NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
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Note
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the interim statements reflect all adjustments (including normal recurring accruals) which are considered necessary for the fair statement of the results for the periods presented. Results from interim periods should not be considered indicative of results for the full year. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, collectively referred to as the “2018 Annual Report.” The interim Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained.
Basis of Presentation
Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 ("Merger Agreement"), The Dow Chemical Company ("Historical Dow") and E. I. du Pont de Nemours and Company ("Historical EID") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Historical Dow and Historical EID became subsidiaries of DowDuPont (the "Merger"). Prior to the Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the Merger Agreement. Historical Dow was determined to be the accounting acquirer in the Merger.
Except as otherwise indicated by the context, the term "Historical Dow" includes Historical Dow and its consolidated subsidiaries, "Historical EID" includes Historical EID and its consolidated subsidiaries, and "Dow Silicones" means Dow Silicones Corporation, a wholly owned subsidiary of Historical Dow.
Spin-Offs
Effective as of 5:00 p.m. on April 1, 2019, the Company completed the previously announced separation of its materials science business into a separate and independent public company by way of a distribution of Dow Inc. (“Dow”) through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Dow’s common stock (the “Dow Common Stock”), to holders of the Company’s common stock (the “DowDuPont common stock”), as of the close of business on March 21, 2019 (the “Dow Distribution”).
Effective as of 12:01 a.m. on June 1, 2019, the Company completed the previously announced separation of its agriculture business into a separate and independent public company by way of a distribution of Corteva, Inc. (“Corteva”) through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Corteva’s common stock (the “Corteva Common Stock”), to holders of the Company’s common stock as of the close of business on May 24, 2019 (the “Corteva Distribution” and, together with the Dow Distribution, the “Distributions”).
Following the Corteva Distribution, DuPont holds the specialty products business. On June 1, 2019, DowDuPont changed its registered name from "DowDuPont Inc." to "DuPont de Nemours, Inc." doing business as "DuPont." Beginning on June 3, 2019, the Company's common stock is traded on the NYSE under the ticker symbol "DD".
These interim Consolidated Financial Statements present the financial position of DuPont as of September 30, 2019 and December 31, 2018 and the results of operations of DuPont for the three and nine months ended September 30, 2019 and 2018 giving effect to the Distributions, with the historical financial results of Dow and Corteva reflected as discontinued operations. The cash flows and comprehensive income related to Dow and Corteva have not been segregated and are included in the interim 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 interim Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of Dow or Corteva.
Reverse Stock Split
On June 1, 2019, immediately following the Corteva Distribution, the Company completed a 1-for-3 reverse stock split of DuPont's outstanding common stock (the "Reverse Stock Split") and as a result, DuPont common stockholders now hold one share of common stock of DuPont for every three shares held prior to the Reverse Stock Split. The authorized number of shares of common stock was reduced from 5,000,000,000 shares to 1,666,666,667 shares, par value remained $0.01 per share. Stockholders entitled to fractional shares as a result of the Reverse Stock Split received a cash payment in lieu of receiving fractional shares. All share and share-related information presented in these interim Consolidated Financial Statements have been retroactively adjusted in all periods presented to reflect the decreased number of shares resulting from the Reverse Stock Split. The retroactive adjustments
resulted in the reclassification of $16 million from "Common stock" to "Additional paid-in capital" in the interim Condensed Consolidated Balance Sheets for all periods presented.
Significant Accounting Policies
The Company updated its accounting policy for leases since the issuance of its 2018 Annual Report as a result of the adoption of Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" in the first quarter of 2019. After the completion of the Distributions, the Company updated its accounting policy for inventories. See Note 1, "Summary of Significant Accounting Policies," to the 2018 Annual Report for more information on DuPont's other significant accounting policies.
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. 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 interim Condensed Consolidated Balance Sheets. Operating lease liabilities are included in "Accrued and other current liabilities" and "Other noncurrent obligations" on the interim Condensed Consolidated Balance Sheets. Finance lease ROU assets are included in "Property, plant and equipment - net" and the corresponding lease liabilities are included in "Short-term borrowings and finance lease obligations" and "Long-term debt" on the interim Condensed Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide the lessor's implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the interim 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.
See Notes 2 and 16 for additional information regarding the Company's leases.
Inventories
Prior to the Corteva Distribution, the Company recorded inventory under the last-in, first-out ("LIFO"), first-in, first-out and average cost methods. During the second quarter, effective after the Corteva Distribution, DuPont elected to change the method of accounting for inventories of the specialty products business recorded under the LIFO method to the average cost method. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Note 10 for more information regarding the change in inventory accounting method.
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842), and associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and measurement in the financial statements depends on whether the lease is classified as a finance or operating lease. In addition, the new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from previous U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance, referred to as "Topic 606," issued in 2014.
The Company adopted the new standard in the first quarter of 2019, which allows for a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial adoption. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statement as its date of initial application. The Company has elected to apply the transition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods are not restated and continue to be reported in accordance with historic accounting under ASC 840 (Leases). In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company chose to not apply the standard to certain existing land easements, excluded short-term leases (term of 12 months or less) from the balance sheet and accounts for non-lease and lease components in a contract as a single component for all asset classes. The following table summarizes the impact of adoption to the consolidated balance sheet:
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Summary of Changes to the Consolidated Balance Sheet
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As Reported
Dec 31, 2018 1
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Effect of Adoption of ASU 2016-02
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Updated
Jan 1, 2019
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In millions
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Assets
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Deferred charges and other assets
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$
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134
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$
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584
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$
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718
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Total other assets
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$
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49,463
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$
|
584
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$
|
50,047
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Assets of discontinued operations
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$
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110,275
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$
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2,787
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$
|
113,062
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Total Assets
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$
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187,855
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$
|
3,371
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|
$
|
191,226
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|
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Liabilities
|
|
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Accrued and other current liabilities
|
$
|
1,129
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|
$
|
156
|
|
$
|
1,285
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|
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Total current liabilities
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$
|
73,312
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|
$
|
156
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|
$
|
73,468
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|
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Other noncurrent obligations
|
$
|
764
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|
$
|
428
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|
$
|
1,192
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Total other noncurrent liabilities
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$
|
6,019
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|
$
|
428
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|
$
|
6,447
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|
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Liabilities of discontinued operations
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$
|
69,434
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|
$
|
2,715
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|
$
|
72,149
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|
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Total Liabilities
|
$
|
91,955
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|
$
|
3,299
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|
$
|
95,254
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Stockholders' Equity
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|
|
|
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Retained earnings 2
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$
|
30,257
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$
|
72
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$
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30,329
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DuPont's stockholders' equity
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$
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94,292
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$
|
72
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$
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94,364
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Total equity
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$
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95,900
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|
$
|
72
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|
$
|
95,972
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Total Liabilities and Equity
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$
|
187,855
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$
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3,371
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$
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191,226
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1. The as reported December 31, 2018 information has been updated to reflect the impact of the reverse stock split and the change in accounting policy discussed in Note 1.
2. The net impact to retained earnings was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction.
The adoption of the new guidance did not have a material impact on the Company's interim Consolidated Statement of Operations and had no impact on the interim Consolidated Statement of Cash Flows.
Accounting Guidance Issued But Not Adopted at September 30, 2019
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in ASC 820, Fair Value Measurement. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements,
with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This new standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350, Intangibles - Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance and based on the analysis performed to date does not expect there to be a significant impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further updated in November 2018 and May 2019. The new guidance introduces the current expected credit loss (CECL) model, which will require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including trade receivables, based on expected losses rather than incurred losses. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on the Consolidated Financial Statements and related disclosures.
NOTE 3 - DIVESTITURES
Separation Agreements
In connection with the Dow Distribution and the Corteva Distribution, the Company has entered into certain agreements that, among other things, effect the separations, provide for the allocation of assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among DuPont, Dow, and Corteva (together, the “Parties” and each a “Party”), and provide a framework for DuPont’s relationship with Dow and Corteva following the Distributions. Effective April 1, 2019, the Parties entered into the following agreements:
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•
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Separation and Distribution Agreement - The Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Separation and Distribution Agreement").
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|
|
|
|
•
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Tax Matters Agreement - The Parties entered into an agreement that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
|
|
|
|
|
•
|
Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.
|
|
|
|
|
•
|
Intellectual Property Cross-License Agreement - DuPont entered into an Intellectual Property Cross-License Agreement with Dow (the “DuPont-Dow IP Cross-License Agreement”). The DuPont-Dow IP Cross-License Agreement sets forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
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In addition to the agreements above, DuPont has entered into certain various supply agreements with Dow. These agreements provide for different pricing than the historical intercompany and intracompany practices prior to the Distributions.
Effective June 1, 2019, in connection with the Corteva Distribution, DuPont and Corteva entered into the following agreements:
|
|
|
|
•
|
Intellectual Property Cross-License Agreement - DuPont and Corteva entered into an Intellectual Property Cross-License Agreement (the “DuPont-Corteva IP Cross-License Agreement”). The DuPont-Corteva IP Cross-License Agreement sets forth the terms and conditions under which the applicable parties may use in their respective businesses, following the Corteva Distribution, certain know-how (including trade secrets), copyrights, software, and certain patents and standards, allocated to another Party pursuant to the Separation and Distribution Agreement.
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|
|
|
|
•
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Letter Agreement - The Company entered into a letter agreement (the "Letter Agreement") with Corteva that sets forth certain additional terms and conditions related to the Corteva Distribution, including certain limitations on DuPont’s and Corteva's ability to transfer certain businesses and assets to third parties without assigning certain of such Party’s indemnification obligations under the Separation and Distribution Agreement to the other Party to the transferee of such businesses and assets or meeting certain other alternative conditions. The Letter Agreement further outlines the allocation between DuPont and Corteva of liabilities associated with certain legal and environmental matters, including liabilities associated with discontinued and/or divested operations and businesses of Historical EID. See Note 15 for more information regarding the allocation.
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|
|
|
|
•
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Amended and Restated Tax Matters Agreement - The Parties entered into an amendment and restatement of the Tax Matters Agreement, between DuPont, Corteva and Dow, effective as of April 1, 2019 (as so amended and restated, the “Amended and Restated Tax Matters Agreement”). The Amended and Restated Tax Matters Agreement governs the Parties’ rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. The Parties amended and restated the Tax Matters Agreement in connection with the Corteva Distribution in order to allocate between DuPont and Corteva certain rights and obligations of the Company provided in the original form of the Tax Matters Agreement. See Note 7 for additional information on the Tax Matters Agreement and the Amended and Restated Tax Matters Agreement.
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Materials Science Division
On April 1, 2019, DowDuPont completed the separation of its Materials Science businesses, including the businesses and operations that comprised the Company's former Performance Materials & Coating, Industrial Intermediates & Infrastructure and the Packaging & Specialty Plastics segments, (the "Materials Science Division") through the consummation of the Dow Distribution.
On April 1, 2019, prior to the Dow Distribution, the Company contributed $2,024 million in cash to Dow.
The results of operations of the Materials Science Division are presented as discontinued operations as summarized below:
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|
|
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|
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|
|
|
|
|
|
|
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Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Net sales
|
$
|
12,485
|
|
$
|
10,867
|
|
$
|
37,375
|
|
|
Cost of sales
|
10,190
|
|
8,917
|
|
30,245
|
|
|
Research and development expenses
|
158
|
|
163
|
|
519
|
|
|
Selling, general and administrative expenses
|
302
|
|
329
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|
1,006
|
|
|
Amortization of intangibles
|
118
|
|
116
|
|
353
|
|
|
Restructuring and asset related charges - net
|
46
|
|
157
|
|
174
|
|
|
Integration and separation costs
|
36
|
|
44
|
|
89
|
|
|
Equity in earnings of nonconsolidated affiliates
|
135
|
|
(13
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)
|
530
|
|
|
Sundry income (expense) - net 1
|
1
|
|
17
|
|
118
|
|
|
Interest expense
|
255
|
|
240
|
|
779
|
|
|
Income from discontinued operations before income taxes
|
1,516
|
|
905
|
|
4,858
|
|
|
Provision for income taxes on discontinued operations 1
|
398
|
|
176
|
|
1,084
|
|
|
Income from discontinued operations, net of tax
|
1,118
|
|
729
|
|
3,774
|
|
|
Income from discontinued operations attributable to noncontrolling interests, net of tax
|
30
|
|
37
|
|
78
|
|
|
Income from discontinued operations attributable to DuPont stockholders, net of tax
|
$
|
1,088
|
|
$
|
692
|
|
$
|
3,696
|
|
|
|
|
|
1.
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The three and nine months ended September 30, 2019 includes $82 million of expense in "Sundry income (expense) - net" and a benefit of $85 million in "Provision for income taxes on discontinued operations" related to certain unrecognized tax benefits for positions taken on items from prior years.
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The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Materials Science Division:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Depreciation and amortization
|
$
|
719
|
|
$
|
744
|
|
$
|
2,127
|
|
|
Capital expenditures
|
$
|
575
|
|
$
|
597
|
|
$
|
1,443
|
|
The carrying amount of major classes of assets and liabilities classified that were included in discontinued operations at December 31, 2018 related to the Material Science Division consist of the following:
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|
|
|
|
|
|
|
|
Dec 31, 2018
|
|
In millions
|
|
Assets
|
|
|
Cash and cash equivalents
|
$
|
2,723
|
|
|
Marketable securities
|
100
|
|
|
Accounts and notes receivable - net
|
8,839
|
|
|
Inventories
|
6,891
|
|
|
Other current assets
|
722
|
|
|
Investment in nonconsolidated affiliates
|
3,321
|
|
|
Other investments
|
2,646
|
|
|
Noncurrent receivables
|
358
|
|
|
Property, plant, and equipment - net
|
21,418
|
|
|
Goodwill
|
9,845
|
|
|
Other intangible assets - net
|
4,225
|
|
|
Deferred income tax assets
|
2,197
|
|
|
Deferred charges and other assets
|
742
|
|
|
Total assets of discontinued operations
|
$
|
64,027
|
|
|
Liabilities
|
|
|
Short-term borrowings and finance lease obligations
|
$
|
636
|
|
|
Accounts payable
|
6,867
|
|
|
Income taxes payable
|
557
|
|
|
Accrued and other current liabilities
|
2,931
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|
|
Long-Term Debt
|
19,254
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|
|
Deferred income tax liabilities
|
917
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|
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Pension and other post employment benefits - noncurrent
|
8,929
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|
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Asbestos-related liabilities - noncurrent
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1,142
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|
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Other noncurrent obligations
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4,706
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Total liabilities of discontinued operations
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$
|
45,939
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Agriculture Division
On June 1, 2019, the Company completed the separation of its Agriculture business, including the businesses and operations that comprised the Company's former Agriculture segment (the "Agriculture Division"), through the consummation of the Corteva Distribution.
In 2019, prior to the distribution of Corteva, the Company contributed $7,139 million in cash to Corteva, a portion of which was used to retire indebtedness of Historical EID.
