NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| | | | | | | | |
Note | | Page |
1 | | |
2 | | |
3 | | |
4 | | |
5 | | |
6 | | |
7 | | |
8 | | |
9 | | |
10 | | |
11 | | |
12 | | |
13 | | |
14 | | |
15 | | |
16 | | |
17 | | |
18 | | |
19 | | |
20 | | |
21 | | |
22 | | |
23 | | |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements of DuPont de Nemours, Inc. ("DuPont” or the "Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant accounting policies described below, together with the other notes that follow, are an integral part of the Consolidated Financial Statements.
The Consolidated Financial Statements include the accounts of the Company and subsidiaries in which a controlling interest is maintained. The Consolidated Financial Statements also include the accounts of joint ventures that are variable interest entities ("VIEs") in which the Company is the primary beneficiary due to the Company's power to direct the VIEs significant activities. For those consolidated subsidiaries in which the Company's ownership is less than 100 percent, the outside stockholders' interests are shown as noncontrolling interests. Investments in affiliates over which the Company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method.
The Company is also involved with certain joint ventures accounted for under the equity method of accounting that are VIEs. The Company is not the primary beneficiary, as the nature of the Company's involvement with the VIEs does not provide it the power to direct the VIEs significant activities. Future events may require these VIEs to be consolidated if the Company becomes the primary beneficiary. At December 31, 2022 and 2021, the maximum exposure to loss related to the nonconsolidated VIEs is not considered material to the Consolidated Financial Statements.
DWDP Distributions
Effective August 31, 2017, E. I. du Pont de Nemours and Company ("EID") and The Dow Chemical Company ("TDCC") each merged with subsidiaries of DowDuPont Inc. (n/k/a "DuPont”) and, as a result, EID and TDCC became subsidiaries of the Company. On April 1, 2019, the Company completed the separation of the materials science business through the spin-off of Dow Inc., (“Dow”) including Dow’s subsidiary TDCC (the “Dow Distribution”). On June 1, 2019, the Company completed the separation of the agriculture business through the spin-off of Corteva, Inc. (“Corteva”) including Corteva’s subsidiary EID (subsequently renamed EIDP, Inc. (n/k/a "EIDP")), (the “Corteva Distribution" and together with the Dow Distribution, the “DWDP Distributions”). Following the Corteva Distribution, DuPont holds the specialty products business as continuing operations. DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”) (for certain events prior to June 1, 2019, the Company may be referred to as DowDuPont). Beginning on June 3, 2019, the Company's common stock is traded on the New York Stock Exchange under the ticker symbol "DD."
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the Nutrition & Biosciences business segment (the "N&B Business"), and merger of Nutrition & Biosciences, Inc. (“N&B”), a DuPont subsidiary formed to hold the N&B Business, with a subsidiary of International Flavors & Fragrances Inc. ("IFF"). The distribution was effected through an exchange offer (the “Exchange Offer”) and the consummation of the Exchange Offer was followed by the merger of N&B with a wholly owned subsidiary of IFF, with N&B surviving the merger as a wholly owned subsidiary of IFF (the “N&B Merger” and, together with the Exchange Offer, the “N&B Transaction”). See Note 4 for more information.
The results of operations of DuPont for the years ended December 31, 2021 and 2020 reflect the historical financial results of N&B as discontinued operations. The cash flows and comprehensive income related to N&B have not been segregated and are included in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for the applicable period. Unless otherwise indicated, the information in the notes to the Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of N&B.
M&M Transaction
On November 1, 2022, DuPont completed the previously announced divestiture of the majority of its historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Divestiture”), to Celanese Corporation (“Celanese”) for cash proceeds of $11.0 billion. See Note 4 for more information.
The financial position of DuPont as of December 31, 2022 and 2021, present the businesses divested as part of the M&M Divestiture and to be divested as part of the divestiture of Delrin® (the "M&M Businesses") as discontinued operations. The Delrin® business together with the M&M Businesses, referred to as the “M&M Divestitures”. The results of operations for the years ended December 31, 2022, 2021 and 2020, present the financial results of the M&M Businesses as discontinued operations. The cash flows and comprehensive income of the M&M Businesses have not been segregated and are included in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for all periods presented. Unless otherwise indicated, the information in the notes to the Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of the M&M Businesses.
The Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines, previously reported within the historic Mobility & Materials segment, (the "Retained Businesses") are not included in the scope of the M&M Divestitures. Effective with the signing of the Transaction Agreement, the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively applied for all periods presented.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s Consolidated Financial Statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents represents trust assets and cash held in escrow. These funds are restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash is classified as a current or non-current asset based on the timing and nature of when or how the cash is expected to be used. See Note 7 for further information.
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months at time of purchase. Investments classified as held-to-maturity are recorded at amortized cost. The carrying value approximates fair value due to the short-term nature of the investments.
Fair Value Measurements
Under the accounting guidance for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company uses the following valuation techniques to measure fair value for its assets and liabilities:
| | | | | | | | |
Level 1 | – | Quoted market prices in active markets for identical assets or liabilities; |
| | |
Level 2 | – | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); |
| | |
Level 3 | – | Unobservable inputs for the asset or liability, which are valued based on management's estimates of assumptions that market participants would use in pricing the asset or liability. |
Foreign Currency Translation
The Company's worldwide operations utilize the U.S. dollar ("USD") or local currency as the functional currency, where applicable. The Company identifies its separate and distinct foreign entities and groups the foreign entities into two categories: 1) extension of the parent or foreign subsidiaries operating in a hyper-inflationary environment (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated and a judgment is made to determine the functional currency.
For foreign entities where the USD is the functional currency, all foreign currency-denominated asset and liability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, goodwill and other intangible assets, which are re-measured at historical rates. Foreign currency income and expenses are re-measured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts re-measured at historical exchange rates. Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive loss in equity. Assets and liabilities denominated in other than the local currency are re-measured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the period.
The Company changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Interest Rate Swap Agreements
The Company has entered into a fixed-to-floating interest rate swap agreement to hedge changes in the fair value of the Company’s long-term debt due to interest rate movements. Under the terms of the agreement, the Company agrees to exchange, at specified intervals, fixed for floating interest amounts based on the agreed upon notional principal amount. The interest rate swaps are designated and carried as fair value hedges. Fair value hedge accounting has been applied and thus, changes in the fair value of these swaps and changes in the fair value of the related hedged portion of long-term debt will be presented and will net to zero in Sundry income (expense) – net in the Consolidated Statements of Operations.
Net Foreign Investment Hedge
The Company has entered into fixed-for-fixed cross currency swaps which are designated as a net investment hedge and has made an accounting policy election to account for the net investment hedge using the spot method. The Company has also elected to amortize the excluded components in interest expense in the related quarterly accounting period that such interest is accrued. The cross-currency swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments within "Accumulated other comprehensive loss" ("AOCL"), net of amounts associated with excluded components which are recognized in interest expense in the Consolidated Statements of Operations.
Inventories
The Company's inventories are valued at the lower of cost or net realizable value. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or net realizable value, whichever is lower; cost is generally determined by the average cost method. The Company's inventories are generally accounted for under the average cost method. The Company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.
In periods of abnormally low production, certain fixed costs normally absorbed into inventory are recorded directly to cost of sales in the period incurred.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the Consolidated Balance Sheets and included in determining gain or loss on such disposals.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value.
When testing goodwill for impairment, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the amount of goodwill at the reporting unit. The Company determines fair values for each of the reporting units using a combination of the income approach and/or market approach. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the Company selects peer sets based on close competitors and reviews the EBIT/EBITDA multiples to determine the fair value. When applicable, third-party purchase offers may be utilized to measure fair value. The Company applies a weighting to the market approach and income approach to determine the fair value. See Note 14 for further information on goodwill.
Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. When testing indefinite-lived intangible assets for impairment, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets is less than carrying value. If the Company chooses not to complete a qualitative assessment for indefinite-lived intangible assets or if the initial assessment indicates that it is more likely than not that the carrying value of indefinite-lived intangible assets exceeds the fair value, additional quantitative testing is required. Impairment exists when carrying value exceeds fair value. The Company's fair value methodology is primarily based on discounted cash flow techniques.
Definite-lived intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 1 to 23 years. The Company continually evaluates the reasonableness of the useful lives of these assets.
Impairment and Disposals of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered for impairment when the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that event, a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset group. The Company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed. Depreciation is recognized over the remaining useful life of the assets.
Acquisitions
In accordance with ASC 805, Business Combinations, acquisitions are recorded using the acquisition method of accounting. The Company includes the operating results of acquired entities from their respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired and liabilities assumed as of the acquisition date fair value, where applicable. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired and liabilities assumed is recognized as goodwill. Costs incurred as a result of a business combination other than costs related to the issuance of debt or equity securities are recorded in the period the costs are incurred.
Leases
The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract, in accordance with ASC 842, Leases. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in "Deferred charges and other assets" on the Consolidated Balance Sheets. Operating lease liabilities are included in "Accrued and other current liabilities" and "Other noncurrent obligations" on the Consolidated Balance Sheets. Finance lease ROU assets are included in "Property, plant and equipment - net" and the corresponding lease liabilities are included in "Long-term debt" on the Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide the lessor's implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the Consolidated Statements of Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
The Company has leases in which it is the lessor, these leases are classified as operating leases and lessor revenue and related expenses are not significant to the Company’s Consolidated Balance Sheet or Consolidated Statement of Operations. Lease revenue is recorded in "Selling, general, and administrative expenses" and "Research and development expenses". See Note 17 for additional information regarding the Company's leases.
Derivative Instruments
Derivative instruments are reported in the Consolidated Balance Sheets at their fair values. The Company utilizes derivatives to manage exposures to foreign currency exchange rates and commodity prices. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. For derivative instruments designated as cash flow hedges, the gain or loss is reported in AOCL until it is cleared to earnings during the same period in which the hedged item affects earnings.
In the event that a derivative designated as a hedge of a firm commitment or an anticipated transaction is terminated prior to the maturation of the hedged transaction, the net gain or loss in AOCL generally remains in AOCL until the item that was hedged affects earnings. If a hedged transaction matures, or is sold, extinguished, or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in the measurement of the hedged transaction and the derivative is reclassified as for trading purposes. Derivatives designated as hedges of anticipated transactions are reclassified as for trading purposes if the anticipated transaction is no longer probable.
For derivative instruments designated as net investment hedges, the gain or loss is reported as a component of Other comprehensive income (loss) and recorded in AOCL. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated.
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. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets in "Accrued and other current liabilities" and "Other noncurrent obligations" at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as "Accounts and notes receivable - net."
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Revenue from Contracts with Customers (Topic 606), the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the
performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 5 for additional information on revenue recognition.
Cost of Sales
Cost of sales primarily includes the cost of manufacture and delivery, ingredients or raw materials, direct salaries, wages and benefits and overhead, non-capitalizable costs associated with capital projects and other operational expenses. No amortization of intangibles is included within costs of sales.
Research and Development
Research and development costs are expensed as incurred. Research and development expense includes costs (primarily consisting of employee costs, materials, contract services, research agreements, and other external spend) relating to the discovery and development of new products, and enhancement of existing products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily include selling and marketing expenses, commissions, functional costs, and business management expenses.
Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, other professional advisory fees and other contractual transaction payments associated with the preparation and execution of activities related to strategic initiatives.
Litigation
Accruals for legal matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Legal costs, such as outside counsel fees and expenses, are charged to expense in the period incurred.
Restructuring and Asset Related Charges
Charges for restructuring programs generally include targeted actions involving employee severance and related benefit costs, contract termination charges, and asset related charges, which include impairments or accelerated depreciation/amortization of long-lived assets associated with such actions. Employee severance and related benefit costs are provided to employees under the Company’s ongoing benefit arrangements. These charges are accrued during the period when management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated. Contract termination charges primarily reflect costs to terminate a contract before the end of its term or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the Company. Asset related charges reflect impairments to long-lived assets and indefinite-lived intangible assets no longer deemed recoverable and depreciation/amortization of long-lived assets, which is accelerated over their remaining economic lives.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in "Income taxes payable" and the long-term portion is included in "Other noncurrent obligations" in the Consolidated Balance Sheets.
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Accounting Guidance Issued But Not Adopted at December 31, 2022
In September 2022, the FASB issued Accounting Standards Update No. 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50)" ("ASU 2022-04") to enhance transparency about the use of supplier finance programs. The new guidance requires that a buyer in a supplier finance program provides additional qualitative and quantitative disclosures about its program including the nature of the program, activity during the period, changes from period to period, and the potential magnitude of the program. The amendments in ASU 2022-04 are effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the amendment on rollforward information which is effective prospectively for fiscal years beginning after December 15, 2023. The Company expects to implement the new disclosures, other than the rollforward information, as required during the first interim period for the year-ended December 31, 2023. The disclosures around rollforward information will be implemented as required for the year-ended December 31, 2024. The Company expects the new guidance will not have a significant impact on the Notes to our Consolidated Financial Statements.
In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities (i.e., unearned revenue) acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers. Historically, the Company has recognized contract assets and contract liabilities at the acquisition date based on fair value estimates in accordance with ASC 805, Business Combinations. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. The Company will implement the guidance as required during the first interim period for the year-ended December 31, 2023; however, the Company does not currently having any pending acquisitions.
NOTE 3 - ACQUISITIONS
Terminated Intended Rogers Corporation Acquisition
On November 1, 2022, the Company announced the termination of the previously announced agreement to acquire all the outstanding shares of Rogers Corporation (“Rogers”) for about $5.2 billion, as DuPont and Rogers were unable to obtain timely clearance from all the required regulators ("Terminated Intended Rogers Corporation Acquisition"). DuPont paid Rogers a termination fee of $162.5 million in accordance with the agreement on November 2, 2022. The termination fee was recognized as a charge in the fourth quarter of 2022 and recorded in the "Acquisition, integration and separation costs" within the Consolidated Statements of Operations.
Laird Performance Materials Acquisition
On July 1, 2021, DuPont completed the acquisition (the "Laird PM Acquisition") of 100% of the ownership interest of Laird Performance Materials (“Laird PM”) from Advent International for aggregate, adjusted cash consideration of approximately $2,404 million. The cash consideration paid included a net upward adjustment of approximately $100 million for acquired cash and net working capital, amongst other items. Laird PM is reported within the Interconnect Solutions business of the Electronics & Industrial segment. In 2021, the Company accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. There were no material updates to the purchase accounting and the purchase price allocation is considered final.
The table below presents the fair values allocated to the assets acquired and liabilities assumed:
| | | | | |
Laird PM Assets Acquired and Liabilities Assumed on July 1, 2021 |
(in millions) |
Fair Value of Assets Acquired | |
Cash and cash equivalents | $ | 92 | |
Accounts and notes receivable | 99 | |
Inventories | 50 | |
Property, plant, and equipment | 104 | |
Other current assets | 10 | |
Goodwill | 1,213 | |
Other intangible assets | 1,160 | |
Deferred income tax assets | 3 | |
Deferred charges and other assets | 26 | |
Total Assets | $ | 2,757 | |
Fair Value of Liabilities Assumed | |
Accounts payable | $ | 75 | |
Income taxes payable | 10 | |
Accrued and other current liabilities | 46 | |
Deferred income tax liabilities | 184 | |
Pension & other post-employment benefits - noncurrent | 10 | |
Other noncurrent obligations | 28 | |
Total Liabilities | $ | 353 | |
Net Assets (Consideration for Laird PM) | $ | 2,404 | |
The significant fair value adjustments included in the allocation of purchase price are discussed below.
Property, plant and equipment
Property, plant and equipment is comprised of machinery and equipment of $67 million, buildings and building improvements of $18 million, leasehold improvements of $10 million, construction in progress of $5 million and land and land improvements of $4 million. The estimated fair value was primarily determined using a market approach for land and certain types of equipment, and a replacement cost approach for the remaining depreciable property, plant and equipment. The market approach for certain types of equipment represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach used for all other depreciable property, plant and equipment measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset.
Goodwill
The excess of the consideration for Laird PM over the net fair value of assets acquired and liabilities assumed resulted in the recognition of $1,213 million of goodwill, which has been assigned to the Electronics & Industrial segment. Goodwill is attributable to Laird PM’s assembled workforce and expected cost synergies to be obtained through procurement efficiencies and the optimization of the combined the Electronics & Industrial segment and Laird PM businesses’ global activities across sales, manufacturing, research & development, and administrative functions.
Other Intangible Assets
Other intangible assets with definite lives include acquired customer-related intangible assets of $840 million, developed technology of $290 million and trademark/tradename of $30 million. Acquired customer-related intangible assets, developed technology, and trademark/tradename have useful lives of 14 years, 8 years, and 3 years, respectively.
The customer-related intangible asset's fair value was determined using the excess earnings method while the developed technology and trademark/tradename fair values were determined utilizing the relief from royalty method. Both the excess earnings method and the relief from royalty method use a discounted cash flows valuation method, which is a form of the income approach. Under the excess earnings method, the estimated cash flows attributable to the customer-related intangible asset are adjusted to exclude the future cash flows that can be attributable to supporting assets, such as trademark/tradenames or fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company's estimates of discounted market participant future cash flows include but are not limited to assumptions related to customer attrition rate, the discount rate, the royalty rates, the economic life, the EBITDA margin, the contributory asset charge, and the projected revenue for the customer-related intangible assets. Under the relief from royalty method, a royalty rate based on observed market royalties is applied to projected revenue supporting the developed technology and trademark/tradename and discounted to present value, using an appropriate discount rate that requires judgment by management. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company's estimates of discounted market participant future cash flows included assumptions related to the discount rate, the projected revenue, the royalty rate, the obsolescence rate, and the economic life for the developed technology, and the discount rate, the projected revenue, the royalty rate, and the economic life for the trademark/tradename. The customer-related intangible asset, developed technology, and trademark/tradename are being amortized on a straight line basis based on the pattern of economic benefits the Company expects to realize.
Total net sales included in the Consolidated Statements of Income for the year ended December 31, 2021 are $263 million. The Company evaluated the disclosure requirements under ASC 805 and determined Laird PM was not considered a material business combination for purposes of disclosing the earnings of Laird PM since the date of acquisition or supplemental pro forma information.
Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, other professional advisory fees and other contractual transaction payments. For the year ended December 31, 2022, these costs were primarily related to costs associated with the Terminated Intended Rogers Acquisition, including the $162.5 million termination fee, the divestiture of the Biomaterials business unit and the prior year acquisition of Laird PM. For the year ended December 31, 2021 these costs were primarily related to the acquisition of Laird PM and the divestitures of the Biomaterials, Clean Technologies and Solamet® business units. Comparatively, for the year ended December 31, 2020 these costs were primarily associated with the post-DWDP Merger integration.
