UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended December 31 , 2022
or
Commission file number: 001-38196
(Exact name of registrant as specified in its charter)
(302 ) 774-3034
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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No securities are registered pursuant to Section 12(g) of the Act.
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes þ No
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.
þ 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 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.
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| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
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The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2022, (the last day of the registrant's most recently completed second fiscal quarter), was approximately $28 billion based on the New York Stock Exchange closing price on such date. For purposes of this computation, the registrant has assumed that its Directors and Executive Officers are affiliates.
The registrant had 458,338,052 shares of common stock, $0.01 par value, outstanding at February 13, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
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DuPont de Nemours, Inc.
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2022
TABLE OF CONTENTS
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| 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, and other portfolio changes and the 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, related to operational and supply chain impacts or disruptions, which may result from, among other events, pandemics and responsive actions, including COVID-19 related disruptions in China, demand decline in consumer-facing markets, and geo-political and weather related events; (vii) ability to offset increases in cost of inputs, including raw materials, energy and logistics; (viii) risks from continuing or expanding trade disputes or restrictions, including on exports to China of U.S.-regulated products and technology impacting the semiconductor business; (ix) 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 (x) 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.
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| DuPont de Nemours, Inc. | ||||||||
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ITEM 1. BUSINESS
Throughout this Annual Report on Form 10-K, except as otherwise noted by the context, the terms "DuPont" or "Company" used herein mean DuPont de Nemours, Inc. and its consolidated subsidiaries. On June 1, 2019, DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”) (for certain events prior to June 1, 2019, the Company may be referred to as DowDuPont). Beginning on June 3, 2019, the Company's common stock is traded on the New York Stock Exchange under the ticker symbol "DD."
DuPont is a Delaware corporation formed in 2015 (formerly, DowDuPont Inc.), for the purpose of effecting an all-stock merger of equals transactions between The Dow Chemical Company ("TDCC") and E. I. du Pont de Nemours and Company ("EID"). Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 ("DWDP Merger Agreement"), TDCC and EID each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, TDCC and EID became subsidiaries of DowDuPont (the "DWDP Merger"). Prior to the DWDP Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the DWDP Merger Agreement. For purposes of DowDuPont's financial statement presentation, TDCC was determined to be the accounting acquirer in the DWDP Merger and EID's assets and liabilities are reflected at fair value as of the DWDP Merger Effectiveness Time.
On April 1, 2019, the Company completed the separation of the materials science business through the spin-off of Dow Inc., (“Dow”) including Dow’s subsidiary TDCC (the “Dow Distribution”). On June 1, 2019, the Company completed the separation of the agriculture business through the spin-off of Corteva, Inc. (“Corteva”) including Corteva’s subsidiary EID, (the “Corteva Distribution and together with the Dow Distribution, the “DWDP Distributions”). Effective January 1, 2023, Corteva’s subsidiary EID changed its name to EIDP, Inc. (“EIDP”), and therefore references to EID herein have been updated to reflect this name change.
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, construction, water, healthcare and worker safety. At December 31, 2022, the Company has subsidiaries in about 50 countries worldwide and manufacturing operations in about 25 countries. See Note 23 to the Consolidated Financial Statements for details on the location of the Company's sales and property.
On February 1, 2021, the Company completed the divestiture of the Nutrition & Biosciences (“N&B”) business to International Flavors & Fragrance Inc. (“IFF”) in a Reverse Morris Trust transaction (the “N&B Transaction”) that resulted in IFF issuing shares to DuPont stockholders. See Note 4 to the Consolidated Financial Statements for more information.
On July 1, 2021, DuPont completed the acquisition of the Laird Performance Materials business (the “Laird PM Acquisition”) from Advent International. See Note 3 to the Consolidated Financial Statements for more information.
On February 18, 2022, the Company announced that it had entered an agreement on February 17, 2022, (the "Transaction Agreement") with Celanese Corporation ("Celanese") for divestiture of the majority of DuPont’s historic Mobility & Materials (“M&M”) segment, (the “M&M Divestiture”). See Note 4 to the Consolidated Financial Statements for more information. The Company also announced on February 18, 2022, that its Board of Directors has approved 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, referred to as the “M&M Divestitures”. The Auto Adhesives & Fluids, MultibaseTM and Tedlar® product lines within the historic M&M segment are referred to as the "Retained Businesses".
On November 1, 2022, DuPont and Celanese completed the M&M Divestiture and DuPont received cash proceeds of $11 billion which is subject to transaction adjustments in accordance with the Transaction Agreement. DuPont funded accelerated share repurchase ("ASR") agreements (the "2022 ASR Agreements") and the early redemption in full of the Company’s $2.5 billion in fixed-rate long term senior unsecured notes due November 2023 with proceeds from the M&M Divestiture. Additionally in the fourth quarter, the Company reduced its commercial paper balance to zero. As of September 30, 2022 the Company had $1.3 billion of commercial paper outstanding.
As publicly announced on November 8, 2022, 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 “5B Share Repurchase
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Program”). As part of its announcement, the Company discussed its intention to enter into ASR agreements imminently, for the repurchase of an aggregate of approximately $3.25 billion of common stock with $250 million of such repurchases completing the $1 billion share repurchase program approved in February 2022 (the “2022 Share Buyback Program”) and the remaining $3 billion under the $5B Share Buyback Program. In November 2022, the Company entered into the 2022 ASR Agreements for the repurchase of an aggregate of approximately $3.25 billion of common stock. In accordance with the terms of the 2022 ASR Agreements, DuPont received initial deliveries in November 2022 of 38.8 million shares of common stock in the aggregate. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the terms of the 2022 ASR Agreements less an agreed upon discount. Final settlement of the 2022 ASR Agreements is expected in the third quarter 2023.
Any additional repurchases under the $5B Share Buyback 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 $5B Share Buyback Program terminates on June 30, 2024, unless extended or shortened by the Board of Directors.
BASIS OF PRESENTATION
The Delrin® Divestiture and the M&M Divestiture, (together the "M&M Divestitures") represent a strategic shift with a related major impact on DuPont's operations and results.
The Consolidated Financial Statements included in this annual report present the financial position of DuPont as of December 31, 2022 and 2021 and the results of operations of DuPont for the years ended December 31, 2022, 2021 and 2020 giving effect to the M&M Divestitures and the N&B Transaction as if each had occurred on January 1, 2020, with the historical financial results of the businesses divested as part of the M&M Divestiture and to be divested as part of the divestiture of Delrin® (the "M&M Businesses") and N&B reflected as discontinued operations, as applicable. The cash flows and comprehensive income related to the M&M Businesses and the N&B business have not been segregated and are included in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for the year ended December 31, 2022, 2021 and 2020, as applicable. Unless otherwise indicated, the information in the Notes to the Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of the M&M Businesses and N&B.
SEGMENT INFORMATION
Effective February 2022, the revenues and certain expenses of the M&M Businesses were classified as discontinued operations in the current and historical periods. As of the date of the Transaction Agreement with Celanese, the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively reflected for all periods presented.
See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 23 in this annual report for additional information concerning the Company’s operating segments.
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ELECTRONICS & INDUSTRIAL
Electronics & Industrial is a leading global provider of differentiated materials and component solutions for high performance computing, 5G, electric vehicles ("EV"), a broad range of consumer electronics including mobile devices, television monitors, personal computers, and a variety of other industries including aerospace, defense, transportation, and healthcare. The segment supplies industry leading materials and solutions for the fabrication of semiconductors and integrated circuits addressing multiple steps of the manufacturing process. The segment offers a broad portfolio of semiconductor and advanced packaging materials, providing chemical mechanical planarization ("CMP") pads and slurries, photoresists and advanced coatings for lithography, removers and cleaners; dielectric and metallization solutions for advanced chip packaging; along with silicones for light emitting diode ("LED") packaging and semiconductor applications. Electronics & Industrial also provides permanent and process chemistries for the fabrication of printed circuit boards to include laminates and substrates, electroless and electrolytic metallization solutions, as well as patterning solutions and materials and innovative metallization processes for metal finishing, decorative, and industrial applications. Since the acquisition of Laird Performance Materials, Electronics & Industrial also provides high-performance electromagnetic shielding and thermal management solutions. Electronics & Industrial is a leading global supplier in the packaging graphics industry providing photopolymer plates and platemaking systems used in flexographic printing and digital inks for textile, commercial and home-office printing applications. The segment also provides cutting-edge materials for the manufacturing of rigid and flexible displays for organic light emitting diode ("OLED"), and other display applications. In addition, the segment produces high performance parts, and specialty silicone elastomers and lubricants to meet customer specifications in automotive, aerospace, electronics, industrial, and healthcare markets. Electronics & Industrial addresses these markets by leveraging a strong science and technology base and customer-driven application engineering capabilities to provide the critical materials and solutions for creating a more connected and digital world.
Acquisitions & Divestitures
On July 1, 2021, the Company completed the acquisition of Laird Performance Materials ("Laird PM") from Advent International. Laird PM is a leader in high-performance electromagnetic shielding and thermal management solutions. Laird PM is presented within the Interconnect Solutions business.
In the first quarter of 2020, the Company completed the sale of its Compound Semiconductor Solutions business unit to SK Siltron. The proceeds received in the first quarter of 2020 related to the sale of the business were approximately $420 million.
Details on Electronics & Industrial's 2022 net sales, by major product line and geographic region, are as follows:
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Products
Major applications/market segments and technologies are listed below by major product line:
| Major Product Line | Applications/Market Segments | Technologies | ||||||
| Semiconductor Technologies | Integrated circuit fabrication for memory and logic semiconductors | CMP consumables, photolithography materials, semiconductor fabrication materials, fabrication cleaners and removers, advanced chip packaging materials and thermal management materials | ||||||
| Interconnect Solutions | Printed circuit board, electronic and industrial finishing | Circuit packaging film and laminate materials, interconnect metallization and imaging process chemistries, dry film photoresists, polyimide films, flexible circuit materials, electromagnetic shielding and thermal management materials | ||||||
| Industrial Solutions | Flexographic printing and inkjet printing, display materials, high performance parts and specialty silicones for automotive, aerospace, electronics, industrial and healthcare markets | Flexographic printing plates and materials, digital inks, OLED and other display process materials, LED encapsulants, perfluoroelastomer and polyimide parts and shapes, and specialty silicone elastomers and lubricants | ||||||
Key Raw Materials
The major commodities, raw materials and supplies for the Electronics & Industrial segment include: p-acetoxystyrene, monomers, pigments and dyes, styrenic block copolymers, copper foil, diglycolamine, dimethylacetamide, hydroxylamine, filler alumina, nickel silver, oxydianiline, palladium, photoactive compounds, polyester and other polymer films, polyurethane resins and pyromellitic dianhydride and silicones.
Current and Future Investments
In March 2019, the Company announced plans to invest more than $200 million in its Electronics & Industrial segment to build new production assets at its Circleville, Ohio, plant. The new assets expanded production of KAPTON® polyimide film and PYRALUX® flexible circuit materials to meet growing market demand. At December 31, 2022, the project is complete and the Company has begun shipping commercial material to customers.
The Company will invest approximately $70 million in its Electronics & Industrial segment to build new production assets at a Newark, Delaware plant. The new assets will expand production of KALREZ® perfluoroelastomer parts to meet growing market demand. At December 31, 2022, the Company had spent approximately $47 million since the start of the project and expects the new assets to be operational in mid-2023.
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WATER & PROTECTION
Water & Protection is the global leader in providing innovative engineered products and integrated systems for a number of industries including, worker safety, water purification and separation, transportation, energy, medical packaging and building materials. Water & Protection addresses the growing global needs of businesses, governments and consumers for solutions that make life safer, healthier and better.
Innovation is the business imperative. By uniting market-driven science and engineering with the strength of highly regarded brands including KEVLAR® high-strength material, NOMEX® thermal-resistant material, CORIAN® solid surfaces, TYVEK® selective barriers, FILMTEC™ reverse osmosis elements, STYROFOAM™ insulation and GREAT STUFF™ insulating foam sealants, the segment strives to bring new products and solutions to solve customers' needs faster, better and more cost effectively. Water & Protection is investing in future growth initiatives such as water management solutions, construction productivity solutions, high strength and light weighting composite solutions, and circular ecosystem / zero waste solutions.
Acquisitions
In the first quarter of 2020, the Company acquired Desalitech Ltd., a closed circuit reverse osmosis (CCRO) company.
Details on Water & Protection's 2022 net sales, by major product line and geographic region, are as follows:
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Products
Major applications and products are listed below by major product line:
| Major Product Line | Applications / Market Segments | Major Products / Technologies | ||||||
| Safety Solutions | Industrial personnel protection, military and emergency response, medical devices and packaging, automotive, aerospace and oil and gas | KEVLAR® fiber; NOMEX® fiber and paper; TYVEK® protective materials; TYCHEM® protective suits | ||||||
| Shelter Solutions | Rigid and spray foam insulation, weatherization, waterproofing and air sealing, caulks and sealants, roof coatings, and decorative surface materials | STYROFOAM™ brand insulation products, THERMAX™ exterior insulation, XENERGY™ high performance insulation, LIQUIDARMOR™ flashing and sealant, GREAT STUFF™ insulating foam sealants and adhesives, CORIAN® design solid and quartz surfaces, TYVEK® weather resistant barriers | ||||||
| Water Solutions | Water filtration and purification technology for residential, municipal and industrial use. Key industries include municipal drinking water and wastewater, power generation, microelectronics, pharmaceuticals, food and beverage, industrial wastewater reuse, metals and mining, and oil and gas segments | AMBERLITE™ ion exchange resins, FILMTEC™ reverse osmosis and nanofiltration elements, INTEGRAFLUX™ ultrafiltration modules, FORTILIFE™ challenging water reverse osmosis membranes, and TAPTEC™ water filtration and purification for drinking water in homes and commercial buildings | ||||||
Key Raw Materials
The major commodities, raw materials and supplies for the Water & Protection segment include: methyl methacrylate, alumina trihydrate, methyl pentanediol, styrene, polysulfone, Terephthaloyl- & Isophthaloyl- chloride, high-density polyethylene, polyethylene, aniline, calcium chloride, divinyl benzene monomers caustic and sulfuric acid.
Current and Future Investments
The Company previously announced plans to invest more than $400 million in Water & Protection to increase capacity for the manufacture of TYVEK® nonwoven materials at its Luxembourg site due to growing global demand. The expansion for the new TYVEK® operating line is expected to be completed by the end of 2023.
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CORPORATE & OTHER
Effective February 2022, the revenues and certain expenses of the M&M Businesses were classified as discontinued operations and the Retained Businesses were realigned to Corporate & Other. The reporting changes have been retrospectively reflected for all periods presented.
The costs of the M&M Businesses that are classified as discontinued operations include only direct operating expenses incurred prior to the November 1, 2022 M&M Divestiture and costs which the Company will no longer incur upon the close of the Delrin® Divestiture. 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 related to activities the Company continues to undertake post-closing of the M&M Divestiture, and for which it is and will be reimbursed (“Future Reimbursable Indirect Costs”). In addition, a portion of these indirect costs relate to activities the Company intends to perform post the close of the Delrin® Divestiture and for which it will be reimbursed. 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.
Corporate & Other includes sales and activity of the Retained Businesses as well as Stranded Costs and Future Reimbursable Indirect Costs. The results of Corporate & Other include the sales and activity of certain 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.
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INDUSTRY SEGMENTS AND GEOGRAPHIC REGION RESULTS
See Note 5 to the Consolidated Financial Statements for net sales by business or major product line.
Sales by geographic region are included within Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Results of Operations." See Note 23 to the Consolidated Financial Statements for information regarding total net sales and total assets by segment, as well as net sales and long-lived assets by geographic region.
SIGNIFICANT CUSTOMERS AND COMPETITION
In 2022, no significant portion of the Company's sales was dependent upon a single customer. The markets in which the Company participates compete primarily through technology, range of products and services, performance, quality, reliability, brand, reputation, service and support. The Company provides extensive support, technical services and testing services for its customers, in addition to new product development. The Company believes that its proprietary product and process technologies, robust product and application development pipelines, customer intimacy, global manufacturing capability and local service capability enable it to compete successfully.
DuPont is a multi-industrial company and is subject to competition across all product and service areas. Key competitors include but are not limited to:
•Electronics & Industrial: 3M, Element Solutions, Entegris, Henkel, JSR, Merck KGaA, MKS Instruments, Parker Hannifin, and TOK.
•Water & Protection: 3M, Honeywell, Hydranautics, Kingspan, Kolan, Lanxess, LG Chem, Owens-Corning, Purolite, Royal DSM, Toray, Teijin, and Yantai.
Against this competitive backdrop, value-in-use is the primary driver of price for the Company’s products, although price is impacted by many factors including, among others, fluctuations in supply and demand, and availability and cost of key manufacturing inputs including raw materials and energy.
SOURCES AND AVAILABILITY OF MAJOR RAW MATERIALS
The novel coronavirus (“COVID-19”) and its variants continue to adversely impact the broader global economy, including certain of the Company’s suppliers for key raw materials. The COVID-19 pandemic has caused widespread supply chain challenges due to labor disruptions, increased raw material costs and component shortages, namely the semiconductor chip shortage. In addition, logistic challenges are continuing and have caused delays and increased costs. The Company is actively working to mitigate the impact of the widespread supply chain and logistics issues.
DISTRIBUTION
Most products are marketed primarily through the Company's sales organization, although in some regions, more emphasis is placed on sales through distributors. The Company has a diverse worldwide network which markets and distributes the Company's brands to customers globally. This network consists of the Company's sales and marketing organization partnering with distributors, independent retailers, cooperatives and agents throughout the world.
BACKLOG
In general, the Company does not manufacture its products against a backlog of orders and does not consider backlog to be a significant indicator of the level of future sales activity. Production and inventory levels are typically based on the level of incoming orders as well as projections of future demand. However, from time to time in limited instances the Company does operate against a backlog for certain products, which has in the past resulted, and in the future may result, from the availability of raw materials from third-party suppliers. Therefore, the Company believes that backlog information is generally not meaningful to understanding its overall business and should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance.
INTELLECTUAL PROPERTY
The Company’s businesses differentially manage their respective intellectual property estates to support Company strategic priorities, which can include leveraging intellectual property within and across product lines.
Trade Secrets: Trade secrets are an important part of the Company's intellectual property. Many of the processes used to make products are kept as trade secrets which, from time to time, may be licensed to third parties. DuPont vigilantly protects all of its intellectual property including its trade secrets. When the Company discovers that its trade secrets have been unlawfully taken, it reports the matter to governmental authorities for investigation and potential criminal action, as appropriate. In addition, the Company takes measures to mitigate any potential impact, which may include civil actions seeking redress, restitution and/or damages based on loss to the Company and/or unjust enrichment.
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Patents: The Company applies for and obtains patents in many countries, including the U.S., and has access to a large patent portfolio, both owned and licensed. DuPont’s rights under these patents and licenses, as well as the products made and sold under them, are important to the Company in the aggregate. The Company considers various intellectual property protections and strategic business priorities when deciding whether to apply for or maintain a patent.
The protection afforded by patents varies based on country, scope of individual patent coverage, as well as the availability of legal remedies in each country and type of patent protection. The term of these patents is approximately twenty years from the filing date in general, but varies depending on country and type of patent protection. DuPont's significant patent estate may be leveraged to align with the Company’s strategic priorities within and across product lines. At December 31, 2022, the Company owned about 14,000 patents and patent applications globally. Approximately 70% of the Company’s patent estate has a remaining term of more than 5 years.
Trademarks: The Company owns or licenses many trademarks that have significant recognition at the consumer retail level and/or the product line to product line level. Ownership rights in trademarks do not expire if the trademarks are continued in use and properly protected.
ENVIRONMENTAL REGULATORY MATTERS
DuPont operates global manufacturing, product handling and distribution facilities that are subject to a broad array of environmental laws and regulations. Such rules are subject to change by the implementing governmental agency, and the Company monitors these changes closely. Company policy requires that all operations fully meet or exceed legal and regulatory requirements. For more information see: (1) Environmental Proceedings on page 27, (2) Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 30, (3) Notes 1 and 16 to the Consolidated Financial Statements.
ENVIRONMENTAL SOCIAL AND GOVERNANCE (ESG)
DuPont’s purpose is to empower the world with the essential innovations to thrive. The Company operates within four core values of protecting safety and health; respect for people; conduct in accordance with the highest ethical behavior; and protecting the planet. DuPont’s sustainability strategy is focused on driving innovations to create sustainable solutions that help address the most pressing challenges facing society and the planet; enhancing the sustainability of its operations and facilities; and protecting the health and well-being of its employees and communities. In 2019, DuPont announced its 2030 Sustainability Goals, including its Acting on Climate Goal - to reduce its greenhouse gas (GHG) emissions by 30 percent, measured from a base year of 2019, including sourcing 60 percent of electricity for operations from renewable energy and delivering carbon neutral operations by 2050. Additional information about DuPont's sustainability strategy and 2030 Goals can be found on its website as discussed below and in several areas of this report, including: Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 30.
Information about DuPont’s ESG-related policies, programs, initiatives and goals is available under Sustainability in the About Us section of its website. The Company’s 2022 Sustainability Report, which is aligned to the Global Reporting Initiative (“GRI”) Standards: Core option and the Sustainability Accounting Standards Board ("SASB") frameworks, includes information based on the businesses and facilities owned and operated by the Company during the calendar year 2021. As such, the 2022 Sustainability Report, and certain other information under Sustainability, does not reflect and has not been adjusted to reflect, among other things, the M&M Divestitures.
The 2022 Sustainability Report includes discussion of the Company’s approach to ESG governance which is overseen by the Company’s Board of Directors. In 2022 the Company took further actions to further align its governance and enterprise risk management practices around climate-related risks with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Additional corporate governance information, including DuPont’s amended and restated charter, amended and restated bylaws, corporate governance guidelines, Board committee charters, and code of business conduct and ethics, is available under Corporate Governance in the "For Investors" section of the Company’s website.
Nothing on the DuPont websites shall be deemed incorporated by reference into this Annual Report on Form 10-K.
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HUMAN CAPITAL
Foundational to the Company’s current and future success is its employees, who drive the Company’s strategic vision, manage operations and develop products. The Company focuses significant attention on attracting, motivating and retaining talent at all levels. Through training and professional development initiatives, promoting a culture of diversity, equity and inclusion, and emphasizing the importance of health, safety and well-being, the Company’s aim is to create an environment that fully supports the needs of its employees providing opportunity for financial and career growth, an inclusive and collegial experience and purpose in doing work that matters. Annually, an enterprise-wide engagement survey is conducted, which provides insight into employee morale and aspects of workplace culture like core values, commitment to ethical behavior, teamwork and employee development.
The Company is committed to creating a high-performance culture built on continual learning to support the strategic needs of its workforce. The professional growth of our people is essential to the growth of our business. Our annual goal process asks employees to not only identify three key goals around business contributions but also and one goal focused on self-development. The Company has prioritized learning and career development opportunities for leaders and all employees. The Company offers a diverse set of training, education and development opportunities, both formally and informally, throughout the year. All employees take part in a mix of on-the-job training and appropriate learning and training opportunities focusing on topics that are the most critical and relevant to each employees’ job function. Employees have the freedom to create meaningful development plans, identify goals, and take steps to achieve them.
The Company believes that diversity, equity and inclusion ("DE&I") is central to high employee engagement and seeks to foster an environment where employees can bring their authentic selves to work each day. The more perspectives there are, the more ideas that can be generated, which makes DE&I a driver of innovation, and therefore, integral to the Company’s success. DuPont believes that it can fulfill its purpose with the full commitment, participation, creativity, energy, and cooperative spirit of a diverse workforce. The Company provides its Equal Employment Opportunity Employer Information Report (EEO-1), and other information on its DE&I efforts under Diversity, Equity & Inclusion in the "About Us" and "Sustainability" sections of its website. Nothing on the DuPont websites shall be deemed incorporated by reference into this Annual Report on Form 10-K.
The Company is committed to ensuring equal opportunity for growth and fulfillment for its employees and to positively impacting communities in which it operates. The Company’s employee-led Employee Resource Groups (“ERGs”) help cultivate a culture of acceptance where employees feel not only accepted, but celebrated, at every level. As of December 31, 2022, the Company has eight corporate ERGs - DuPont Black Employees Network, DuPont Asian Group, DuPont Pride Network, DuPont Latin Network, DuPont Women’s Network, DuPont Veterans Network, DuPont Early Career Network, and DuPont Persons with Disabilities and Allies - all of which have regional and local chapters through the Company. Each group is actively sponsored by senior leadership, helping model and promote inclusive values and behaviors. The Company also offers DE&I tools and resources to educate managers and employees on cultivating and maintaining an inclusive work environment. These resources include networking and mentoring practices, and opportunities for participation in external conferences and events, among others. Annual DE&I Awards celebrate individuals and teams that are making a difference in the work environment and help inspire further actions.
The Company's success also depends on the well-being of employees, including physical, mental and emotional health. DuPont employees have access to online health resources through our global wellness provider to help them improve their overall well-being, including a health assessment, healthy habit building and tracking, videos and content to reduce stress and increase resilience, better sleep habits, nutrition guides, company wellness challenges, and financial wellness education. The Company continues to provide no-cost Employee Assistance Program ("EAP") services to all employees globally and their immediate household members. All employees also have the support of the Company’s Health Services teams, which provides onsite and intranet-based services to support and monitor the health and welfare of employees. The Company’s larger manufacturing and research sites have onsite clinics where employees can get occupational care, first aid treatment, travel vaccinations and referrals for off-site medical care. The Company continuously strives for zero workplace injuries, occupational illnesses and incidents. The Company’s safety metrics are continually measured against this goal, and DuPont’s Environmental, Health, Safety & Sustainability Committee is charged with driving improvements in the Company's health and safety practices. Health Services also assesses health risks across DuPont to find out which health concerns are most important to the Company's employees, conducts medical surveillance exams based on occupational risks and regulatory compliance priorities flagged by DuPont’s Environmental, Health and Safety team.
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As the outcomes of the pandemic eased in many parts of the world in 2022, our colleagues returned to work in accordance with our Global Workplace Principles that guide our approach to flexible working. DuPont continues to embrace workplace flexibility wherever possible, recognizing that different jobs and teams have different requirements. In office environments DuPont supports hybrid working, allowing employees to mix on-site and remote working. In lab and production environments where remote working options are limited, DuPont continues to embrace flexible scheduling as feasible. These flexible working arrangements allow the Company to gain the best of what both remote and on-site working have to offer while improving well-being, reducing travel, and benefiting the environment.
As of December 31, 2022, the Company employed approximately 23,000 people worldwide. Approximately 36 percent of employees were in Asia Pacific, 18 percent were in the EMEA, 3 percent were in Latin America and 43 percent were in the U.S and Canada. Within the United States, about 5,000 employees were in non-exempt or hourly-rate positions.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, the Company is required to file reports and information with the Securities and Exchange Commission ("SEC"), including reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which the public may obtain any materials the Company files with the SEC.
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are also accessible on DuPont's website at http://www.investors.dupont.com by clicking on the section labeled "Investors", then on "Filings & Reports". These reports are made available, without charge, as soon as is reasonably practicable after the Company files or furnishes them electronically with the SEC.
DuPont webcasts its quarterly earnings calls and certain events it participates in or hosts with members of the investment community under For Investors section, in the "About Us" section of the Company’s website. Additionally, DuPont provides notifications of news or announcements regarding its financial performance, including SEC filings, investor events, news and earnings releases under For Investors. The Company has used, uses and intends to continue to use, its website as means of disclosing material non-public information and for complying with its disclosure obligations under SEC’s Regulation FD.
The contents of the Company’s websites, including those referenced above and elsewhere in this report, are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document DuPont has or in the future may file with the SEC, and any references to the Company’s websites are intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
The Company's operations could be affected by various risks, many of which are beyond its control. Based on current information, the Company believes that the following identifies the most material risk factors that could affect its operations. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
Risks Relating to the M&M Divestitures, N&B Transaction and the Dow and Corteva Distributions
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® business, fail to qualify for their intended tax treatment.
On November 1, 2022, DuPont and one 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 Divested Businesses”) 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 Divested Businesses, and in certain cases in connection therewith, the Delrin® business, into separate subsidiaries and to align the subsidiaries holding the M&M Divested Businesses and the Delrin® business (referred to collectively as the "M&M Businesses") 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 Businesses 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, which terminates on June 30, 2024, unless extended or shortened by the Board, authorizing the repurchase and retirement of up to $5 billion of common stock. In addition to the $250 million remaining under the Company’s existing share repurchase program, which was approved in February 2022. The Company entered into the 2022 ASR Agreements in November 2022 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.