The results of operations of the Agriculture Division are presented as discontinued operations as summarized below:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Net sales
|
$
|
1,955
|
|
$
|
7,144
|
|
$
|
11,366
|
|
|
Cost of sales
|
1,512
|
|
4,218
|
|
7,864
|
|
|
Research and development expenses
|
318
|
|
470
|
|
984
|
|
|
Selling, general and administrative expenses
|
463
|
|
1,294
|
|
1,836
|
|
|
Amortization of intangibles
|
88
|
|
176
|
|
284
|
|
|
Restructuring and asset related charges - net
|
233
|
|
117
|
|
457
|
|
|
Integration and separation costs
|
111
|
|
430
|
|
280
|
|
|
Equity in earnings of nonconsolidated affiliates
|
(2
|
)
|
(4
|
)
|
(1
|
)
|
|
Sundry income (expense) - net 1
|
55
|
|
52
|
|
247
|
|
|
Interest expense
|
107
|
|
91
|
|
293
|
|
|
Income from discontinued operations before income taxes
|
(824
|
)
|
396
|
|
(386
|
)
|
|
Provision for income taxes on discontinued operations 1
|
(114
|
)
|
74
|
|
(8
|
)
|
|
Income from discontinued operations, net of tax
|
$
|
(710
|
)
|
$
|
322
|
|
$
|
(378
|
)
|
|
Income from discontinued operations attributable to noncontrolling interests, net of tax
|
(7
|
)
|
35
|
|
13
|
|
|
Income from discontinued operations attributable to DuPont stockholders, net of tax
|
$
|
(703
|
)
|
$
|
287
|
|
$
|
(391
|
)
|
|
|
|
|
1.
|
The three and nine months ended September 30, 2019 includes $6 million of expense in "Sundry income (expense) - net" and a benefit of $8 million in "Provision for income taxes on discontinued operations" related to certain unrecognized tax benefits for positions taken on items from prior years.
|
Restructuring Charges related to the Agriculture Division
Restructuring charges associated with the Agriculture Division were designed to integrate and optimize the organization following the Merger and in preparation for the Distributions. The complete DowDuPont Agriculture Division Restructuring Program is included in the results of operations of the Agriculture Division within discontinued operations, as well as restructuring charges related to the DowDuPont Cost Synergy Program related to the Agriculture Division.
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the Agriculture Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Depreciation and amortization
|
$
|
209
|
|
$
|
385
|
|
$
|
679
|
|
|
Capital expenditures
|
$
|
123
|
|
$
|
383
|
|
$
|
330
|
|
The carrying amount of major classes of assets and liabilities classified that were included in discontinued operations at December 31, 2018 related to the Agriculture Division consist of the following:
|
|
|
|
|
|
|
|
|
Dec 31, 2018
|
|
In millions
|
|
Assets
|
|
|
Cash and cash equivalents
|
$
|
2,211
|
|
|
Marketable securities
|
5
|
|
|
Accounts and notes receivable - net
|
5,109
|
|
|
Inventories
|
5,259
|
|
|
Other current assets
|
1,000
|
|
|
Investment in nonconsolidated affiliates
|
138
|
|
|
Other investments
|
27
|
|
|
Noncurrent receivables
|
72
|
|
|
Property, plant and equipment - net
|
4,543
|
|
|
Goodwill
|
14,691
|
|
|
Other intangible assets - net
|
12,055
|
|
|
Deferred income tax assets
|
(651
|
)
|
|
Deferred charges and other assets
|
1,789
|
|
|
Total assets of discontinued operations
|
$
|
46,248
|
|
|
Liabilities
|
|
|
Short-term borrowings and finance lease obligations
|
$
|
2,151
|
|
|
Accounts payable
|
3,627
|
|
|
Income taxes payable
|
185
|
|
|
Accrued and other current liabilities
|
3,883
|
|
|
Long-Term Debt
|
5,784
|
|
|
Deferred income tax liabilities
|
520
|
|
|
Pension and other post employment benefits - noncurrent
|
5,637
|
|
|
Other noncurrent obligations
|
1,708
|
|
|
Total liabilities of discontinued operations
|
$
|
23,495
|
|
Indemnifications
In connection with the Distributions, Dow and Corteva indemnify the Company against, and DuPont indemnifies both Dow and Corteva against certain litigation, environmental, income taxes, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. At September 30, 2019, the indemnified assets are $122 million within "Accounts and notes receivable, net" and $157 million within "Deferred charges and other assets" and liabilities of $103 million within "Accrued and other current liabilities" and $102 million within "Other noncurrent obligations."
For additional information regarding treatment of litigation and environmental related matters under the Separation and Distribution Agreement and the Letter Agreement refer to Note 15.
Other Discontinued Operations Activity
For the nine months ended September 30, 2019, the Company recorded "Income from discontinued operations, net of tax" of $86 million, respectively, related to the adjustment of certain unrecognized tax benefits for positions taken on items from prior years from previously divested businesses and $80 million related to changes in accruals for certain prior year tax positions related to the divested crop protection business and research and development assets of Historical EID.
DuPont Sustainable Solutions Sale
In the third quarter of 2019, the Company completed the sale of its Sustainable Solutions business unit, a part of the Non-Core segment, to Gyrus Capital. The sale resulted in a pre-tax gain of $28 million ($22 million net of tax). The gain was recorded in "Sundry income (expense) - net" in the Company's interim Consolidated Statements of Operations for the three and nine months ended September 30, 2019.
Integration and Separation Costs
Integration and separation costs for continuing operations primarily have consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger and the Distributions. These costs are recorded within "Integration and separation costs" within the interim Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Integration and separation costs
|
$
|
191
|
|
$
|
519
|
|
$
|
1,149
|
|
$
|
1,312
|
|
NOTE 4 - REVENUE
Revenue Recognition
Products
Substantially all of DuPont's revenue is derived from product sales. Product sales consist of sales of DuPont's products to supply manufacturers and distributors. DuPont considers purchase orders, which in some cases are governed by master supply agreements, to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year.
Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by segment and business or major product line and geographic region, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows.
On June 1, 2019, the Company realigned certain businesses resulting in changes to its management and reporting structure, including the creation of a new Non-Core segment ("Second Quarter Segment Realignment") (refer to Note 23 for additional details). In conjunction with the Second Quarter Segment Realignment, DuPont made the following changes to its major product lines:
|
|
|
|
•
|
Realigned its product lines within Nutrition & Biosciences as Food & Beverage, Health & Biosciences, and Pharma Solutions;
|
|
|
|
|
•
|
Renamed its product lines within Transportation & Industrial (formerly known as Transportation & Advanced Polymers) as Mobility Solutions, Healthcare & Specialty, and Industrial & Consumer (formerly known as Engineering Polymers, Performance Solutions, and Performance Resins, respectively); and
|
|
|
|
|
•
|
Realigned and renamed its product lines within Safety & Construction as Safety Solutions, Shelter Solutions, and Water Solutions.
|
Effective October 1, 2019, Electronics & Imaging realigned its product lines as Image Solutions, Interconnect Solutions and Semiconductor Technologies. The Company will recast its revenue by product group to reflect the new structure beginning with the Company's 2019 annual financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Trade Revenue by Segment and Business or Major Product Line
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Advanced Printing
|
$
|
113
|
|
$
|
129
|
|
$
|
353
|
|
$
|
387
|
|
|
Display Technologies
|
83
|
|
88
|
|
242
|
|
230
|
|
|
Interconnect Solutions
|
339
|
|
313
|
|
859
|
|
892
|
|
|
Semiconductor Technologies
|
399
|
|
410
|
|
1,163
|
|
1,216
|
|
|
Electronics & Imaging
|
$
|
934
|
|
$
|
940
|
|
$
|
2,617
|
|
$
|
2,725
|
|
|
Food & Beverage
|
$
|
736
|
|
$
|
733
|
|
$
|
2,237
|
|
$
|
2,260
|
|
|
Health & Biosciences
|
582
|
|
601
|
|
1,756
|
|
1,837
|
|
|
Pharma Solutions
|
207
|
|
199
|
|
625
|
|
634
|
|
|
Nutrition & Biosciences
|
$
|
1,525
|
|
$
|
1,533
|
|
$
|
4,618
|
|
$
|
4,731
|
|
|
Mobility Solutions
|
$
|
559
|
|
$
|
648
|
|
$
|
1,772
|
|
$
|
1,917
|
|
|
Healthcare & Specialty
|
376
|
|
387
|
|
1,148
|
|
1,217
|
|
|
Industrial & Consumer
|
274
|
|
322
|
|
875
|
|
1,018
|
|
|
Transportation & Industrial
|
$
|
1,209
|
|
$
|
1,357
|
|
$
|
3,795
|
|
$
|
4,152
|
|
|
Safety Solutions
|
$
|
630
|
|
$
|
619
|
|
$
|
1,952
|
|
$
|
1,870
|
|
|
Shelter Solutions
|
411
|
|
473
|
|
1,166
|
|
1,367
|
|
|
Water Solutions
|
286
|
|
272
|
|
833
|
|
763
|
|
|
Safety & Construction
|
$
|
1,327
|
|
$
|
1,364
|
|
$
|
3,951
|
|
$
|
4,000
|
|
|
Biomaterials
|
$
|
54
|
|
$
|
74
|
|
$
|
166
|
|
$
|
218
|
|
|
Clean Technologies
|
78
|
|
71
|
|
219
|
|
224
|
|
|
DuPont Teijin Films
|
48
|
|
51
|
|
127
|
|
149
|
|
|
Photovoltaic & Advanced Materials
|
223
|
|
255
|
|
707
|
|
826
|
|
|
Sustainable Solutions
|
28
|
|
38
|
|
108
|
|
112
|
|
|
Non-Core
|
$
|
431
|
|
$
|
489
|
|
$
|
1,327
|
|
$
|
1,529
|
|
|
Total
|
$
|
5,426
|
|
$
|
5,683
|
|
$
|
16,308
|
|
$
|
17,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Trade Revenue by Geographic Region
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
U.S. & Canada
|
$
|
1,822
|
|
$
|
1,814
|
|
5,424
|
|
5,457
|
|
|
EMEA 1
|
1,227
|
|
1,362
|
|
3,898
|
|
4,319
|
|
|
Asia Pacific
|
2,057
|
|
2,164
|
|
6,036
|
|
6,375
|
|
|
Latin America
|
320
|
|
343
|
|
950
|
|
986
|
|
|
Total
|
$
|
5,426
|
|
$
|
5,683
|
|
$
|
16,308
|
|
$
|
17,137
|
|
|
|
|
|
1.
|
Europe, Middle East and Africa.
|
Contract Balances
From time to time, the Company enters into arrangements in which it receives payments from customers based upon contractual billing schedules. The Company records accounts receivables when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities primarily reflect deferred revenue from advance payment for product that the Company has received from customers. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue.
Revenue recognized in the first nine months of 2019 from amounts included in contract liabilities at the beginning of the period was approximately $31 million (approximately $36 million in the first nine months of 2018). The amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was insignificant. The Company did not recognize any asset impairment charges related to contract assets during the period.
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
|
Accounts and notes receivable - trade 1
|
$
|
3,157
|
|
$
|
2,960
|
|
|
Contract assets - current 2
|
$
|
36
|
|
$
|
48
|
|
|
Deferred revenue - current 3
|
$
|
95
|
|
$
|
71
|
|
|
Deferred revenue - noncurrent 4
|
$
|
12
|
|
$
|
7
|
|
|
|
|
|
1.
|
Included in "Accounts and notes receivable - net" in the interim Condensed Consolidated Balance Sheets.
|
|
|
|
|
2.
|
Included in "Other current assets" in the interim Condensed Consolidated Balance Sheets.
|
|
|
|
|
3.
|
Included in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets.
|
|
|
|
|
4.
|
Included in "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheets.
|
Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. At September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $34 million. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next 2 years.
NOTE 5 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and other asset related charges, which includes other asset impairments, were $82 million and $290 million for the three and nine months ended September 30, 2019 ($11 million and $110 million for the three and nine months ended September 30, 2018). These charges were recorded in "Restructuring and asset related charges - net" in the interim Consolidated Statements of Operations and consist primarily of the following:
2019 Restructuring Program
During the second quarter 2019 and in connection with the ongoing integration activities, DuPont approved restructuring actions to simplify and optimize certain organizational structures following the completion of the Distributions (the "2019 Restructuring Program").
The following tables summarize the charges incurred related to the 2019 Restructuring Program for the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Three Months Ended September 30, 2019
|
Nine Months Ended
September 30, 2019
|
|
Severance and related benefit costs
|
$
|
48
|
|
$
|
98
|
|
|
Asset related charges
|
21
|
|
24
|
|
|
Total restructuring and asset related charges - net
|
$
|
69
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Restructuring Program Charges by Segment
|
Three Months Ended
September 30, 2019
|
Nine Months Ended
September 30, 2019
|
|
In millions
|
|
Electronics & Imaging
|
$
|
35
|
|
$
|
42
|
|
|
Nutrition & Biosciences
|
4
|
|
18
|
|
|
Transportation & Industrial
|
6
|
|
18
|
|
|
Safety & Construction
|
3
|
|
20
|
|
|
Non-Core
|
3
|
|
3
|
|
|
Corporate
|
18
|
|
21
|
|
|
Total
|
$
|
69
|
|
$
|
122
|
|
The following table summarized the activities related to the 2019 Restructuring Program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Restructuring Program
|
Severance and Related Benefit Costs
|
Asset Related Charges
|
Total
|
|
In millions
|
|
Reserve balance at December 31, 2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
2019 restructuring charges
|
98
|
|
24
|
|
122
|
|
|
Charges against the reserve
|
—
|
|
(24
|
)
|
(24
|
)
|
|
Cash payments
|
(4
|
)
|
—
|
|
(4
|
)
|
|
Reserve balance at September 30, 2019
|
$
|
94
|
|
$
|
—
|
|
$
|
94
|
|
At September 30, 2019, $94 million for severance and related benefit costs was included in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets. The Company expects actions related to this program to be substantially complete by the second half of 2020.
DowDuPont Cost Synergy Program
In September and November 2017, the Company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program, which was designed to integrate and optimize the organization following the Merger and in preparation for the Distributions of Dow and Corteva. The portions of the charges, costs and expenses attributable to integration and optimization within the Agriculture and Materials Sciences Divisions are reflected in discontinued operations. The Company has recorded pretax restructuring charges attributable to the continuing operations of DuPont of $480 million inception-to-date, consisting of severance and related benefit costs of $222 million, asset related charges of $198 million and contract termination charges of $60 million related to charges. The Company does not expect to incur further significant charges related to this program and the program is considered substantially complete at September 30, 2019.
