01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
DuPont de Nemours, Inc. (NYSE: DD) reports 2019 net sales of $21.5 billiona, down 5 percent from $22.6 billion in 2018, with volume down 4 percent, currency down 2 percent and portfolio actions down 1 percent, partly offset by a 2 percent increase in local price.
The company reported a loss from continuing operations of $614 millionb for 2019, driven by $1,175 million of non-cash goodwill impairment charges in the Nutrition & Biosciences and Non-Core segments and $1,342 million of integration and separation costs. Net income available to common stockholders was $498 million, which includes $1,214 million of income from discontinued operations tied to the Dow and Corteva separations. Pro forma Operating EBITDA was $5.64 billion, compared with $5.91 billion in 2018, and the company ended 2019 with $1.54 billion of cash and marketable securities against $17.45 billion of total debt.
The central strategic item is the proposed combination of the Nutrition & Biosciences business with International Flavors & Fragrances Inc. (IFF) in a Reverse Morris Trust transaction, expected to close by the end of the first quarter of 2021. DuPont shareholders would own approximately 55.4 percent of the combined company, and DuPont would receive a one-time $7.3 billionc cash payment, subject to adjustment. Financing for that payment includes a $1.25 billion term loan entered in January 2020, with the remaining $6.25 billion expected to come from a notes offering and/or bridge loans.
Management's 2020 outlook anticipates a macro environment similar to 2019, with modest improvement in select areas offset by nylon dynamics and automotive weakness. Credit ratings at January 31, 2020 were A- (S&P, Negative Watch), Baa1 (Moody's, Stable) and BBB+ (Fitch, Stable). Investors should also note the company's contingent liabilities, including PFAS-related litigation and the Chemours suit, and the tax-free treatment of the Dow and Corteva distributions, which the IRS could challenge.
02—Key points
Key Highlights
- 2019 net sales of $21.5 billion, down 5 percent from $22.6 billion, with volume down 4 percent and currency down 2 percent
- Loss from continuing operations of $614 million, including a $1,175 million goodwill impairment charge and $1,342 million of integration and separation costs
- Net income available to common stockholders of $498 million, including $1,214 million from discontinued operations
- Pending IFF combination of the Nutrition & Biosciences business, with DuPont shareholders owning 55.4 percent of the combined company and a $7.3 billion Special Cash Payment to DuPont
- Pro forma Operating EBITDA of $5.64 billion in 2019 versus $5.91 billion in 2018
- Cash, cash equivalents and marketable securities of $1.54 billion against total debt of $17.45 billion at December 31, 2019
- Quarterly dividend of $0.30 per share declared February 12, 2020, and a $2 billion share buyback program running through June 1, 2021
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $21.51B$22.59B | −4.8% |
| Cost of Revenue | $10.03B$15.30B | −34.5% |
| Gross Profit | $11.49B$20.64B | −44.4% |
| R&D Expenses | $689.00M$1.07B | −35.6% |
| SG&A Expenses | $2.06B$3.03B | −32.1% |
| Net Income | $498.00M$3.85B | −87.0% |
| EPS (Basic) | $0.67$4.99 | −86.6% |
| EPS (Diluted) | $0.67$4.96 | −86.5% |
| Shares Outstanding (Basic) | 746.30M767.00M | −2.7% |
| Shares Outstanding (Diluted) | 746.30M771.80M | −3.3% |
05—Questions
Frequently Asked Questions
Why did DuPont report a loss from continuing operations in 2019?
The loss of $614 million was driven mainly by a $1,175 million non-cash goodwill impairment charge tied to the Nutrition & Biosciences and Non-Core segments, along with $1,342 million of integration and separation costs related to the Merger, the Distributions and the planned N&B separation. Interest expense rose to $668 million from $55 million in 2018.
What is the proposed IFF transaction and when is it expected to close?
DuPont agreed on December 15, 2019 to combine its Nutrition & Biosciences business with IFF through a Reverse Morris Trust transaction. DuPont shareholders would own approximately 55.4 percent of the combined company, and DuPont would receive a one-time $7.3 billion cash payment subject to adjustment. The transaction is expected to close by the end of the first quarter of 2021, subject to IFF shareholder approval, regulatory approvals and a tax counsel opinion.
How is DuPont funding the Special Cash Payment?
N&B Inc. entered into a $7.5 billion Bridge Commitment Letter, reduced to $6.25 billion after a $1.25 billion senior unsecured term loan agreement in January 2020. The remaining $6.25 billion is expected to be funded through a notes offering and/or the Bridge Loans. The filing notes the company expects to refinance its November 2020 maturities for the interim period.
What are the main risks tied to the Dow and Corteva separations?
The filing notes that DuPont may be liable for tax and indemnification obligations if the Dow or Corteva distributions fail to qualify as tax-free, and that the IRS could challenge the distributions. DuPont also faces contingent liabilities of Dow and Corteva, fraudulent conveyance exposure, and PFAS-related Stray Liabilities. Chemours filed suit in the Delaware Court of Chancery against Historical EID, Corteva and DuPont to limit its responsibility for certain litigation and environmental liabilities.
How did sales change by segment in 2019?
Electronics & Imaging net sales were $3,554 million, down from $3,635 million. Nutrition & Biosciences was $6,076 million, down from $6,216 million. Transportation & Industrial fell 9 percent to $4,950 million, with volume down 10 percent. Safety & Construction was $5,201 million, down from $5,294 million. Non-Core fell 15 percent to $1,731 million, with volume down 11 percent.
06—Continue