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 depend 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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The separation and combination of DuPont’s Nutrition & Biosciences business with IFF could result in a significant tax liability to DuPont.
The distribution by DuPont to its stockholders of all the issued and outstanding shares of N&B through the Exchange Offer ("N&B Distribution") and the merger of N&B with a wholly-owned subsidiary of IFF ("N&B Merger") are expected to be tax-free to DuPont stockholders for U.S. federal income tax purposes (except to the extent that cash was paid to DuPont stockholders in lieu of fractional shares pursuant to the N&B Merger Agreement), and the N&B Contribution, N&B Distribution, and the one-time payment from N&B to DuPont of approximately $7.3 billion ("Special Cash Payment") are expected to result in no recognition of gain or loss by DuPont for U.S. federal income tax purposes.
DuPont received an opinion of counsel and also obtained a private letter ruling from the Internal Revenue Service (the "IRS") regarding certain matters impacting the U.S. federal income tax treatment of the separation and transfer by DuPont of its N&B Business (the “N&B Contribution”), N&B Distribution, Special Cash Payment and certain related transactions. The conclusions of the IRS private letter ruling were based, among other things, on various factual assumptions DuPont authorized and representations DuPont made to the IRS. If any of assumptions or representations are, or become, inaccurate or incomplete, reliance on the IRS private letter ruling may be affected.
If the N&B Contribution and N&B Distribution failed to qualify for the treatment described above, DuPont would be required to generally recognize a taxable gain on the transactions and stockholders of DuPont who receive N&B Common Stock (and subsequently, IFF Common Stock) would be subject to tax on their receipt of the N&B Common Stock. Additionally, if the Special Cash Payment or certain internal transactions related to the separation of the Nutrition & Biosciences business fail to qualify for their intended tax-free treatment under U.S. federal, state, local tax and/or foreign tax law, DuPont could incur additional tax liabilities.
Under the Tax Matters Agreement by and between DuPont with N&B and IFF, N&B or IFF is generally required to indemnify DuPont for any taxes resulting from the separation of the Nutrition & Biosciences business (and any related costs and other damages) to the extent such amounts resulted from (i) certain actions taken by N&B or IFF involving the capital stock of N&B or IFF or any assets of the N&B group (excluding actions required by the documents governing the proposed transactions), or (ii) any breach of certain representations and covenants made by N&B or IFF.
DuPont is subject to continuing contingent tax-related liabilities of Dow and Corteva following the separations and DWDP Distributions.
After the separations and DWDP Distributions, there are several significant areas where the liabilities of Dow and Corteva may become the Company’s obligations, either in whole or in part. For example, to the extent that any subsidiary of the Company was included in the consolidated tax reporting group of either TDCC or EIDP for any taxable period or portion of any taxable period ending on or before the effective date of the DWDP Merger, such subsidiary is jointly and severally liable for the U.S. federal income tax liability of the entire consolidated tax reporting group of TDCC or EIDP, as applicable, for such taxable period. In connection with the separations and DWDP Distributions, DuPont, Dow and Corteva have entered into a Tax Matters Agreement, as amended, that allocates the responsibility for prior period consolidated taxes among Dow, Corteva and DuPont. If Dow or Corteva are unable to pay any prior period taxes for which it is responsible, however, DuPont could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.
In connection with the separations and DWDP Distributions, certain liabilities are allocated to or retained by DuPont through assumption or indemnification of Dow and/or Corteva, as applicable. If DuPont is required to make payments pursuant to these indemnities to Dow and/or Corteva, DuPont may need to divert cash to meet those obligations, and the Company’s financial results could be negatively impacted. In addition, certain liabilities are allocated to or retained by Dow and/or Corteva through assumption or indemnification, or subject to indemnification by other third parties. These indemnities may not be sufficient to insure the Company against the full amount of liabilities, including PFAS Stray Liabilities, allocated to or retained by it, and Dow, Corteva and/or third parties may not be able to satisfy their respective indemnification obligations in the future.
Pursuant to the DWDP Separation and Distribution Agreement, the DWDP Employee Matters Agreement, and the DWDP Tax Matters Agreement, as amended, (collectively, the “Core Agreements”) with Dow and Corteva, as well as the Letter Agreement between DuPont and Corteva, DuPont has agreed to assume, and indemnify Dow and Corteva for, certain liabilities. Payments pursuant to these indemnities may be significant and could negatively impact the Company’s business.
Third parties could also seek to hold DuPont responsible for any of the liabilities allocated to Dow and Corteva, including those related to EIDP’s materials science and/or agriculture businesses, or for the conduct of such businesses prior to the distributions, and such third parties could seek damages, other monetary penalties (whether civil or criminal) and/or other
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remedies. Additionally, DuPont generally assumes and is responsible for the payment of the Company’s share of (i) certain liabilities of DowDuPont relating to, arising out of or resulting from certain general corporate matters of DuPont and (ii) certain separation expenses not otherwise allocated to Corteva or Dow (or allocated specifically to it) pursuant to the Core Agreements, and third parties could seek to hold it responsible for Dow’s or Corteva’s share of any such liabilities. Dow and/or Corteva, as applicable, have agreed to indemnify it for such liabilities; however, such indemnities may not be sufficient to protect it against the full amount of such liabilities or from other remedies, and Dow and/or Corteva, as applicable, may not be able to fully satisfy their indemnification obligations. Even if DuPont ultimately succeeds in recovering from Dow and/or Corteva, as applicable, any amounts for which DuPont is held liable, DuPont may be temporarily required to bear these losses. Each of these risks could negatively affect the Company’s business, financial condition, results of operations and cash flows.
Generally, as described in Litigation, Environmental Matters and Indemnifications, losses from liabilities related to discontinued and/or divested operations and businesses of EIDP that are not primarily related to its agriculture business or specialty products business, (“Stray Liabilities”), are allocated to or shared by each of Corteva and DuPont. Stray Liabilities include liabilities arising out of actions to the extent related to or resulting from EIDP’s development, testing, manufacture or sale of per- or polyfluoroalkyl substances, (“PFAS Stray Liabilities”).
At December 31, 2022, the Company has recorded an indemnification liability related to Stray Liabilities. The Company recognizes an indemnification liability when a loss is reasonably probable and can be reasonably estimated. While the Company has established processes and controls over the information to support its accounting for indemnification liabilities with each of Corteva and Dow, the Company is reliant on the accuracy, transparency, completeness and timeliness of information from the applicable party, either Corteva or Dow, that retains direct liability for the underlying matter. Estimating indemnified costs of environmental remediation and compliance activities is particularly difficult since such activities are dependent on the nature of and activity at specific sites; new and evolving analytical, operating and remediation technologies and techniques; agreed action plans; changes in environmental regulations; permissible levels of specific compounds in water, air or soil; enforcement theories and policies, including efforts to recover natural resource damages; and the presence and financial viability of other potentially responsible parties.
At December 31, 2022, the Company had recorded indemnification assets related to Stray Liabilities and other matters. Although the Company believes it is remote, there can be no assurance that any such third-party would have adequate resources to satisfy its indemnification obligation when due, or, would not ultimately be successful in claiming defenses against payment. Even if recovery from the third-party is ultimately successful, DuPont may be temporarily required to bear these losses. Each of these risks could negatively affect the Company’s business, financial condition, results of operations and cash flows. See discussion of the Core Agreements in Note 4 to the Consolidated Financial Statements and Litigation, Environmental Matters and Indemnifications in Note 16 to the Consolidated Financial Statements.
On January 22, 2021, DuPont, Corteva and Chemours entered into a cost sharing arrangement related to future eligible PFAS costs. The Company’s results of operations could be adversely affected by litigation and other commitments and contingencies, including expected performance under and impact of the cost sharing arrangement.
While reducing uncertainty, the Company expects to benefit from the cost sharing arrangement related to future PFAS eligible costs, achievement of any such benefits may not be realized and depend on a number of factors and uncertainties that include, but are not limited to: the achievement, terms and conditions of final agreements related to the cost sharing arrangement; the outcome of any pending or future litigation related to PFAS or PFOA, including personal injury claims and natural resource damages claims; the extent and cost of ongoing remediation obligations and potential future remediation obligations; changes in laws and regulations applicable to PFAS chemicals, changes in applicable health advisory levels and in chronic reference doses for PFAS in drinking water; the performance by each of the parties of their respective obligations under the cost sharing arrangement.
DuPont faces risks arising from various unasserted and asserted litigation matters, including product liability, patent infringement and other intellectual property disputes, contract and commercial litigation, claims for damage or personal injury, antitrust claims, governmental regulations and other actions. An adverse outcome in any one or more of these matters could be material to the Company’s business, results of operations, financial condition and cash flows.
In the ordinary course of business, DuPont may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and DuPont may issue guarantees of third-party obligations. If DuPont is required to make payments as a result, they could exceed the amounts accrued therefor, thereby adversely affecting the Company’s results of operations.
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If the completed distribution of Corteva or Dow, in each case, together with certain related 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 and indemnification liability.
The completed distributions of Corteva and Dow were each conditioned upon the receipt of an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, the Company’s tax counsel, regarding the qualification of the applicable distribution along with certain related transactions as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code,” and such opinions, collectively, the “Tax Opinions”). The Tax Opinions relied on certain facts, assumptions, and undertakings, and certain representations from the Company, Dow and Corteva, as applicable, as well as the IRS Ruling (as defined below). Notwithstanding the Tax Opinions and the IRS Ruling, the Internal Revenue Service (the “IRS”) could determine on audit that either, or both, of the distributions and certain related transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distributions should be taxable for other reasons, including if the IRS were to disagree with the conclusions of the Tax Opinions.
Even if a distribution otherwise constituted a tax-free transaction to stockholders under Section 355 of the Code, the Company could be required to recognize corporate level tax on such distribution and certain related transactions under Section 355(e) of the Code if the IRS determines that, as a result of the DWDP Merger or other transactions considered part of a plan with such distribution, there was a 50 percent or greater change in ownership in the Company, Dow or Corteva, as relevant. In connection with the DWDP Merger, the Company sought and received a private letter ruling from the IRS regarding the proper time, manner and methodology for measuring common ownership in the stock of the Company, EIDP and TDCC for purposes of determining whether there was a 50 percent or greater change of ownership under Section 355(e) of the Code as a result of the DWDP Merger (the “IRS Ruling”). The Tax Opinions relied on the continued validity of the IRS Ruling and representations made by the Company as to the common ownership of the stock of TDCC and EIDP immediately prior to the DWDP Merger, and concluded that there was not a 50 percent or greater change of ownership for purposes of Section 355(e) as a result of the DWDP Merger. Notwithstanding the Tax Opinions and the IRS Ruling, the IRS could determine that a distribution or a related transaction should nevertheless be treated as a taxable transaction to the Company if it determines that any of the Company’s facts, assumptions, representations or undertakings was not correct or that a distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the Tax Opinions that are not covered by the IRS Ruling.
Generally, corporate taxes resulting from the failure of a distribution to qualify for non-recognition treatment for U.S. federal income tax purposes would be imposed on the Company. Under the DWDP Tax Matters Agreement, as amended, that the Company entered into with Dow and Corteva, Dow and Corteva are generally obligated to indemnify the Company against any such taxes imposed on it. However, if a distribution fails to qualify for non-recognition treatment for U.S. federal income tax purposes for certain reasons relating to the overall structure of the DWDP Merger and the distributions, then under the DWDP Tax Matters Agreement, as amended, the Company and Corteva, on the one hand, and Dow, on the other hand, would share the tax liability resulting from such failure in accordance with the relative equity values of the Company and Dow on the first full trading day following the distribution of Dow, and the Company and Corteva would in turn share any such resulting tax liability in accordance with the relative equity values of the Company and Corteva on the first full trading day following the distribution of Corteva. Furthermore, under the terms of the DWDP Tax Matters Agreement, as amended, a party also generally will be responsible for any taxes imposed on the other parties that arise from the failure of either distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Code or the failure of certain related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events or transactions relating to such party, or such party's affiliates’, stock, assets or business, or any breach of such party's representations made in connection with the IRS Ruling or in any representation letter provided to a tax advisor in connection with certain tax opinions, including the Tax Opinions, regarding the tax-free status of the distributions and certain related transactions. To the extent that the Company is responsible for any liability under the DWDP Tax Matters Agreement, as amended, there could be a material adverse impact on the Company's business, financial condition, results of operations and cash flows in future reporting periods.
Risks Relating to DuPont’s Business and Results of Operations
The extent to which the novel coronavirus and variants (COVID-19) and measures taken in response to it, impact DuPont’s business, results of operations, access to sources of liquidity and financial condition depends on future developments, which are highly uncertain and cannot be predicted.
DuPont is actively monitoring the global impacts of the COVID-19 pandemic, including the impacts from responsive measures, and remains focused on its top priorities - the safety and health of its employees and the needs of its customers. The Company’s business and financial condition, and the business and financial condition of the company’s customers and suppliers, have been and continue to be impacted by the significantly increased economic, supply and demand uncertainties created by the COVID-19 outbreak. In addition, public and private sector responsive measures, such as the imposition of travel restrictions, quarantines, adoption of remote working, and suspension of non-essential business and government services, have impacted the
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Company’s business and financial condition. Many of DuPont’s facilities and employees are based in areas impacted by the virus. While most DuPont manufacturing sites remain in operation, DuPont has reduced or furloughed, when necessary, certain operations in response to government measures, employee welfare concerns and the impact of COVID-19 on the global demand and supply chain. DuPont’s manufacturing operations may be further adversely affected by impacts from COVID-19 including, among other things, additional government actions and other responsive measures, more and /or deeper supply chain disruptions, quarantines and health and availability of essential onsite personnel. In response, the Company developed site-by-site protocols in 2020 under which the Company continues to operate. These protocols include pre-entrance screening, restricting visitor access, social distancing and masking requirements, additional sanitization and disinfecting requirements, restrictions on all nonessential travel and implementation of work-from-home protocols. Limitations on travel and doing business in-person has increased the Company’s exposure to cybersecurity risks and could negatively impact the Company's innovation and marketing efforts, challenge the ability to deliver against the Company’s strategic priorities and to otherwise transact business in a timely manner, or create operational or other challenges, any of which could harm DuPont’s business. Furthermore, COVID-19 continues to adversely impact the broader global economy, including negatively impacting economic growth and creating disruption and volatility in the global financial and capital markets, which could result in increases in the cost of capital and/or adversely impact the availability of and access to capital, which could negatively affect DuPont’s liquidity. DuPont is unable to predict the extent of COVID-19 related impacts on its business, results of operations, access to sources of liquidity and financial condition which depends on highly uncertain and unpredictable future developments, including, but not limited to, the duration and spread of the COVID-19 outbreak, its severity, the emergence of new variants, actions taken in response, the efficacy and availability of vaccines, and how quickly and to what extent normal economic and operating conditions resume. DuPont’s financial results may be materially and adversely impacted by a variety of factors that have not yet been determined, including potential impairments of goodwill and other assets. DuPont, when necessary, is taking actions, including reducing costs, restructuring actions, and delaying certain capital expenditures and non-essential spend. In addition, the Company may consider further reductions in or furloughing additional operations in response to further and/or deeper declines in demand and/or or supply chain disruptions. There can be no guaranty that such actions will significantly mitigate the impact of COVID-19 on the company’s business, results of operations, access to sources of liquidity or financial condition and the Company may continue to experience materially adverse impacts to its business, results of operations and financial condition as a result of related global economic impacts, including inflationary pressures that have occurred and may continue to occur in the future.
Supply chain and operational disruptions and volatility in energy and raw material costs could significantly increase costs and expenses and adversely impact the Company’s sales and earnings.
The Company’s manufacturing processes and operations depend on the continued availability of energy and raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond the Company’s control, including potential legislation to address climate change by reducing greenhouse gas emissions, creating a carbon tax or implementing a cap and trade program which could create increases in costs and price volatility. Operational changes and transition to renewable energy sources to meet country, NGO and corporate-level net-zero GHG emissions pledges and related decarbonization technology investments, may require the Company to make significant capital investments, re-qualify its products with certain suppliers, as well as meet additional regulatory and compliance requirements and could result in higher cost and expenses.
Supply chain disruptions, plant and/or power outages, labor shortages and/or strikes, geo-political activity, weather events and natural disasters, including hurricanes or flooding that impact coastal regions, and global health risks or pandemics could seriously harm the Company’s operations as well as the operations of the Company’s customers and suppliers. Climate change increases the frequency and severity of potential supply chain and operational disruptions from weather events and natural disasters. The chronic physical impacts associated with climate change, for example, increased temperatures, changes in weather patterns and rising sea levels, could significantly increase costs and expenses and create additional supply chain and operational disruption risks.
In addition, the Company’ suppliers may experience capacity limitations in their own operations or may elect to reduce or eliminate certain product lines. To address this risk, generally, the Company seeks to have many sources of supply for key raw materials in order to avoid significant dependence on any one or a few suppliers. In addition, and where the supply market for key raw materials is concentrated, DuPont takes additional steps to manage its exposure to supply chain risk and price fluctuations through, among other things, negotiated long-term contracts some which include minimum purchase obligations. However, there can be no assurance that such mitigation efforts will prevent future difficulty in obtaining sufficient and timely delivery of certain raw materials.
DuPont also takes actions to offset the effects of higher energy and raw material costs through selling price increases, productivity improvements and cost reduction programs. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. As a
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result, volatility in these costs may negatively impact the Company’s business, results of operations, financial condition and cash flows.
The Company’s business, results of operations, financial condition and cash flows could be adversely affected by interruption of the Company’s information technology or network systems and other business disruptions.
DuPont relies on centralized and local information technology networks and systems, some of which are managed or accessible by third parties, to process, transmit and store electronic information, and to otherwise manage or support its business. Additionally, the Company collects and stores certain data, including proprietary business information, and has access to confidential or personal information that is subject to privacy and security laws, regulations and customer-imposed controls. The processing and storage of personal information is increasingly subject to privacy and data security regulations, and many such regulations are country or territory-specific. The interpretation and application of data protection laws in the U.S., Europe, including the EU General Data Protection Regulation, Asia Pacific, Latin America, and elsewhere are continuing to evolve and may be different across these jurisdictions. The Company seeks to implement these requirements in a compliant manner. Violations of these laws could result in criminal or civil sanctions and even the mere allegation of such violations, could harm the Company’s ability to do business, its results of operations, financial position and reputation.
Information technology system and/or network disruptions, whether caused by acts of sabotage, employee error, malfeasance or other actions, could have an adverse impact on the Company’s operations as well as the operations of the Company’s customers and suppliers. Other business disruptions may also be caused by security breaches, which could include, for example, attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error, malfeasance or other actions or other disruptions. DuPont and/or the Company’s suppliers may fail to effectively prevent, detect and recover from these or other security breaches and, therefore, such breaches could result in misuse of the Company’s assets, loss of property including trade secrets and confidential or personal information, some of which is subject to privacy and security laws, and other business disruptions. As a result, DuPont may be subject to legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, interference with regulatory compliance which could result in sanctions or penalties, liability or penalties under privacy laws, disruption in the Company’s operations, and damage to the Company’s reputation, which could adversely affect the Company’s business, results of operations, financial condition and cash flows.
Like most major corporations, DuPont is the target of industrial espionage, including cyber-attacks, from time to time. These cyber-security threats include phishing, spam emails, hacking, social engineering, and malicious software. DuPont has determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information. Although management does not believe that DuPont has experienced any material losses to date related to these security breaches, including cybersecurity incidents, there can be no assurance that DuPont will not suffer such losses in the future.
DuPont has engaged and expects to continue to engage in merger and acquisition activity. As part of preparatory and post-closing integration activities, the Company: (i) conducts a cybersecurity risk threat assessment and when evidence of a breach is uncovered, conducts additional due diligence; (ii) based on the assessment, the Company develops and implements risk mitigation plans if needed and brings the acquisition under the Company’s cyber-attack/breach detection and response programs; and (iii) conducts an internal controls risk and compliance assessment and creates responsive action plans as needed to mitigate and remediate identified weaknesses in the control environment.
DuPont seeks to actively manage the risks within the Company’s control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, DuPont may be required to expend significant resources to enhance the Company’s control environment, processes, practices and other protective measures. Despite these efforts, such events could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
Enforcing the Company’s intellectual property rights, or defending against intellectual property claims asserted by others, could adversely affect the Company’s business, results of operations, financial condition and cash flows.
Intellectual property rights, including patents, trade secrets, know-how and confidential information, trademarks, tradenames and trade dress, are important to the Company’s business. DuPont endeavors to protect the Company’s business, products and processes by obtaining and enforcing intellectual property rights under the intellectual property laws of certain jurisdictions around the world. However, DuPont may be unable to obtain or enforce its intellectual property rights in key jurisdictions for various reasons including government policies and regulations, and changes in such policies and regulations, including changes made in reaction to pressure from non-governmental organizations, or the public generally, which could impact the extent of intellectual property protection afforded by such jurisdictions.
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DuPont has designed and implemented internal controls intended to restrict access to and unauthorized use of the Company’s confidential information and trade secrets. Despite these precautions, the Company’s confidential information and trade secrets are vulnerable to unauthorized access and use through employee error or actions, theft by employees or third parties, cybersecurity incidents and other security breaches. When unauthorized access and use is discovered, DuPont considers the matter for report to governmental authorities for investigation, as appropriate, and takes measures intended to mitigate any potential impact and to stop unauthorized access.
Third parties may also claim the Company’s products violate their intellectual property rights. Defending such claims, even those without merit, is time-consuming and expensive. In addition, as a result of such claims, DuPont has and could be required in the future to enter into license agreements, develop non-infringing products or engage in litigation that could be costly. If challenges are resolved adversely, it could negatively impact the Company’s ability to obtain licenses on competitive terms, commercialize new products and generate sales from existing products.
Any one or more of the above factors could significantly affect the Company’s business, results of operations, financial condition and cash flows.
An impairment of goodwill or intangible assets could negatively impact the Company’s financial results.
In connection with completed acquisitions, DuPont has recorded goodwill and other intangible assets on our balance sheet. As a result of the DWDP Merger and related acquisition method of accounting, EIDP’s assets and liabilities were remeasured and DowDuPont recognized them at fair value. Since certain of the Company's assets, especially those related to the Water & Protection and Electronics and Industrial segment, and those carried at Corporate & Other at December 31, 2022 are heritage EIDP, declines, if any, in projected cash flows could have a material, negative impact on the fair value of the Company’s reporting units and assets.
In accordance with US GAAP, at least annually, DuPont must assess both goodwill and indefinite-lived intangible assets for impairment. Intangible assets with finite lives are tested for impairment when events or changes in circumstances indicate their carrying value may not be recoverable. If testing indicates that goodwill or intangible assets are impaired, their carrying values will be written down based on fair values with a charge against earnings. Where DuPont utilizes discounted cash flow methodologies in determining fair values, significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant change or planned changes in use of our assets, changes in the structure of our business, divestitures, market capitalization declines or increases in associated discount rates may impair our goodwill and other intangible assets. Accordingly, any determination requiring the write-off of a significant portion of goodwill or intangible assets could negatively impact the Company’s results of operations.
Failure to effectively manage acquisitions, divestitures, alliances and other portfolio actions could adversely impact the Company’s business, results of operations, financial condition and cash flows.
DuPont continuously evaluates acquisition candidates, including significant transactions, that may strategically fit the Company’s business and/or growth objectives. If DuPont is unable to successfully integrate and develop acquired businesses, DuPont could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on the Company’s financial results. DuPont expects to continually review the Company’s portfolio of assets for contributions to the Company’s objectives and alignment with the Company’s growth strategy. The Letter Agreement between the Company and Corteva limits DuPont’s ability to separate certain businesses and assets to third parties without assigning certain of its indemnification obligations under the DWDP Separation and Distribution Agreement to the transferee of such businesses and assets or meeting certain other alternative conditions. DuPont may be unable to meet the conditions under the Letter Agreement, if applicable. Even if the conditions under the Letter Agreement are met or are not applicable, DuPont may not be successful in separating underperforming or non-strategic assets, and gains or losses on the divestiture of, or lost operating income from, such assets may affect the Company’s earnings. Moreover, DuPont might incur asset impairment charges related to acquisitions or divestitures that reduce the Company’s earnings. In addition, if the execution or implementation of acquisitions, divestitures, alliances, joint ventures and other portfolio actions is not successful and/or the Company fails to effectively manage its cost as its portfolio evolves, it could adversely impact the Company’s business, results of operations, financial condition and cash flows.
Failure to maintain a streamlined operating model and sustain operational improvements may reduce the Company’s profitability or adversely impact the Company’s business, results of operations, financial condition and cash flows.
The Company’s profitability and margin growth will depend in part on the Company’s ability to maintain a streamlined operating model and drive sustainable improvements, through actions and projects, such as consolidation of manufacturing facilities, transitions to cost-competitive regions and product line rationalizations. A variety of factors may adversely affect the Company’s ability to realize the targeted cost synergies, including failure to successfully optimize the Company’s facilities footprint, the failure to take advantage of the Company’s global supply chain, the failure to identify and eliminate duplicative
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programs. There can be no assurance that DuPont will be able to achieve or sustain any or all of the cost savings generated from restructuring actions.
The Company’s results will be affected by competitive conditions and customer preferences.
Demand for the Company’s products, which impacts revenue and profit margins, will be affected by (i) the development and timing of the introduction of competitive products; (ii) the Company’s response to downward pricing trends to stay competitive; (iii) changes in customer preferences, order patterns, such as changes in the levels of inventory maintained by customers and the timing of customer purchases which may be affected by announced price changes; (iv) availability and cost of raw materials and energy, as well as the Company’s ability and success in passing through increases in such costs; (v) levels of economic growth in the geographic and end use markets served by the Company; and (vi) the mega-trends in digital transformation, connectivity, automation and ethics, environmental impact and sustainability driven purchasing decisions.
Demand for product offerings that are less carbon-intensive or customers determine support their respective sustainability goals, is expected to continue to increase, driven by end-user and customer demand, investor preference, and government legislative and market- and product-specific actions in response to risks created by climate change. Failure to timely react to these trends and manage the Company’s product portfolio and innovation activities responsively could decrease the competitiveness of the Company’s products and result in the de-selection of the Company as a partner of choice. In addition, the failure to set goals, take actions, make progress and report against, commensurate with relevant market competitors, the Company’s sustainability strategy, could harm the Company’s reputation, and its ability to compete and to attract top talent, and could result in increased investor activism and the deselection of the Company as a partner or supplier of choice.
Success in achieving the Company’s growth objectives is significantly dependent on the timing and market acceptance of the Company’s new product offerings, including the Company’s ability to renew the Company’s pipeline of new product offerings and to bring those offerings to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, obtain adequate intellectual property protection, or gain market acceptance of new products.
There are no guarantees that new product offerings will prove to be commercially successful. Additionally, the Company’s expansion into new markets may result in greater-than-expected risks, liabilities and expenses.
Failure to attract and retain talented people with the necessary knowledge and experience could adversely affect Company’s ability to compete and achieve its strategic goals.
Attracting, developing, and retaining talented employees is essential to the Company’s successful delivery of products and services, ability to innovate, including developing new products and technologies, and ability to identify trends and develop new markets.
Competition for employees can be intense. If the Company is unable to successfully integrate, motivate and reward its employees, it may not be able to retain them or attract new employee in the future which could adversely impact the Company’s ability to effectively compete. The Company may be required to increase salary and/or benefits to attract top performers which could significantly increase the Company costs and results of operations.
Risks Relating to Capital Resources and Liquidity
Changes in the Company’s credit ratings could increase the Company’s cost of borrowing or restrict the Company’s ability to access debt capital markets. The Company’s credit ratings are important to the Company’s cost of capital.