These costs are recorded within "Acquisition, integration and separation costs" within the Consolidated Statements of Operations.
| | | | | | | | | | | |
In millions | 2022 | 2021 | 2020 |
Acquisition, integration and separation costs | $ | 193 | | $ | 81 | | $ | 177 | |
NOTE 4 - DIVESTITURES
Mobility & Materials Divestitures
On November 1, 2022, (the "Transaction Date") DuPont completed the previously announced divestiture of the majority of the historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Divestiture”). The Company had previously entered into a Transaction Agreement (the "Transaction Agreement") with Celanese Corporation ("Celanese") on February 17, 2022, for consideration of $11.0 billion.
Cash received on the Transaction Date, as adjusted for preliminary and other adjustments, was $11.0 billion. These adjustments include approximately $0.5 billion of cash transferred with the M&M Divestiture business for which DuPont was reimbursed at closing resulting in net proceeds of $10.5 billion. The Company recognized a gain of approximately $5,024 million after tax on the M&M Divestiture. The gain is recorded in "Income (loss) from discontinued operations, net of tax" in the Company's Consolidated Statement Operations for the year ended December 31, 2022.
The Company also announced on February 18, 2022, that its Board of Directors approved the divestiture of the Delrin® acetal homopolymer (H-POM) business, subject to entry into a definitive agreement and satisfaction of customary closing conditions, (the Delrin® business together with the M&M Divestiture businesses, the "M&M Businesses”). As of December 31, 2022, the Company anticipates a closing date for the sale of Delrin® by the end of 2023. The Company determined that the M&M Businesses met the criteria to be classified as held for sale and that the sale represents a strategic shift that has a major effect on the Company’s operations and results.
The results of operations of the M&M Businesses are presented as discontinued operations as summarized below for all periods. The M&M Divestiture is reflected through the Transaction Date and the intended Delrin® divestiture is through December 31, 2022:
| | | | | | | | | | | |
| For the Year Ended December 31, |
In millions | 2022 | 2021 | 2020 |
Net sales | $ | 3,532 | | $ | 4,087 | | $ | 3,210 | |
Cost of sales | 2,712 | | 2,832 | | 2,445 | |
Research and development expenses | 46 | | 61 | | 60 | |
Selling, general and administrative expenses | 127 | | 253 | | 209 | |
Amortization of intangibles | 28 | | 159 | | 154 | |
Restructuring and asset related charges - net | — | | 5 | | 31 | |
Goodwill impairment charge | — | | — | | 1,352 | |
Acquisition, integration and separation costs | 555 | | 52 | | — | |
Equity in earnings of nonconsolidated affiliates | (9) | | 9 | | 19 | |
Sundry income (expense) - net | 4 | | 18 | | 35 | |
Income (loss) from discontinued operations before income taxes | 59 | | 752 | | (987) | |
Provision for income taxes on discontinued operations | 128 | | 155 | | 70 | |
(Loss) income from discontinued operations, net of tax | (69) | | 597 | | (1,057) | |
Net (loss) income from discontinued operations attributable to noncontrolling interests | (4) | | 18 | | 12 | |
Gain on sale, net of tax | $ | 5,024 | | $ | — | | $ | — | |
Income (loss) from discontinued operations attributable to DuPont stockholders, net of tax | $ | 4,959 | | $ | 579 | | $ | (1,069) | |
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the M&M Businesses:
| | | | | | | | | | | |
| For the Year Ended December 31, |
In millions | 2022 | 2021 | 2020 |
Depreciation and amortization | $ | 45 | | $ | 283 | | $ | 287 | |
Capital expenditures 1 | $ | 87 | | $ | 65 | | $ | 101 | |
1.Total capital expenditures are presented on a cash basis.
Assets and liabilities held for sale as of December 31, 2022, represent only those related to Delrin®, comparatively, at December 31, 2021, the assets and liabilities are related to the M&M Businesses. The following table summarizes the major classes of assets and liabilities of the M&M Businesses classified as held for sale presented as discontinued operations as of December 31, 2022 and December 31, 2021:
| | | | | | | | |
In millions | December 31, 2022 | December 31, 2021 |
Assets | | |
Cash and cash equivalents | $ | — | | $ | 39 | |
Accounts and notes receivable - net | 75 | | 552 | |
Inventories | 104 | | 776 | |
Other current assets | 6 | | 59 | |
Property, plant and equipment - net | 256 | | 1,213 | |
Goodwill | 405 | | 2,597 | |
Other intangible assets | 338 | | 2,220 | |
Investments and noncurrent receivables | — | | 62 | |
Deferred income tax assets | 36 | | 27 | |
Deferred charges and other assets | 71 | | 119 | |
Total assets of discontinued operations | $ | 1,291 | | $ | 7,664 | |
Liabilities | | |
Accounts payable | $ | 78 | | $ | 510 | |
Income taxes payable | — | | 77 | |
Accrued and other current liabilities | 8 | | 157 | |
Deferred income tax liabilities | 53 | | 515 | |
Pension and other post employment benefits - noncurrent | 5 | | 90 | |
Other noncurrent liabilities | 2 | | 64 | |
Total liabilities of discontinued operations | $ | 146 | | $ | 1,413 | |
During the first quarter of 2022 after meeting the criteria to be classified as held for sale, the Company performed impairment analyses and allocated goodwill to the M&M Divestiture and Delrin® disposal groups and no impairments were identified. Refer to Note 14 for additional information. During each reporting period that the M&M Divestiture and Delrin® disposal groups were classified as held for sale, the Company assessed whether the fair value less cost to sell were less than the carrying value of each disposal group. The Company determined that the fair value less cost to sell of the Delrin® disposal unit was greater than its carrying value at December 31, 2022.
Pursuant to the Transaction Agreement, liabilities and assets related to the M&M Divestiture could not be directly assumed by Celanese and as a result, transferred by way of indemnification between both parties. In addition, pursuant to the Transaction Agreement, DuPont indemnifies Celanese against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the transaction. At December 31, 2022 the indemnified assets are $52 million within "Accounts and notes receivable, net" with the corresponding liabilities of $73 million within "Accrued and other current liabilities and $47 million within "Other noncurrent obligations".
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the N&B Business, and merger of N&B, a DuPont subsidiary formed to hold the N&B Business, with a subsidiary of IFF. The distribution was effected through an exchange offer (the "Exchange Offer") where, on the terms and subject to the conditions of the Exchange Offer, eligible participating DuPont stockholders had the option to tender all, some or none of their shares of common stock, par value $0.01 per share, of DuPont (the “DuPont Common Stock”) for a number of shares of common stock, par value $0.01 per share, of N&B (the “N&B Common Stock”) and which resulted in all shares of N&B Common Stock being distributed to DuPont stockholders that participated in the Exchange Offer. The consummation of the Exchange Offer was followed by the merger of N&B with a wholly owned subsidiary of IFF, with N&B surviving the merger as a wholly owned subsidiary of IFF (the “N&B Merger” and, together with the Exchange Offer, the “N&B Transaction”). The N&B Transaction was subject to IFF shareholder approval, customary regulatory approvals, tax authority rulings including a favorable private letter ruling from the U.S. Internal Revenue Service which confirms the N&B Transaction to be free of U.S. federal income tax, and expiration of the public exchange offer. DuPont does not have an ownership interest in IFF as a result of the N&B Transaction.
In the Exchange Offer, DuPont accepted approximately 197.4 million shares of its common stock in exchange for about 141.7 million shares of N&B Common Stock. As a result, DuPont reduced its common stock outstanding by 197.4 million shares of
DuPont Common Stock. In the N&B Merger, each share of N&B Common Stock was automatically converted into the right to receive one share of IFF common stock, par value $0.125 per share, based on the terms of the N&B Merger Agreement.
The results of operations of N&B are presented as discontinued operations as summarized below:
| | | | | | | | |
In millions | 2021 | 2020 |
Net sales | $ | 507 | | $ | 6,059 | |
Cost of sales | 354 | | 4,014 | |
Research and development expenses | 21 | | 235 | |
Selling, general and administrative expenses | 47 | | 534 | |
Amortization of intangibles | 38 | | 1,423 | |
Restructuring and asset related charges - net | 1 | | 4 | |
Integration and separation costs | 172 | | 417 | |
Equity in earnings of nonconsolidated affiliates | — | | 4 | |
Sundry income (expense) - net | 8 | | 8 | |
Interest expense | 13 | | 95 | |
Loss from discontinued operations before income taxes | (131) | | (651) | |
(Benefit from) provision for income taxes on discontinued operations | (21) | | (183) | |
Loss from discontinued operations, net of tax | (110) | | (468) | |
Income from discontinued operations attributable to noncontrolling interests, net of tax | — | | — | |
Non-taxable gain on split-off | 4,920 | | — | |
Income (loss) from discontinued operations attributable to DuPont stockholders, net of tax | $ | 4,810 | | $ | (468) | |
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to N&B:
| | | | | | | | |
In millions | 2021 | 2020 |
Depreciation and amortization | $ | 63 | | $ | 1,721 | |
Capital expenditures | $ | 27 | | $ | 234 | |
| | |
In connection with and in accordance with the terms of the N&B Transaction, prior to consummation of the Exchange Offer and the N&B Merger, DuPont received a one-time cash payment of approximately $7.3 billion, (the "Special Cash Payment"). The special cash payment was partially funded by an offering of $6.25 billion of senior unsecured notes (the “N&B Notes Offering”). The net proceeds of approximately $6.2 billion from the N&B Notes Offering were deposited into an escrow account and at December 31, 2020 are reflected as restricted cash in the Company’s Consolidated Balance Sheets. In order to fund the remainder of the Special Cash Payment, on February 1, 2021, N&B borrowed $1.25 billion under a senior unsecured term loan agreement (the "N&B Term Loan"). The obligations and liabilities associated with the N&B Notes Offering and N&B Term Loan were separated from the Company on February 1, 2021 upon consummation of the N&B Transaction.
N&B Transaction Agreements
In connection with the N&B Transaction, effective December 15, 2019, the Company entered into the following agreements: N&B Separation and Distribution Agreement, N&B Merger Agreement, and N&B Employee Matters Agreement. In connection with the closing of the N&B Transaction, and effective February 1, 2021, the Company entered into the following agreements: N&B IP Cross-License Agreement and N&B Tax Matters Agreement.
Other Discontinued Operations Activity
The Company recorded income from discontinued operations, net of tax of $4,856 million and $5,308 million for the years ended December 31, 2022 and 2021, respectively, and a loss from discontinued operations of $1,574 million for the year ended December 31, 2020.
Discontinued operations activity consists of the following:
| | | | | | | | | | | |
| For the Year Ended December 31, |
In millions | 2022 | 2021 | 2020 |
M&M Divestitures | $ | 4,959 | | $ | 579 | | $ | (1,069) | |
N&B Transaction | — | | 4,810 | | (468) | |
Other 1 | (103) | | (81) | | (37) | |
Income (loss) from discontinued operations, net of tax | $ | 4,856 | | $ | 5,308 | | $ | (1,574) | |
1.Primarily related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, EIDP and the Company. For additional information on these matters, refer to Note 16.
Biomaterials
In May 2022, the Company completed the sale of its Biomaterials business unit, which included the Company's equity method investment in DuPont Tate & Lyle Bio Products, to the Huafon Group. Total consideration received related to the sale was approximately $240 million. For the year ended December 31, 2022, a pre-tax gain of $26 million ($21 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations. The results of operations of the Biomaterials business unit are reported in Corporate & Other.
The following table summarizes the carrying value of the major assets and liabilities of the Biomaterials business unit as of December 31, 2021:
| | | | | |
In millions | December 31, 2021 |
Assets | |
Accounts and notes receivable - net | $ | 27 | |
Inventories | 48 | |
Investments and noncurrent receivables | 158 | |
Property, plant and equipment - net | 12 | |
Assets held for sale | $ | 245 | |
Liabilities | |
Accounts payable | $ | 21 | |
Accrued and other current liabilities | 3 | |
Other noncurrent obligations | 1 |
Liabilities related to assets held for sale | $ | 25 | |
Sale of Clean Technologies
On December 31, 2021, the Company completed the sale of its Clean Technologies business unit, which was part of Corporate & Other. Total consideration related to the sale of the business is approximately $510 million, with cash proceeds of about $500 million reflecting adjustments for customary closing costs as defined within the purchase agreement. For the year ended December 31, 2021, a pre-tax loss of $3 million ($39 million loss net of tax, primarily driven by nondeductible goodwill) on the disposition was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
Sale of Solamet®
On June 30, 2021, the Company completed the sale of its Solamet® business unit, which was part of Corporate & Other. Total consideration received related to the sale of the business was approximately $190 million. For the year ended December 31, 2021, a pre-tax gain of $140 million ($105 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
Sale of TCS/HSC Disposal Group
In the third quarter of 2020, the Company completed the sale of its trichlorosilane business (“TCS Business”) along with its equity ownership interest in DC HSC Holdings LLC and Hemlock Semiconductor L.L.C. (the "HSC Group,” and together with the TCS Business, the “TCS/HSC Disposal Group” and the sale of the TCS/HSC Disposal Group, the “TCS/HSC Disposal”) to the HSC Group, both of which were part of the businesses reflected in Corporate & Other. In connection with the TCS/HSC Disposal, the Company received $550 million in cash at closing, subject to certain claw-back provisions. The Company also received approximately $58 million in both the third quarter of 2022 and 2021 and will receive an additional $59 million in the next year associated with the settlement of an existing supply agreement dispute with the HSC Group. The TCS/HSC Disposal resulted in a net pre-tax benefit of $396 million ($236 million net of tax), including the settlement of the supply agreement
dispute and after allocation of goodwill to the TCS Business. The net pre-tax benefit is recorded in “Sundry income (expense) – net” in the Company’s Consolidated Statements of Operations for the year ended December 31, 2020.
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 & Industrial 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 Consolidated Statements of Operations for the year ended December 31, 2020.
NOTE 5 - 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.
Revenue from product sales is recognized when the customer obtains control of the Company’s product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing depending on business and geographic region. The Company elected the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between payment and transfer of the goods will be one year or less. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company elected to use the practical expedient to expense cash and non-cash sales incentives as the amortization period for the costs to obtain the contract would have been one year or less.
The transaction price includes estimates for reductions in revenue from customer rebates and rights of return on product sales. These amounts are estimated based upon the most likely amount of consideration to which the customer will be entitled. All estimates are based on historical experience, anticipated performance, and the Company’s best judgment at the time to the extent it is probable, that a significant reversal of revenue recognized will not occur. All estimates for variable consideration are reassessed periodically.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.
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. Refer to Note 23 for the breakout of net sales by geographic region.
| | | | | | | | | | | |
Net Trade Revenue by Segment and Business or Major Product Line | 2022 | 2021 | 2020 |
In millions |
Industrial Solutions | $ | 1,954 | | $ | 1,890 | | $ | 1,617 | |
Interconnect Solutions | 1,742 | | 1,617 | | 1,280 | |
Semiconductor Technologies | 2,221 | | 2,047 | | 1,777 | |
Electronics & Industrial | $ | 5,917 | | $ | 5,554 | | $ | 4,674 | |
Safety Solutions | $ | 2,649 | | $ | 2,567 | | $ | 2,291 | |
Shelter Solutions | 1,815 | | 1,615 | | 1,426 | |
Water Solutions | 1,493 | | 1,370 | | 1,276 | |
Water & Protection | $ | 5,957 | | $ | 5,552 | | $ | 4,993 | |
Retained Businesses 1 | $ | 1,067 | | $ | 958 | | $ | 795 | |
Other 2 | 76 | | 502 | | 666 | |
Corporate & Other | $ | 1,143 | | $ | 1,460 | | $ | 1,461 | |
Total | $ | 13,017 | | $ | 12,566 | | $ | 11,128 | |
1.Net sales reflected in Retained Businesses includes the Auto Adhesives & Fluids, MultibaseTM and Tedlar® businesses.
2.Net sales reflected in Other include activity of certain divested businesses including Biomaterials, Clean Technologies and Solamet®.
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 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 for the years ended December 31, 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was insignificant. The Company did not recognize any asset impairment charges related to contract assets during the period.
| | | | | | | | |
Contract Balances | December 31, 2022 | December 31, 2021 |
In millions |
Accounts receivable - trade 1 | $ | 1,593 | | $ | 1,643 | |
| | |
Deferred revenue - current 2 | $ | 11 | | $ | 25 | |
1.Included in "Accounts and notes receivable - net" in the Consolidated Balance Sheets.
2.Included in "Accrued and other current liabilities" in the Consolidated Balance Sheets. Noncurrent deferred revenue balances in the current and comparative periods were not material.
NOTE 6 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
The Company records restructuring liabilities that represent nonrecurring charges in connection with simplifying certain organizational structures and operations, including operations related to transformational projects such as divestitures and acquisitions. Charges for restructuring programs and asset related charges, which includes asset impairments, were $155 million, $50 million and $814 million for the years ended December 31, 2022, 2021 and 2020, respectively. These charges were recorded in "Restructuring and asset related charges - net" in the Consolidated Statements of Operations. The total liability related to restructuring programs was $67 million at December 31, 2022 and $43 million at December 31, 2021, recorded in "Accrued and other current liabilities" in the Consolidated Balance Sheets. Restructuring activity consists of the following programs:
2022 Restructuring Program
In October 2022, the Company approved targeted restructuring actions to capture near-term cost reductions and to further simplify certain organizational structures following the M&M Divestitures (the "2022 Restructuring Program"). For the year ended December 31, 2022, DuPont recorded a pre-tax charge related to the 2022 Restructuring Program in the amount of $61 million, recognized in "Restructuring and asset related charges - net" in the Company's Consolidated Statements of Operations, comprised of $61 million of severance and related benefit costs. At December 31, 2022, total liabilities related to the 2022 Restructuring Program were $57 million for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet. The Company expects the program to be substantially complete by the end of 2023.
The following table summarizes the charges incurred by segment related to the 2022 Restructuring Program:
| | | | | |
2022 Restructuring Program Charges by Segment | 2022 |
In millions |
Electronics & Industrial | $ | 23 | |
Water & Protection | 16 | |
Corporate & Other | 22 | |
Total | $ | 61 | |
2021 Restructuring Actions
In October 2021, the Company approved targeted restructuring actions to capture near term cost reductions (the "2021 Restructuring Actions"). The Company recorded pre-tax restructuring charges of $46 million inception-to-date, consisting of severance and related benefit costs of $26 million and asset related charges of $20 million.
The following table summarizes the charges incurred by segment related to the 2021 Restructuring Actions:
| | | | | | | | |
2021 Restructuring Actions Charges by Segment | 2022 | 2021 |
In millions |
Electronics & Industrial | $ | 2 | | $ | 5 | |
Water & Protection | 1 | | 32 | |
Corporate & Other | (3) | | 9 | |
Total | $ | — | | $ | 46 | |
At December 31, 2022 and 2021, total liabilities related to the 2021 Restructuring Actions were $7 million and $25 million, respectively, for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet. Actions related to the 2021 Restructuring Program are substantially complete.