The following tables summarize the charges incurred related to the DowDuPont Cost Synergy Program for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Severance and related benefit costs
|
$
|
—
|
|
$
|
9
|
|
$
|
49
|
|
$
|
86
|
|
|
Contract termination charges
|
—
|
|
—
|
|
16
|
|
15
|
|
|
Asset related charges
|
14
|
|
2
|
|
43
|
|
9
|
|
|
Total restructuring and asset related charges - net1
|
$
|
14
|
|
$
|
11
|
|
$
|
108
|
|
$
|
110
|
|
|
|
|
|
1.
|
The charge for the three and nine months ended September 30, 2019 includes $13 million and $105 million which was recognized in "Restructuring and asset related charges - net" and $1 million and $3 million which was recognized in "Equity in earnings of nonconsolidated affiliates" in the interim Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DowDuPont Cost Synergy Program Charges by Segment
|
Three Months Ended September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Electronics & Imaging
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2
|
|
|
Nutrition & Biosciences
|
3
|
|
—
|
|
38
|
|
—
|
|
|
Transportation & Industrial
|
—
|
|
—
|
|
—
|
|
(1
|
)
|
|
Safety & Construction
|
2
|
|
2
|
|
7
|
|
21
|
|
|
Non-Core
|
(1
|
)
|
1
|
|
(1
|
)
|
(5
|
)
|
|
Corporate 1
|
10
|
|
8
|
|
64
|
|
93
|
|
|
Total
|
$
|
14
|
|
$
|
11
|
|
$
|
108
|
|
$
|
110
|
|
|
|
|
|
1.
|
Severance and related benefit costs were recorded at Corporate.
|
The following table summarized the activities related to the DowDuPont Cost Synergy Program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DowDuPont Cost Synergy Program
|
Severance and Related Benefit Costs
|
Contract Termination Charges
|
Asset Related Charges
|
Total
|
|
In millions
|
|
Reserve balance at December 31, 2018
|
$
|
126
|
|
$
|
16
|
|
$
|
—
|
|
$
|
142
|
|
|
2019 restructuring charges
|
49
|
|
16
|
|
43
|
|
108
|
|
|
Charges against the reserve
|
—
|
|
—
|
|
(43
|
)
|
(43
|
)
|
|
Cash payments
|
(83
|
)
|
(29
|
)
|
—
|
|
(112
|
)
|
|
Reserve balance at September 30, 2019
|
$
|
92
|
|
$
|
3
|
|
$
|
—
|
|
$
|
95
|
|
At September 30, 2019, $85 million was included in "Accrued and other current liabilities" ($129 million at December 31, 2018) and $10 million was included in "Other noncurrent obligations" ($13 million at December 31, 2018) in the interim Condensed Consolidated Balance Sheets.
Equity Method Investment Impairment Related Charges
During the second quarter of 2019, in preparation for the Corteva Distribution, Historical EID completed the separation of the assets and liabilities related to its specialty products businesses into separate legal entities (the “SP Legal Entities”) and on May 1, 2019, Historical EID distributed the SP Legal Entities to DowDuPont (the “Internal SP Distribution”). The Internal SP Distribution served as a triggering event requiring the Company to perform an impairment analysis related to equity method investments held by the Company as of May 1, 2019. The Company applied the net asset value method under the cost approach to determine the fair value of the equity method investments in the Nutrition & Biosciences segment. Based on updated projections, the Company determined the fair value of the 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, management concluded the impairment was other-than-temporary and recorded an impairment charge of $63 million in “Restructuring and asset related charges - net” during the second quarter of 2019. The impairment related to the Nutrition & Biosciences segment. See Notes 13 and 22 for additional information.
NOTE 6 - SUPPLEMENTARY INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sundry Income (Expense) - Net
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Non-operating pension and other post employment benefit (OPEB) credits
|
$
|
21
|
|
$
|
24
|
|
$
|
60
|
|
$
|
79
|
|
|
Interest income
|
1
|
|
8
|
|
50
|
|
29
|
|
|
Net gain (loss) on sales of other assets and investments 1
|
64
|
|
(7
|
)
|
127
|
|
(1
|
)
|
|
Foreign exchange (losses) gains, net 2
|
(23
|
)
|
(26
|
)
|
(101
|
)
|
(148
|
)
|
|
Net loss on divestiture and changes in joint venture ownership
|
—
|
|
(6
|
)
|
—
|
|
(27
|
)
|
|
Miscellaneous income (expenses) - net 3
|
16
|
|
(2
|
)
|
8
|
|
43
|
|
|
Sundry income (expense) - net
|
$
|
79
|
|
$
|
(9
|
)
|
$
|
144
|
|
$
|
(25
|
)
|
|
|
|
|
1.
|
The three and nine months ended September 30, 2019 includes income of $34 million and $85 million, respectively, related to a sale of assets within the Electronics & Imaging segment and as well as a gain of $28 million related to the sale of the Sustainable Solutions business unit within the Non-Core segment.
|
|
|
|
|
2.
|
Includes a $50 million foreign exchange loss for the nine months ended September 30, 2018 related to adjustments to Historical EID's foreign currency exchange contracts as a result of U.S. tax reform.
|
|
|
|
|
3.
|
Miscellaneous income and expenses - net, for the nine months ended September 30, 2019 includes a $48 million charge reflecting a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement. The miscellaneous income for the three months and nine months ended 2018 primarily relates to legal settlements.
|
Cash, Cash Equivalents and Restricted Cash
The Company is required to set aside funds for various activities that arise in the normal course of business. These funds typically have legal restrictions associated with them and are deposited in an escrow account or held in a separately identifiable account by the Company. Historical EID entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring Historical EID to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. After the distribution of Corteva, the Trust assets related to Corteva employees were transferred to a new trust for Corteva (the "Corteva Trust"). As a result, the Trust currently held by DuPont relates to funding obligations to DuPont employees. At September 30, 2019, the Company had restricted cash of $40 million ($43 million at December 31, 2018) included in "Other current assets" in the interim Condensed Consolidated Balance Sheets which was completely attributed to the Trust.
Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheets were $1,549 million at September 30, 2019 and $1,129 million at December 31, 2018. Accrued payroll, which is a component of "Accrued and other current liabilities," was $462 million at September 30, 2019 and $506 million at December 31, 2018. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.
NOTE 7 - INCOME TAXES
For periods between the Merger and the Distributions, DuPont's consolidated federal income tax group and consolidated tax return included the Dow and Corteva entities. Generally, the consolidated tax liability of the DuPont U.S. tax group for each year was apportioned among the members of the consolidated group in accordance with the terms of the Amended and Restated Tax Matters Agreement. DuPont, Corteva and Dow intend that to the extent Federal and/or State corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with the Amended and Restated Tax Matters Agreement.
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves towards a territorial system. At December 31, 2018, the Company had completed its accounting for the tax effects of The Act.
|
|
|
|
•
|
As a result of The Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. For the three and nine months ended September 30, 2018, the Company recorded a benefit of $127 million and $103 million, respectively, to “Provision for income taxes on continuing operations" in the interim Consolidated Statements of Operations to adjust the provisional amount related to the remeasurement of the Company's deferred tax balance.
|
|
|
|
|
•
|
For the nine months ended September 30, 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to the inventory was a $54 million charge to "Provision for income taxes on continuing operations."
|
During the first quarter of 2019, in connection with the Distributions, the Company repatriated certain funds from its foreign subsidiaries that were not needed to finance local operations or separation activities. During the first quarter of 2019, the Company recorded a tax charge of $10 million, associated with these repatriation activities to "Provision for income taxes on continuing operations." There were no charges associated with these repatriation activities in the second or third quarter of 2019. The Company continues to assert indefinite reinvestment related to certain investments in foreign subsidiaries.
The Company's effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The effective tax rate on continuing operations for the third quarter of 2019 was 17.3 percent, compared with an effective tax rate of 22.0 percent for the third quarter of 2018. The effective tax rate for the third quarter of 2019 was favorably impacted by, among other items, tax benefits related to the adjustment of certain unrecognized benefits for positions taken on items from a prior year.
For the first nine months of 2019, the effective tax rate on continuing operations was (21.4) percent, compared with 69.3 percent for the first nine months of 2018. The negative tax rate for the first nine months of 2019, was principally the result of the non-tax-deductible goodwill impairment charges impacting the Nutrition & Biosciences and Non-Core segments. See Note 13 for more information regarding the goodwill impairment charges.
Each year the Company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.
NOTE 8 - EARNINGS PER SHARE CALCULATIONS
On May 23, 2019, stockholders of DowDuPont approved a reverse stock split of the Company's common stock at a ratio of not less than 2-for-5 and not greater than 1-for-3, with the exact ratio determined by and subject to final approval of the Company’s board of directors. The board of directors approved the Reverse Stock Split with a ratio of 1 new share of DowDuPont common stock for 3 shares of current DowDuPont common stock with par value of $0.01 per share. The Reverse Stock Split became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
The following tables provide earnings per share calculations for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income for Earnings Per Share Calculations - Basic & Diluted
|
Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Income (loss) from continuing operations, net of tax
|
$
|
372
|
|
$
|
131
|
|
$
|
(805
|
)
|
$
|
89
|
|
|
Net income from continuing operations attributable to noncontrolling interests
|
5
|
|
15
|
|
18
|
|
26
|
|
|
Net income from continuing operations attributable to participating securities 1
|
—
|
|
2
|
|
1
|
|
15
|
|
|
Income (loss) from continuing operations attributable to common stockholders
|
$
|
367
|
|
$
|
114
|
|
$
|
(824
|
)
|
$
|
48
|
|
|
Income from discontinued operations, net of tax
|
5
|
|
408
|
|
1,217
|
|
3,391
|
|
|
Net income from discontinued operations attributable to noncontrolling interests
|
—
|
|
23
|
|
72
|
|
91
|
|
|
Income from discontinued operations attributable to common stockholders
|
5
|
|
385
|
|
1,145
|
|
3,300
|
|
|
Net income attributable to common stockholders
|
$
|
372
|
|
$
|
499
|
|
$
|
321
|
|
$
|
3,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Basic
|
Three Months Ended
|
Nine Months Ended
|
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Dollars per share
|
|
Income (loss) from continuing operations attributable to common stockholders
|
$
|
0.49
|
|
$
|
0.15
|
|
$
|
(1.10
|
)
|
$
|
0.06
|
|
|
Income from discontinued operations, net of tax
|
0.01
|
|
0.50
|
|
1.53
|
|
4.29
|
|
|
Net income attributable to common stockholders
|
$
|
0.50
|
|
$
|
0.65
|
|
$
|
0.43
|
|
$
|
4.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Diluted
|
Three Months Ended
|
Nine Months Ended
|
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Dollars per share
|
|
Income (loss) from continuing operations attributable to common stockholders
|
$
|
0.49
|
|
$
|
0.15
|
|
$
|
(1.10
|
)
|
$
|
0.06
|
|
|
Income from discontinued operations, net of tax
|
0.01
|
|
0.50
|
|
1.53
|
|
4.26
|
|
|
Net income attributable to common stockholders
|
$
|
0.50
|
|
$
|
0.65
|
|
$
|
0.43
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Count Information
|
Three Months Ended
|
Nine Months Ended
|
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Shares in millions
|
|
Weighted-average common shares - basic
|
745.5
|
|
765.4
|
|
748.2
|
|
769.1
|
|
|
Plus dilutive effect of equity compensation plans
|
2.2
|
|
5.0
|
|
—
|
|
5.3
|
|
|
Weighted-average common shares - diluted
|
747.7
|
|
770.4
|
|
748.2
|
|
774.4
|
|
|
Stock options and restricted stock units excluded from EPS calculations 2
|
3.8
|
|
3.2
|
|
2.8
|
|
2.7
|
|
|
|
|
|
1.
|
Historical Dow restricted stock units are considered participating securities due to Historical Dow's practice of paying dividend equivalents on unvested shares.
|
2. These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.
NOTE 9 - ACCOUNTS AND NOTES RECEIVABLE - NET
|
|
|
|
|
|
|
|
|
|
|
In millions
|
September 30, 2019
|
December 31, 2018
|
|
Accounts receivable – trade 1
|
$
|
3,110
|
|
$
|
2,891
|
|
|
Notes receivable – trade
|
47
|
|
69
|
|
|
Other 2
|
805
|
|
431
|
|
|
Total accounts and notes receivable - net
|
$
|
3,962
|
|
$
|
3,391
|
|
|
|
|
|
1.
|
Accounts receivable – trade is net of allowances of $9 million at September 30, 2019 and $10 million at December 31, 2018. Allowances are equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions, and review of the current status of customers' accounts.
|
|
|
|
|
2.
|
Other includes receivables in relation to value added tax, fair value of derivative instruments, indemnification assets, and general sales tax and other taxes. No individual group represents more than ten percent of total receivables.
|
Accounts and notes receivable are carried at amounts that approximate fair value.
NOTE 10 - INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
|
Finished goods
|
$
|
2,600
|
|
$
|
2,599
|
|
|
Work in process
|
874
|
|
833
|
|
|
Raw materials
|
604
|
|
560
|
|
|
Supplies
|
228
|
|
115
|
|
|
Total inventories
|
$
|
4,306
|
|
$
|
4,107
|
|
Prior to the Corteva Distribution, the Company recorded inventory under the last-in, first-out ("LIFO"), first-in, first-out and average cost methods. Effective June 1, 2019, the Company changed its method of valuing certain inventories of the specialty products business from the LIFO method to the average cost method. Management believes that the change in accounting is preferable as it results in a consistent method to value inventory across all regions of the business, it improves comparability with industry peers, and it more closely resembles the physical flow of inventory. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to all periods presented. This change resulted in an unfavorable adjustment to "(Accumulated Deficit) Retained Earnings" of $280 million as of January 1, 2018. In addition, certain financial statement line items in the Company’s interim Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and interim Condensed Consolidated Balance Sheet as of December 31, 2018 were adjusted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
Three Months Ended
September 30, 2018
|
Nine Months Ended
September 30, 2018
|
|
In millions
|
As Computed under LIFO
|
As Computed under Average Cost
|
Effect of Change
|
As Computed under LIFO
|
As Computed under Average Cost
|
Effect of Change
|
|
Cost of sales
|
$
|
3,775
|
|
$
|
3,770
|
|
$
|
(5
|
)
|
$
|
11,657
|
|
$
|
11,660
|
|
$
|
3
|
|
|
Provision for income taxes on continuing operations
|
$
|
36
|
|
$
|
37
|
|
$
|
1
|
|
$
|
198
|
|
$
|
201
|
|
$
|
3
|
|
|
Net income
|
$
|
535
|
|
$
|
539
|
|
$
|
4
|
|
$
|
3,486
|
|
$
|
3,480
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
December 31, 2018
|
|
In millions
|
As Computed under LIFO
|
As Computed under Average Cost
|
Effect of Change
|
|
Inventories
|
$
|
4,472
|
|
$
|
4,107
|
|
$
|
(365
|
)
|
|
Deferred income tax liabilities
|
$
|
3,998
|
|
$
|
3,912
|
|
$
|
(86
|
)
|
|
Retained earnings
|
$
|
30,536
|
|
$
|
30,257
|
|
$
|
(279
|
)
|
Basic and diluted earnings per share from continuing operations were not materially effected for the three and nine months ended September 30, 2018, as a result of the above accounting policy change.
There was no impact on cash used by operating activities for prior year periods as a result of the above policy change.