DuPont relies on access to the debt capital markets and other short-term borrowings to finance the Company’s long-term and day-to-day operations. A decrease in the ratings assigned to it by the ratings agencies may negatively impact the Company’s access to the debt capital markets and increase the Company’s cost of borrowing. The major rating agencies will routinely evaluate the Company’s credit profile and assign debt ratings to it. This evaluation is based on a number of factors, which include weighing the Company’s financial strength versus business, industry and financial risk. The addition of further leverage to the Company’s capital structure could impact the Company’s credit ratings. Failure to maintain an investment grade rating at the Company’s current level would adversely affect the Company’s cost of funding and the Company’s results of operations and could adversely affect the Company’s liquidity and access to the capital markets. Any limitation on the Company’s ability to continue to raise money in the debt capital markets could have a substantial negative effect on the Company’s liquidity. If DuPont is unable to generate sufficient cash flow or maintain access to adequate external financing, including from significant disruptions in the global credit markets, it could restrict the Company’s current operations, activities under its current and future stock buyback programs, and the Company’s growth opportunities, which could adversely affect the Company’s operating results.
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A significant percentage of the Company’s net sales are generated from the Company’s international operations and are subject to economic, geo-political, foreign exchange and other risks.
DuPont does business globally in about 50 countries. The percentage of net sales generated by the international operations of DuPont, including U.S. exports, was approximately 70 percent of net sales on a continuing operations basis for the year ended December 31, 2022. With Asia Pacific as the Company’s largest region by revenue and China as the largest country within the Asia Pacific region and second largest globally by revenue, DuPont expects the percentage of the Company’s net sales derived from international operations to continue to be significant. Risks related to international operations include:
•exchange control regulations
•fluctuations in foreign exchange rates
•foreign investment laws
The Company’s international operations expose it to fluctuations in foreign currencies relative to the U.S. dollar, which could adversely affect the Company’s results of operations. For its continuing operations as of the year ended December 31, 2022, the Company’s largest currency exposures are the Chinese renminbi, European euro, Japanese yen, South Korean won and Canadian dollar. U.S. dollar fluctuations against foreign currency have an impact to commercial prices and raw material costs in some cases and could result in local price increases if the price or raw material costs is denominated in U.S. dollar.
Sales and expenses of the Company’s non-U.S. businesses are also translated into U.S. dollars for reporting purposes and fluctuations of foreign currency against the U.S. dollar could impact U.S. dollar-denominated earnings. In addition, the Company’s assets and liabilities denominated in foreign currencies can also be impacted by foreign currency exchange rates against the U.S. dollar, which could result in exchange gain or loss from revaluation.
DuPont also faces exchange rate risk from the Company’s investments in subsidiaries owned and operated in foreign countries.
DuPont has a balance sheet hedging program and actively looks for opportunities in managing currency exposures related to earnings. However, foreign exchange hedging activities bear a financial cost and may not always be available to it or be successful in completely mitigating such exposures.
DuPont generates significant amounts of cash outside of the United States that is invested with financial and non-financial counterparties. While DuPont employs comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure the Company’s ability to fund the Company’s operations and commitments, a material disruption to the counterparties with whom DuPont transacts business could expose it to financial loss.
Any one or more of the above factors could adversely affect the Company’s international operations and could significantly affect the Company’s business, results of operations, financial condition and cash flows.
Risks Related to Regulatory Changes and Compliance
Risks related to trade disputes, regulations and policies could adversely impact DuPont’s results of operations.
Trade regulations, policies and disputes can and have increased tariffs, trade barriers, limited the Company’s ability to sell certain products to certain customers, and otherwise impacted the Company’s global supply and distribution chains and research and development activities. In particular, trade tensions between the US and China have led to increased trade restrictions on the semiconductor business, particularly exports to China of US-regulated products and technology, that have affected downstream demand impacting ordering patterns from certain DuPont Electronics & Industrial’s customers. Continuing or expanding trade restrictions or disputes could adversely impact demand for and manufacture, distribution or sale of the Company’s products, and restrict access to certain markets, any of which could have a material adverse effect on the Company’s results of operations and growth prospects.
The costs of complying with evolving regulatory requirements could negatively impact the Company’s business, results of operations, financial condition and cash flows. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations and substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
DuPont continues to be subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, product content, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances, which include certain substances of concern, and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in the regulatory environment could inhibit or interrupt the Company’s operations, require modifications to the Company’s products, processes or facilities or cause the Company to discontinue or relocate the production
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of certain products. Changes to regulations or the implementation of additional regulations, may result in significant costs or capital expenditures or require changes in business practice that could result in reduced margins or profitability.
Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities causing a negative impact on the Company’s business, cash flows and results of operations.
The Company’s business, results of operations and reputation could be adversely affected by industry-specific risks including process safety and product stewardship/regulatory compliance issues.
DuPont is subject to risks which include, but are not limited to, product safety or quality; shifting consumer preferences and public perception; federal, state, and local regulations on manufacturing or labeling; packaging, environmental, health and safety regulations; and customer product liability claims.
In most jurisdictions, DuPont must test the safety, efficacy and environmental impact of the Company’s products to satisfy regulatory requirements and obtain the needed approvals. In certain jurisdictions, DuPont must periodically renew the Company’s approvals, which may require it to demonstrate compliance with then-current standards. The regulatory approvals process is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. Regulatory standards and trial procedures are continuously changing in response to technological developments, changes in legislation, and governmental, NGO and societal demands for increasing levels of product safety and environmental protection. The pace of change together with the lack of regulatory harmony could result in unintended noncompliance. To maintain the Company’s right to produce or sell existing products or to commercialize new products, DuPont must be able to demonstrate the Company’s ability to satisfy the requirements of regulatory agencies, industries, and customers.
The failure to meet existing and new requirements or receive necessary permits or approvals could have near- and long-term effects on the Company’s ability to produce and sell certain current and future products, which could significantly increase operating costs and adversely affect the Company’s business, results of operations, financial condition and cash flows. In addition, negative publicity related to product liability, safety, health and environmental matters may damage the Company’s reputation.
Changes in the global and local tax regulatory environments in, and the distribution of income among, the various jurisdictions in which the Company operates, could adversely impact DuPont’s results of operations.
DuPont's future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments of the Company’s tax exposures and various other governmental enforcement initiatives. The Company’s tax expense includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of future earnings of the Company which could impact the valuation of the Company’s deferred tax assets.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted into law in the United States. Among other changes to the Internal Revenue Code of 1986, as amended (the “Code”), the IRA imposes a 15% corporate alternative minimum tax on certain corporations (the “CAMT”). Changes in tax laws or regulations, including further regulatory developments in connection with the IRA; multi-jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-operation and Development (OECD) including the OECD's Global Anti-Base Erosion ("GloBE) rules under Pillar Two, which is expected to introduce a global minimum corporate tax rate set at 15% on multinational enterprises; and the OCED’s, European Commission’s and other major jurisdiction’s heightened interest in and taxation of large multi-national companies, increase tax uncertainty and impact the Company’s effective tax rate and provision for income taxes. Given the unpredictability of possible further changes to and the potential interdependency of the United States or foreign tax laws and regulations, it is difficult to predict the cumulative effect of such tax laws and regulations on DuPont’s results of operations.
The Company’s business, results of operations and reputation could be harmed by improper conduct by its employees, agents or business partners.
DuPont is required to comply with numerous U.S. and non-U.S. laws and regulations including those related to anti-corruption, anti-bribery, global trade, trade sanctions, anti-trust, anti-money laundering laws, anti-slavery and human rights. The Company’s policies mandate compliance with these laws and regulations. The Company operates globally, including in parts of the world that are recognized as having governmental and commercial corruption and where local customs and practices can be inconsistent with anti-corruption and/or anti-bribery laws. Despite the Company’s training and compliance program, DuPont
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cannot ensure that its internal control processes will prevent improper action by employees, agents, distributors, suppliers or business partners. Violations of these laws could result in criminal or civil sanctions and even the mere allegation of such violations, could harm the Company’s ability to do business, its results of operations, financial position and reputation.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Wilmington, Delaware. The Company's manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers are located throughout the world. Additional information with respect to the Company's property, plant and equipment and leases is contained in Notes 12, 17 and 23 to the Consolidated Financial Statements.
The Company has investments in property, plant and equipment related to global manufacturing operations. Collectively there are approximately 100 principal sites in total. The number of manufacturing and other significant sites by reportable segment and geographic area around the world at December 31, 2022 is as follows:
| Geographic Region | Electronics & Industrial | Water & Protection | Corporate & Other | Total 2 | ||||||||||
| Asia Pacific | 26 | 13 | 3 | 42 | ||||||||||
EMEA 1 | 6 | 7 | 3 | 16 | ||||||||||
| Latin America | 1 | — | 1 | 2 | ||||||||||
| U.S. & Canada | 23 | 13 | 8 | 44 | ||||||||||
| Total | 56 | 33 | 15 | 104 | ||||||||||
1.. Europe, Middle East, and Africa.
2. Sites that are used by multiple segments are included more than once in the figures above.
The Company's principal sites include facilities which, in the opinion of management, are suitable and adequate for their use and have sufficient capacity, or plans to increase capacity, which meet the Company's current needs and expected near-term growth. Properties are primarily owned by the Company; however, certain properties are leased. No title examination of the properties has been made for the purpose of this report and certain properties are shared with other tenants under long-term leases.
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ITEM 3. 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 Consolidated Financial Statements, which also includes discussion of the allocation of liabilities in connection with the DWDP Distributions.
Litigation
See Note 16 to the 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. EIDP 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 EIDP), 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, EIDP, and certain DuPont subsidiaries. NJDEP’s allegations relate to former operations of EIDP 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.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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| DuPont de Nemours, Inc. | ||||||||
| PART II | ||||||||
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the NYSE under the ticker symbol "DD."
During 2022 and 2021, the Company paid quarterly dividends on its common stock of $0.33 and $0.30 per share, respectively.
The DuPont Board of Directors on February 6, 2023, declared a first quarter 2023 dividend of $0.36 per share, a 9 percent per share increase versus the first quarter 2022 dividend. The first quarter 2023 dividend is payable on March 15, 2023, to holders of record at the close of business on February 28, 2023. The Company expects to continue to pay quarterly dividends, although each dividend is subject to the approval of the Company's Board of Directors.
At January 31, 2023, there were 67,943 stockholders of record.
See Part III, Item 11. Executive Compensation for information relating to the Company’s equity compensation plans.
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 December 31, 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 | ||||||||||||
| 2022 Share Buyback Program | ||||||||||||||
| October | — | $ | — | — | $ | 250 | ||||||||
November 1, 2 | 3,729,673 | $ | 67.03 | 3,729,673 | $ | — | ||||||||
| December | — | $ | — | — | $ | — | ||||||||
| $5B Share Buyback Program | ||||||||||||||
| October | — | $ | — | — | $ | — | ||||||||
November 2 | 35,058,929 | 67.03 | 35,058,929 | 2,000 | ||||||||||
December 2 | — | — | $ | — | 2,000 | |||||||||
| Fourth Quarter 2022 | 38,788,602 | $ | 67.03 | 38,788,602 | $ | 2,000 | ||||||||
1.The Company completed the 2022 Share Buyback Program as part of the initial deliveries of shares under the 2022 ASR Agreements.
2. In accordance with the terms of the 2022 ASR Agreements, which terminate on or about September 1, 2023. DuPont received initial deliveries in November 2022 of 38.8 million shares of common stock in the aggregate. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the terms of the 2022 ASR Agreements less an agreed upon discount.
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Stockholder Return
The form of the chart presented below is in accordance with the requirements of the U.S. Securities and Exchange Commission. Stockholders are cautioned against drawing any conclusions from the data contained therein, as past results are not necessarily indicative of future performance. The chart illustrates the cumulative total return of the Company's stock based on a presumed investment of $100 on December 31, 2017 and a presumption that all dividends were reinvested. The historical stock prices of DuPont presented in the chart have been adjusted to reflect the impact of the DWDP Distributions and the Reverse Stock Split. The Company elected to display the closing price on May 31, 2019, the day preceding the Corteva Distribution, in order to provide the reader a more useful baseline for the Company's performance as a specialty products company after consummation of the DWDP Distributions. The chart does not reflect the Company's forecast of future financial performance.
In 2022, the Company elected to change the relative benchmark group from S&P Industrial Conglomerates Index to S&P Industrials Index in order to include companies that are more aligned with DuPont following the M&M Divestiture. Accordingly, the Company will begin comparing the cumulative total return of DuPont to the cumulative total return of both the S&P 500 Index and the S&P Industrials Index in the following graph. S&P Industrial Conglomerates Index was included for this fiscal year only for comparative purposes to prior fiscal year graphs.
| Cumulative Total Return | December 31, 2017 | December 31, 2018 | May 31, 2019 1 | December 31, 2019 | December 31, 2020 | December 31, 2021 | December 31, 2022 | ||||||||||||||||
| DuPont | $ | 100.00 | $ | 76.84 | $ | 65.95 | $ | 66.12 | $ | 74.92 | $ | 86.45 | $ | 74.88 | |||||||||
| S&P 500 | $ | 100.00 | $ | 95.62 | $ | 105.88 | $ | 125.72 | $ | 148.85 | $ | 191.58 | $ | 156.89 | |||||||||
S&P Industrials 2 | $ | 100.00 | $ | 86.71 | $ | 97.59 | $ | 112.17 | $ | 124.59 | $ | 150.89 | $ | 142.63 | |||||||||
S&P Industrial Conglomerates 3 | $ | 100.00 | $ | 73.12 | $ | 81.92 | $ | 91.49 | $ | 100.89 | $ | 106.15 | $ | 97.23 | |||||||||
1. Represents the day preceding the Corteva Distribution.
2. New index added in 2022
3. Included for this fiscal year only for comparative purposes to prior fiscal year graphs.
ITEM 6. RESERVED
Not applicable.
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ITEM 7. 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 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
•Analysis of Operations
•Result of Operations
•Segment Results
•Outlook
•Liquidity and Capital Resources
•Recent Accounting Pronouncements
•Critical Accounting Estimates
•Long-Term Employee Benefits
•Environmental Matters
OVERVIEW
As of December 31, 2022, the Company has $6.4 billion of net working capital and $3.7 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 continued operations. The Company continually assesses its liquidity position, including possible sources of incremental liquidity, in light of the current economic environment, capital market conditions and Company performance.
Mobility & Materials Divestitures
On November 1, 2022, DuPont completed the previously announced divestiture (the "Transaction Date") 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 for a purchase price of $11.0 billion in cash. Cash received on the Transaction Date, as adjusted for preliminary and other adjustments was $11.0 billion. These adjustments include approximately $0.5 billion of cash transferred with the M&M Divestiture for which DuPont was reimbursed at closing resulting in net proceeds of $10.5 billion.
On February 18, 2022, the Company announced 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 (collectively the "M&M Divestitures" and the businesses in scope for the M&M Divestitures collectively the "M&M Businesses") represent a strategic shift that has a major impact on DuPont's operations and results.
The financial position of DuPont as of December 31, 2022 presents the assets and liabilities of the Delrin® Divestiture as held for sale, presented as discontinued operations. In the comparative period, the assets and liabilities of both the M&M Divestiture and the Delrin® Divestiture are presented as held for sale, presented as discontinued operations. The results of operations for the years ended December 31, 2022, 2021 and 2020 present the financial results of the M&M Businesses, including the M&M Divestiture through the Transaction Date, as discontinued operations. The cash flows and comprehensive income of the M&M Businesses have not been segregated and are included in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for all periods presented. Unless otherwise indicated, the information in the notes to the 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 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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Terminated 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 (“Rogers”) as DuPont and Rogers were unable to obtain timely clearance from all the required regulators ("Terminated Intended Rogers Acquisition").
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”) in a Reverse Morris Trust transaction (the “N&B Transaction”) that resulted in IFF issuing shares to DuPont stockholders. In connection with the N&B Transaction, N&B made a one-time cash payment of approximately $7.3 billion (the “Special Cash Payment”) to DuPont.
The results of operations of DuPont for all periods presented reflect 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 Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for the applicable period. Unless otherwise indicated, the information in the notes to the 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 Consolidated Financial Statements for additional information.
Laird Performance Materials
On July 1, 2021, DuPont completed the acquisition of Laird Performance Materials ("Laird PM") from Advent International (“Laird PM Acquisition”) for cash consideration of $2.4 billion, which reflects adjustments, primarily for acquired cash and net working capital. See Note 3 to the Consolidated Financial Statements for additional information.
Other Divestitures
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. In May 2022, a pre-tax gain of $26 million ($21 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations. The results of operations of the Biomaterials business unit are reported in Corporate & Other for all periods presented.
On December 31, 2021, the Company completed the sale of its Clean Technologies business unit, which is part of Corporate & Other. Total consideration related to the sale of the business is approximately $510 million, with cash proceeds of about $500 million reflecting adjustments for customary closing costs as defined within the purchase agreement. For the year ended December 31, 2021, a pre-tax loss of $3 million ($39 million loss net of tax, primarily driven by nondeductible goodwill) on the disposition was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
In the second quarter of 2021, the Company completed the sale of its Solamet® business unit, which was part of Corporate & Other. Total consideration received related to the sale of the business was approximately $190 million. The sale resulted in a pre-tax gain of $140 million ($105 million net of tax) which was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
Other Discontinued Operations Tax Matter
Subsequent to the Company’s earnings announcement on February 7, 2023, the Company recorded an adjustment to the provision for income taxes related to Discontinued Operations and deferred income tax liabilities of Discontinued Operations (the “Tax Adjustment”). The Tax Adjustment resulted in an increase of $70 million in “Income (loss) from discontinued operations, net of tax” and a decrease of $70 million in “Liabilities of discontinued operations” as of and for the year ended December 31, 2022, and a corresponding impact on net income. The Tax Adjustment did not impact the results of Continuing Operations. The Consolidated Financial Statements and other financial information included in this annual report on Form 10-K reflect the Tax Adjustment.
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ANALYSIS OF OPERATIONS
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.
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 were less than one percent of DuPont’s consolidated net sales in 2021. The Company does not have operations in the Ukraine. In 2022, DuPont 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.
Joint Settlement Agreement
On January 22, 2021, the Company, Corteva, EIDP and Chemours entered into a binding Memorandum of Understanding (the “MOU”), pursuant to which the parties have agreed to share certain costs associated with potential future liabilities related to alleged historical releases of certain PFAS arising 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. The parties have agreed that, during the term of this sharing arrangement, Chemours will bear 50% of any qualified spend and the Company and Corteva shall together bear 50% of any qualified spend. As of December 31, 2022, the Company has recorded an indemnification liability of $186 million in connection with the cost sharing arrangement related to future eligible PFAS costs.
Total pre-tax charges of $96 million ($74 million after-tax) and $98 million ($76 million after-tax) related to the MOU are reflected as a loss from discontinued operations for the year ended December 31, 2022 and 2021, respectively, in the Company's Consolidated Statements of Operations.
See Note 16 of the Consolidated Financial Statements for additional information.
Long-Lived Asset and Indefinite-Lived Asset Impairments
In connection with the M&M Divestitures, in the first quarter of 2022 a portion of an equity method investment was reclassified to “Assets of discontinued operations” within the 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 Consolidated Balance Sheet. As a result of the analysis the Company recorded an impairment charge of $94 million ($65 million net of tax) in “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2022 related to the Electronics & Industrial segment.
See Notes 6 and 14 of the Consolidated Financial Statements for additional information.
Dividends
During 2022, the Board of Directors authorized and paid quarterly dividends of $0.33 per share to shareholders of record in the first, second, third and fourth quarters, respectively.
The DuPont Board of Directors on February 6, 2023 declared a first quarter 2023 dividend of $0.36 per share, a 9 percent per share increase versus the first quarter 2022 dividend, payable on March 15, 2023, to holders of record at the close of business on February 28, 2023.
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Share Buyback Program
In February 2022, the Company's Board of Directors authorized a $1.0 billion share buyback program which expires on March 31, 2023. At the end of the third quarter 2022, the Company had repurchased and retired a total of 11.9 million shares for $750 million under the 2022 Share Buyback Program, with $250 million remaining on the authorization.
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 in addition to the $250 million remaining under the Company’s 2022 Share Buyback Program. The new repurchase program expires on June 30, 2024, unless extended or shortened by the Board of Directors. On November 10, 2022, DuPont entered into an accelerated share repurchase ("ASR") agreement (the “2022 ASR Agreement”) for the repurchase of an aggregate of approximately $3.25 billion. In accordance with the terms of the agreement, DuPont received initial deliveries of 38.8 million shares in the aggregate. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the term of the ASR, less an agreed upon discount. The ASR transaction is being funded with cash on hand, from the M&M Divestiture, and is expected to be completed by the third quarter of 2023.
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 (the "2021 Share Buyback Program"). In the first quarter of 2022, the Company purchased 5.1 million shares for approximately $375 million, effectively completing the 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 under the 2021 Share Buyback Program.
In the second quarter of 2019, the Company's Board of Directors approved a $2 billion 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.
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 the $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 Finance 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. For more information see Note 21 to the Consolidated Financial Statements.
Restructuring Programs
2022 Restructuring Program
In October 2022, 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"). For the year ended December 31, 2022, DuPont recorded a pre-tax charge related to the 2022 Restructuring Program in the amount of $61 million, recognized in "Restructuring and asset related charges - net" in the Company's Consolidated Statements of Operations, comprised of $61 million of severance and related benefit costs. At December 31, 2022, total liabilities related to the 2022 Restructuring Program were $57 million for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet.
2021 Restructuring Actions
In October 2021, the Company approved targeted restructuring actions to capture near term cost reductions (the "2021 Restructuring Actions"). For the years ended December 31, 2021 and December 31, 2022, DuPont recorded pre-tax charges related to the 2021 Restructuring Actions in the amount of $46 million inception-to-date, consisting of severance and related benefit costs of $26 million and asset related charges of $20 million. At December 31, 2022, total liabilities related to the 2021 Restructuring Actions were $7 million for severance and related benefits. The 2021 Restructuring Program is considered substantially complete.
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RESULTS OF OPERATIONS
| Summary of Sales Results | For the Years Ended December 31, | ||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | 13,017 | $ | 12,566 | $ | 11,128 | |||||
| Sales Variances by Segment and Geographic Region - As Reported | ||||||||||||||||||||||||||||||||
| For the Year Ended December 31, 2022 | For the Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | ||||||||||||||||||||||
| Electronics & Industrial | 2 | % | (3) | % | 3 | % | 5 | % | 7 | % | — | % | 1 | % | 12 | % | 6 | % | 19 | % | ||||||||||||
| Water & Protection | 12 | (4) | (1) | — | 7 | 2 | 1 | 8 | — | 11 | ||||||||||||||||||||||
Corporate & Other 1 | 10 | (3) | — | (29) | (22) | 5 | 2 | 8 | (15) | — | ||||||||||||||||||||||
| Total | 7 | % | (3) | % | 1 | % | (1) | % | 4 | % | 1 | % | 2 | % | 10 | % | — | % | 13 | % | ||||||||||||
| U.S. & Canada | 11 | % | — | % | 3 | % | (3) | % | 11 | % | 3 | % | — | % | 8 | % | (2) | % | 9 | % | ||||||||||||
EMEA 2 | 8 | (8) | (1) | (1) | (2) | — | 4 | 10 | 1 | 15 | ||||||||||||||||||||||
| Asia Pacific | 4 | (4) | — | — | — | 1 | 2 | 11 | 1 | 15 | ||||||||||||||||||||||
| Latin America | 9 | — | 6 | (1) | 14 | 3 | (2) | 13 | 2 | 16 | ||||||||||||||||||||||
| Total | 7 | % | (3) | % | 1 | % | (1) | % | 4 | % | 1 | % | 2 | % | 10 | % | — | % | 13 | % | ||||||||||||
1. Corporate & Other includes activities of the Retained Businesses and certain divested businesses including Biomaterials, Clean Technologies and Solamet®.
2. Europe, Middle East and Africa.
2022 versus 2021
The Company reported net sales for the year ended December 31, 2022 of $13.0 billion, up 4 percent from $12.6 billion for the year ended December 31, 2021, due to a 7 percent increase due to local price and product mix, a 1 percent increase in volume, partially offset by a 3 percent unfavorable currency impact and a 1 percent decrease in portfolio and other. 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). Volume increase was driven by Electronics & Industrial (up 3 percent), partially offset by Water & Protection (down 1 percent), and Corporate & Other was flat. Portfolio and other changes declined 1 percent driven by declines within Corporate & Other (down 29 percent) due to the sale of the Biomaterials, Clean Technologies and Solamet® businesses, partially offset by the addition of Laird PM in Electronics & Industrial (up 5 percent). Currency was down 3 percent compared with the same period last year, primarily driven by EMEA (down 8 percent) and Asia Pacific (down 4 percent).
2021 versus 2020
The Company reported net sales for the year ended December 31, 2021 of $12.6 billion, up 13 percent from $11.1 billion for the year ended December 31, 2020, due to a 10 percent increase in volume and a 1 percent increase due to local price and product mix, and a 2 percent favorable currency impact. Portfolio and other changes and currency were flat. Volume grew across all geographic regions and across all segments, most notably Electronics & Industrial (up 12 percent). Local price and product mix increased across all regions and all segments with the exception of Electronics & Industrial and EMEA where it was flat. Currency was up 2 percent compared with the same period last year, driven primarily by EMEA (up 4 percent) and Asia Pacific (up 2 percent). Portfolio and other changes were flat overall as the July 1, 2021 acquisition of Laird PM in Electronics & Industrial (up 6 percent) was offset by the decline within Corporate & Other (down 15 percent) due to the sale of the Clean Technologies and Solamet® businesses.
Cost of Sales
Cost of sales was $8.4 billion for the year ended December 31, 2022, up from $8.0 billion for the year ended December 31, 2021. Cost of sales increased for the year ended December 31, 2022 primarily due to higher raw materials and higher logistics and energy costs, increased sales volume and partially offset by currency impacts and a payroll tax credit recognized under the ERC of the CARES Act.
Cost of sales as a percentage of net sales for the year ended December 31, 2022 was 65 percent compared with 63 percent for the year ended December 31, 2021.
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For the year ended December 31, 2021, cost of sales was $8.0 billion, up from $7.1 billion for the year ended December 31, 2020. Cost of sales increased for the year ended December 31, 2021 primarily due to increased sales volume, currency impacts, and higher raw materials and logistics costs. The increase was partially offset by the absence of charges in the prior year associated with temporarily idling several manufacturing plants to align supply with demand due to COVID-19.
Cost of sales as a percentage of net sales for the year ended December 31, 2021 was 63.4 percent compared with 63.5 percent for the year ended December 31, 2020.
Research and Development Expense ("R&D")
R&D expense was $536 million for the year ended December 31, 2022, down from $557 million for the year ended December 31, 2021 and $565 million for the year ended December 31, 2020. R&D as a percentage of net sales was 4 percent for the years ended December 31, 2022 and 2021 and 5 percent for the year ended December 31, 2020.
R&D expense in 2022, 2021 and 2020 was relatively consistent. The slight decline in 2022 compared to 2021 was primarily due to a payroll tax credit recognized under the ERC of the CARES Act as well as currency fluctuations. The slight decline in R&D expense in 2021 compared to 2020 was primarily due to productivity actions.
Selling, General and Administrative Expenses ("SG&A")
For the year ended December 31, 2022, SG&A expenses totaled $1,467 million, down from $1,602 million in the year ended December 31, 2021 and $1,492 million for the year ended December 31, 2020. SG&A as a percentage of net sales was 11 percent, 13 percent, and 13 percent for the years ended December 31, 2022, 2021 and 2020, respectively.
The decrease in SG&A cost in 2022 compared to 2021 was primarily due to currency fluctuations, lower personnel related expenses and a payroll tax credit recognized under the ERC of the CARES Act. The increase in SG&A costs in 2021 compared with 2020 was primarily due to incremental costs from higher personnel related expenses, currency fluctuations, and SG&A costs for six months of the Laird PM acquisition.
Amortization of Intangibles
Amortization of intangibles was $590 million, $566 million and $542 million for the years ended December 31, 2022, 2021 and 2020, respectively. The increase in amortization of intangibles in 2022 compared to 2021 was primarily due to the amortization of the intangible assets acquired in the Laird PM Acquisition in the third quarter of 2021. The increase in amortization expense in 2021 compared to 2020 was primarily due to the amortization of the intangible assets acquired in the Laird PM Acquisition, partially offset by lower amortization due to the sale of the trichlorosilane business ("TCS Business") in the third quarter of 2020, as well as the classification of the Biomaterials and Clean Technologies business units as held for sale in the third quarter of 2020. See Note 14 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $155 million, $50 million and $814 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The activity for the year ended December 31, 2022 included a pre-tax charge related to the 2022 Restructuring Program in the amount of $61 million of severance and related benefit costs and a $94 million ($65 million net of tax) impairment related to an equity method investment within the Electronics & Industrial segments. The activity for the year ended December 31, 2021 included a $46 million charge related to the 2021 Restructuring Actions and a $8 million charge related to the 2020 Restructuring Program. The charges for the year ended December 31, 2020 included a $270 million impairment charge related to long-lived assets and a $52 million impairment charge related to indefinite-lived intangible assets in Corporate & Other, a $318 million impairment charge related to long-lived assets and a $150 million charge related to the 2020 Restructuring Program.