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 N&B Transaction (the "2020 Restructuring Program"). The Company recorded pre-tax restructuring charges of $158 million inception-to-date, consisting of severance and related benefit costs of $106 million and asset related charges of $52 million.
| | | | | | | | | | | | |
2020 Restructuring Program Charges by Segment | 2022 | 2021 | 2020 | |
In millions | |
Electronics & Industrial | $ | (1) | | $ | 3 | | $ | 10 | | |
Water & Protection | — | | — | | 57 | | |
Corporate & Other | 1 | | 5 | | 83 | | |
Total | $ | — | | $ | 8 | | $ | 150 | | |
Total liabilities related to the 2020 Restructuring Program were $3 million and $11 million at December 31, 2022 and 2021, respectively, recorded in "Accrued and other current liabilities" in the Consolidated Balance Sheets. Actions related to the 2020 Restructuring Program are substantially complete.
Equity Method Investment Impairment Related Charges
In connection with the M&M Divestitures, in the first quarter of 2022 a portion of an equity method investment was reclassified to “Assets of discontinued operations” within the Consolidated Balance Sheet. The reclassification served as a triggering event requiring the Company to perform an impairment analysis on the retained portion of the equity method investment held within “Investments and noncurrent receivables” on the Consolidated Balance Sheet. The fair value of the retained equity method investment was estimated using a discounted cash flow model (a form of the income approach). The Company's assumptions in estimating fair value utilize Level 3 inputs and include projected revenue, gross margins, EBITDA margins, the weighted average costs of capital, and terminal growth rates. The Company determined the fair value of the retained equity method investment was below the carrying value and had no expectation the fair value would recover in the short-term due to the current economic environment. As a result, the Company concluded the impairment was other-than-temporary and, in March 2022, recorded a pre-tax impairment charge of $94 million ($65 million net of tax) in “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2022 related to the Electronics & Industrial segment. No impairment was required to be recorded for the portion of the equity method investment included within “Assets of discontinued operations.”
Asset Impairments
In the third quarter of 2020, the TCS/HSC Disposal, as well as further softening conditions in the aerospace markets, gave rise to fair value indicators and, thus, served as triggering events requiring the Company to perform a recoverability assessment related to asset groups within its Photovoltaic and Advanced Materials (“PVAM”) business unit. The Company first 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 both an income approach and a market approach utilizing Level 3 unobservable inputs. As a result, the Company recognized a pre-tax impairment charge of $318 million ($242 million net of tax) in Corporate & Other recorded within “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2020 with the charge impacting definite-lived intangible assets and property, plant, and equipment.
Additionally, the Company recorded a pre-tax asset impairment charge of $52 million ($39 million net of tax) in the third quarter of 2020 related to indefinite-lived intangible assets reflected in Corporate & Other which were deemed no longer recoverable as a result of the held for sale classification (refer to Note 4 for additional information). The charge was recorded within “Restructuring and asset related charges – net” in the Consolidated Statements of Operations for the year ended December 31, 2020.
In the first quarter of 2020, expectations of proceeds related to certain potential divestitures related to businesses held within Corporate & Other 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 pre-tax impairment charge of $270 million ($206 million net of tax) recorded within “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2020 with the charge impacting definite-lived intangible assets and property, plant, and equipment.
NOTE 7 - SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | |
Sundry Income (Expense) - Net | | |
In millions | 2022 | 2021 | 2020 | | |
Non-operating pension and other post-employment benefit ("OPEB") costs | $ | 28 | | $ | 30 | | $ | 12 | | | |
Interest income | 50 | | 12 | | 18 | | | |
Net gain on divestiture and sales of other assets and investments 1, 2, 3 | 78 | | 171 | | 632 | | | |
Foreign exchange gains (losses), net | 15 | | (53) | | (54) | | | |
Miscellaneous income (expenses) - net 4, 5, 6 | 20 | | (15) | | 24 | | | |
Sundry income (expense) - net | $ | 191 | | $ | 145 | | $ | 632 | | | |
1.The year ended December 31, 2022 primarily reflects income of $26 million related to the gain on sale of the Biomaterials business unit and income of $37 million related to the sale of a land use right within the Water & Protection segment.
2.The year ended December 31, 2021 primarily reflects income of $140 million related to the gain on sale of the Solamet® business unit and $28 million related to the gain on sale of assets within the Electronics & Industrial segment.
3.The year ended December 31, 2020 includes a net benefit of $396 million related to the TCS/HSC Disposal, including the settlement of a supply agreement dispute, within Corporate & Other. It also includes income of $197 million related to the gain on sale of the Compound Semiconductor Solutions business unit within the Electronics & Industrial segment and $30 million of income related to milestone achievement of a prior year sale of assets within the Electronics & Industrial segment. Refer to Note 4 for further information.
4.The year ended December 31, 2022 includes $13 million related to government grants.
5.The year ended December 31, 2021 includes an impairment charge of approximately $15 million related to an asset sale.
6.The year ended December 31, 2020 includes $17 million related to income from a tax indemnification.
Cash, Cash Equivalents and Restricted Cash
In connection with the cost sharing arrangement entered into as part of the MOU, the Company is contractually obligated to make deposits into an escrow account to address potential future PFAS costs. At December 31, 2022 and 2021, the Company had restricted cash of $103 million and $53 million, respectively, included within non-current "Restricted cash and cash equivalents" in the Consolidated Balance Sheets, the majority of which is attributable to the cost sharing arrangement. Additional information regarding the MOU and the related escrow account can be found in Note 16.
Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the Consolidated Balance Sheets were $951 million at December 31, 2022 and $1,040 million at December 31, 2021. Accrued payroll, which is a component of "Accrued and other current liabilities" was $291 million at December 31, 2022 and $436 million at December 31, 2021. No other component of "Accrued and other current liabilities" was more than five percent of total current liabilities at December 31, 2022 and 2021.
NOTE 8 - INCOME TAXES
| | | | | | | | | | | |
Geographic Allocation of Income (Loss) and Provision for (Benefit from) Income Taxes | 2022 | 2021 | 2020 |
(In millions) |
(Loss) income from continuing operations before income taxes | | | |
Domestic | $ | (308) | | $ | (293) | | $ | (1,775) | |
Foreign | 1,756 | | 1,737 | | 516 | |
Income (loss) from continuing operations before income taxes | $ | 1,448 | | $ | 1,444 | | $ | (1,259) | |
Current tax expense | | | |
Federal | $ | 211 | | $ | 73 | | $ | 111 | |
State and local | 7 | | 17 | | 3 | |
Foreign | 373 | | 406 | | 244 | |
Total current tax expense | $ | 591 | | $ | 496 | | $ | 358 | |
Deferred tax (benefit) expense | | | |
Federal | $ | (191) | | $ | (105) | | $ | (202) | |
State and local | (16) | | (79) | | (45) | |
Foreign | 3 | | (75) | | (21) | |
Total deferred tax benefit | $ | (204) | | $ | (259) | | $ | (268) | |
Provision for (benefit from) income taxes on continuing operations | 387 | | 237 | | 90 | |
Net income (loss) from continuing operations | $ | 1,061 | | $ | 1,207 | | $ | (1,349) | |
Pre-tax loss from continuing operations for the year ended December 31, 2020, includes non-deductible, non-cash goodwill impairment charges of $1,862 million impacting the businesses held in the Corporate & Other and Electronics & Industrials segments and a non-deductible goodwill allocation of $247 million in connection with the TCS/HSC Disposal. Of these amounts, $1,596 million related to the U.S and the remaining $513 million related to foreign operations. See Note 14 for additional information.
| | | | | | | | | | | |
Reconciliation to U.S. Statutory Rate | 2022 | 2021 | 2020 |
Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
Equity earning effect | 0.2 | | (0.5) | | 0.2 | |
Foreign income taxed at rates other than the statutory U.S. federal income tax rate | (3.9) | | (7.8) | | 4.7 | |
U.S. tax effect of foreign earnings and dividends | 5.0 | | 4.4 | | (5.7) | |
Unrecognized tax benefits | 1.0 | | 0.6 | | (2.4) | |
Acquisitions, divestitures and ownership restructuring activities 1 | 2.5 | | 6.3 | | 2.5 | |
Exchange gains/losses 2 | 0.4 | | (2.2) | | (0.2) | |
State and local income taxes | 0.2 | | (3.3) | | 2.9 | |
Change in valuation allowance | — | | (0.4) | | — | |
Goodwill impairments | — | | — | | (29.8) | |
Stock-based compensation | (0.2) | | 0.1 | | (0.6) | |
Other - net 3 | 0.5 | | (1.8) | | 0.3 | |
Effective tax rate | 26.7 | % | 16.4 | % | (7.1) | % |
1.Includes a net tax expense of $22 million and net tax benefits of $148 million related to internal entity restructuring for the years ended December 31, 2021 and 2020, respectively.
2. Principally reflects the impact of foreign exchange gains and losses on net monetary assets for which no corresponding tax impact is realized.
3. Includes a tax benefit of $28 million, $30 million and $5 million related to the foreign derived intangible income deduction for the years ended December 31, 2022, 2021 and 2020 respectively.
| | | | | | | | |
Deferred Tax Balances at December 31, | 2022 | 2021 |
(In millions) |
Deferred tax assets: | | |
Tax loss and credit carryforwards 1 | $ | 768 | | $ | 886 | |
Lease liability | 101 | | 99 | |
Pension and postretirement benefit obligations | 55 | | 89 | |
Unrealized exchange gains (losses), net | 16 | | 17 | |
Other accruals and reserves | 139 | | 121 | |
Research and development | 197 | | — | |
Inventory | 18 | | 11 | |
Other – net | 146 | | 113 | |
Gross deferred tax assets | $ | 1,440 | | $ | 1,336 | |
Valuation allowances 1 | (703) | | (700) | |
Total deferred tax assets | $ | 737 | | $ | 636 | |
| | |
Deferred tax liabilities: | | |
Investments | (290) | | (308) | |
Operating lease asset | (101) | | (99) | |
Property | (272) | | (269) | |
Intangibles | (1,123) | | (1,303) | |
Total deferred tax liabilities | $ | (1,786) | | $ | (1,979) | |
Total net deferred tax liability | $ | (1,049) | | $ | (1,343) | |
1.Primarily related to recorded tax benefits and the non-realizability of tax loss and carryforwards from operations in the United States, Luxembourg and Asia Pacific.
Included in the 2022 and 2021 deferred tax asset and liability amounts above is $370 million and $372 million, respectively, of a net deferred tax liability related to the Company’s investment in DuPont Specialty Products USA, LLC, which is a partnership for U.S. federal income tax purposes. The Company and its subsidiaries own in aggregate 100% of DuPont Specialty Products USA, LLC and the assets and liabilities of DuPont Specialty Products USA, LLC are included in the Consolidated Financial Statements of the Company.
| | | | | | | | |
Operating Loss and Tax Credit Carryforwards | Deferred Tax Asset |
(In millions) | 2022 | 2021 |
Operating loss carryforwards | | |
Expire within 5 years | $ | 34 | | $ | 94 | |
Expire after 5 years or indefinite expiration | 604 | | 683 | |
Total operating loss carryforwards | $ | 638 | | $ | 777 | |
Tax credit carryforwards | | |
Expire within 5 years | $ | 26 | | $ | 59 | |
Expire after 5 years or indefinite expiration | 104 | | 50 | |
Total tax credit carryforwards | $ | 130 | | $ | 109 | |
Total Operating Loss and Tax Credit Carryforwards | $ | 768 | | $ | 886 | |
| | | | | | | | | | | |
Total Gross Unrecognized Tax Benefits | 2022 | 2021 | 2020 |
(In millions) |
Total unrecognized tax benefits at January 1, | $ | 351 | | $ | 432 | | $ | 368 | |
Decreases related to positions taken on items from prior years | (4) | | (18) | | (1) | |
Increases related to positions taken on items from prior years | 4 | | 5 | | 5 | |
Increases related to positions taken in the current year | 164 | | 11 | | 39 | |
Settlement of uncertain tax positions with tax authorities | (10) | | (1) | | (3) | |
Exchange (gain) loss | (9) | | (14) | | 24 | |
Divestiture of N&B | — | | (64) | | — | |
Divestiture of M&M | (26) | | — | | — | |
Total unrecognized tax benefits at December 31, 1 | $ | 470 | | $ | 351 | | $ | 432 | |
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate of continuing operations | $ | 338 | | $ | 303 | | $ | 314 | |
Total amount of interest and penalties (benefit) recognized in "Provision for (benefit from) income taxes on continuing operations" | $ | 3 | | $ | (3) | | $ | 4 | |
Total accrual for interest and penalties associated with unrecognized tax benefits | $ | 16 | | $ | 13 | | $ | 17 | |
1.Total unrecognized tax benefits includes $128 million, $46 million and $56 million of benefits related to discontinued operations at December 31, 2022, 2021 and 2020.
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.
Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:
| | | | | |
Tax Years Subject to Examination by Major Tax Jurisdiction at December 31, 2022 | Earliest Open Year |
Jurisdiction |
Brazil | 2018 |
Canada | 2017 |
China | 2012 |
Denmark | 2015 |
Germany | 2015 |
Japan | 2015 |
The Netherlands | 2017 |
Switzerland | 2018 |
United States: | |
Federal income tax 1 | 2012 |
State and local income tax | 2011 |
1. The U.S. Federal income tax jurisdiction is open back to 2012 with respect to EIDP pursuant to the DWDP Tax Matters Agreement.
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $5,969 million as of December 31, 2022. In addition to the U.S. federal tax imposed by The Act on all accumulated unrepatriated earnings through December 31, 2017, the Act introduced additional U.S. federal tax on foreign earnings, effective as of January 1, 2018. The undistributed foreign earnings at December 31, 2022 may still be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings due to the complexity of the hypothetical calculation.
M&M Divestitures
The Company recorded a net tax expense of $127 million for the year ended December 31, 2022 in connection with certain internal restructurings. These restructurings involve both legal entities within the M&M Businesses and legal entities retained by DuPont after the close of the M&M Divestiture to Celanese, and in certain instances relied upon legal entity valuations. The aforementioned net tax expense is included in “Income from discontinued operations, net of tax” in the Consolidated Statements of Operations. See Note 4 for additional information on the M&M Divestitures.
Laird PM Acquisition
In connection with the integration of Laird PM, the Company completed certain internal restructurings that were determined to be tax free under the applicable sections of the Internal Revenue Code. If the aforementioned transactions were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the Company could be subject to significant tax liability.
N&B Transaction
Certain internal distributions and reorganizations that occurred during 2021 and 2020 in preparation for the N&B Transaction and the external distribution in 2021 qualified as tax-free transactions under the applicable sections of the Internal Revenue Code. If the aforementioned transactions were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the Company could be subject to significant tax liability. Under the N&B Tax Matters Agreement, the Company would generally be allocated such liability and not be indemnified, unless certain non qualifying actions are undertaken by N&B or IFF. To the extent that the Company is responsible for any such liability, there could be a material adverse impact on the Company's business, financial condition, results of operations and cash flows in future reporting periods.
DWDP
For periods between the DWDP Merger and the DWDP 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 DWDP 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 DWDP Tax Matters Agreement.
NOTE 9 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | |
Net Income for Earnings Per Share Calculations - Basic & Diluted In millions | 2022 | 2021 | 2020 |
Income (loss) from continuing operations, net of tax | $ | 1,061 | | $ | 1,207 | | $ | (1,349) | |
Net income from continuing operations attributable to noncontrolling interests | 53 | | 30 | | 16 | |
Income (loss) from continuing operations attributable to common stockholders | $ | 1,008 | | $ | 1,177 | | $ | (1,365) | |
Income (loss) from discontinued operations, net of tax | 4,856 | | 5,308 | | (1,574) | |
Net income from discontinued operations attributable to noncontrolling interests | (4) | | 18 | | 12 | |
Income (loss) from discontinued operations attributable to common stockholders | 4,860 | | 5,290 | | (1,586) | |
Net income (loss) available to common stockholders | $ | 5,868 | | $ | 6,467 | | $ | (2,951) | |
| | | | | | | | | | | |
Earnings Per Share Calculations - Basic Dollars per share | 2022 | 2021 | 2020 |
Earnings (loss) from continuing operations attributable to common stockholders | $ | 2.02 | | $ | 2.17 | | $ | (1.86) | |
Earnings (loss) from discontinued operations, net of tax | 9.75 | | 9.75 | | (2.16) | |
Earnings (loss) available to common stockholders 1 | $ | 11.77 | | $ | 11.92 | | $ | (4.01) | |
| | | | | | | | | | | |
Earnings Per Share Calculations - Diluted Dollars per share | 2022 | 2021 | 2020 |
Earnings (loss) from continuing operations attributable to common stockholders | $ | 2.02 | | $ | 2.16 | | $ | (1.86) | |
Earnings (loss) from discontinued operations, net of tax | 9.73 | | 9.72 | | (2.16) | |
Earnings (loss) available to common stockholders 1 | $ | 11.75 | | $ | 11.89 | | $ | (4.01) | |
| | | | | | | | | | | |
Share Count Information Shares in Millions | 2022 | 2021 | 2020 |
Weighted-average common shares - basic | 498.5 | | 542.7 | | 735.5 | |
Plus dilutive effect of equity compensation plans | 0.9 | | 1.5 | | — | |
Weighted-average common shares - diluted | 499.4 | | 544.2 | | 735.5 | |
Stock options, restricted stock units, and performance-based restricted stock units excluded from EPS calculations 2 | 4.1 | | 2.8 | | 5.7 | |
1. Earnings per share amounts are computed independently for income from continuing operations, income from discontinued operations and net income attributable to common stockholders. As a result, the per share amounts from continuing operations and discontinued operations may not equal the total per share amounts for net income attributable to common stockholders.
2. These outstanding options to purchase shares of common stock, restricted stock units and performance based restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.
NOTE 10 - ACCOUNTS AND NOTES RECEIVABLE - NET
| | | | | | | | |
In millions | December 31, 2022 | December 31, 2021 |
Accounts receivable – trade 1 | $ | 1,567 | | $ | 1,612 | |
| | |
Income tax receivable | 235 | | 77 | |
Other 2 | 716 | | 470 | |
Total accounts and notes receivable - net | $ | 2,518 | | $ | 2,159 | |
1.Accounts receivable – trade is net of allowances of $38 million at December 31, 2022 and $28 million at December 31, 2021. Allowances are equal to the estimated uncollectible amounts and current expected credit loss. That estimate is based on historical collection experience, current economic and market conditions, and review of the current status of customers' accounts.
2.Other includes receivables in relation to value added tax, indemnification assets, general sales tax and other taxes, and other receivables. No individual group represents more than ten percent of total receivables.
Accounts receivable are carried at amounts that approximate fair value.