The following table compares the amounts that would have been reported under LIFO with the amounts recorded under the average cost method in the Consolidated Financial Statements as of September 30, 2019 and for the three and nine months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
Three Months Ended
September 30, 2019
|
Nine Months Ended
September 30, 2019
|
|
In millions
|
As Computed under LIFO
|
As Reported under Average Cost
|
Effect of Change
|
As Computed under LIFO
|
As Reported under Average Cost
|
Effect of Change
|
|
Cost of sales
|
$
|
3,533
|
|
$
|
3,531
|
|
$
|
(2
|
)
|
$
|
10,648
|
|
$
|
10,648
|
|
$
|
—
|
|
|
Provision for income taxes on continuing operations
|
$
|
76
|
|
$
|
78
|
|
$
|
2
|
|
$
|
142
|
|
$
|
142
|
|
$
|
—
|
|
|
Net income
|
$
|
377
|
|
$
|
377
|
|
$
|
—
|
|
$
|
412
|
|
$
|
412
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
September 30, 2019
|
|
In millions
|
As Computed under LIFO
|
As Reported under Average Cost
|
Effect of Change
|
|
Inventories
|
$
|
4,691
|
|
$
|
4,306
|
|
$
|
(385
|
)
|
|
Deferred income tax liabilities
|
$
|
3,565
|
|
$
|
3,474
|
|
$
|
(91
|
)
|
|
Accumulated deficit
|
$
|
(7,995
|
)
|
$
|
(8,289
|
)
|
$
|
(294
|
)
|
Basic and diluted earnings per share from continuing operations were not materially effected for the three or nine months ended September 30, 2019, as a result of the above accounting policy change.
There was no impact on cash used by operating activities for current year periods as a result of the above policy change.
NOTE 11 - PROPERTY, PLANT, AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives (Years)
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
|
Land and land improvements
|
0
|
-
|
25
|
$
|
783
|
|
$
|
944
|
|
|
Buildings
|
1
|
-
|
50
|
2,708
|
|
2,581
|
|
|
Machinery, equipment, and other
|
1
|
-
|
25
|
9,585
|
|
9,133
|
|
|
Construction in progress
|
|
|
|
1,445
|
|
1,458
|
|
|
Total property, plant and equipment
|
|
|
|
$
|
14,521
|
|
$
|
14,116
|
|
|
Total accumulated depreciation
|
|
|
|
$
|
4,822
|
|
$
|
4,199
|
|
|
Total property, plant and equipment - net
|
|
|
|
$
|
9,699
|
|
$
|
9,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Depreciation expense
|
$
|
252
|
|
$
|
286
|
|
$
|
778
|
|
$
|
857
|
|
NOTE 12 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates"), by classification in the interim Condensed Consolidated Balance Sheets, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Investments in Nonconsolidated Affiliates
|
Sep 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Investment in nonconsolidated affiliates
|
$
|
1,670
|
|
$
|
1,745
|
|
|
Accrued and other current liabilities
|
(83
|
)
|
(81
|
)
|
|
Other noncurrent obligations
|
(617
|
)
|
(495
|
)
|
|
Net investment in nonconsolidated affiliates
|
$
|
970
|
|
$
|
1,169
|
|
Subsequent to the Distributions, the Company maintained an ownership interest in 22 nonconsolidated affiliates at September 30, 2019. The following table reflects the Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at September 30, 2019:
|
|
|
|
|
|
|
|
|
Country
|
Ownership Interest
|
|
|
September 30, 2019
|
|
The HSC Group:
|
|
|
|
DC HSC Holdings LLC 1
|
United States
|
50.0
|
%
|
|
Hemlock Semiconductor L.L.C.
|
United States
|
50.1
|
%
|
|
|
|
|
1.
|
DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations LLC.
|
HSC Group
The carrying value of the Company's investments in the HSC Group, which includes Hemlock Semiconductor L.L.C. and DC HSC Holdings LLC, was adjusted as a result of the HSC Group's adoption of Topic 606 on January 1, 2019 in accordance with the effective date of Topic 606 for non-public companies. The resulting impact to the Company's investments in the HSC Group was a reduction to "Investment in nonconsolidated affiliates" of $71 million and an increase to "Other noncurrent obligations" of $168 million, as well as an increase to "Deferred income tax assets" of $56 million and a reduction to "(Accumulated Deficit) Retained earnings" of $183 million in the consolidated balance sheet at January 1, 2019. The following table reflects the carrying value of the HSC Group investments at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in the HSC Group
|
|
Investment
|
|
In millions
|
Balance Sheet Classification
|
Sep 30, 2019
|
Dec 31, 2018
|
|
Hemlock Semiconductor L.L.C.
|
Other noncurrent obligations
|
$
|
(617
|
)
|
$
|
(495
|
)
|
|
DC HSC Holdings LLC
|
Investment in nonconsolidated affiliates
|
$
|
500
|
|
$
|
535
|
|
DuPont supplies trichlorosilane, a raw material used in the production of polycrystalline silicon, to the HSC Group. Sales of this raw material to the HSC Group represented less than 2 percent of consolidated net sales for the nine months ended September 30, 2019 and September 30, 2018. Sales of this raw material to the HSC Group are reflected in Non-Core.
The following is summarized financial information for the Company's principal nonconsolidated equity method investments. The amounts shown below represent 100 percent of these equity method investment’s results of operations:
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
Nine Months Ended
|
|
In millions
|
September 30, 2019
|
September 30, 2018
|
|
Revenues
|
$
|
481
|
|
$
|
576
|
|
|
Costs of good sold
|
$
|
276
|
|
$
|
360
|
|
|
Income from continuing operations
|
$
|
179
|
|
$
|
226
|
|
|
Net income attributed to entities
|
$
|
160
|
|
$
|
201
|
|
NOTE 13 - GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amounts of goodwill during the nine months ended September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Const.
|
Non-Core
|
Total
|
|
In millions
|
|
Balance at December 31, 2018 1
|
$
|
6,960
|
|
$
|
12,109
|
|
$
|
6,967
|
|
$
|
6,698
|
|
$
|
1,762
|
|
$
|
34,496
|
|
|
Impairments
|
—
|
|
(933
|
)
|
—
|
|
—
|
|
(242
|
)
|
(1,175
|
)
|
|
Currency Translation Adjustment
|
(37
|
)
|
(237
|
)
|
(59
|
)
|
(78
|
)
|
—
|
|
(411
|
)
|
|
Other Goodwill Adjustments
|
—
|
|
(13
|
)
|
—
|
|
—
|
|
38
|
|
25
|
|
|
Balance at September 30, 2019
|
$
|
6,923
|
|
$
|
10,926
|
|
$
|
6,908
|
|
$
|
6,620
|
|
$
|
1,558
|
|
$
|
32,935
|
|
|
|
|
|
1.
|
Updated for changes in reportable segments effective in the second quarter of 2019. Refer to Note 23 for additional information.
|
The Company tests goodwill and intangible assets for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. As a result of the related acquisition method of accounting in connection with the Merger, Historical EID’s assets and liabilities were measured at fair value resulting in increases to the Company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the Company’s reporting units and assets, and therefore could result in an impairment.
In preparation for the Corteva Distribution, Historical EID completed the separation of the assets and liabilities related to its specialty products businesses into separate legal entities (the “SP Legal Entities”) and on May 1, 2019, Historical EID completed the Internal SP Distribution. The Internal SP Distribution served as a triggering event requiring the Company to perform an impairment analysis related to goodwill carried by its Historical EID existing reporting units as of May 1, 2019. Subsequent to the Corteva Distribution, on June 1, 2019, the Company realigned certain businesses resulting in changes to its management and reporting structure, including the creation of a new Non-Core segment. As part of the Second Quarter Segment Realignment, the Company assessed and re-defined certain reporting units effective June 1, 2019, including reallocation of goodwill on a relative fair value basis as applicable to new reporting units identified. Goodwill impairment analyses were then performed for reporting units impacted by the Second Quarter Segment Realignment.
In connection with the analyses described above, the Company recorded aggregate, pre-tax, non-cash impairment charges of $1,175 million for the nine months ended September 30, 2019 impacting the Nutrition & Biosciences and Non-Core segments. As part of this analysis, the Company determined that the fair value of its Industrial Biosciences reporting unit was below carrying value resulting in a pre-tax, non-cash goodwill impairment charge of $933 million. The Industrial Biosciences reporting unit, part of the Nutrition & Biosciences segment prior to the Second Quarter Segment Realignment, was comprised solely of Historical EID assets and liabilities, the carrying values of which were measured at fair value in connection with the Merger, and thus considered at risk for impairment. Revised financial projections of the Industrial Biosciences reporting unit reflect unfavorable market conditions, driven by slowed demand in the biomaterials business unit which was realigned to the new Non-Core segment effective June 1, 2019, coupled with challenging conditions in U.S. bioethanol markets. These revised financial projections resulted in a reduction in the long-term forecasts of sales and profitability as compared to prior projections. The $242 million in goodwill impairment charges impacting the Non-Core segment also relates to multiple reporting units comprised solely of Historical EID assets and liabilities, the carrying values of which were measured at fair value in connection with the Merger, and thus considered at risk for impairment. The impairment charges impacting Non-Core were determined through utilization of the market approach which was considered most appropriate as the Company continues to evaluate strategic options for these businesses.
The Company analyses above used discounted cash flow models (a form of the income approach) utilizing Level 3 unobservable inputs. The Company’s significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future periods. As referenced, the Company also uses a form of the market approach (utilizes Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, the Company believes the current assumptions and estimates utilized are both reasonable and appropriate.
Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
Gross
Carrying
Amount
|
Accum Amort
|
Net
|
Gross Carrying Amount
|
Accum Amort
|
Net
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
Developed technology
|
$
|
4,311
|
|
$
|
(1,266
|
)
|
$
|
3,045
|
|
$
|
4,362
|
|
$
|
(1,010
|
)
|
$
|
3,352
|
|
|
Trademarks/tradenames
|
1,241
|
|
(387
|
)
|
854
|
|
1,245
|
|
(328
|
)
|
917
|
|
|
Customer-related
|
8,897
|
|
(2,076
|
)
|
6,821
|
|
9,029
|
|
(1,720
|
)
|
7,309
|
|
|
Other
|
298
|
|
(95
|
)
|
203
|
|
306
|
|
(114
|
)
|
192
|
|
|
Total other intangible assets with finite lives
|
$
|
14,747
|
|
$
|
(3,824
|
)
|
$
|
10,923
|
|
$
|
14,942
|
|
$
|
(3,172
|
)
|
$
|
11,770
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
IPR&D
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
15
|
|
$
|
—
|
|
$
|
15
|
|
|
Trademarks/tradenames
|
2,846
|
|
—
|
|
2,846
|
|
2,870
|
|
—
|
|
2,870
|
|
|
Total other intangible assets
|
2,846
|
|
—
|
|
2,846
|
|
2,885
|
|
—
|
|
2,885
|
|
|
Total
|
$
|
17,593
|
|
$
|
(3,824
|
)
|
$
|
13,769
|
|
$
|
17,827
|
|
$
|
(3,172
|
)
|
$
|
14,655
|
|
The following table provides the net carrying value of other intangible assets by segment:
|
|
|
|
|
|
|
|
|
|
|
Net Intangibles by Segment
|
Sep 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Electronics & Imaging
|
$
|
1,864
|
|
$
|
2,037
|
|
|
Nutrition & Biosciences
|
4,517
|
|
4,823
|
|
|
Transportation & Industrial
|
3,636
|
|
3,833
|
|
|
Safety & Construction
|
3,074
|
|
3,244
|
|
|
Non-Core
|
678
|
|
718
|
|
|
Total
|
$
|
13,769
|
|
$
|
14,655
|
|
The following table provides information regarding amortization expense related to other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Other intangible assets
|
$
|
247
|
|
$
|
256
|
|
$
|
755
|
|
$
|
787
|
|
Total estimated amortization expense for the remainder of 2019 and the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
Estimated Amortization Expense
|
|
|
In millions
|
|
|
Remainder of 2019
|
$
|
255
|
|
|
2020
|
$
|
1,010
|
|
|
2021
|
$
|
1,002
|
|
|
2022
|
$
|
988
|
|
|
2023
|
$
|
956
|
|
|
2024
|
$
|
854
|
|
NOTE 14 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The following tables summarize the Company's short-term borrowings and finance lease obligations and long-term debt:
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and finance lease obligations
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
|
Commercial paper
|
$
|
1,968
|
|
$
|
—
|
|
|
Notes payable to banks and other lenders
|
2
|
|
4
|
|
|
Long-term debt due within one year1
|
5
|
|
11
|
|
|
Total short-term borrowings and finance lease obligations
|
$
|
1,975
|
|
$
|
15
|
|
|
|
|
|
1.
|
Includes finance lease obligations due within one year.
|
The weighted-average interest rate on notes payable and commercial paper at September 30, 2019 and December 31, 2018 was 2.33 percent and 8.25 percent, respectively. The decrease in the interest rate from 2018 is primarily due to commercial paper issuance at lower interest rates. The Company issued $1,968 million of commercial paper year to date, of which approximately $1,400 million was issued in anticipation of the Corteva Distribution (the “Funding CP Issuance”).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
Amount
|
Weighted Average Rate
|
Amount
|
Weighted Average Rate
|
|
Promissory notes and debentures:
|
|
|
|
|
|
Final maturity 2020
|
$
|
2,000
|
|
3.54
|
%
|
$
|
2,000
|
|
3.68
|
%
|
|
Final maturity 2023
|
2,800
|
|
4.10
|
%
|
2,800
|
|
4.16
|
%
|
|
Final maturity 2024 and thereafter
|
7,900
|
|
4.98
|
%
|
7,900
|
|
4.98
|
%
|
|
Other facilities:
|
|
|
|
|
|
Term loan due 2022
|
3,000
|
|
3.11
|
%
|
—
|
|
—
|
%
|
|
Other loans
|
11
|
|
4.17
|
%
|
14
|
|
4.32
|
%
|
|
Finance lease obligations
|
3
|
|
|
25
|
|
|
|
Less: Unamortized debt discount and issuance costs
|
99
|
|
|
104
|
|
|
|
Less: Long-term debt due within one year 1, 2
|
5
|
|
|
11
|
|
|
|
Total
|
$
|
15,610
|
|
|
$
|
12,624
|
|
|
|
|
|
|
1.
|
Presented net of current portion of unamortized debt issuance costs.
|
|
|
|
|
2.
|
Includes finance lease obligations due within one year.
|
Principal payments of long-term debt for the remainder of 2019 and the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
Maturities of Long-Term Debt for Next Five Years at September 30, 2019
|
Total
|
|
In millions
|
|
Remainder of 2019
|
$
|
1
|
|
|
2020
|
$
|
2,005
|
|
|
2021
|
$
|
6
|
|
|
2022
|
$
|
3,002
|
|
|
2023
|
$
|
2,800
|
|
|
2024
|
$
|
—
|
|
The estimated fair value of the Company's long-term borrowings was determined using Level 2 inputs within the fair value hierarchy, as described in Note 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 $17,424 million and $13,080 million at September 30, 2019 and December 31, 2018, respectively.
