DuPont de Nemours, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone quarterly filing; selected fourth-quarter results are also included below. DuPont reported its specialty-products businesses, including Nutrition & Biosciences (N&B), as continuing operations for 2020. Dow and Corteva were discontinued operations in the comparative periods, so some year-over-year comparisons are affected by portfolio changes.
Business context and major portfolio event
DuPont supplied technology-based materials and solutions across electronics, nutrition and biosciences, transportation and industrial markets, safety and construction, and non-core businesses. At year-end, it reported five segments: Electronics & Imaging; Nutrition & Biosciences; Transportation & Industrial; Safety & Construction; and Non-Core.
On February 1, 2021, after year-end, DuPont completed the N&B separation and combination with IFF. DuPont accepted approximately 197.4 million DuPont shares in exchange for approximately 141.7 million N&B shares, which converted into IFF shares, and received a one-time cash payment of approximately $7.3 billion. N&B represented about 30% of DuPont’s assets and net sales at December 31, 2020; it is to be reported as discontinued operations from first-quarter 2021, including prior periods.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $20.397 billion | $21.512 billion |
| Gross profit (sales less cost of sales) | $6.875 billion | $7.456 billion |
| Gross margin (calculated) | 33.7% | 34.7% |
| Operating EBITDA, company-defined | $5.042 billion | $5.640 billion, pro forma |
| Loss from continuing operations, net of tax | $2.874 billion | $614 million |
| Net income (loss) available to DuPont common stockholders | $(2.951) billion | $498 million |
| Basic earnings (loss) per share | $(4.01) | $0.67 |
| Cash from operating activities | $4.095 billion | $1.409 billion |
| Capital expenditures | $1.194 billion | $2.472 billion |
Sales declined 5%, reflecting a 4% volume decrease and a 1% reduction from portfolio actions; local price/product mix and currency were approximately flat. The filing attributes stronger operating cash flow mainly to a release of working capital, compared with a working-capital use in 2019. Cash from operations less capital expenditures was approximately $2.9 billion in 2020, versus approximately $(1.1) billion in 2019; this is a simple calculated measure, not a company-reported free-cash-flow metric.
The net loss was heavily affected by non-cash impairment and other items: goodwill impairment charges were $3.214 billion, restructuring and asset-related charges were $849 million, and amortization of intangibles was $2.119 billion. The effective tax rate was 0.8% on a $2.897 billion pretax loss, principally reflecting non-deductible goodwill impairments. 2019 net income included $1.214 billion from discontinued operations, largely associated with the Dow and Corteva separations, so total net income is not a like-for-like measure.
Segment performance
| Segment | 2020 sales | 2020 Operating EBITDA | Sales change vs. 2019 |
|---|---|---|---|
| Electronics & Imaging | $3.814 billion | $1.210 billion | +7% |
| Nutrition & Biosciences | $6.059 billion | $1.523 billion | Approximately flat |
| Transportation & Industrial | $4.189 billion | $916 million | -15% |
| Safety & Construction | $4.993 billion | $1.351 billion | -4% |
| Non-Core | $1.342 billion | $168 million | -22% |
2019 segment EBITDA comparisons are pro forma. Electronics & Imaging benefited from semiconductor, OLED, and smartphone-material demand. Transportation & Industrial was pressured by pandemic-related automotive and industrial weakness and plant-idling costs; EBITDA fell 30%. Safety & Construction saw strength in water solutions and protective garments offset by weaker construction and other end markets. Non-Core was affected by lower volumes, divestitures, and reduced earnings from businesses sold.
Fourth-quarter results
For the three months ended December 31, 2020, net sales were $5.252 billion, compared with $5.204 billion in fourth-quarter 2019. Income from continuing operations, net of tax, was $279 million, versus $191 million; net income was $230 million, versus $188 million. Basic EPS from continuing operations was $0.37, compared with $0.24. The quarter included integration and separation costs, restructuring charges, and an income-tax item; the filing does not provide a single adjusted fourth-quarter earnings figure in the excerpt.
