DuPont de Nemours, Inc. - Quarter Report: 2022 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38196
DUPONT DE NEMOURS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 81-1224539 | |||||||||||||
| State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) | |||||||||||||
974 Centre Road | Building 730 | Wilmington | Delaware | 19805 | ||||||||||||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||||||||||||||
(302) 774-3034
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $0.01 per share | DD | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☑ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☑ | Accelerated filer | ¨ | ||||||||||||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ☐ | ||||||||||||||||||||
| Emerging growth company | ☐ | ||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
The registrant had 496,788,948 shares of common stock, $0.01 par value, outstanding at November 4, 2022.
DuPont de Nemours, Inc.
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 30, 2022
TABLE OF CONTENTS
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3
| DuPont de Nemours, Inc. | ||
DuPontTM and all products, unless otherwise noted, denoted with TM, SM or ® are trademarks, service marks or registered trademarks of affiliates of DuPont de Nemours, Inc.
FORWARD-LOOKING STATEMENTS
This communication contains "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "target," and similar expressions and variations or negatives of these words.
Forward-looking statements address matters that are, to varying degrees, uncertain and subject to risks, uncertainties, and assumptions, many of which that are beyond DuPont's control, that could cause actual results to differ materially from those expressed in any forward-looking statements. Forward-looking statements are not guarantees of future results. Some of the important factors that could cause DuPont's actual results to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) the possibility that the Company may fail to realize the anticipated benefits of the $5 billion share repurchase program announced on November 8, 2022 and that the program may be suspended, discontinued or not completed prior to its termination on June 30, 2024; (ii) ability to achieve anticipated tax treatments in connection with mergers, acquisitions, divestitures, (including in connection with the divestiture of the majority of its historic Mobility & Materials segment to Celanese completed on November 1, 2022, and DuPont’s pursuit of plans to divest the Delrin® acetal homopolymer business), and other portfolio changes actions and impact of changes in relevant tax and other laws; (iii) indemnification of certain legacy liabilities; (iv) risks and costs related to each of the parties respective performance under and the impact of the arrangement to share future eligible PFAS costs by and between DuPont, Corteva and Chemours; (v) failure to timely close on anticipated terms (or at all), realize expected benefits and effectively manage and achieve anticipated synergies and operational efficiencies in connection with mergers, acquisitions, divestitures and other portfolio changes; (vi) risks and uncertainties, including increased costs and the ability to obtain raw materials and meet customer needs, related to operational and supply chain impacts or disruptions, which may result from, among other events, the COVID-19 pandemic and actions in response to it, and geo-political and weather related events; (vii) ability to offset increases in cost of inputs, including raw materials, energy and logistics; (viii) risks, including ability to achieve, and costs associated with DuPont’s sustainability strategy including the actual conduct of the company’s activities and results thereof, and the development, implementation, achievement or continuation of any goal, program, policy or initiative discussed or expected; and (ix) other risks to DuPont's business, operations; each as further discussed in DuPont’s most recent annual report and subsequent current and periodic reports filed with the U.S. Securities and Exchange Commission. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business or supply chain disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. DuPont assumes no obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
4
| PART I - FINANCIAL INFORMATION | ||
ITEM 1. FINANCIAL STATEMENTS
DuPont de Nemours, Inc.
Consolidated Statements of Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions, except per share amounts (Unaudited) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | $ | 3,317 | $ | 3,199 | $ | 9,913 | $ | 9,320 | ||||||
| Cost of sales | 2,095 | 2,032 | 6,354 | 5,852 | ||||||||||
| Research and development expenses | 129 | 137 | 413 | 409 | ||||||||||
| Selling, general and administrative expenses | 356 | 411 | 1,130 | 1,201 | ||||||||||
| Amortization of intangibles | 146 | 158 | 447 | 410 | ||||||||||
| Restructuring and asset related charges - net | — | 1 | 101 | 8 | ||||||||||
| Acquisition, integration and separation costs | 7 | 29 | 28 | 58 | ||||||||||
| Equity in earnings of nonconsolidated affiliates | 16 | 22 | 62 | 65 | ||||||||||
| Sundry income (expense) - net | 26 | 1 | 123 | 155 | ||||||||||
| Interest expense | 128 | 115 | 370 | 390 | ||||||||||
| Income from continuing operations before income taxes | 498 | 339 | 1,255 | 1,212 | ||||||||||
| Provision for income taxes on continuing operations | 139 | 80 | 299 | 172 | ||||||||||
| Income from continuing operations, net of tax | 359 | 259 | 956 | 1,040 | ||||||||||
| Income from discontinued operations, net of tax | 17 | 145 | 723 | 5,249 | ||||||||||
| Net income | 376 | 404 | 1,679 | 6,289 | ||||||||||
| Net income attributable to noncontrolling interests | 9 | 13 | 37 | 26 | ||||||||||
| Net income available for DuPont common stockholders | $ | 367 | $ | 391 | $ | 1,642 | $ | 6,263 | ||||||
| Per common share data: | ||||||||||||||
| Earnings per common share from continuing operations - basic | $ | 0.69 | $ | 0.48 | $ | 1.81 | $ | 1.86 | ||||||
| Earnings per common share from discontinued operations - basic | 0.05 | 0.27 | 1.44 | 9.49 | ||||||||||
| Earnings per common share - basic | $ | 0.73 | $ | 0.75 | $ | 3.25 | $ | 11.35 | ||||||
| Earnings per common share from continuing operations - diluted | $ | 0.69 | $ | 0.48 | $ | 1.80 | $ | 1.86 | ||||||
| Earnings per common share from discontinued operations - diluted | 0.05 | 0.27 | 1.44 | 9.46 | ||||||||||
| Earnings per common share - diluted | $ | 0.73 | $ | 0.75 | $ | 3.24 | $ | 11.32 | ||||||
| Weighted-average common shares outstanding - basic | 499.4 | 521.5 | 505.6 | 551.7 | ||||||||||
| Weighted-average common shares outstanding - diluted | 500.4 | 523.1 | 506.9 | 553.1 | ||||||||||
See Notes to the Consolidated Financial Statements.
5
DuPont de Nemours, Inc.
Consolidated Statements of Comprehensive Income
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions (Unaudited) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net income | $ | 376 | $ | 404 | $ | 1,679 | $ | 6,289 | ||||||
| Other comprehensive (loss) income, net of tax | ||||||||||||||
| Cumulative translation adjustments | (837) | (189) | (1,802) | (554) | ||||||||||
| Pension and other post-employment benefit plans | 29 | 12 | 21 | 23 | ||||||||||
| Derivative instruments | 42 | 20 | 109 | 38 | ||||||||||
| Split-off of N&B | — | — | — | 258 | ||||||||||
| Total other comprehensive loss | (766) | (157) | (1,672) | (235) | ||||||||||
| Comprehensive (loss) income | (390) | 247 | 7 | 6,054 | ||||||||||
| Comprehensive income attributable to noncontrolling interests, net of tax | 1 | 12 | 9 | 17 | ||||||||||
| Comprehensive (loss) income attributable to DuPont | $ | (391) | $ | 235 | $ | (2) | $ | 6,037 | ||||||
See Notes to the Consolidated Financial Statements.
6
DuPont de Nemours, Inc.
Condensed Consolidated Balance Sheets
| In millions, except share amounts (Unaudited) | September 30, 2022 | December 31, 2021 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
Cash and cash equivalents | $ | 1,785 | $ | 1,972 | ||||
Accounts and notes receivable - net | 2,257 | 2,159 | ||||||
Inventories | 2,359 | 2,086 | ||||||
| Prepaid and other current assets | 216 | 177 | ||||||
| Assets held for sale | — | 245 | ||||||
| Assets of discontinued operations | 7,733 | 7,664 | ||||||
Total current assets | 14,350 | 14,303 | ||||||
Property, plant and equipment - net of accumulated depreciation (September 30, 2022 - $4,227; December 31, 2021 - $4,142) | 5,477 | 5,753 | ||||||
| Other Assets | ||||||||
Goodwill | 16,302 | 16,981 | ||||||
Other intangible assets | 5,550 | 6,222 | ||||||
| Restricted cash and cash equivalents | 103 | 53 | ||||||
| Investments and noncurrent receivables | 779 | 919 | ||||||
Deferred income tax assets | 122 | 116 | ||||||
Deferred charges and other assets | 1,416 | 1,360 | ||||||
Total other assets | 24,272 | 25,651 | ||||||
| Total Assets | $ | 44,099 | $ | 45,707 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term borrowings | $ | 1,287 | $ | 150 | ||||
Accounts payable | 2,061 | 2,102 | ||||||
Income taxes payable | 284 | 201 | ||||||
Accrued and other current liabilities | 990 | 1,040 | ||||||
| Liabilities related to assets held for sale | — | 25 | ||||||
| Liabilities of discontinued operations | 1,392 | 1,413 | ||||||
Total current liabilities | 6,014 | 4,931 | ||||||
| Long-Term Debt | 10,564 | 10,632 | ||||||
| Other Noncurrent Liabilities | ||||||||
Deferred income tax liabilities | 464 | 1,459 | ||||||
| Pension and other post-employment benefits - noncurrent | 625 | 762 | ||||||
Other noncurrent obligations | 929 | 873 | ||||||
Total other noncurrent liabilities | 2,018 | 3,094 | ||||||
| Total Liabilities | 18,596 | 18,657 | ||||||
| Commitments and contingent liabilities | ||||||||
| Stockholders' Equity | ||||||||
Common stock (authorized 1,666,666,667 shares of $0.01 par value each; issued 2022: 496,738,067 shares; 2021: 511,792,785 shares) | 5 | 5 | ||||||
Additional paid-in capital | 49,199 | 49,574 | ||||||
| Accumulated deficit | (22,692) | (23,187) | ||||||
| Accumulated other comprehensive (loss) income | (1,603) | 41 | ||||||
Total DuPont stockholders' equity | 24,909 | 26,433 | ||||||
Noncontrolling interests | 594 | 617 | ||||||
Total equity | 25,503 | 27,050 | ||||||
| Total Liabilities and Equity | $ | 44,099 | $ | 45,707 | ||||
See Notes to the Consolidated Financial Statements.
7
DuPont de Nemours, Inc.
Consolidated Statements of Cash Flows
| Nine Months Ended September 30, | ||||||||
| In millions (Unaudited) | 2022 | 2021 | ||||||
| Operating Activities | ||||||||
| Net income | $ | 1,679 | $ | 6,289 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 906 | 1,094 | ||||||
| Credit for deferred income tax and other tax related items | (977) | (182) | ||||||
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 10 | (41) | ||||||
| Net periodic benefit (credit) cost | (6) | 2 | ||||||
| Periodic benefit plan contributions | (51) | (62) | ||||||
| Net gain on sales and split-offs of assets, businesses and investments | (73) | (5,117) | ||||||
| Restructuring and asset related charges - net | 101 | 15 | ||||||
| Inventory step-up amortization | — | 12 | ||||||
| Other net loss | 39 | 128 | ||||||
| Changes in assets and liabilities, net of effects of acquired and divested companies: | ||||||||
| Accounts and notes receivable | (342) | (399) | ||||||
| Inventories | (688) | (515) | ||||||
| Accounts payable | 194 | 379 | ||||||
| Other assets and liabilities, net | (78) | 57 | ||||||
| Cash provided by operating activities | 714 | 1,660 | ||||||
| Investing Activities | ||||||||
| Capital expenditures | (558) | (707) | ||||||
| Proceeds from sales of property and businesses, net of cash divested | 364 | 285 | ||||||
| Acquisitions of property and businesses, net of cash acquired | 5 | (2,323) | ||||||
| Purchases of investments | (15) | (2,001) | ||||||
| Proceeds from sales and maturities of investments | 15 | 2,001 | ||||||
| Other investing activities, net | 4 | 18 | ||||||
| Cash used for investing activities | (185) | (2,727) | ||||||
| Financing Activities | ||||||||
| Changes in short-term borrowings | 1,137 | — | ||||||
| Proceeds from credit facility | 600 | — | ||||||
| Proceeds from issuance of long-term debt transferred to IFF at split-off | — | 1,250 | ||||||
| Repayment of credit facility | (600) | — | ||||||
| Payments on long-term debt | — | (5,000) | ||||||
| Purchases of common stock | (1,125) | (1,643) | ||||||
| Proceeds from issuance of Company stock | 83 | 110 | ||||||
| Employee taxes paid for share-based payment arrangements | (25) | (26) | ||||||
| Distributions to noncontrolling interests | (35) | (34) | ||||||
| Dividends paid to stockholders | (500) | (476) | ||||||
| Cash transferred to IFF and subsequent adjustments | (11) | (100) | ||||||
| Other financing activities, net | (4) | (2) | ||||||
| Cash used for financing activities | (480) | (5,921) | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (191) | (49) | ||||||
| Decrease in cash, cash equivalents and restricted cash | (142) | (7,037) | ||||||
| Cash, cash equivalents and restricted cash from continuing operations, beginning of period | 2,037 | 8,733 | ||||||
| Cash, cash equivalents and restricted cash from discontinued operations, beginning of period | 39 | 42 | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,076 | 8,775 | ||||||
| Cash, cash equivalents and restricted cash from continuing operations, end of period | 1,896 | 1,700 | ||||||
| Cash, cash equivalents and restricted cash from discontinued operations, end of period | 38 | 38 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,934 | $ | 1,738 | ||||
8
DuPont de Nemours, Inc.
Consolidated Statements of Equity
For the nine months ended September 30, 2022 and 2021
| In millions (Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comp Loss | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||
| Balance at December 31, 2020 | $ | 7 | $ | 50,039 | $ | (11,586) | $ | 44 | $ | — | $ | 566 | $ | 39,070 | |||||||||
| Net income | — | — | 6,263 | — | — | 26 | 6,289 | ||||||||||||||||
| Other comprehensive loss | — | — | — | (226) | — | (9) | (235) | ||||||||||||||||
Dividends ($0.90 per common share) | — | (476) | — | — | — | — | (476) | ||||||||||||||||
| Common stock issued/sold | — | 110 | — | — | — | — | 110 | ||||||||||||||||
| Stock-based compensation | — | 30 | — | — | — | — | 30 | ||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | 84 | 84 | ||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | (34) | (34) | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | (1,643) | — | (1,643) | ||||||||||||||||
| Retirement of treasury stock | — | — | (1,643) | — | 1,643 | — | — | ||||||||||||||||
| Split-off of N&B | (2) | — | (15,926) | — | — | (27) | (15,955) | ||||||||||||||||
| Other | — | (1) | — | — | — | — | (1) | ||||||||||||||||
| Balance at September 30, 2021 | $ | 5 | $ | 49,702 | $ | (22,892) | $ | (182) | $ | — | $ | 606 | $ | 27,239 | |||||||||
| Balance at December 31, 2021 | $ | 5 | $ | 49,574 | $ | (23,187) | $ | 41 | $ | — | $ | 617 | $ | 27,050 | |||||||||
| Net income | — | — | 1,642 | — | — | 37 | 1,679 | ||||||||||||||||
Other comprehensive loss | — | — | — | (1,644) | — | (28) | (1,672) | ||||||||||||||||
Dividends ($0.99 per common share) | — | (500) | — | — | — | — | (500) | ||||||||||||||||
Common stock issued/sold | — | 83 | — | — | — | — | 83 | ||||||||||||||||
Stock-based compensation | — | 42 | — | — | — | — | 42 | ||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | 2 | 2 | ||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | (35) | (35) | ||||||||||||||||
Purchases of treasury stock | — | — | — | — | (1,125) | — | (1,125) | ||||||||||||||||
Retirement of treasury stock | — | — | (1,125) | — | 1,125 | — | — | ||||||||||||||||
Other | — | — | (22) | — | — | 1 | (21) | ||||||||||||||||
| Balance at September 30, 2022 | $ | 5 | $ | 49,199 | $ | (22,692) | $ | (1,603) | $ | — | $ | 594 | $ | 25,503 | |||||||||
See Notes to the Consolidated Financial Statements.
9
DuPont de Nemours, Inc.
Consolidated Statements of Equity
For the three months ended September 30, 2022 and 2021
| In millions (Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comp Loss | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||
| Balance at June 30, 2021 | $ | 5 | $ | 49,681 | $ | (22,783) | $ | (26) | $ | — | $ | 587 | $ | 27,464 | |||||||||
| Net income | — | — | 391 | — | — | 13 | 404 | ||||||||||||||||
| Other comprehensive loss | — | — | — | (156) | — | (1) | (157) | ||||||||||||||||
| Common stock issued/sold | — | 2 | — | — | — | — | 2 | ||||||||||||||||
| Stock-based compensation | — | 17 | — | — | — | — | 17 | ||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | 17 | 17 | ||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | (10) | (10) | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | (500) | — | (500) | ||||||||||||||||
| Retirement of treasury stock | — | — | (500) | — | 500 | — | — | ||||||||||||||||
| Other | — | 2 | — | — | — | — | 2 | ||||||||||||||||
| Balance at September 30, 2021 | $ | 5 | $ | 49,702 | $ | (22,892) | $ | (182) | $ | — | $ | 606 | $ | 27,239 | |||||||||
| Balance at June 30, 2022 | $ | 5 | $ | 49,176 | $ | (22,808) | $ | (845) | $ | — | $ | 609 | $ | 26,137 | |||||||||
| Net income | — | — | 367 | — | — | 9 | 376 | ||||||||||||||||
Other comprehensive loss | — | — | — | (758) | — | (8) | (766) | ||||||||||||||||
Stock-based compensation | — | 23 | — | — | — | — | 23 | ||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | (15) | (15) | ||||||||||||||||
Purchases of treasury stock | — | — | — | — | (250) | — | (250) | ||||||||||||||||
Retirement of treasury stock | — | — | (250) | — | 250 | — | — | ||||||||||||||||
Other | — | — | (1) | — | — | (1) | (2) | ||||||||||||||||
| Balance at September 30, 2022 | $ | 5 | $ | 49,199 | $ | (22,692) | $ | (1,603) | $ | — | $ | 594 | $ | 25,503 | |||||||||
See Notes to the Consolidated Financial Statements.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In these notes, the terms "DuPont" or "Company" used herein mean DuPont de Nemours, Inc. and its consolidated subsidiaries. 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 also 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, 2021, collectively referred to as the "2021 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.
