01—Abstract
Summary
Summary of the 10-K filed February 11, 2019. Cited figures are marked; the original filing is the authoritative source.
DowDuPont Inc. reported 2018 net sales of $85.98 billiona, up from $62.48 billion in 2017, driven largely by the Merger with Historical DuPont (a full year of results versus four months in 2017).
Volume rose 4 percent and local price rose 4 percent, with currency adding 1 percent. Income from continuing operations was $4.00 billionb, and net income available to common stockholders was $3.84 billion ($1.65 per diluted share), compared with $1.46 billion ($0.91 per share) in 2017. Operating EBITDA by segment totaled $18.29 billion, and free cash flow was $894 million, compared with negative free cash flow in 2017 and 2016.
The company is pursuing three separate, tax-free spin-offs: Dow Holdings Inc. (materials science), targeted for April 1, 2019, and Corteva, Inc. (agriculture), targeted for June 1, 2019, leaving DowDuPont as the specialty products company, which it expects to be renamed DuPont. The $12.7 billionc of DowDuPont Notes issued in November 2018 must be redeemed at 101 percent of principal if the separations are not completed by May 1, 2020 or are abandoned. Current ratings for DowDuPont are A- (S&P), Baa1 (Moody's) and BBB+ (Fitch), all with stable outlooks.
The filing also highlights significant legal and environmental exposures, including asbestos liabilities at Union Carbide, PFOA-related actions tied to the Chemours separation, and a $4.5 billiond goodwill impairment recorded by Historical DuPont at the standalone level that did not survive at the DowDuPont level. Environmental accruals totaled $1.20 billion at year-end 2018. Management outlined a $3.0 billion share buyback program, of which $1.4 billion had been repurchased by December 31, 2018, with completion expected before March 31, 2019.
02—Key points
Key Highlights
- Net sales rose to $85.98 billion in 2018 from $62.48 billion in 2017, up 38 percent, with the increase primarily reflecting the Merger.
- Net income available for common stockholders was $3.84 billion ($1.65 per diluted share) in 2018, compared with $1.46 billion ($0.91 per share) in 2017.
- Planned separations: Dow Holdings Inc. (materials science) targeted for April 1, 2019, and Corteva, Inc. (agriculture) targeted for June 1, 2019, with DowDuPont retaining specialty products.
- Issued $12.7 billion of DowDuPont Notes in Q4 2018, which must be redeemed at 101 percent of principal if separations are not completed by May 1, 2020 or are abandoned.
- Free cash flow was $894 million in 2018, versus negative $4.34 billion in 2017 and negative $6.76 billion in 2016, reflecting improved operating cash flow of $4.73 billion.
- Board announced a $3.0 billion share buyback program on November 1, 2018; $1.4 billion had been repurchased at year-end, with completion expected before March 31, 2019.
- Ongoing legal and environmental exposures include Union Carbide asbestos liabilities, PFOA and GenX matters at Fayetteville Works, and environmental accruals of $1.20 billion at December 31, 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 11, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $22.59B$11.67B | +93.6% |
| Cost of Revenue | $15.30B$9.56B | +60.1% |
| Gross Profit | $20.64B$12.69B | +62.6% |
| R&D Expenses | $1.07B$657.00M | +62.9% |
| SG&A Expenses | $3.03B$1.61B | +87.5% |
| Net Income | $3.85B$1.16B | +231.8% |
| EPS (Basic) | $4.99$2.18 | +128.9% |
| EPS (Diluted) | $4.96$2.15 | +130.7% |
| Shares Outstanding (Basic) | 767.00M526.60M | +45.7% |
| Shares Outstanding (Diluted) | 771.80M532.70M | +44.9% |
05—Questions
Frequently Asked Questions
What drove the large increase in 2018 net sales?
The filing attributes the increase to the Merger, which contributed 29 percent of the sales increase by including Historical DuPont for a full year (compared with four months in 2017). Volume rose 4 percent, local price rose 4 percent, and currency added 1 percent. Pro forma net sales for 2017 were $79.54 billion, so on a pro forma basis 2018 sales rose 8 percent.
What are the planned separations and what happens if they are not completed?
DowDuPont plans to separate into three public companies: Dow Holdings Inc. (materials science), targeted for April 1, 2019, and Corteva, Inc. (agriculture), targeted for June 1, 2019, with DowDuPont retaining specialty products and expected to become known as DuPont. If the separations are not completed by May 1, 2020, or are abandoned, the company must redeem the $12.7 billion of DowDuPont Notes at 101 percent of principal plus accrued interest. The Board of Directors has discretion over whether to proceed.
How much cash did the company generate and how is it being returned to shareholders?
Cash provided by operating activities was $4.73 billion in 2018, and capital expenditures were $3.84 billion, leaving free cash flow of $894 million. Dividends paid to stockholders totaled $3.49 billion, and treasury stock purchases were $4.42 billion. Dividends declared were $1.52 per share for 2018.
What are the main litigation and environmental risks disclosed?
Union Carbide's asbestos-related liability for pending and future claims and defense costs was $1.26 billion at December 31, 2018. Historical DuPont faces PFOA and GenX-related inquiries and lawsuits tied to the Fayetteville Works facility, which Chemours largely indemnifies. The company reported environmental accrued obligations of $1.20 billion, with reasonably possible costs up to about two and a half times that amount.
What credit ratings does the company currently hold?
Following the DowDuPont Notes offering, ratings for DowDuPont were A- with a Stable outlook from Standard & Poor's, Baa1 with a Stable outlook from Moody's Investors Service, and BBB+ with a Stable outlook from Fitch Ratings. These ratings were assigned on a prospective basis assuming the separations are completed. Historical Dow's ratings at January 31, 2019 were BBB, Baa2 and BBB+, respectively.
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