NOTE 11 - INVENTORIES
| | | | | | | | |
In millions | December 31, 2022 | December 31, 2021 |
Finished goods | $ | 1,299 | | $ | 1,201 | |
Work in process | 522 | | 446 | |
Raw materials | 388 | | 323 | |
Supplies | 120 | | 116 | |
Total inventories | $ | 2,329 | | $ | 2,086 | |
NOTE 12 - PROPERTY, PLANT, AND EQUIPMENT
| | | | | | | | | | | | | | | | | |
| Estimated Useful Lives (Years) | December 31, 2022 | December 31, 2021 |
In millions |
Land and land improvements | 1 | - | 25 | $ | 432 | | $ | 440 | |
Buildings | 1 | - | 50 | 1,973 | | 1,954 | |
Machinery, equipment, and other | 1 | - | 25 | 6,719 | | 6,467 | |
Construction in progress | | | | 1,055 | | 1,034 | |
Total property, plant and equipment | | | | $ | 10,179 | | $ | 9,895 | |
Total accumulated depreciation | | | | $ | 4,448 | | $ | 4,142 | |
Total property, plant and equipment - net | | | | $ | 5,731 | | $ | 5,753 | |
| | | | | | | | | | | |
In millions | 2022 | 2021 | 2020 |
Depreciation expense | $ | 545 | | $ | 546 | | $ | 544 | |
NOTE 13 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates") are recorded in "Investments and other noncurrent receivables" in the Consolidated Balance Sheets. The Company's net investment in nonconsolidated affiliates at December 31, 2022 and December 31, 2021 is $686 million and $818 million, respectively. In the first quarter of 2022, the Company recorded an other-than-temporary impairment on an equity method investment. See Note 6 for more information.
The Company's dividends received from nonconsolidated affiliates is shown in the following table:
| | | | | | | | | | | | | | |
Dividends Received from Nonconsolidated Affiliates | 2022 | 2021 | 2020 |
In millions |
Dividends from nonconsolidated affiliates | $ | 103 | | $ | 98 | | $ | 82 | |
The Company had an ownership interest in six nonconsolidated affiliates, with ownership interest (direct and indirect) of 50 percent at December 31, 2022.
Sales to nonconsolidated affiliates represented less than 2 percent of total net sales for the years ended December 31, 2022, 2021 and 2020. Purchases from nonconsolidated affiliates represented less than 3 percent of “Cost of sales” for the year ended December 31, 2022 and less than 4 percent and approximately 3 percent for the years ended December 31, 2021 and 2020, respectively.
HSC Group
In reference to the paragraph above, sales to nonconsolidated affiliates in 2020 were 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 Corporate & Other. In the third quarter of 2020, the Company sold its equity interest in the HSC group. See Note 4 for further discussion. The Company's equity earnings from the HSC Group is shown in the table below:
| | | | | | | | |
Equity Earnings in the HSC Group | 2020 |
In millions |
Equity in earnings | $ | 108 | |
NOTE 14 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021.
| | | | | | | | | | | | | | |
| Electronics & Industrial | Water & Protection | Corporate & Other | Total |
In millions |
Balance at December 31, 2020 | $ | 8,458 | | $ | 6,969 | | $ | 613 | | $ | 16,040 | |
Acquisitions 1 | 1,213 | | — | | — | | 1,213 | |
| | | | |
| | | | |
Currency Translation Adjustment | (88) | | (168) | | (16) | | (272) | |
| | | | |
Balance at December 31, 2021 | $ | 9,583 | | $ | 6,801 | | $ | 597 | | $ | 16,981 | |
Currency Translation Adjustment | (186) | | (145) | | (5) | | (336) | |
Other | — | | — | | 18 | | 18 | |
Balance at December 31, 2022 | $ | 9,397 | | $ | 6,656 | | $ | 610 | | $ | 16,663 | |
1.On July 1, 2021, DuPont completed the acquisition of Laird PM, which is included in the Electronics & Industrial segment. See Note 3 for additional information.
The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below carrying value. As a result of the related acquisition method of accounting in connection with the DWDP Merger, EIDP’s assets and liabilities were measured at fair value resulting in increases to the Company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the Company’s reporting units and assets, and therefore could result in an impairment. The Company’s significant assumptions in these analyses include projected revenue, gross margins, selling, administrative, research and development expenses (SARD), capital expenditures, the weighted average cost of capital, the terminal growth rates, and the forecasted tax rate for the income approach and projected EBITDA and derived multiples from comparable market transactions for the market approach.
The Company's estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. Should future cash flows differ materially from the Company's estimate, or should there be a future market downturn, the Company may be required to perform additional impairment analyses that could result in a non-cash goodwill impairment charge.
In the fourth quarter of 2022, the Company performed qualitative testing on five of its reporting units and performed quantitative testing on two of its reporting units and determined that no impairments existed. The qualitative evaluation is an assessment of factors, including reporting unit or asset specific operating results and cost factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not (more than 50%) that the fair value of a reporting unit or asset is less than the respective carrying amount, including goodwill. The results of the qualitative assessments indicated that it is not more likely than not that the fair values of the reporting units were less than their carrying values. For the reporting units tested by applying the quantitative assessment, the Company used a combination of discounted cash flow models (a form of the income approach) and the Guideline Public Company Method (a form of the market approach). No impairments were identified. The estimated fair value of one of the reporting units within Water & Protection exceeded its carrying value by approximately 10%. As of the date of the quantitative assessment, the carrying amount of goodwill within this reporting unit was $5.4 billion. Given this level of fair value, the reporting unit is sensitive to changes in the significant assumptions used in the analysis. If the reporting unit does not perform to expected levels or there are adverse changes in certain macroeconomic factors, the related goodwill may be at risk for impairment in the future.
During the first quarter of 2022, in conjunction with the announcement of the M&M Divestitures, the Company realigned the Retained Businesses, previously within the historic Mobility & Materials segment, to Corporate & Other (the "2022 Realignment"). The announcement of the M&M Divestitures and 2022 Realignment served as triggering events requiring the Company to perform impairment analyses related to goodwill carried by the impacted reporting units as of March 1, 2022. Goodwill impairment analyses were performed for reporting units impacted in the historic Mobility & Materials segment prior to the realignment, and no impairments were identified. As part of the 2022 Realignment, the Company assessed and re-defined certain reporting units effective March 1, 2022, including a reallocation of goodwill on a relative fair value basis, as applicable, to the newly identified reporting units and M&M Divestitures disposal groups. Goodwill impairment analyses were performed for the new reporting units reported within Corporate & Other and no impairments were identified. The fair values of the reporting units and the M&M Divestitures disposal groups were estimated using a combination of a discounted cash flow model and/or market approach.
During the first quarter of 2021, the Company realigned segments and as a result assessed and re-defined certain reporting units, including reallocation of goodwill on a relative fair value basis, as applicable, to reporting units impacted. Goodwill impairment analyses were then performed for reporting units impacted, and no impairments were identified. The fair value of each reporting unit tested was estimated using a combination of a discounted cash flow model and market approach.
Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | December 31, 2021 |
In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
Intangible assets with finite lives: | | | | | | |
Developed technology | $ | 1,955 | | $ | (913) | | $ | 1,042 | | $ | 2,374 | | $ | (1,124) | | $ | 1,250 | |
Trademarks/tradenames | 906 | | (349) | | 557 | | 1,125 | | (500) | | 625 | |
Customer-related | 5,454 | | (2,389) | | 3,065 | | 5,806 | | (2,296) | | 3,510 | |
Other | 54 | | (27) | | 27 | | 113 | | (80) | | 33 | |
Total other intangible assets with finite lives | $ | 8,369 | | $ | (3,678) | | $ | 4,691 | | $ | 9,418 | | $ | (4,000) | | $ | 5,418 | |
Intangible assets with indefinite lives: | | | | | | |
Trademarks/tradenames | 804 | | — | | 804 | | 804 | | — | | 804 | |
Total other intangible assets with indefinite lives | $ | 804 | | $ | — | | $ | 804 | | $ | 804 | | $ | — | | $ | 804 | |
Total | $ | 9,173 | | $ | (3,678) | | $ | 5,495 | | $ | 10,222 | | $ | (4,000) | | $ | 6,222 | |
During fiscal year 2022, the Company retired fully amortized assets of $390 million of developed technology, $210 million of trademarks/tradenames, $121 million of customer-related intangible assets, and $53 million of other intangible assets.
As part of the 2022 Realignment, the Company reallocated its intangible assets with indefinite lives to align with the new segment structure. This served as a triggering event requiring the Company to perform an impairment analysis related to intangible assets with indefinite lives carried by its historic Mobility & Materials segment as of March 1, 2022, prior to the realignment. Subsequent to the realignment, impairment analyses were then performed for the intangible assets with indefinite lives reported in Corporate & Other. No impairments were identified as a result of the analyses described above.
During the first quarter of 2021, the Company realigned certain segments that held intangible assets with indefinite lives, which served as a triggering event requiring the Company to perform an impairment analysis related to the intangible assets with indefinite lives impacted. Impairment analyses were then performed, and no impairments were identified.
The following table provides the net carrying value of other intangible assets by segment:
| | | | | | | | |
Net Intangibles by Segment | December 31, 2022 | December 31, 2021 |
In millions |
Electronics & Industrial | $ | 2,976 | | $ | 3,429 | |
Water & Protection | 2,424 | | 2,686 | |
Corporate & Other | 95 | | 107 | |
Total | $ | 5,495 | | $ | 6,222 | |
Total estimated amortization expense for the next five fiscal years is as follows:
| | | | | |
Estimated Amortization Expense | |
In millions | |
2023 | $ | 578 | |
2024 | $ | 549 | |
2025 | $ | 508 | |
2026 | $ | 481 | |
2027 | $ | 432 | |
NOTE 15 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The following tables summarizes the Company's short-term borrowings, long-term debt and finance lease obligations:
| | | | | | | | |
Short-Term Borrowings | December 31, 2022 | December 31, 2021 |
(In millions) |
Commercial paper1 | $ | — | | $ | 150 | |
Long-term debt due within one year | 300 | | — | |
Total short-term borrowings | $ | 300 | | $ | 150 | |
1. The weighted-average interest rate on commercial paper was 0.34 percent at December 31, 2021.
| | | | | | | | | | | | | | |
Long-Term Debt | December 31, 2022 | December 31, 2021 |
In millions | Amount | Weighted Average Rate | Amount | Weighted Average Rate |
Promissory notes and debentures 1: | | | | |
Final maturity 2023 | $ | 300 | | 5.72 | % | $ | 2,800 | | 3.89 | % |
Final maturity 2025 | 1,850 | | 4.49 | % | 1,850 | | 4.49 | % |
Final maturity 2028 and thereafter 2 | 5,979 | | 5.19 | % | 6,050 | | 5.13 | % |
Other facilities: | | | | |
Finance lease obligations | 1 | | | 2 | | |
Less: Unamortized debt discount and issuance costs | 56 | | | 70 | | |
Less: Long-term debt due within one year | 300 | | | — | | |
Total | $ | 7,774 | | | $ | 10,632 | | |
1.Represents senior unsecured notes (the "2018 Senior Notes"), which are senior unsecured obligations of the Company.
2.Includes fair value hedging adjustment of $71 million related to the Company's interest rate swap agreements. See Note 21 for additional information.
On November 18, 2022, the Company redeemed in full its fixed-rate long-term senior unsecured notes of $2.5 billion due 2023 at a redemption price equal to 100% of the aggregate principal amount plus the accrued and unpaid interest. The redemption was funded with the proceeds from the M&M Divestiture.
Principal payments of long-term debt for the five succeeding fiscal years is as follows:
| | | | | |
Maturities of Long-Term Debt for Next Five Years at December 31, 2022 | Total |
In millions |
2023 | $ | 300 | |
2024 | $ | — | |
2025 | $ | 1,850 | |
2026 | $ | — | |
2027 | $ | — | |
The estimated fair value of the Company's long-term borrowings was determined using Level 2 inputs within the fair value hierarchy, as described in Note 22. 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, the fair value of the Company's long-term borrowings, not including long-term debt due within one year, was $7,674 million and $12,595 million at December 31, 2022 and December 31, 2021, respectively.
Available Committed Credit Facilities
The following table summarizes the Company's credit facilities:
| | | | | | | | | | | | | | | | | |
Committed and Available Credit Facilities at December 31, 2022 | | |
In millions | Effective Date | Committed Credit | Credit Available | Maturity Date | Interest |
Revolving Credit Facility, Five-year | April 2022 | $ | 2,500 | | $ | 2,488 | | April 2027 | Floating Rate |
364-day Revolving Credit Facility | April 2022 | 1,000 | | 1,000 | | April 2023 | Floating Rate |
Total Committed and Available Credit Facilities | | $ | 3,500 | | $ | 3,488 | | | |
In July 2022, the Company drew down $600 million under the 364-day Revolving Credit Facility in order to facilitate certain intercompany internal restructuring steps related to the M&M Divestiture. The Company repaid the borrowing in September 2022.
Terminated Intended Rogers Acquisition
In connection with the Terminated Intended Rogers Acquisition, on November 22, 2021, the Company entered into a two-year senior unsecured committed term loan agreement in the amount of $5.2 billion. In October 2022, the facility was amended to extend the lending commitments (as amended the "Amended 2021 Term Loan Facility"). On November 1, 2022, the M&M Divestiture closed and therefore, based on the terms of the Amended 2021 Term Loan Facility, the commitment was terminated.
Term Loan and Revolving Credit Facilities
On April 12, 2022, the Company entered into a new $2.5 billion five-year revolving credit facility (the "2022 Five-Year Revolving Credit Facility"). The 2022 Five-Year Revolving Credit Facility is generally expected to remain undrawn and serve as a backstop to the Company's commercial paper and letter of credit issuance. On April 12, 2022, the Company entered into an updated $1 billion 364-day revolving credit facility (the "2022 $1B Revolving Credit Facility").
On February 1, 2021, the Company terminated its fully drawn $3 billion term loan facilities. The termination triggered the repayment of the aggregate outstanding principal amount of $3 billion, plus accrued and unpaid interest through and including January 31, 2021. The Company funded the repayment with proceeds from the Special Cash Payment.
May 2020 Debt Offering
On May 1, 2020, the Company completed an underwritten public offering of senior unsecured notes (the “May 2020 Notes”) in the aggregate principal amount of $2 billion of 2.169 percent fixed rate Notes due May 1, 2023 (the “May 2020 Debt Offering”). The consummation of the N&B Transaction triggered the special mandatory redemption feature of the May 2020 Debt Offering. The Company redeemed the May 2020 Notes on May 13, 2021 and funded the redemption with proceeds from the Special Cash Payment.
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were approximately $656 million at December 31, 2022. These lines are available to support short-term liquidity needs and general corporate purposes including letters of credit. Outstanding letters of credit were approximately $116 million at December 31, 2022. These letters of credit support commitments made in the ordinary course of business.
Debt Covenants and Default Provisions
The Company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations, subject to certain limitations. The 2018 Senior Notes also contain customary default provisions. The Five-Year Revolving Credit Facility and the 2022 $1B Revolving Credit Facility contain a financial covenant requiring that the ratio of Total Indebtedness to Total Capitalization for the Company and its consolidated subsidiaries not exceed 0.60. At December 31, 2022, the Company was in compliance with this financial covenant. There were no material changes to the debt covenants and default provisions at December 31, 2022.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation, Environmental Matters, and Indemnifications
The Company and certain subsidiaries are involved in various lawsuits, claims and environmental actions that have arisen in the normal course of business with respect to product liability, patent infringement, governmental regulation, contract and commercial litigation, as well as possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain substances at various sites. In addition, in connection with divestitures and the related transactions, the Company from time to time has indemnified and has been indemnified by third parties against certain liabilities that may arise in connection with, among other things, business activities prior to the completion of the respective transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. The Company records liabilities for ongoing and indemnification matters when the information available indicates that it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated.
As of December 31, 2022, the Company has recorded indemnification assets of $70 million within "Accounts and notes receivable - net" and $237 million within "Deferred charges and other assets" and indemnified liabilities of $211 million within "Accrued and other current liabilities" and $274 million within "Other noncurrent obligations" within the Consolidated Balance Sheets. At December 31, 2021, the Company has recorded indemnified assets of $47 million within "Accounts and notes receivable - net" and $234 million within "Deferred charges and other assets" and indemnified liabilities of $153 million within "Accrued and other current liabilities" and $192 million within "Other noncurrent obligations" within the Consolidated Balance Sheets.
The Company’s accruals discussed below for indemnification liabilities related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, EIDP and the Company and to the DowDuPont ("DWDP") Separation and Distribution Agreement and the Letter Agreement between the Company and Corteva (together the “Agreements”), are included in the balances above.
PFAS Stray Liabilities: Future Eligible PFAS Costs
On July 1, 2015, EIDP, a Corteva subsidiary since June 1, 2019, completed the separation of EIDP’s Performance Chemicals segment through the spin-off of Chemours to holders of EIDP common stock (the “Chemours Separation”). On June 1, 2019, the Company completed the separation of its agriculture business through the spin-off of Corteva, Inc. (“Corteva”), including Corteva’s subsidiary EIDP.
On January 22, 2021, the Company, Corteva, EIDP and Chemours entered into the MOU pursuant to which the parties have agreed to release certain claims that had been raised by Chemours including any claims arising out of or resulting from the process and manner in which EIDP structured or conducted the Chemours Separation, and any other claims that challenge the Chemours Separation or the assumption of Chemours Liabilities (as defined in the Chemours Separation Agreement) by Chemours and the allocation thereof, subject in each case to certain exceptions set forth in the MOU. In connection with the MOU, the confidential arbitration process regarding certain claims by Chemours was terminated in February 2021. The parties have further agreed not to bring any future, additional claims regarding the Chemours Separation Agreement or the MOU outside of arbitration.
Pursuant to the MOU, the parties have agreed to share certain costs associated with potential future liabilities related to alleged historical releases of certain PFAS out of pre-July 1, 2015 conduct (“eligible PFAS costs”) until the earlier to occur of (i) December 31, 2040, (ii) the day on which the aggregate amount of Qualified Spend, as defined in the MOU, is equal to $4 billion or (iii) a termination in accordance with the terms of the MOU. PFAS refers to per- or polyfluoroalkyl substances, which include perfluorooctanoic acids and its ammonium salts (“PFOA”).
The parties have agreed that, during the term of this sharing arrangement, Qualified Spend up to $4 billion will be borne 50 percent by Chemours and 50 percent, up to a cap of $2 billion, by the Company and Corteva. The Company and Corteva will split their 50 percent of Qualified Spend in accordance with the Agreements. After the term of this arrangement, Chemours’ indemnification obligations under the Chemours Separation Agreement would continue unchanged, subject in each case to certain exceptions set forth in the MOU.