Mobility & Materials
On November 1, 2022 DuPont completed the previously announced divestiture of the majority of the historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Divestiture”). The Company had previously entered into a Transaction Agreement (the "Transaction Agreement") with Celanese Corporation ("Celanese") on February 17, 2022. Refer to Note 4 and Note 24 - Subsequent Events for further information. In addition, on February 18, 2022, the Company announced it is advancing the process to divest its Delrin® acetal homopolymer (H-POM) business, subject to entry into a definitive agreement and satisfaction of customary closing conditions. The Delrin® divestiture together with the M&M Divestiture discussed above (the "M&M Divestitures") represent a strategic shift that will have a major impact on DuPont's operations and results. See Note 4 for more information.
The financial position of DuPont as of September 30, 2022 and December 31, 2021 present the businesses to be divested as part of the M&M Divestiture and the divestiture of Delrin® (the "M&M Businesses") as discontinued operations. The results of operations for the three and nine months ended September 30, 2022 and 2021 present the financial results of the M&M Businesses as discontinued operations. The cash flows and comprehensive income of the M&M Businesses have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim 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 the M&M Businesses. See Note 4 to the interim Consolidated Financial Statements for additional information.
The Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines, previously reported within the historic Mobility & Materials segment, (the "Retained Businesses") are not included in the scope of the M&M Divestitures. Effective with the signing of the Transaction Agreement, the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively applied for all periods presented.
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the Nutrition & Biosciences business segment (the "N&B Business"), and the merger of Nutrition & Biosciences, Inc. (“N&B”), a DuPont subsidiary formed to hold the N&B Business, with a subsidiary of International Flavors & Fragrances Inc. ("IFF"). The distribution was effected through an exchange offer (the “Exchange Offer”) and the consummation of the Exchange Offer was followed by the merger of N&B with a wholly owned subsidiary of IFF, with N&B surviving the merger as a wholly owned subsidiary of IFF (the “N&B Merger” and, together with the Exchange Offer, the “N&B Transaction”). See Note 4 for more information.
The results of operations of DuPont for the three and nine months ended September 30, 2021 present the historical financial results of N&B as discontinued operations. The cash flows and comprehensive income related to N&B have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim Consolidated Statements of Comprehensive Income, respectively, for the applicable periods. 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 N&B.
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NOTE 2 - RECENT ACCOUNTING GUIDANCE
Accounting Guidance Issued But Not Adopted at September 30, 2022
In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities (i.e., unearned revenue) acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers. Historically, the Company has recognized contract assets and contract liabilities at the acquisition date based on fair value estimates in accordance with ASC 805, Business Combinations. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted.
In September 2022, the FASB issued Accounting Standards Update No. 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50)" ("ASU 2022-04") to enhance transparency about the use of supplier finance programs. The new guidance requires that a buyer in a supplier finance program provides additional qualitative and quantitative disclosures about its program including the nature of the program, activity during the period, changes from period to period, and the potential magnitude of the program. The amendments in ASU 2022-04 are effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the amendment on rollforward information which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2022-04 to its related disclosures.
NOTE 3 - ACQUISITIONS
Intended Rogers Acquisition
On November 2, 2021, the Company announced that it had entered into a definitive agreement to acquire all the outstanding shares of Rogers Corporation (“Rogers”) for about $5.2 billion (the “Intended Rogers Acquisition”). On November 1, 2022, the Company announced the termination of the agreement, as DuPont and Rogers have been unable to obtain timely clearance from all the required regulators. DuPont paid Rogers a termination fee of $162.5 million in accordance with the agreement on November 2, 2022. Refer to Note 24 - Subsequent Events for additional information.
Laird Performance Materials Acquisition
On July 1, 2021, DuPont completed the acquisition (the "Laird PM Acquisition") of 100% of the ownership interest of Laird Performance Materials (“Laird PM”) from Advent International for aggregate, adjusted cash consideration of approximately $2,404 million. The cash consideration paid included a net upward adjustment of approximately $100 million for acquired cash and net working capital, amongst other items. Laird PM is reported within the Interconnect Solutions business of the Electronics & Industrial segment. The Company accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. There were no material updates to the purchase accounting and the purchase price allocation is considered final. For additional information regarding the acquisition of Laird PM, see Note 3, "Acquisitions," in the 2021 Annual Report.
Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees. For the three and nine months ended September 30, 2022 these costs were primarily related to costs associated with the divestiture of the Biomaterials business unit, the prior year acquisition of Laird PM and the Intended Rogers Acquisition. Comparatively, for the three and nine months ended September 30, 2021 these costs were primarily associated with the execution of activities related to strategic initiatives including the divestiture of the Biomaterials business unit in May 2022, the prior year acquisition of Laird PM and the divestitures of the Clean Technologies and Solamet® business units.
These costs are recorded within "Acquisition, integration and separation costs" within the interim Consolidated Statements of Operations.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Acquisition, integration and separation costs | $ | 7 | $ | 29 | $ | 28 | $ | 58 | ||||||
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NOTE 4 - DIVESTITURES
Mobility & Materials Divestiture
On November 1, 2022 DuPont completed the previously announced divestiture of the majority of the historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Divestiture”). On February 17, 2022, the Company entered into a Transaction Agreement (the "Transaction Agreement") with Celanese Corporation ("Celanese"). Refer to Note 24 - Subsequent Events for additional information. The Company also announced on February 18, 2022 that its Board of Directors approved the divestiture of the Delrin® acetal homopolymer (H-POM) business, subject to entry into a definitive agreement and satisfaction of customary closing conditions. As of September 30, 2022, the Company anticipates a closing date for the sale of Delrin® within a year.
The Company has determined that the M&M Businesses meet the criteria to be classified as held for sale and that the sale represents a strategic shift that will have a major effect on the Company’s operations and results.
The results of operations of the M&M Businesses are presented as discontinued operations as summarized below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | $ | 988 | $ | 1,072 | $ | 3,100 | $ | 3,062 | ||||||
| Cost of sales | 771 | 746 | 2,357 | 2,093 | ||||||||||
| Research and development expenses | 12 | 15 | 41 | 47 | ||||||||||
| Selling, general and administrative expenses | 25 | 64 | 110 | 189 | ||||||||||
| Amortization of intangibles | — | 38 | 28 | 120 | ||||||||||
| Restructuring and asset related charges - net | — | — | — | 5 | ||||||||||
| Acquisition, integration and separation costs | 135 | — | 357 | — | ||||||||||
| Equity in (losses) earnings of nonconsolidated affiliates | (5) | 3 | (7) | 11 | ||||||||||
| Sundry income (expense) - net | 7 | 7 | — | 15 | ||||||||||
| Income from discontinued operations before income taxes | 47 | 219 | 200 | 634 | ||||||||||
| Provision for (benefit from) income taxes on discontinued operations | 21 | 45 | (607) | 136 | ||||||||||
| Income from discontinued operations, net of tax | 26 | 174 | 807 | 498 | ||||||||||
| Net (loss) income from discontinued operations attributable to noncontrolling interests | (7) | 4 | (5) | 14 | ||||||||||
| Income from discontinued operations attributable to DuPont stockholders, net of tax | $ | 33 | $ | 170 | $ | 812 | $ | 484 | ||||||
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the M&M Businesses:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Depreciation and amortization | $ | — | $ | 70 | $ | 45 | $ | 214 | ||||||
Capital expenditures 1 | $ | 22 | $ | 17 | $ | 64 | $ | 41 | ||||||
1.Total capital expenditures are presented on a cash basis.
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The following table summarizes the major classes of assets and liabilities of the M&M Businesses classified as held for sale presented as discontinued operations at September 30, 2022 and December 31, 2021:
| In millions | September 30, 2022 | December 31, 2021 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 38 | $ | 39 | ||||
| Accounts and notes receivable - net | 624 | 552 | ||||||
| Inventories | 1,072 | 776 | ||||||
| Other current assets | 45 | 59 | ||||||
| Property, plant and equipment - net | 1,193 | 1,213 | ||||||
| Goodwill | 2,432 | 2,597 | ||||||
| Other intangible assets | 2,127 | 2,220 | ||||||
| Investments and noncurrent receivables | 52 | 62 | ||||||
| Deferred income tax assets | 21 | 27 | ||||||
| Deferred charges and other assets | 129 | 119 | ||||||
| Total assets of discontinued operations | $ | 7,733 | $ | 7,664 | ||||
| Liabilities | ||||||||
| Accounts payable | $ | 552 | $ | 510 | ||||
| Income taxes payable | 41 | 77 | ||||||
| Accrued and other current liabilities | 137 | 157 | ||||||
| Deferred income tax liabilities | 537 | 515 | ||||||
| Pension and other post employment benefits - noncurrent | 55 | 90 | ||||||
| Other noncurrent liabilities | 70 | 64 | ||||||
| Total liabilities of discontinued operations | $ | 1,392 | $ | 1,413 | ||||
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the N&B Business, and merger of N&B, a subsidiary DuPont formed to hold the N&B Business, with a subsidiary of IFF. The distribution was effected through an exchange offer where, on the terms and subject to the conditions of the Exchange Offer, eligible participating DuPont stockholders had the option to tender all, some or none of their shares of common stock, par value $0.01 per share, of DuPont (the “DuPont Common Stock”) for a number of shares of common stock, par value $0.01 per share, of N&B (the “N&B Common Stock”) and which resulted in all shares of N&B Common Stock being distributed to DuPont stockholders that participated in the Exchange Offer. The consummation of the Exchange Offer was followed by the merger of N&B with a wholly owned subsidiary of IFF, with N&B surviving the merger as a wholly owned subsidiary of IFF (the “N&B Merger” and, together with the Exchange Offer, the “N&B Transaction”). The N&B Transaction was subject to IFF shareholder approval, customary regulatory approvals, tax authority rulings including a favorable private letter ruling from the U.S. Internal Revenue Service which confirms the N&B Transaction to be free of U.S. federal income tax, and expiration of the public exchange offer. DuPont does not have an ownership interest in IFF as a result of the N&B Transaction.
In the Exchange Offer, DuPont accepted approximately 197.4 million shares of its common stock in exchange for about 141.7 million shares of N&B Common Stock as of the date of the N&B Transaction. As a result, DuPont reduced its common stock outstanding by 197.4 million shares of DuPont Common Stock. In the N&B Merger, each share of N&B Common Stock was automatically converted into the right to receive one share of IFF common stock, par value $0.125 per share, based on the terms of the N&B Merger Agreement.
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The results of operations of N&B are presented as discontinued operations as summarized below:
| Nine Months Ended September 30, 2021 | |||||
| In millions | |||||
| Net sales | $ | 507 | |||
| Cost of sales | 354 | ||||
| Research and development expenses | 21 | ||||
| Selling, general and administrative expenses | 47 | ||||
| Amortization of intangibles | 38 | ||||
| Restructuring and asset related charges - net | 1 | ||||
| Acquisition, integration and separation costs | 172 | ||||
| Sundry income (expense) - net | 8 | ||||
| Interest expense | 13 | ||||
| Loss from discontinued operations before income taxes | (131) | ||||
| Benefit from income taxes on discontinued operations | (27) | ||||
| Loss from discontinued operations, net of tax | (104) | ||||
| Non-taxable gain on split-off | 4,940 | ||||
| Income from discontinued operations attributable to DuPont stockholders, net of tax | $ | 4,836 | |||
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to N&B:
| Nine Months Ended September 30, 2021 | |||||
| In millions | |||||
| Depreciation and amortization | $ | 63 | |||
| Capital expenditures | $ | 27 | |||
In connection with and in accordance with the terms of the N&B Transaction, prior to consummation of the Exchange Offer and the N&B Merger, DuPont received a one-time cash payment of approximately $7.3 billion, (the "Special Cash Payment").
The Company recognized a non-taxable gain of approximately $4,940 million on the N&B Transaction. The gain is recorded in "Income from discontinued operations, net of tax" in the Company's interim Consolidated Statements of Operations for the nine months ended September 30, 2021.
N&B Transaction Agreements
In connection with the N&B Transaction, effective December 15, 2019, the Company, as previously discussed, entered into the following agreements: N&B Separation and Distribution Agreement, N&B Merger Agreement, and N&B Employee Matters Agreement. In connection with the closing of the N&B Transaction, and effective February 1, 2021, the Company entered into the following agreements: N&B IP Cross-License Agreement and N&B Tax Matters Agreement.
Discontinued Operations Activity
The Company recorded income from discontinued operations, net of tax of $17 million and $145 million for the three months ended September 30, 2022 and 2021, respectively, and $723 million and $5,249 million for the nine months ended September 30, 2022 and 2021, respectively.
Discontinued operations activity consists of the following:
| Income from discontinued operations, net of tax | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| M&M Divestitures | $ | 26 | $ | 174 | $ | 807 | $ | 498 | ||||||
| N&B Transaction | — | (12) | — | 4,836 | ||||||||||
Other 1 | (9) | (17) | (84) | (85) | ||||||||||
| Income from discontinued operations, net of tax | $ | 17 | $ | 145 | $ | 723 | $ | 5,249 | ||||||
1.Primarily related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, E. I. du Pont de Nemours and Company ("EID") and the Company. For additional information on these matters, refer to Note 16.
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Biomaterials
In May 2022, the Company completed the sale of its Biomaterials business unit, which included the Company's equity method investment in DuPont Tate & Lyle Bio Products, to the Huafon Group. Total consideration received related to the sale was approximately $240 million. For the nine months ended September 30, 2022, a pre-tax gain of $26 million ($21 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's interim Consolidated Statements of Operations. The results of operations of the Biomaterials business unit are reported in Corporate & Other.
The following table summarizes the carrying value of the major assets and liabilities of the Biomaterials business unit reflected as held for sale at December 31, 2021:
| In millions | December 31, 2021 | ||||
| Assets | |||||
| Accounts and notes receivable - net | $ | 27 | |||
| Inventories | 48 | ||||
| Investments and noncurrent receivables | 158 | ||||
| Property, plant and equipment - net | 12 | ||||
| Assets held for sale | $ | 245 | |||
| Liabilities | |||||
| Accounts payable | $ | 21 | |||
| Accrued and other current liabilities | 3 | ||||
| Other noncurrent obligations | 1 | ||||
| Liabilities related to assets held for sale | $ | 25 | |||
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NOTE 5 - 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.
| Net Trade Revenue by Segment and Business or Major Product Line | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Industrial Solutions | $ | 496 | $ | 474 | $ | 1,499 | $ | 1,412 | ||||||
| Interconnect Solutions | 446 | 489 | 1,371 | 1,158 | ||||||||||
| Semiconductor Technologies | 569 | 504 | 1,704 | 1,517 | ||||||||||
| Electronics & Industrial | $ | 1,511 | $ | 1,467 | $ | 4,574 | $ | 4,087 | ||||||
| Safety Solutions | $ | 684 | $ | 646 | $ | 2,001 | $ | 1,933 | ||||||
| Shelter Solutions | 476 | 414 | 1,385 | 1,193 | ||||||||||
| Water Solutions | 374 | 337 | 1,074 | 1,011 | ||||||||||
| Water & Protection | $ | 1,534 | $ | 1,397 | $ | 4,460 | $ | 4,137 | ||||||
Retained Businesses 1 | $ | 272 | $ | 226 | $ | 804 | $ | 721 | ||||||
Other 2 | — | 109 | 75 | 375 | ||||||||||
Corporate & Other | $ | 272 | $ | 335 | $ | 879 | $ | 1,096 | ||||||
| Total | $ | 3,317 | $ | 3,199 | $ | 9,913 | $ | 9,320 | ||||||
1. Retained Businesses includes the Auto Adhesives & Fluids, MultibaseTM and Tedlar® businesses.
2. Net sales reflected in Other include activity of previously divested businesses including Biomaterials, Clean Technologies and Solamet®.
| Net Trade Revenue by Geographic Region | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| U.S. & Canada | $ | 1,149 | $ | 1,011 | $ | 3,293 | $ | 2,875 | ||||||
EMEA 1 | 523 | 562 | 1,665 | 1,672 | ||||||||||
| Asia Pacific | 1,524 | 1,529 | 4,622 | 4,490 | ||||||||||
| Latin America | 121 | 97 | 333 | 283 | ||||||||||
| Total | $ | 3,317 | $ | 3,199 | $ | 9,913 | $ | 9,320 | ||||||
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 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 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was insignificant.
| Contract Balances | September 30, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
Accounts and notes receivable - trade 1 | $ | 1,712 | $ | 1,643 | ||||
Deferred revenue - current 2, 3 | $ | 16 | $ | 25 | ||||
1.Included in "Accounts and notes receivable - net" in the Condensed Consolidated Balance Sheets.
2.Included in "Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets.
3.Noncurrent deferred revenue balances in the current and comparative periods were not material.
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NOTE 6 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and asset related charges, which include asset impairments and other net charges, were zero and $101 million for the three and nine months ended September 30, 2022 and $1 million and $8 million for the three and nine months ended September 30, 2021. These charges were recorded in "Restructuring and asset related charges - net" in the interim Consolidated Statements of Operations. The total liability related to restructuring programs was $21 million at September 30, 2022 and $43 million at December 31, 2021, recorded in "Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets. Restructuring activity consists of the following programs:
2021 Restructuring Actions
In October 2021, the Company approved targeted restructuring actions to capture near-term cost reductions (the "2021 Restructuring Actions"). The Company recorded pre-tax restructuring charges of $55 million inception-to-date, consisting of severance and related benefit costs of $33 million and asset related charges of $22 million.
Total liabilities related to the 2021 Restructuring Actions were $17 million at September 30, 2022 and $25 million at December 31, 2021 and recorded in "Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets. Actions related to the 2021 Restructuring Program are substantially complete.
2020 Restructuring Program
In the first quarter of 2020, the Company approved restructuring actions designed to capture near-term cost reductions and to further simplify certain organizational structures in anticipation of the N&B Transaction (the "2020 Restructuring Program"). The Company recorded pre-tax restructuring charges of $159 million inception-to-date, consisting of severance and related benefit costs of $107 million and asset related charges of $52 million.
Total liabilities related to the 2020 Restructuring Program were $2 million at September 30, 2022 and $11 million at December 31, 2021 and recorded in "Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets. Actions related to the 2020 Restructuring Program are substantially complete.