See Note 6 to the Consolidated Financial Statements for additional information.
Goodwill Impairment Charges
For the years ended December 31, 2022 and 2021 there were no goodwill impairment charges. For the year ended December 31, 2020, goodwill impairment charges of $1,862 million related to a business reported in Corporate & Other and the Industrial Solutions reporting unit.
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Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs were $193 million, $81 million and $177 million for the years ended December 31, 2022, 2021 and 2020, respectively. Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, other professional advisory fees and other contractual transaction payments. For the year ended December 31, 2022 these costs were primarily related to the Terminated Intended Rogers Acquisition, specifically the $162.5 million termination fee paid, the Biomaterials business unit divestiture and the prior year acquisition of Laird PM. For the year ended December 31, 2021 these costs were primarily related to the acquisition of Laird PM and the divestitures of the Biomaterials, Clean Technologies and Solamet® business units. Comparatively, for the year ended December 31, 2020 these costs were primarily associated with the post-DWDP Merger integration.
Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $75 million, $85 million and $168 million for the years ended December 31, 2022, 2021 and 2020, respectively. Earnings of nonconsolidated affiliates for the year ended December 31, 2022 declined slightly compared to the prior year due to lower equity earnings. The decrease in earnings of nonconsolidated affiliates for the year ended December 31, 2021 compared to the prior year is primarily due to the sale of DC HSC Holdings LLC and Hemlock Semiconductor L.L.C. (the "HSC Group") in the third quarter of 2020.
Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expenses such as foreign currency exchange gains or losses, interest income, dividends from investments, gains and losses on divestiture and 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 for the year ended December 31, 2022 was $191 million compared with $145 million and $632 million in the years ended December 31, 2021 and 2020, respectively.
The year ended December 31, 2022 included interest income of $50 million primarily due to higher cash on hand and marketable securities in the fourth quarter, income of $37 million related to the second quarter sale of a land use right within the Water & Protection segment, a $26 million gain on sale of the Biomaterials business unit recorded in the second quarter, income related to non-operating pension and other post-employment benefit plans of $28 million and foreign currency exchange gains of $15 million.
The year ended December 31, 2021 included a net pre-tax benefit of $140 million associated with the sale of the Solamet® business unit within Corporate & Other, a pre-tax gain of $28 million related to the sale of assets within the Electronics & Industrial segment, income related to non-operating pension and other post-employment benefit plans of $30 million, partially offset by foreign currency exchange losses of $53 million, and miscellaneous expenses of $15 million.
The year ended December 31, 2020 included a net pre-tax benefit of $396 million associated with the TCS/HSC Disposal, a pre-tax gain of $197 million related to the sale of the Compound Semiconductor Solutions business unit in the Electronics & Industrial segment, miscellaneous income of $24 million, and income related to non-operating pension and other post-employment benefit plans of $12 million, partially offset by foreign currency exchange losses of $54 million.
See Note 7 to the Consolidated Financial Statements for additional information.
Interest Expense
Interest expense was $492 million, $525 million, and $672 million for the years ended December 31, 2022, 2021 and 2020, respectively. The decrease in interest expense in 2022 compared to 2021 is primarily due to the redemption in the fourth quarter of 2022 of $2.5 billion of 2018 Senior Notes due in November 2023, the absence of interest in 2022 on the May 2022 Notes and the absence of the structuring fee on the term loan related to the Terminated Intended Rogers Acquisition, partially offset by increase in interest expense from commercial paper borrowings. The decrease in interest expense in 2021 compared to 2020 primarily relates to the maturity of the November 2020 Notes, the termination and repayment of the fully-drawn $3.0 billion term loan facilities in February 2021, and significant reduction in commercial paper borrowings, partially offset by structuring fees and the amortization of commitment fees related to the Terminated Intended Rogers Acquisition financing agreements. Refer to Note 15 to the Consolidated Financial Statements for additional information.
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Provision for (Benefit from) 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 attributes. For the year ended December 31, 2022, the Company's effective tax rate was 26.7 percent on pre-tax income from continuing operations of $1,448 million. The effective tax rate differential for the year ended December 31, 2022, was driven by the U.S tax effect of foreign earnings and dividends, geographic mix of earnings and the tax impacts of acquisition, integration, and separation costs.
For the year ended December 31, 2021, the Company's effective tax rate was 16.4 percent on a pre-tax income from continuing operations of $1,444 million. The effective tax rate differential 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.
For the year ended December 31, 2020, the Company's effective tax rate was (7.1) percent on a pre-tax loss from continuing operations of $1,259 million. The effective tax rate differential was principally the result of the non-tax-deductible goodwill impairment charges impacting Corporate & Other.
The underlying factors affecting the Company’s overall tax rate are summarized in Note 8 to the Consolidated Financial Statements.
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 costs of the M&M Businesses that are classified as discontinued operations include only direct operating expenses incurred prior to the November 1, 2022 M&M Divestiture and costs which the Company will no longer incur upon the close of the Delrin® Divestiture. 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 related to activities the Company continues to undertake post-closing of the M&M Divestiture, and for which it is and will be reimbursed (“Future Reimbursable Indirect Costs”). In addition, a portion of these indirect costs relate to activities the Company intends to perform post the close of the Delrin® Divestiture and for which it will be reimbursed. 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 / other post-employment benefits (“OPEB”) / charges, and foreign exchange gains / losses, excluding Future Reimbursable Indirect Costs, and adjusted for significant items.
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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 ("OLED"). In addition, the segment produces innovative engineering polymer solutions, high performance parts, medical silicones and specialty lubricants.
| Electronics & Industrial | For the Years Ended December 31, | ||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | 5,917 | $ | 5,554 | $ | 4,674 | |||||
Operating EBITDA | $ | 1,836 | $ | 1,758 | $ | 1,468 | |||||
| Equity earnings | $ | 31 | $ | 41 | $ | 34 | |||||
| Electronics & Industrial | For the Years Ended December 31, | |||||||
| Percentage change from prior year | 2022 | 2021 | ||||||
| Change in Net Sales from Prior Period due to: | ||||||||
Local price & product mix | 2 | % | — | % | ||||
Currency | (3) | 1 | ||||||
Volume | 3 | 12 | ||||||
Portfolio & other | 5 | 6 | ||||||
Total | 7 | % | 19 | % | ||||
2022 Versus 2021
Electronics & Industrial net sales were $5,917 million for the year ended December 31, 2022, up 7 percent from $5,554 million for the year ended December 31, 2021. Net sales increased due to a 5 percent increase from portfolio changes, a 3 percent increase in volume, and a 2 percent increase in local price, and partially offset by a 3 percent unfavorable currency impact. The portfolio impact primarily reflects the July 1, 2021 acquisition of Laird PM. Volume growth was led by Semiconductor Technologies which was driven by strong end-market demand primarily due to continued transition to more advanced node technologies and high performance computing. Within Industrial Solutions, volume gains were driven by growth in healthcare and industrial-end markets as well as continued strength in electronics applications. Volumes within Interconnect Solutions, were down due to weakness in consumer electronics and smartphones.
Operating EBITDA was $1,836 million for the year ended December 31, 2022, up 4 percent compared with $1,758 million for the year ended December 31, 2021 driven by strong volume growth, pricing gains, and the acquisition of Laird PM, partially offset by higher raw material, logistics and energy costs, as well as weaker product mix in Interconnect Solutions.
2021 Versus 2020
Electronics & Industrial net sales were $5,554 million for the year ended December 31, 2021, up 19 percent from $4,674 million for the year ended December, 31 2020. Net sales increased due to a 12 percent increase in volume, a 6 percent portfolio and other increase impact and a 1 percent favorable currency impact. Local price and product mix were flat. Volume growth was driven by Industrial Solutions primarily due to increased demand in consumer electronics and healthcare markets. Semiconductor Technologies volume growth was led by new technology ramps at advanced nodes within logic and foundry and growth in high performance computing and 5G communications markets. Within Interconnect Solutions, the increase was driven by the July 1, 2021 acquisition of Laird PM, increases in consumer electronics, and continued volume recovery within industrial applications.
Operating EBITDA was $1,758 million for the year ended December 31, 2021, up 20 percent compared with $1,468 million for the year ended December 31, 2020 driven by strong volume growth and the acquisition of Laird PM and partially offset by higher raw material and logistic costs. The years ended December 31, 2021 and 2020 include income of $28 million and $40 million, respectively, related to the sale of assets.
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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 | For the Years Ended December 31, | ||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | 5,957 | $ | 5,552 | $ | 4,993 | |||||
| Operating EBITDA | $ | 1,431 | $ | 1,385 | $ | 1,313 | |||||
| Equity earnings | $ | 39 | $ | 36 | $ | 26 | |||||
| Water & Protection | For the Years Ended December 31, | |||||||
| Percentage change from prior year | 2022 | 2021 | ||||||
| Change in Net Sales from Prior Period due to: | ||||||||
Local price & product mix | 12 | % | 2 | % | ||||
Currency | (4) | 1 | ||||||
Volume | (1) | 8 | ||||||
Portfolio & other | — | — | ||||||
Total | 7 | % | 11 | % | ||||
2022 Versus 2021
Water & Protection net sales were $5,957 million for the year ended December 31, 2022, up 7 percent from $5,552 million for the year ended December 31, 2021 due to a 12 percent increase in local price, partially offset by a 4 percent unfavorable currency impact and a 1 percent decrease in volume. Portfolio was flat. Local price increased across all businesses and in all regions, led by Shelter Solutions and Safety Solutions.
Volume growth in Water Solutions was more than offset by a decline in Safety Solutions while Shelter Solutions was flat. Water Solutions volume gains were driven by strong global demand across all technologies led by reverse osmosis membranes and ultra filtration. Safety Solutions volume declined primarily as a result of lower demand for TYVEK® garments. Shelter Solutions was flat due to weakness in the construction market largely in North America and EMEA.
Operating EBITDA was $1,431 million for the year ended December 31, 2022, up 3 percent compared with $1,385 million for the year ended December 31, 2021 as pricing actions and more disciplined cost control more than offset higher raw material, logistics and energy costs, unfavorable impact from currency, and lower volumes.
2021 Versus 2020
Water & Protection net sales were $5,552 million for the year ended December 31, 2021, up 11 percent from $4,993 million for the year ended December 31, 2020 due to an 8 percent increase in volume, a 2 percent increase in local price, and a 1 percent favorable currency impact. Portfolio was flat. Volume growth across the segment was driven by ongoing recovery of end markets following the COVID-19 pandemic. Volume gains in Safety Solutions were driven by continued recovery in end-markets for aramid fibers most notably in NOMEX® and KEVLAR®. Within Shelter Solutions, volume growth was driven by the ongoing recovery of commercial construction and continued demand in residential construction and do-it-yourself applications. Water Solutions volume gains reflect strong demand for water technologies led by reverse osmosis membranes in industrial and desalination markets.
Operating EBITDA was $1,385 million for the year ended December 31, 2021, up 5 percent compared with $1,313 million for the year ended December 31, 2020 as volume gains and the absence of costs associated with temporarily idling several manufacturing facilities were partially offset by higher raw material and logistics costs.
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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 the 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 | For the Years Ended December 31, | ||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | 1,143 | $ | 1,460 | $ | 1,461 | |||||
Operating EBITDA | $ | (6) | $ | 9 | $ | 61 | |||||
| Equity earnings | $ | 5 | $ | 8 | $ | 108 | |||||
Corporate & Other net sales were $1,143 for the year ended December 31, 2022, down from $1,460 million for the year ended December 31, 2021. For the year ended December 31, 2022 net sales decreased primarily due to the divestiture of the Biomaterials business in May 2022 and Clean Technologies business in December 2021. For the year ended December 31, 2021, Corporate & Other net sales were $1,460 million which was consistent with net sales of $1,461 million for the year ended December, 31 2020.
Operating EBITDA was $(6) million, $9 million and $61 million for the year ended December 31, 2022, 2021 and 2020, respectively. The decrease in EBITDA was primarily the result of portfolio actions over the three years.
2023 OUTLOOK
In 2023, the Company expects continued demand strength in areas such as water and auto adhesives, along with stable demand across industrial end-markets including aerospace and healthcare. The Company expects lower volumes in consumer facing markets during the first half of the year, primarily in consumer electronics and semiconductors within the Electronics & Industrial segment. Market declines within the Water & Protection segment in construction end-markets are expected throughout 2023. The Company expects macroeconomic pressures and demand trends will begin to correct by the end of the first half for the consumer end markets served by the Electronics & Industrial segment but cannot predict the extent or length of such correction. As a result, the Company is unable to predict the extent to which these macroeconomic events may impact its consolidated results of operations or financial condition. The Company continues to closely monitor macroeconomic and geopolitical developments.
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LIQUIDITY & CAPITAL RESOURCES
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. However, DuPont is unable to predict the extent of macroeconomic related impacts which depend on uncertain and unpredictable future developments. In light of this uncertainty, the Company has taken steps to further ensure liquidity and capital resources, as discussed below.
| In millions | December 31, 2022 | December 31, 2021 | ||||||
| Cash, cash equivalents and marketable securities | $ | 4,964 | $ | 1,972 | ||||
| Total debt | $ | 8,074 | $ | 10,782 | ||||
The Company's cash and cash equivalents at December 31, 2022 and December 31, 2021 were $3.7 billion and $2.0 billion, respectively, of which $1.2 billion at December 31, 2022 and $1.4 billion at December 31, 2021 were held by subsidiaries in foreign countries, including United States territories. 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. The Company held $1,302 million in marketable securities at December 31, 2022 and none at December 31, 2021. The increase in marketable securities from the prior period is due to the investment of proceeds from the M&M Divestiture.
Total debt at December 31, 2022 and December 31, 2021 was $8.1 billion and $10.8 billion, respectively. The decrease was primarily due to the redemption of 2018 Senior Notes of $2.5 billion due in 2023 during the fourth quarter of 2022, repayment of all commercial paper borrowings and mark to market impact to the fair value of an interest rate swap used to hedge changes in the fair value of the hedged item due to changes in the SOFR as of December 31, 2022.
As of December 31, 2022, the Company is contractually obligated to make future cash payments of $8.2 billion and $5.3 billion associated with principal and interest, respectively, on debt obligations. Related to the principal, $300 million will be due in the next twelve months and the remainder will be due subsequent to 2023. Related to interest, $411 million will be due in the next twelve months and the remainder will be due subsequent to 2023. The majority of interest obligations will be due in 2028 or later.
Revolving Credit Facilities
On April 12, 2022, the Company entered into a $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.
Also 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.
Repayment of Senior Notes
In November 2022, the Company redeemed in full $2.5 billion in fixed-rate long term senior unsecured notes due 2023 at a redemption price equal to 100% of the aggregated principal amount plus the accrued and unpaid interest. The redemption was funded with the net proceeds from the M&M Divestiture.
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Terminated Intended Rogers Acquisition
In connection with the Terminated 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. Separately, on November 1, 2022 the Company announced the termination of the previously announced agreement to acquire the outstanding shares of Rogers. The Company paid Rogers a termination fee of $162.5 million in accordance with the agreement on November 2, 2022. The termination fee was paid with cash on hand and recorded in the "Acquisition, integration and separation costs" within the Consolidated Statement of Operations. See Note 3 to the Consolidated Financial Statements for additional information.
Commercial Paper
In April 2022, DuPont downsized its authorized commercial paper program from $3.0 billion to $2.5 billion (the “DuPont Commercial Paper Program”). At December 31, 2022 the Company had no commercial paper outstanding compared to $150 million outstanding at the end of 2021.
Term Loan
On February 1, 2021, the Company terminated its fully drawn $3.0 billion term loan facilities. The termination triggered the repayment of the aggregate outstanding principal amount of $3.0 billion, plus accrued and unpaid interest through and including January 31, 2021. The Company funded the repayment 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.
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 January 31, 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 | Stable | ||||||||
| 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 Five-Year Revolving Credit Facility and the 2022 $1B Revolving Credit Facility 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 December 31, 2022, the Company was in compliance with this financial covenant.
Summary of Cash Flows
The Company’s cash flows from operating, investing and financing activities, as reflected in the 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 Consolidated Statements of Cash Flows for all periods presented.
Cash Flow Summary | 2022 | 2021 | 2020 | ||||||||
In millions | |||||||||||
| Cash provided by (used for): | |||||||||||
Operating activities | $ | 588 | $ | 2,281 | $ | 4,095 | |||||
Investing activities | $ | 8,923 | $ | (2,401) | $ | (202) | |||||
Financing activities | $ | (7,667) | $ | (6,507) | $ | 3,238 | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | (148) | $ | (72) | $ | 67 | |||||
Cash, cash equivalents and restricted cash in discontinued operations | $ | — | $ | 39 | $ | 42 | |||||
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Cash Flows provided by Operating Activities
Cash provided by operating activities was $588 million, $2,281 million and $4,095 million for the years ended December 31, 2022, 2021 and 2020, respectively. The decrease in cash provided by operating activities in 2022 was primarily driven by the decrease in net income , increase in cash used in net working capital, primarily due to the use of cash from accounts payable and other assets and liabilities, net and transaction and separation related expenses. Included within the decrease of 2022 cash flow is the impact of the absence of two months of M&M and one month of N&B net income. Cash provided by operating activities decreased in 2021 compared with 2020, primarily due to the use of cash from accounts and notes receivable and inventories in 2021 compared to the release of cash from those same balance sheet assets in 2020. In 2021, these changes were driven by economic recovery resulting in sales growth/higher accounts receivable and supply chain challenges resulting in higher inventory levels.
The table below reflects net working capital on a continuing operations basis:
Net Working Capital 1 | December 31, 2022 | December 31, 2021 | ||||||
In millions (except ratio) | ||||||||
Current assets | $ | 9,979 | $ | 6,639 | ||||
Current liabilities | 3,587 | 3,518 | ||||||
| Net working capital | $ | 6,392 | $ | 3,121 | ||||
| Current ratio | 2.78:1 | 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 provided by Investing Activities
Cash provided by investing activities in 2022 was $8,923 million compared to cash used for investing of $2,401 million in 2021. The increase in cash provided from investing activities in 2022 versus the prior year is primarily attributable to the cash proceeds received from the M&M Divestiture, a decrease in cash used in acquisition of property and business partially offset by purchases of investments and the absence of proceeds from sale and maturities of investments. Cash used for investing activities in 2021 was primarily attributable to the acquisition of Laird PM and cash proceeds received from the sales of Solamet® and Clean Technologies businesses in 2021. In 2020, cash used for investing activities was $202 million primarily driven by cash used in capital expenditures partially offset by cash proceeds received from the sales of the TCS Business and Compound Semiconductor Solutions business units.
Capital expenditures totaled $743 million, $891 million and $1,194 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company expects 2023 capital expenditures to be about $650 million. The Company may adjust its spending throughout the year as economic conditions develop.
Cash Flows used for Financing Activities
Cash used for financing activities in 2022 was $7,667 million compared to cash used for by financing activities of $6,507 million in 2021. The increase in cash used for financing activities in 2022 versus the prior year is primarily driven by the increase in cash used for repurchases of common stocks and decrease in cash proceeds from the issuance of long-term debt. Cash used in 2021 was primarily driven by the cash used for the repayment of long-term debt and repurchases of common stock. In 2020, cash provided by financing activities was $3,238 million, primarily driven by the proceeds from issuance of long-term debt partially offset by cash used for the reduction in short-term and long-term debts and repurchases of common stock.
Dividends
The following table provides dividends paid to common shareholders for the years ended December 31, 2022, 2021 and 2020:
Dividends Paid | December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||
| In millions | |||||||||||
| Dividends paid, per common share | $ | 1.32 | $ | 1.20 | $ | 1.20 | |||||
Dividends paid to common stockholders 1 | $ | 652 | $ | 630 | $ | 882 | |||||
1.The 2020 dividends include dividends paid to common stockholders prior to the closing of the N&B Transaction.
The DuPont Board of Directors on February 6, 2023 declared a first quarter 2023 dividend of $0.36 per share, a 9 percent per share increase versus the first quarter 2022 dividend, payable on March 15, 2023, to holders of record at the close of business on February 28, 2023.
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Share Buyback Programs
On February 8, 2022, the Company's Board of Directors authorized an additional $1.0 billion share buyback program which expires on March 31, 2023. At the end of the third quarter of 2022, the Company had repurchased and retired a total of 11.9 million shares for $750 million under the 2022 Share Buyback Program.
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 2022 Share Buyback Program.
On November 8, 2022, the Company entered into the 2022 ASR Agreements, 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.
During the fourth quarter, in accordance with the terms of the 2022 ASR Agreements, the Company repurchased and retired the initial deliveries of 38.8 million shares in aggregate for $3.25 billion, approximately 3.7 million shares were repurchased for $250 million under the 2022 Share Buyback Program and the remaining 35.1 million shares were repurchased for $3 billion under the $5B Share Buyback Program. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the term of the 2022 ASR Agreements, less an agreed upon discount. The ASR transaction is being funded with proceeds from the M&M Divestitures and any remaining settlement will use cash on hand or exchange shares and is expected to be completed in the third quarter 2023.
In the first quarter of 2021, the Company's Board of Directors authorized a $1.5 billion share buyback program, which expires 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 under the 2021 Share Buyback Program.
In the second quarter of 2019, the Company's Board of Directors approved a $2 billion 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.
See Part II, Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and Note 18 to the Consolidated Financial Statements, for additional information.
Pension and Other Post-Employment Plans
The Company's funding policy is to contribute to defined benefit pension plans based on pension funding laws and local country requirements. Contributions exceeding funding requirements may be made at the Company's discretion. The Company expects to contribute approximately $76 million to its pension plans in 2023, including plans held in discontinued operations. The amount and timing of the Company’s actual future contributions will depend on applicable funding requirements, discount rates, investment performance, plan design, and various other factors, separations and distributions. See Note 19 to the Consolidated Financial Statements for additional information concerning the Company’s pension plans.
As of December 31, 2022, the Company is contractually obligated to make future cash contributions of $593 million related to pension and other post-employment benefit plans, including plans held in discontinued operations. $76 million will be due in the next twelve months and the remainder will be due subsequent to 2023 with the majority due subsequent to 2027.
Restructuring
In October 2022, 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"). For the year ended December 31, 2022, DuPont recorded a pre-tax charge related to the 2022 Restructuring Program in the amount of $61 million, recognized in "Restructuring and asset related charges - net" in the Company's Consolidated Statements of Operations, comprised of severance and related benefit costs. At December 31, 2022, total liabilities related to the 2022 Restructuring Program were $57 million for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet.
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In October 2021, the Company approved targeted restructuring actions to capture near term cost reductions (the "2021 Restructuring Actions"). For the years ended December 31, 2021 and December 31, 2022, DuPont recorded pre-tax charges inception to date related to the 2021 Restructuring Actions in the amounts of $46 million recognized in "Restructuring and asset related charges - net" in the Company's Consolidated Statements of Operations, comprised of $26 million of severance and related benefit costs and $20 million of asset related charges. At December 31, 2022, total liabilities related to the 2021 Restructuring Actions were $7 million for severance and related benefit costs. 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. As a result of these actions, the Company recorded pre-tax restructuring charges of $158 million inception-to-date, consisting of severance and related benefit costs of $106 million and asset related charges of $52 million. Actions associated with the 2020 Restructuring Program are considered substantially complete.
See Note 6 to the Consolidated Financial Statements for more information on the Company's restructuring programs.
Other Off-balance Sheet Arrangements
The MOU Cost Sharing Agreement
In connection with the cost sharing arrangement entered into as part of the MOU, the companies agreed to establish an escrow account to support and manage potential future eligible PFAS costs. Subject to the terms of the arrangement, contributions to the escrow account will be made annually by Chemours, DuPont and Corteva through 2028. Over such period, Chemours will deposit a total of $500 million into the account and DuPont and Corteva, together, will deposit an additional $500 million pursuant to the terms of their existing Letter Agreement. DuPont's aggregate escrow deposits of $100 million and $50 million at December 31, 2022 and 2021, respectively, are reflected in "Restricted cash and cash equivalents" on the Consolidated Balance Sheet.
As of December 31, 2022, the Company expected to make cash payments related to qualified PFAS spend of $66 million in the next twelve months. Additional information regarding the MOU and funding of the escrow account can be found in Note 16 to the Consolidated Financial Statements.
Other Contractual Obligations
Purchase obligations represents enforceable and legally binding agreements in excess of $1 million to purchase goods or services that specify fixed or minimum quantities; fixed minimum or variable price provisions; and the approximate timing of the agreement. As of December 31, 2022, the Company is contractually obligated to make future cash payments $159 million related to purchase obligations, of which $85 million will be due in the next twelve months and the remainder will be due subsequent to 2023.
Lease obligations represents future finance and operating lease payments. As of December 31, 2022, obligations of future lease payments are $480 million, of which $100 million will be due in the next twelve months and remainder will be due subsequent to 2023.
Other miscellaneous obligations includes liabilities related to deferred compensation, environmental remediation, and other noncurrent liabilities. As of December 31, 2022, the Company is contractually obligated to make future cash payments of $187 million related to other miscellaneous obligations, the majority of which is due subsequent to 2023.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for a description of recent accounting pronouncements.
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CRITICAL ACCOUNTING ESTIMATES
The Company's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company's operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental matters and litigation. Management's estimates are based on historical experience, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. The Company reviews these matters and reflects changes in estimates as appropriate. Management believes that the following represent some of the more critical judgment areas in the application of the Company's accounting policies which could have a material effect on the Company's financial position, liquidity or results of operations.
Pension Plans and Other Post-Employment Benefits
Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan assets are two critical assumptions in measuring the cost and benefit obligation of the Company's pension plans. Management reviews these two key assumptions when plans are re-measured. These and other assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate. As permitted by GAAP, actual results that differ from the assumptions are accumulated on a plan-by-plan basis and to the extent that such differences exceed 10 percent of the greater of the plan's benefit obligation or the applicable plan assets, the excess is amortized over the average remaining service period of active employees or the average remaining life expectancy of the inactive participants if all or almost all of a plan’s participants are inactive.
For the majority of the benefit plans, the Company utilizes the Aon AA corporate bond yield curves to determine the discount rate, applicable to each country, at the measurement date.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes in accordance with the laws and practices of those countries. Where appropriate, asset-liability studies are also taken into consideration. For plans, the long-term expected return on plan assets pension expense is determined using the fair value of assets.
The following table highlights the potential impact on the Company's pre-tax earnings due to changes in certain key assumptions with respect to the Company's pension plans based on assets and liabilities on a continuing operations basis at December 31, 2022:
Pre-tax Earnings Benefit (Charge) (Dollars in millions) | 1/4 Percentage Point Increase | 1/4 Percentage Point Decrease | ||||||
| Discount rate | $ | — | $ | — | ||||
| Expected rate of return on plan assets | 6 | (6) | ||||||
Additional information with respect to pension plans, liabilities and assumptions is discussed under "Long-term Employee Benefits" and in Note 19 to the Consolidated Financial Statements.
Legal Commitments and Contingencies
The Company's results of operations could be affected by significant litigation adverse to the Company, including product liability claims, patent infringement and antitrust claims, and claims for third-party property damage or personal injury stemming from alleged environmental torts. The Company records accruals for legal matters, including its obligations under the MOU as impacted by the Letter Agreement, when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms, and the matter's current status. Considerable judgment is required in determining whether to establish a litigation accrual when an adverse judgment is rendered against the Company in a court proceeding. In such situations, the Company will
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not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of significant litigation matters is contained in Note 16 to the Consolidated Financial Statements.
Income Taxes
The breadth of the Company's operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes the Company will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. The resolution of these uncertainties may result in adjustments to the Company's tax assets and tax liabilities. It is reasonably possible that changes to the Company’s global unrecognized tax benefits could be significant; however, due to the uncertainty regarding the timing of completion of audits and the possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.