In order to support and manage any potential future eligible PFAS costs, the parties also agreed to establish an escrow account. The MOU provides that (1) no later than each of September 30, 2021 and September 30, 2022, Chemours shall deposit $100 million into an escrow account and DuPont and Corteva shall together deposit $100 million in the aggregate into an escrow account and (2) no later than September 30 of each subsequent year through and including 2028, Chemours shall deposit $50 million into an escrow account and DuPont and Corteva shall together deposit $50 million in the aggregate into an escrow account. Subject to the terms and conditions set forth in the MOU, each party may be permitted to defer funding in any
year beginning and including 2022. Additionally, if on December 31, 2028, the balance of the escrow account (including interest) is less than $700 million, Chemours will make 50 percent of the deposits and DuPont and Corteva together will make 50 percent of the deposits necessary to restore the balance of the escrow account to $700 million. Such payments will be made in a series of consecutive annual equal installments commencing on September 30, 2029 pursuant to the escrow account replenishment terms as set forth in the MOU.
DuPont's aggregate escrow deposits of $100 million and $50 million at December 31, 2022 and 2021, respectively, are reflected in "Restricted cash and cash equivalents" on the Consolidated Balance Sheet.
Under the Agreements, Divested Operations and Businesses ("DDOB") liabilities of EIDP not allocated to or retained by Corteva or the Company are categorized as relating to either (i) PFAS Stray Liabilities, if they arise out of actions related to or resulting from the development, testing, manufacture or sale of PFAS; or (ii) Non-PFAS Stray Liabilities, (and together with PFAS Stray Liabilities, the “EIDP Stray Liabilities”).
The Agreements provide that the Company and Corteva will each bear specified amounts plus an additional $200 million of Indemnifiable Losses, described below, in relation to certain EIDP Stray Liabilities. The Agreements further provide that the Company and Corteva will each bear 50 percent, $150 million each, of the first $300 million of total Indemnifiable Losses related to PFAS Stray Liabilities. When the companies meet their respective $150 million threshold, Indemnifiable Losses related to PFAS Stray Liabilities will be borne 71 percent by DuPont and 29 percent by Corteva.
Indemnifiable Losses up to $150 million incurred for PFAS Stray Liabilities are credited against each company’s $200 million threshold. Whenever Corteva or DuPont meets its $200 million threshold, the other would generally bear all Non-PFAS Stray Liabilities until meeting its $200 million threshold. Thereafter, DuPont will bear 71 percent and Corteva will bear 29 percent of Indemnifiable Losses related to Non-PFAS Stray Liabilities.
Indemnifiable Losses, as defined in the DWDP Separation and Distribution Agreement, include, among other things, attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense of EIDP Stray Liabilities.
In connection with the MOU and the Agreements, the Company has recognized the following indemnification liabilities related to eligible PFAS costs:
| | | | | | | | | | | |
Indemnified Liabilities Related to the MOU |
In millions | December 31, 2022 | December 31, 2021 | Balance Sheet Classification |
Current indemnified liabilities | $ | 66 | | $ | 37 | | Accrued and other current liabilities |
Long-term indemnified liabilities | $ | 120 | | $ | 89 | | Other noncurrent obligations |
Total indemnified liabilities accrued under the MOU 1, 2 | $ | 186 | | $ | 126 | | |
| | | |
1.As of December 31, 2022 and 2021, total indemnified liabilities accrued include $161 million and $112 million, respectively, related to Chemours environmental remediation activities at their site in Fayetteville, North Carolina under the Consent Order between Chemours and the North Carolina Department of Environmental Quality (the "NC DEQ").
2.In addition to the above, as of December 31, 2021, the Company had recognized a liability of $12.5 million related to the settlement agreement between Chemours, Corteva and DuPont and Delaware's Attorney General, discussed below.
Future charges associated with the MOU would be recognized over the term of the agreement as a component of income from discontinued operations to the extent liabilities become probable and estimable.
In 2004, EIDP settled a West Virginia state court class action, Leach v. E. I. du Pont de Nemours and Company, which alleged that PFOA from EIDP’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. 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 EIDP 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. Since the 2017 settlement about 100 additional cases alleging personal injury, including kidney and testicular cancer claims, had been filed or noticed and were pending in the Ohio MDL.
On January 21, 2021, EIDP and Chemours entered into settlement agreements with plaintiffs’ counsel representing the Ohio MDL plaintiffs providing for a settlement of cases and claims in the Ohio MDL, except as noted below (the “Settlement”). The total settlement amount is $83 million in cash with each of the Company and EIDP contributing $27 million and Chemours contributing $29 million. At June 30, 2021 the Company had paid in full its $27 million contribution. The Settlement was entered into solely by way of compromise and settlement and is not in any way an admission of liability or fault by the Company, Corteva, EIDP or Chemours. DuPont was not a named party in the Leach case or the Ohio MDL and is not a named party in the Abbott case.
As of December 31, 2022, there are various cases alleging damages due to PFAS which are discussed below. Such actions often include additional claims based on allegations that the transfer by EIDP of certain PFAS liabilities to Chemours resulted in a fraudulent conveyance or voidable transaction. With the exception of the fraudulent conveyance claims, which are excluded from the MOU, legal fees, expenses, costs, and any potential liabilities for eligible PFAS costs presented by the following matters will be shared as defined in the MOU between Chemours, EIDP, Corteva and DuPont.
Beginning in April 2019, several dozen lawsuits involving water contamination arising from the use of PFAS-containing aqueous firefighting foams (“AFFF”) were filed against EIDP, 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”). Since then, the SC MDL has grown and contains approximately 3,400 cases. Most of the actions in the SC MDL name DuPont as a defendant due to the fraudulent transfer claims related to the Chemours Separation and the DowDuPont separations. Generally, the SC MDL contains multiple types of lawsuits including, but not limited to, approximately 3,100 personal injury cases, state attorneys general natural resource damages cases, and water provider contamination cases. The court has selected City of Stuart, Florida v. 3M Company, et al. as the first case to go to trial. Trial is scheduled to take place on June 5, 2023. The court has encouraged all parties to discuss resolution of the water provider category of cases, and on October 26, 2022 appointed a mediator to facilitate discussions among and between the parties. Consistent with the court’s instruction and under the mutual obligations of the MOU, Chemours, Corteva/EIDP and DuPont, together, are engaged with Plaintiffs’ Counsel on these cases, including through the court-appointed mediator. DuPont has never made or sold AFFF, perfluorooctanesulfonic acid ("PFOS") or PFOS containing products.
There are also state attorneys general lawsuits against DuPont, outside of the SC MDL. These also claim environmental contamination by certain PFAS compounds but distinct from AFFF. Generally, the states raise common law tort claims and seek economic impact damages for alleged harm to natural resources, punitive damages, present and future costs to cleanup contamination from certain PFAS compounds, and to abate the alleged nuisance. Most of these actions include fraudulent transfer claims related to the Chemours Separation and the DowDuPont separations.
In July 2021, Chemours, Corteva (for itself and EIDP) and DuPont reached a resolution with the State of Delaware that avoids litigation and addresses potential Natural Resources Damages (“NRD”) from known historical and current releases by the companies in or affecting Delaware. The resolution releases potential state NRD claims arising from the environmental impacts of various chemicals, including PFAS, across all current and historical locations. Consistent with the MOU, Chemours bore 50 percent or $25 million of the $50 million settlement and Corteva and DuPont have each bore $12.5 million. The Company paid its portion of the settlement in January 2022. The settlement also calls for a potential Supplemental Payment to Delaware up to a total of $25 million funded 50 percent by Chemours and 50 percent by Corteva and DuPont, jointly, under certain circumstances which are not deemed probable.
In April 2021, an historic DuPont Dutch subsidiary and the Dutch entities of Chemours and Corteva, received a civil summons filed before the Court of Rotterdam, the Netherlands, on behalf of four municipalities neighboring the Chemours Dordrecht facility. The municipalities are seeking liability declarations relating to the Dordrecht site’s current and historical PFAS operations and emissions.
In addition to the above matters, the Company is a named party in various other legal matters that make claims related to PFAS, for which the costs of litigation and future liabilities, if any, are eligible PFAS costs under the MOU and Indemnification Losses under the Agreements. These matters include lawsuits filed by water districts and private water companies in New Jersey and California generally alleging contamination of water systems.
There are pending cases that make claims related to PFAS that have been filed against Chemours and Corteva/EIDP in which the Company is not a named party, but for which the costs of litigation and future liabilities, if any, are or may be eligible PFAS costs under the MOU and Indemnification Losses under the Agreements.
While the Company believes it has appropriately estimated the liability associated with eligible PFAS matters and Indemnifiable Losses, including in connection with the court-ordered mediation in the SC MDL, as of the date of this report, it is reasonably possible that the Company could incur additional eligible PFAS costs and Indemnifiable Losses in excess of the amounts accrued. These additional costs could have a significant effect on the Company’s financial condition and/or cash flows in the period in which they occur; however, costs qualifying as Qualified Spend are limited by the terms of the MOU.
Other Litigation Matters
In addition to the matters described above, the Company is party to 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. As of December 31, 2022, the Company has liabilities of $23 million associated with these other litigation matters. 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. In accordance with its accounting policy for litigation matters, the Company will expense litigation defense costs as incurred, which could be significant to the Company’s financial condition and/or cash flows in the period.
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 December 31, 2022, the Company had accrued obligations of $263 million for probable environmental remediation and restoration costs. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the Consolidated Balance Sheets. 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.
In June of 2022, the EPA announced updated health advisories for various PFAS compounds in drinking water. Chemours received notice from the NC DEQ that its obligations under the Consent Order could be enlarged as a result of EPA’s announcement. In the second quarter of 2022, the Company recorded an incremental liability related to its indemnification obligations under the MOU. The increase primarily relates to incremental costs associated with activities at Chemours' site in Fayetteville, North Carolina under the Consent Order with the NC DEQ.
The accrued environmental obligations includes the following:
| | | | | | | | | | | |
Environmental Accrued Obligations |
In millions | December 31, 2022 | December 31, 2021 | Potential exposure above the amount accrued 1 |
Environmental remediation liabilities not subject to indemnity | $ | 41 | | $ | 43 | | $ | 107 | |
| | | |
Environmental remediation indemnified liabilities: | | | |
Indemnifications related to Dow and Corteva 2 | 48 | | 46 | | 64 | |
MOU related obligations (discussed above) 3 | 173 | | 116 | | 62 | |
Other environmental indemnifications | 1 | | — | | 2 | |
Total environmental related liabilities | $ | 263 | | $ | 205 | | $ | 235 | |
1.The environmental accrual represents management’s best estimate of the costs for remediation and restoration with respect to environmental matters, although it is reasonably possible that the ultimate cost with respect to these particular matters could range above the amount accrued.
2.Pursuant to the DWDP Separation and Distribution Agreement, the Company is required to indemnify Dow and Corteva for certain Non-PFAS clean-up responsibilities and associated remediation costs.
3.The MOU related obligations include the Company's estimate of its liability under the MOU for remediation activities based on the current regulatory environment.
NOTE 17 - LEASES
The Company has operating leases for real estate, an airplane, railcars, fleet, certain machinery and equipment, and information technology assets. The Company’s leases have remaining lease terms of approximately 1 year to 30 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise that option. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability.
Certain of the Company's leases include residual value guarantees. These residual value guarantees are based on a percentage of the lessor's asset acquisition price and the amount of such guarantee declines over the course of the lease term. The portion of residual value guarantees that are probable of payment is included in the related lease liability in the Consolidated Balance Sheet. At December 31, 2022, the Company has future maximum payments for residual value guarantees in operating leases of $21 million with final expirations through 2026. The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating leases for the years ended December 31, 2022, 2021 and 2020 were as follows:
| | | | | | | | | | | |
In millions | 2022 | 2021 | 2020 |
Operating lease cost | $ | 113 | | $ | 105 | | $ | 136 | |
Short-term lease cost | 4 | | 5 | | 3 | |
Variable lease cost | 39 | | 38 | | 45 | |
Less: Sublease income 1 | 12 | | 11 | | 8 | |
Total lease cost | $ | 144 | | $ | 137 | | $ | 176 | |
1.Reflects income associated with subleases, not inclusive of all lessor arrangements disclosed below.
Operating cash flows from operating leases, excluding those related to the M&M Divestitures, were $109 million, $105 million, and $134 million for the year ended December 31, 2022, 2021 and 2020, respectively.
New operating lease assets and liabilities entered into during the year ended December 31, 2022 and 2021 were $131 million and $129 million, respectively. Supplemental balance sheet information related to leases was as follows:
| | | | | | | | |
In millions | December 31, 2022 | December 31, 2021 |
Operating Leases | | |
Operating lease right-of-use assets 1 | $ | 426 | | $ | 422 | |
Current operating lease liabilities 2 | 90 | | 92 | |
Noncurrent operating lease liabilities 3 | 333 | | 337 | |
Total operating lease liabilities | $ | 423 | | $ | 429 | |
1.Included in "Deferred charges and other assets" in the Consolidated Balance Sheet.
2.Included in "Accrued and other current liabilities" in the Consolidated Balance Sheet.
3.Included in "Other noncurrent obligations" in the Consolidated Balance Sheet.
Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide the lessor’s implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments.
| | | | | | | | |
Lease Term and Discount Rate for Operating Leases | December 31, 2022 | December 31, 2021 |
Weighted-average remaining lease term (years) | 8.1 | 8.5 |
Weighted-average discount rate | 2.76 | % | 2.01 | % |
Maturities of lease liabilities were as follows:
| | | | | |
Maturity of Lease Liabilities at December 31, 2022 | Operating Leases |
In millions |
2023 | $ | 100 | |
2024 | 85 | |
2025 | 62 | |
2026 | 45 | |
2027 | 35 | |
2028 and thereafter | 153 | |
Total lease payments | $ | 480 | |
Less: Interest | 57 | |
Present value of lease liabilities | $ | 423 | |
The Company has leases in which it is the lessor, with the largest being a result of the N&B Transaction. In connection with the N&B Transaction and the M&M Divestiture, DuPont entered into leasing arrangements with IFF and Celanese, whereby DuPont is leasing certain properties, including office spaces and R&D laboratories. These leases are classified as operating leases and lessor revenue and related expenses are not significant to the Company’s Consolidated Balance Sheet or Consolidated Statement of Operations. Lease agreements where the Company is the lessor have final expirations through 2036.
Total lease revenue was $58 million for which the net profits recognized from these leases were approximately $14 million, both recorded in "Selling, general, and administrative expenses" and "Research and development expenses" for the year-ended December 31, 2022. Contractual lease revenue for 2023 through 2027 ranges from $70 million to $80 million annually.
NOTE 18 - STOCKHOLDERS' EQUITY
Share Repurchase Program
On June 1, 2019, the Company's Board of Directors approved a $2 billion share buyback program ("2019 Share Buyback Program"), which expired on June 1, 2021. At the expiry of the 2019 Share Buyback Program, the Company had repurchased and retired a total of 29.9 million shares at a cost of $2 billion.
In the first quarter of 2021, the Company's Board of Directors authorized a $1.5 billion share buyback program, which expired on June 30, 2022 ("2021 Share Buyback Program"). In the first quarter of 2022, the Company purchased 5.1 million shares for approximately $375 million, effectively completing the program. At the expiry of the 2021 Share Buyback Program, the Company had repurchased and retired a total of 19.6 million shares for $1.5 billion.
In February 2022, the Company's Board of Directors authorized a $1.0 billion share buyback program which expires on March 31, 2023, (the “2022 Share Buyback Program”). As of September 30, 2022, the Company repurchased and retired a total of 11.9 million shares for $750 million under the 2022 Share Buyback Program. In November 2022, DuPont’s Board of Directors approved a new share repurchase program authorizing the repurchase and retirement of up to $5 billion of common stock (the “$5B Share Buyback Program", together with the 2022 Share Buyback Program, the "2022 Stock Repurchase Programs") in addition to the 250 million remaining under the Company’s existing share repurchase program. The $5B Share Buyback Program expires on June 30, 2024, unless extended or shortened by the Board of Directors.
In November 2022, DuPont entered into accelerated share repurchase ("ASR") agreements (the "2022 ASR Agreements") with each of three financial institutions (the "ASR Counterparties"), for the repurchase of an aggregate of approximately $3.25 billion of common stock with $250 million of such repurchases under the 2022 Share Buyback Program and the remaining $3 billion under the $5B Share Buyback Program. Pursuant to the terms of the 2022 ASR Agreement, DuPont paid an aggregate of $3.25 billion to the ASR Counterparties and received initial deliveries of 38.8 million shares in aggregate of DuPont common stock, which were retired immediately and recorded as a reduction to retained earnings of $2.6 billion. The remaining $650 million was evaluated as an unsettled forward contract indexed to DuPont common stock, classified within stockholders’ equity. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the term of the ASR transaction, less an agreed upon discount. The ASR transaction is being funded with cash on hand and is expected to be completed in the third quarter 2023.
Any additional repurchases under the new share repurchase program will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions off the market, which may include additional accelerated share repurchase agreements. The timing and number of shares to be repurchased will depend on factors such as the share price, economic and market conditions, and corporate and regulatory requirements.
The stock repurchase activity under the 2022 Stock Repurchase Programs were as follows:
| | | | | | | | | | | | | | |
2022 Stock Repurchase Programs | Share Repurchased | Average Price per Share | Value of Shares Repurchased | Remaining Amount Authorized |
In millions, expect per share amounts |
Balance as of January 1, 2022 | | | | $ | — | |
Authorization of plan in February 2022 | | | | 1,000 | |
Repurchase of shares as of the quarter ended June 30, 2022 | 7.6 | | $ | 65.5 | | $ | 500 | | (500) | |
Repurchase of shares as of the quarter ended September 30, 2022 | 4.3 | | $ | 58.9 | | 250 | | (250) | |
Authorization of plan in November 2022 | | | | 5,000 | |
Accelerated share repurchase | 38.8 | | | 2,600 | | (2,600) | |
Unsettled forward contract for accelerated share repurchase 1 | — | | | 650 | | (650) | |
Balance as of December 31, 2022 | | | | $ | 2,000 | |
1. Calculated based on the initial referenced stock price at the time the Company entered into the 2022 ASR Agreement.
Common Stock
The following table provides a reconciliation of DuPont Common Stock activity for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | |
Shares of DuPont Common Stock | Issued | Held in Treasury |
In thousands |
Balance at January 1, 2020 | 738,565 | | — | |
Issued | 1,719 | | — | |
Repurchased | — | | 6,080 | |
Retired | (6,080) | | (6,080) | |
Balance at December 31, 2020 | 734,204 | | — | |
Issued | 2,584 | | — | |
Repurchased 1 | — | | 224,995 | |
Retired 1 | (224,995) | | (224,995) | |
Balance at December 31, 2021 | 511,793 | | — | |
Issued | 2,074 | | — | |
Repurchased | — | | 55,743 | |
Retired | (55,743) | | (55,743) | |
Balance at December 31, 2022 | 458,124 | | — | |
1.Includes 197 million shares of common stock that were exchanged and retired as part of the N&B Transaction.