Equity Method Investment Impairment Related Charges
In connection with the M&M Divestitures described in Note 4, in the first quarter of 2022 a portion of an equity method investment was reclassified to “Assets of discontinued operations” within the Condensed Consolidated Balance Sheet. The reclassification served as a triggering event requiring the Company to perform an impairment analysis on the retained portion of the equity method investment held within “Investments and noncurrent receivables” on the Condensed Consolidated Balance Sheet. The fair value of the retained equity method investment was estimated using a discounted cash flow model (a form of the income approach). The Company's assumptions in estimating fair value utilize Level 3 inputs and include, but are not limited to, projected revenue, gross margins, EBITDA margins, the weighted average costs of capital, and terminal growth rates. The Company determined the fair value of the retained 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, in March 2022, recorded an impairment charge of $94 million reflected in “Restructuring and asset related charges - net” in the interim Consolidated Statements of Operations for the nine months ended September 30, 2022 related to the Electronics & Industrial segment. No impairment was required to be recorded for the portion of the equity method investment included within “Assets of discontinued operations.”
2022 Restructuring Program
In October 2022, subsequent to quarter end, the Company approved targeted restructuring actions to capture near-term cost reductions and to further simplify certain organizational structures following the M&M Divestitures (the "2022 Restructuring Program"). The Company expects to incur costs of up to $125 million, primarily related to the payment of severance and asset related charges. Restructuring costs will begin in the fourth quarter of 2022 and are expected to be substantially complete by the end of 2023.
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NOTE 7 - SUPPLEMENTARY INFORMATION
| Sundry Income (Expense) - Net | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Non-operating pension and other post-employment benefit ("OPEB") credits | $ | 7 | $ | 9 | $ | 20 | $ | 22 | ||||||
| Interest income | 5 | 1 | 8 | 10 | ||||||||||
Net gain on divestiture and sales of other assets and investments 1, 2 | 6 | 8 | 75 | 175 | ||||||||||
Foreign exchange gains (losses), net | 5 | (19) | 9 | (35) | ||||||||||
Miscellaneous income (expenses) - net 3 | 3 | 2 | 11 | (17) | ||||||||||
| Sundry income (expense) - net | $ | 26 | $ | 1 | $ | 123 | $ | 155 | ||||||
1. The nine months ended September 30, 2022 primarily reflects income of $26 million related to the gain on sale of the Biomaterials business unit and $37 million related to the sale of a land use right within the Water & Protection segment.
2. The nine months ended September 30, 2021 primarily reflects income of $140 million related to the gain on sale of assets within Corporate & Other and income of $28 million related to the gain on sale of assets within the Electronics & Industrial segment.
3. The nine months ended September 30, 2021 includes an impairment charge of approximately $15 million related to an asset sale.
Cash, Cash Equivalents and Restricted Cash
In connection with the cost sharing arrangement entered into as part of the MOU, the Company is contractually obligated to make deposits into an escrow account to address potential future PFAS costs. At September 30, 2022 and December 31, 2021, the Company had restricted cash of $103 million and $53 million included within non-current “Restricted cash and cash equivalents” in the Condensed Consolidated Balance Sheets, the majority of which is attributable to the MOU cost sharing arrangement. Additional information regarding the MOU and the escrow account can be found in Note 16.
Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets were $990 million at September 30, 2022 and $1,040 million at December 31, 2021. Accrued payroll, which is a component of "Accrued and other current liabilities," was $326 million at September 30, 2022 and $436 million at December 31, 2021. No other component of "Accrued and other current liabilities" was more than 5 percent of total current liabilities at September 30, 2022 and at December 31, 2021.
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NOTE 8 - INCOME TAXES
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.
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 2022 was 27.9 percent, compared with an effective tax rate of 23.6 percent for the third quarter of 2021. The effective tax rate differential for the third quarter of 2022 was driven by the cumulative impact of currency fluctuation and the geographic mix of earnings. For the first nine months of 2022, the effective tax rate on continuing operations was 23.8 percent, compared with 14.2 percent for the first nine months of 2021. The effective tax rate for the first nine months of 2021 was principally the result of a $59 million tax benefit related to the step-up in tax basis in the goodwill of the Company's European regional headquarters legal entity.
In connection with the integration of Laird PM, the Company completed certain internal restructurings that were determined to be tax free under the applicable sections of the Internal Revenue Code. If the aforementioned transactions were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the Company could be subject to significant tax liability.
Certain internal distributions and reorganizations that occurred during 2021 and 2020 in preparation for the N&B Transaction and the external distribution in 2021 qualified as tax-free transactions under the applicable sections of the Internal Revenue Code. If the aforementioned transactions were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then the Company could be subject to significant tax liability. Under the N&B Tax Matters Agreement, the Company would generally be allocated such liability and not be indemnified, unless certain non-qualifying actions are undertaken by N&B or IFF. To the extent that the Company is responsible for any such liability, there could be a material adverse impact on the Company's business, financial condition, results of operations and cash flows in future reporting periods.
As a result of the M&M Businesses meeting the held for sale criteria in the first quarter of 2022, the Company recorded a net tax expense of $12 million and a net tax benefit of $655 million for the three and nine months ended September 30, 2022, respectively, in connection with certain internal restructuring and some of which relied upon legal entity valuations. These restructurings involve legal entities that hold M&M Businesses and are expected to be conveyed to Celanese as part of the M&M Divestiture and legal entities that are expected to remain with DuPont. The aforementioned net tax benefit is included in “Income from discontinued operations, net of tax” in the interim Consolidated Statements of Operations. See Note 4 for additional information on the M&M Divestitures.
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NOTE 9 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for the three and nine months ended September 30, 2022 and 2021:
| Net Income for Earnings Per Share Calculations - Basic & Diluted | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Income from continuing operations, net of tax | $ | 359 | $ | 259 | $ | 956 | $ | 1,040 | ||||||
| Net income from continuing operations attributable to noncontrolling interests | 16 | 9 | 42 | 12 | ||||||||||
| Income from continuing operations attributable to common stockholders | $ | 343 | $ | 250 | $ | 914 | $ | 1,028 | ||||||
| Income from discontinued operations, net of tax | 17 | 145 | 723 | 5,249 | ||||||||||
| Net income from discontinued operations attributable to noncontrolling interests | (7) | 4 | (5) | 14 | ||||||||||
| Income from discontinued operations attributable to common stockholders | 24 | 141 | 728 | 5,235 | ||||||||||
| Net income attributable to common stockholders | $ | 367 | $ | 391 | $ | 1,642 | $ | 6,263 | ||||||
| Earnings Per Share Calculations - Basic | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| Dollars per share | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Earnings from continuing operations attributable to common stockholders | $ | 0.69 | $ | 0.48 | $ | 1.81 | $ | 1.86 | ||||||
| Earnings from discontinued operations, net of tax | 0.05 | 0.27 | 1.44 | 9.49 | ||||||||||
Earnings attributable to common stockholders 1 | $ | 0.73 | $ | 0.75 | $ | 3.25 | $ | 11.35 | ||||||
| Earnings Per Share Calculations - Diluted | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| Dollars per share | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Earnings from continuing operations attributable to common stockholders | $ | 0.69 | $ | 0.48 | $ | 1.80 | $ | 1.86 | ||||||
| Earnings from discontinued operations, net of tax | 0.05 | 0.27 | 1.44 | 9.46 | ||||||||||
Earnings attributable to common stockholders 1 | $ | 0.73 | $ | 0.75 | $ | 3.24 | $ | 11.32 | ||||||
Share Count Information | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| Shares in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Weighted-average common shares - basic | 499.4 | 521.5 | 505.6 | 551.7 | ||||||||||
| Plus dilutive effect of equity compensation plans | 1.0 | 1.6 | 1.3 | 1.4 | ||||||||||
| Weighted-average common shares - diluted | 500.4 | 523.1 | 506.9 | 553.1 | ||||||||||
Stock options, restricted stock units, and performance-based restricted stock units excluded from EPS calculations 2 | 4.4 | 2.4 | 3.0 | 2.7 | ||||||||||
1.Earnings per share amounts are computed independently for income from continuing operations, income from discontinued operations and net income attributable to common stockholders. As a result, the per share amounts from continuing operations and discontinued operations may not equal the total per share amounts for net income attributable to common stockholders.
2.These outstanding options to purchase shares of common stock, restricted stock units, and performance-based restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.
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NOTE 10 - ACCOUNTS AND NOTES RECEIVABLE - NET
| In millions | September 30, 2022 | December 31, 2021 | ||||||
Accounts receivable – trade 1 | $ | 1,691 | $ | 1,612 | ||||
Other 2 | 566 | 547 | ||||||
| Total accounts and notes receivable - net | $ | 2,257 | $ | 2,159 | ||||
1.Accounts receivable – trade is net of allowances of $38 million at September 30, 2022 and $28 million at December 31, 2021. Allowances are equal to the estimated uncollectible amounts and current expected credit loss. 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, indemnification assets, general sales tax and other taxes, and other receivables. No individual group represents more than ten percent of total receivables.
NOTE 11 - INVENTORIES
| In millions | September 30, 2022 | December 31, 2021 | ||||||
| Finished goods | $ | 1,334 | $ | 1,201 | ||||
Work in process | 519 | 446 | ||||||
| Raw materials | 392 | 323 | ||||||
| Supplies | 114 | 116 | ||||||
| Total inventories | $ | 2,359 | $ | 2,086 | ||||
NOTE 12 - PROPERTY, PLANT, AND EQUIPMENT
| Estimated Useful Lives (Years) | September 30, 2022 | December 31, 2021 | |||||||||||||||
| In millions | |||||||||||||||||
| Land and land improvements | 1 | - | 25 | $ | 394 | $ | 440 | ||||||||||
| Buildings | 1 | - | 50 | 1,904 | 1,954 | ||||||||||||
| Machinery, equipment, and other | 1 | - | 25 | 6,462 | 6,467 | ||||||||||||
| Construction in progress | 944 | 1,034 | |||||||||||||||
| Total property, plant and equipment | $ | 9,704 | $ | 9,895 | |||||||||||||
| Total accumulated depreciation | $ | 4,227 | $ | 4,142 | |||||||||||||
| Total property, plant and equipment - net | $ | 5,477 | $ | 5,753 | |||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Depreciation expense | $ | 137 | $ | 142 | $ | 414 | $ | 407 | ||||||
NOTE 13 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates") are recorded in "Investments and noncurrent receivables" in the Condensed Consolidated Balance Sheets. The Company's net investment in nonconsolidated affiliates at September 30, 2022 and December 31, 2021 is $733 million and $817 million, respectively. In the first quarter of 2022, the Company recorded an other-than-temporary impairment on an equity method investment. See Note 6 for more information.
The Company maintained an ownership interest in six nonconsolidated affiliates at September 30, 2022.
Sales to nonconsolidated affiliates represented less than 2 percent of total net sales for the three and nine months ended September 30, 2022 and 2021. Purchases from nonconsolidated affiliates represented less than 3 percent of “Cost of sales” for the three and nine months ended September 30, 2022 and less than 4 percent for the three and nine months ended September 30, 2021.
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NOTE 14 - GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amounts of goodwill during the nine months ended September 30, 2022 were as follows:
| In millions | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| Balance at December 31, 2021 | $ | 9,583 | $ | 6,801 | $ | 597 | $ | 16,981 | ||||||
Currency Translation Adjustment | (337) | (326) | (16) | (679) | ||||||||||
| Balance at September 30, 2022 | $ | 9,246 | $ | 6,475 | $ | 581 | $ | 16,302 | ||||||
The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that fair value is below carrying value.
During the first quarter of 2022, in conjunction with the announcement of the M&M Divestitures, the Company realigned the Retained Businesses, previously within the historic Mobility & Materials segment, to Corporate & Other (the "2022 Realignment"). The announcement of the M&M Divestitures and 2022 Realignment served as triggering events requiring the Company to perform impairment analyses related to goodwill carried by the impacted reporting units as of March 1, 2022. Goodwill impairment analyses were performed for reporting units impacted in the historic Mobility & Materials segment prior to the realignment, and no impairments were identified. As part of the 2022 Realignment, the Company assessed and re-defined certain reporting units effective March 1, 2022, including a reallocation of goodwill on a relative fair value basis, as applicable, to the newly identified reporting units and M&M Divestitures disposal groups. Goodwill impairment analyses were performed for the new reporting units reported within Corporate & Other and no impairments were identified. The fair value of the reporting units and the M&M Divestitures disposal groups were estimated using a combination of a discounted cash flow model and/or market approach. The Company's assumptions in estimating fair value include, but are not limited to, projected revenue, gross margins, EBITDA margins, the weighted average costs of capital, the terminal growth rates, and derived multiples from comparable market transactions.
During the first quarter of 2021, in conjunction with the closing of the N&B Transaction, the Company changed its management and reporting structure (the “2021 Segment Realignment”), which served as a triggering event requiring the Company to perform an impairment analysis related to goodwill carried by certain reporting units as of February 1, 2021, prior to the realignment. As part of the 2021 Segment Realignment, the Company assessed and re-defined certain reporting units effective February 1, 2021, including reallocation of goodwill on a relative fair value basis, as applicable, to reporting units impacted. Goodwill impairment analyses were then performed for reporting units impacted and no impairments were identified. The fair value of each reporting unit tested was estimated using a combination of a discounted cash flow model and market approach. The Company's assumptions in estimating fair value include, but are not limited to, projected revenue, gross margins, EBITDA margins, the weighted average costs of capital, the terminal growth rates, and derived multiples from comparable market transactions.
The Company's analyses used the discounted cash flow model (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 tax rates. 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. As such, the Company believes the current assumptions and estimates utilized are both reasonable and appropriate.
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Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net | ||||||||||||||
| Intangible assets with finite lives: | ||||||||||||||||||||
| Developed technology | $ | 2,331 | $ | (1,241) | $ | 1,090 | $ | 2,374 | $ | (1,124) | $ | 1,250 | ||||||||
| Trademarks/tradenames | 1,114 | (542) | 572 | 1,125 | (500) | 625 | ||||||||||||||
| Customer-related | 5,416 | (2,366) | 3,050 | 5,806 | (2,296) | 3,510 | ||||||||||||||
| Other | 105 | (71) | 34 | 113 | (80) | 33 | ||||||||||||||
| Total other intangible assets with finite lives | $ | 8,966 | $ | (4,220) | $ | 4,746 | $ | 9,418 | $ | (4,000) | $ | 5,418 | ||||||||
| Intangible assets with indefinite lives: | ||||||||||||||||||||
| Trademarks/tradenames | 804 | — | 804 | 804 | — | 804 | ||||||||||||||
| Total other intangible assets with indefinite lives | 804 | — | 804 | 804 | — | 804 | ||||||||||||||
| Total | $ | 9,770 | $ | (4,220) | $ | 5,550 | $ | 10,222 | $ | (4,000) | $ | 6,222 | ||||||||
As part of the 2022 Realignment, the Company reallocated its intangible assets with indefinite lives to align with the new segment structure. This served as a triggering event requiring the Company to perform an impairment analysis related to intangible assets with indefinite lives carried by its historic Mobility & Materials segment as of March 1, 2022, prior to the realignment. Subsequent to the realignment, impairment analyses were then performed for the intangible assets with indefinite lives reported in Corporate & Other. No impairments were identified as a result of the analyses described above.
As part of the 2021 Segment Realignment, the Company reallocated its intangible assets with indefinite lives to align with the new segment structure. This served as a triggering event requiring the Company to perform an impairment analysis related to intangible assets with indefinite lives carried by its segments as of February 1, 2021, prior to the realignment. Subsequent to the realignment, the Company realigned intangible assets with indefinite lives as applicable to align the intangible assets with indefinite lives with the new segment structure. Impairment analyses were then performed for the intangible assets with indefinite lives carried by the segments after the realignment. No impairments were identified as a result of the analyses described above.
The following table provides the net carrying value of other intangible assets by segment:
| Net Intangibles by Segment | September 30, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Electronics & Industrial | $ | 3,000 | $ | 3,429 | ||||
| Water & Protection | 2,456 | 2,686 | ||||||
| Corporate & Other | 94 | 107 | ||||||
| Total | $ | 5,550 | $ | 6,222 | ||||
Total estimated amortization expense for the remainder of 2022 and the five succeeding fiscal years is as follows:
| Estimated Amortization Expense | |||||
| In millions | |||||
| Remainder of 2022 | $ | 139 | |||
| 2023 | $ | 567 | |||
| 2024 | $ | 539 | |||
| 2025 | $ | 498 | |||
| 2026 | $ | 471 | |||
| 2027 | $ | 424 | |||
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NOTE 15 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The Company's short-term borrowings consist of commercial paper. At September 30, 2022 and December 31, 2021, the Company's short-term borrowings were $1,287 million and $150 million, respectively. The increase in short-term borrowing is due to cash flow needs related to the M&M Divestiture as well as normal operating needs. The weighted-average interest rate on commercial paper was 3.19 percent at September 30, 2022 and 0.34 percent at December 31, 2021.
The following table summarizes the Company's long-term debt:
| Long-Term Debt | September 30, 2022 | December 31, 2021 | ||||||||||||
| In millions | Amount | Weighted Average Rate | Amount | Weighted Average Rate | ||||||||||
Promissory notes and debentures 1 | ||||||||||||||
| Final maturity 2023 | $ | 2,800 | 4.18 | % | $ | 2,800 | 3.89 | % | ||||||
| Final maturity 2025 | 1,850 | 4.49 | % | 1,850 | 4.49 | % | ||||||||
Final maturity 2026 and thereafter 2 | 5,975 | 5.20 | % | 6,050 | 5.13 | % | ||||||||
| Other facilities: | ||||||||||||||
| Finance lease obligations | 2 | 2 | ||||||||||||
| Less: Unamortized debt discount and issuance costs | 63 | 70 | ||||||||||||
| Total | $ | 10,564 | $ | 10,632 | ||||||||||
1. Represents senior unsecured notes (the "2018 Senior Notes"), which are senior unsecured obligations of the Company. See Note 24 for additional information.
2. Includes fair value hedging adjustment of $75 million related to the Company's interest rate swap agreements. See Note 21 for additional information.
Principal Payments of long-term debt for the remainder of 2022 and the five succeeding fiscal years are as follows:
Maturities of Long-Term Debt for Next Five Years at September 30, 2022 | Total | |||||||||||||
| In millions | ||||||||||||||
| Remainder of 2022 | $ | — | ||||||||||||
| 2023 | $ | 2,800 | ||||||||||||
| 2024 | $ | — | ||||||||||||
| 2025 | $ | 1,850 | ||||||||||||
| 2026 | $ | — | ||||||||||||
| 2027 | $ | — | ||||||||||||
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, was $10.21 billion and $12.60 billion at September 30, 2022 and December 31, 2021, respectively.