Available Committed Credit Facilities
The following table summarizes the Company's credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed and Available Credit Facilities at September 30, 2019
|
|
|
|
In millions
|
Effective Date
|
Committed Credit
|
Credit Available
|
Maturity Date
|
Interest
|
|
Term Loan Facility
|
May 2019
|
$
|
3,000
|
|
$
|
—
|
|
May 2022
|
Floating Rate
|
|
Revolving Credit Facility, Five-year
|
May 2019
|
3,000
|
|
2,980
|
|
May 2024
|
Floating Rate
|
|
364-day Revolving Credit Facility
|
June 2019
|
750
|
|
750
|
|
June 2020
|
Floating Rate
|
|
Total Committed and Available Credit Facilities
|
|
$
|
6,750
|
|
$
|
3,730
|
|
|
|
Senior Notes
In contemplation of the separations and distributions and in preparation to achieve the intended credit profiles of Corteva, Dow and DuPont, in the fourth quarter of 2018, the Company consummated a public underwritten offer of eight series of senior unsecured notes (the "2018 Senior Notes") in an aggregate principal amount of $12.7 billion. The 2018 Senior Notes are a senior unsecured obligation of the Company and will rank equally with the Company's future senior unsecured debt outstanding from time to time. On November 1, 2018, the Company announced a $3 billion share buyback program, which expired on March 31, 2019. In the first quarter of 2019, proceeds from the 2018 Senior Notes were used to purchase $1.6 billion of shares. As a result, the share buyback program was complete at March 31, 2019.
Term Loan and Revolving Credit Facilities
In May 2019, the Company fully drew the two term loan facilities it entered into in the fourth quarter of 2018 (the “Term Loan Facilities”) in the aggregate principal amount of $3,000 million. In May 2019, the Company amended its $3,000 million five-year revolving credit facility (the “Five-Year Revolver”) entered into in the fourth quarter of 2018 to become effective and available as of the amendment. In addition, in June 2019, the Company entered into a $750 million, 364-day revolving credit facility (the "364-day Revolving Credit Facility").
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were $514 million at September 30, 2019. These lines are available to support short-term liquidity needs and general corporate purposes including letters of credit. Outstanding letters of credit were $127 million at September 30, 2019. 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. There were no material changes to the debt covenants and default provisions during the third quarter of 2019.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation and Environmental Matters
Under the Separation and Distribution Agreement, liabilities, including cost and expenses, associated with litigation and environmental matters that primarily related to the materials science business, the agriculture business or the specialty products business were generally allocated to or retained by Dow, Corteva or the Company, respectively, through retention, assumption or indemnification. Related to the foregoing, at September 30, 2019, DuPont has recorded (i) a liability of $33 million (although it is reasonably possible that the ultimate cost could range up to $112 million above the amount accrued) for retained or assumed environmental liabilities, (ii) a liability of $3 million for retained or assumed litigation liabilities, and (iii) an indemnification liability related to legal and environmental matters of $58 million. Liabilities associated with discontinued and/or divested operations and businesses of Historical Dow generally were allocated to or retained by Dow. The allocation of liabilities associated with the discontinued and/or divested operations and businesses of Historical EID is discussed below.
The liabilities allocated to and assumed by Dow and Corteva are reflected as discontinued operations of the Company at December 31, 2018. Such liabilities assumed by Dow as of the consummation of the Dow Distribution on April 1, 2019, include the following matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, (the “Annual Report”) and Quarterly Report on Form 10-Q for the three-month period ended March 31, 2019, (the “First Quarterly Report”): Asbestos Related Matters of Union Carbide Corporation, Urethane Matters, Rocky Flats Matter, Dow Silicones Chapter 11 Related Matters, Midland Off-Site Environmental Matters, Dow Silicones Midland, Michigan, Freeport, Texas, Plaquemine, Louisiana and St. Charles, Louisiana Steam-Assisted Flares Matters, Freeport, Texas, Facility Matter, Mt. Meigs, Alabama Matter, Union Carbide Matter and Union Carbide - Seadrift, Texas and, with indemnity from DuPont and Corteva, the Sabine Plant, Orange Texas-EPA Multimedia Inspection. Such liabilities assumed by Corteva as of the consummation of the Corteva Distribution on June 1, 2019, include the following matters discussed in the Company’s Annual Report and the First Quarterly Report: La Porte Plant, La Porte, Texas - Crop Protection-Release Incident Investigation and La Porte Plant, La Porte, Texas - EPA Multimedia Inspection.
Discontinued and/or Divested Operations and Businesses ("DDOB") Liabilities of Historical EID
Under the Separation and Distribution Agreement and the Letter Agreement between Corteva and DuPont, DDOB liabilities of Historical EID primarily related to Historical EID’s agriculture business were allocated to or retained by Corteva and those primarily related to Historical EID’s specialty products business were allocated to or retained by the Company. Historical EID DDOB liabilities not primarily related to Historical EID’s agriculture business or specialty products business (“Stray Liabilities”), are allocated as follows:
|
|
|
|
•
|
Generally, indemnifiable losses as defined in the Separation and Distribution Agreement, (“Indemnifiable Losses”) for Stray Liabilities, to the extent they do not arise out of actions related to or resulting from the development, testing, manufacture or sale of PFAS, defined below, (“Non-PFAS Stray Liabilities”) that are known as of April 1, 2019 are borne by Corteva up to a specified amount set forth in the schedules to the Separation and Distribution Agreement and/or Letter Agreement. Non-PFAS Stray Liabilities in excess of such specified amounts and any Non-PFAS Stray Liabilities not listed in the schedules to the Separation and Distribution Agreement or Letter Agreement are borne by Corteva and/or DuPont up to separate, aggregate thresholds of $200 million each, (as to Corteva or DuPont, the "$200 Million Threshold"), to the extent Corteva or DuPont, as applicable, incurs an Indemnifiable Loss. Once Corteva’s or DuPont’s $200 Million Threshold is met, the other would generally bear all Non-PFAS Stray Liabilities until meeting its $200 Million Threshold. After the respective $200 million thresholds are met, DuPont will bear 71 percent of such losses and Corteva will bear 29 percent of such losses.
|
|
|
|
|
•
|
Generally, Corteva and the Company will each bear 50 percent of the first $300 million (up to $150 million each) for Indemnifiable Losses arising out of actions to the extent related to or resulting from the development, testing, manufacture or sale of per- or polyfluoroalkyl substances, which include collectively perfluorooctanoic acids and its salts (“PFOA”), perfluorooctanesulfonic acid (“PFOS”) and perfluorinated chemicals and compounds (“PFCs”) (all such substances, “PFAS” and such Stray Liabilities referred to as “PFAS Stray Liabilities”). Indemnifiable Losses to the extent related to PFAS Stray Liabilities in excess of $300 million generally will be borne 71 percent by the Company and 29 percent by Corteva, unless either Corteva or DuPont has met its $200 Million Threshold. In that event, the other company would bear all PFAS Stray Liabilities until that company meets its $200 Million Threshold, at which point DuPont will bear 71 percent of such losses and Corteva will bear 29 percent of such losses.
|
|
|
|
|
•
|
Indemnifiable Losses incurred by the companies in relation to PFAS Stray Liabilities up to $300 million (e.g., up to $150 million each) will be applied to each company’s respective $200 Million Threshold.
|
Non-PFAS Stray Liabilities
While DuPont believes it is probable that it will incur a liability related to Non-PFAS Stray Liabilities, such liability is not reasonably estimable at September 30, 2019. Therefore, at September 30, 2019, DuPont has not recorded an accrual related to Non-PFAS Liabilities.
PFAS Stray Liabilities
DuPont expects to incur costs and expenses such as attorneys’ fees and expenses and court costs in connection with the Chemours suit, described below. While such costs and expenses are Indemnifiable Losses, the Company will expense them as incurred in accordance with its accounting policy for litigation matters. The Company believes the probability of ultimate liability with respect to the Chemours suit is remote.
Generally, The Chemours Company (“Chemours”), with reservations, including as to alleged fraudulent conveyance and voidable transactions, is defending and indemnifying Historical EID in the PFAS Matters discussed below. Although Chemours has refused the tender of the Company’s defense in the limited actions in which the Company has been named, DuPont believes it is remote that it will ultimately incur a liability in connection with these PFAS Matters. However, in the highly improbable event that Chemours is unable to pay or is successful in limiting its obligations under the Chemours Separation Agreement, defined below, it could impact the Company’s business, financial condition, results of operations and cash flows.
Chemours Suit
On July 1, 2015, Historical EID completed the separation of Historical EID’s Performance Chemicals segment through the spinoff of all the issued and outstanding stock of The Chemours Company (“Chemours”) to holders of Historical EID common stock. In connection with the spin, Historical EID and Chemours entered into a Separation Agreement (as amended, the "Chemours Separation Agreement"). Pursuant to the Chemours Separation Agreement, Chemours is obligated to indemnify Historical EID, including its current or former affiliates, against certain litigation, environmental and other liabilities that arose prior to the Chemours Separation. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments.
In 2017, Historical EID and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future PFOA liabilities for a five-year period that began on July 6, 2017. The amended agreement provides that during that five- year period, Chemours will annually pay the first $25 million of future PFOA liabilities and, if that amount is exceeded, Historical EID will pay any excess amount up to the next $25 million, with Chemours annually bearing any excess liabilities above that amount. At the end of the five-year period, this limited sharing agreement will expire, and Chemours’ indemnification obligations under the Chemours Separation Agreement will continue unchanged.
On May 13, 2019, Chemours filed suit in the Delaware Court of Chancery against Historical EID, Corteva and the Company in an attempt to limit its responsibility for the litigation and environmental liabilities allocated to and assumed by Chemours under the Chemours Separation Agreement. Chemours is asking the court to rewrite the Chemours Separation Agreement by either limiting Chemours’ liabilities or, alternatively, ordering the return to Chemours of all or a portion of a $3.91 billion dividend that Chemours paid to Historical EID, Chemours’ then-sole-shareholder, just prior to the spin of Chemours. DuPont and Corteva, acting jointly, have filed a motion to dismiss the lawsuit for lack of subject matter jurisdiction to which Chemours responded in October 2019. In addition, Corteva and DuPont have initiated an arbitration of the dispute as required under the Chemours Separation Agreement. DuPont's reply to Chemours' response is due in November after which the motion to dismiss will be before the judge. Before determining if the matter is arbitrated, as required under the Chemours Separation Agreement, or will proceed in the Court of Chancery, the judge typically would schedule oral argument on the motion.
Indemnifiable Losses related to the Chemours suit are PFAS Stray Liabilities subject to the sharing arrangement between DuPont and Corteva, described above.
PFAS Matters
Historical EID is a party to legal proceedings relating to the use of PFOA and PFCs by its former Performance Chemicals segment. Indemnifiable Losses related to PFAS liabilities allocated to and assumed by Chemours under the Chemours Separation Agreement generally are PFAS Stray Liabilities subject to the sharing arrangement between DuPont and Corteva, described above.
Personal Injury
DuPont, which was formed after the spinoff of Chemours as a subsidiary of Historical EID and Historical Dow, is not named in the personal injury discussed below.
In 2004, Historical EID settled a West Virginia state court class action, Leach v. DuPont, which alleged that PFOA from Historical EID’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. Historical EID has residual liabilities under the Leach settlement related to providing PFOA water treatment to six area water districts and private well users and to fund, through an escrow account, up to $235 million for a medical monitoring program for eligible class members.
Members of the Leach class have standing to pursue personal injury claims for just six health conditions that an expert panel appointed under the Leach settlement reported in 2012 had a “probable link” (as defined in the settlement) with PFOA: pregnancy induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol.
In 2017, Chemours and Historical EID each paid $335 million to settle the multi-district litigation in the U.S. District Court for the Southern District of Ohio (“Ohio MDL”), thereby resolving claims of about 3,550 plaintiffs alleging injury from exposure to PFOA in drinking water. The Ohio MDL settlement did not resolve claims of plaintiffs who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. There are several dozen claims pending in the Ohio MDL.
Natural Resource Damage Claims, Aqueous Firefighting Foam and Other Claims
DuPont, which was formed after the spinoff of Chemours as a subsidiary of Historical EID and Historical Dow, is named in certain of the actions discussed below.
Natural Resource Damage Claims
Eight suits have been filed by State Attorneys General in New Jersey (four suits; one each relating to the Chambers Works, Parlin, Pompton Lakes and Repauno sites in New Jersey), New Hampshire, New York, Ohio and Vermont for alleged harm to natural resources, punitive damages, and present and future costs to cleanup contamination from certain PFAS compounds and to abate the alleged nuisance.
The New Hampshire (NH), New York (NY), Ohio (OH) and Vermont (VT) suits name 3M, EID, Corteva, Chemours and the Company. Additional defendants are named in the NY and OH suits. These suits include causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities to Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction.
All four suits filed in New Jersey (NJ) name EID and Chemours. DuPont is a named party in the Parlin suit. The Parlin and Chambers Works suits include causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities to Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction.
The New Jersey Attorney General and New Jersey State Department of Environmental Protection filed two directives, one of which names DuPont. The directives seek information on the historical and current use of PFAS.
Aqueous Firefighting Foam (“AFFF”)
Approximately 150 lawsuits have been filed in different parts of the country against 3M, foam manufacturers and others; most of them are consolidated in multi-district litigation in federal district court in South Carolina (the “SC MDL”) . The claims involve alleged contamination of neighboring drinking and groundwater from the use of aqueous firefighting foams on military installations, air force bases, commercial airports and refineries. About 32 of the cases name EID and Chemours as defendants. The Company is also named in six of these cases. These six cases include causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities to Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction. The claims against EID, Chemours and the Company involve alleged sales of PFOA and PFOS products to defendant foam manufacturers. EID and the Company have never made or sold firefighting foam, PFOS or PFOS containing products.
Other Claims
About 60 cases in total are pending in state courts in Maine (ME), North Carolina (NC) and NY; and in federal courts in NY (Northern and Southern District Courts), NC (Eastern District) and OH (Southern District). These suits are pending against 3M, EID, Chemours and various other defendants. The Company is named in one suit pending in the Eastern District NC. The causes of action vary by case but include causes of action for public nuisance, property damage, and water remediation.
The Hardwick case is pending in the Southern District OH and seeks certification of a nationwide class of individuals who have detectable levels of PFAS in their blood serum. The suit was filed against several defendants in addition to Chemours and EID. The complaint specifically seeks, among other things, the creation of a “PFAS Science Panel” to study the effects of PFAS, but expressly states that the class does not seek compensatory damages for personal injuries.
There are two actions pending in Eastern District NC against EID and Chemours, relating to discharges of PFCs, including GenX, into the Cape Fear River. GenX is a polymerization processing aid and a replacement for PFOA introduced by Historical EID which Chemours continues to manufacture at its Fayetteville Works facility in Bladen County, NC. One of these actions is a consolidated putative class action that asserts claims for damages and other relief on behalf of putative classes of property owners and residents in areas near or who draw drinking water from the Cape Fear River. The Company is named as a defendant, in the
other action before the Eastern District NC. It is a consolidated action brought by various NC water authorities, including the Cape Fear Public Utility Authority and Brunswick County, that seek actual and punitive damages as well as injunctive relief. In addition, an action is pending in North Carolina state court on behalf of about 200 plaintiffs who own wells and property near the Fayetteville Works facility. The plaintiffs seek damages for nuisance allegedly caused by releases of certain PFCs from the site.