Deferred income taxes result from differences between the financial and tax basis of the Company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. For example, changes in facts and circumstances that alter the probability that the Company will realize deferred tax assets could result in recording a valuation allowance, thereby reducing the deferred tax asset and generating a deferred tax expense in the relevant period. In some situations, these changes could be material.
At December 31, 2022, the Company had a net deferred tax liability balance of $1.0 billion, net of a valuation allowance of $0.7 billion. Realization of deferred tax assets is expected to occur over an extended period of time. As a result, changes in tax laws, assumptions with respect to future taxable income, and tax planning strategies could result in adjustments to deferred tax assets. See Note 8 to the Consolidated Financial Statements for additional details related to the deferred tax liability balance.
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 will 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 will impose a 1% surcharge on stock repurchases, effective January 1, 2023.
Assessment of Income Tax Impacts related to the M&M Divestiture
In connection with the M&M Divestiture, the Company completed certain internal restructurings which resulted in estimated income tax impacts from a United States federal, state and foreign jurisdiction perspective. The estimated tax impact of certain internal restructurings was calculated using valuations of components of legal entities and intellectual property, which involved the use of the income and/or market approach and assumptions, including, projected EBITDA, the weighted average costs of capital, royalty rates, tax rate, capital expenditures, and terminal growth rates for the income approach and projected EBITDA and market multiples for the market approach. The tax effect of these internal restructurings are included in the overall tax consequences of the M&M Divestiture.
During the year ended December 31, 2022, the Company recorded net income tax expense of $127 million related to the estimated tax impact of these internal restructurings from a United States and foreign jurisdiction perspective. Although the Company believes the estimated tax impacts are reasonable and appropriate, these estimates required significant judgment regarding the application of tax laws and regulations. Upon final resolution by the United States Internal Revenue Service or foreign tax authority through audit or litigation, the Company’s income tax calculations and related filing positions regarding certain elements of these transactions could be different, which could have a material impact on the Company.
Assessments of Long-Lived Assets and Goodwill
The assets and liabilities of acquired businesses are measured at their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired, including identified intangibles, is recorded as goodwill. The determination and allocation of fair value to the assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, including estimates based on historical information, current market data and future expectations. The principal assumptions in these analyses include projected revenue, gross margins, selling, administrative, research and development expenses (SARD), capital expenditures, the weighted average cost of capital, the terminal growth rates, and the forecasted tax rates for the income approach. For the market
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approach, the company uses projected EBITDA and derived multiples from comparable market transactions. The estimates are deemed reasonable by management based on information available at the dates of acquisition; however, estimates are inherently uncertain.
Assessment of the potential impairment of goodwill, other intangible assets, property, plant and equipment, investments in nonconsolidated affiliates, and other assets is an integral part of the Company's normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management's best estimates at a particular point in time. The dynamic economic environments in which the Company's diversified product lines operate, and key economic and product line assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized. In addition, the Company continually reviews its diverse portfolio of assets to ensure they are achieving their greatest potential and are aligned with the Company's growth strategy. Strategic decisions involving a particular group of assets may trigger an assessment of the recoverability of the related assets. Such an assessment could result in impairment losses.
The Company performs its annual goodwill impairment testing during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below carrying value, at the reporting unit level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business in which discrete financial information is available and regularly reviewed by segment management. The Company aggregates certain components into reporting units based on economic similarities. The Company has seven reporting units.
For purposes of goodwill impairment testing, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The qualitative evaluation is an assessment of factors, including reporting unit or asset specific operating results and cost factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than the respective carrying amount, including goodwill. If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.
If additional quantitative testing is performed, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the amount of goodwill at the reporting unit. The Company determines fair values for each of the reporting units using a combination of the income approach and market approach.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Discounted cash flow valuations are completed using the following key assumptions: projected revenue, gross margins, selling, administrative, research and development expenses (SARD), capital expenditures, the weighted average cost of capital, the terminal growth rate, and the tax rate. These key assumptions are determined through evaluation of the Company as a whole, underlying business fundamentals and industry risk. The Company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in its internally developed forecasts.
Under the market approach, the Company applies the Guideline Public Company Method ("GPCM"). Selected peer sets are based on close competitors, publicly traded companies and reviews of analysts' reports, public filings, and industry research. In selecting the EBIT/EBITDA multiples and determining the fair value, the Company considers the size, growth, and profitability of each reporting unit versus the relevant guideline public companies. When applicable, third-party purchase offers may be utilized to measure fair value.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
In the fourth quarter of 2022, the Company performed its annual goodwill impairment testing by applying the qualitative assessment to five of its reporting units and the quantitative assessment to two of its reporting units. The Company considered various qualitative factors that would have affected the estimated fair value of the reporting units, and the results of the qualitative assessments indicated that it is not more likely than not that the fair values of the reporting units were less than their
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carrying values. For the reporting units tested under the quantitative assessment, the results indicated that, the estimated fair values of the reporting units exceeded their carrying values. The estimated fair value of one of the reporting units within Water & Protection exceeded its carrying value by approximately 10%. Given this level of fair value, the reporting unit is sensitive to changes in the significant assumptions used in the analysis. If the reporting unit does not perform to expected levels or there are adverse changes in certain macroeconomic factors, the related goodwill may be at risk for impairment in the future. The dynamic economic environments in which the Company's diversified product lines operate, and key economic and product line assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results.
As part of the 2022 Segment Realignment, the Company assessed and re-defined certain reporting units effective March 1, 2022, including reallocation of goodwill on a relative fair value basis, as applicable, to reporting units impacted. A combination of quantitative and qualitative goodwill impairment analyses was then performed for reporting units impacted by this new structure and no impairments were identified.
The Company evaluates the carrying value of long-lived assets (collectively the “asset group”) to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the anticipated future undiscounted cash flows to be derived from the asset group are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset group. Fair value of the asset group is determined using a combination of a discounted cash flow model and/or market approach. Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of. Depreciation is recognized over the remaining useful life of the assets.
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LONG-TERM EMPLOYEE BENEFITS
The Company has various obligations to its employees and retirees. The Company maintains retirement-related programs in many countries that have a long-term impact on the Company's earnings and cash flows. These plans are typically defined benefit pension plans. The Company has a few medical, dental and life insurance benefits for employees, pensioners and survivors and for employees (other post-employment benefits or "OPEB" plans).
Pension coverage for employees of the Company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. The Company regularly explores alternative solutions to meet its global pension obligations in the most cost-effective manner possible as demographics, life expectancy and country-specific pension funding rules change. Where permitted by applicable law, the Company reserves the right to change, modify or discontinue its plans that provide pension, medical, dental and life insurance. Benefits under defined benefit pension plans are based primarily on years of service and employees' pay near retirement.
Pension benefits are paid primarily from trust funds established to comply with applicable laws and regulations of the sovereign country in which the pension plan operates. Unless required by law, the Company does not make contributions that are in excess of tax-deductible limits. The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable assurance that there will be adequate funds for the payment of benefits. Thus, there is not necessarily a direct correlation between pension funding and pension expense. In general, however, improvements in plans' funded status tends to moderate subsequent funding needs.
The Company contributed $23 million to its funded pension plans for the year ended December 31, 2022. The Company contributed $28 million to its funded pension plans for the years ended December 31, 2021 and December 31, 2020, respectively. All values within this Long-Term Employee Benefits section are inclusive of balances and activity associated with discontinued operations.
The Company does maintain one U.S. pension benefit plan. This plan is a separate unfunded plan and these benefits are paid to employees from operating cash flows. The Company's remaining pension plans with no plan assets are paid from operating cash flows. The Company made benefit payments of $56 million, $60 million, and $73 million to its unfunded plans, including OPEB plans, for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.
In 2023, the Company expects to contribute approximately $76 million to its funded pension plans and its remaining plans with no plan assets. The amount and timing of actual future contributions will depend on applicable funding requirements, discount rates, investment performance, plan design, and various other factors.
The Company's income can be significantly affected by pension and defined contribution charges/(benefits) as well as OPEB costs. The following table summarizes the extent to which the Company's income for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 was affected by pre-tax charges related to long-term employee benefits:
| For the Years Ended | |||||||||||
| In millions | December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||
| Long-term employee benefit plan charges | $ | 98 | $ | 106 | $ | 155 | |||||
The above charges (benefit) for pension and OPEB are determined as of the beginning of each period. See "Pension Plans and Other Post-Employment Benefits" under the Critical Accounting Estimates section of this report for additional information on determining annual expense.
For 2023, long term employee benefit expense from continuing operations is expected to increase by about $40 million compared to 2022. The increase is mainly due to higher interest costs.
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ENVIRONMENTAL MATTERS
The Company operates global manufacturing, product handling and distribution facilities that are subject to a broad array of environmental laws and regulations. Such rules are subject to change by the implementing governmental agency, and the Company monitors these changes closely. Company policy requires that all operations fully meet or exceed legal and regulatory requirements.
In addition, the Company implements various voluntary programs to reduce its environmental footprint, which include initiatives to reduce air emissions, minimize the generation of hazardous waste, decrease the volume of water used and discharged, increase the efficiency of energy use, and reduce the generation of persistent, bioaccumulative and toxic materials. In October 2019 DuPont announced its sustainability strategy and 2030 Sustainability Goals. The Company’s sustainability strategy and goals prioritize global challenges such as climate change, water stewardship, advancing circular economy and processes, improving health and safety, and more. With these goals, DuPont is committed to using the Company's strength in innovation to advance progress on several of the United Nations’ Sustainable Development Goals, increasing resiliency and reducing environmental and social impacts across value chains, and ensuring people are put at the center of all the Company's work. Executive responsibility for overall sustainability performance sits with the Chief Technology & Sustainability Officer (the “CTSO”). The CTSO role was created specifically for DuPont to capitalize on the intrinsic link between sustainability and innovation in the Company’s operating model. The CTSO reports directly to the CEO, and routinely engages with the Environmental, Health, Safety & Sustainability (EHS&S) Committee of the Board of Directors on matters of sustainability. DuPont’s sustainability initiatives and strategy are discussed further in its 2022 Sustainability Report, which is available under Sustainability in the "About Us" section of its website; this report is not incorporated by reference and should not be considered part of this Form 10-K.
The costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, such as DuPont’s sustainability strategy, are significant and will continue to be significant for the foreseeable future. Based on existing facts and circumstances, management does not believe that year-over-year changes, if any, in environmental expenses charged to current operations will have a material impact on the Company's financial position, liquidity or results of operations. Annual expenditures in the near term are not expected to vary significantly from the range of such expenditures experienced in the past few years. Longer term, expenditures are subject to considerable uncertainty and may fluctuate significantly.
Climate Change
The Company believes that climate change is an important global environmental issue that presents risks and opportunities. The Company is continuously evaluating opportunities for existing and new product and service offerings to meet the anticipated demands of a low-carbon economy. As part of DuPont’s sustainability strategy, the Company announced an Acting on Climate Goal. The objective of the Acting on Climate goal is to reduce the Company’s greenhouse gas (GHG) emissions by 30 percent, measured from a base year of 2019, including sourcing 60 percent of electricity for operations from renewable energy and delivering carbon neutral operations by 2050. DuPont reports on its progress against these goals in its annual sustainability report. In 2022, the Company included its inaugural TCFD Index in its Sustainability Report and additional climate-related disclosure in its response to the CDP Climate survey.
In line with the objectives of the Acting on Climate goal, DuPont signed a virtual power purchase agreement (the “VPPA”) with a subsidiary of NextEra Energy Resources, LLC in 2021. The VPPA went live in December 2022 and will deliver the equivalent of 135 megawatts of new wind power capacity or approximately 528,000 megawatt hours (MWh) of renewable electricity on an annual basis beginning in 2023.
The Company is actively engaged in efforts to develop constructive public policies to reduce GHG emissions and encourage lower-carbon forms of energy. DuPont is part of several organizations, including the CEO Climate Dialogue, a collaboration between large companies and NGOs working together to advance effective climate legislation in the US. DuPont is also part of the Alliance to Save Energy, which is an organization advocating to advance federal energy efficiency policy, as well as other organizations that advocate for clean mobility and renewable fuel.
Public policies may bring higher operating costs as well as greater revenue and margin opportunities. Legislative efforts to control or limit GHG emissions could affect the Company's energy source and supply choices as well as increase the cost of energy and raw materials derived from fossil fuels. Such efforts are also anticipated to provide the business community with greater certainty for the regulatory future, help guide investment decisions, and drive growth in demand for low-carbon and energy-efficient products, technologies, and services. Similarly, demand is expected to grow for products that facilitate adaptation to a changing climate. However, the current unsettled policy environment in the U.S., where many company facilities are located, adds an element of uncertainty to business decisions, particularly those relating to long-term capital investments.
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In addition, significant differences in regional or national approaches could present challenges in a global marketplace. An effective global climate policy framework will help drive the market changes that are needed to stimulate and efficiently deploy new innovations in science and technology, while maintaining open and competitive global markets.
Environmental Operating Costs
As a result of its operations, the Company incurs costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewater treatment, emissions testing and monitoring, and obtaining permits. The Company also incurs costs related to environmental related research and development activities including environmental field and treatment studies as well as toxicity and degradation testing to evaluate the environmental impact of products and raw materials.
Environmental Remediation
The Company has directly incurred environmental remediation costs of $12 million, $14 million and $6 million, for the years ended December 31, 2022, 2021 and 2020, respectively.
Changes in the remediation accrual balance are summarized below:
| (Dollars in millions) | |||||
| Balance at December 31, 2020 | $ | 80 | |||
| Remediation payments | (7) | ||||
| Net increase in remediation accrual | 14 | ||||
Net change, indemnification 1 | 2 | ||||
| Balance at December 31, 2021 | $ | 89 | |||
| Remediation payments | (11) | ||||
| Net increase in remediation accrual | 12 | ||||
Net change, indemnification 1 | — | ||||
| Balance at December 31, 2022 | $ | 90 | |||
1.Represents the net change in indemnified remediation obligations based on activity pursuant to the DWDP Separation and Distribution Agreement and Letter Agreement as discussed below and in Note 16 to the Consolidated Financial Statements. This is not inclusive of the environmental accrual of $173 million related to eligible PFAS costs associated with the MOU.
Considerable uncertainty exists with respect to environmental remediation costs, and, under adverse changes in circumstances, the potential liability may range up to $173 million above the amount accrued as of December 31, 2022. However, based on existing facts and circumstances, management does not believe that any loss, in excess of amounts accrued, related to remediation activities at any individual site will have a material impact on the financial position, liquidity or results of operations of the Company.
Pursuant to the DWDP Separation and Distribution Agreement and the Letter Agreement discussed in Note 16 to the Consolidated Financial Statements, the Company indemnifies Dow and Corteva for certain environmental matters. The Company has recorded an indemnification liability of $49 million corresponding to the Company's accrual balance related to these matters at December 31, 2022. The indemnification liability is included in the total remediation accrual liability of $90 million.
Environmental Capital Expenditures
Capital expenditures for environmental projects, either required by law or necessary to meet the Company’s internal environmental goals, were $31 million for the year ended December 31, 2022. This amount includes $17 million of expenditures used towards the Company's climate change initiatives. The Company currently estimates expenditures for environmental-related capital projects to be approximately $23 million in 2023, with $9 million estimated for climate change initiatives.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s global operations are exposed to financial market risks relating to fluctuations in foreign currency exchange rates, commodity prices, and interest rates. The Company has established a variety of programs including the use of derivative instruments and other financial instruments to manage the exposure to financial market risks as to minimize volatility of financial results. In the ordinary course of business, the Company enters into derivative instruments to hedge its exposure to foreign currency, interest rate and commodity price risks under established procedures and controls. For additional information on these derivatives and related exposures, see Note 21 to the Consolidated Financial Statements. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility and economic trends. Foreign currency exchange contracts are also used, from time to time, to manage near-term foreign currency cash requirements.
Foreign Currency Exchange Rate Risks
The Company has significant international operations resulting in a large number of currency transactions from international sales, purchases, investments and borrowings. The primary currencies for which the Company has an exchange rate exposure are the Chinese renminbi ("CNY"), European euro ("EUR"), Japanese yen ("JPY"), South Korean won ("KRW") and Canadian dollar ("CAD"). The Company uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. In addition to the contracts disclosed in Note 21 to the Consolidated Financial Statements, from time to time, the Company will enter into foreign currency exchange contracts to establish with certainty the U.S. dollar ("USD") amount of future firm commitments denominated in a foreign currency.
The following table illustrates the fair values of outstanding foreign currency contracts at December 31, 2022 and 2021, and the effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed at December 31, 2022 and 2021. The sensitivities for foreign currency contracts are based on a 10 percent adverse change in foreign exchange rates.
| Fair Value Asset/(Liability) | Fair Value Sensitivity | |||||||||||||
| In millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Foreign currency contracts | $ | (25) | $ | (5) | $ | (290) | $ | (192) | ||||||
The Company uses cross currency swaps, designated as a net investment hedge, to hedge portions of its net investment in its European operations. The net investment hedge serves to offset the foreign currency translation risk from the Company’s foreign operations. If the U.S. dollar weakened by 10%, the fair value of the net investment hedge would have been approximately $91 million lower as of December 31, 2022 and approximately $118 million lower as of December 31, 2021.
The Company uses interest rate swaps to hedge changes in the fair value of the hedged item due to changes in the Secured Overnight Financing Rate (“SOFR”). If the floating rates appreciated by 10%, the fair value of the interest rate swaps would have been approximately $26 million lower as of December 31, 2022.
Since the Company's risk management programs are highly effective, the potential loss in value for each risk management portfolio described above would be largely offset by changes in the value of the underlying exposure.
Concentration of Credit Risk
The Company maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed and the Company has a policy to limit the dollar amount of credit exposure with any one institution.
As part of the Company's financial risk management processes, it continuously evaluates the relative credit standing of all of the financial institutions that service DuPont and monitors actual exposures versus established limits. The Company has not sustained credit losses from instruments held at financial institutions.
The Company's sales are not materially dependent on any single customer. As of December 31, 2022, no one individual customer balance represented more than five percent of the Company's total outstanding receivables balance. Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with the Company's global product lines.
The Company also maintains strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by industry and region.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are included herein, commencing on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 December 31, 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 quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
In connection with the M&M Divestiture, there were several processes, policies, operations, technologies and information systems, each along with underlying data relevant to the M&M Divestiture, that were transferred or separated. Through the quarter ended December 31, 2022, the Company continued to take steps to ensure that adequate controls were designed and maintained throughout this transition period.
The Company has completed its evaluation of its internal controls and has concluded that the Company's system of internal controls over financial reporting was effective as of December 31, 2022 (see page F-2).
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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| DuPont de Nemours, Inc. | ||||||||
| PART III | ||||||||
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information related to Directors, certain executive officers and certain corporate governance matters (including identification of Audit Committee members and financial expert(s)) is contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information related to executive compensation and the Company's equity compensation plans is contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to beneficial ownership of DuPont de Nemours, Inc. common stock by each Director and all Directors and executive officers of the Company as a group is contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and is incorporated herein by reference.
Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of DuPont de Nemours, Inc. common stock is contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and is incorporated herein by reference.
Information with respect to compensation plans under which equity securities are authorized for issuance is contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Reportable relationships and related transactions, if any, as well as information relating to director independence are contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont de Nemours, Inc. and are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to fees and services related to the Company’s independent auditors, PricewaterhouseCoopers LLP, and the disclosure of the Audit Committee’s pre-approval policies and procedures are contained in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders of DuPont and are incorporated herein by reference.
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| DuPont de Nemours, Inc. | ||||||||
| PART IV | ||||||||
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Financial Statements and Financial Statement Schedules:
1.Financial Statements (See the Index to the Consolidated Financial Statements on page F-1 of this report).
2.Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
| (In millions) for the years ended December 31, | 2022 | 2021 | 2020 | ||||||||
| Accounts Receivable—Allowance for Doubtful Receivables | |||||||||||
| Balance at beginning of period | $ | $ | $ | ||||||||
| Additions charged to expenses | |||||||||||
Deductions from reserves1 | ( | ( | |||||||||
| Balance at end of period | $ | $ | $ | ||||||||
| Inventory—Obsolescence Reserve | |||||||||||
| Balance at beginning of period | $ | $ | $ | ||||||||
| Additions charged to expenses | |||||||||||
Deductions from reserves2 | ( | ( | ( | ||||||||
| Balance at end of period | $ | $ | $ | ||||||||
| Deferred Tax Assets—Valuation Allowance | |||||||||||
| Balance at beginning of period | $ | $ | $ | ||||||||
Additions 3, 4 | |||||||||||
Deductions from reserves 3 | ( | ( | ( | ||||||||
| Balance at end of period | $ | $ | $ | ||||||||
1.Deductions include write-offs, recoveries and currency translation adjustments.
2.Deductions include disposals and currency translation adjustments.
3.Additions and Deductions include currency translation adjustments.
4.Includes approximately $50 million related to the acquisition of Laird Performance Materials in 2021.
Financial Statement Schedules listed under the Securities and Exchange Commission ("SEC") rules but not included in this report are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto incorporated by reference.
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(b) Exhibits required to be filed by Item 601 of Regulation S-K (all of which are under Commission File No. 0001666700):
| 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. | ||||||||||||||
Description of Capital Stock incorporated by reference to Exhibit 4.1 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. | ||||||||||||||
Indenture, dated as of November 28, 2018, by and between DowDuPont Inc. and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to the DuPont de Nemours. Inc. Current Report on Form 8-K filed on November 28, 2018. | ||||||||||||||
Memorandum of Understanding, dated January 22, 2021, by and among DuPont de Nemours, Inc., Corteva, Inc., E. I. du Pont de Nemours and Company and The Chemours Company, incorporated by reference to Exhibit 10.1 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed January 22, 2021. | ||||||||||||||
Tax Matters Agreement dated February 1, 2021, by and among DuPont de Nemours Inc., Nutrition & Biosciences, Inc. and International Flavors & Fragrances Inc. incorporated by reference to Exhibit 10.1 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed February 4, 2021. | ||||||||||||||
Intellectual Property Cross-License Agreement, dated February 1, 2021, by and among DuPont de Nemours Inc., Nutrition & Biosciences, Inc. and the other parties identified therein incorporated by reference to Exhibit 10.2 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed February 4, 2021. | ||||||||||||||
| Separation and Distribution Agreement, effective as of April 1, 2019, by and among DowDuPont Inc., Dow Inc. and Corteva, Inc. incorporated by reference to Exhibit 2.1 to the DowDuPont Inc. Current Report on Form 8-K filed April 2, 2019. | ||||||||||||||
| Tax Matters Agreement, effective as of April 1, 2019, by and among DowDuPont Inc., Dow Inc. and Corteva, Inc. incorporated by reference to Exhibit 10.1 to the DowDuPont Inc. Current Report on Form 8-K filed April 2, 2019. | ||||||||||||||
| Intellectual Property Cross-License Agreement, effective as of April 1, 2019, by and among DowDuPont Inc. and Dow Inc., incorporated by reference to Exhibit 10.3 to the DowDuPont Inc. Current Report on Form 8-K filed April 2, 2019. | ||||||||||||||
| Letter Agreement, effective as of June 1, 2019 by and between DuPont de Nemours, Inc. and Corteva, Inc., incorporated by reference to Exhibit 10.2 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed June 3, 2019. | ||||||||||||||
| Amended and Restated Tax Matters Agreement, effective as of June 1, 2019, by and among DowDuPont Inc., Corteva, Inc. and Dow Inc., incorporated by reference to Exhibit 10.3 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed June 3, 2019. | ||||||||||||||
| 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. | ||||||||||||||
| DuPont de Nemours, Inc. 2020 Equity and Incentive Plan, incorporated by reference to Exhibit 10.1 to the DuPont de Nemours, Inc. Current Report on Form 8- K filed May 29, 2020. | ||||||||||||||
| DuPont Senior Executive Severance Plan, effective as of June 1, 2019, incorporated by reference to Exhibit 10.4 to the DuPont de Nemours, Inc. Current Report on Form 8-K filed June 3, 2019. | ||||||||||||||
| DuPont Management Deferred Compensation Plan, effective June 1, 2019, incorporated by reference to Exhibit 10.5 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
| DuPont Stock Accumulation and Deferred Compensation Plan for Directors, effective June 1, 2019, incorporated by reference to Exhibit 10.6 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
57
| DuPont Deferred Variable Compensation Plan, effective June 1, 2019, incorporated by reference to Exhibit 10.7 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
| DuPont Retirement Savings Restoration Plan, effective June 1, 2019, incorporated by reference to Exhibit 10.8 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
| DuPont Pension Restoration Plan, effective June 1, 2019, incorporated by reference to Exhibit 10.9 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
| DuPont Omnibus Incentive Plan effective June 1, 2019, incorporated by reference to Exhibit 10.10 to DuPont de Nemours, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. | ||||||||||||||
| Amended and Restated Employment Agreement by and between DuPont de Nemours, Inc. and Edward D. Breen, dated as of December 28, 2019, incorporated by reference to Exhibit 10.1 to DuPont de Nemours, Inc. Current Report on Form 8-K filed December 29, 2020. | ||||||||||||||
| Employment Letter Agreement by and between DuPont de Nemours, Inc. and Edward D. Breen, dated as of February 6, 2023, incorporated by reference to Exhibit 10.1 to DuPont de Nemours, Inc. Current Report on Form 8-K filed February 7, 2023. | ||||||||||||||
| Subsidiaries of the Registrant. | ||||||||||||||
| Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP. | ||||||||||||||
| Power of Attorney (included as part of signature page). | ||||||||||||||
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.
ITEM 16. FORM 10-K SUMMARY
None.
58
DuPont de Nemours, Inc. Signatures | ||
Pursuant to the requirements of Section 13 or 15(d) 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: February 15, 2023
| By: | /s/ MICHAEL G. GOSS | |||||||||||||
| Name: | Michael G. Goss | |||||||||||||
| Title: | Vice President and Controller | |||||||||||||
| City: | Wilmington | |||||||||||||
| State: | Delaware | |||||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title(s) | Date | |||||||||||||||
| /s/ LORI KOCH | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 15, 2023 | |||||||||||||||
| Lori Koch | |||||||||||||||||
| /s/ MICHAEL G. GOSS | Vice President and Controller | February 15, 2023 | |||||||||||||||
| Michael G. Goss | (Principal Accounting Officer) | ||||||||||||||||
59
We, the undersigned directors and officers of DuPont de Nemours, Inc, hereby severally constitute Erik T. Hoover, Senior Vice President & General Counsel and Peter W. Hennessey, Vice President, Associate General Counsel & Corporate Secretary, and each of them singly, as our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments or supplements to this Annual Report on Form 10-K and to cause same to be filed with the U.S. Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934.
| Signature | Title(s) | Date | |||||||||||||||
| /s/ EDWARD D. BREEN | Chief Executive Officer and Director | February 15, 2023 | |||||||||||||||
| Edward D. Breen | (Principal Executive Officer) | ||||||||||||||||
| /s/ AMY G. BRADY | Director | February 15, 2023 | |||||||||||||||
| Amy G. Brady | |||||||||||||||||
| /s/ RUBY R. CHANDY | Director | February 15, 2023 | |||||||||||||||
| Ruby R. Chandy | |||||||||||||||||
| /s/ TERRENCE R. CURTIN | Director | February 15, 2023 | |||||||||||||||
| Terrence R. Curtin | |||||||||||||||||
| /s/ ALEXANDER M. CUTLER | Director | February 15, 2023 | |||||||||||||||
| Alexander M. Cutler | |||||||||||||||||
| /s/ ELEUTHERE I. DU PONT | Director | February 15, 2023 | |||||||||||||||
| Eleuthère I. du Pont | |||||||||||||||||
| /s/ KRISTINA M. JOHNSON | Director | February 15, 2023 | |||||||||||||||
| Kristina M. Johnson | |||||||||||||||||
| /s/ LUTHER C. KISSAM | Director | February 15, 2023 | |||||||||||||||
| Luther C. Kissam | |||||||||||||||||
| /s/ FREDERICK M. LOWERY | Director | February 15, 2023 | |||||||||||||||
| Frederick M. Lowery | |||||||||||||||||
| /s/ RAYMOND J. MILCHOVICH | Director | February 15, 2023 | |||||||||||||||
| Raymond J. Milchovich | |||||||||||||||||
| /s/ DEANNA M. MULLIGAN | Director | February 15, 2023 | |||||||||||||||
| Deanna M. Mulligan | |||||||||||||||||
| /s/ STEVEN M. STERIN | Director | February 15, 2023 | |||||||||||||||
| Steven M. Sterin | |||||||||||||||||
60
DuPont de Nemours, Inc.