Retained Earnings
There are no significant restrictions limiting the Company's ability to pay dividends. Dividends declared and paid to common stockholders during the years ended December 31, 2022, 2021 and 2020 are summarized in the following table:
| | | | | | | | | | | | | | |
Dividends Declared and Paid | 2022 | 2021 | 2020 |
In millions |
Dividends declared to common stockholders | $ | 652 | | $ | 630 | | $ | 882 | |
Dividends paid to common stockholders | $ | 652 | | $ | 630 | | $ | 882 | |
Undistributed earnings of nonconsolidated affiliates included in retained earnings were $656 million at December 31, 2022 and $912 million at December 31, 2021.
Accumulated Other Comprehensive Loss
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | Cumulative Translation Adj | Pension and OPEB | Derivative Instruments 1 | Total |
In millions |
2020 | | | | | |
Balance at January 1, 2020 | | $ | (1,070) | | $ | (345) | | $ | (1) | | $ | (1,416) | |
Other comprehensive income (loss) before reclassifications | | 1,540 | | (102) | | — | | 1,438 | |
Amounts reclassified from accumulated other comprehensive income | | — | | 22 | | — | | 22 | |
Net other comprehensive income (loss) | | 1,540 | | (80) | | — | | $ | 1,460 | |
| | | | | |
Balance at December 31, 2020 | | $ | 470 | | $ | (425) | | $ | (1) | | $ | 44 | |
2021 | | | | | |
Other comprehensive (loss) income before reclassifications | | (742) | | 422 | | 56 | | (264) | |
Amounts reclassified from accumulated other comprehensive income | | — | | 3 | | — | | 3 | |
Split-off of N&B reclassification adjustment | | 184 | | 73 | | 1 | | 258 | |
Net other comprehensive (loss) income | | $ | (558) | | $ | 498 | | $ | 57 | | $ | (3) | |
| | | | | |
Balance at December 31, 2021 | | $ | (88) | | $ | 73 | | $ | 56 | | $ | 41 | |
2022 | | | | | |
Other comprehensive (loss) income before reclassifications | | (1,101) | | 44 | | 61 | | (996) | |
Amounts reclassified from accumulated other comprehensive income | | — | | (3) | | — | | (3) | |
M&M Divestiture reclassification adjustment | | 221 | | (54) | | — | | 167 | |
Net other comprehensive (loss) income | | $ | (880) | | $ | (13) | | $ | 61 | | $ | (832) | |
Balance at December 31, 2022 | | $ | (968) | | $ | 60 | | $ | 117 | | $ | (791) | |
1. Includes cumulative translation adjustment impact associated with derivative instruments.
The tax effects on the net activity related to each component of other comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 were as follows:
| | | | | | | | | | | |
Tax Benefit (Expense) | 2022 | 2021 | 2020 |
In millions |
Pension and other post-employment benefit plans | 16 | | (122) | | 37 | |
Derivative instruments | (15) | | (18) | | — | |
Tax expense from income taxes related to other comprehensive (loss) income items | $ | 1 | | $ | (140) | | $ | 37 | |
A summary of the reclassifications out of AOCL for the years ended December 31, 2022, 2021 and 2020 is provided as follows:
| | | | | | | | | | | | | | |
Reclassifications Out of Accumulated Other Comprehensive Loss | 2022 | 2021 | 2020 | Income Classification |
In millions |
| | | | |
| | | | |
| | | | |
Cumulative translation adjustments | $ | 221 | | $ | 184 | | $ | — | | See (1) below |
Pension and other post-employment benefit plans | $ | (71) | | $ | 111 | | $ | 19 | | See (1) below |
Tax (benefit) expense | 14 | | (35) | | 3 | | See (1) below |
Pension and other post-employment benefit plans, after tax | $ | (57) | | $ | 76 | | $ | 22 | | |
Derivative instruments | $ | — | | $ | 1 | | $ | — | | See (1) below |
Tax expense | — | | — | | — | | See (1) below |
Derivative instruments, after tax | $ | — | | $ | 1 | | $ | — | | |
Total reclassifications for the period, after tax | $ | 164 | | $ | 261 | | $ | 22 | | |
1. The activity for the year ended December 31, 2022 is classified almost entirely within "Income (loss) from discontinued operations, net of tax" as part of the M&M Divestiture, with a portion classified within and "Sundry income (expense) - net" as part of continuing operations.. The activity for the year ended December 31, 2021 is classified almost entirely within "Income (loss) from discontinued operations, net of tax" as part of the N&B Transaction, with a portion classified within and "Sundry income (expense) - net" as part of continuing operations. The activity for the year ended December 31, 2020 is classified within the "Income (loss) from discontinued operations, net of tax", "Sundry income (expense) - net", "Net sales", "Cost of sales", and "Provision for income taxes on continuing operations" lines.
NOTE 19 - PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
The significant defined benefit pension and OPEB plans of TDCC and EIDP are summarized below. Unless otherwise noted, all values within this footnote are inclusive of balances and activity associated with discontinued operations.
Defined Benefit Pension Plans
DuPont has both funded and unfunded defined benefit pension plans covering employees in a number of non-US countries that formerly relate to both TDCC and EIDP. The United Kingdom qualified plan is the largest pension plan held by DuPont.
DuPont's funding policy is consistent with the funding requirements of each country's laws and regulations. Pension coverage for employees of DuPont's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are funded by depositing funds with trustees, covered by insurance contracts, or remain unfunded. During 2022, the Company contributed $79 million to its benefit plans. DuPont expects to contribute approximately $76 million to its benefit plans in 2023.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for all plans are summarized in the table below:
| | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions for Pension Plans | Benefit Obligations at December 31, | Net Periodic Costs for the Years Ended |
| 2022 | 2021 | 2022 | 2021 | 2020 |
Discount rate | 3.71 | % | 1.32 | % | 1.48 | % | 0.87 | % | 1.21 | % |
Interest crediting rate for applicable benefits | 2.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % |
Rate of compensation increase | 3.27 | % | 3.15 | % | 3.15 | % | 3.15 | % | 3.11 | % |
Expected return on plan assets | N/A | N/A | 2.69 | % | 2.73 | % | 2.98 | % |
Other Post-employment Benefit Plans
The Company retained U.S. and foreign other post-employment benefit obligations with the Canadian plan and the U.S. long-term disabilities plan being the two largest and accounting for the majority of the Company's total other post-employment benefit obligations. In comparison to the Company's defined benefit pension plans, the Company's other post-employment benefit plans are not significant. The total other post-employment benefits projected benefit obligation was $27 million as of December 31, 2022 and $37 million as of December 31, 2021.
Assumptions
The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics.
Service cost and interest cost for all other plans are determined on the basis of the discount rates derived in determining those plan obligations. The discount rates utilized to measure the majority of pension and other postretirement obligations are based on the Aon AA corporate bond yield curves applicable to each country at the measurement date. DuPont utilizes the mortality tables and generational mortality improvement scales, where available, developed in each of the respective countries in which the Company holds plans.
Summarized information on the Company's pension and other postretirement benefit plans is as follows:
| | | | | | | | |
Change in Projected Benefit Obligations of All Plans | 2022 | 2021 |
In millions |
Change in projected benefit obligations: | | |
Benefit obligations at beginning of year | $ | 4,286 | | $ | 5,335 | |
Service cost | 43 | | 53 | |
Interest cost | 55 | | 42 | |
Plan participants' contributions | 7 | | 9 | |
Actuarial changes in assumptions and experience | (872) | | (411) | |
Benefits paid | (233) | | (243) | |
Plan amendments | — | | (8) | |
Acquisitions/divestitures/other 1, 2 | (203) | | (342) | |
Effect of foreign exchange rates | (354) | | (149) | |
Termination benefits/curtailment cost/settlements | (3) | | — | |
| | |
| | |
Benefit obligations at end of year | $ | 2,726 | | $ | 4,286 | |
1.The year ended 2022 is primarily related to the M&M Divestiture.
2.The year ended 2021 is primarily related to the N&B Transaction, partially offset by the Laird PM Acquisition.
| | | | | | | | |
Change in Plan Assets and Funded Status of All Plans | 2022 | 2021 |
In millions |
Change in plan assets: | | |
Fair value of plan assets at beginning of year | $ | 4,036 | | $ | 4,158 | |
Actual return on plan assets | (735) | | 222 | |
Employer contributions | 79 | | 88 | |
Plan participants' contributions | 7 | | 9 | |
Benefits paid | (233) | | (243) | |
Acquisitions/divestitures/other 1, 2 | (216) | | (116) | |
Effect of foreign exchange rates | (342) | | (82) | |
| | |
| | |
| | |
Fair value of plan assets at end of year | $ | 2,596 | | $ | 4,036 | |
| | |
Funded status: | | |
| | |
Plans with plan assets | $ | 364 | | $ | 438 | |
All other plans | (494) | | (688) | |
Funded status at end of year | $ | (130) | | $ | (250) | |
1.The year ended 2022 is primarily related to the M&M Divestiture.
2.The year ended 2021 is primarily related to the N&B Transaction, partially offset by the Laird PM Acquisition.
The following tables summarize the amounts recognized in the consolidated balance sheets for all significant plans:
| | | | | | | | |
Amounts Recognized in the Consolidated Balance Sheets for All Significant Plans | December 31, 2022 | December 31, 2021 |
In millions |
Amounts recognized in the consolidated balance sheets: | | |
Deferred charges and other assets | $ | 376 | | $ | 582 | |
Assets of discontinued operations | 70 | | 71 | |
Accrued and other current liabilities | (49) | | (51) | |
Pension and other postretirement benefits - noncurrent | (522) | | (762) | |
Liabilities of discontinued operations | (5) | | (90) | |
Net amount recognized | $ | (130) | | $ | (250) | |
| | |
Pretax amounts recognized in accumulated other comprehensive loss (income): | | |
Net gain | $ | (45) | | $ | (60) | |
Prior service credit | (15) | | (40) | |
Pretax balance in accumulated other comprehensive loss at end of year | $ | (60) | | $ | (100) | |
The decrease in the Company's actuarial gains for the year ended December 31, 2022 was primarily due to the changes in weighted-average discount rates, which increased from 1.32 percent at December 31, 2021 to 3.71 percent at December 31, 2022 offset by divestitures and losses on assets in excess of what was expected.
The accumulated benefit obligation for all pension plans was $2.6 billion and $4.0 billion at December 31, 2022 and 2021, respectively.
| | | | | | | | |
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets | December 31, 2022 | December 31, 2021 |
In millions |
Accumulated benefit obligations | $ | 566 | | $ | 1,007 | |
Fair value of plan assets | $ | 46 | | $ | 216 | |
| | | | | | | | |
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets | December 31, 2022 | December 31, 2021 |
In millions |
Projected benefit obligations | $ | 706 | | $ | 1,187 | |
Fair value of plan assets | $ | 157 | | $ | 322 | |
| | | | | | | | | | | |
Net Periodic Benefit Costs for All Significant Plans for the Year Ended December 31, | 2022 | 2021 | 2020 |
In millions |
Net Periodic Benefit Costs: | | | |
Service cost 1 | $ | 43 | | $ | 53 | | $ | 72 | |
Interest cost 2 | 55 | | 42 | | 58 | |
Expected return on plan assets 3 | (97) | | (105) | | (110) | |
Amortization of prior service credit 4 | (5) | | (5) | | (5) | |
Amortization of unrecognized net loss 5 | 1 | | 12 | | 16 | |
Curtailment/settlement 6 | (4) | | 3 | | 9 | |
Net periodic benefit costs (credits) - Total | $ | (7) | | $ | — | | $ | 40 | |
Less: Net periodic benefit costs (credits) - Discontinued operations | (9) | | (3) | | 10 | |
Net periodic benefit costs - Continuing operations | $ | 2 | | $ | 3 | | $ | 30 | |
Changes in plan assets and benefit obligations recognized in other comprehensive loss (income): | | | |
Net (gain) loss | $ | (35) | | $ | (528) | | $ | 117 | |
Prior service credit | — | | (8) | | — | |
Amortization of prior service credit | 5 | | 5 | | 5 | |
Amortization of unrecognized loss | (1) | | (12) | | (16) | |
Curtailment loss | — | | — | | (4) | |
Settlement gain (loss) | 4 | | (3) | | (9) | |
Effect of foreign exchange rates | 5 | | (11) | | 21 | |
Total recognized in other comprehensive loss (income) | $ | (22) | | $ | (557) | | $ | 114 | |
Noncontrolling interest | $ | — | | $ | — | | $ | 2 | |
Total recognized in net periodic benefit costs (credits) and other comprehensive loss (income) | $ | (20) | | $ | (554) | | $ | 142 | |
1.The service cost from continuing operations was $30 million, $33 million, and $42 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
2. The interest cost from continuing operations was $49 million, $39 million, and $47 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
3. The expected return on plan assets from continuing operations was $73 million, $78 million, and $77 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
4. The amortization of prior service credits from continuing operations was $4 million, $5 million, and $2 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
5. The amortization of unrecognized net loss from continuing operations was $4 million for the year ended December 31, 2022, and losses of $11 million for the years ended December 31, 2021 and 2020 for significant plans.
6. The curtailment and settlement costs from continuing operations was a gain of $4 million for the year ended December 31, 2022, and a loss of $3 million, and $9 million for the years ended December 31, 2021, and 2020 respectively, for significant plans.
Estimated Future Benefit Payments
The estimated future benefit payments of continuing operations, reflecting expected future service, as appropriate, are presented in the following table:
| | | | | |
Estimated Future Benefit Payments at December 31, 2022 |
In millions | |
2023 | $ | 181 | |
2024 | 170 | |
2025 | 172 | |
2026 | 178 | |
2027 | 175 | |
Years 2028-2032 | 918 | |
Total | $ | 1,794 | |
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and alternative investments such as insurance contracts, pooled investment vehicles and private market securities. At December 31, 2022, plan assets totaled $2.6 billion.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset liability studies are utilized in this process. The assets are managed by professional investment firms unrelated to the Company. Pension trust funds are permitted to enter into certain contractual arrangements generally described as derivative instruments. Derivatives are primarily used to reduce specific market risks, hedge currency and adjust portfolio duration and asset allocation in a cost-effective manner.
Equity securities primarily included investments in large- and small-cap companies located in both developed and emerging markets around the world. Global equity securities include varying market capitalization levels. U.S. equity investments are primarily large-cap companies. Fixed income securities included investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Global fixed income investments include corporate-issued, government-issued and asset-backed securities. Corporate debt investments include a range of credit risk and industry diversification. U.S. fixed income investments are weighted heavier than non-U.S fixed income securities. Alternative investments primarily included investments in real estate, various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges. Other investments include cash and cash equivalents, pooled investment vehicles, hedge funds and private market securities such as interests in private equity and venture capital partnerships.
The weighted-average target allocation for plan assets of DuPont's pension plans is summarized as follows:
| | | | | |
Target Allocation for Plan Assets at December 31, 2022 | DuPont |
Asset Category |
Equity securities | 8 | % |
Fixed income securities | 12 | |
Alternative investments | 23 | |
Hedge funds | 27 | |
Pooled investment vehicles | 23 | |
Other investments | 7 | |
Total | 100 | % |
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Valuations of the investments are provided by investment managers or fund managers. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Valuations of insurance contracts are contractually determined and are based on exit price valuations or contract value. Adjustments to valuations are made where appropriate.
Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. Where available, audited annual financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation. These funds are not classified within the fair value hierarchy.
The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Basis of Fair Value Measurements | December 31, 2022 | December 31, 2021 |
In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
Cash and cash equivalents | $ | 57 | | $ | 57 | | $ | — | | $ | — | | $ | 175 | | $ | 175 | | $ | — | | $ | — | |
Equity securities: | | | | | | | | |
U.S. equity securities | $ | 43 | | $ | 43 | | $ | — | | $ | — | | $ | 119 | | $ | 119 | | $ | — | | $ | — | |
Non - U.S. equity securities | 152 | | 152 | | — | | — | | 241 | | 241 | | — | | — | |
Total equity securities | $ | 195 | | $ | 195 | | $ | — | | $ | — | | $ | 360 | | $ | 360 | | $ | — | | $ | — | |
Fixed income securities: | | | | | | | | |
Debt - government-issued | $ | 105 | | $ | — | | $ | 105 | | $ | — | | $ | 235 | | $ | — | | $ | 235 | | $ | — | |
Debt - corporate-issued | 40 | | — | | 40 | | — | | 45 | | — | | 45 | | — | |
Debt - asset-backed | — | | — | | — | | — | | 1 | | — | | 1 | | — | |
Total fixed income securities | $ | 145 | | $ | — | | $ | 145 | | $ | — | | $ | 281 | | $ | — | | $ | 281 | | $ | — | |
Alternative investments: | | | | | | | | |
Real estate | $ | 75 | | — | | — | | 75 | | $ | 75 | | — | | — | | $ | 75 | |
Insurance contracts | 524 | | — | | — | | 524 | | 855 | | — | | 30 | | 825 | |
Derivatives - asset position | 8 | | — | | 8 | | — | | — | | — | | — | | — | |
Derivatives - liability position | — | | — | | — | | — | | — | | — | | — | | — | |
Total alternative investments | $ | 607 | | $ | — | | $ | 8 | | $ | 599 | | $ | 930 | | $ | — | | $ | 30 | | $ | 900 | |
Other Investments: | | | | | | | | |
Pooled Investment Vehicles | $ | 607 | | $ | 607 | | $ | — | | $ | — | | $ | 593 | | $ | 593 | | $ | — | | $ | — | |
| | | | | | | | |
| | | | | | | | |
Total other investments | $ | 607 | | $ | 607 | | $ | — | | $ | — | | $ | 593 | | $ | 593 | | $ | — | | $ | — | |
Subtotal | $ | 1,611 | | $ | 859 | | $ | 153 | | $ | 599 | | $ | 2,339 | | $ | 1,128 | | $ | 311 | | $ | 900 | |
Investments measured at net asset value: | | | | | | | | |
Debt - government-issued | $ | 163 | | | | | $ | 406 | | | | |
Hedge funds | 690 | | | | | 1,128 | | | | |
Private market securities | 130 | | | | | 163 | | | | |
| | | | | | | | |
Total investments measured at net asset value | $ | 983 | | | | | $ | 1,697 | | | | |
Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 1 | $ | 2 | | | | | $ | — | | | | |
Pension trust payables 2 | — | | | | | — | | | | |
Total | $ | 2,596 | | | | | $ | 4,036 | | | | |
1. Primarily receivables for investment securities sold.
2. Primarily payables for investment securities purchased.
The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | | | |
Fair Value Measurement of Level 3 Pension Plan Assets | | | Real Estate | Insurance Contracts | Total |
In millions |
Balance at Jan 1, 2021 | | | $ | 77 | | $ | 758 | | $ | 835 | |
Actual return on assets: | | | | | |
Relating to assets sold during 2021 | | | — | | — | | — | |
Relating to assets held at Dec 31, 2021 | | | (1) | | (12) | | (13) | |
Purchases, sales and settlements, net | | | 2 | | (35) | | (33) | |
Transfers into Level 3 1 | | | — | | 141 | | 141 | |
Transfers out of Level 3 2 | | | (3) | | (27) | | (30) | |
Balance at Dec 31, 2021 | | | $ | 75 | | $ | 825 | | $ | 900 | |
Actual return on assets: | | | | | |
Relating to assets sold during 2022 | | | — | | — | | — | |
Relating to assets held at Dec 31, 2022 | | | (2) | | (237) | | (239) | |
Purchases, sales and settlements, net | | | 2 | | (33) | | (31) | |
Transfers into Level 3 | | | — | | 30 | | 30 | |
Transfers out of Level 3 3 | | | — | | (61) | | (61) | |
Balance at Dec 31, 2022 | | | $ | 75 | | $ | 524 | | $ | 599 | |
1. Related to the Laird PM Acquisition.
2. Related to the N&B Transaction.
3. Related to the M&M Divestiture
Defined Contribution Plans
The Company provides defined contribution benefits to its employees. The most significant is the U.S. Retirement Savings Plan ("the Plan"), which covers all U.S. full-service employees. This Plan includes a non-leveraged Employee Stock Ownership Plan ("ESOP"). Employees are not required to participate in the ESOP and those who do are free to diversify out of the ESOP. The purpose of the Plan is to provide retirement savings benefits for employees and to provide employees an opportunity to become stockholders of the Company. The Plan is a tax qualified contributory profit sharing plan, with cash or deferred arrangement and any eligible employee of the Company may participate. Currently, the Company contributes 100 percent of the first 6 percent of the employee's contribution election and also contributes 3 percent of each eligible employee's eligible compensation regardless of the employee's contribution. The Company's matching contributions vest immediately upon contribution. The 3 percent nonmatching employer contribution vests after employees complete three years of service. The Company's contributions to the Plan were $72 million in 2022 and $71 million in 2021. Both periods are inclusive of M&M activity related to discontinued operations. 2021 is inclusive of N&B activity related to discontinued operations.