Liquidity, debt, and capital allocation
At December 31, 2020, cash and cash equivalents were $2.544 billion, total debt was $21.811 billion, working capital was $6.178 billion, and the current ratio was 2.31, compared with 1.20 a year earlier. Reported debt includes $6.25 billion of N&B notes; their approximately $6.2 billion net proceeds were held as restricted cash and are not included in cash and cash equivalents. The N&B notes and associated obligations left DuPont in the February 2021 transaction.
DuPont reported $3.978 billion available under committed revolving credit facilities at year-end and stated it expected operating cash generation and capital-market access to meet liquidity needs. It was compliant with its debt covenant. Ratings at January 31, 2021 were BBB+ (S&P), Baa1 (Moody’s), and BBB+ (Fitch), each with a stable outlook.
The company paid $1.20 per share in 2020 dividends. It repurchased 6.1 million shares for $232 million in 2020, with approximately $1 billion remaining under its $2 billion authorization at year-end. Management expected to use the N&B cash proceeds to repay $3 billion of term loans and redeem the $2 billion May 2020 notes; it also expected reduced interest expense and a lower share count following the transaction.
Outlook, risks, and unusual items
For 2021, management expected strong demand in semiconductors, smartphones, protective garments, water, and residential construction, with continued improvement in automotive markets. It expected demand and ongoing cost actions to support earnings improvement. Planned 2021 capital expenditures were approximately $825 million, subject to adjustment as conditions evolved. No numerical earnings or revenue guidance was provided in the filing text.
- COVID-19: The pandemic reduced demand in aerospace, commercial construction, oil and gas, and selected industrial markets, while electronics, water filtration, health and wellness, and personal protection were comparatively strong. Supply-chain disruption, operating restrictions, and uncertain recovery remained risks.
- PFAS and litigation: A January 2021 agreement among DuPont, Corteva, EID, and Chemours provides for sharing eligible future PFAS costs, subject to stated duration and spending limits. DuPont recorded a $59 million liability and had a $50 million escrow contribution due by September 30, 2021. The company also recorded a $27 million liability for its share of an $83 million Ohio MDL settlement. Various PFAS personal-injury, water-contamination, and natural-resource claims remain pending.
- Environmental matters: The remediation accrual was $80 million at year-end. Management stated reasonably possible additional exposure could be as much as $170 million above the accrual, with uncertainty around site conditions, regulation, and remediation methods.
- Tax and separation exposure: The company identified possible significant tax liabilities if the intended tax-free treatment of N&B or prior Dow/Corteva distributions is challenged. It also faces indemnification and legacy-liability risks arising from the separations.
- Impairments and divestitures: 2020 goodwill impairments included $2.498 billion in Transportation & Industrial and $716 million in Non-Core. Management noted that weaker-than-expected cash flows or changed assumptions could lead to additional impairments. Planned sales of Biomaterials, Clean Technologies, and Solamet were expected to generate about $920 million in aggregate pretax proceeds, subject to closing conditions.
- Other risks: The filing highlights raw-material and energy price volatility, foreign-exchange exposure, cybersecurity, regulatory and environmental compliance, and the possibility that divestitures, restructuring, or cost savings may not deliver expected benefits.
Most important facts for investors to verify
- Post-N&B transaction debt, cash, interest expense, and share count, including completion of the planned term-loan repayment and May 2020 notes redemption.
- How the N&B separation changes DuPont’s continuing-operations baseline and segment reporting from first-quarter 2021.
- Whether the expected 2021 demand recovery and cost actions translate into improved sales, margins, and EBITDA, particularly in Transportation & Industrial and Non-Core businesses.
- PFAS cost-sharing obligations, escrow funding, litigation developments, and the adequacy of recorded environmental and legal accruals.
- Whether asset-sale proceeds and impairment assumptions are realized as expected, and whether further impairment charges arise.