Available Committed Credit Facilities
The following table summarizes the Company's credit facilities:
Committed and Available Credit Facilities at September 30, 2022 | |||||||||||||||||
| In millions | Effective Date | Committed Credit | Credit Available | Maturity Date | Interest | ||||||||||||
Revolving Credit Facility, -year | April 2022 | $ | 2,500 | $ | 2,488 | April 2027 | Floating Rate | ||||||||||
364-day Revolving Credit Facility | April 2022 | 1,000 | 1,000 | April 2023 | Floating Rate | ||||||||||||
| Total Committed and Available Credit Facilities | $ | 3,500 | $ | 3,488 | |||||||||||||
In July 2022, the Company drew down $600 million under the 364-day Revolving Credit Facility in order to facilitate certain intercompany internal restructuring steps related to the M&M Divestiture. The Company repaid the borrowing in September 2022.
Intended Rogers Acquisition
In connection with the Intended Rogers Acquisition, on November 22, 2021, the Company entered into a two-year senior unsecured committed term loan agreement in the amount of $5.2 billion. In October 2022, the facility was amended to extend the lending commitments (as amended the "Amended 2021 Term Loan Facility"). On November 1, 2022, the M&M Divestiture closed and therefore based on the terms of the Amended 2021 Term Loan Facility the commitment was terminated. Refer to Note 24 - Subsequent Events for additional information on the Intended Rogers Acquisition.
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May 2020 Debt Offering
On May 1, 2020, the Company completed an underwritten public offering of senior unsecured notes (the “May 2020 Notes”) in the aggregate principal amount of $2 billion of 2.169 percent fixed rate Notes due May 1, 2023 (the “May 2020 Debt Offering”). The consummation of the N&B Transaction triggered the special mandatory redemption feature of the May 2020 Debt Offering. The Company redeemed the May 2020 Notes on May 13, 2021 and funded the redemption with proceeds from the Special Cash Payment.
Term Loan Facilities
On February 1, 2021, the Company terminated its fully drawn $3 billion term loan facilities. The termination triggered the repayment of the aggregate outstanding principal amount of $3 billion, plus accrued and unpaid interest through and including January 31, 2021. The Company funded the repayment with proceeds from the Special Cash Payment.
Revolving Credit Facilities
On April 12, 2022, the Company entered into a new $2.5 billion five-year revolving credit facility (the "2022 Five-Year Revolving Credit Facility"). The 2022 Five-Year Revolving Credit Facility is generally expected to remain undrawn and serve as a backstop to the Company's commercial paper and letter of credit issuance. On April 12, 2022, the Company entered into an updated $1 billion 364-day revolving credit facility (the "2022 $1B Revolving Credit Facility").
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were approximately $810 million at September 30, 2022. These lines are available to support short-term liquidity needs and general corporate purposes including letters of credit. Outstanding letters of credit were approximately $107 million at September 30, 2022. 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. The 2021 Term Loan Facility, the Five-Year Revolving Credit Facility and the 2022 $1B Revolving Credit Facility contain a financial covenant requiring that the ratio of Total Indebtedness to Total Capitalization for the Company and its consolidated subsidiaries not exceed 0.60. At September 30, 2022, the Company was in compliance with this financial covenant. There were no material changes to the debt covenants and default provisions at September 30, 2022.
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NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation, Environmental Matters, and Indemnifications
The Company and certain subsidiaries are involved in various lawsuits, claims and environmental actions that have arisen in the normal course of business with respect to product liability, patent infringement, governmental regulation, contract and commercial litigation, as well as possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain substances at various sites. In addition, in connection with divestitures and the related transactions, the Company from time to time has indemnified and has been indemnified by third parties against certain liabilities that may arise in connection with, among other things, business activities prior to the completion of the respective transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. The Company records liabilities for ongoing and indemnification matters when the information available indicates that it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated.
As of September 30, 2022, the Company has recorded indemnification assets of $18 million within "Accounts and notes receivable - net" and $229 million within "Deferred charges and other assets" and indemnification liabilities of $122 million within "Accrued and other current liabilities" and $221 million within "Other noncurrent obligations" within the Condensed Consolidated Balance Sheets.
The Company’s accruals discussed below for indemnification liabilities related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, EID and the Company and to the DowDuPont ("DWDP") Separation and Distribution Agreement and the Letter Agreement between the Company and Corteva (together the “Agreements”), are included in the balances above.
PFAS Stray Liabilities: Future Eligible PFAS Costs
On July 1, 2015, EID, a Corteva subsidiary since June 1, 2019, completed the separation of EID’s Performance Chemicals segment through the spin-off of Chemours to holders of EID common stock (the “Chemours Separation”). On June 1, 2019, the Company completed the separation of its agriculture business through the spin-off of Corteva, Inc. (“Corteva”), including Corteva’s subsidiary EID.
On January 22, 2021, the Company, Corteva, EID and Chemours entered into the MOU pursuant to which the parties have agreed to release certain claims that had been raised by Chemours including any claims arising out of or resulting from the process and manner in which EID structured or conducted the Chemours Separation, and any other claims that challenge the Chemours Separation or the assumption of Chemours Liabilities (as defined in the Chemours Separation Agreement) by Chemours and the allocation thereof, subject in each case to certain exceptions set forth in the MOU. In connection with the MOU, the confidential arbitration process regarding certain claims by Chemours was terminated in February 2021. The parties have further agreed not to bring any future, additional claims regarding the Chemours Separation Agreement or the MOU outside of arbitration.
Pursuant to the MOU, the parties have agreed to share certain costs associated with potential future liabilities related to alleged historical releases of certain PFAS out of pre-July 1, 2015 conduct (“eligible PFAS costs”) until the earlier to occur of (i) December 31, 2040, (ii) the day on which the aggregate amount of Qualified Spend, as defined in the MOU, is equal to $4 billion or (iii) a termination in accordance with the terms of the MOU. PFAS refers to per- or polyfluoroalkyl substances, which include perfluorooctanoic acids and its ammonium salts (“PFOA”).
The parties have agreed that, during the term of this sharing arrangement, Qualified Spend up to $4 billion will be borne 50 percent by Chemours and 50 percent, up to a cap of $2 billion, by the Company and Corteva. The Company and Corteva will split their 50 percent of Qualified Spend in accordance with the Agreements. After the term of this arrangement, Chemours’ indemnification obligations under the Chemours Separation Agreement would continue unchanged, subject in each case to certain exceptions set forth in the MOU.
In order to support and manage any potential future eligible PFAS costs, the parties also agreed to establish an escrow account. The MOU provides that (1) no later than each of September 30, 2021 and September 30, 2022, Chemours shall deposit $100 million into an escrow account and DuPont and Corteva shall together deposit $100 million in the aggregate into an escrow account and (2) no later than September 30 of each subsequent year through and including 2028, Chemours shall deposit $50 million into an escrow account and DuPont and Corteva shall together deposit $50 million in the aggregate into an escrow account. Subject to the terms and conditions set forth in the MOU, each party may be permitted to defer funding in any year (excluding 2021). Additionally, if on December 31, 2028, the balance of the escrow account (including interest) is less than $700 million, Chemours will make 50 percent of the deposits and DuPont and Corteva together will make 50 percent of the deposits necessary to restore the balance of the escrow account to $700 million. Such payments will be made in a series of
28
consecutive annual equal installments commencing on September 30, 2029 pursuant to the escrow account replenishment terms as set forth in the MOU. At September 30, 2022 and December 31, 2021, DuPont's escrow deposits of $100 million and $50 million, respectively, are reflected in "Restricted cash and cash equivalents" on the Condensed Consolidated Balance Sheet.
Under the Agreements, Divested Operations and Businesses ("DDOB") liabilities of EID not allocated to or retained by Corteva or the Company are categorized as relating to either (i) PFAS Stray Liabilities, if they arise out of actions related to or resulting from the development, testing, manufacture or sale of PFAS; or (ii) Non-PFAS Stray Liabilities, (and together with PFAS Stray Liabilities, the “EID Stray Liabilities”).
The Agreements provide that the Company and Corteva will each bear specified amounts plus an additional $200 million of Indemnifiable Losses, described below, in relation to certain EID Stray Liabilities. The Agreements further provide that the Company and Corteva will each bear 50 percent, $150 million each, of the first $300 million of total Indemnifiable Losses related to PFAS Stray Liabilities. When the companies meet their respective $150 million threshold, Indemnifiable Losses related to PFAS Stray Liabilities will be borne 71 percent by DuPont and 29 percent by Corteva.
Indemnifiable Losses up to $150 million incurred for PFAS Stray Liabilities are credited against each company’s $200 million threshold. Whenever Corteva or DuPont meets its $200 million threshold, the other would generally bear all Non-PFAS Stray Liabilities until meeting its $200 million threshold. Thereafter, DuPont will bear 71 percent and Corteva will bear 29 percent of Indemnifiable Losses related to Non-PFAS Stray Liabilities.
Indemnifiable Losses, as defined in the DWDP Separation and Distribution Agreement, include, among other things, attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense of EID Stray Liabilities.
In connection with the MOU and the Agreements, the Company has recognized the following indemnification liabilities related to eligible PFAS costs:
| Indemnified Liabilities Related to the MOU | |||||||||||
| In millions | Sept 30, 2022 | Dec 31, 2021 | Balance Sheet Classification | ||||||||
| Current indemnified liabilities | $ | 55 | $ | 37 | Accrued and other current liabilities | ||||||
| Long-term indemnified liabilities | $ | 129 | $ | 89 | Other noncurrent obligations | ||||||
Total indemnified liabilities accrued under the MOU 1, 2 | $ | 184 | $ | 126 | |||||||
1.As of September 30, 2022 and December 31, 2021, total indemnified liabilities accrued include $168 million and $112 million, respectively, related to Chemours environmental remediation activities at their site in Fayetteville, North Carolina under the Consent Order between Chemours and the North Carolina Department of Environmental Quality (the "NC DEQ").
2.In addition to the above, as of December 31, 2021, the Company had recognized a liability of $12.5 million related to the settlement agreement between Chemours, Corteva and DuPont and Delaware's Attorney General, discussed below.
Future charges associated with the MOU would be recognized over the term of the agreement as a component of income from discontinued operations to the extent liabilities become probable and estimable.
In 2004, EID settled a West Virginia state court class action, Leach v. E. I. du Pont de Nemours and Company, which alleged that PFOA from EID’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. Members of the Leach class have standing to pursue personal injury claims for 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 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 2017 settlement did not resolve claims of Leach class members who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. Since the 2017 settlement about 100 additional cases alleging personal injury, including kidney and testicular cancer claims, were filed or noticed and pending in the Ohio MDL.
On January 21, 2021, EID and Chemours entered into settlement agreements with plaintiffs’ counsel representing the Ohio MDL plaintiffs providing for a settlement of cases and claims in the Ohio MDL, except as noted below (the “Settlement”). The total settlement amount was $83 million in cash with each of the Company and EID contributing $27 million and Chemours contributing $29 million. At June 30, 2021 the Company had paid in full its $27 million contribution. The Settlement was entered into solely by way of compromise and settlement and is not in any way an admission of liability or fault by the Company, Corteva, EID or Chemours. In connection with the Settlement, in April 2021 the plaintiffs filed a motion to terminate
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the Ohio MDL. The case captioned “Abbott v. E. I. du Pont de Nemours and Company” is a personal injury action that is not included in the Settlement of the Ohio MDL. DuPont was not named party in the Leach case or the Ohio MDL and is not a named party in the Abbott case.
As of September 30, 2022, there are various cases alleging damages due to PFAS which are discussed below. Such actions often include additional claims based on allegations that the transfer by EID of certain PFAS liabilities to Chemours resulted in a fraudulent conveyance or voidable transaction. With the exception of the fraudulent conveyance claims, which are excluded from the MOU, legal fees, expenses, costs, and any potential liabilities for eligible PFAS costs presented by the following matters will be shared as defined in the MOU between Chemours, EID, Corteva and DuPont.
Beginning in April 2019, several dozen lawsuits alleging water contamination from the use of PFAS-containing aqueous firefighting foams (“AFFF”) were filed against EID and Chemours, in addition to 3M and other AFFF manufacturers. The majority of these lawsuits were consolidated in a multi-district litigation docket in federal court in South Carolina (the “SC MDL”). Since then, the SC MDL has grown and contains approximately 3,130 cases. Most of the actions in the SC MDL name DuPont as a defendant due to the fraudulent transfer claims related to the Chemours Separation and the DowDuPont separations. Generally, the SC MDL contains multiple types of lawsuits including, but not limited to, approximately 2,840 personal injury cases, state attorneys general natural resource damages cases, and water provider contamination cases. Three of the water provider contamination cases have been selected by the court as bellwether cases. The court has encouraged all parties to discuss resolution of the water provider category of cases. Consistent with the court’s instruction and under the mutual obligations of the MOU, Chemours, Corteva/EID and DuPont, together, are engaged with plaintiffs’ counsel on these cases. DuPont has never made or sold AFFF, perfluorooctanesulfonic acid ("PFOS") or PFOS containing products.
There are also state attorneys general lawsuits against DuPont, outside of the SC MDL. These also claim environmental contamination by certain PFAS compounds but distinct from AFFF. Generally, the states raise common law tort claims and seek economic impact damages for alleged harm to natural resources, punitive damages, present and future costs to cleanup contamination from certain PFAS compounds, and to abate the alleged nuisance. Most of these actions include fraudulent transfer claims related to the Chemours Separation and the DowDuPont separations.
In July 2021, Chemours, Corteva (for itself and EID) and DuPont reached a resolution with the State of Delaware that avoids litigation and addresses potential natural resources damages from known historical and current releases by the companies in or affecting Delaware. The resolution releases these potential state claims arising from the environmental impacts of various chemicals, including PFAS, across all current and historical locations. Consistent with the MOU, Chemours will bear 50 percent or $25 million of the $50 million settlement and Corteva and DuPont will each bear $12.5 million. The Company paid its portion of the settlement in January 2022. The settlement also calls for a potential Supplemental Payment to Delaware up to a total of $25 million funded 50 percent by Chemours and 50 percent by Corteva and DuPont, jointly, under certain circumstances which are not deemed probable.
In April 2021, DuPont de Nemours (Nederland) B.V., and the Dutch entities of Chemours and Corteva, received a civil summons filed before the Court of Rotterdam, the Netherlands, on behalf of four municipalities neighboring the Chemours Dordrecht facility. The municipalities are seeking liability declarations relating to the Dordrecht site’s current and historical PFAS operations and emissions.
In addition to the above matters, the Company is a named party in various other legal matters that make claims related to PFAS, for which the costs of litigation and future liabilities, if any, are eligible PFAS costs under the MOU and Indemnification Losses under the Agreements. These matters include lawsuits filed by water districts and private water companies in New Jersey and California generally alleging contamination of water systems.
There are pending cases that make claims related to PFAS that have been filed against Chemours and Corteva/EID in which the Company is not a named party, but for which the costs of litigation and future liabilities, if any, are or may be eligible PFAS costs under the MOU and Indemnification Losses under the Agreements.
While Management believes it has appropriately estimated the liability associated with eligible PFAS matters and Indemnifiable Losses as of the date of this report, it is reasonably possible that the Company could incur additional eligible PFAS costs and Indemnifiable Losses in excess of the amounts accrued. These additional costs could have a significant effect on the Company’s financial condition and/or cash flows in the period in which they occur; however, costs qualifying as Qualified Spend are limited by the terms of the MOU.
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Other Litigation Matters
In addition to the matters described above, the Company is party to 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. As of September 30, 2022, the Company has liabilities of $23 million associated with these other litigation matters. 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. In accordance with its accounting policy for litigation matters, the Company will expense litigation defense costs as incurred, which could be significant to the Company’s financial condition and/or cash flows in the period.
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, 2022, the Company had accrued obligations of $260 million for probable environmental remediation and restoration costs. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the Condensed Consolidated Balance Sheets. 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.
In June of 2022, the EPA announced updated health advisories for various PFAS compounds in drinking water. Chemours received notice from the NC DEQ that its obligations under the Consent Order could be enlarged as a result of EPA’s announcement. In the second quarter of 2022, the Company recorded an incremental liability related to its indemnification obligations under the MOU. The increase primarily relates to incremental costs associated with activities at Chemours' site in Fayetteville, North Carolina under the Consent Order with the NC DEQ.
The accrued environmental obligations include the following:
| Environmental Accrued Obligations | |||||||||||
| In millions | Sept 30, 2022 | Dec 31, 2021 | Potential exposure above the amount accrued 1 | ||||||||
| Environmental remediation liabilities not subject to indemnity | $ | 39 | $ | 43 | $ | 105 | |||||
| Environmental remediation indemnified liabilities: | |||||||||||
Indemnifications related to Dow and Corteva 2 | 48 | 46 | 63 | ||||||||
MOU related obligations (discussed above) 3 | 172 | 116 | 84 | ||||||||
| Other Environmental Indemnifications | 1 | — | 2 | ||||||||
| Total environmental related liabilities | $ | 260 | $ | 205 | $ | 254 | |||||
1.The environmental accrual represents management’s best estimate of the costs for remediation and restoration with respect to environmental matters, although it is reasonably possible that the ultimate cost with respect to these particular matters could range above the amount accrued.
2.Pursuant to the DWDP Separation and Distribution Agreement, the Company is required to indemnify Dow and Corteva for certain Non-PFAS clean-up responsibilities and associated remediation costs.
3.The MOU related obligations include the Company's estimate of its liability under the MOU for remediation activities based on the current regulatory environment.
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NOTE 17 - LEASES
The lease cost for operating leases were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Operating lease costs | $ | 27 | $ | 27 | $ | 82 | $ | 80 | ||||||
Operating cash flows from operating leases, excluding those related to the M&M Divestitures, were $82 million and $80 million for the nine months ended September 30, 2022 and 2021, respectively.
New operating lease assets and liabilities entered into during the nine months ended September 30, 2022 and 2021 were $75 million and $64 million, respectively. Supplemental balance sheet information related to leases was as follows:
| In millions | September 30, 2022 | December 31, 2021 | ||||||
Operating Leases | ||||||||
Operating lease right-of-use assets 1 | $ | 386 | $ | 422 | ||||
Current operating lease liabilities 2 | 84 | 92 | ||||||
Noncurrent operating lease liabilities 3 | 301 | 337 | ||||||
Total operating lease liabilities | $ | 385 | $ | 429 | ||||
1.Included in "" in the Condensed Consolidated Balance Sheet.
2.Included in "" in the Condensed Consolidated Balance Sheet.
3.Included in "" in the Condensed Consolidated Balance Sheet.