Index to the Consolidated Financial Statements
F-1
Management's Reports on Responsibility for Financial Statements and
Internal Control over Financial Reporting
Management's Report on Responsibility for Financial Statements
Management is responsible for the Consolidated Financial Statements and the other financial information contained in this Annual Report on Form 10-K. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and are considered by management to present fairly the Company's financial position, results of operations and cash flows. The financial statements include some amounts that are based on management's best estimates and judgments. The financial statements have been audited by the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP. The purpose of their audit is to express an opinion as to whether the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations and cash flows in conformity with GAAP. Their report is presented on the following pages.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company's assets that could have a material effect on the financial statements.
Internal control over financial reporting has certain inherent limitations which may not prevent or detect misstatements. In addition, changes in conditions and business practices may cause variation in the effectiveness of internal controls.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, as stated in its report, which is presented on the following pages.
| /s/ EDWARD D. BREEN | /s/ LORI KOCH | |||||||
| Edward D. Breen Chief Executive Officer | Lori Koch Chief Financial Officer | |||||||
February 15, 2023
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of DuPont de Nemours, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of DuPont de Nemours, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-3
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill impairment analyses for Mobility & Materials Divestitures disposal groups and certain reporting units resulting from the segment realignment and certain annual goodwill impairment analyses
As described in Notes 4 and 14 to the consolidated financial statements, as of December 31, 2022 there was $16.7 billion of goodwill presented in the consolidated balance sheet and $0.4 billion of goodwill associated with the M&M Divestitures disposal group presented in assets of discontinued operations. Management tests goodwill for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate the fair value may be below carrying value. During the first quarter of 2022, in conjunction with the announcement of the divestiture of the majority of the historical Mobility & Materials (“M&M”) segment and the determination that certain historical M&M businesses (“M&M Divestitures disposal groups”) met the criteria to be classified as held-for-sale and presented as discontinued operations, the Company realigned certain reporting units previously reported within the historical M&M segment to Corporate & Other. This announcement and the related realignment served as triggering events requiring management to perform impairment analyses related to goodwill carried by the impacted reporting units as of the announcement. As part of the announcement and segment realignment, management assessed and re-aligned certain reporting units and M&M Divestitures disposal groups, 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 then performed for the M&M Divestitures disposal groups and new reporting units reported within the Corporate & Other segment. No impairments were identified as a result of the interim or annual impairment analyses described above. Fair value of the reporting units and the M&M Divestitures disposal groups were estimated using a combination of an income approach and/or market approach. Management’s assumptions in estimating fair value include projected revenue, gross margins, selling, administrative, research and development expenses (“SARD”), capital expenditures, the weighted average costs of capital, the terminal growth rates, and the forecasted tax rate for the income approach and projected Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and market multiples for the market approach.
The principal considerations for our determination that performing procedures relating to the goodwill impairment analyses for M&M Divestitures disposal groups and certain reporting units resulting from the announcement and segment realignment and certain annual goodwill impairment analyses is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the M&M Divestitures disposal groups and certain reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenue, gross margins, SARD, capital expenditures, the weighted average costs of capital, the terminal growth rates, the forecasted tax rate, projected EBITDA, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment analyses, including controls over the valuation of the M&M Divestitures disposal groups and certain reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimate for the M&M Divestitures disposal groups and certain reporting units resulting from the announcement and segment realignment and certain annual goodwill impairment analyses; (ii) evaluating the appropriateness of the income and market approaches; (iii) testing the completeness and accuracy of underlying data provided by management; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the projected revenue, gross margins, SARD, capital expenditures, the weighted average costs of capital, the terminal growth rates, the forecasted tax rate, projected EBITDA and market multiples, as applicable to the respective M&M Divestitures disposal groups and/or reporting units. Evaluating the reasonableness of management’s significant assumptions related to projected revenue, gross margins, SARD, capital
F-4
expenditures, the forecasted tax rate, and projected EBITDA involved considering (i) the current economic conditions, recent operating results, and capital expenditures of M&M Divestitures disposal groups and certain reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumptions used by management were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s income approach and/or market approach and the evaluation of the reasonableness of management’s significant assumptions related to the weighted average costs of capital, the terminal growth rates, and market multiples, as applicable.
Determination of the tax consequences of certain internal restructurings relating to the divestiture of the majority of the historical M&M business
As described in Note 8 to the consolidated financial statements, the Company completed certain internal restructurings in connection with the divestiture of the majority of the M&M historical business which resulted in estimated income tax impacts from a United States federal and state and foreign jurisdiction perspective. During the year ended December 31, 2022, the Company recorded net income tax expense of $127 million related to the estimated tax impact of these internal restructurings from a United States and foreign jurisdiction perspective. As disclosed by management, the determination of the estimated tax impacts required significant judgment by management regarding the application of tax laws and regulations. Upon final resolution by the United States Internal Revenue Service or foreign tax authority through audit or litigation, the Company’s income tax calculations and related filing positions regarding certain elements of these transactions could be different, which could have a material impact on the Company. The tax effect of these internal restructurings are included in the overall tax consequences of the M&M Divestiture. The estimated tax impact of certain internal restructurings was calculated using valuations of components of legal entities and intellectual property, which involved the use of the income and/or market approach and assumptions, including, projected EBITDA, the weighted average costs of capital, royalty rates, capital expenditures, tax rate, and terminal growth rates for the income approach and projected EBITDA and market multiples for the market approach.
The principal considerations for our determination that performing procedures relating to the determination of the tax consequences of certain internal restructurings relating to the divestiture of the majority of the historical M&M business is a critical audit matter are (i) the significant judgments made by management regarding the application of tax laws and regulations in determining the tax consequences of certain internal restructurings and in estimating the fair value of certain components of legal entities and intellectual property utilized in the internal restructurings; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the tax consequences of certain internal restructurings, the reasonableness of management’s estimates of the fair value of certain components of legal entities and intellectual property utilized in the internal restructurings, and management’s significant assumptions related to projected EBITDA, the weighted average costs of capital, royalty rates, capital expenditures, tax rate, and terminal growth rates for the income approach and projected EBITDA and market multiples for the market approach; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the tax consequences of certain internal restructurings relating to the divestiture of the majority of the historical M&M business, including controls relating to management’s estimates of the fair value of certain components of legal entities and intellectual property utilized in the internal restructurings. These procedures also included, among others (i) evaluating the information, including third party opinions, tax law, and other relevant evidence used by management to support its position regarding the tax consequences of the transactions; (ii) testing the information used in the calculation of the financial statement impact of the transactions, including testing management’s estimate of the fair value of certain components of legal entities and intellectual property utilized in the internal restructurings; and (iii) evaluating the reasonableness of management’s significant assumptions related to projected EBITDA, the weighted average costs of capital, royalty rates, capital expenditures, tax rate and terminal growth rates for the income approach and projected EBITDA and market multiples for the market approach. Evaluating the reasonableness of management’s significant assumptions related to projected EBITDA, capital expenditures, and tax rate involved considering (i) the current economic conditions and recent operating results of the components of the legal entities and intellectual property; (ii) the consistency with external market and industry data; and (iii) whether the assumptions used by management were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the transactions and certain assertions from management; (ii) the application of relevant tax laws; and (iii) the Company’s income and/or market approaches and the evaluation of the reasonableness of management’s significant assumptions related to the weighted average costs of capital, royalty rates, terminal growth rates, and market multiples.
F-5
/s/PricewaterhouseCoopers LLP
February 15, 2023
We have served as the Company’s auditor since 2019.
F-6
DuPont de Nemours, Inc.
Consolidated Statements of Operations
| (In millions, except for per share amounts) For the years ended December 31, | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | $ | $ | ||||||||
| Cost of sales | |||||||||||
| Research and development expenses | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Amortization of intangibles | |||||||||||
| Restructuring and asset related charges - net | |||||||||||
| Goodwill impairment charge | |||||||||||
| Acquisition, integration and separation costs | |||||||||||
| Equity in earnings of nonconsolidated affiliates | |||||||||||
| Sundry income (expense) - net | |||||||||||
| Interest expense | |||||||||||
| Income (loss) from continuing operations before income taxes | ( | ||||||||||
| Provision for income taxes on continuing operations | |||||||||||
| Income (loss) from continuing operations, net of tax | ( | ||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) | ( | ||||||||||
| Net income attributable to noncontrolling interests | |||||||||||
| Net income (loss) available for DuPont common stockholders | $ | $ | $ | ( | |||||||
| Per common share data: | |||||||||||
| Earnings (loss) per common share from continuing operations - basic | $ | $ | $ | ( | |||||||
| Earnings (loss) per common share from discontinued operations - basic | ( | ||||||||||
| Earnings (loss) earnings per common share - basic | $ | $ | $ | ( | |||||||
| Earnings (loss) per common share from continuing operations - diluted | $ | $ | $ | ( | |||||||
| Earnings (loss) per common share from discontinued operations - diluted | ( | ||||||||||
| Earnings (loss) per common share - diluted | $ | $ | $ | ( | |||||||
| Weighted-average common shares outstanding - basic | |||||||||||
| Weighted-average common shares outstanding - diluted | |||||||||||
See Notes to the Consolidated Financial Statements.
F-7
DuPont de Nemours, Inc.
Consolidated Statements of Comprehensive Income
| (In millions) For the years ended December 31, | 2022 | 2021 | 2020 | ||||||||
| Net income (loss) | $ | $ | $ | ( | |||||||
| Other comprehensive (loss) income, net of tax | |||||||||||
| Cumulative translation adjustments | ( | ( | |||||||||
| Pension and other post-employment benefit plans | ( | ||||||||||
| Derivative instruments | |||||||||||
| Split-off of N&B | |||||||||||
| Separation of M&M Divestiture | |||||||||||
| Total other comprehensive (loss) income | ( | ( | |||||||||
| Comprehensive income (loss) | ( | ||||||||||
| Comprehensive income attributable to noncontrolling interests, net of tax | |||||||||||
| Comprehensive income (loss) attributable to DuPont | $ | $ | $ | ( | |||||||
See Notes to the Consolidated Financial Statements.
F-8
DuPont de Nemours, Inc.
Consolidated Balance Sheets
| (In millions, except share and per share amounts) | December 31, 2022 | December 31, 2021 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Marketable securities | ||||||||
| Accounts and notes receivable - net | ||||||||
Inventories | ||||||||
| Prepaid and other current assets | ||||||||
| Assets held for sale | ||||||||
| Assets of discontinued operations | ||||||||
Total current assets | ||||||||
| Property | ||||||||
| Property, plant and equipment | ||||||||
| Less: Accumulated depreciation | ||||||||
| Property, plant and equipment - net | ||||||||
| Other Assets | ||||||||
Goodwill | ||||||||
Other intangible assets | ||||||||
| Restricted cash and cash equivalents | ||||||||
| Investments and noncurrent receivables | ||||||||
Deferred income tax assets | ||||||||
Deferred charges and other assets | ||||||||
Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term borrowings | $ | $ | ||||||
Accounts payable | ||||||||
Income taxes payable | ||||||||
Accrued and other current liabilities | ||||||||
| Liabilities related to assets held for sale | ||||||||
| Liabilities of discontinued operations | ||||||||
Total current liabilities | ||||||||
| Long-Term Debt | ||||||||
| Other Noncurrent Liabilities | ||||||||
Deferred income tax liabilities | ||||||||
| Pension and other post-employment benefits - noncurrent | ||||||||
Other noncurrent obligations | ||||||||
Total other noncurrent liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingent liabilities | ||||||||
| Stockholders' Equity | ||||||||
Common stock (authorized | ||||||||
Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ( | ||||||
| Accumulated other comprehensive (loss) income | ( | |||||||
Total DuPont stockholders' equity | ||||||||
Noncontrolling interests | ||||||||
Total equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See Notes to the Consolidated Financial Statements.
F-9
DuPont de Nemours, Inc.
Consolidated Statements of Cash Flows
| (In millions) For the years ended December 31, | 2022 | 2021 | 2020 | ||||||||
| Operating Activities | |||||||||||
| Net income (loss) | $ | $ | $ | ( | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Credit for deferred income tax and other tax related items | ( | ( | ( | ||||||||
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | ( | ||||||||||
| Net periodic pension benefit (credit) cost | ( | ( | |||||||||
| Periodic benefit plan contributions | ( | ( | ( | ||||||||
| Net gain on sales and split-offs of assets, businesses and investments | ( | ( | ( | ||||||||
| Restructuring and asset related charges - net | |||||||||||
| Goodwill impairment charge | |||||||||||
| Inventory step-up amortization | |||||||||||
| Other net loss | |||||||||||
| Changes in assets and liabilities, net of effects of acquired and divested companies: | |||||||||||
| Accounts and notes receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Other assets and liabilities, net | ( | ||||||||||
| Cash provided by operating activities | |||||||||||
| Investing Activities | |||||||||||
| Capital expenditures | ( | ( | ( | ||||||||
| Proceeds from sales of property, businesses, and ownership interests in nonconsolidated affiliates, net of cash divested | |||||||||||
| Acquisitions of property and businesses, net of cash acquired | ( | ( | |||||||||
| Purchases of investments | ( | ( | ( | ||||||||
| Proceeds from sales and maturities of investments | |||||||||||
| Other investing activities, net | |||||||||||
| Cash provided by (used for) investing activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Changes in short-term borrowings | ( | ( | |||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Proceeds from issuance of long-term debt transferred to IFF at split-off | |||||||||||
| Proceeds from credit facility | |||||||||||
| Repayment of credit facility | ( | ||||||||||
| Payments on long-term debt | ( | ( | ( | ||||||||
| Purchases of common stock and forward contracts | ( | ( | ( | ||||||||
| Proceeds from issuance of Company stock | |||||||||||
| Employee taxes paid for share-based payment arrangements | ( | ( | ( | ||||||||
| Distributions to noncontrolling interests | ( | ( | ( | ||||||||
| Dividends paid to stockholders | ( | ( | ( | ||||||||
| Cash transferred to IFF and subsequent adjustments | ( | ( | |||||||||
| Other financing activities, net | ( | ( | ( | ||||||||
| Cash (used for) provided by financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash from continuing operations, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash from discontinued operations, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash from continuing operations, end of period | |||||||||||
| Cash, cash equivalents and restricted cash from discontinued operations, end of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | $ | ||||||||
| Supplemental cash flow information | |||||||||||
| Cash paid during the year for: | |||||||||||
| Interest, net of amounts capitalized | $ | $ | $ | ||||||||
| Income taxes | $ | $ | $ | ||||||||
See Notes to the Consolidated Financial Statements.
F-10
DuPont de Nemours, Inc.
Consolidated Statements of Equity
| In millions | Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comp (Loss) Income | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||
| 2020 | |||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||
Adoption of accounting standards | — | — | ( | — | — | — | ( | ||||||||||||||||
| Net (loss) income | — | — | ( | — | — | ( | |||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||
Dividends ($ | — | ( | — | — | — | — | ( | ||||||||||||||||
Common stock issued/sold | — | — | — | — | — | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | — | ( | ||||||||||||||||
Retirement of treasury stock | — | — | ( | — | — | ||||||||||||||||||
Other | — | ( | — | — | — | ( | |||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||
| 2021 | |||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | ( | ||||||||||||||||
Dividends ($ | — | ( | — | — | — | — | ( | ||||||||||||||||
Common stock issued/sold | — | — | — | — | — | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||
| Contributions from non-controlling interest | — | — | — | — | — | ||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | — | ( | ||||||||||||||||
Retirement of treasury stock | — | — | ( | — | — | ||||||||||||||||||
| Split-off of N&B | ( | — | ( | — | — | ( | ( | ||||||||||||||||
Other | — | — | — | — | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||
| 2022 | |||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | ( | ||||||||||||||||
Dividends ($ | — | ( | — | — | — | — | ( | ||||||||||||||||
Common stock issued/sold | — | — | — | — | — | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | — | ( | ||||||||||||||||
Retirement of treasury stock | — | — | ( | — | — | ||||||||||||||||||
| Forward contracts for share repurchase | — | ( | — | — | — | — | ( | ||||||||||||||||
| M&M Divestiture | — | — | — | — | — | ( | ( | ||||||||||||||||
Other | — | ( | — | — | ( | ||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||
F-11
DuPont De Nemours, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| Note | Page | |||||||
| 1 | F-13 | |||||||
| 2 | F-19 | |||||||
| 3 | F-20 | |||||||
| 4 | F-22 | |||||||
| 5 | F-26 | |||||||
| 6 | F-28 | |||||||
| 7 | F-30 | |||||||
| 8 | F-31 | |||||||
| 9 | F-35 | |||||||
| 10 | F-36 | |||||||
| 11 | F-36 | |||||||
| 12 | F-36 | |||||||
| 13 | F-37 | |||||||
| 14 | F-38 | |||||||
| 15 | F-40 | |||||||
| 16 | F-42 | |||||||
| 17 | F-46 | |||||||
| 18 | F-48 | |||||||
| 19 | F-52 | |||||||
| 20 | F-59 | |||||||
| 21 | F-64 | |||||||
| 22 | F-66 | |||||||
| 23 | F-68 | |||||||
F-12
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements of DuPont de Nemours, Inc. ("DuPont” or the "Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant accounting policies described below, together with the other notes that follow, are an integral part of the Consolidated Financial Statements.
The Consolidated Financial Statements include the accounts of the Company and subsidiaries in which a controlling interest is maintained. The Consolidated Financial Statements also include the accounts of joint ventures that are variable interest entities ("VIEs") in which the Company is the primary beneficiary due to the Company's power to direct the VIEs significant activities. For those consolidated subsidiaries in which the Company's ownership is less than 100 percent, the outside stockholders' interests are shown as noncontrolling interests. Investments in affiliates over which the Company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method.
The Company is also involved with certain joint ventures accounted for under the equity method of accounting that are VIEs. The Company is not the primary beneficiary, as the nature of the Company's involvement with the VIEs does not provide it the power to direct the VIEs significant activities. Future events may require these VIEs to be consolidated if the Company becomes the primary beneficiary. At December 31, 2022 and 2021, the maximum exposure to loss related to the nonconsolidated VIEs is not considered material to the Consolidated Financial Statements.
DWDP Distributions
Effective August 31, 2017, E. I. du Pont de Nemours and Company ("EID") and The Dow Chemical Company ("TDCC") each merged with subsidiaries of DowDuPont Inc. (n/k/a "DuPont”) and, as a result, EID and TDCC became subsidiaries of the Company. On April 1, 2019, the Company completed the separation of the materials science business through the spin-off of Dow Inc., (“Dow”) including Dow’s subsidiary TDCC (the “Dow Distribution”). On June 1, 2019, the Company completed the separation of the agriculture business through the spin-off of Corteva, Inc. (“Corteva”) including Corteva’s subsidiary EID (subsequently renamed EIDP, Inc. (n/k/a "EIDP")), (the “Corteva Distribution" and together with the Dow Distribution, the “DWDP Distributions”). Following the Corteva Distribution, DuPont holds the specialty products business as continuing operations. DowDuPont Inc. changed its registered name to DuPont de Nemours, Inc. (“DuPont”) (for certain events prior to June 1, 2019, the Company may be referred to as DowDuPont). Beginning on June 3, 2019, the Company's common stock is traded on the New York Stock Exchange under the ticker symbol "DD."
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the Nutrition & Biosciences business segment (the "N&B Business"), and 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 years ended December 31, 2021 and 2020 reflect 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 Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income, respectively, for the applicable period. Unless otherwise indicated, the information in the notes to the Consolidated Financial Statements refer only to DuPont's continuing operations and do not include discussion of balances or activity of N&B.
M&M Transaction
On November 1, 2022, DuPont completed the previously announced 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 Divestiture”), to Celanese Corporation (“Celanese”) for cash proceeds of $11.0 billion. See Note 4 for more information.
F-13
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months at time of purchase. Investments classified as held-to-maturity are recorded at amortized cost. The carrying value approximates fair value due to the short-term nature of the investments.
Fair Value Measurements
Under the accounting guidance for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company uses the following valuation techniques to measure fair value for its assets and liabilities:
| Level 1 | – | Quoted market prices in active markets for identical assets or liabilities; | ||||||
| Level 2 | – | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); | ||||||
| Level 3 | – | Unobservable inputs for the asset or liability, which are valued based on management's estimates of assumptions that market participants would use in pricing the asset or liability. | ||||||
F-14
Foreign Currency Translation
The Company's worldwide operations utilize the U.S. dollar ("USD") or local currency as the functional currency, where applicable. The Company identifies its separate and distinct foreign entities and groups the foreign entities into two categories: 1) extension of the parent or foreign subsidiaries operating in a hyper-inflationary environment (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated and a judgment is made to determine the functional currency.
For foreign entities where the USD is the functional currency, all foreign currency-denominated asset and liability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, goodwill and other intangible assets, which are re-measured at historical rates. Foreign currency income and expenses are re-measured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts re-measured at historical exchange rates. Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive loss in equity. Assets and liabilities denominated in other than the local currency are re-measured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the period.
The Company changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed.
Interest Rate Swap Agreements
The Company has entered into a fixed-to-floating interest rate swap agreement to hedge changes in the fair value of the Company’s long-term debt due to interest rate movements. Under the terms of the agreement, 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 and carried as fair value hedges. 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 Consolidated Statements of Operations.
Net Foreign Investment Hedge
The Company has entered into fixed-for-fixed cross currency swaps which are designated as a net investment hedge and 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 "Accumulated other comprehensive loss" ("AOCL"), net of amounts associated with excluded components which are recognized in interest expense in the Consolidated Statements of Operations.
Inventories
The Company's inventories are valued at the lower of cost or net realizable value. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or net realizable value, whichever is lower; cost is generally determined by the average cost method. The Company's inventories are generally accounted for under the average cost method. The Company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.
In periods of abnormally low production, certain fixed costs normally absorbed into inventory are recorded directly to cost of sales in the period incurred.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the Consolidated Balance Sheets and included in determining gain or loss on such disposals.
F-15
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value.
When testing goodwill for impairment, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the amount of goodwill at the reporting unit. The Company determines fair values for each of the reporting units using a combination of the income approach and/or market approach. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the Company selects peer sets based on close competitors and reviews the EBIT/EBITDA multiples to determine the fair value. When applicable, third-party purchase offers may be utilized to measure fair value. The Company applies a weighting to the market approach and income approach to determine the fair value. See Note 14 for further information on goodwill.
Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. When testing indefinite-lived intangible assets for impairment, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets is less than carrying value. If the Company chooses not to complete a qualitative assessment for indefinite-lived intangible assets or if the initial assessment indicates that it is more likely than not that the carrying value of indefinite-lived intangible assets exceeds the fair value, additional quantitative testing is required. Impairment exists when carrying value exceeds fair value. The Company's fair value methodology is primarily based on discounted cash flow techniques.
Impairment and Disposals of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered for impairment when the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that event, a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset group. The Company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed. Depreciation is recognized over the remaining useful life of the assets.
Acquisitions
In accordance with ASC 805, Business Combinations, acquisitions are recorded using the acquisition method of accounting. The Company includes the operating results of acquired entities from their respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired and liabilities assumed as of the acquisition date fair value, where applicable. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired and liabilities assumed is recognized as goodwill. Costs incurred as a result of a business combination other than costs related to the issuance of debt or equity securities are recorded in the period the costs are incurred.
Leases
The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract, in accordance with ASC 842, Leases. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in "" on the Consolidated Balance Sheets. Operating lease liabilities are included in "" and "" on the Consolidated Balance Sheets. Finance lease ROU assets are included in "" and the corresponding lease liabilities are included in "" on the Consolidated Balance Sheets.
F-16
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and 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 terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the Consolidated Statements of Operations, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
Derivative Instruments
Derivative instruments are reported in the Consolidated Balance Sheets at their fair values. The Company utilizes derivatives to manage exposures to foreign currency exchange rates and commodity prices. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. For derivative instruments designated as cash flow hedges, the gain or loss is reported in AOCL until it is cleared to earnings during the same period in which the hedged item affects earnings.
In the event that a derivative designated as a hedge of a firm commitment or an anticipated transaction is terminated prior to the maturation of the hedged transaction, the net gain or loss in AOCL generally remains in AOCL until the item that was hedged affects earnings. If a hedged transaction matures, or is sold, extinguished, or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in the measurement of the hedged transaction and the derivative is reclassified as for trading purposes. Derivatives designated as hedges of anticipated transactions are reclassified as for trading purposes if the anticipated transaction is no longer probable.
For derivative instruments designated as net investment hedges, the gain or loss is reported as a component of Other comprehensive income (loss) and recorded in AOCL. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated.
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. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets in "Accrued and other current liabilities" and "Other noncurrent obligations" at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as "Accounts and notes receivable - net."
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Revenue from Contracts with Customers (Topic 606), the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the
F-17
Research and Development
Research and development costs are expensed as incurred. Research and development expense includes costs (primarily consisting of employee costs, materials, contract services, research agreements, and other external spend) relating to the discovery and development of new products, and enhancement of existing products.
Restructuring and Asset Related Charges
Charges for restructuring programs generally include targeted actions involving employee severance and related benefit costs, contract termination charges, and asset related charges, which include impairments or accelerated depreciation/amortization of long-lived assets associated with such actions. Employee severance and related benefit costs are provided to employees under the Company’s ongoing benefit arrangements. These charges are accrued during the period when management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated. Contract termination charges primarily reflect costs to terminate a contract before the end of its term or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the Company. Asset related charges reflect impairments to long-lived assets and indefinite-lived intangible assets no longer deemed recoverable and depreciation/amortization of long-lived assets, which is accelerated over their remaining economic lives.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in "Income taxes payable" and the long-term portion is included in "Other noncurrent obligations" in the Consolidated Balance Sheets.
F-18
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Accounting Guidance Issued But Not Adopted at December 31, 2022
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. The Company expects to implement the new disclosures, other than the rollforward information, as required during the first interim period for the year-ended December 31, 2023. The disclosures around rollforward information will be implemented as required for the year-ended December 31, 2024. The Company expects the new guidance will not have a significant impact on the Notes to our Consolidated Financial Statements.
F-19
NOTE 3 - ACQUISITIONS
Terminated Intended Rogers Corporation Acquisition
On November 1, 2022, the Company announced the termination of the previously announced agreement to acquire all the outstanding shares of Rogers Corporation (“Rogers”) for about $5.2 billion, as DuPont and Rogers were unable to obtain timely clearance from all the required regulators ("Terminated Intended Rogers Corporation Acquisition"). DuPont paid Rogers a termination fee of $162.5 million in accordance with the agreement on November 2, 2022. The termination fee was recognized as a charge in the fourth quarter of 2022 and recorded in the "Acquisition, integration and separation costs" within the Consolidated Statements of Operations.
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. In 2021, 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.
The table below presents the fair values allocated to the assets acquired and liabilities assumed:
| Laird PM Assets Acquired and Liabilities Assumed on July 1, 2021 | |||||
| (in millions) | |||||
| Fair Value of Assets Acquired | |||||
| Cash and cash equivalents | $ | ||||
| Accounts and notes receivable | |||||
| Inventories | |||||
| Property, plant, and equipment | |||||
| Other current assets | |||||
| Goodwill | |||||
| Other intangible assets | |||||
| Deferred income tax assets | |||||
| Deferred charges and other assets | |||||
| Total Assets | $ | ||||
| Fair Value of Liabilities Assumed | |||||
| Accounts payable | $ | ||||
| Income taxes payable | |||||
| Accrued and other current liabilities | |||||
| Deferred income tax liabilities | |||||
| Pension & other post-employment benefits - noncurrent | |||||
| Other noncurrent obligations | |||||
| Total Liabilities | $ | ||||
| Net Assets (Consideration for Laird PM) | $ | ||||
The significant fair value adjustments included in the allocation of purchase price are discussed below.
Property, plant and equipment
Property, plant and equipment is comprised of machinery and equipment of $67 million, buildings and building improvements of $18 million, leasehold improvements of $10 million, construction in progress of $5 million and land and land improvements of $4 million. The estimated fair value was primarily determined using a market approach for land and certain types of equipment, and a replacement cost approach for the remaining depreciable property, plant and equipment. The market approach for certain types of equipment represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach used for all other depreciable property, plant and equipment measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset.