Of the 60 cases, 46 are consolidated in a purported class action in NY state court brought on behalf of Hoosick Falls, NY real property owners or lessors, those receiving drinking water from the Hoosick Falls municipal water authority or private wells. Six of these cases include causes of action based on allegations that the transfer by Historical EID of certain PFAS liabilities to Chemours prior to spinning off Chemours resulted in a fraudulent conveyance or voidable transaction.
Other Litigation Matters
In addition to the specific matters described above, the Company is party to other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, governmental regulation, contract and commercial litigation, and other actions. Certain of these actions may purport to be class actions and seek damages in very large amounts. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. At September 30, 2019, the Company had accrued obligations of $75 million for probable environmental remediation and restoration costs, comprised of $33 million retained and assumed following the Distributions and $42 million of indemnified liabilities. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheets. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to $175 million above the amount accrued at September 30, 2019. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2018, the Company had accrued obligations of $51 million for probable environmental remediation and restoration costs.
Pursuant to the Separation and Distribution Agreement, the Company's is required to indemnify certain clean-up responsibilities and associated remediation costs. The accrued environmental obligations of $75 million as of September 30, 2019 includes amount for which the Company indemnifies Dow and Corteva. At September 30, 2019, the Company has indemnified Dow and Corteva $8 million and $34 million, respectively.
Guarantees
Obligations for Equity Affiliates & Others
The Company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, and customers. At September 30, 2019 and December 31, 2018, the Company had directly guaranteed $193 million and $199 million, respectively, of such obligations. These amounts represent the maximum potential amount of future (undiscounted) payments that the Company could be required to make under the guarantees. The Company would be required to perform on these guarantees in the event of default by the guaranteed party.
The Company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.
In certain cases, the Company has recourse to assets held as collateral, as well as personal guarantees from customers. Assuming liquidation, these assets are estimated to cover approximately 25 percent of the $28 million of guaranteed obligations of customers. The following table provides a summary of the final expiration year and maximum future payments for each type of guarantee:
|
|
|
|
|
|
|
|
|
Guarantees at September 30, 2019
|
Final Expiration Year
|
Maximum Future Payments
|
|
In millions
|
|
Obligations for customers1:
|
|
|
|
Bank borrowings
|
2020
|
$
|
28
|
|
|
Obligations for non-consolidated affiliates2:
|
|
|
|
Bank borrowings
|
2019
|
$
|
165
|
|
|
Total guarantees
|
|
$
|
193
|
|
|
|
|
|
1.
|
Existing guarantees for select customers, as part of contractual agreements. The terms of the guarantees are equivalent to the terms of the customer loans that are primarily made to finance customer invoices. Of the total maximum future payments, $28 million had terms less than a year.
|
|
|
|
|
2.
|
Existing guarantees for non-consolidated affiliates' liquidity needs in normal operations.
|
NOTE 16 - LEASES
The Company has operating and finance 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 40 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 on the accompanying consolidated balance sheet other than certain finance leases that include the maximum residual value guarantee amount in the measurement of the related liability given the election to use the package of practical expedients at the date of adoption. At September 30, 2019, the Company has future maximum payments for residual value guarantees in operating leases of $18 million with final expirations through 2024. The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating and finance leases for the three and nine months ended September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Three Months Ended September 30, 2019
|
Nine Months Ended September 30, 2019
|
|
Operating lease cost
|
$
|
51
|
|
$
|
141
|
|
|
Finance lease cost
|
|
|
|
Amortization of right-of-use assets
|
1
|
|
4
|
|
|
Interest on lease liabilities
|
—
|
|
—
|
|
|
Total finance lease cost
|
1
|
|
4
|
|
|
Short-term lease cost
|
1
|
|
3
|
|
|
Variable lease cost
|
2
|
|
5
|
|
|
Less: Sublease income
|
7
|
|
19
|
|
|
Total lease cost, net
|
$
|
48
|
|
$
|
134
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
In millions
|
Nine Months Ended September 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
150
|
|
|
Financing cash flows from finance leases
|
$
|
3
|
|
New operating lease assets and liabilities entered into during the nine months ended September 30, 2019 were $111 million. Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
In millions
|
September 30, 2019
|
|
Operating Leases
|
|
|
|
Operating lease right-of-use assets1
|
$
|
604
|
|
|
Current operating lease liabilities2
|
162
|
|
|
Noncurrent operating lease liabilities3
|
437
|
|
|
Total operating lease liabilities
|
$
|
599
|
|
|
|
|
|
Finance Leases
|
|
|
|
Property, plant, and equipment, gross
|
$
|
13
|
|
|
Accumulated depreciation
|
6
|
|
|
Property, plant, and equipment, net
|
$
|
7
|
|
|
Short-term borrowings and finance lease obligations
|
$
|
1
|
|
|
Long-Term Debt
|
2
|
|
|
Total finance lease liabilities
|
$
|
3
|
|
|
|
|
|
1.
|
Included in "Deferred charges and other assets" in the interim Condensed Consolidated Balance Sheet.
|
|
|
|
|
2.
|
Included in "Accrued and other current liabilities" in the interim Condensed Consolidated Balance Sheet.
|
|
|
|
|
3.
|
Included in "Other noncurrent obligations" in the interim Condensed Consolidated Balance Sheet.
|
Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. 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
|
September 30, 2019
|
|
Weighted-average remaining lease term (years)
|
|
|
Operating leases
|
7.36
|
|
|
Finance leases
|
4.62
|
|
|
Weighted average discount rate
|
|
|
Operating leases
|
3.30
|
%
|
|
Finance leases
|
3.33
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Maturity of Lease Liabilities at September 30, 2019
|
Operating Leases
|
Finance Leases
|
|
In millions
|
|
2019
|
$
|
44
|
|
$
|
—
|
|
|
2020
|
151
|
|
1
|
|
|
2021
|
119
|
|
1
|
|
|
2022
|
96
|
|
1
|
|
|
2023
|
57
|
|
—
|
|
|
2024 and thereafter
|
190
|
|
1
|
|
|
Total lease payments
|
$
|
657
|
|
$
|
4
|
|
|
Less: Interest
|
58
|
|
1
|
|
|
Present value of lease liabilities
|
$
|
599
|
|
$
|
3
|
|
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
Minimum Lease Commitments at December 31, 2018
|
|
In millions
|
|
2019
|
$
|
654
|
|
|
2020
|
497
|
|
|
2021
|
418
|
|
|
2022
|
363
|
|
|
2023
|
297
|
|
|
2024 and thereafter
|
1,063
|
|
|
Total
|
$
|
3,292
|
|
|
Total minimum lease commitments from discontinued operations
|
2,980
|
|
|
Total minimum lease commitments from continuing operations
|
$
|
312
|
|
NOTE 17 - STOCKHOLDERS' EQUITY
On May 23, 2019, stockholders of DowDuPont approved a 1-for-3 reverse stock split of DowDuPont shares of common stock with par value of $0.01 per share, which became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
Share Repurchase Program
On June 1, 2019, the Company's Board of Directors approved a new $2 billion share buyback program, which expires on June 1, 2021. During the third quarter, the Company had repurchased and retired 5.1 million shares for $359 million. As of September 30, 2019, the Company had repurchased and retired 6.5 million shares under this program at a total cost of $461 million.
Treasury Stock
On June 25, 2019, the Company retired 37 million shares of its common stock held in treasury. The shares were returned to the status of authorized but unissued shares. As a result, the treasury stock balance decreased by $7,102 million. As a part of the retirement, the Company reduced "Common stock" and "(Accumulated Deficit) Retained Earnings" by $0.04 million and $7,102 million, respectively.
The following table provides a reconciliation of DuPont Common Stock activity for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
Shares of DuPont Common Stock
|
Issued
|
Held in Treasury
|
|
In thousands
|
|
Balance at December 31, 2018
|
784,143
|
|
27,818
|
|
|
Issued
|
2,468
|
|
—
|
|
|
Repurchased
|
—
|
|
16,114
|
|
|
Retired
|
(43,932
|
)
|
(43,932
|
)
|
|
Balance at September 30, 2019
|
742,679
|
|
—
|
|
Accumulated Other Comprehensive Loss
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
Unrealized Gains (Losses) on Investments
|
Cumulative Translation Adj
|
Pension and OPEB
|
Derivative Instruments
|
Total
|
|
In millions
|
|
2018
|
|
|
|
|
|
|
Balance at January 1, 2018 1
|
$
|
17
|
|
$
|
(1,935
|
)
|
$
|
(6,923
|
)
|
$
|
(111
|
)
|
$
|
(8,952
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(36
|
)
|
(1,232
|
)
|
14
|
|
268
|
|
(986
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
5
|
|
(2
|
)
|
370
|
|
56
|
|
429
|
|
|
Net other comprehensive (loss) income
|
$
|
(31
|
)
|
$
|
(1,234
|
)
|
$
|
384
|
|
$
|
324
|
|
$
|
(557
|
)
|
|
Reclassification of stranded tax effects 2
|
$
|
(1
|
)
|
$
|
(107
|
)
|
$
|
(927
|
)
|
$
|
(22
|
)
|
$
|
(1,057
|
)
|
|
Balance at September 30, 2018
|
$
|
(15
|
)
|
$
|
(3,276
|
)
|
$
|
(7,466
|
)
|
$
|
191
|
|
$
|
(10,566
|
)
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Balance at January 1, 2019
|
$
|
(51
|
)
|
$
|
(3,785
|
)
|
$
|
(8,476
|
)
|
$
|
(82
|
)
|
$
|
(12,394
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
68
|
|
(811
|
)
|
47
|
|
(43
|
)
|
(739
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(1
|
)
|
(18
|
)
|
140
|
|
(15
|
)
|
106
|
|
|
Net other comprehensive income (loss)
|
$
|
67
|
|
$
|
(829
|
)
|
$
|
187
|
|
$
|
(58
|
)
|
$
|
(633
|
)
|
|
Spin-offs of Dow and Corteva
|
$
|
(16
|
)
|
$
|
3,179
|
|
$
|
8,196
|
|
$
|
139
|
|
$
|
11,498
|
|
|
Balance at September 30, 2019
|
$
|
—
|
|
$
|
(1,435
|
)
|
$
|
(93
|
)
|
$
|
(1
|
)
|
$
|
(1,529
|
)
|
|
|
|
|
1.
|
The beginning balance of "Unrealized gains (losses) on investments" was increased by $20 million to reflect the impact of adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which was adopted in the first quarter of 2018.
|
|
|
|
|
2.
|
Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which was adopted April 1, 2018. The ASU allowed a reclassification from AOCL to retained earnings for stranded tax effects resulting from The Act.
|
The tax effects on the net activity related to each component of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit (Expense)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Unrealized gains (losses) on investments
|
$
|
—
|
|
$
|
(2
|
)
|
$
|
(18
|
)
|
$
|
7
|
|
|
Cumulative translation adjustments
|
—
|
|
(4
|
)
|
(1
|
)
|
(24
|
)
|
|
Pension and other post employment benefit plans
|
(6
|
)
|
(34
|
)
|
(4
|
)
|
(98
|
)
|
|
Derivative instruments
|
—
|
|
(48
|
)
|
16
|
|
(56
|
)
|
|
Tax expense from income taxes related to other comprehensive income items
|
$
|
(6
|
)
|
$
|
(88
|
)
|
$
|
(7
|
)
|
$
|
(171
|
)
|
A summary of the reclassifications out of AOCL for the three and nine months ended September 30, 2019 and 2018 is provided as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Loss
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
Income Classification
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Unrealized (gains) losses on investments
|
$
|
—
|
|
$
|
4
|
|
$
|
(1
|
)
|
$
|
7
|
|
See (1) below
|
|
Tax expense (benefit)
|
—
|
|
(1
|
)
|
—
|
|
(2
|
)
|
See (2) below
|
|
After tax
|
$
|
—
|
|
$
|
3
|
|
$
|
(1
|
)
|
$
|
5
|
|
|
|
Cumulative translation adjustments
|
$
|
—
|
|
$
|
—
|
|
$
|
(18
|
)
|
$
|
(2
|
)
|
See (3) below
|
|
Pension and other post employment benefit plans
|
$
|
4
|
|
$
|
155
|
|
$
|
146
|
|
$
|
465
|
|
See (4) below
|
|
Tax benefit
|
(6
|
)
|
(33
|
)
|
(6
|
)
|
(95
|
)
|
See (2) below
|
|
After tax
|
$
|
(2
|
)
|
$
|
122
|
|
$
|
140
|
|
$
|
370
|
|
|
|
Derivative Instruments
|
$
|
—
|
|
$
|
17
|
|
$
|
(18
|
)
|
$
|
69
|
|
See (5) below
|
|
Tax expense (benefit)
|
—
|
|
(5
|
)
|
3
|
|
(13
|
)
|
See (2) below
|
|
After tax
|
$
|
—
|
|
$
|
12
|
|
$
|
(15
|
)
|
$
|
56
|
|
|
|
Total reclassifications for the period, after tax
|
$
|
(2
|
)
|
$
|
137
|
|
$
|
106
|
|
$
|
429
|
|
|
1. "Net sales" and "Sundry income (expense) - net."
2. "Provision for income taxes on continuing operations."
3. "Sundry income (expense) - net."
4. These AOCL components are included in the computation of net periodic benefit cost of the Company's defined benefit pension and other post employment
benefit plans. See Note 19 for additional information.
5. "Cost of sales," "Sundry income (expense) - net" and "Interest expense."
NOTE 18 - NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the interim Condensed Consolidated Balance Sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the interim Consolidated Statements of Operations.
The following table summarizes the activity for equity attributable to noncontrolling interests for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
In millions
|
2019
|
2018
|
2019
|
2018
|
|
Balance at beginning of period
|
$
|
570
|
|
$
|
1,620
|
|
$
|
1,608
|
|
$
|
1,597
|
|
|
Net income attributable to noncontrolling interests
|
5
|
|
38
|
|
90
|
|
117
|
|
|
Distributions to noncontrolling interests 1
|
(6
|
)
|
(4
|
)
|
(18
|
)
|
(77
|
)
|
|
Noncontrolling interests from Merger
|
—
|
|
5
|
|
—
|
|
61
|
|
|
Cumulative translation adjustments
|
(2
|
)
|
(5
|
)
|
14
|
|
(45
|
)
|
|
Spin-off of Dow and Corteva
|
—
|
|
—
|
|
(1,124
|
)
|
—
|
|
|
Other
|
1
|
|
—
|
|
(2
|
)
|
1
|
|
|
Balance at end of period
|
$
|
568
|
|
$
|
1,654
|
|
$
|
568
|
|
$
|
1,654
|
|
|
|
|
|
1.
|
Net of dividends paid to a joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the interim Consolidated Statements of Operations, totaled $6 million for the nine months ended September 30, 2018.
|
NOTE 19 - PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS
In connection with the Distributions, the Historical Dow U.S. qualified defined benefit plan and the Historical EID U.S. principal qualified defined benefit plan were separated from the Company to Dow and Corteva, respectively. The Company retained a portion of pension liabilities and select other post employment benefit plans relating to foreign benefit plans for both Historical EID and Historical Dow. The Company also retained an immaterial portion of the non-qualified US pension liabilities and other post employment benefit plans relating to Historical EID US benefit plans.