Operating lease right-of-use ("ROU") 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 for Operating Leases | September 30, 2022 | December 31, 2021 | ||||||
| Weighted-average remaining lease term (years) | 8.07 | 8.50 | ||||||
| Weighted average discount rate | 2.33 | % | 2.01 | % | ||||
Maturities of lease liabilities were as follows:
| Maturity of Lease Liabilities at September 30, 2022 | Operating Leases | ||||
| In millions | |||||
| Remainder of 2022 | $ | 25 | |||
| 2023 | 89 | ||||
| 2024 | 75 | ||||
| 2025 | 53 | ||||
| 2026 | 36 | ||||
| 2027 and thereafter | 153 | ||||
| Total lease payments | $ | 431 | |||
| Less: Interest | 46 | ||||
| Present value of lease liabilities | $ | 385 | |||
The Company has leases in which it is the lessor, with the largest being a result of the N&B transaction. In connection with the N&B Transaction, DuPont entered into leasing agreements with IFF, whereby DuPont is leasing certain properties, including office spaces and R&D laboratories to IFF. These leases are classified as operating leases and lessor income and related expenses are not significant to the Company's Condensed Consolidated Balance Sheet or interim Consolidated Statement of Operations. Lease agreements where the Company is the lessor have final expirations through 2036.
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NOTE 18 - STOCKHOLDERS' EQUITY
Share Repurchase Program
In February 2022, the Company's Board of Directors authorized a $1.0 billion share buyback program which expires on March 31, 2023, (the "2022 Share Buyback Program"). During the third quarter, the Company repurchased and retired 4.3 million shares for $250 million under this program. As of September 30, 2022, the Company repurchased and retired a total of 11.9 million shares for $750 million under the 2022 Share Buyback Program. Refer to Note 24 - Subsequent Events for additional information on the share repurchase programs.
In the first quarter of 2021, the Company's Board of Directors authorized a $1.5 billion share buyback program, which expired on June 30, 2022 ("2021 Share Buyback Program"). At the expiry of the 2021 Share Buyback Program, the Company had repurchased and retired a total of 19.6 million shares for $1.5 billion.
On June 1, 2019, the Company's Board of Directors approved a $2 billion share buyback program ("2019 Share Buyback Program"), which expired on June 1, 2021. At the expiry of the 2019 Share Buyback Program, the Company had repurchased and retired a total of 29.9 million shares at a cost of $2 billion.
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, 2022 and 2021:
| Accumulated Other Comprehensive Loss | Cumulative Translation Adj | Pension and OPEB | Derivative Instruments | Total | ||||||||||
| In millions | ||||||||||||||
| 2021 | ||||||||||||||
| Balance at January 1, 2021 | $ | 470 | $ | (425) | $ | (1) | $ | 44 | ||||||
| Other comprehensive (loss) income before reclassifications | (545) | 20 | 38 | (487) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 3 | — | 3 | ||||||||||
| Split-off of N&B reclassification adjustment | 184 | 73 | 1 | 258 | ||||||||||
| Net other comprehensive (loss) income | $ | (361) | $ | 96 | $ | 39 | $ | (226) | ||||||
| Balance at September 30, 2021 | $ | 109 | $ | (329) | $ | 38 | $ | (182) | ||||||
| 2022 | ||||||||||||||
| Balance at January 1, 2022 | $ | (88) | $ | 73 | $ | 56 | $ | 41 | ||||||
| Other comprehensive (loss) income before reclassifications | (1,774) | 24 | 109 | (1,641) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | (3) | — | (3) | ||||||||||
| Net other comprehensive (loss) income | $ | (1,774) | $ | 21 | $ | 109 | $ | (1,644) | ||||||
| Balance at September 30, 2022 | $ | (1,862) | $ | 94 | $ | 165 | $ | (1,603) | ||||||
The tax effects on the net activity related to each component of other comprehensive (loss) income were not significant for the three and nine months ended September 30, 2022 and 2021.
A summary of the reclassifications out of AOCL for the three and nine months ended September 30, 2022 and 2021 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 | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cumulative translation adjustments | $ | — | $ | — | $ | — | $ | 184 | See (1) below | ||||||||
| Pension and other post-employment benefit plans | $ | (2) | $ | 2 | $ | (4) | $ | 110 | See (1) below | ||||||||
| Tax expense (benefit) | — | (5) | 1 | (34) | See (1) below | ||||||||||||
After tax | $ | (2) | $ | (3) | $ | (3) | $ | 76 | |||||||||
| Derivative instruments | $ | — | $ | — | $ | — | $ | 1 | See (1) below | ||||||||
| Total reclassifications for the period, after tax | $ | (2) | $ | (3) | $ | (3) | $ | 261 | |||||||||
1. The activity for the three and nine months ended September 30, 2022 is classified within the "Sundry income (expense) - net". The activity for the three and nine months ended September 30, 2021 is classified almost entirely within "Income from discontinued operations, net of tax" as part of the N&B Transaction, with a portion classified within "Sundry income (expense) - net" and "(Benefit from) provision for income taxes on continuing operations" as part of continuing operations.
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NOTE 19 - PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
A summary of the Company's pension plans and other post-employment benefits can be found in Note 19 to the Consolidated Financial Statements included in the Company’s 2021 Annual Report.
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 September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
Service cost 1 | $ | 9 | $ | 13 | $ | 32 | $ | 42 | ||||||
Interest cost 2 | 14 | 11 | 41 | 32 | ||||||||||
Expected return on plan assets 3 | (24) | (26) | (76) | (80) | ||||||||||
Amortization of prior service credit 4 | (1) | (2) | (4) | (4) | ||||||||||
Amortization of unrecognized net loss 5 | 1 | 3 | 2 | 10 | ||||||||||
Curtailment/settlement 6 | (2) | (1) | (1) | 2 | ||||||||||
| Net periodic benefit (credit) cost - total | $ | (3) | $ | (2) | $ | (6) | $ | 2 | ||||||
| Less: Net periodic benefit credit - discontinued operations | (2) | (2) | (7) | (4) | ||||||||||
| Net periodic benefit cost - continuing operations | $ | (1) | $ | — | $ | 1 | $ | 6 | ||||||
1. The service cost from continuing operations was $6 million and $21 million for the three and nine months ended September 30, 2022, respectively, compared with $9 million and $28 million for the three and nine months ended September 30, 2021, respectively.
2. The interest cost from continuing operations was $13 million and $37 million for the three and nine months ended September 30, 2022, respectively, compared with $10 million and $29 million for the three and nine months ended September 30, 2021, respectively.
3. The expected return on plan assets from continuing operations was $19 million and $57 million for the three and nine months ended September 30, 2022, respectively, compared with $19 million and $59 million for the three and nine months ended September 30, 2021.
4. The amortization of prior service credit from continuing operations was zero and $2 million for the three and nine months ended September 30, 2022, respectively, compared with a gain of $2 million and $4 million for the three and nine months ended September 30, 2021, respectively.
5. The amortization of unrecognized net loss from continuing operations was $1 million and $3 million or the three and nine months ended September 30, 2022, respectively, compared with a net loss of $3 million and $10 million for the three and nine months ended September 30, 2021, respectively.
6. The curtailment and settlement gain from continuing operations was $2 million and $1 million for the three and nine months ended September 30, 2022, respectively, a gain of $1 million for the three months ended September 30, 2021, and a loss of $2 million for the nine months ended September 30, 2021.
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 $35 million by year-end 2022.
NOTE 20 - STOCK-BASED COMPENSATION
A summary of the Company's stock-based compensation plans can be found in Note 20 to the Consolidated Financial Statements included in the Company's 2021 Annual Report. In the second quarter of 2020, the stockholders of DuPont approved the DuPont 2020 Equity and Incentive Plan (the "2020 Plan") which allows the Company to grant options, share appreciation rights, restricted shares, restricted stock units ("RSUs"), share bonuses, other share-based awards, cash awards, or any combination of the foregoing. Under the 2020 Plan, a maximum of 17 million shares of common stock are available for award as of September 30, 2022.
DuPont recognized share-based compensation expense of $20 million and $15 million for the three months ended September 30, 2022 and 2021, respectively, and $58 million and $49 million for the nine months ended September 30, 2022 and 2021, respectively. The income tax benefits related to stock-based compensation arrangements were $4 million and $3 million for the three months ended September 30, 2022 and 2021, respectively, and $12 million and $10 million for the nine months ended September 30, 2022 and 2021, respectively.
In the first quarter of 2022, the Company granted 0.7 million RSUs, 0.5 million stock options and 0.3 million performance-based stock units ("PSUs"). The weighted-average fair values per share associated with the grants were $75.12 per RSU, $17.41 per stock option and $81.55 per PSU. The stock options had a weighted-average exercise price per share of $75.05. There was minimal activity in the second and third quarters of 2022.
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NOTE 21 - FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at September 30, 2022 and December 31, 2021:
| Fair Value of Financial Instruments | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value | ||||||||||||||||||
Cash equivalents | $ | 427 | $ | — | $ | — | $ | 427 | $ | 841 | $ | — | $ | — | $ | 841 | ||||||||||
Restricted cash equivalents 1 | $ | 111 | $ | — | $ | — | $ | 111 | $ | 65 | $ | — | $ | — | $ | 65 | ||||||||||
| Total cash and restricted cash equivalents | $ | 538 | $ | — | $ | — | $ | 538 | $ | 906 | $ | — | $ | — | $ | 906 | ||||||||||
Long-term debt including debt due within one year | $ | (10,639) | $ | 497 | $ | (64) | $ | (10,206) | $ | (10,632) | $ | — | $ | (1,963) | $ | (12,595) | ||||||||||
| Derivatives relating to: | ||||||||||||||||||||||||||
Net investment hedge 2 | — | 211 | — | 211 | — | 74 | — | 74 | ||||||||||||||||||
Foreign currency 3, 4 | — | 39 | (50) | (11) | — | 5 | (10) | (5) | ||||||||||||||||||
Interest rate swap agreements 5 | — | — | (75) | (75) | — | — | — | — | ||||||||||||||||||
| Total derivatives | $ | — | $ | 250 | $ | (125) | $ | 125 | $ | — | $ | 79 | $ | (10) | $ | 69 | ||||||||||
1.At September 30, 2022 there was $8 million of restricted cash classified as "Prepaid and other current assets" and $103 million classified as "Restricted cash and cash equivalents" in the Condensed Consolidated Balance Sheets. At December 31, 2021 there was $12 million of restricted cash classified as "Prepaid and other current assets" and $53 million classified as "Restricted cash and cash equivalents" in the Condensed Consolidated Balance Sheet. See Note 7 for more information on restricted cash.
2.Classified as "Deferred charges and other assets" in the Condensed Consolidated Balance Sheets.
3.Classified as "Prepaid and other current assets" and "Accrued and other current liabilities" in the Condensed Consolidated Balance Sheets.
4.Presented net of cash collateral where master netting arrangements allow.
5.Classified as "Other noncurrent obligations" in the Condensed Consolidated Balance Sheets.
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.
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 monitored and reported to management.
The notional amounts of the Company's derivative instruments were as follows:
| Notional Amounts | September 30, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Derivatives designated as hedging instruments: | ||||||||
| Net investment hedge | $ | 1,000 | $ | 1,000 | ||||
| Interest rate swap agreements | $ | 1,000 | $ | — | ||||
| Derivatives not designated as hedging instruments: | ||||||||
Foreign currency contracts 1 | $ | (407) | $ | (625) | ||||
1.Presented net of contracts bought and sold.
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Derivatives Designated in Hedging Relationships
Net Foreign Investment Hedge
In the second quarter of 2021, the Company entered into fixed-for-fixed cross currency swaps with an aggregate notional amount totaling $1 billion to hedge the variability of exchange rate impacts between the U.S. dollar and euro. Under the terms of the cross-currency swap agreement, the Company notionally exchanged $1 billion at an interest rate of 4.73% for €819 million at a weighted average interest rate of 3.26%. The cross-currency swap is designated as a net investment hedge and expires on November 15, 2028.
The Company has made an accounting policy election to account for the net investment hedge using the spot method. The Company has also elected to amortize the excluded components in interest expense in the related quarterly accounting period that such interest is accrued. The cross-currency swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments within AOCL, net of amounts associated with excluded components which are recognized in interest expense in the interim Consolidated Statements of Operations.
Interest Rate Swap Agreements
In the second quarter of 2022, the Company entered into fixed-to-floating interest rate swap agreements with an aggregate notional principal amount totaling $1 billion to hedge changes in the fair value of the Company’s long-term debt due to interest rate change movements. These swaps converted $1 billion of the Company’s $1.65 billion principal amount of fixed rate notes due 2038 into floating rate debt for the portion of their terms through 2032 with an interest rate based on the Secured Overnight Financing Rate ("SOFR"). Under the terms of the agreements, the Company agrees to exchange, at specified intervals, fixed for floating interest amounts based on the agreed upon notional principal amount. The interest rate swaps are designated as fair value hedges and expire on November 15, 2032.
The interest rate swaps are carried at fair value. Fair value hedge accounting has been applied and thus, changes in the fair value of these swaps and changes in the fair value of the related hedged portion of long-term debt will be presented and will net to zero in Sundry income (expense) – net in the interim Consolidated Statements of Operations.
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 may use 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.
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 pre-tax 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 $24 million and $11 million for the three months ended September 30, 2022 and 2021, respectively. There was a loss of $73 million and $38 million for the nine months ended September 30, 2022 and 2021, respectively. The income statement effects of other derivatives were immaterial.
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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, 2022 | Significant Other Observable Inputs (Level 2) | ||||
| In millions | |||||
| Assets at fair value: | |||||
Cash equivalents and restricted cash equivalents 1 | $ | 538 | |||
Derivatives relating to: 2 | |||||
| Net investment hedge | 211 | ||||
Foreign currency contracts 3 | 80 | ||||
| Total assets at fair value | $ | 829 | |||
| Liabilities at fair value: | |||||
Long-term debt including debt due within one year 4 | $ | 10,206 | |||
Derivatives relating to: 2 | |||||
| Interest rate swap agreements | 75 | ||||
Foreign currency contracts 3 | 91 | ||||
| Total liabilities at fair value | $ | 10,372 | |||
1. Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Prepaid and other current assets" in the Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. See Note 21 for the classification of derivatives in the Condensed Consolidated Balance Sheets.
3. Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Condensed Consolidated Balance Sheets. The offsetting counterparty and cash collateral netting amounts for foreign currency contracts were $41 million for both assets and liabilities as of September 30, 2022.
4. Fair value is 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 and terms. Fair value includes fair value hedging adjustments related to the Company's interest rate swap agreements.
Basis of Fair Value Measurements on a Recurring Basis at December 31, 2021 | Significant Other Observable Inputs (Level 2) | ||||
| In millions | |||||
| Assets at fair value: | |||||
Cash equivalents and restricted cash equivalents 1 | $ | 906 | |||
Derivatives relating to: 2 | |||||
| Net investment hedge | 74 | ||||
Foreign currency contracts 3 | 11 | ||||
| Total assets at fair value | $ | 991 | |||
| Liabilities at fair value: | |||||
Long-term debt including debt due within one year 4 | $ | 12,595 | |||
Derivatives relating to: 2 | |||||
Foreign currency contracts 3 | 16 | ||||
| Total liabilities at fair value | $ | 12,611 | |||
1. Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" and money market funds included in "Prepaid and other current assets" in the Condensed Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. See Note 21 for the classification of derivatives in the Condensed Consolidated Balance Sheets.
3. Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Condensed Consolidated Balance Sheets. The offsetting counterparty and cash collateral netting amounts were $6 million for both assets and liabilities as of December 31, 2021.
4. Fair value is 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 and terms.
Fair Value Measurements on a Nonrecurring Basis
In the first quarter of 2022, the Company recorded an other-than-temporary impairment, classified as Level 3 measurements, on an equity method investment. See Note 6 for further discussion of these fair value measurements.
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NOTE 23 - SEGMENTS AND GEOGRAPHIC REGIONS
Effective February 2022, the revenues and certain expenses of the M&M Businesses are classified as discontinued operations in the current and historical periods. In addition, the Retained Businesses previously reported in the historic Mobility & Materials segment are reported in Corporate & Other. These reporting changes have been retrospectively applied for all periods presented.
The historic Mobility & Material segment costs that are classified as discontinued operations include only direct operating expenses incurred by the M&M Businesses which the Company will cease to incur upon the close of the M&M Divestitures. Indirect costs, such as those related to corporate and shared service functions previously allocated to the M&M Businesses, do not meet the criteria for discontinued operations and remain reported within continuing operations. A portion of these indirect costs include costs related to activities the Company will continue to undertake post-closing of the M&M Divestiture, and for which it will be reimbursed (“Future Reimbursable Indirect Costs”). Future Reimbursable Indirect Costs are reported within continuing operations but are excluded from operating EBITDA as defined below. The remaining portion of these indirect costs is not subject to future reimbursement (“Stranded Costs”). Stranded Costs are reported within continuing operations in Corporate & Other and are included within Operating EBITDA.
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, excluding Future Reimbursable Indirect Costs, and adjusted for significant items. Reconciliations of these measures are provided on the following pages.
The reporting changes have been retrospectively reflected in the segment results for all periods presented.
| Segment Information | Electronics. & Industrial | Water & Protection | Corporate & Other 1 | Total | ||||||||||
| In millions | ||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||
| Net sales | $ | 1,511 | $ | 1,534 | $ | 272 | $ | 3,317 | ||||||
Operating EBITDA 2 | $ | 473 | $ | 382 | $ | 1 | $ | 856 | ||||||
Equity in earnings of nonconsolidated affiliates | $ | 7 | $ | 9 | $ | — | $ | 16 | ||||||
| Three Months Ended September 30, 2021 | ||||||||||||||
| Net sales | $ | 1,467 | $ | 1,397 | $ | 335 | $ | 3,199 | ||||||
Operating EBITDA 2 | $ | 475 | $ | 353 | $ | (11) | $ | 817 | ||||||
| Equity in earnings of nonconsolidated affiliates | $ | 13 | $ | 7 | $ | 2 | $ | 22 | ||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||
| Net sales | $ | 4,574 | $ | 4,460 | $ | 879 | $ | 9,913 | ||||||
Operating EBITDA 2 | $ | 1,429 | $ | 1,071 | $ | 3 | $ | 2,503 | ||||||
Equity in earnings of nonconsolidated affiliates | $ | 26 | $ | 31 | $ | 5 | $ | 62 | ||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||
| Net sales | $ | 4,087 | $ | 4,137 | $ | 1,096 | $ | 9,320 | ||||||
Operating EBITDA 2 | $ | 1,335 | $ | 1,060 | $ | 5 | $ | 2,400 | ||||||
| Equity in earnings of nonconsolidated affiliates | $ | 32 | $ | 27 | $ | 6 | $ | 65 | ||||||
1.Corporate & Other includes activities of the Retained Businesses and previously divested businesses including Biomaterials, Clean Technologies and Solamet®.