F-20
Goodwill
The excess of the consideration for Laird PM over the net fair value of assets acquired and liabilities assumed resulted in the recognition of $1,213 million of goodwill, which has been assigned to the Electronics & Industrial segment. Goodwill is attributable to Laird PM’s assembled workforce and expected cost synergies to be obtained through procurement efficiencies and the optimization of the combined the Electronics & Industrial segment and Laird PM businesses’ global activities across sales, manufacturing, research & development, and administrative functions.
Other Intangible Assets
Other intangible assets with definite lives include acquired customer-related intangible assets of $840 million, developed technology of $290 million and trademark/tradename of $30 million. Acquired customer-related intangible assets, developed technology, and trademark/tradename have useful lives of 14 years, 8 years, and 3 years, respectively.
The customer-related intangible asset's fair value was determined using the excess earnings method while the developed technology and trademark/tradename fair values were determined utilizing the relief from royalty method. Both the excess earnings method and the relief from royalty method use a discounted cash flows valuation method, which is a form of the income approach. Under the excess earnings method, the estimated cash flows attributable to the customer-related intangible asset are adjusted to exclude the future cash flows that can be attributable to supporting assets, such as trademark/tradenames or fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company's estimates of discounted market participant future cash flows include but are not limited to assumptions related to customer attrition rate, the discount rate, the royalty rates, the economic life, the EBITDA margin, the contributory asset charge, and the projected revenue for the customer-related intangible assets. Under the relief from royalty method, a royalty rate based on observed market royalties is applied to projected revenue supporting the developed technology and trademark/tradename and discounted to present value, using an appropriate discount rate that requires judgment by management. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company's estimates of discounted market participant future cash flows included assumptions related to the discount rate, the projected revenue, the royalty rate, the obsolescence rate, and the economic life for the developed technology, and the discount rate, the projected revenue, the royalty rate, and the economic life for the trademark/tradename. The customer-related intangible asset, developed technology, and trademark/tradename are being amortized on a straight line basis based on the pattern of economic benefits the Company expects to realize.
Total net sales included in the Consolidated Statements of Income for the year ended December 31, 2021 are $263 million. The Company evaluated the disclosure requirements under ASC 805 and determined Laird PM was not considered a material business combination for purposes of disclosing the earnings of Laird PM since the date of acquisition or supplemental pro forma information.
Acquisition, Integration and Separation Costs
Acquisition, integration and separation costs primarily consist of financial advisory, information technology, legal, accounting, consulting, other professional advisory fees and other contractual transaction payments. For the year ended December 31, 2022, these costs were primarily related to costs associated with the Terminated Intended Rogers Acquisition, including the $162.5 million termination fee, the divestiture of the Biomaterials business unit and the prior year acquisition of Laird PM. For the year ended December 31, 2021 these costs were primarily related to the acquisition of Laird PM and the divestitures of the Biomaterials, Clean Technologies and Solamet® business units. Comparatively, for the year ended December 31, 2020 these costs were primarily associated with the post-DWDP Merger integration.
These costs are recorded within "Acquisition, integration and separation costs" within the Consolidated Statements of Operations.
| In millions | 2022 | 2021 | 2020 | ||||||||
| Acquisition, integration and separation costs | $ | $ | $ | ||||||||
F-21
NOTE 4 - DIVESTITURES
Mobility & Materials Divestitures
On November 1, 2022, (the "Transaction Date") 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, for consideration of $11.0 billion.
Cash received on the Transaction Date, as adjusted for preliminary and other adjustments, was $11.0 billion. These adjustments include approximately $0.5 billion of cash transferred with the M&M Divestiture business for which DuPont was reimbursed at closing resulting in net proceeds of $10.5 billion. The Company recognized a gain of approximately $5,024 million after tax on the M&M Divestiture. The gain is recorded in "Income (loss) from discontinued operations, net of tax" in the Company's Consolidated Statement Operations for the year ended December 31, 2022.
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, (the Delrin® business together with the M&M Divestiture businesses, the "M&M Businesses”). As of December 31, 2022, the Company anticipates a closing date for the sale of Delrin® by the end of 2023. The Company determined that the M&M Businesses met the criteria to be classified as held for sale and that the sale represents a strategic shift that has 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 for all periods. The M&M Divestiture is reflected through the Transaction Date and the intended Delrin® divestiture is through December 31, 2022:
| For the Year Ended December 31, | |||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Net sales | $ | $ | $ | ||||||||
| Cost of sales | |||||||||||
| Research and development expenses | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Amortization of intangibles | |||||||||||
| Restructuring and asset related charges - net | |||||||||||
| Goodwill impairment charge | |||||||||||
| Acquisition, integration and separation costs | |||||||||||
| Equity in earnings of nonconsolidated affiliates | ( | ||||||||||
| Sundry income (expense) - net | |||||||||||
| Income (loss) from discontinued operations before income taxes | ( | ||||||||||
| Provision for income taxes on discontinued operations | |||||||||||
| (Loss) income from discontinued operations, net of tax | ( | ( | |||||||||
| Net (loss) income from discontinued operations attributable to noncontrolling interests | ( | ||||||||||
| $ | $ | $ | |||||||||
| Income (loss) from discontinued operations attributable to DuPont stockholders, net of tax | $ | $ | $ | ( | |||||||
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to the M&M Businesses:
| For the Year Ended December 31, | |||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Depreciation and amortization | $ | $ | $ | ||||||||
Capital expenditures 1 | $ | $ | $ | ||||||||
1.Total capital expenditures are presented on a cash basis.
F-22
Assets and liabilities held for sale as of December 31, 2022, represent only those related to Delrin®, comparatively, at December 31, 2021, the assets and liabilities are related to the M&M Businesses. 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 as of December 31, 2022 and December 31, 2021:
| In millions | December 31, 2022 | December 31, 2021 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and notes receivable - net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Property, plant and equipment - net | ||||||||
| Goodwill | ||||||||
| Other intangible assets | ||||||||
| Investments and noncurrent receivables | ||||||||
| Deferred income tax assets | ||||||||
| Deferred charges and other assets | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Income taxes payable | ||||||||
| Accrued and other current liabilities | ||||||||
| Deferred income tax liabilities | ||||||||
| Pension and other post employment benefits - noncurrent | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
During the first quarter of 2022 after meeting the criteria to be classified as held for sale, the Company performed impairment analyses and allocated goodwill to the M&M Divestiture and Delrin® disposal groups and no impairments were identified. Refer to Note 14 for additional information. During each reporting period that the M&M Divestiture and Delrin® disposal groups were classified as held for sale, the Company assessed whether the fair value less cost to sell were less than the carrying value of each disposal group. The Company determined that the fair value less cost to sell of the Delrin® disposal unit was greater than its carrying value at December 31, 2022.
Pursuant to the Transaction Agreement, liabilities and assets related to the M&M Divestiture could not be directly assumed by Celanese and as a result, transferred by way of indemnification between both parties. In addition, pursuant to the Transaction Agreement, DuPont indemnifies Celanese against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the transaction. At December 31, 2022 the indemnified assets are $52 million within "Accounts and notes receivable, net" with the corresponding liabilities of $73 million within "Accrued and other current liabilities and $47 million within "Other noncurrent obligations".
N&B Transaction
On February 1, 2021, DuPont completed the separation and distribution of the N&B Business, and merger of N&B, a DuPont subsidiary formed to hold the N&B Business, with a subsidiary of IFF. The distribution was effected through an exchange offer (the "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 a result, DuPont reduced its common stock outstanding by 197.4 million shares of
F-23
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.
The results of operations of N&B are presented as discontinued operations as summarized below:
| In millions | 2021 | 2020 | ||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Research and development expenses | ||||||||
| Selling, general and administrative expenses | ||||||||
| Amortization of intangibles | ||||||||
| Restructuring and asset related charges - net | ||||||||
| Integration and separation costs | ||||||||
| Equity in earnings of nonconsolidated affiliates | ||||||||
| Sundry income (expense) - net | ||||||||
| Interest expense | ||||||||
| Loss from discontinued operations before income taxes | ( | ( | ||||||
| (Benefit from) provision for income taxes on discontinued operations | ( | ( | ||||||
| Loss from discontinued operations, net of tax | ( | ( | ||||||
| Income from discontinued operations attributable to noncontrolling interests, net of tax | ||||||||
| Non-taxable gain on split-off | ||||||||
| Income (loss) from discontinued operations attributable to DuPont stockholders, net of tax | $ | $ | ( | |||||
The following table presents depreciation, amortization, and capital expenditures of the discontinued operations related to N&B:
| In millions | 2021 | 2020 | ||||||
| Depreciation and amortization | $ | $ | ||||||
| Capital expenditures | $ | $ | ||||||
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 special cash payment was partially funded by an offering of $6.25 billion of senior unsecured notes (the “N&B Notes Offering”). The net proceeds of approximately $6.2 billion from the N&B Notes Offering were deposited into an escrow account and at December 31, 2020 are reflected as restricted cash in the Company’s Consolidated Balance Sheets. In order to fund the remainder of the Special Cash Payment, on February 1, 2021, N&B borrowed $1.25 billion under a senior unsecured term loan agreement (the "N&B Term Loan"). The obligations and liabilities associated with the N&B Notes Offering and N&B Term Loan were separated from the Company on February 1, 2021 upon consummation of the N&B Transaction.
N&B Transaction Agreements
In connection with the N&B Transaction, effective December 15, 2019, the Company 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.
Other Discontinued Operations Activity
The Company recorded income from discontinued operations, net of tax of $4,856 million and $5,308 million for the years ended December 31, 2022 and 2021, respectively, and a loss from discontinued operations of $1,574 million for the year ended December 31, 2020.
F-24
Discontinued operations activity consists of the following:
| For the Year Ended December 31, | |||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| M&M Divestitures | $ | $ | $ | ( | |||||||
| N&B Transaction | ( | ||||||||||
Other 1 | ( | ( | ( | ||||||||
| Income (loss) from discontinued operations, net of tax | $ | $ | $ | ( | |||||||
1.Primarily related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, EIDP and the Company. For additional information on these matters, refer to Note 16.
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 year ended December 31, 2022, a pre-tax gain of $26 million ($21 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's 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 as of December 31, 2021:
| In millions | December 31, 2021 | ||||
| Assets | |||||
| Accounts and notes receivable - net | $ | ||||
| Inventories | |||||
| Investments and noncurrent receivables | |||||
| Property, plant and equipment - net | |||||
| Assets held for sale | $ | ||||
| Liabilities | |||||
| Accounts payable | $ | ||||
| Accrued and other current liabilities | |||||
| Other noncurrent obligations | |||||
| Liabilities related to assets held for sale | $ | ||||
Sale of Clean Technologies
On December 31, 2021, the Company completed the sale of its Clean Technologies business unit, which was part of Corporate & Other. Total consideration related to the sale of the business is approximately $510 million, with cash proceeds of about $500 million reflecting adjustments for customary closing costs as defined within the purchase agreement. For the year ended December 31, 2021, a pre-tax loss of $3 million ($39 million loss net of tax, primarily driven by nondeductible goodwill) on the disposition was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
Sale of Solamet®
On June 30, 2021, the Company completed the sale of its Solamet® business unit, which was part of Corporate & Other. Total consideration received related to the sale of the business was approximately $190 million. For the year ended December 31, 2021, a pre-tax gain of $140 million ($105 million net of tax) was recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations.
Sale of TCS/HSC Disposal Group
In the third quarter of 2020, the Company completed the sale of its trichlorosilane business (“TCS Business”) along with its equity ownership interest in DC HSC Holdings LLC and Hemlock Semiconductor L.L.C. (the "HSC Group,” and together with the TCS Business, the “TCS/HSC Disposal Group” and the sale of the TCS/HSC Disposal Group, the “TCS/HSC Disposal”) to the HSC Group, both of which were part of the businesses reflected in Corporate & Other. In connection with the TCS/HSC Disposal, the Company received $550 million in cash at closing, subject to certain claw-back provisions. The Company also received approximately $58 59 million in the next year associated with the settlement of an existing supply agreement dispute with the HSC Group. The TCS/HSC Disposal resulted in a net pre-tax benefit of $396 million ($236 million net of tax), including the settlement of the supply agreement
F-25
dispute and after allocation of goodwill to the TCS Business. The net pre-tax benefit is recorded in “Sundry income (expense) – net” in the Company’s Consolidated Statements of Operations for the year ended December 31, 2020.
Sale of Compound Semiconductor Solutions
In the first quarter of 2020, the Company completed the sale of its Compound Semiconductor Solutions business unit, a part of the Electronics & Industrial segment, to SK Siltron. The proceeds received in the first quarter of 2020 related to the sale of the business were approximately $420 million. The sale resulted in a pre-tax gain of $197 million ($102 million net of tax) recorded in "Sundry income (expense) - net" in the Company's Consolidated Statements of Operations for the year ended December 31, 2020.
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.
Revenue from product sales is recognized when the customer obtains control of the Company’s product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing depending on business and geographic region. The Company elected the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between payment and transfer of the goods will be one year or less. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company elected to use the practical expedient to expense cash and non-cash sales incentives as the amortization period for the costs to obtain the contract would have been one year or less.
The transaction price includes estimates for reductions in revenue from customer rebates and rights of return on product sales. These amounts are estimated based upon the most likely amount of consideration to which the customer will be entitled. All estimates are based on historical experience, anticipated performance, and the Company’s best judgment at the time to the extent it is probable, that a significant reversal of revenue recognized will not occur. All estimates for variable consideration are reassessed periodically.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.
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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. Refer to Note 23 for the breakout of net sales by geographic region.
| Net Trade Revenue by Segment and Business or Major Product Line | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| Industrial Solutions | $ | $ | $ | ||||||||
| Interconnect Solutions | |||||||||||
| Semiconductor Technologies | |||||||||||
| Electronics & Industrial | $ | $ | $ | ||||||||
| Safety Solutions | $ | $ | $ | ||||||||
| Shelter Solutions | |||||||||||
| Water Solutions | |||||||||||
| Water & Protection | $ | $ | $ | ||||||||
Retained Businesses 1 | $ | $ | $ | ||||||||
Other 2 | |||||||||||
| Corporate & Other | $ | $ | $ | ||||||||
| Total | $ | $ | $ | ||||||||
1.Net sales reflected in Retained Businesses includes the Auto Adhesives & Fluids, MultibaseTM and Tedlar® businesses.
2.Net sales reflected in Other include activity of certain divested businesses including Biomaterials, Clean Technologies and Solamet®.
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 for the years ended December 31, 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was insignificant. The Company did not recognize any asset impairment charges related to contract assets during the period.
| Contract Balances | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
Accounts receivable - trade 1 | $ | $ | ||||||
Deferred revenue - current 2 | $ | $ | ||||||
1.Included in "Accounts and notes receivable - net" in the Consolidated Balance Sheets.
2.Included in "Accrued and other current liabilities" in the Consolidated Balance Sheets. Noncurrent deferred revenue balances in the current and comparative periods were not material.
F-27
NOTE 6 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
The Company records restructuring liabilities that represent nonrecurring charges in connection with simplifying certain organizational structures and operations, including operations related to transformational projects such as divestitures and acquisitions. Charges for restructuring programs and asset related charges, which includes asset impairments, were $155 million, $50 million and $814 million for the years ended December 31, 2022, 2021 and 2020, respectively. These charges were recorded in "Restructuring and asset related charges - net" in the Consolidated Statements of Operations. The total liability related to restructuring programs was $67 million at December 31, 2022 and $43 million at December 31, 2021, recorded in "Accrued and other current liabilities" in the Consolidated Balance Sheets. Restructuring activity consists of the following programs:
2022 Restructuring Program
In October 2022, 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"). For the year ended December 31, 2022, DuPont recorded a pre-tax charge related to the 2022 Restructuring Program in the amount of $61 million, recognized in "Restructuring and asset related charges - net" in the Company's Consolidated Statements of Operations, comprised of $61 million of severance and related benefit costs. At December 31, 2022, total liabilities related to the 2022 Restructuring Program were $57 million for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet. The Company expects the program to be substantially complete by the end of 2023.
The following table summarizes the charges incurred by segment related to the 2022 Restructuring Program:
| 2022 Restructuring Program Charges by Segment | 2022 | ||||
| In millions | |||||
| Electronics & Industrial | $ | ||||
| Water & Protection | |||||
| Corporate & Other | |||||
| Total | $ | ||||
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 $46 million inception-to-date, consisting of severance and related benefit costs of $26 million and asset related charges of $20 million.
The following table summarizes the charges incurred by segment related to the 2021 Restructuring Actions:
| 2021 Restructuring Actions Charges by Segment | 2022 | 2021 | ||||||
| In millions | ||||||||
| Electronics & Industrial | $ | $ | ||||||
| Water & Protection | ||||||||
| Corporate & Other | ( | |||||||
| Total | $ | $ | ||||||
At December 31, 2022 and 2021, total liabilities related to the 2021 Restructuring Actions were $7 million and $25 million, respectively, for severance and related benefit costs, recognized in "Accrued and other current liabilities" in the Consolidated Balance Sheet. 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 $158 million inception-to-date, consisting of severance and related benefit costs of $106 million and asset related charges of $52 million.
F-28
| 2020 Restructuring Program Charges by Segment | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| Electronics & Industrial | $ | ( | $ | $ | |||||||
| Water & Protection | |||||||||||
| Corporate & Other | |||||||||||
| Total | $ | $ | $ | ||||||||
Total liabilities related to the 2020 Restructuring Program were $3 million and $11 million at December 31, 2022 and 2021, respectively, recorded in "Accrued and other current liabilities" in the 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, in the first quarter of 2022 a portion of an equity method investment was reclassified to “Assets of discontinued operations” within the 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 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 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, the Company concluded the impairment was other-than-temporary and, in March 2022, recorded a pre-tax impairment charge of $94 million ($65 million net of tax) in “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 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.”
Asset Impairments
In the third quarter of 2020, the TCS/HSC Disposal, as well as further softening conditions in the aerospace markets, gave rise to fair value indicators and, thus, served as triggering events requiring the Company to perform a recoverability assessment related to asset groups within its Photovoltaic and Advanced Materials (“PVAM”) business unit. The Company first performed a long-lived asset impairment test and determined that, based on undiscounted cash flows, the carrying amount of certain long-lived assets was not recoverable. Accordingly, the Company estimated the fair value of these assets using both an income approach and a market approach utilizing Level 3 unobservable inputs. As a result, the Company recognized a pre-tax impairment charge of $318 million ($242 million net of tax) in Corporate & Other recorded within “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2020 with the charge impacting definite-lived intangible assets and property, plant, and equipment.
Additionally, the Company recorded a pre-tax asset impairment charge of $52 million ($39 million net of tax) in the third quarter of 2020 related to indefinite-lived intangible assets reflected in Corporate & Other which were deemed no longer recoverable as a result of the held for sale classification (refer to Note 4 for additional information). The charge was recorded within “Restructuring and asset related charges – net” in the Consolidated Statements of Operations for the year ended December 31, 2020.
In the first quarter of 2020, expectations of proceeds related to certain potential divestitures related to businesses held within Corporate & Other gave rise to fair value indicators and, thus, triggering events requiring the Company to perform a recoverability assessment related to its Biomaterials business unit. The Company performed a long-lived asset impairment test and determined that, based on undiscounted cash flows, the carrying amount of certain long-lived assets was not recoverable. Accordingly, the Company estimated the fair value of these assets using a market approach utilizing Level 3 unobservable inputs. As a result, the Company recognized a pre-tax impairment charge of $270 million ($206 million net of tax) recorded within “Restructuring and asset related charges - net” in the Consolidated Statements of Operations for the year ended December 31, 2020 with the charge impacting definite-lived intangible assets and property, plant, and equipment.
F-29
NOTE 7 - SUPPLEMENTARY INFORMATION
| Sundry Income (Expense) - Net | |||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Non-operating pension and other post-employment benefit ("OPEB") costs | $ | $ | $ | ||||||||
| Interest income | |||||||||||
Net gain on divestiture and sales of other assets and investments 1, 2, 3 | |||||||||||
| Foreign exchange gains (losses), net | ( | ( | |||||||||
Miscellaneous income (expenses) - net 4, 5, 6 | ( | ||||||||||
| Sundry income (expense) - net | $ | $ | $ | ||||||||
1.The year ended December 31, 2022 primarily reflects income of $26 million related to the gain on sale of the Biomaterials business unit and income of $37 million related to the sale of a land use right within the Water & Protection segment.
2.The year ended December 31, 2021 primarily reflects income of $140 million related to the gain on sale of the Solamet® business unit and $28 million related to the gain on sale of assets within the Electronics & Industrial segment.
3.The year ended December 31, 2020 includes a net benefit of $396 million related to the TCS/HSC Disposal, including the settlement of a supply agreement dispute, within Corporate & Other. It also includes income of $197 million related to the gain on sale of the Compound Semiconductor Solutions business unit within the Electronics & Industrial segment and $30 million of income related to milestone achievement of a prior year sale of assets within the Electronics & Industrial segment. Refer to Note 4 for further information.
4.The year ended December 31, 2022 includes $13 million related to government grants.
5.The year ended December 31, 2021 includes an impairment charge of approximately $15 million related to an asset sale.
6.The year ended December 31, 2020 includes $17 million related to income from a tax indemnification.
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 December 31, 2022 and 2021, the Company had restricted cash of $103 million and $53 million, respectively, included within non-current "Restricted cash and cash equivalents" in the Consolidated Balance Sheets, the majority of which is attributable to the cost sharing arrangement. Additional information regarding the MOU and the related escrow account can be found in Note 16.
Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the Consolidated Balance Sheets were $951 million at December 31, 2022 and $1,040 million at December 31, 2021. Accrued payroll, which is a component of "Accrued and other current liabilities" was $291 million at December 31, 2022 and $436 million at December 31, 2021. No other component of "Accrued and other current liabilities" was more than five percent of total current liabilities at December 31, 2022 and 2021.
F-30
NOTE 8 - INCOME TAXES
| Geographic Allocation of Income (Loss) and Provision for (Benefit from) Income Taxes | 2022 | 2021 | 2020 | ||||||||
| (In millions) | |||||||||||
| (Loss) income from continuing operations before income taxes | |||||||||||
| Domestic | $ | ( | $ | ( | $ | ( | |||||
| Foreign | |||||||||||
| Income (loss) from continuing operations before income taxes | $ | $ | $ | ( | |||||||
| Current tax expense | |||||||||||
| Federal | $ | $ | $ | ||||||||
| State and local | |||||||||||
| Foreign | |||||||||||
| Total current tax expense | $ | $ | $ | ||||||||
| Deferred tax (benefit) expense | |||||||||||
| Federal | $ | ( | $ | ( | $ | ( | |||||
| State and local | ( | ( | ( | ||||||||
| Foreign | ( | ( | |||||||||
| Total deferred tax benefit | $ | ( | $ | ( | $ | ( | |||||
| Provision for (benefit from) income taxes on continuing operations | |||||||||||
| Net income (loss) from continuing operations | $ | $ | $ | ( | |||||||
Pre-tax loss from continuing operations for the year ended December 31, 2020, includes non-deductible, non-cash goodwill impairment charges of $1,862 million impacting the businesses held in the Corporate & Other and Electronics & Industrials segments and a non-deductible goodwill allocation of $247 million in connection with the TCS/HSC Disposal. Of these amounts, $1,596 million related to the U.S and the remaining $513 million related to foreign operations. See Note 14 for additional information.
| Reconciliation to U.S. Statutory Rate | 2022 | 2021 | 2020 | ||||||||
| Statutory U.S. federal income tax rate | % | % | % | ||||||||
| Equity earning effect | ( | ||||||||||
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | ( | ( | |||||||||
| U.S. tax effect of foreign earnings and dividends | ( | ||||||||||
| Unrecognized tax benefits | ( | ||||||||||
Acquisitions, divestitures and ownership restructuring activities 1 | |||||||||||
Exchange gains/losses 2 | ( | ( | |||||||||
| State and local income taxes | ( | ||||||||||
| Change in valuation allowance | ( | ||||||||||
| Goodwill impairments | ( | ||||||||||
| Stock-based compensation | ( | ( | |||||||||
Other - net 3 | ( | ||||||||||
| Effective tax rate | % | % | ( | % | |||||||
1.Includes a net tax expense of $22 million and net tax benefits of $148 million related to internal entity restructuring for the years ended December 31, 2021 and 2020, respectively.
2. Principally reflects the impact of foreign exchange gains and losses on net monetary assets for which no corresponding tax impact is realized.
3. Includes a tax benefit of $28 million, $30 million and $5 million related to the foreign derived intangible income deduction for the years ended December 31, 2022, 2021 and 2020 respectively.
F-31
| Deferred Tax Balances at December 31, | 2022 | 2021 | ||||||
| (In millions) | ||||||||
| Deferred tax assets: | ||||||||
Tax loss and credit carryforwards 1 | $ | $ | ||||||
| Lease liability | ||||||||
| Pension and postretirement benefit obligations | ||||||||
| Unrealized exchange gains (losses), net | ||||||||
| Other accruals and reserves | ||||||||
| Research and development | ||||||||
| Inventory | ||||||||
| Other – net | ||||||||
| Gross deferred tax assets | $ | $ | ||||||
Valuation allowances 1 | ( | ( | ||||||
| Total deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities: | ||||||||
| Investments | ( | ( | ||||||
| Operating lease asset | ( | ( | ||||||
| Property | ( | ( | ||||||
| Intangibles | ( | ( | ||||||
| Total deferred tax liabilities | $ | ( | $ | ( | ||||
| Total net deferred tax liability | $ | ( | $ | ( | ||||
1.Primarily related to recorded tax benefits and the non-realizability of tax loss and carryforwards from operations in the United States, Luxembourg and Asia Pacific.
Included in the 2022 and 2021 deferred tax asset and liability amounts above is $370 million and $372 million, respectively, of a net deferred tax liability related to the Company’s investment in DuPont Specialty Products USA, LLC, which is a partnership for U.S. federal income tax purposes. The Company and its subsidiaries own in aggregate 100 % of DuPont Specialty Products USA, LLC and the assets and liabilities of DuPont Specialty Products USA, LLC are included in the Consolidated Financial Statements of the Company.
| Operating Loss and Tax Credit Carryforwards | Deferred Tax Asset | |||||||
| (In millions) | 2022 | 2021 | ||||||
| Operating loss carryforwards | ||||||||
| Expire within 5 years | $ | $ | ||||||
| Expire after 5 years or indefinite expiration | ||||||||
| Total operating loss carryforwards | $ | $ | ||||||
| Tax credit carryforwards | ||||||||
| Expire within 5 years | $ | $ | ||||||
| Expire after 5 years or indefinite expiration | ||||||||
| Total tax credit carryforwards | $ | $ | ||||||
| Total Operating Loss and Tax Credit Carryforwards | $ | $ | ||||||
F-32
| Total Gross Unrecognized Tax Benefits | 2022 | 2021 | 2020 | ||||||||
| (In millions) | |||||||||||
| Total unrecognized tax benefits at January 1, | $ | $ | $ | ||||||||
| Decreases related to positions taken on items from prior years | ( | ( | ( | ||||||||
| Increases related to positions taken on items from prior years | |||||||||||
| Increases related to positions taken in the current year | |||||||||||
| Settlement of uncertain tax positions with tax authorities | ( | ( | ( | ||||||||
| Exchange (gain) loss | ( | ( | |||||||||
| Divestiture of N&B | ( | ||||||||||
| Divestiture of M&M | ( | ||||||||||
Total unrecognized tax benefits at December 31, 1 | $ | $ | $ | ||||||||
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate of continuing operations | $ | $ | $ | ||||||||
| Total amount of interest and penalties (benefit) recognized in "Provision for (benefit from) income taxes on continuing operations" | $ | $ | ( | $ | |||||||
| Total accrual for interest and penalties associated with unrecognized tax benefits | $ | $ | $ | ||||||||
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.
Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:
| Tax Years Subject to Examination by Major Tax Jurisdiction at December 31, 2022 | Earliest Open Year | ||||
| Jurisdiction | |||||
| Brazil | 2018 | ||||
| Canada | 2017 | ||||
| China | 2012 | ||||
| Denmark | 2015 | ||||
| Germany | 2015 | ||||
| Japan | 2015 | ||||
| The Netherlands | 2017 | ||||
| Switzerland | 2018 | ||||
| United States: | |||||
Federal income tax 1 | 2012 | ||||
| State and local income tax | 2011 | ||||
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $5,969 million as of December 31, 2022. In addition to the U.S. federal tax imposed by The Act on all accumulated unrepatriated earnings through December 31, 2017, the Act introduced additional U.S. federal tax on foreign earnings, effective as of January 1, 2018. The undistributed foreign earnings at December 31, 2022 may still be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings due to the complexity of the hypothetical calculation.