The Employee Matters Agreement with Dow and Corteva provides that employees of Dow and Corteva no longer participate in benefit plans sponsored or maintained by the Company, and that employees of the Company no longer participate in benefit plans sponsored or maintained by either Dow or Corteva, as of the effective time of the Dow Distribution and Corteva Distribution, respectively.
The following sets forth the components of the Company's net periodic benefit (credit) cost for defined benefit pension plans and other post employment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit (Credit) Cost for All Plans
|
Three Months Ended
|
Nine Months Ended
|
|
In millions
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
|
Defined Benefit Pension Plans:
|
|
|
|
|
|
Service cost
|
$
|
17
|
|
$
|
163
|
|
$
|
166
|
|
$
|
495
|
|
|
Interest cost
|
19
|
|
402
|
|
610
|
|
1,216
|
|
|
Expected return on plan assets
|
(35
|
)
|
(700
|
)
|
(954
|
)
|
(2,114
|
)
|
|
Amortization of prior service credit
|
(1
|
)
|
(6
|
)
|
(8
|
)
|
(18
|
)
|
|
Amortization of net (gain) loss
|
(6
|
)
|
168
|
|
129
|
|
508
|
|
|
Curtailment/settlement 1
|
1
|
|
2
|
|
(1
|
)
|
(2
|
)
|
|
Net periodic benefit (credit) cost - total
|
$
|
(5
|
)
|
$
|
29
|
|
$
|
(58
|
)
|
$
|
85
|
|
|
Less: Net periodic benefit (credit) cost - discontinued operations
|
—
|
|
36
|
|
(45
|
)
|
110
|
|
|
Net periodic benefit credit - continuing operations
|
$
|
(5
|
)
|
$
|
(7
|
)
|
$
|
(13
|
)
|
$
|
(25
|
)
|
|
Other Post Employment Benefits:
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
$
|
6
|
|
$
|
5
|
|
$
|
16
|
|
|
Interest cost
|
—
|
|
31
|
|
52
|
|
96
|
|
|
Amortization of net gain
|
—
|
|
(6
|
)
|
(6
|
)
|
(18
|
)
|
|
Net periodic benefit cost - total
|
$
|
—
|
|
$
|
31
|
|
$
|
51
|
|
$
|
94
|
|
|
Less: Net periodic benefit (credit) cost - discontinued operations
|
—
|
|
31
|
|
50
|
|
93
|
|
|
Net periodic benefit cost - continuing operations
|
$
|
—
|
|
$
|
—
|
|
$
|
1
|
|
$
|
1
|
|
1. The 2018 impact relates to the curtailment and settlement of pension plans in the U.S. and Australia all of which have been transferred to Corteva and included in discontinued operations. The 2019 impact relates to the curtailment of pension plans in Canada which have been retained by DuPont and included in continuing operations.
The continuing operations portion of the net periodic benefit (credit) cost, other than the service cost component, is included in "Sundry income (expense) - net" in the interim Consolidated Statements of Operations.
DuPont expects to make additional contributions in the aggregate of approximately $200 million by year-end 2019 to certain non-US pension and other post employment benefit plans.
NOTE 20 - STOCK-BASED COMPENSATION
On May 23, 2019, stockholders of DowDuPont approved a reverse stock split of DowDuPont shares of common stock. DowDuPont's Board of Directors established a reverse stock split ratio of 1 new share of DowDuPont common stock for every 3 shares of current DowDuPont common stock with par value of $0.01 per share. The stock split became effective immediately following the Corteva Distribution on June 1, 2019. All comparable periods presented have been retrospectively revised to reflect this change.
Historical Dow and Historical EID did not merge their equity incentive plans as a result of the Merger. The Historical Dow and Historical EID stock-based compensation plans were assumed by DowDuPont and remained in place with the ability to grant and issue DowDuPont common stock until the Distributions.
There was minimal grant activity in the first five months of 2019 under the Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"). In the first quarter of 2019, Historical EID granted 1.1 million restricted stock units ("RSUs") with a weighted-average fair value of $70.52 per share under the E. I. du Pont de Nemours and Company Equity and Incentive Plan (the "DuPont EIP"). There was minimal grant activity in April and May of 2019 under the DuPont EIP.
Effect of the Distributions on Equity Awards
In accordance with the Employee Matters Agreement between DuPont, Dow and Corteva, certain executives and employees were entitled to receive equity compensation awards of DuPont in replacement of previously outstanding awards granted under Historical Dow and Historical EID equity incentive plans. At the time of the Dow Distribution, equity awards denominated in DowDuPont common stock held by DuPont employees were adjusted using a formula designed to preserve the intrinsic value of the awards immediately prior to the Dow Distribution, and either remained denominated in DowDuPont common stock, or were adjusted into a combination of equity awards denominated in both DowDuPont common stock and Dow common stock. For employees of Dow Inc., outstanding share-based compensation awards denominated in DowDuPont common stock were adjusted to equity awards denominated in either Dow common stock, or into a combination of equity awards denominated in both DowDuPont common stock and Dow common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Dow Distribution.
At the time of the Corteva Distribution, equity awards denominated in DowDuPont common stock held by DuPont employees were adjusted using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution, and were either adjusted into DuPont common stock, or were adjusted into a combination of equity awards denominated in both DuPont common stock and Corteva common stock. For Corteva employees, outstanding share-based compensation awards denominated in DowDuPont common stock were adjusted to equity awards denominated in either Corteva common stock, or into a combination of equity awards denominated in both DuPont common and Corteva common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution. For Dow employees, outstanding DowDuPont equity awards at the time of the Corteva Distribution were adjusted into a combination of equity awards denominated in both DuPont common stock and Corteva common stock using a formula designed to preserve the intrinsic value of the awards immediately prior to the Corteva Distribution.
Immediately following the Corteva Distribution, on June 1, 2019, DuPont adopted the DuPont Omnibus Incentive Plan ("DuPont OIP") which provides for equity-based and cash incentive awards to certain employees, directors, independent contractors and consultants. The DuPont OIP has two subplans to reflect the DuPont EIP and the 2012 Plan. The equity awards under these subplans have the same terms and conditions that were applicable to the awards under the DuPont EIP and 2012 Plan immediately prior to the Distributions. Under the DuPont OIP, a maximum of 14 million shares of common stock are available for award as of September 30, 2019.
DuPont recognized share-based compensation expense in continuing operations of $30 million and $85 million for the three and nine months ended September 30, 2019, respectively, and $23 million and $75 million for the three and nine months ended September 30, 2018, respectively. The income tax benefits related to stock-based compensation arrangements were $6 million and $18 million for the three and nine months ended September 30, 2019, respectively, and $5 million and $16 million for the three and nine months ended September 30, 2018, respectively.
Performance Stock Units
During the third quarter of 2019, DuPont granted 0.5 million performance-based restricted stock units (“PSUs”) to senior leadership under a subplan of the DuPont OIP with a weighted-average fair value of $66.06 per share. Vesting for PSUs granted is based upon achieving certain adjusted operating EBITDA targets and certain return on invested capital ("ROIC") targets, weighted evenly between the metrics. Performance and payouts are determined independently for each metric. The actual award, delivered as DuPont common stock, can range from zero percent to two-hundred percent of the original grant. The weighted-average grant-date fair value of the PSUs is based upon the market price of the underlying common stock as of the grant date.
Other Quarterly Award Activity
In the third quarter of 2019, DuPont granted 1.4 million stock options under the DuPont OIP with a weighted-average exercise price of $66.06 per share and a weighted-average fair value of $11.85 per share. There was minimal RSU grant activity during the period.
NOTE 21 - FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
September 30, 2019
|
December 31, 2018
|
|
In millions
|
Cost
|
Gain
|
Loss
|
Fair Value
|
Cost
|
Gain
|
Loss
|
Fair Value
|
|
Cash equivalents
|
$
|
849
|
|
$
|
—
|
|
$
|
—
|
|
$
|
849
|
|
$
|
8,226
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8,226
|
|
|
Restricted cash equivalents 1
|
$
|
40
|
|
$
|
—
|
|
$
|
—
|
|
$
|
40
|
|
$
|
43
|
|
$
|
—
|
|
$
|
—
|
|
$
|
43
|
|
|
Marketable securities
|
$
|
6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6
|
|
$
|
29
|
|
$
|
—
|
|
$
|
—
|
|
$
|
29
|
|
|
Equity securities 2
|
$
|
4
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4
|
|
$
|
2
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2
|
|
|
Total cash and restricted cash equivalents, marketable securities and other investments
|
$
|
899
|
|
$
|
—
|
|
$
|
—
|
|
$
|
899
|
|
$
|
8,300
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8,300
|
|
|
Long-term debt including debt due within one year
|
$
|
(15,615
|
)
|
$
|
—
|
|
$
|
(1,813
|
)
|
$
|
(17,428
|
)
|
$
|
(12,635
|
)
|
$
|
5
|
|
$
|
(461
|
)
|
$
|
(13,091
|
)
|
|
Derivatives relating to:
|
|
|
|
|
|
|
|
|
|
Foreign currency 3
|
—
|
|
8
|
|
(15
|
)
|
(7
|
)
|
—
|
|
37
|
|
(6
|
)
|
31
|
|
|
Total derivatives
|
$
|
—
|
|
$
|
8
|
|
$
|
(15
|
)
|
$
|
(7
|
)
|
$
|
—
|
|
$
|
37
|
|
$
|
(6
|
)
|
$
|
31
|
|
|
|
|
|
1.
|
Classified as "Other current assets" in the interim Condensed Consolidated Balance Sheets.
|
|
|
|
|
2.
|
Equity securities with a readily determinable fair value. Presented in accordance with ASU 2016-01. "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities."
|
3. Presented net of cash collateral where master netting arrangements allow.
Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the Company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks. The Company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the Company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. As of the third quarter of 2019, the Company has not designated any derivatives or non-derivatives as hedging instruments.
The Company's financial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The Company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.
The notional amounts of the Company's derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
Sept 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
Foreign currency contracts
|
$
|
(182
|
)
|
$
|
2,057
|
|
|
Commodity contracts
|
$
|
6
|
|
$
|
9
|
|
Derivatives not Designated in Hedging Relationships
Foreign Currency Contracts
The Company routinely uses forward exchange contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the 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.
Commodity Contracts
The Company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as soybeans, soybean oil and soybean meal.
Fair Value of Derivative Instruments
Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the interim Condensed Consolidated Balance Sheets. The presentation of the Company's derivative assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
In millions
|
Balance Sheet Classification
|
Gross
|
Counterparty and Cash Collateral Netting 1
|
Net Amounts Included in the Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
16
|
|
(8
|
)
|
8
|
|
|
Total asset derivatives
|
|
$
|
16
|
|
$
|
(8
|
)
|
$
|
8
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
23
|
|
$
|
(8
|
)
|
$
|
15
|
|
|
Total liability derivatives
|
|
$
|
23
|
|
$
|
(8
|
)
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
In millions
|
Balance Sheet Classification
|
Gross
|
Counterparty and Cash Collateral Netting 1
|
Net Amounts Included in the Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
72
|
|
$
|
(35
|
)
|
$
|
37
|
|
|
Total asset derivatives
|
|
$
|
72
|
|
$
|
(35
|
)
|
$
|
37
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
21
|
|
$
|
(15
|
)
|
$
|
6
|
|
|
Total liability derivatives
|
|
$
|
21
|
|
$
|
(15
|
)
|
$
|
6
|
|
|
|
|
|
1.
|
Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
|
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 interim Consolidated Statements of Operations, was a loss of $3 million for the three months ended September 30, 2019 ($31 million gain for the three months ended September 30, 2018) and a loss of $63 million for the nine months ended September 30, 2019 ($27 million gain for the nine months ended September 30, 2018). The income statement effects of other derivatives were immaterial.
Reclassification from AOCL
The Company does not expect to reclassify gains related to foreign currency contracts from AOCL to income within the next 12 months.
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 September 30, 2019
|
Significant Other Observable Inputs
(Level 2)
|
|
In millions
|
|
Assets at fair value:
|
|
|
Cash equivalents and restricted cash equivalents 1
|
$
|
889
|
|
|
Marketable securities 2
|
6
|
|
|
Derivatives relating to: 3
|
|
|
Foreign currency contracts
|
16
|
|
|
Total assets at fair value
|
$
|
911
|
|
|
Liabilities at fair value:
|
|
|
Long-term debt including debt due within one year 4
|
$
|
17,428
|
|
|
Derivatives relating to: 3
|
|
|
Foreign currency contracts
|
23
|
|
|
Total liabilities at fair value
|
$
|
17,451
|
|
|
|
|
|
1.
|
Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Other current assets" in the interim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
|
|
|
|
|
2.
|
Primarily time deposits with maturities of greater than three months at time of acquisition.
|
|
|
|
|
3.
|
See Note 21 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets.
|
|
|
|
|
4.
|
See Note 21 for information on fair value measurements of long-term debt.
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements on a Recurring Basis at December 31, 2018
|
Significant Other Observable Inputs
(Level 2)
|
|
In millions
|
|
Assets at fair value:
|
|
|
Cash equivalents and restricted cash equivalents 1
|
$
|
8,269
|
|
|
Marketable securities 2
|
29
|
|
|
Derivatives relating to: 3
|
|
|
Foreign currency contracts
|
72
|
|
|
Total assets at fair value
|
$
|
8,370
|
|
|
Liabilities at fair value:
|
|
|
Long-term debt including debt due within one year 4
|
$
|
13,091
|
|
|
Derivatives relating to: 3
|
|
|
Foreign currency contracts
|
21
|
|
|
Total liabilities at fair value
|
$
|
13,112
|
|
1. Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Other current assets" in the interim Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. Primarily time deposits with maturities of greater than three months at time of acquisition.
3. See Note 21 for the classification of derivatives in the interim Condensed Consolidated Balance Sheets
4. See Note 21 for information on fair value measurements of long-term debt.
The Company has equity securities of $4 million and $2 million as of September 30, 2019 and December 31, 2018, respectively, classified as level 1 measurements. The Company’s investments in equity securities are included in “Other investments” in the interim Condensed Consolidated Balance Sheets.
Fair Value Measurements on a Nonrecurring Basis
During the second quarter of 2019, the Company recorded goodwill impairment charges related to the Nutrition & Biosciences and the Non-Core segments. See Note 13 for further discussion of these fair value measurements.
The Internal SP Distribution served as a triggering event to assess equity method investments for impairment. The Company recorded an other-than-temporary impairment, classified as Level 3 measurements, on an equity method investment during the second quarter of 2019. The impairment charge of $63 million was recorded in "Restructuring and asset related charges - net" in the interim Consolidated Statements of Operations. See Note 5 for further discussion of these fair value measurements.