2.A reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA is provided below.
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| Reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA for the Three Months Ended September 30, 2022 and 2021 | Three Months Ended September 30, | ||||||||||
| In millions | 2022 | 2021 | |||||||||
| Income from continuing operations, net of tax | $ | 359 | $ | 259 | |||||||
| + | Provision for income taxes on continuing operations | 139 | 80 | ||||||||
| Income from continuing operations before income taxes | $ | 498 | $ | 339 | |||||||
| + | Depreciation and amortization | 283 | 300 | ||||||||
| - | Interest income 1 | 5 | 1 | ||||||||
| + | Interest expense | 127 | 115 | ||||||||
| - | Non-operating pension/OPEB benefit 1 | 7 | 9 | ||||||||
| - | Foreign exchange gains (losses), net 1 | 5 | (19) | ||||||||
| + | Future reimbursable indirect costs | 14 | 15 | ||||||||
| - | Significant items | 49 | (39) | ||||||||
| Operating EBITDA | $ | 856 | $ | 817 | |||||||
1.Included in "Sundry income (expense) - net."
| Reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA for the Nine Months Ended September 30, 2022 and 2021 | Nine Months Ended September 30, | ||||||||||
| In millions | 2022 | 2021 | |||||||||
| Income from continuing operations, net of tax | $ | 956 | $ | 1,040 | |||||||
| + | Provision for income taxes on continuing operations | 299 | 172 | ||||||||
| Income from continuing operations before income taxes | $ | 1,255 | $ | 1,212 | |||||||
| + | Depreciation and amortization | 861 | 817 | ||||||||
| - | Interest income 1 | 8 | 10 | ||||||||
| + | Interest expense | 365 | 390 | ||||||||
| - | Non-operating pension/OPEB benefit 1 | 20 | 22 | ||||||||
| - | Foreign exchange gains (losses), net 1 | 9 | (35) | ||||||||
| + | Future reimbursable indirect costs | 45 | 46 | ||||||||
| - | Significant items | (14) | 68 | ||||||||
| Operating EBITDA | $ | 2,503 | $ | 2,400 | |||||||
1.Included in "Sundry income (expense) - net."
The following tables summarize the pre-tax impact of significant items by segment that are excluded from Operating EBITDA above:
Significant Items by Segment for the Three Months Ended September 30, 2022 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | — | $ | — | $ | (7) | $ | (7) | ||||||
Gain on divestiture 2 | — | — | 5 | 5 | ||||||||||
Intended Rogers Acquisition financing fees 3 | — | — | (1) | (1) | ||||||||||
Employee Retention Credit 4 | 20 | 20 | 12 | 52 | ||||||||||
| Total | $ | 20 | $ | 20 | $ | 9 | $ | 49 | ||||||
1. Acquisition, integration and separation costs related to strategic initiatives including the sale of the Biomaterials business unit, the acquisition of Laird PM and the Intended Rogers Acquisition.
2. Reflected in "Sundry income (expense) - net."
3. Includes acquisition costs associated with the Intended Rogers Acquisition related to the financing agreements, specifically the structuring fees and the amortization of the commitment fees reflected in "Interest Expense."
4. Employee Retention Credit pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act as enhanced by the Consolidated Appropriations Act (“CAA”) and American Rescue Plan Act (“ARPA”) reflected in "Cost of sales," "Research and development expenses" and "Selling, general and administrative expenses."
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Significant Items by Segment for the Three Months Ended September 30, 2021 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | — | $ | — | $ | (29) | $ | (29) | ||||||
Restructuring and asset related charges - net 2 | — | — | (1) | (1) | ||||||||||
Gain on divestiture 3 | — | — | 3 | 3 | ||||||||||
Inventory step-up amortization 4 | (12) | — | — | (12) | ||||||||||
| Total | $ | (12) | $ | — | $ | (27) | $ | (39) | ||||||
1. Acquisition, integration and separation costs related to strategic initiatives, which primarily includes the acquisition of Laird PM and the sale of the Solamet®, Biomaterials, and Clean Technologies business units.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Reflected in "Sundry income (expense) - net."
4. Includes the amortization of the fair value step-up in Laird PM's inventories as a result of the acquisition.
Significant Items by Segment for the Nine Months Ended September 30, 2022 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | — | $ | — | $ | (28) | $ | (28) | ||||||
Restructuring and asset related charges - net 2 | (1) | (3) | (3) | (7) | ||||||||||
Asset impairment charges 3 | (94) | — | — | (94) | ||||||||||
Gain on divestiture 4 | — | 37 | 31 | 68 | ||||||||||
Intended Rogers Acquisition financing fees 5 | — | — | (5) | (5) | ||||||||||
Employee Retention Credit 6 | 20 | 20 | 12 | 52 | ||||||||||
| Total | $ | (75) | $ | 54 | $ | 7 | $ | (14) | ||||||
1. Acquisition, integration and separation costs related to strategic initiatives including the sale of the Biomaterials business unit, the acquisition of Laird PM and the Intended Rogers Acquisition.
2. Includes restructuring actions and asset related charges. See Note 6 for additional information.
3. Relates to an impairment of an equity method investment. See Note 6 for additional information.
4. Reflected in "Sundry income (expense) - net."
5. Includes acquisition costs associated with the Intended Rogers Acquisition related to the financing agreements, specifically the structuring fees and the amortization of the commitment fees reflected in "Interest Expense."
6. Employee Retention Credit pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act as enhanced by the Consolidated Appropriations Act (“CAA”) and American Rescue Plan Act (“ARPA”) reflected in "Cost of sales," "Research and development expenses" and "Selling, general and administrative expenses."
Significant Items by Segment for the Nine Months Ended September 30, 2021 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | — | $ | — | $ | (58) | $ | (58) | ||||||
Restructuring and asset related charges - net 2 | (2) | — | (6) | (8) | ||||||||||
Gain on divestiture 3 | 2 | — | 144 | 146 | ||||||||||
Inventory step-up amortization 4 | (12) | — | — | (12) | ||||||||||
| Total | $ | (12) | $ | — | $ | 80 | $ | 68 | ||||||
1.Acquisition, integration and separation costs related to strategic initiatives, which primarily includes the acquisition of Laird PM and the sale of the Solamet®, Biomaterials, and Clean Technologies business units.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Reflected in "Sundry income (expense) - net."
4. Includes the amortization of the fair value step-up in Laird PM's inventories as a result of the acquisition.
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NOTE 24 - SUBSEQUENT EVENTS
Closing of the M&M Divestiture and the Use of Proceeds
On November 1, 2022, DuPont completed the divestiture of the majority of its historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Business”), to Celanese for a purchase price of $11.0 billion in cash. Preliminary cash received, as adjusted for preliminary and other adjustments, was $11.0 billion including approximately $0.5 billion of cash transferred with the M&M Business for which DuPont was reimbursed.
Use of Net Proceeds
On November 7, 2022, DuPont’s Board of Directors approved a new share repurchase program authorizing the repurchase and retirement of up to $5 billion of common stock. The new repurchase authorization of up to $5 billion is in addition to the $250 million remaining under the Company’s existing share repurchase program which was approved in February 2022. The Company intends to enter accelerated share repurchase agreements (the “ASR Agreements”) imminently, for the repurchase of an aggregate of approximately $3.25 billion of common stock with $250 million of such repurchases under the existing program and the remaining $3 billion under the new program. Any additional repurchases under the new share repurchase program will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions off the market, which may include additional accelerated share repurchase agreements. The timing and number of shares to be repurchased will depend on factors such as the share price, economic and market conditions, and corporate and regulatory requirements. The new repurchase program terminates on June 30, 2024, unless extended or shortened by the Board of Directors.
The Company is in the process of notifying holders of the 2018 Senior Notes of the Company's intent to exercise its right to redeem fixed-rate long term debt of $2.5 billion due 2023 in full together with unpaid interest. The Company expects to complete the redemption by the end of 2022 with proceeds from the M&M Transaction.
Intended Rogers Acquisition
On November 1, 2022, the Company announced the termination of the previously announced agreement to acquire the outstanding shares of Rogers Corporation, as DuPont and Rogers have been unable to obtain timely clearance from all the required regulators. DuPont paid Rogers a termination fee of $162.5 million in accordance with the agreement on November 2, 2022, which will be recognized as a charge in the fourth quarter of 2022.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the interim Consolidated Financial Statements and related notes to enhance the understanding of the Company’s operations and present business environment. Components of management’s discussion and analysis of financial condition and results of operations include:
•Overview
•Result of Operations
•Segment Results
•Changes in Financial Condition
OVERVIEW
DuPont is a global innovation leader with technology-based materials and solutions that help transform industries and everyday life by applying diverse science and expertise to help customers advance their best ideas and deliver essential innovations in key markets including electronics, transportation, building and construction, healthcare and worker safety.
As of September 30, 2022, the Company has $2.0 billion of working capital and approximately $1.8 billion in cash and cash equivalents. The Company expects its cash and cash equivalents, cash generated from operations, and ability to access the debt capital markets to provide sufficient liquidity and financial flexibility to meet the liquidity requirements associated with its continuing operations.
Outlined below are recent developments and material historical transactions impacting this Quarterly Report on Form 10-Q.
Mobility & Materials Divestitures
On November 1, 2022 DuPont completed the previously announced divestiture of the majority of the historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the “M&M Divestiture”). On February 17, 2022, the Company entered into a Transaction Agreement (the "Transaction Agreement") with Celanese Corporation ("Celanese"). Refer to Note 24 - Subsequent Events for further information. The Company also announced on February 18, 2022 that its Board of Directors approved of the divestiture of the Delrin® acetal homopolymer (H-POM) business (the "Delrin® Divestiture"), subject to entry into a definitive agreement and satisfaction of closing conditions. The Delrin® Divestiture together with the M&M Divestiture discussed above (the "M&M Divestitures") represent a strategic shift that will have a major impact on DuPont's operations and results.
The financial position of DuPont as of September 30, 2022 and December 31, 2021 present the businesses to be divested as part of the M&M Divestiture and the Delrin® Divestiture (the "M&M Businesses") as assets and liabilities held for sale, presented as discontinued operations. The results of operations for the three and nine months ended September 30, 2022 and 2021 present the financial results of the M&M Businesses as discontinued operations. The cash flows and comprehensive income of the M&M Businesses have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim 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 the M&M Businesses. See Note 4 to the interim Consolidated Financial Statements for additional information.
The Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines, previously reported within the historic Mobility & Materials segment, (the "Retained Businesses") are not included in the scope of the M&M Divestitures. Effective with the signing of the Transaction Agreement, the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively applied for all periods presented.
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Recent Developments
Macroeconomic Conditions
Certain macroeconomic factors, including the inflationary cost environment and supply chain disruptions, along with the novel coronavirus (“COVID-19”) and its variants, continue to adversely impact the global economy, including certain suppliers of the Company’s key raw materials. As a result of COVID-19, the Company qualified for a tax credit of payroll taxes under the Employee Retention Credit (“ERC”) pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act as enhanced by the Consolidated Appropriations Act and American Rescue Plan Act. In the third quarter of 2022, the Company recorded approximately $59 million of benefit to the ERC for full year 2020 and Q1 2021 payroll taxes previously paid. The benefit was recorded as an offset to the Cost of Sales, Research and Development Expenses ("R&D") and Selling, General and Administrative Expenses ("SG&A"), with a portion, approximately $7 million, of the benefit relating to discontinued operations. The Company anticipates receiving a refund of the credit in 2023.
Within the third quarter of 2022, while end-market demand remained strong, the Company experienced rising costs of raw materials, logistic and energy due to inflationary pressures, rising interest rates and foreign currency impacts, particularly in EMEA. At this time, the Company is not able to predict the extent to which these macroeconomic events may impact its consolidated results of operations or financial condition. In addition, the Company is assessing the recently announced US regulations covering the export of semiconductor materials into China and is monitoring developments to determine the potential impact of these regulations to the Semiconductor business.
The Inflation Reduction Act of 2022 ("IRA") was signed into law on August 16, 2022. The IRA introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. While this tax law change does not have an immediate effect, the Company will continue to evaluate its impact as further information becomes available. The Inflation Reduction Act also includes an excise tax that would impose a 1% surcharge on stock repurchases, effective January 1, 2023.
Russia, Belarus, Ukraine
With respect to the war in the Ukraine, the Company’s business and operational environment is impacted by, among other things, responsive governmental actions including sanctions imposed by the U.S. and other governments. In the second quarter of 2022, the Company exited substantially all business operations in Russia, the net sales from which are less than one percent of DuPont’s consolidated net sales in 2021. The Company does not have operations in the Ukraine. DuPont has experienced supply chain challenges and increased logistics, raw material and energy costs due in part to the negative impact on the global economy from the ongoing war in Ukraine. The extent to which the conflict may continue to impact DuPont in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, and the extent of supply chain disruptions. DuPont will continue to monitor the conflict and assess the related sanctions and other effects and may take further actions if necessary.
Dividends
On June 30, 2022, the Company announced that its Board declared a third quarter dividend of $0.33 per share paid on September 15, 2022, to shareholders of record on July 29, 2022.
On October 19, 2022, the Company announced that its Board declared a fourth quarter dividend of $0.33 per share payable on December 15, 2022, to shareholders of record on November 30, 2022.
Laird Acquisition
On July 1, 2021, the Company completed the acquisition of Laird Performance Materials ("Laird PM") from Advent International. The Company paid for the acquisition from existing cash balances. See Note 3 to the interim Consolidated Financial Statements and “Liquidity and Capital Resources” for more information.
N&B Transaction
On February 1, 2021, the Company completed the divestiture of the Nutrition & Biosciences (“N&B”) business to International Flavors & Fragrance Inc. (“IFF”). The distribution was effected through an exchange offer (the “Exchange Offer”) and the consummation of the Exchange Offer was followed by the merger of N&B with a wholly owned subsidiary of IFF, with N&B surviving the merger as a wholly owned subsidiary of IFF (the “N&B Merger” and, together with the Exchange Offer, the “N&B Transaction”).
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The results of operations of DuPont for the three and nine months ended September 30, 2021 present the historical financial results of N&B as discontinued operations. The cash flows and comprehensive income related to N&B have not been segregated and are included in the interim Consolidated Statements of Cash Flows and interim Consolidated Statements of Comprehensive Income, respectively, for the applicable periods. 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 N&B. See Note 4 to the interim Consolidated Financial Statements for additional information on the N&B Transaction.
RESULTS OF OPERATIONS
| Summary of Sales Results | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | $ | 3,317 | $ | 3,199 | $ | 9,913 | $ | 9,320 | ||||||
The following table summarizes sales variances by segment and geographic region from the prior year:
| Sales Variances by Segment and Geographic Region | ||||||||||||||||||||||||||||||||
| Percentage change from prior year | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||
| Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | |||||||||||||||||||||||
| Electronics & Industrial | 3 | % | (4) | % | 4 | % | — | % | 3 | % | 2 | % | (3) | % | 6 | % | 7 | % | 12 | % | ||||||||||||
| Water & Protection | 13 | (5) | 2 | — | 10 | 12 | (3) | (1) | — | 8 | ||||||||||||||||||||||
Corporate & Other 1 | 10 | (4) | 5 | (30) | (19) | 10 | (3) | — | (27) | (20) | ||||||||||||||||||||||
| Total | 8 | % | (4) | % | 3 | % | (3) | % | 4 | % | 7 | % | (3) | % | 2 | % | — | % | 6 | % | ||||||||||||
| U.S. & Canada | 12 | % | — | % | 7 | % | (5) | % | 14 | % | 12 | % | — | % | 5 | % | (2) | % | 15 | % | ||||||||||||
EMEA 2 | 9 | (10) | (3) | (4) | (8) | 9 | (8) | (1) | (1) | (1) | ||||||||||||||||||||||
| Asia Pacific | 5 | (5) | 2 | (2) | — | 3 | (3) | 2 | 1 | 3 | ||||||||||||||||||||||
| Latin America | 12 | — | 15 | (2) | 25 | 9 | — | 8 | 1 | 18 | ||||||||||||||||||||||
| Total | 8 | % | (4) | % | 3 | % | (3) | % | 4 | % | 7 | % | (3) | % | 2 | % | — | % | 6 | % | ||||||||||||
1.Corporate & Other includes activities of the Retained Businesses and previously divested businesses Biomaterials, Clean Technologies and Solamet®.
2.Europe, Middle East and Africa.
The Company reported net sales for the three months ended September 30, 2022 of $3.3 billion, up 4 percent from $3.2 billion for the three months ended September 30, 2021, due to an 8 percent increase in local price and product mix, a 3 percent increase in volume, partially offset by a 3 percent decrease in portfolio actions and a 4 percent unfavorable currency impact. Local price and product mix increased across all operating segments, including within Water & Protection (up 13 percent), Electronics & Industrial (up 3 percent) and Corporate & Other (up 10 percent). Local price and product mix increased across all regions. Volume also increased across each segment with Electronics & Industrial (up 4 percent), Water & Protection (up 2 percent) and Corporate & Other (up 5 percent). Portfolio and other changes declined 3 percent driven by Corporate & Other (down 30 percent) due to the sale of the Biomaterials and Clean Technologies businesses. Currency was down 4 percent compared with the same period last year, primarily driven by the weakening of the euro against the U.S. dollar in EMEA (down 10 percent).
Net sales for the nine months ended September 30, 2022 were $9.9 billion, up 6 percent from $9.3 billion for the nine months ended September 30, 2021, due to a 7 percent increase in local price and product mix, a 2 percent increase in volume, partially offset by a 3 percent unfavorable currency impact. Local price and product mix increased across all operating segments, including within Water & Protection (up 12 percent), Electronics & Industrial (up 2 percent) and Corporate & Other (up 10 percent). Local price and product mix increased across all regions. Volume increase was driven by Electronics & Industrial (up 6 percent), partially offset by Water & Protection (down 1 percent), and Corporate & Other was flat. Portfolio and other in total was flat, however, the addition of Laird PM in Electronics & Industrial (up 7 percent) was offset by declines within Corporate & Other (down 27 percent) due to the sale of the Biomaterials, Clean Technologies and Solamet® businesses. Currency was down 3 percent compared with the same period last year, primarily driven by the weakening of the euro against the U.S. dollar in EMEA (down 8 percent).