In addition, the Company made contributions to other defined contribution plans in 2022 in the amount of $33 million and $35 million in 2021. Both periods are inclusive of M&M activity and the 2021 period is inclusive of N&B activity related to discontinued operations.
NOTE 20 - STOCK-BASED COMPENSATION
Effective with the DWDP Merger, on August 31, 2017, DowDuPont assumed all TDCC and EIDP equity incentive compensation awards outstanding immediately prior to the DWDP Merger. The TDCC and EIDP stock-based compensation plans were assumed by DowDuPont and remained in place with the ability to grant and issue DowDuPont common stock until the DWDP 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. Upon adoption of the DuPont OIP, the TDCC and EIDP plans were rolled into the DuPont OIP as separate subplans and no longer granted new awards. All previously granted equity awards under these subplans have the same terms and conditions that were applicable to the awards under the TDCC and EIDP plans immediately prior to the DWDP Distributions. Due to reaching the plan term of the DuPont OIP, no further awards will be granted from the plan. Awards that are outstanding under the DuPont OIP remain outstanding in accordance with their terms.
During the second quarter of 2020, the stockholders of DuPont approved the DuPont 2020 Equity and Incentive Plan (the "2020 EIP"), which allows the Company to grant options, share appreciation rights, restricted shares, restricted stock units ("RSUs"), share bonuses, other share-based awards, cash awards, each as defined in the 2020 EIP, or any combination of the foregoing. Under the EIP, a maximum of 17 million shares of common stock are available for award as of December 31, 2022. The approval of the 2020 Plan had no effect on the Company’s ability to make future grants under the DuPont OIP in accordance with its terms, and awards that are outstanding under the DuPont OIP remain outstanding in accordance with their terms.
A description of the Company's stock-based compensation is discussed below followed by a description of TDCC and EIDP stock-based compensation.
Accounting for Stock-Based Compensation
The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments issued to employees is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.
DuPont recognized share-based compensation expense in continuing operations of $75 million, $67 million, and $93 million during the years ended December 31, 2022, 2021 and 2020, respectively. The income tax benefits related to stock-based compensation arrangements were $16 million, $13 million, and $18 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Total unrecognized pretax compensation cost in continuing operations related to nonvested stock option awards of $5 million at December 31, 2022, is expected to be recognized over a weighted-average period of 1.7 years. Total unrecognized pretax compensation cost in continuing operations related to RSUs and performance based stock units ("PSUs") of $63 million at December 31, 2022, is expected to be recognized over a weighted average period of 1.7 years. The total fair value of RSUs and PSUs vested in the year ended December 31, 2022 was $79 million. The weighted average grant-date fair value of RSUs and PSUs granted during 2022 was $76.30.
At the time of the N&B separation, outstanding, unvested share-based compensation awards that were denominated in DuPont common stock and held by N&B Employees were terminated and reissued as equity awards issued under the IFF stock plan.
At the time of the M&M separation, outstanding, unvested share-based compensation awards granted in 2022 and held by Employees transferred to Celanese were terminated and reissued as equity awards under the Celanese stock plan. Pre-2022 awards held by M&M Employees were settled by DuPont based on vesting conditions noted in respective grant agreements.
DuPont 2020 Equity Incentive Plan
EIP Stock Options
The exercise price of shares subject to option is equal to the market price of the Company's stock on the date of grant. Stock option awards expire 10 years after the grant date. The plan allows retirement-eligible employees of the Company to retain any granted awards upon retirement provided the employee has rendered at least 12 months of service following the grant date.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards and the assumptions set forth in the table below. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| | | | | | | | |
EIP Weighted-Average Assumptions | 2022 | 2021 |
Dividend yield | 1.8 | % | 1.6 | % |
Expected volatility | 26.4 | % | 28.4 | % |
Risk-free interest rate | 1.9 | % | 0.9 | % |
Expected life of stock options granted during period (years) | 6.0 | 6.0 |
The Company determines the dividend yield by dividing the annualized dividend on DuPont's common stock by the option exercise price. A historical daily measurement of volatility is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to DuPont's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under the EIP:
| | | | | | | | | | | | | | |
EIP Stock Options | 2022 |
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) 1 |
Outstanding at January 1, 2022 | 227 | | $ | 72.98 | | | |
Granted | 481 | | $ | 75.05 | | | |
Exercised | — | | $ | — | | | |
Forfeited/Expired | (27) | | $ | 74.06 | | | |
Outstanding at December 31, 2022 | 681 | | $ | 74.40 | | 8.27 | $ | — | |
Exercisable at December 31, 2022 | 113 | | $ | 73.08 | | 4.92 | $ | — | |
1.Outstanding and exercisable balances are shown as zero as options were out of the money at December 31, 2022.
| | | | | | | | |
Additional Information about EIP Stock Options | | |
In millions, except per share amounts | 2022 | 2021 |
Weighted-average fair value per share of options granted | $ | 17.41 | | $ | 16.92 | |
Total compensation expense for stock options plans 1 | $ | 8 | | $ | 2 | |
Related tax benefit 1 | $ | 2 | | $ | — | |
1. These amounts represent life to date.
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year end.
EIP Restricted Stock Units and Performance Based Stock Units
The Company grants RSUs to certain employees that generally vest over a three-year period and, upon vesting, convert one-for-one to DuPont common stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least 12 months of service following the grant date. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
The Company grants PSUs to senior leadership under the DuPont EIP. Vesting for PSUs granted is based upon achieving certain return on invested capital ("ROIC") targets and certain adjusted corporate net income annual growth targets, weighted evenly between the metrics and modified by a relative total shareholder return ("TSR") percentile ranking goal as compared to the S&P 500. The actual award, delivered as DuPont common stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs, subject to the TSR metric, is based upon the market price of the underlying common stock as of the grant date and estimated using a Monte Carlo simulation.
Nonvested awards of RSUs and PSUs are shown below:
| | | | | | | | |
EIP RSUs and PSUs | 2022 |
| Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) |
Nonvested at January 1, 2022 | 592 | | $ | 74.01 | |
Granted | 1,072 | | $ | 76.30 | |
Vested | (239) | | $ | 72.46 | |
Forfeited | (167) | | $ | 75.42 | |
Nonvested at December 31, 2022 | 1,258 | | $ | 76.07 | |
DuPont Omnibus Incentive Plan
The DuPont OIP has two subplans that have the same terms and conditions of the TDCC and EIDP plans immediately prior to the DWDP Distributions. Awards previously granted under those plans that were nonvested will now vest in each subplan. No awards were granted by the Company out of the OIP plan in 2022. All new awards will be granted by the EIP.
OIP Stock Options
The exercise price of shares subject to option is equal to the market price of the Company's stock on the date of grant. Stock option awards expire 10 years after the grant date. The plan allows retirement-eligible employees of the Company to retain any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards and the assumptions set forth in the table below. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| | | | | | | | |
OIP Weighted-Average Assumptions | 2021 | 2020 |
Dividend yield | 1.6 | % | 2.3 | % |
Expected volatility | 28.3 | % | 23 | % |
Risk-free interest rate | 0.9 | % | 1.2 | % |
Expected life of stock options granted during period (years) | 6.0 | 6.0 |
1. No awards were granted by the Company out of the OIP plan in 2022.
The Company determines the dividend yield by dividing the annualized dividend on DuPont's common stock by the option exercise price. A historical daily measurement of volatility (using DowDuPont stock information after the DWDP Merger date and a weighted average of TDCC and EIDP prior to DWDP Merger date) is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to DuPont's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under the OIP:
| | | | | | | | | | | | | | |
OIP Stock Options | 2022 |
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) |
Outstanding at January 1, 2022 | 2,160 | | $ | 62.39 | | | |
Granted | — | | $ | — | | | |
Exercised | (167) | | $ | 62.97 | | | |
Forfeited/Expired | (34) | | $ | 58.60 | | | |
Outstanding at December 31, 2022 | 1,959 | | $ | 62.40 | | 6.81 | $ | 13,631 | |
Exercisable at December 31, 2022 | 1,501 | | $ | 62.65 | | 6.60 | $ | 9,595 | |
| | | | | | | | | | | |
Additional Information about OIP Stock Options 1 | | | |
In millions, except per share amounts | 2022 | 2021 | 2020 |
Weighted-average fair value per share of options granted | $ | — | | $ | 16.83 | | $ | 9.18 | |
Total compensation expense for stock options plans 2 | $ | 25 | | $ | 24 | | $ | 16 | |
Related tax benefit 2 | $ | 5 | | $ | 5 | | $ | 3 | |
1. No awards were granted by the Company out of the OIP plan in 2022.
2.These amount represent life to date.
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year end.
OIP Restricted Stock Units and Performance Based Stock Units
The Company grants RSUs to certain employees that serially vested over a three-year period and, upon vesting, convert one-for-one to DuPont common stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
The Company grants PSUs to senior leadership under a subplan of the DuPont OIP. Vesting for PSUs granted is based upon achieving certain return on invested capital ("ROIC") targets and certain adjusted corporate net income annual growth targets, weighted evenly between the metrics and modified by a relative total shareholder return ("TSR") percentile ranking goal as compared to the S&P 500. The actual award, delivered as DuPont common stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs, subject to the TSR metric, is based upon the market price of the underlying common stock as of the grant date and estimated using a Monte Carlo simulation.
Nonvested awards of RSUs and PSUs are shown below.
| | | | | | | | |
OIP RSUs and PSUs | 2022 |
| Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) |
Nonvested at January 1, 2022 1 | 1,500 | | $ | 61.93 | |
Granted | — | | $ | — | |
Vested | (764) | | $ | 57.10 | |
Forfeited | (49) | | $ | 64.97 | |
Nonvested at December 31, 2022 | 687 | | $ | 67.09 | |
1. The opening weighted average fair value has been recast and is consistent with current year presentation.
TDCC Stock Incentive Plan
In connection with the DWDP Merger, on August 31, 2017 all outstanding TDCC stock options under the TDCC 2012 Stock Incentive Plan (the "2012 Plan") were converted into stock options with respect to DowDuPont Common Stock.
TDCC Stock Options
TDCC granted stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of TDCC’s stock on the grant date. Options vest from one year to three years, and had a maximum term of 10 years. To measure the fair value of the awards on the date of grant, TDCC used the Black-Scholes option pricing model. No awards were granted by the Company out of the TDCC plan during 2022, 2021 and 2020.
The following table summarizes stock option activity for 2022:
| | | | | | | | | | | | | | |
TDCC Stock Options | 2022 |
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) |
Outstanding at January 1, 2022 1 | 423 | | $ | 62.91 | | | |
Exercised | (107) | | $ | 48.93 | | | |
Forfeited/Expired | (14) | | $ | 54.11 | | | |
Outstanding at December 31, 2022 | 302 | | $ | 68.24 | | 3.32 | $ | 2,546 | |
Exercisable at December 31, 2022 | 296 | | $ | 68.71 | | 3.38 | $ | 2,404 | |
EIDP Equity Incentive Plan
EIDP Stock Options
The exercise price of shares subject to option is equal to the market price of EIDP's stock on the date of grant. All options vest serially over a three-year period. Stock option awards granted between 2010 and 2015 expire seven years after the grant date and options granted between 2016 and 2018 expire ten years after the grant date. The plan allowed retirement-eligible employees of EIDP to retain any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date.
There were no options granted out of the EIDP EIP in 2022, 2021 and 2020.
EIDP determined the dividend yield by dividing the annualized dividend on DowDuPont's Common Stock by the option exercise price. A historical daily measurement of volatility (using DowDuPont stock information after the DWDP Merger date and a weighted average of TDCC and EIDP prior to DWDP Merger date) is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to EIDP's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under EIDP's EIP:
| | | | | | | | | | | | | | |
EIDP Stock Options | 2022 |
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) |
Outstanding at January 1, 2022 | 3,226 | | $ | 72.01 | | | |
Exercised | (403) | | $ | 67.60 | | | |
Forfeited/Expired | (416) | | $ | 78.60 | | | |
Outstanding at December 31, 2022 | 2,407 | | $ | 71.60 | | 4.65 | $ | 12,485 | |
Exercisable at December 31, 2022 | 2,407 | | $ | 71.60 | | 4.65 | $ | 12,485 | |
EIDP Restricted Stock Units
EIDP issued RSUs that serially vested over a three-year period and, upon vesting, convert one-for-one to DowDuPont Common Stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. Additional RSUs were also granted periodically to key senior management employees. These RSUs generally vested over periods ranging from three years to five years. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date. The awards have the same terms and conditions as were applicable to such equity awards immediately prior to the DWDP Merger closing date.
EIDP granted PSUs to senior leadership. Upon a change in control, EIDP's EIP provisions required PSUs to be converted into RSUs based on the number of PSUs that would vest by assuming that target levels of performance are achieved. Service requirements for vesting in the RSUs replicate those inherent in the exchanged PSUs. In accordance with the DWDP Merger Agreement, PSUs converted to RSU awards based on an assessment of the underlying market conditions in the PSUs at the
greater of target or actual performance levels as of the closing date. As the actual performance levels were not in excess of target as of the closing date, all PSUs converted to RSUs based on target and there was no incremental benefit from the DWDP Merger Agreement when compared with EIDP’s EIP.
Nonvested awards of RSUs are shown below. There were no RSUs granted out of the EIDP EIP in 2022, 2021 and 2020.
| | | | | | | | |
EIDP RSUs | 2022 |
Shares in thousands | Shares | Grant Date Fair Value 1 |
Nonvested at January 1, 2022 | 321 | | $ | 68.45 | |
Vested | (268) | | $ | 68.76 | |
Forfeited | — | | $ | — | |
Nonvested at December 31, 2022 | 53 | | $ | 66.87 | |
1. Weighted-average per share.
NOTE 21 - FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at December 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Financial Instruments | December 31, 2022 | December 31, 2021 |
In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents | $ | 2,198 | | $ | — | | $ | — | | $ | 2,198 | | $ | 841 | | $ | — | | $ | — | | $ | 841 | |
Restricted cash equivalents 1 | $ | 110 | | $ | — | | $ | — | | $ | 110 | | $ | 65 | | $ | — | | $ | — | | $ | 65 | |
Marketable securities | $ | 1,302 | | $ | — | | $ | — | | $ | 1,302 | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
Total cash and restricted cash equivalents and marketable securities | $ | 3,610 | | $ | — | | $ | — | | $ | 3,610 | | $ | 906 | | $ | — | | $ | — | | $ | 906 | |
Long-term debt including debt due within one year | $ | (8,145) | | $ | 227 | | $ | (58) | | $ | (7,976) | | $ | (10,632) | | $ | — | | $ | (1,963) | | $ | (12,595) | |
Derivatives relating to: | | | | | | | | |
Net investment hedge 2 | — | | 149 | | — | | 149 | | — | | 74 | | — | | 74 | |
Foreign currency 3, 4 | — | | 10 | | (35) | | (25) | | — | | 5 | | (10) | | (5) | |
Interest rate swap agreements 5 | — | | — | | (71) | | (71) | | — | | — | | — | | — | |
Total derivatives | $ | — | | $ | 159 | | $ | (106) | | $ | 53 | | $ | — | | $ | 79 | | $ | (10) | | $ | 69 | |
1.At December 31, 2022 there was $7 million of restricted cash classified as "Prepaid and other current assets" and $103 million classified as "Restricted cash and cash equivalents" in the Consolidated Balance Sheets. At December 31, 2021 there was $12 million of restricted cash classified as "Prepaid and other current assets" and $53 million classified as "Restricted cash and cash equivalents" in the Consolidated Balance Sheets. See Note 7 for more information on restricted cash.
2.Classified as "Deferred charges and other assets" in the Consolidated Balance Sheets.
3.Classified as "Prepaid and other current assets" and "Accrued and other current liabilities" in the Consolidated Balance Sheets.
4.Presented net of cash collateral where master netting arrangements allow.
5.Classified as "Other noncurrent obligations" in the Consolidated Balance Sheets.
Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the Company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks. The Company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the Company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps.
The Company'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 | December 31, 2022 | December 31, 2021 |
In millions |
Derivatives designated as hedging instruments: | | |
Net investment hedge | $ | 1,000 | | $ | 1,000 | |
Interest rate swap agreements | $ | 1,000 | | $ | — | |
Derivatives not designated as hedging instruments: | | |
Foreign currency contracts 1 | $ | 476 | | $ | (625) | |
| | |
1.Presented net of contracts bought and sold.
Derivatives Designated in Hedging Relationships
Net Foreign Investment Hedge
In the second quarter of 2021, the Company entered into a fixed-for-fixed cross currency swaps with an aggregate notional amount totaling $1 billion to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged $1 billion at an interest rate of 4.73% for €819 million at a weighted average interest rate of 3.26%. The cross-currency swap is designated as a net investment hedge and expires on November 15, 2028.
