DuPont de Nemours, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 14, 2020. Amounts are in U.S. dollars. DuPont completed the distributions of Dow (April 1) and Corteva (June 1) during 2019; continuing operations thereafter comprise its specialty products business. Prior-period comparisons are affected by these separations and are not fully like-for-like. Cash flows for Dow and Corteva were not separated from consolidated cash-flow statements.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $21.512 billion | $22.594 billion |
| Continuing-operations income (loss), net of tax | $(614) million | $405 million |
| Continuing-operations diluted EPS | $(0.86) | $0.45 |
| Discontinued-operations income, net of tax | $1.214 billion | $3.595 billion |
| Net income available to DuPont common stockholders | $498 million | $3.845 billion |
| Cash provided by operating activities | $1.409 billion | $4.731 billion |
| Cash and cash equivalents and marketable securities at year-end | $1.540 billion | $8.577 billion |
| Total debt at year-end | $17.447 billion | $12.639 billion |
Sales fell 5%, reflecting a 4% volume decline, 2% unfavorable currency, and 1% portfolio impact, partly offset by 2% higher local price. Cost of sales was 65% of sales versus 68% in 2018, implying gross margins of approximately 35% and 32%, respectively. Pro forma Operating EBITDA, DuPont’s segment performance measure, was $5.640 billion versus $5.905 billion; it excludes specified significant items and is not GAAP operating income.
Full-year cash used in investing was $2.313 billion and cash used in financing was $11.550 billion. The financing outflow principally reflected cash distributed with Dow and Corteva and debt repayments, partly offset by borrowing. Net working capital was $1.653 billion and the current ratio was 1.20:1, compared with $12.502 billion and 4.22:1 in 2018; separation-related balance-sheet changes limit comparability.
Fourth-quarter 2019 net sales were $5.204 billion; continuing-operations income, net of tax, was $191 million. The filing provides quarterly figures but does not provide a clear standalone fourth-quarter cash-flow or debt figure.
Segments and material changes
- Electronics & Imaging: Sales $3.554 billion, down 2%; pro forma Operating EBITDA $1.147 billion, down 5%. Weaker memory, circuit-board demand and currency outweighed gains in OLED materials and cost synergies.
- Nutrition & Biosciences: Sales $6.076 billion, down 2%; pro forma Operating EBITDA $1.427 billion, down 1%. Volume was flat; currency and portfolio effects were adverse.
- Transportation & Industrial: Sales $4.950 billion, down 9%; pro forma Operating EBITDA $1.313 billion, down 14%. Automotive destocking and weaker automotive and electronics demand drove volume declines.
- Safety & Construction: Sales $5.201 billion, down 2%; pro forma Operating EBITDA $1.419 billion, up 11%. Pricing, productivity and cost synergies lifted EBITDA despite divestiture and currency impacts.
- Non-Core: Sales $1.731 billion, down 15%; pro forma Operating EBITDA $491 million, down 27%. Weak photovoltaic-related demand, lower HSC Group earnings and the Sustainable Solutions divestiture weighed on results.
DuPont recorded $1.175 billion of non-cash goodwill impairment charges in 2019: $933 million in Nutrition & Biosciences and $242 million in Non-Core. It also recorded $1.342 billion of integration and separation costs and $314 million of restructuring and asset-related charges. A $63 million equity-method investment impairment was included in restructuring and asset-related charges. These items contributed to the continuing-operations loss.
In the fourth quarter, DuPont completed three Safety & Construction acquisitions for approximately $175 million in aggregate. It also sold its Sustainable Solutions business, recording a $28 million pretax gain. An agreement to sell its compound semiconductor solutions business for approximately $450 million was expected to close in Q1 2020.
Outlook, risks and contingencies
- Management expected a macro environment similar to 2019, with modest improvement in selected markets—particularly next-generation smartphones, probiotics and semiconductors—offset by challenging nylon conditions and continued automotive weakness. Productivity and cost actions were expected to be more than offset by higher intangible amortization and N&B separation costs. No quantified consolidated earnings or revenue guidance was provided.
- Segment outlooks were mixed: stronger volumes were anticipated in Electronics & Imaging, Nutrition & Biosciences and Safety & Construction; Transportation & Industrial sales were expected to decline; Non-Core sales were expected to fall. These outlook statements were made before the COVID-19 pandemic.
- DuPont and IFF agreed to combine DuPont’s Nutrition & Biosciences business with IFF in a proposed Reverse Morris Trust transaction, expected to close by the end of Q1 2021, subject to approvals and other conditions. DuPont shareholders were expected to own approximately 55.4% of the combined company, and DuPont expected a one-time $7.3 billion cash payment, subject to adjustment. Transaction completion, tax treatment, financing and expected value are uncertain.
- DuPont had $17.447 billion of debt and $1.540 billion of cash and cash equivalents/marketable securities at year-end. A $2.0 billion share repurchase program had $1.25 billion remaining at December 31, 2019. The company was in compliance with its debt covenant; its S&P rating was A- on negative watch, while Moody’s rated it Baa1 stable and Fitch BBB+ stable.
- Environmental remediation accruals were $77 million; the filing states ultimate costs could be up to $170 million above the accrued amount. Recorded litigation liabilities were $20 million. DuPont disclosed extensive PFAS-related litigation and indemnification arrangements, including disputes with Chemours, and noted that certain potential non-PFAS stray liabilities were not reasonably estimable and therefore not accrued.
- Other material risks include possible tax or indemnity liabilities arising from the Dow and Corteva distributions, foreign-exchange and raw-material volatility, international and regulatory exposure, goodwill impairment, litigation, and supply-chain or cybersecurity disruption. Non-Core reporting units had limited goodwill headroom; the filing warns further impairment is possible.
Important facts for investors to verify
- Reconcile the reported 2019 loss from continuing operations with discontinued-operations income and assess the extent to which reported results reflect one-time impairments, separation costs and other adjustments.
- Review cash generation and liquidity using the full cash-flow statements, bearing in mind that 2019 cash flows include Dow and Corteva activity and separation-related movements.
- Assess debt maturities and refinancing needs, including the $2.0 billion due in 2020, and monitor ratings, cash balances and covenant headroom.
- Track the IFF transaction’s approvals, tax opinion, financing, closing timing and final cash-payment adjustment; verify the expected post-transaction ownership and cash proceeds.
- Monitor PFAS litigation, Chemours indemnification disputes, environmental remediation estimates and the potential tax consequences of the prior distributions.
- Evaluate segment trends—especially automotive-related weakness, Non-Core demand and goodwill headroom—against management’s outlook and subsequent disclosures.