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Cost of Sales
Cost of sales was $2.1 billion for the three months ended September 30, 2022, up from $2.0 billion for the three months ended September 30, 2021. Cost of sales increased for the three months ended September 30, 2022 primarily due to increased sales volume, higher raw materials costs and higher logistics and energy costs, partially offset by a payroll tax credit recognized under the ERC of the CARES Act.
Cost of sales as a percentage of net sales for the three months ended September 30, 2022 was 63 percent compared with 64 percent for the three months ended September 30, 2021.
For the nine months ended September 30, 2022, cost of sales was $6.4 billion, up from $5.9 billion for the nine months ended September 30, 2021. Cost of sales increased for the nine months ended September 30, 2022 primarily due to increased sales volume, currency impacts, and higher raw materials and higher logistics and energy costs, partially offset by a payroll tax credit recognized under the ERC of the CARES Act.
Cost of sales as a percentage of net sales for the nine months ended September 30, 2022 was 64 percent compared with 63 percent for the nine months ended September 30, 2021.
Research and Development Expenses ("R&D")
R&D expenses totaled $129 million in the third quarter of 2022, down from $137 million in the third quarter of 2021. This slight decrease was due to a payroll tax credit recognized under the ERC of the CARES Act. R&D as a percentage of net sales was consistent period over period at 4 percent for the three months ended September 30, 2022 and 2021.
For the first nine months of 2022, R&D expenses totaled $413 million up from $409 million in the first nine months of 2021. R&D as a percentage of net sales was consistent period over period at 4 percent for the nine months ended September 30, 2022 and 2021.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $356 million in the third quarter of 2022, down from $411 million in the third quarter of 2021. SG&A as a percentage of net sales was 11 percent and 13 percent for the three months ended September 30, 2022 and 2021, respectively. The decline for the three months ended September 30, 2022 as compared with the same period of the prior year was primarily due to currency fluctuations, lower personnel related expenses and a payroll tax credit recognized under the ERC of the CARES Act.
For the first nine months of 2022, SG&A expenses totaled $1,130 million, down from $1,201 million in the first nine months of 2021. SG&A as a percentage of net sales was 11 percent and 13 percent for the nine months ended September 30, 2022 and 2021, respectively. The decline for the nine months ended September 30, 2022 as compared with the same period of the prior year was primarily due to currency fluctuations, lower personnel related expenses and a payroll tax credit recognized under the ERC of the CARES Act.
Amortization of Intangibles
Amortization of intangibles was $146 million in the third quarter of 2022, down from $158 million in the third quarter of 2021. The decrease for the three months ended September 30, 2022 as compared with the same period of the prior year was primarily due to currency fluctuations.
In the first nine months of 2022, amortization of intangibles was $447 million, up from $410 million in the same period of the prior year. The increase for the nine months ended September 30, 2022 as compared with the same period of the prior year was primarily due to the amortization of the intangible assets acquired in the July 1, 2021 Laird PM acquisition.
Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were zero in the third quarter of 2022, down from $1 million in the third quarter of 2021. The activity in the third quarter of 2021 is related to the 2020 Restructuring Program.
In the first nine months of 2022, restructuring and asset related charges - net were $101 million, up from $8 million in the same period last year. The activity for the nine months of 2022 includes a $94 million impairment charge related to an equity method investment. The activity for the nine months of 2021 is primarily related to the 2020 Restructuring Program.
See Note 6 to the interim Consolidated Financial Statements for additional information.
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Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs were $7 million in the third quarter of 2022, down from $29 million in the third quarter of 2021. In the first nine months of 2022, acquisition, integration and separation costs were $28 million, down from $58 million in the same period of the prior year. Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees. For the three and nine months ended September 30, 2022 these costs were primarily related to the divestiture of the Biomaterials business unit, the 2021 acquisition of Laird PM and the Intended Rogers Acquisition. Comparatively, for the three and nine months ended September 30, 2021 these costs were primarily associated with the acquisition of Laird PM and the divestitures of the Biomaterials, Clean Technologies and Solamet® business units. See Note 3 to the interim Consolidated Financial Statements for additional information.
Separation costs associated with the M&M Divestitures are reported within "Income from discontinued operations, net of tax" in the interim Consolidated Statements of Operations. See Note 4 to the interim Consolidated Financial Statements for additional information.
Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $16 million in the third quarter of 2022, down from $22 million in the third quarter of 2021. In the first nine months of 2022, the Company's share of the earnings of nonconsolidated affiliates was $62 million, down from $65 million in the first nine months of 2021. The decrease is primarily due to lower equity earnings across the portfolio in the third quarter of 2022.
Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expense items such as foreign currency exchange gains or losses, interest income, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other post-employment benefit plan credits or costs, and certain litigation matters. Sundry income (expense) - net in the third quarter of 2022 was income of $26 million compared with income of $1 million in the third quarter of 2021. The third quarter of 2022 primarily included income related to non-operating pension and other post-employment benefit credits of $7 million, interest income of $5 million, a $6 million adjustment to gain on prior divestitures and foreign currency exchange gains of $5 million. The third quarter of 2021 primarily included benefits related to non-operating pension and other post-employment benefit credits of $9 million, and adjustments to previous gains on divestiture and sales of other assets of $8 million, partially offset by foreign currency exchange losses of $19 million.
In the first nine months of 2022, sundry income (expense) - net was income of $123 million compared with income of $155 million. The first nine months of 2022 primarily included benefits related to income related to non-operating pension and other post-employment benefit credits of $20 million, miscellaneous income of $11 million, foreign currency exchange gains of $9 million and net gain on the sale of the Biomaterials division of $26 million and $37 million related to the sale of a land use right within the Water & Protection segment. The first nine months of 2021 included benefits related to the sale of assets within Corporate & Other and the Electronics & Industrial segment of $140 million and $28 million, respectively, and income related to non-operating pension and other post-employment benefit credits of $22 million, partially offset by miscellaneous expenses of $17 million and foreign currency exchange losses of $35 million.
Interest Expense
Interest expense was $128 million and $115 million for the three months ended September 30, 2022 and 2021, respectively. Interest expense was $370 million and $390 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in interest expense for the three months ended September 30, 2022 compared to the same period of the prior year primarily relates to increased commercial paper borrowing and intra-quarter borrowing on the 364-day Revolving Credit Facility. The decrease in interest expense nine months ended September 30, 2022 compared to the same period of the prior year primarily relates to the reduction in long-term debt following the N&B Transaction, specifically the early repayment of the $3.0 billion Term Loan Facilities in February 2021 and the redemption of the May 2020 Notes completed in May 2021. Refer to Note 15 to the interim Consolidated Financial Statements for additional information.
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Provision for Income Taxes on Continuing Operations
The Company's effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attribute. The effective tax rate on continuing operations for the third quarter of 2022 was 27.9 percent, compared with an effective tax rate of 23.6 percent for the third quarter of 2021. The effective tax rate differential for the third quarter of 2022 was driven by the cumulative impact of currency fluctuation and the geographic mix of earnings. The effective tax rate differential for the second quarter of 2021 included a $12 million tax benefit relating to the impact of changes in tax law enacted during the quarter. For the first nine months of 2022, the effective tax rate on continuing operations was 23.8 percent, compared with 14.2 percent for the first nine months of 2021. The effective tax rate for the third quarter and for the first nine months of 2021 was principally the result of a $59 million tax benefit related to the step-up in tax basis in the goodwill of the Company's European regional headquarters legal entity.
SEGMENT RESULTS
Effective February 2022, the revenues and certain expenses of the M&M Businesses were classified as discontinued operations in the current and historical periods. The Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines within the historic Mobility & Materials segment (the "Retained Businesses") are not in the scope of the M&M Divestitures. Effective with the signing of the Transaction Agreement, the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively reflected for all periods presented.
The Mobility & Material Businesses costs that are classified as discontinued operations include only direct operating expenses incurred by the M&M Businesses which the Company will cease to incur upon the close of the M&M Divestitures. Indirect costs, such as those related to corporate and shared service functions previously allocated to the M&M Businesses, do not meet the criteria for discontinued operations and remain reported within continuing operations. A portion of these indirect costs include costs related to activities the Company will continue to undertake post-closing of the M&M Divestiture, and for which it will be reimbursed (“Future Reimbursable Indirect Costs”). Future Reimbursable Indirect Costs are reported within continuing operations but are excluded from operating EBITDA as defined below. The remaining portion of these indirect costs are not subject to future reimbursement (“Stranded Costs”). Stranded Costs are reported within continuing operations in Corporate & Other and are included within Operating EBITDA.
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, excluding Future Reimbursable Indirect Costs, and adjusted for significant items. Reconciliations of these measures can be found in Note 23 to the interim Consolidated Financial Statements.
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ELECTRONICS & INDUSTRIAL
The Electronics & Industrial segment is a leading global supplier of differentiated materials and systems for a broad range of consumer electronics including mobile devices, television monitors, personal computers and electronics used in a variety of industries. The segment is a leading provider of materials and solutions for the fabrication and packaging of semiconductors and integrated circuits and provides innovative solutions for thermal management and electromagnetic shielding as well as metallization processes for metal finishing, decorative, and industrial applications. Electronics & Industrial is a leading provider of platemaking systems and photopolymer plates for the packaging graphics industry, digital printing inks and cutting-edge materials for the manufacturing of displays for organic light emitting diode. In addition, the segment produces innovative engineering polymer solutions, high performance parts, medical silicones and specialty lubricants.
| Electronics & Industrial | Three Months Ended | Nine Months Ended | ||||||||||||
| In millions | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||
| Net sales | $ | 1,511 | $ | 1,467 | $ | 4,574 | $ | 4,087 | ||||||
| Operating EBITDA | $ | 473 | $ | 475 | $ | 1,429 | $ | 1,335 | ||||||
| Equity earnings | $ | 7 | $ | 13 | $ | 26 | $ | 32 | ||||||
| Electronics & Industrial | Three Months Ended | Nine Months Ended | ||||||
| Percentage change from prior year | September 30, 2022 | September 30, 2022 | ||||||
| Change in Net Sales from Prior Period due to: | ||||||||
Local price & product mix | 3 | % | 2 | % | ||||
Currency | (4) | (3) | ||||||
Volume | 4 | 6 | ||||||
Portfolio & other | — | 7 | ||||||
Total | 3 | % | 12 | % | ||||
Electronics & Industrial net sales were $1,511 million for the three months ended September 30, 2022, up 3 percent from $1,467 million for the three months ended September 30, 2021. Net sales increased due to a 4 percent increase in volume and a 3 percent increase in local price, partially offset by 4 percent unfavorable currency impact. Volume growth was led by Semiconductor Technologies which was driven by continued transition to more advanced node technologies and high performance computing, including cloud and data centers. Volume gains in Industrial Solutions were driven by growth in electronics applications, healthcare and aerospace markets. Within Interconnect Solutions, volume gains in industrial-end markets and for applications requiring electromagnetic shieldingg and thermal management were more than offset by declines in smartphones, consumer electronics and automotive markets.
Operating EBITDA was $473 million for the three months ended September 30, 2022, which remained flat compared with $475 million for the three months ended September 30, 2021. Volume growth and price gains were offset by higher raw materials logistic and energy costs and lower equity earnings.
Electronics & Industrial net sales were $4,574 million for the nine months ended September 30, 2022, up 12 percent from $4,087 million for the nine months ended September 30, 2021. Net sales increased due to a 7 percent increase in portfolio, a 6 percent increase in volume and a 2 percent increase in local price, partially offset by 3 percent unfavorable currency impact. The portfolio impact reflects the July 1, 2021 acquisition of Laird PM. Volume growth was led by Semiconductor Technologies which was driven by transition to more advanced node technologies, growth in high performance computing and 5G communications. Within Industrial Solutions, volume gains were driven by higher demand in healthcare and industrial-end markets as well as continued strength in electronics applications. Within Interconnect Solutions, volume gains driven by Laird acquisition and higher demand in industrial films, were more than offset by weakness in consumer electronics, smartphones, and automotive.
Operating EBITDA was $1,429 million for the nine months ended September 30, 2022, up 7 percent compared with $1,335 million for the nine months ended September 30, 2021 driven by strong volume growth and price gains, the acquisition of Laird PM, partially offset by higher raw materials and logistics costs and higher plant start up costs.
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WATER & PROTECTION
The Water & Protection segment is a leading provider of engineered products and integrated systems for a number of industries including worker safety, water purification and separation, aerospace, energy, medical packaging and building materials. The segment satisfies the growing global needs of businesses, governments, and consumers for solutions that make life safer, healthier, and better. By uniting market-driven science with the strength of highly regarded brands, the segment strives to bring new products and solutions to solve customers' needs faster, better and more cost effectively.
| Water & Protection | Three Months Ended | Nine Months Ended | ||||||||||||
| In millions | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||
| Net sales | $ | 1,534 | $ | 1,397 | $ | 4,460 | $ | 4,137 | ||||||
| Operating EBITDA | $ | 382 | $ | 353 | $ | 1,071 | $ | 1,060 | ||||||
| Equity earnings | $ | 9 | $ | 7 | $ | 31 | $ | 27 | ||||||
| Water & Protection | Three Months Ended | Nine Months Ended | ||||||
| Percentage change from prior year | September 30, 2022 | September 30, 2022 | ||||||
| Change in Net Sales from Prior Period due to: | ||||||||
Local price & product mix | 13 | % | 12 | % | ||||
Currency | (5) | (3) | ||||||
Volume | 2 | (1) | ||||||
Portfolio & other | — | — | ||||||
Total | 10 | % | 8 | % | ||||
Water & Protection net sales were $1,534 million for the three months ended September 30, 2022, up 10 percent from $1,397 million for the three months ended September 30, 2021. Net sales increased due to a 13 percent increase in local price and a 2 percent increase in volume, partially offset by a 5 percent unfavorable currency impact. Local price & product mix gains were driven by broad-based actions across all lines of business to offset continued cost inflation, led by Shelter Solutions and Safety Solutions. Volume growth was driven by strong global demand across all technologies within Water Solutions.
Operating EBITDA was $382 million for the three months ended September 30, 2022, up 8 percent compared with $353 million for the three months ended September 30, 2021 driven by volume increases and pricing gains which together more than offset higher raw material, logistics and energy costs, changes in product mix and unfavorable currency impacts.
Water & Protection net sales were $4,460 million for the nine months ended September 30, 2022, up 8 percent from $4,137 million for the nine months ended September 30, 2021. Net sales increased due to a 12 percent increase in local price, partially offset by a 3 percent unfavorable currency impact and a 1 percent decrease in volume. Demand in Shelter Solutions residential commercial construction markets as well as increased demand for water technologies within Water Solutions were offset by volume declines in Safety Solutions. Within Water & Protection pricing actions throughout the segment were driven by Shelter Solutions and Safety Solutions.
Operating EBITDA was $1,071 million for the nine months ended September 30, 2022, up 1 percent compared with $1,060 million for the nine months ended September 30, 2021 as pricing actions were partially offset by higher raw material, logistics and energy costs, as well as product mix and unfavorable currency impacts.
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Corporate & Other
Corporate & Other includes sales and activity of the Retained Businesses including the Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines, previously reported in the historic Mobility & Materials segment. Related to the M&M Divestitures, Corporate & Other includes Stranded Costs and Future Reimbursable Indirect Costs. The results of Corporate & Other include the sales and activity of previously divested businesses including the operations of Biomaterials, Clean Technologies, and Solamet® business units. Corporate & Other also includes certain enterprise and governance activities including non-allocated corporate overhead costs and support functions, leveraged services, non-business aligned litigation expenses and other costs not absorbed by reportable segments.
| Corporate & Other | Three Months Ended | Nine Months Ended | ||||||||||||
| In millions | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||
| Net sales | $ | 272 | $ | 335 | $ | 879 | $ | 1,096 | ||||||
| Operating EBITDA | $ | 1 | $ | (11) | $ | 3 | $ | 5 | ||||||
| Equity earnings | $ | — | $ | 2 | $ | 5 | $ | 6 | ||||||
Corporate & Other net sales were $272 million for the three months ended September 30, 2022, down from $335 million for the three months ended September 30, 2021. Net sales primarily decreased due to the divestitures of the Biomaterials business in May 2022 and the Clean Technologies business in December 2021.
Corporate & Other net sales were $879 million for the nine months ended September 30, 2022, down from $1,096 million for the nine months ended September 30, 2021. Net sales primarily decreased due to the divestitures of the Biomaterials, Clean Technologies and Solamet® businesses, partially offset by an increase in the net sales of the Retained Businesses.
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CHANGES IN FINANCIAL CONDITION
Liquidity & Capital Resources
Information related to the Company's liquidity and capital resources can be found in the Company's 2021 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources. Discussion below provides the updates to this information for the nine months ended September 30, 2022.
The Company continually reviews its sources of liquidity and debt portfolio and may make adjustments to one or both to ensure adequate liquidity and increase the Company’s optionality and financing efficiency as it relates to financing cost and balancing terms/maturities. The Company’s primary source of incremental liquidity is cash flows from operating activities. Management expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company’s and its subsidiaries' obligations as they come due.
| In millions | September 30, 2022 | December 31, 2021 | ||||||
| Cash and cash equivalents | $ | 1,785 | $ | 1,972 | ||||
| Total debt | $ | 11,851 | $ | 10,782 | ||||
The Company's cash and cash equivalents at September 30, 2022 and December 31, 2021 were $1.8 billion and $2.0 billion, respectively, of which $1.5 billion at September 30, 2022 and $1.4 billion at December 31, 2021 were held by subsidiaries in foreign countries, including United States territories. The increase in cash and cash equivalents held by subsidiaries in foreign countries is due to operating cash flows during the period partly offset by repatriation activities. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States.
Total debt at September 30, 2022 and December 31, 2021 was $11.9 billion and $10.8 billion, respectively. The increase was primarily due to the increase in commercial paper issuances.
As of September 30, 2022, the Company is contractually obligated to make future cash payments of $10.7 billion and $5.7 billion associated with principal and interest, respectively, on debt obligations assuming held to maturity. Related to the principal balance, all payments will be due subsequent to December 31, 2022. Related to interest, $514 million will be due in the next twelve months and the remainder will be due subsequent to September 30, 2023. On November 8, 2022, the Company announced its intent to redeem $2.5 billion of 2018 Senior Notes by the end of 2022. Refer to Note 24 - Subsequent Events for additional information.