The Company has made an accounting policy election to account for the net investment hedge using the spot method. The Company has also elected to amortize the excluded components in interest expense in the related quarterly accounting period that such interest is accrued. The cross-currency swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments within AOCL, net of amounts associated with excluded components which are recognized in interest expense in the Consolidated Statements of Operations.
Interest Rate Swap Agreements
In the second quarter of 2022, the Company entered into fixed-to-floating interest rate swap agreements with an aggregate notional principal amount totaling $1 billion to hedge changes in the fair value of the Company’s long-term debt due to interest rate change movements. These swaps converted $1 billion of the Company’s $1.65 billion principal amount of fixed rate notes due 2038 into floating rate debt for the portion of their terms through 2032 with an interest rate based on the Secured Overnight Financing Rate ("SOFR"). Under the terms of the agreements, the Company agrees to exchange, at specified intervals, fixed for floating interest amounts based on the agreed upon notional principal amount. The interest rate swaps are designated as fair value hedges and expire on November 15, 2032.
The interest rate swaps are carried at fair value. Fair value hedge accounting has been applied and thus, changes in the fair value of these swaps and changes in the fair value of the related hedged portion of long-term debt will be presented and will net to zero in "Sundry income (expense) – net" in the Consolidated Statements of Operations.
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 also uses 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.
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 pretax basis related to foreign currency derivatives not designated as a hedge, which was included in “Sundry income (expense) - net” in the Consolidated Statements of Operations, was a loss of $32 million for the year ended December 31, 2022 ($40 million loss for the year ended December 31, 2021 and $1 million loss for the year ended December 31, 2020). The income statement effects of other derivatives were immaterial.
NOTE 22 - 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 December 31, 2022 | Significant Other Observable Inputs (Level 2) | | |
In millions |
Assets at fair value: | | | |
Cash equivalents and restricted cash equivalents 1 | $ | 2,308 | | | |
Marketable securities 2 | 1,302 | | | |
Derivatives relating to: 3 | | | |
Net investment hedge | 149 | | | |
Foreign currency contracts 4 | 26 | | | |
Total assets at fair value | $ | 3,785 | | | |
Liabilities at fair value: | | | |
Long-term debt including debt due within one year 5 | $ | 7,976 | | | |
Derivatives relating to: 3 | | | |
Interest rate swap agreements | 71 | | | |
Foreign currency contracts 4 | 51 | | | |
Total liabilities at fair value | $ | 8,098 | | | |
1.Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Prepaid and other current assets" in the Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2.Time deposits classified as held to maturity, with maturities of greater than three months and less than twelve months at time of acquisition, which are recorded at amortized cost which approximates fair value.
3. See Note 21 for the classification of derivatives in the Consolidated Balance Sheets.
4. Assets and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Consolidated Balance Sheets. The offsetting counterparty and cash collateral amounts were $17 million for both assets and liabilities as of December 31, 2022.
5. 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, 2021 | Significant Other Observable Inputs (Level 2) | | |
In millions |
Assets at fair value: | | | |
Cash equivalents and restricted cash equivalents 1 | $ | 906 | | | |
| | | |
Derivatives relating to: 2 | | | |
Net investment hedge | 74 | | | |
Foreign currency contracts 3 | 11 | | | |
Total assets at fair value | $ | 991 | | | |
Liabilities at fair value: | | | |
Long-term debt including debt due within one year 4 | $ | 12,595 | | | |
Derivatives relating to: 2 | | | |
Foreign currency contracts 3 | 16 | | | |
Total liabilities at fair value | $ | 12,611 | | | |
1.Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Prepaid and other current assets" in the Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. See Note 21 for the classification of derivatives in the Consolidated Balance Sheets.
3. Assets and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Consolidated Balance Sheets. The offsetting counterparty and cash collateral amounts were $6 million for both assets and liabilities as of December 31, 2021.
4. 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.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. For time deposits classified as held-to-maturity investments and reported at amortized cost, fair value is based on an observable interest rate for similar securities.
Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
There were no transfers between Levels 1 and 2 during the years ended December 31, 2022 and December 31, 2021.
Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the basis used to measure certain assets at fair value on a nonrecurring basis:
| | | | | | | | | | | | | | |
Basis of Fair Value Measurements on a Nonrecurring Basis 1 | Significant Other Unobservable Inputs (Level 3) | Total Losses |
In millions |
2022 | | |
Assets at fair value: | | |
Long-lived assets, intangible assets, and other assets | $ | 55 | | $ | (94) | |
2020 | | |
Assets at fair value: | | |
Long-lived assets, intangible assets, and other assets | $ | 158 | | $ | (642) | |
1.The Company did not incur any losses associated with fair value measurements on a nonrecurring basis for the year-ended December 31, 2021.
2022 Fair Value Measurements on a Nonrecurring Basis
During the first quarter of 2022, the Company recorded an impairment charge related to equity method investments within Electronics & Industrial. The impairment analysis was performed using Level 3 inputs within the fair value hierarchy. See Note 6 for further discussion.
2020 Fair Value Measurements on a Nonrecurring Basis
During the third quarter of 2020, the Company recorded impairment charges related to indefinite-lived intangible assets and long-lived assets within Corporate & Other segment. These impairment analyses were performed using Level 3 inputs within the fair value hierarchy. See Notes 4 and 6 for further discussion.
During the first quarter of 2020, the Company recorded impairment charges related to long-lived assets within Corporate & Other. See Notes 6 for further discussion of these fair value measurements.
NOTE 23 - SEGMENTS AND GEOGRAPHIC REGIONS
The Company's segments are aligned with the market verticals they serve, while maintaining integration and innovation strengths within strategic value chains. DuPont is comprised of two operating segments: Electronics & Industrial and Water & Protection. Major products by segment include: Electronics & Industrial (printing and packaging materials, photopolymers, electronic materials, specialty silicones and lubricants); and Water & Protection (nonwovens, aramids, construction materials, water filtration and purification resins, elements and membranes). The Company operates globally in substantially all of its product lines. Transfers of products between operating segments are generally valued at cost.
Effective February 2022, the revenues and certain expenses of the M&M Businesses are classified as discontinued operations in the current and historical periods. In addition, the Retained Businesses previously reported in the historic Mobility & Materials segment are reported in Corporate & Other. These reporting changes have been retrospectively applied for all periods presented.
The historic Mobility & Material segment costs that are classified as discontinued operations include only direct operating expenses incurred prior to the November 1, 2022 M&M Divestiture and costs which the Company will no longer incur upon the close of the Delrin® Divestiture. Indirect costs, such as those related to corporate and shared service functions previously allocated to the M&M Businesses, do not meet the criteria for discontinued operations and remain reported within continuing operations. A portion of these indirect costs include costs related to activities the Company will continue to undertake post-closing of the M&M Divestiture, and for which it will be reimbursed (“Future Reimbursable Indirect Costs”). Future Reimbursable Indirect Costs are reported within continuing operations but are excluded from operating EBITDA as defined below. The remaining portion of these indirect costs are not subject to future reimbursement (“Stranded Costs”). Stranded Costs are reported within continuing operations in Corporate & Other and are included within Operating EBITDA.
The Company's measure of profit/loss for segment reporting purposes is Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBITDA as earnings (i.e., “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains / losses, excluding Future Reimbursable Indirect Costs, and adjusted for significant items. Reconciliations of these measures are provided on the following pages.
Sales are attributed to geographic regions based on customer location; long-lived assets are attributed to geographic regions based on asset location.
| | | | | | | | | | | |
Net Trade Revenue by Geographic Region | 2022 | 2021 | 2020 |
In millions |
United States | $ | 4,066 | | $ | 3,661 | | $ | 3,386 | |
Canada | 293 | | 263 | | 223 | |
EMEA 1 | 2,193 | | 2,229 | | 1,932 | |
Asia Pacific 2 | 6,022 | | 6,026 | | 5,254 | |
Latin America | 443 | | 387 | | 333 | |
Total | $ | 13,017 | | $ | 12,566 | | $ | 11,128 | |
1.Europe, Middle East and Africa.
2. Net sales attributed to China/Hong Kong, for the years ended December 31, 2022, 2021 and 2020 were $2,744 million, $2,822 million, and $2,311 million, respectively.
| | | | | | | | | | | |
Long-lived Assets by Geographic Region | December 31, |
In millions | 2022 | 2021 | 2020 |
United States | $ | 3,501 | | $ | 3,433 | | $ | 3,309 | |
Canada | 49 | | 51 | | 52 | |
EMEA 1 | 1,271 | | 1,301 | | 1,379 | |
Asia Pacific | 883 | | 925 | | 855 | |
Latin America | 27 | | 43 | | 46 | |
Total | $ | 5,731 | | $ | 5,753 | | $ | 5,641 | |
1.Europe, Middle East and Africa.
| | | | | | | | | | | | | | |
Segment Information | Electronics & Industrial | Water & Protection | Corporate & Other | Total |
In millions |
For the Year Ended December 31, 2022 | | | | |
Net sales | $ | 5,917 | | $ | 5,957 | | $ | 1,143 | | $ | 13,017 | |
Operating EBITDA 1 | 1,836 | | 1,431 | | (6) | | 3,261 | |
Equity in earnings of nonconsolidated affiliates | 31 | | 39 | | 5 | | 75 | |
Restructuring and asset related charges - net 2 | 118 | | 17 | | 20 | | 155 | |
Depreciation and amortization | 580 | | 494 | | 61 | | 1,135 | |
Assets of continuing operations | 17,110 | | 14,831 | | 8,123 | | 40,064 | |
Investment in nonconsolidated affiliates | 396 | | 290 | | — | | 686 | |
Capital expenditures | 290 | | 289 | | 80 | | 659 | |
For the Year Ended December 31, 2021 | | | | |
Net sales | $ | 5,554 | | $ | 5,552 | | $ | 1,460 | | $ | 12,566 | |
Operating EBITDA 1 | 1,758 | | 1,385 | | 9 | | 3,152 | |
Equity in earnings of nonconsolidated affiliates | 41 | | 36 | | 8 | | 85 | |
Restructuring and asset related charges - net 2 | 8 | | 30 | | 12 | | 50 | |
Depreciation and amortization | 518 | | 511 | | 83 | | 1,112 | |
Assets of continuing operations | 17,701 | | 15,003 | | 5,094 | | 37,798 | |
Investment in nonconsolidated affiliates | 502 | | 310 | | 6 | | 818 | |
Capital expenditures | 337 | | 391 | | 88 | | 816 | |
For the Year Ended December 31, 2020 | | | | |
Net sales | $ | 4,674 | | $ | 4,993 | | $ | 1,461 | | $ | 11,128 | |
Operating EBITDA 1 | 1,468 | | 1,313 | | 61 | | 2,842 | |
Equity in earnings of nonconsolidated affiliates | 34 | | 26 | | 108 | | 168 | |
Restructuring asset related charges - net 2 | 7 | | 48 | | 759 | | 814 | |
Depreciation and amortization | 449 | | 502 | | 135 | | 1,086 | |
Assets of continuing operations | 15,065 | | 15,142 | | 11,666 | | 41,873 | |
Investment in nonconsolidated affiliates | 505 | | 315 | | 2 | | 822 | |
Capital expenditures | 345 | | 328 | | 82 | | 755 | |
| | | | |
1.A reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA is provided in the table on the following page.
2.See Note 6 for information regarding the Company's restructuring programs and asset related charges.
| | | | | | | | | | | | | | | | | |
Segment Information Reconciliation to Consolidated Financial Statements | Segment Totals | M&M Divestitures | N&B Separation | Other 1 | Total |
In millions |
For the Year Ended December 31, 2022 | | | | | |
Capital expenditures | $ | 659 | | $ | 90 | | $ | — | | $ | (6) | | $ | 743 | |
Depreciation and amortization | 1,135 | | $ | 45 | | $ | — | | $ | — | | $ | 1,180 | |
For the Year Ended December 31, 2021 | | | | | |
Capital expenditures | $ | 816 | | $ | 75 | | $ | 14 | | $ | (14) | | $ | 891 | |
Depreciation and amortization | $ | 1,112 | | $ | 283 | | $ | 63 | | $ | — | | $ | 1,458 | |
For the Year Ended December 31, 2020 | | | | | |
Capital expenditures | $ | 755 | | $ | 78 | | $ | 213 | | $ | 148 | | $ | 1,194 | |
Depreciation and amortization | $ | 1,086 | | $ | 287 | | $ | 1,721 | | $ | — | | $ | 3,094 | |
1.Reflects the incremental cash spent or unpaid on capital expenditures; total capital expenditures are presented on a cash basis.
| | | | | | | | | | | |
Total Asset Reconciliation at December 31, | 2022 | 2021 | 2020 |
In millions |
Assets of continuing operations | $ | 40,064 | | $ | 37,798 | | $ | 41,873 | |
Assets held for sale | — | | 245 | | 810 | |
Assets of discontinued operations | 1,291 | | 7,664 | | 28,220 | |
Total assets | $ | 41,355 | | $ | 45,707 | | $ | 70,903 | |
| | | | | | | | | | | | | | |
Reconciliation of "Income (Loss) from continuing operations, net of tax" to Operating EBITDA | 2022 | 2021 | 2020 |
In millions |
Income (Loss) from continuing operations, net of tax | $ | 1,061 | | $ | 1,207 | | $ | (1,349) | |
+ | Provision for income taxes on continuing operations | 387 | | 237 | | 90 | |
Income (Loss) from continuing operations before income taxes | $ | 1,448 | | $ | 1,444 | | $ | (1,259) | |
+ | Depreciation and amortization | 1,135 | | 1,112 | | 1,086 | |
- | Interest income 1 | 50 | | 12 | | 18 | |
+ | Interest expense 2 | 486 | | 503 | | 672 | |
- | Non-operating pension/OPEB benefit 1 | 28 | | 30 | | 12 | |
- | Foreign exchange losses (gains), net 1 | 15 | | (53) | | (54) | |
+ | Future reimbursable indirect costs | 52 | | 60 | | 59 | |
- | Significant items | (233) | | (22) | | (2,260) | |
Operating EBITDA | $ | 3,261 | | $ | 3,152 | | $ | 2,842 | |
1.Included in "Sundry income (expense) - net."
2.The year ended December 31, 2022 and December 31, 2021 excludes significant items, refer to details below.
The following tables summarize the pre-tax impact of significant items by segment that are excluded from Operating EBITDA above:
| | | | | | | | | | | | | | |
Significant Items by Segment for the Year Ended December 31, 2022 | Electronics & Industrial | Water & Protection | Corporate & Other | Total |
In millions |
Acquisition, integration and separation costs 1 | $ | — | | $ | — | | $ | (193) | | $ | (193) | |
Restructuring and asset related charges - net 2 | (24) | | (17) | | (20) | | (61) | |
Asset impairment charges 3 | (94) | | — | | — | | (94) | |
Gain on divestiture 4 | — | | 37 | | 32 | | 69 | |
Terminated Intended Rogers Acquisition financing fees 5 | — | | — | | (6) | | (6) | |
Employee Retention Credit 6 | 20 | | 20 | | 12 | | 52 | |
Total | $ | (98) | | $ | 40 | | $ | (175) | | $ | (233) | |
1. Acquisition, integration and separation costs related to strategic initiatives including the sale of the Biomaterials business unit, the acquisition of Laird PM, and the termination fee of $162.5 million associated with the Terminated Intended Rogers Acquisition.
2. Includes restructuring actions and asset related charges. See Note 6 for additional information.
3. Relates to an impairment of an equity method investment. See Note 6 for additional information.
4. Reflected in "Sundry income (expense) - net." Refer to Note 4 for additional information.
5. Includes acquisition costs associated with the Terminated Intended Rogers Acquisition related to the financing agreements, specifically the structuring fees and the amortization of the commitment fees reflected in "Interest Expense."
6. Employee Retention Credit pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act as enhanced by the Consolidated Appropriations Act (“CAA”) and American Rescue Plan Act (“ARPA”) reflected in "Cost of sales," "Research and development expenses" and "Selling, general and administrative expenses."
| | | | | | | | | | | | | | |
Significant Items by Segment for the Year Ended December 31, 2021 | Electronics & Industrial | Water & Protection | Corporate & Other | Total |
In millions |
Acquisition, integration and separation costs 1 | $ | — | | $ | — | | $ | (81) | | $ | (81) | |
Restructuring and asset related charges - net 2 | (8) | | (30) | | (12) | | (50) | |
Merger-related inventory step-up amortization 3 | (12) | | — | | — | | (12) | |
Gain on divestiture 4 | 2 | | — | | 141 | | 143 | |
Terminated Intended Rogers Acquisition financing fees 5 | — | | — | | (22) | | (22) | |
Total | $ | (18) | | $ | (30) | | $ | 26 | | $ | (22) | |
1. Acquisition, integration and separation costs related to strategic initiatives including the acquisition of Laird PM, the M&M Divestitures, the Terminated Intended Rogers Acquisition, and the completed and planned divestitures of the held for sale businesses included within Corporate & Other.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Includes the amortization of the fair value step-up in Laird PM's inventories as a result of the acquisition.
4. Reflected in "Sundry income (expense) - net." Refer to Note 4 for additional information.
5. Includes acquisition costs associated with the Terminated Intended Rogers Acquisition related to the financing agreements, specifically the structuring fees and the amortization of the commitment fees reflected in "Interest Expense."
| | | | | | | | | | | | | | |
Significant Items by Segment for the Year Ended December 31, 2020 | Electronics & Industrial | Water & Protection | Corporate & Other | Total |
In millions |
Acquisition, integration and separation costs 1 | $ | — | | $ | — | | $ | (177) | | $ | (177) | |
Restructuring and asset related charges - net 2 | (7) | | (48) | | (117) | | (172) | |
Goodwill impairment charges 3 | (834) | | — | | (1,028) | | (1,862) | |
Asset impairment charges 4 | — | | — | | (642) | | (642) | |
Gain on divestiture 5 | 197 | | — | | 396 | | 593 | |
Total | $ | (644) | | $ | (48) | | $ | (1,568) | | $ | (2,260) | |
1.Acquisition, integration and separation costs related to strategic initiatives including the divestiture of the held for sale businesses and post-DWDP Merger integration.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Reflects non-cash goodwill impairment charges recorded as follows: a $533 million charge recorded in the first quarter 2020 related to PVAM reflected in Corporate & Other; a $1,146 million charge recorded in the second quarter 2020 related to the Electronics & Industrial and Corporate & Other; and $183 million in charges recorded in the third quarter of 2020 related to the PVAM business reflected in Corporate & Other. The impairment analysis were performed due to lower than expected proceeds of a potential divestiture serving as a triggering event, demand declines due to COVID-19, and softening conditions in certain end markets.
4. See Note 6 for additional information.
5. Refer to Note 4 for additional information.