussion of these fair value measurements.
NOTE 21 - SEGMENTS AND GEOGRAPHIC REGIONS
In the first quarter of 2020, in preparation for the Proposed N&B Transaction, DuPont changed its management and reporting structure to realign costs associated with its polysaccharides pre-commercial activities from the Non-Core segment to the N&B 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, adjusted for significant items. Reconciliations of these measures are 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. Those pro forma adjustments include the impact of various supply agreements entered into in connection with the Dow Distribution ("supply agreements") and are adjustments to "Cost of sales." Pro forma Operating EBITDA for the three months ended March 31, 2019 has been adjusted to reflect the supply agreements if they had been effective January 1, 2018 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 March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Const.
|
Non-Core
|
Corp.
|
Total
|
In millions
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
Net sales
|
$
|
884
|
|
$
|
1,551
|
|
$
|
1,144
|
|
$
|
1,276
|
|
$
|
366
|
|
$
|
—
|
|
$
|
5,221
|
|
Operating EBITDA 1
|
$
|
253
|
|
$
|
385
|
|
$
|
308
|
|
$
|
368
|
|
$
|
42
|
|
$
|
(35
|
)
|
$
|
1,321
|
|
Equity in earnings of nonconsolidated affiliates
|
$
|
9
|
|
$
|
—
|
|
$
|
1
|
|
$
|
7
|
|
$
|
22
|
|
$
|
—
|
|
$
|
39
|
|
Three months ended March 31, 2019
|
|
|
|
|
|
|
|
Net sales
|
$
|
825
|
|
$
|
1,535
|
|
$
|
1,317
|
|
$
|
1,283
|
|
$
|
454
|
|
$
|
—
|
|
$
|
5,414
|
|
Pro forma operating EBITDA 1
|
$
|
288
|
|
$
|
349
|
|
$
|
373
|
|
$
|
374
|
|
$
|
98
|
|
$
|
(52
|
)
|
$
|
1,430
|
|
Equity in earnings of nonconsolidated affiliates 2
|
$
|
3
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8
|
|
$
|
30
|
|
$
|
—
|
|
$
|
41
|
|
|
|
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.
|
|
|
2.
|
Represents equity in earnings (losses) of nonconsolidated affiliates included in pro forma Operating EBITDA, the Company's measure of profit/loss for segment reporting purposes, which excludes significant items. Accordingly, the Non-Core segment presented above excludes a restructuring charge of $1 million which is presented in "Equity in earnings of nonconsolidated affiliates" in the Company's interim Consolidated Statement of Operations.
|
|
|
|
|
|
|
|
|
Reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA for the Three Months Ended March 31, 2020 and 2019
|
Three Months Ended March 31,
|
In millions
|
2020
|
2019
|
Loss from continuing operations, net of tax
|
$
|
(610
|
)
|
$
|
(74
|
)
|
+ Provision for (benefit from) income taxes on continuing operations
|
44
|
|
(91
|
)
|
Loss from continuing operations before income taxes
|
$
|
(566
|
)
|
$
|
(165
|
)
|
+ Pro forma adjustments 1
|
—
|
|
122
|
|
+ Depreciation and amortization
|
772
|
|
527
|
|
- Interest income 2
|
2
|
|
40
|
|
+ Interest expense 3
|
173
|
|
180
|
|
- Non-operating pension/OPEB benefit 2
|
11
|
|
21
|
|
- Foreign exchange gains (losses), net 2
|
(8
|
)
|
(61
|
)
|
+ Costs historically allocated to the materials science and agriculture businesses 4
|
—
|
|
256
|
|
- Significant items 5
|
(947
|
)
|
(510
|
)
|
Operating EBITDA 1
|
$
|
1,321
|
|
$
|
1,430
|
|
1. For the three months ended March 31, 2019, operating EBITDA is on a pro forma basis. The pro forma adjustment reflects the net pro forma impact of items directly attributable to the Transactions, as applicable.
|
|
2.
|
Included in "Sundry income (expense) - net."
|
3. The three months ended March 31, 2020 excludes N&B financing fee amortization. Refer to details of significant items below.
4. 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.
5. The significant items for the three months ended March 31, 2020, are presented on an as reported basis. The adjusted significant items for the three months ended March 31, 2019 are presented on a pro forma basis.
The significant items for the three months ended March 31, 2020, are presented on an as reported basis. The adjusted significant items for the three months ended March 31, 2019 are presented on a pro forma basis. The following tables summarize the pre-tax impact of 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 March 31, 2020
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
In millions
|
Integration and separation costs 1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(197
|
)
|
$
|
(197
|
)
|
Restructuring and asset related charges - net 2
|
(4
|
)
|
(6
|
)
|
(25
|
)
|
(25
|
)
|
—
|
|
(74
|
)
|
(134
|
)
|
Goodwill impairment charge 3
|
—
|
|
—
|
|
—
|
|
—
|
|
(533
|
)
|
—
|
|
(533
|
)
|
Asset impairment charges 4
|
—
|
|
—
|
|
—
|
|
—
|
|
(270
|
)
|
—
|
|
(270
|
)
|
Gain on divestiture 5
|
197
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
197
|
|
N&B financing fee amortization 6
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10
|
)
|
(10
|
)
|
Total
|
$
|
193
|
|
$
|
(6
|
)
|
$
|
(25
|
)
|
$
|
(25
|
)
|
$
|
(803
|
)
|
$
|
(281
|
)
|
$
|
(947
|
)
|
1. Integration and separation costs related to the post-Merger integration and the intended separation of the N&B Business.
2. Includes Board approved restructuring plans and asset related charges. See Note 5 for additional information.
3. See Note 11 for additional information.
4. See Note 5 for additional information.
5. Reflected in "Sundry income (expense) - net." Refer to Note 3 for additional information.
6. Reflected in "Interest expense" and relates to the intended separation of the N&B Business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Significant Items by Segment for the Three Months Ended March 31, 2019 (Pro Forma)
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
In millions
|
Integration and separation costs 1
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
(438
|
)
|
$
|
(438
|
)
|
Restructuring and asset related charges - net 2
|
—
|
|
(27
|
)
|
—
|
|
(2
|
)
|
1
|
|
(44
|
)
|
(72
|
)
|
Total
|
$
|
—
|
|
$
|
(27
|
)
|
$
|
—
|
|
$
|
(2
|
)
|
$
|
1
|
|
$
|
(482
|
)
|
$
|
(510
|
)
|
|
|
1.
|
Integration and separation costs related to the Merger, post-Merger integration and business separation activities.
|
|
|
2.
|
Includes Board approved restructuring plans and asset related charges. See Note 5 for additional information.
|