Revolving Credit Facilities
On April 12, 2022, the Company entered into a new $2.5 billion five-year revolving credit facility (the "Five-Year Revolving Credit Facility"). As of the effectiveness of the Five-Year Revolving Credit Facility, the Company's prior $3 billion five-year revolving credit facility entered in May 2019 was terminated. All material conditions and covenants in the Five-Year Revolving Credit Facility are consistent with those of the prior, terminated credit facility. The Five-Year Revolving Credit Facility is generally expected to remain undrawn and serve as a backstop to the Company’s commercial paper and letter of credit issuance.
On April 12, 2022, the Company entered into an updated $1.0 billion 364-day revolving credit facility (the “2022 $1B Revolving Credit Facility") as the $1.0 billion 364-day revolving credit facility entered in April 2021 (the “2021 $1B Revolving Credit Facility") had an expiration date in mid-April. As of the effectiveness of the 2022 $1B Revolving Credit Facility, the 2021 $1B Revolving Credit Facility was terminated. The 2022 $1B Revolving Credit facility may be used for general corporate purposes.
In July 2022, the Company drew down $600 million under the 364-day Revolving Credit Facility in order to facilitate certain intercompany internal restructuring steps related to the M&M Divestiture. The Company repaid the borrowing in September 2022.
Special Cash Payment
In connection with and in accordance with the terms of the N&B Transaction, prior to consummation of the Exchange Offer and the N&B Merger, DuPont received a one-time cash payment of approximately $7.3 billion, (the "Special Cash Payment") pursuant to the terms of the N&B Separation and Distribution Agreement. The Company utilized the Special Cash Payment to repay the $3 billion Term Loan Facilities and used a portion of the Special Cash Payment to redeem the May 2020 Notes, as discussed below.
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Term Loan Facilities
On February 1, 2021, the Company terminated its fully drawn $3 billion term loan facilities. The termination triggered the repayment of the aggregate outstanding principal amount of $3 billion, plus accrued and unpaid interest through and including January 31, 2021. The Company funded the repayment with proceeds from the Special Cash Payment.
May 2020 Debt Offering
On May 1, 2020, the Company completed an underwritten public offering of senior unsecured notes (the “May 2020 Notes”) in the aggregate principal amount of $2 billion of 2.169 percent fixed rate Notes due May 1, 2023 (the “May 2020 Debt Offering”). Upon consummation of the N&B Transaction, the special mandatory redemption feature of the May 2020 Debt Offering was triggered, requiring the Company to redeem all of the May 2020 Notes at a redemption price equal to 100% of the aggregate principal amount of the May 2020 Notes plus accrued and unpaid interest. The Company redeemed the May 2020 Notes on May 13, 2021 and funded the redemption with proceeds from the Special Cash Payment.
Laird Performance Materials
On July 1, 2021, the Company completed the acquisition of Laird PM from Advent International for aggregate consideration of $2.4 billion, which reflects adjustments, including for acquired cash and net working capital. The acquisition is part of the Interconnect Solutions business within the Electronics & Industrial segment. The Company paid for the acquisition from existing cash balances.
Intended Rogers Acquisition
In connection with the Intended Rogers Acquisition, on November 22, 2021, the Company entered into a two-year senior unsecured committed term loan agreement in the amount of $5.2 billion. In October 2022, the facility was amended to extend the lending commitment (as amended the "Amended 2021 Term Loan Facility"). On November 1, 2022, the M&M Divestiture closed and therefore based on the terms of the Amended 2021 Term Loan Facility the commitment was terminated. Refer to Note 24 - Subsequent Events for additional information.
The Amended 2021 Term Loan Facility, the Five-Year Revolving Credit Facility, the 2022 $1B Revolving Credit Facilities and the revolving credit facilities entered into in 2022 contain a financial covenant, typical for companies with similar credit ratings, requiring that the ratio of Total Indebtedness to Total Capitalization for the Company and its consolidated subsidiaries not exceed 0.60. At September 30, 2022, the Company was in compliance with this financial covenant.
Credit Ratings
The Company's credit ratings impact its access to the debt capital markets and cost of capital. The Company remains committed to maintaining a strong financial position with a balanced financial policy focused on maintaining a strong investment-grade rating and driving shareholder value and remuneration. At November 4, 2022, DuPont's credit ratings were as follows:
| Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook | ||||||||
| Standard & Poor’s | BBB+ | A-2 | Stable | ||||||||
| Moody’s Investors Service | Baa1 | P-2 | Negative | ||||||||
| Fitch Ratings | BBB+ | F-2 | Stable | ||||||||
The Company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations, subject to certain limitations. The senior unsecured notes (the "2018 Senior Notes") also contain customary default provisions. The Amended 2021 Term Loan Facility, the Five-Year Revolving Credit Facility, the 2022 $1B Revolving Credit Facilities and the revolving credit facilities entered into in 2022 contain a financial covenant, typical for companies with similar credit ratings, requiring that the ratio of Total Indebtedness to Total Capitalization for the Company and its consolidated subsidiaries not exceed 0.60. At September 30, 2022, the Company was in compliance with this financial covenant.
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Summary of Cash Flows
The Company’s cash flows from operating, investing and financing activities, as reflected in the interim Consolidated Statements of Cash Flows, are summarized in the following table. The cash flows related to N&B and the M&M Divestitures have not been segregated and are included in the interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, as applicable.
Cash Flow Summary | Nine Months Ended | |||||||
In millions | September 30, 2022 | September 30, 2021 | ||||||
| Cash provided by (used for): | ||||||||
Operating activities | $ | 714 | $ | 1,660 | ||||
Investing activities | $ | (185) | $ | (2,727) | ||||
Financing activities | $ | (480) | $ | (5,921) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | (191) | $ | (49) | ||||
Cash Flows from Operating Activities
In the first nine months of 2022, cash provided by operating activities was $714 million, compared with $1,660 million in the same period last year. The decrease in cash provided by operating activities was primarily due to an increase in the use of cash related to net working capital and an increase in the credit for deferred income tax and other tax related items.
The table below reflects net working capital on a continuing operations basis:
Net Working Capital 1 | September 30, 2022 | December 31, 2021 | ||||||
In millions (except ratio) | ||||||||
Current assets | $ | 6,617 | $ | 6,639 | ||||
Current liabilities | 4,622 | 3,518 | ||||||
| Net working capital | $ | 1,995 | $ | 3,121 | ||||
| Current ratio | 1.43:1 | 1.89:1 | ||||||
1.Net working capital has been presented to exclude the assets and liabilities related to the M&M Divestitures. The assets and liabilities related to the M&M Divestitures are presented as assets of discontinued operations and liabilities of discontinued operations, respectively.
Cash Flows from Investing Activities
In the first nine months of 2022, cash used for investing activities was $185 million, compared with cash used for investing activities of $2,727 million in the first nine months of 2021.The decrease in cash usage was primarily attributable to a decrease in capital expenditures and a decrease in the acquisition of property and businesses, net of cash divested.
Cash Flows from Financing Activities
In the first nine months of 2022, cash used for financing activities was $480 million compared with cash used for financing activities of $5,921 million in the same period last year. The decrease in cash used for financing activities is primarily attributable to the absence of long-term debt reduction in the current period compared to the prior year period, which included the $2 billion redemption of the May 2020 Notes and repayment of the $3 billion term loan, as well as a decrease in repurchases of common stock versus the prior year period.
Dividends
On June 30, 2022, the Company announced that its Board declared a third quarter dividend of $0.33 per share payable on September 15, 2022, to shareholders of record on July 29, 2022.
On April 21, 2022, the Board of Directors declared a second quarter dividend of $0.33 per share, which was paid on June 15, 2022, to shareholders of record on May 31, 2022.
On February 7, 2022, the Board of Directors declared a first quarter 2022 dividend of $0.33 per share, paid on March 15, 2022, to shareholders of record on February 28, 2022.
On October 19, 2022, the Company announced that its Board declared a fourth quarter dividend of $0.33 per share payable on December 15, 2022, to shareholders of record on November 30, 2022.
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Share Buyback Programs
In February 2022, the Company's Board of Directors authorized $1.0 billion share buyback program which expires on March 31, 2023, (the "2022 Share Buyback Program"). During the third quarter, the Company repurchased and retired 4.3 million shares for $250 million under this program. As of September 30, 2022, the Company repurchased and retired a total of 11.9 million shares for $750.0 million under the 2022 Share Buyback Program. Refer to Note 24 - Subsequent Events for additional information on the share repurchase programs.
In the first quarter of 2021, the Company's Board of Directors authorized a $1.5 billion share buyback program, which expired on June 30, 2022 ("2021 Share Buyback Program"). At the expiry of the 2021 Share Buyback Program, the Company had repurchased and retired a total of 19.6 million shares for $1.5 billion.
On June 1, 2019, the Company's Board of Directors authorized a $2.0 billion share buyback program, which expired on June 1, 2021 ("2019 Share Buyback Program"). At the expiry of the 2019 Share Buyback Program, the Company had completed the 2019 Share Buyback Program having repurchased and retired a total cost of 29.9 million shares at a cost of $2.0 billion.
See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, for additional information.
Pension and Other Post-Employment Plans
DuPont expects to make additional contributions in the aggregate of approximately $35 million by year-end 2022 to pension and other post-employment benefit plans. Any such contribution could be funded by existing cash balances and/or cash from other available sources of liquidity.
Restructuring
In October 2021, the Company approved targeted restructuring actions to capture near term cost reductions (the "2021 Restructuring Actions"). As a result of these actions, the Company has recorded pre-tax restructuring charges of $55 million inception to date, comprised of $33 million of severance and related benefit costs and $22 million of asset related charges. At September 30, 2022, total liabilities related to the 2021 Restructuring Actions were $17 million for severance and related benefits. Actions related to the 2021 Restructuring Program are substantially complete.
In March 2020, the Company approved restructuring actions designed to capture near-term cost reductions and to further simplify certain organizational structures in anticipation of the N&B Transaction (the "2020 Restructuring Program"). As a result of these actions, the Company recorded pre-tax restructuring charges of $159 million inception-to-date, consisting of severance and related benefit costs of $107 million and asset related charges of $52 million. Actions associated with the 2020 Restructuring Program are considered substantially complete. Future cash payments related to the 2020 Restructuring Program are anticipated to be $2 million primarily related to the payment of severance and related benefits.
Subsequent to the period end, in October 2022, the Company approved targeted restructuring actions to capture near term cost reductions. The Company expects to incur costs of up to $125 million primarily related to the payment of severance and asset related charges, which will begin in the fourth quarter of 2022 and are expected to be substantially complete by the end of 2023.
See Note 6 to the interim Consolidated Financial Statements for more information on the Company's restructuring programs.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 21 to the interim Consolidated Financial Statements. See also Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, of the Company's 2021 Annual Report on Form 10-K for information on the Company's utilization of financial instruments and an analysis of the sensitivity of these instruments.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of September 30, 2022, the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), together with management, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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| DuPont de Nemours Inc. PART II - OTHER INFORMATION | ||
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. Information regarding certain of these matters is set forth below and in Note 16 to the interim Consolidated Financial Statements.
Litigation
See Note 16 to the interim Consolidated Financial Statements.
Environmental Proceedings
The Company believes it is remote that the following matters will have a material impact on its financial position, liquidity or results of operations. The description is included per Regulation S-K, Item 103(c) of the Securities Exchange Act of 1934.
Divested Neoprene Facility, La Place, Louisiana - EPA Compliance Inspection
In 2016, the EPA conducted a focused compliance investigation at the Denka Performance Elastomer LLC (“Denka”) neoprene manufacturing facility in La Place, Louisiana. EID sold the neoprene business, including this manufacturing facility, to Denka in the fourth quarter of 2015. Subsequent to this inspection, the U.S. Environmental Protection Agency (“EPA”), the U.S. Department of Justice (“DOJ”), the Louisiana Department of Environmental Quality (“DEQ”), the Company (originally through EID), and Denka began discussions in the spring of 2017 relating to the inspection conclusions and allegations of noncompliance arising under the Clean Air Act, including leak detection and repair. DuPont, Denka, EPA, DOJ and DEQ are continuing these discussions, which include potential settlement options.
New Jersey Directive PFAS
On March 25, 2019, the New Jersey Department of Environmental Protection (“NJDEP”) issued a Directive and Notice to Insurers to a number of companies, including Chemours, DowDuPont, EID, and certain DuPont subsidiaries. NJDEP’s allegations relate to former operations of EID involving poly- and perfluoroalkyl substances, (“PFAS”), including PFOA and PFOA- replacement products. The NJDEP seeks past and future costs of investigating, monitoring, testing, treating, and remediating New Jersey’s drinking water and waste systems, private drinking water wells and natural resources including groundwater, surface water, soil, sediments and biota. The Directive seeks certain information as to future costs and information related to the historic uses of PFAS and replacement chemicals including “information ranging from use and discharge of the chemicals through wastewater treatment plants, air emissions, and sales of products containing the chemicals to current development, manufacture, use and release of newer chemicals in the state.”
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ITEM 1A. RISK FACTORS
Other than the risk factor set forth below, there have been no material changes in the Company's risk factors discussed in Part I, Item 1A, Risk Factors, in the Company’s 2021 Annual Report on Form 10-K for the year ended December 31, 2021.
DuPont could incur additional tax liabilities if certain internal transactions undertaken in connection with the completed divestiture of a majority of its historic Mobility & Materials segment to Celanese, and in connection with DuPont’s pursuit of plans to divest the Delrin® acetal homopolymer business (the “Delrin® Business”), fail to qualify for their intended tax treatment.
On November 1, 2022, DuPont and certain of its subsidiaries completed the sale to Celanese of a majority of the Company’s historic Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Performance Resins and Advanced Solutions business lines (the “M&M Business”) for $11 billion in cash, subject to customary transaction adjustments in accordance with the Transaction Agreement (the “M&M Divestiture”).
On February 18, 2022, DuPont also announced that its Board of Directors approved the divestiture of the Delrin® Business subject to entry into a definitive agreement and satisfaction of customary closing conditions. There can be no assurance as to the outcome, timing or ability to realize expected benefits from the Delrin® Business divestiture process.
Prior to the Closing of the M&M Divestiture, DuPont engaged in certain internal reorganization activities to separate the M&M Business, and in certain cases in connection therewith, the Delrin® Business, into separate subsidiaries and to align the subsidiaries holding the M&M Business for disposition in a tax-efficient manner. DuPont has recognized a tax liability related to the M&M Divestiture. However, if certain internal transactions related to the separation of the M&M Business and/or of the Delrin® Business fail to qualify for their intended tax treatment under U.S. federal, state, local tax and/or foreign tax law, DuPont could incur additional tax liabilities.
DuPont may not realize the anticipated benefits of its share repurchase programs and any failure to repurchase the Company’s common stock after DuPont has announced its intention to do so may negatively impact the Company’s stock price.
On November 7, 2022, DuPont’s Board of Directors approved a new share repurchase program authorizing the repurchase and retirement of up to $5 billion of common stock. This new repurchase authorization is in addition to the $250 million remaining under the Company’s existing share repurchase program which was approved in February 2022. The Company intends to enter accelerated share repurchase agreements ( “ASR Agreements”) imminently, for the repurchase of an aggregate of $3.25 billion of common stock with $250 million of such repurchases under the existing program and the remaining $3 billion under the new program. new repurchase program terminates on June 30, 2024, unless extended or shortened by the Board of Directors.
Under these or any other future share repurchase programs, DuPont may make share repurchases through a variety of methods, including open share market purchases or privately negotiated transactions, including additional ASR agreements in accordance with applicable federal securities laws. The timing and amount of any repurchases, if any, will on factors such as the stock price, economic and market conditions, and corporate and regulatory requirements. Any failure to repurchase shares after the Company has announced its intention to do so may negatively impact DuPont’s reputation, investor confidence and the price of the Company’s common stock.
The existence of these share repurchase programs could cause the price of the Company’s common stock to be higher than it otherwise would be and could potentially reduce the market liquidity for DuPont stock. Although these programs are intended to enhance long-term stockholder value, there is no assurance they will do so because the market price of DuPont common stock may decline below the levels at which we repurchased shares and short-term stock price fluctuations could reduce the effectiveness of the programs.
Repurchasing common stock will reduce the amount of cash DuPont has available to fund working capital, capital expenditures, strategic acquisitions or business opportunities and other general corporate requirements, and the Company may fail to realize the anticipated benefits of these share repurchase programs.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended September 30, 2022:
| Issuer Purchases of Equity Securities | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (In millions) | ||||||||||||
| Period | Total number of shares purchased | Average price paid per share | ||||||||||||
| July | — | $ | — | — | $ | 500 | ||||||||
| August | 2,930,109 | 60.28 | 2,930,109 | 323 | ||||||||||
| September | 1,317,416 | 55.70 | 1,317,416 | 250 | ||||||||||
| Third Quarter 2022 | 4,247,525 | $ | 58.86 | 4,247,525 | $ | 250 | ||||||||
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| EXHIBIT NO. | DESCRIPTION | ||||||||||
| Third Amended and Restated Certificate of Incorporation of DuPont de Nemours, Inc. incorporated by reference to Exhibit 3.1 to DuPont de Nemours, Inc.’s Current Report on Form 8-K filed April 30, 2021. | |||||||||||
Sixth Amended and Restated Bylaws of DuPont de Nemours, Inc. incorporated by reference to Exhibit 3.1 to DuPont de Nemours, Inc.’s Current Report on Form 8-K filed October 20, 2022. | |||||||||||
Transaction Agreement by and among DuPont de Nemours, Inc., DuPont E&I Holding, Inc. and Celanese Corporation, dated February 17, 2022**†, incorporated by reference to Exhibit 2.1 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed February 22, 2022. | |||||||||||
31.1* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
31.2* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
32.1* | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||
32.2* | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||||||
*Filed herewith
**The Company has omitted certain schedules and other similar attachments to such agreement pursuant to Item 601(a)(5) of
Regulation S-K. The Company will furnish a copy of such omitted documents to the SEC upon request.
†Certain provisions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
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DuPont de Nemours, Inc. Signatures | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DUPONT DE NEMOURS, INC.
Registrant
Date: November 8, 2022
| By: | /s/ MICHAEL G. GOSS | |||||||||||||
| Name: | Michael G. Goss | |||||||||||||
| Title: | Vice President and Controller | |||||||||||||
| City: | Wilmington | |||||||||||||
| State: | Delaware | |||||||||||||
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