NOTE 23 - SEGMENTS AND GEOGRAPHIC REGIONS
Effective June 1, 2019, DuPont changed its management and reporting structure resulting in the creation of a new Non-Core segment ("Second Quarter Segment Realignment").
|
|
|
|
•
|
The Second Quarter Segment Realignment resulted in the following being realigned to Non-Core:
|
|
|
|
|
◦
|
Photovoltaic and Advanced Materials business unit (including the HSC Group joint ventures: DC HSC Holdings LLC and Hemlock Semiconductor L.L.C) from the Electronics & Imaging segment;
|
|
|
|
|
◦
|
Biomaterials and Clean Technologies business units from the Nutrition & Biosciences segment;
|
|
|
|
|
◦
|
DuPont Teijin Films joint venture from the Transportation & Industrial (formerly known as Transportation & Advanced Polymers) segment; and
|
|
|
|
|
◦
|
Sustainable Solutions business unit from the Safety & Construction segment.
|
•In addition, the following changes have occurred:
|
|
|
|
◦
|
Consolidation of the Nutrition & Health business with the Industrial Biosciences business within the Nutrition & Biosciences reportable segment. Previously, Nutrition & Health and Industrial Biosciences were separate operating segments which did not meet the quantitative thresholds.
|
|
|
|
|
◦
|
Pre-commercial activities related to the Biomaterials business unit was realigned from Corporate to Non‑Core, with the remaining pre-commercial activities realigned to the Nutrition & Biosciences segment.
|
The reporting changes have been retrospectively reflected in the segment results for all periods presented.
Prior to April 1, 2019, the Company's measure of profit / loss for segment reporting purposes is pro forma Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assessed performance and allocates resources. The Company defines pro forma Operating EBITDA as pro forma earnings (i.e. pro forma "Income (loss) from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / other post employment benefits (“OPEB”) / charges, and foreign exchange gains/losses, excluding the impact of costs historically allocated to the materials science and agriculture businesses that did not meet the criteria to be recorded as discontinued operations and adjusted for significant items. Effective April 1, 2019, the Company's measure of profit/loss for segment reporting purposes is Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBITDA as earnings (i.e., “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains / losses, adjusted for significant items. Reconciliations of these measures are provided on the following pages.
Pro forma adjustments were determined in accordance with Article 11 of Regulation S-X. Pro forma financial information is based on the Consolidated Financial Statements of DuPont, adjusted to give effect to the impact of certain items directly attributable to the Distributions, and the Term Loan Facilities, the 2018 Senior Notes and the Funding CP Issuance (together, the "Financings"), including the use of proceeds from such Financings (collectively the "Transactions"). The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Transactions, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the results. Events that are not expected to have a continuing impact on the combined results are excluded from the pro forma adjustments. Pro forma adjustments impacting consolidated results are outlined in the Supplemental Unaudited Pro Forma Combined Financial Information section contained in Management's Discussion and Analysis ("MD&A"). Those pro forma adjustments include the impact of various supply agreements entered into in connection with the Dow Distribution ("supply agreements") and are outlined in the Supplemental Unaudited Pro Forma Combined Information section of the MD&A as adjustments to "Cost of sales". The impact of these supply agreements are reflected in pro forma Operating EBITDA for the periods noted above as they are included in the measure of profit / loss reviewed by the CODM in order to show meaningful comparability among periods while assessing performance and making resource allocation decisions. There were no pro forma adjustments for the three months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Const.
|
Non-Core
|
Corp.
|
Total
|
|
In millions
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
934
|
|
$
|
1,525
|
|
$
|
1,209
|
|
$
|
1,327
|
|
$
|
431
|
|
$
|
—
|
|
$
|
5,426
|
|
|
Operating EBITDA 1
|
$
|
320
|
|
$
|
360
|
|
$
|
306
|
|
$
|
352
|
|
$
|
88
|
|
$
|
(25
|
)
|
$
|
1,401
|
|
|
Equity in earnings of nonconsolidated affiliates
|
$
|
10
|
|
$
|
—
|
|
$
|
1
|
|
$
|
7
|
|
$
|
25
|
|
$
|
—
|
|
$
|
43
|
|
|
Three months ended September 30, 2018
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
940
|
|
$
|
1,533
|
|
$
|
1,357
|
|
$
|
1,364
|
|
$
|
489
|
|
$
|
—
|
|
$
|
5,683
|
|
|
Pro forma operating EBITDA 1
|
$
|
322
|
|
$
|
364
|
|
$
|
383
|
|
$
|
350
|
|
$
|
86
|
|
$
|
(50
|
)
|
$
|
1,455
|
|
|
Equity in earnings of nonconsolidated affiliates
|
$
|
7
|
|
$
|
—
|
|
$
|
1
|
|
$
|
6
|
|
$
|
31
|
|
$
|
—
|
|
$
|
45
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,617
|
|
$
|
4,618
|
|
$
|
3,795
|
|
$
|
3,951
|
|
$
|
1,327
|
|
$
|
—
|
|
$
|
16,308
|
|
|
Pro forma operating EBITDA 1
|
$
|
854
|
|
$
|
1,104
|
|
$
|
1,036
|
|
$
|
1,108
|
|
$
|
281
|
|
$
|
(130
|
)
|
$
|
4,253
|
|
|
Equity in earnings of nonconsolidated affiliates
|
$
|
18
|
|
$
|
—
|
|
$
|
3
|
|
$
|
22
|
|
$
|
89
|
|
$
|
—
|
|
$
|
132
|
|
|
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,725
|
|
$
|
4,731
|
|
$
|
4,152
|
|
$
|
4,000
|
|
$
|
1,529
|
|
$
|
—
|
|
$
|
17,137
|
|
|
Pro forma operating EBITDA 1
|
$
|
889
|
|
$
|
1,115
|
|
$
|
1,174
|
|
$
|
972
|
|
$
|
319
|
|
$
|
(186
|
)
|
$
|
4,283
|
|
|
Equity in earnings of nonconsolidated affiliates
|
$
|
20
|
|
$
|
1
|
|
$
|
4
|
|
$
|
19
|
|
$
|
112
|
|
$
|
—
|
|
$
|
156
|
|
|
|
|
|
1.
|
A reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA and pro forma Operating EBITDA, as applicable, is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of "Income from continuing operations, net of tax" to Operating EBITDA for the Three Months Ended September 30, 2019 and 2018
|
Three Months Ended
|
|
In millions
|
September 30, 2019
|
September 30, 2018
|
|
Income from continuing operations, net of tax
|
$
|
372
|
|
$
|
131
|
|
|
+ Provision for income taxes on continuing operations
|
78
|
|
37
|
|
|
Income from continuing operations before income taxes
|
$
|
450
|
|
$
|
168
|
|
|
+ Depreciation and amortization
|
499
|
|
542
|
|
|
- Interest income 1
|
1
|
|
8
|
|
|
+ Interest expense
|
177
|
|
171
|
|
|
- Non-operating pension/OPEB benefit1
|
21
|
|
24
|
|
|
- Foreign exchange gains (losses), net 1
|
(23
|
)
|
(26
|
)
|
|
+ Costs historically allocated to the materials science and agriculture businesses 2
|
—
|
|
234
|
|
|
+ Pro forma adjustments 3
|
—
|
|
(56
|
)
|
|
- Adjusted significant items
|
(274
|
)
|
(402
|
)
|
|
Operating EBITDA 3
|
$
|
1,401
|
|
$
|
1,455
|
|
|
|
|
|
1.
|
Included in "Sundry income (expense) - net."
|
2. Costs previously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to discontinued operations in accordance with ASC 205.
3. For the three months ended September 30, 2018, operating EBITDA is on a pro forma basis. Refer to the Supplemental Unaudited Pro Forma Combined Financial Information contained in the MD&A for additional information related to the pro forma adjustments.
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of "(Loss) Income from continuing operations, net of tax" to Pro Forma Operating EBITDA for the Nine months Ended September 30, 2019 and 2018
|
Nine Months Ended
|
|
In millions
|
September 30, 2019
|
September 30, 2018
|
|
(Loss) Income from continuing operations, net of tax
|
$
|
(805
|
)
|
$
|
89
|
|
|
+ Provision for income taxes on continuing operations
|
142
|
|
201
|
|
|
(Loss) Income from continuing operations before income taxes
|
$
|
(663
|
)
|
$
|
290
|
|
|
+ Depreciation and amortization
|
1,533
|
|
1,644
|
|
|
- Interest income 1
|
50
|
|
29
|
|
|
+ Interest expense
|
522
|
|
513
|
|
|
- Non-operating pension/OPEB benefit 1
|
60
|
|
79
|
|
|
- Foreign exchange gains (losses), net 1, 2
|
(101
|
)
|
(98
|
)
|
|
+ Costs historically allocated to the materials science and agriculture businesses 3
|
256
|
|
842
|
|
|
+ Pro forma adjustments 4
|
122
|
|
(206
|
)
|
|
- Adjusted significant items
|
(2,492
|
)
|
(1,210
|
)
|
|
Pro Forma Operating EBITDA 4
|
$
|
4,253
|
|
$
|
4,283
|
|
|
|
|
|
1.
|
Included in "Sundry income (expense) - net."
|
|
|
|
|
2.
|
Excludes a $50 million pretax foreign exchange loss significant item related to adjustments to Historical EID's foreign currency exchange contracts as a result of U.S. tax reform during the nine months ended September 30, 2018.
|
3. Costs previously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to discontinued operations in accordance with ASC 205.
4. Refer to the Supplemental Unaudited Pro Forma Combined Financial Information contained in the MD&A section for additional information related to the pro forma adjustments.
The significant items for the three months ended September 30, 2019, are presented on an as reported basis. The adjusted significant items for the nine months ended September 30, 2019 and for the three and nine months ended September 30, 2018, are presented on a pro forma basis. The following tables summarize the pretax impact of significant items by segment that are excluded from Operating EBITDA and pro forma Operating EBITDA above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items by Segment for the Three Months Ended September 30, 2019
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
|
In millions
|
|
Integration and separation costs 1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(191
|
)
|
$
|
(191
|
)
|
|
Restructuring and asset related charges - net 2
|
(35
|
)
|
(7
|
)
|
(6
|
)
|
(5
|
)
|
(2
|
)
|
(28
|
)
|
(83
|
)
|
|
Total
|
$
|
(35
|
)
|
$
|
(7
|
)
|
$
|
(6
|
)
|
$
|
(5
|
)
|
$
|
(2
|
)
|
$
|
(219
|
)
|
$
|
(274
|
)
|
|
|
|
|
1.
|
Integration and separation costs related to the Merger, post-Merger integration and business separation activities.
|
|
|
|
|
2.
|
Includes Board approved restructuring plans and asset related charges, which include other asset impairments. See Note 5 for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Significant Items by Segment for the Three Months Ended September 30, 2018 (Pro Forma)
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
|
In millions
|
|
Net loss on divestitures and changes in joint venture ownership 1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(6
|
)
|
$
|
—
|
|
$
|
(6
|
)
|
|
Integration and separation costs 2
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(385
|
)
|
(385
|
)
|
|
Restructuring and asset related charges - net 3
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
(1
|
)
|
(8
|
)
|
(11
|
)
|
|
Total
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(2
|
)
|
$
|
(7
|
)
|
$
|
(393
|
)
|
$
|
(402
|
)
|
|
|
|
|
1.
|
Reflected in "Sundry income (expense) - net."
|
|
|
|
|
2.
|
Integration and separation costs related to the Merger, post-Merger integration and business separation activities.
|
|
|
|
|
3.
|
Includes Board approved restructuring plans and asset related charges, which includes other asset impairments. See Note 5 for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Significant Items by Segment for the Nine Months Ended September 30, 2019 (Pro Forma)
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
|
In millions
|
|
Integration and separation costs 1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(976
|
)
|
$
|
(976
|
)
|
|
Restructuring and asset related charges - net 2
|
(42
|
)
|
(119
|
)
|
(18
|
)
|
(27
|
)
|
(2
|
)
|
(85
|
)
|
(293
|
)
|
|
Goodwill impairment charges 3
|
—
|
|
(933
|
)
|
—
|
|
—
|
|
(242
|
)
|
—
|
|
(1,175
|
)
|
|
Income tax related items 4
|
—
|
|
—
|
|
—
|
|
(48
|
)
|
—
|
|
—
|
|
(48
|
)
|
|
Total
|
$
|
(42
|
)
|
$
|
(1,052
|
)
|
$
|
(18
|
)
|
$
|
(75
|
)
|
$
|
(244
|
)
|
$
|
(1,061
|
)
|
$
|
(2,492
|
)
|
|
|
|
|
1.
|
Integration and separation costs related to the Merger, post-Merger integration and business separation activities.
|
|
|
|
|
2.
|
Includes Board approved restructuring plans and asset related charges, which include other asset impairments. See Note 5 for additional information.
|
|
|
|
|
3.
|
See Note 13 for additional information.
|
4. Includes a $48 million charge in "Sundry income (expense) - net" which reflects a reduction in gross proceeds from lower withholding taxes related to a prior year legal settlement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Significant Items by Segment for the Nine Months Ended September 30, 2018 (Pro Forma)
|
Elect. & Imaging
|
Nutrition & Biosciences
|
Transp. & Industrial
|
Safety & Construction
|
Non-Core
|
Corporate
|
Total
|
|
In millions
|
|
Merger-related inventory step-up amortization 1
|
$
|
—
|
|
$
|
(68
|
)
|
$
|
—
|
|
$
|
(5
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(73
|
)
|
|
Net loss on divestitures and changes in joint venture ownership 2
|
—
|
|
—
|
|
—
|
|
—
|
|
(27
|
)
|
—
|
|
(27
|
)
|
|
Integration and separation costs 3
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(950
|
)
|
(950
|
)
|
|
Restructuring and asset related charges - net 4
|
(2
|
)
|
—
|
|
1
|
|
(21
|
)
|
5
|
|
(93
|
)
|
(110
|
)
|
|
Income tax related item 5
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(50
|
)
|
(50
|
)
|
|
Total
|
$
|
(2
|
)
|
$
|
(68
|
)
|
$
|
1
|
|
$
|
(26
|
)
|
$
|
(22
|
)
|
$
|
(1,093
|
)
|
$
|
(1,210
|
)
|
|
|
|
|
1.
|
Includes the fair value step-up in Historical EID's inventories as a result of the Merger and the acquisition of FMC Corporation's Health and Nutrition business in November 2017.
|
|
|
|
|
2.
|
Reflected in "Sundry income (expense) - net."
|
|
|
|
|
3.
|
Integration and separation costs related to the Merger, post-Merger integration and business separation activities.
|
|
|
|
|
4.
|
Includes Board approved restructuring plans and asset related charges, which includes other asset impairments. See Note 5 for additional information.
|
|
|
|
|
5.
|
Includes a foreign exchange loss related to adjustments to Historical EID's foreign currency exchange contracts as a result of U.S. tax reform.
|