M&M Divestitures
The Company recorded a net tax expense of $127 million for the year ended December 31, 2022 in connection with certain internal restructurings. These restructurings involve both legal entities within the M&M Businesses and legal entities retained by DuPont after the close of the M&M Divestiture to Celanese, and in certain instances relied upon legal entity valuations. The aforementioned net tax expense is included in “Income from discontinued operations, net of tax” in the Consolidated Statements of Operations. See Note 4 for additional information on the M&M Divestitures.
F-33
Laird PM Acquisition
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.
N&B Transaction
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.
DWDP
For periods between the DWDP Merger and the DWDP Distributions, DuPont's consolidated federal income tax group and consolidated tax return included the Dow and Corteva entities. Generally, the consolidated tax liability of the DuPont U.S. tax group for each year was apportioned among the members of the consolidated group in accordance with the terms of the Amended and Restated DWDP Tax Matters Agreement. DuPont, Corteva and Dow intend that to the extent Federal and/or State corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with the Amended and Restated DWDP Tax Matters Agreement.
F-34
NOTE 9 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for the years ended December 31, 2022, 2021 and 2020:
Net Income for Earnings Per Share Calculations - Basic & Diluted In millions | 2022 | 2021 | 2020 | ||||||||
| Income (loss) from continuing operations, net of tax | $ | $ | $ | ( | |||||||
| Net income from continuing operations attributable to noncontrolling interests | |||||||||||
| Income (loss) from continuing operations attributable to common stockholders | $ | $ | $ | ( | |||||||
| Income (loss) from discontinued operations, net of tax | ( | ||||||||||
| Net income from discontinued operations attributable to noncontrolling interests | ( | ||||||||||
| Income (loss) from discontinued operations attributable to common stockholders | ( | ||||||||||
| Net income (loss) available to common stockholders | $ | $ | $ | ( | |||||||
Earnings Per Share Calculations - Basic Dollars per share | 2022 | 2021 | 2020 | ||||||||
| Earnings (loss) from continuing operations attributable to common stockholders | $ | $ | $ | ( | |||||||
| Earnings (loss) from discontinued operations, net of tax | ( | ||||||||||
Earnings (loss) available to common stockholders 1 | $ | $ | $ | ( | |||||||
Earnings Per Share Calculations - Diluted Dollars per share | 2022 | 2021 | 2020 | ||||||||
| Earnings (loss) from continuing operations attributable to common stockholders | $ | $ | $ | ( | |||||||
| Earnings (loss) from discontinued operations, net of tax | ( | ||||||||||
Earnings (loss) available to common stockholders 1 | $ | $ | $ | ( | |||||||
Share Count Information Shares in Millions | 2022 | 2021 | 2020 | ||||||||
| Weighted-average common shares - basic | |||||||||||
| Plus dilutive effect of equity compensation plans | |||||||||||
| Weighted-average common shares - diluted | |||||||||||
Stock options, restricted stock units, and performance-based restricted stock units excluded from EPS calculations 2 | |||||||||||
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.
F-35
NOTE 10 - ACCOUNTS AND NOTES RECEIVABLE - NET
| In millions | December 31, 2022 | December 31, 2021 | ||||||
Accounts receivable – trade 1 | $ | $ | ||||||
| Income tax receivable | ||||||||
Other 2 | ||||||||
| Total accounts and notes receivable - net | $ | $ | ||||||
1.Accounts receivable – trade is net of allowances of $38 million at December 31, 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 | December 31, 2022 | December 31, 2021 | ||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Supplies | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 12 - PROPERTY, PLANT, AND EQUIPMENT
| Estimated Useful Lives (Years) | December 31, 2022 | December 31, 2021 | |||||||||||||||
| In millions | |||||||||||||||||
| Land and land improvements | - | $ | $ | ||||||||||||||
| Buildings | - | ||||||||||||||||
| Machinery, equipment, and other | - | ||||||||||||||||
| Construction in progress | |||||||||||||||||
| Total property, plant and equipment | $ | $ | |||||||||||||||
| Total accumulated depreciation | $ | $ | |||||||||||||||
| Total property, plant and equipment - net | $ | $ | |||||||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| Depreciation expense | $ | $ | $ | ||||||||
F-36
NOTE 13 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates") are recorded in "Investments and other noncurrent receivables" in the Consolidated Balance Sheets. The Company's net investment in nonconsolidated affiliates at December 31, 2022 and December 31, 2021 is $686 million and $818 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's dividends received from nonconsolidated affiliates is shown in the following table:
| Dividends Received from Nonconsolidated Affiliates | 2022 | 2021 | 2020 | |||||||||||
| In millions | ||||||||||||||
| Dividends from nonconsolidated affiliates | $ | $ | $ | |||||||||||
The Company had an ownership interest in six nonconsolidated affiliates, with ownership interest (direct and indirect) of 50 percent at December 31, 2022.
Sales to nonconsolidated affiliates represented less than 2 3 percent of “Cost of sales” for the year ended December 31, 2022 and less than 4 percent and approximately 3 percent for the years ended December 31, 2021 and 2020, respectively.
HSC Group
In reference to the paragraph above, sales to nonconsolidated affiliates in 2020 were primarily related to the sale of trichlorosilane, a raw material used in the production of polycrystalline silicon, to the HSC Group. Sales of this raw material to the HSC Group are reflected in Corporate & Other. In the third quarter of 2020, the Company sold its equity interest in the HSC group. See Note 4 for further discussion. The Company's equity earnings from the HSC Group is shown in the table below:
| Equity Earnings in the HSC Group | 2020 | |||||||
| In millions | ||||||||
| Equity in earnings | $ | |||||||
F-37
NOTE 14 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021.
| Electronics & Industrial | Water & Protection | Corporate & Other | Total | |||||||||||
| In millions | ||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ||||||||||
Acquisitions 1 | ||||||||||||||
| Currency Translation Adjustment | ( | ( | ( | ( | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ||||||||||
| Currency Translation Adjustment | ( | ( | ( | ( | ||||||||||
| Other | ||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||
1.On July 1, 2021, DuPont completed the acquisition of Laird PM, which is included in the Electronics & Industrial segment. See Note 3 for additional information.
The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below carrying value. As a result of the related acquisition method of accounting in connection with the DWDP Merger, EIDP’s assets and liabilities were measured at fair value resulting in increases to the Company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the Company’s reporting units and assets, and therefore could result in an impairment. The Company’s significant assumptions in these analyses include projected revenue, gross margins, selling, administrative, research and development expenses (SARD), capital expenditures, the weighted average cost of capital, the terminal growth rates, and the forecasted tax rate for the income approach and projected EBITDA and derived multiples from comparable market transactions for the market approach.
The Company's estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. Should future cash flows differ materially from the Company's estimate, or should there be a future market downturn, the Company may be required to perform additional impairment analyses that could result in a non-cash goodwill impairment charge.
In the fourth quarter of 2022, the Company performed qualitative testing on five of its reporting units and performed quantitative testing on two of its reporting units and determined that no impairments existed. The qualitative evaluation is an assessment of factors, including reporting unit or asset specific operating results and cost factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not (more than 50%) that the fair value of a reporting unit or asset is less than the respective carrying amount, including goodwill. The results of the qualitative assessments indicated that it is not more likely than not that the fair values of the reporting units were less than their carrying values. For the reporting units tested by applying the quantitative assessment, the Company used a combination of discounted cash flow models (a form of the income approach) and the Guideline Public Company Method (a form of the market approach). No impairments were identified. The estimated fair value of one of the reporting units within Water & Protection exceeded its carrying value by approximately 10 %. As of the date of the quantitative assessment, the carrying amount of goodwill within this reporting unit was $5.4 billion. Given this level of fair value, the reporting unit is sensitive to changes in the significant assumptions used in the analysis. If the reporting unit does not perform to expected levels or there are adverse changes in certain macroeconomic factors, the related goodwill may be at risk for impairment in the future.
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 values 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.
F-38
During the first quarter of 2021, the Company realigned segments and as a result assessed and re-defined certain reporting units, 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.
Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:
| December 31, 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 | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||
Trademarks/tradenames | ( | ( | ||||||||||||||||||
| Customer-related | ( | ( | ||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||
| Total other intangible assets with finite lives | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||
| Intangible assets with indefinite lives: | ||||||||||||||||||||
Trademarks/tradenames | — | — | ||||||||||||||||||
| Total other intangible assets with indefinite lives | $ | $ | — | $ | $ | $ | — | $ | ||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||
During fiscal year 2022, the Company retired fully amortized assets of $390 million of developed technology, $210 million of trademarks/tradenames, $121 million of customer-related intangible assets, and $53 million of other intangible assets.
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.
During the first quarter of 2021, the Company realigned certain segments that held intangible assets with indefinite lives, which served as a triggering event requiring the Company to perform an impairment analysis related to the intangible assets with indefinite lives impacted. Impairment analyses were then performed, and no impairments were identified.
The following table provides the net carrying value of other intangible assets by segment:
| Net Intangibles by Segment | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Electronics & Industrial | $ | $ | ||||||
| Water & Protection | ||||||||
| Corporate & Other | ||||||||
| Total | $ | $ | ||||||
Total estimated amortization expense for the next five fiscal years is as follows:
| Estimated Amortization Expense | |||||
| In millions | |||||
| 2023 | $ | ||||
| 2024 | $ | ||||
| 2025 | $ | ||||
| 2026 | $ | ||||
| 2027 | $ | ||||
F-39
NOTE 15 - SHORT-TERM BORROWINGS, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
The following tables summarizes the Company's short-term borrowings, long-term debt and finance lease obligations:
| Short-Term Borrowings | December 31, 2022 | December 31, 2021 | ||||||
| (In millions) | ||||||||
Commercial paper1 | $ | $ | ||||||
| Long-term debt due within one year | ||||||||
| Total short-term borrowings | $ | $ | ||||||
| Long-Term Debt | December 31, 2022 | December 31, 2021 | ||||||||||||
| In millions | Amount | Weighted Average Rate | Amount | Weighted Average Rate | ||||||||||
Promissory notes and debentures 1: | ||||||||||||||
| Final maturity 2023 | $ | % | $ | % | ||||||||||
| Final maturity 2025 | % | % | ||||||||||||
Final maturity 2028 and thereafter 2 | % | % | ||||||||||||
| Other facilities: | ||||||||||||||
| Finance lease obligations | ||||||||||||||
| Less: Unamortized debt discount and issuance costs | ||||||||||||||
Less: Long-term debt due within one year | ||||||||||||||
| Total | $ | $ | ||||||||||||
1.Represents senior unsecured notes (the "2018 Senior Notes"), which are senior unsecured obligations of the Company.
On November 18, 2022, the Company redeemed in full its fixed-rate long-term senior unsecured notes of $2.5 billion due 2023 at a redemption price equal to 100 % of the aggregate principal amount plus the accrued and unpaid interest. The redemption was funded with the proceeds from the M&M Divestiture.
Principal payments of long-term debt for the five succeeding fiscal years is as follows:
| Maturities of Long-Term Debt for Next Five Years at December 31, 2022 | Total | ||||
| In millions | |||||
| 2023 | $ | ||||
| 2024 | $ | ||||
| 2025 | $ | ||||
| 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, not including long-term debt due within one year, was $7,674 million and $12,595 million at December 31, 2022 and December 31, 2021, respectively.
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Available Committed Credit Facilities
The following table summarizes the Company's credit facilities:
| Committed and Available Credit Facilities at December 31, 2022 | |||||||||||||||||
| In millions | Effective Date | Committed Credit | Credit Available | Maturity Date | Interest | ||||||||||||
Revolving Credit Facility, -year | April 2022 | $ | $ | April 2027 | Floating Rate | ||||||||||||
| April 2022 | April 2023 | Floating Rate | |||||||||||||||
| Total Committed and Available Credit Facilities | $ | $ | |||||||||||||||
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.
Terminated Intended Rogers Acquisition
In connection with the Terminated 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.
Term Loan and 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 $1 B Revolving Credit Facility").
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”). 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.
Uncommitted Credit Facilities and Outstanding Letters of Credit
Unused bank credit lines on uncommitted credit facilities were approximately $656 million at December 31, 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 $116 million at December 31, 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 Five-Year Revolving Credit Facility and the 2022 $1 B 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 December 31, 2022, the Company was in compliance with this financial covenant. There were no material changes to the debt covenants and default provisions at December 31, 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 December 31, 2022, the Company has recorded indemnification assets of $70 million within "Accounts and notes receivable - net" and $237 million within "Deferred charges and other assets" and indemnified liabilities of $211 million within "Accrued and other current liabilities" and $274 million within "Other noncurrent obligations" within the Consolidated Balance Sheets. At December 31, 2021, the Company has recorded indemnified assets of $47 million within "Accounts and notes receivable - net" and $234 million within "Deferred charges and other assets" and indemnified liabilities of $153 million within "Accrued and other current liabilities" and $192 million within "Other noncurrent obligations" within the Consolidated Balance Sheets.
The Company’s accruals discussed below for indemnification liabilities related to the binding Memorandum of Understanding (“MOU”) between Chemours, Corteva, EIDP 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, EIDP, a Corteva subsidiary since June 1, 2019, completed the separation of EIDP’s Performance Chemicals segment through the spin-off of Chemours to holders of EIDP 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 EIDP.
On January 22, 2021, the Company, Corteva, EIDP 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 EIDP 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
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year beginning and including 2022. 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 consecutive annual equal installments commencing on September 30, 2029 pursuant to the escrow account replenishment terms as set forth in the MOU.
DuPont's aggregate escrow deposits of $100 million and $50 million at December 31, 2022 and 2021, respectively, are reflected in "Restricted cash and cash equivalents" on the Consolidated Balance Sheet.
Under the Agreements, Divested Operations and Businesses ("DDOB") liabilities of EIDP 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 “EIDP 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 EIDP 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 EIDP 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 | December 31, 2022 | December 31, 2021 | Balance Sheet Classification | ||||||||
| Current indemnified liabilities | $ | $ | Accrued and other current liabilities | ||||||||
| Long-term indemnified liabilities | $ | $ | Other noncurrent obligations | ||||||||
Total indemnified liabilities accrued under the MOU 1, 2 | $ | $ | |||||||||
1.As of December 31, 2022 and 2021, total indemnified liabilities accrued include $161 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, EIDP settled a West Virginia state court class action, Leach v. E. I. du Pont de Nemours and Company, which alleged that PFOA from EIDP’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 just 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 EIDP 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, had been filed or noticed and were pending in the Ohio MDL.
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On January 21, 2021, EIDP 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 is $83 million in cash with each of the Company and EIDP contributing $27 29 million. At June 30, 2021 the Company had paid in full its $27
As of December 31, 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 EIDP 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, EIDP, Corteva and DuPont.
Beginning in April 2019, several dozen lawsuits involving water contamination arising from the use of PFAS-containing aqueous firefighting foams (“AFFF”) were filed against EIDP, Chemours, 3M and other AFFF manufacturers and in different parts of the country. Most were consolidated in multi-district litigation docket in federal district court in South Carolina (the “SC MDL”). Since then, the SC MDL has grown and contains approximately 3,400 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 3,100 personal injury cases, state attorneys general natural resource damages cases, and water provider contamination cases. The court has selected City of Stuart, Florida v. 3M Company, et al. as the first case to go to trial. Trial is scheduled to take place on June 5, 2023. The court has encouraged all parties to discuss resolution of the water provider category of cases, and on October 26, 2022 appointed a mediator to facilitate discussions among and between the parties. Consistent with the court’s instruction and under the mutual obligations of the MOU, Chemours, Corteva/EIDP and DuPont, together, are engaged with Plaintiffs’ Counsel on these cases, including through the court-appointed mediator. 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 EIDP) and DuPont reached a resolution with the State of Delaware that avoids litigation and addresses potential Natural Resources Damages (“NRD”) from known historical and current releases by the companies in or affecting Delaware. The resolution releases potential state NRD claims arising from the environmental impacts of various chemicals, including PFAS, across all current and historical locations. Consistent with the MOU, Chemours bore 50 percent or $25 million of the $50 million settlement and Corteva and DuPont have each bore $12.5 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, an historic DuPont Dutch subsidiary 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/EIDP 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.
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While the Company believes it has appropriately estimated the liability associated with eligible PFAS matters and Indemnifiable Losses, including in connection with the court-ordered mediation in the SC MDL, 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.
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 December 31, 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 December 31, 2022, the Company had accrued obligations of $263 million for probable environmental remediation and restoration costs. These obligations are included in in the 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 includes the following:
| Environmental Accrued Obligations | |||||||||||
| In millions | December 31, 2022 | December 31, 2021 | Potential exposure above the amount accrued 1 | ||||||||
| Environmental remediation liabilities not subject to indemnity | $ | $ | $ | ||||||||
| Environmental remediation indemnified liabilities: | |||||||||||
Indemnifications related to Dow and Corteva 2 | |||||||||||
MOU related obligations (discussed above) 3 | |||||||||||
| Other environmental indemnifications | |||||||||||
| Total environmental related liabilities | $ | $ | $ | ||||||||
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 Company has operating leases for real estate, an airplane, railcars, fleet, certain machinery and equipment, and information technology assets. The Company’s leases have remaining lease terms of approximately 1 year to 30 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise that option. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability.
Certain of the Company's leases include residual value guarantees. These residual value guarantees are based on a percentage of the lessor's asset acquisition price and the amount of such guarantee declines over the course of the lease term. The portion of residual value guarantees that are probable of payment is included in the related lease liability in the Consolidated Balance Sheet. At December 31, 2022, the Company has future maximum payments for residual value guarantees in operating leases of $21 million with final expirations through 2026. The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating leases for the years ended December 31, 2022, 2021 and 2020 were as follows:
| In millions | 2022 | 2021 | 2020 | ||||||||
| Operating lease cost | $ | $ | $ | ||||||||
| Short-term lease cost | |||||||||||
| Variable lease cost | |||||||||||
Less: Sublease income 1 | |||||||||||
| Total lease cost | $ | $ | $ | ||||||||
1.Reflects income associated with subleases, not inclusive of all lessor arrangements disclosed below.
Operating cash flows from operating leases, excluding those related to the M&M Divestitures, were $109 million, $105 million, and $134 million for the year ended December 31, 2022, 2021 and 2020, respectively.
New operating lease assets and liabilities entered into during the year ended December 31, 2022 and 2021 were $131 million and $129 million, respectively. Supplemental balance sheet information related to leases was as follows:
| In millions | December 31, 2022 | December 31, 2021 | ||||||
Operating Leases | ||||||||
Operating lease right-of-use assets 1 | $ | $ | ||||||
Current operating lease liabilities 2 | ||||||||
Noncurrent operating lease liabilities 3 | ||||||||
Total operating lease liabilities | $ | $ | ||||||
1.Included in "" in the Consolidated Balance Sheet.
2.Included in "" in the Consolidated Balance Sheet.
3.Included in "" in the Consolidated Balance Sheet.
Operating lease 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 | December 31, 2022 | December 31, 2021 | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
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Maturities of lease liabilities were as follows:
| Maturity of Lease Liabilities at December 31, 2022 | Operating Leases | ||||
| In millions | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 and thereafter | |||||
| Total lease payments | $ | ||||
| Less: Interest | |||||
| Present value of lease liabilities | $ | ||||
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 and the M&M Divestiture, DuPont entered into leasing arrangements with IFF and Celanese, whereby DuPont is leasing certain properties, including office spaces and R&D laboratories. These leases are classified as operating leases and lessor revenue and related expenses are not significant to the Company’s Consolidated Balance Sheet or 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
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.
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"). In the first quarter of 2022, the Company purchased 5.1 million shares for approximately $375 million, effectively completing the 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.
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”). 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. In November 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 “$5 B Share Buyback Program", together with the 2022 Share Buyback Program, the "2022 Stock Repurchase Programs") in addition to the 250 million remaining under the Company’s existing share repurchase program. The $5 B Share Buyback Program expires on June 30, 2024, unless extended or shortened by the Board of Directors.
In November 2022, DuPont entered into accelerated share repurchase ("ASR") agreements (the "2022 ASR Agreements") with each of three financial institutions (the "ASR Counterparties"), for the repurchase of an aggregate of approximately $3.25 billion of common stock with $250 million of such repurchases under the 2022 Share Buyback Program and the remaining $3 billion under the $5 B Share Buyback Program. Pursuant to the terms of the 2022 ASR Agreement, DuPont paid an aggregate of $3.25 billion to the ASR Counterparties and received initial deliveries of 38.8 million shares in aggregate of DuPont common stock, which were retired immediately and recorded as a reduction to retained earnings of $2.6 billion. The remaining $650 million was evaluated as an unsettled forward contract indexed to DuPont common stock, classified within stockholders’ equity. The final number of shares to be repurchased will be based on the volume-weighted average stock price for DuPont common stock during the term of the ASR transaction, less an agreed upon discount. The ASR transaction is being funded with cash on hand and is expected to be completed in the third quarter 2023.
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 stock repurchase activity under the 2022 Stock Repurchase Programs were as follows:
| 2022 Stock Repurchase Programs | Share Repurchased | Average Price per Share | Value of Shares Repurchased | Remaining Amount Authorized | ||||||||||
| In millions, expect per share amounts | ||||||||||||||
| Balance as of January 1, 2022 | $ | |||||||||||||
| Authorization of plan in February 2022 | ||||||||||||||
| Repurchase of shares as of the quarter ended June 30, 2022 | $ | $ | ( | |||||||||||
| Repurchase of shares as of the quarter ended September 30, 2022 | $ | ( | ||||||||||||
| Authorization of plan in November 2022 | ||||||||||||||
| Accelerated share repurchase | ( | |||||||||||||
Unsettled forward contract for accelerated share repurchase 1 | — | ( | ||||||||||||
| Balance as of December 31, 2022 | $ | |||||||||||||
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Common Stock
The following table provides a reconciliation of DuPont Common Stock activity for the years ended December 31, 2022, 2021 and 2020:
| Shares of DuPont Common Stock | Issued | Held in Treasury | ||||||
| In thousands | ||||||||
| Balance at January 1, 2020 | ||||||||
| Issued | — | |||||||
| Repurchased | — | |||||||
Retired | ( | ( | ||||||
| Balance at December 31, 2020 | ||||||||
| Issued | — | |||||||
Repurchased 1 | — | |||||||
Retired 1 | ( | ( | ||||||
| Balance at December 31, 2021 | ||||||||
| Issued | — | |||||||
Repurchased | — | |||||||
Retired | ( | ( | ||||||
| Balance at December 31, 2022 | ||||||||
1.Includes 197 million shares of common stock that were exchanged and retired as part of the N&B Transaction.
Retained Earnings
There are no significant restrictions limiting the Company's ability to pay dividends. Dividends declared and paid to common stockholders during the years ended December 31, 2022, 2021 and 2020 are summarized in the following table:
| Dividends Declared and Paid | 2022 | 2021 | 2020 | |||||||||||
| In millions | ||||||||||||||
| Dividends declared to common stockholders | $ | $ | $ | |||||||||||
| Dividends paid to common stockholders | $ | $ | $ | |||||||||||
Undistributed earnings of nonconsolidated affiliates included in retained earnings were $656 million at December 31, 2022 and $912 million at December 31, 2021.
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Accumulated Other Comprehensive Loss
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the years ended December 31, 2022, 2021 and 2020:
| Accumulated Other Comprehensive Loss | Cumulative Translation Adj | Pension and OPEB | Derivative Instruments 1 | Total | ||||||||||
| In millions | ||||||||||||||
| 2020 | ||||||||||||||
| Balance at January 1, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Other comprehensive income (loss) before reclassifications | ( | |||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ||||||||||||||
| Net other comprehensive income (loss) | ( | $ | ||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | ( | $ | ||||||||
| 2021 | ||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ||||||||||||||
| Split-off of N&B reclassification adjustment | ||||||||||||||
| Net other comprehensive (loss) income | $ | ( | $ | $ | $ | ( | ||||||||
| Balance at December 31, 2021 | $ | ( | $ | $ | $ | |||||||||
| 2022 | ||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ( | ||||||||||||
| M&M Divestiture reclassification adjustment | ( | |||||||||||||
| Net other comprehensive (loss) income | $ | ( | $ | ( | $ | $ | ( | |||||||
| Balance at December 31, 2022 | $ | ( | $ | $ | $ | ( | ||||||||
The tax effects on the net activity related to each component of other comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 were as follows:
| Tax Benefit (Expense) | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| Pension and other post-employment benefit plans | ( | ||||||||||
| Derivative instruments | ( | ( | |||||||||
| Tax expense from income taxes related to other comprehensive (loss) income items | $ | $ | ( | $ | |||||||
F-50
A summary of the reclassifications out of AOCL for the years ended December 31, 2022, 2021 and 2020 is provided as follows:
| Reclassifications Out of Accumulated Other Comprehensive Loss | 2022 | 2021 | 2020 | Income Classification | ||||||||||
| In millions | ||||||||||||||
| Cumulative translation adjustments | $ | $ | $ | See (1) below | ||||||||||
| Pension and other post-employment benefit plans | $ | ( | $ | $ | See (1) below | |||||||||
| Tax (benefit) expense | ( | See (1) below | ||||||||||||
Pension and other post-employment benefit plans, after tax | $ | ( | $ | $ | ||||||||||
| Derivative instruments | $ | $ | $ | See (1) below | ||||||||||
| Tax expense | See (1) below | |||||||||||||
| Derivative instruments, after tax | $ | $ | $ | |||||||||||
| Total reclassifications for the period, after tax | $ | $ | $ | |||||||||||
1. The activity for the year ended December 31, 2022 is classified almost entirely within "Income (loss) from discontinued operations, net of tax" as part of the M&M Divestiture, with a portion classified within and "Sundry income (expense) - net" as part of continuing operations.. The activity for the year ended December 31, 2021 is classified almost entirely within "Income (loss) from discontinued operations, net of tax" as part of the N&B Transaction, with a portion classified within and "Sundry income (expense) - net" as part of continuing operations. The activity for the year ended December 31, 2020 is classified within the "Income (loss) from discontinued operations, net of tax", "Sundry income (expense) - net", "Net sales", "Cost of sales", and "Provision for income taxes on continuing operations" lines.
F-51
NOTE 19 - PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
The significant defined benefit pension and OPEB plans of TDCC and EIDP are summarized below. Unless otherwise noted, all values within this footnote are inclusive of balances and activity associated with discontinued operations.
Defined Benefit Pension Plans
DuPont has both funded and unfunded defined benefit pension plans covering employees in a number of non-US countries that formerly relate to both TDCC and EIDP. The United Kingdom qualified plan is the largest pension plan held by DuPont.
DuPont's funding policy is consistent with the funding requirements of each country's laws and regulations. Pension coverage for employees of DuPont's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are funded by depositing funds with trustees, covered by insurance contracts, or remain unfunded. During 2022, the Company contributed $79 million to its benefit plans. DuPont expects to contribute approximately $76 million to its benefit plans in 2023.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for all plans are summarized in the table below:
| Weighted-Average Assumptions for Pension Plans | Benefit Obligations at December 31, | Net Periodic Costs for the Years Ended | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2020 | |||||||||||||
| Discount rate | % | % | % | % | % | ||||||||||||
| Interest crediting rate for applicable benefits | % | % | % | % | % | ||||||||||||
| Rate of compensation increase | % | % | % | % | % | ||||||||||||
| Expected return on plan assets | N/A | N/A | % | % | % | ||||||||||||
Other Post-employment Benefit Plans
The Company retained U.S. and foreign other post-employment benefit obligations with the Canadian plan and the U.S. long-term disabilities plan being the two largest and accounting for the majority of the Company's total other post-employment benefit obligations. In comparison to the Company's defined benefit pension plans, the Company's other post-employment benefit plans are not significant. The total other post-employment benefits projected benefit obligation was $27 million as of December 31, 2022 and $37 million as of December 31, 2021.
Assumptions
The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics.
Service cost and interest cost for all other plans are determined on the basis of the discount rates derived in determining those plan obligations. The discount rates utilized to measure the majority of pension and other postretirement obligations are based on the Aon AA corporate bond yield curves applicable to each country at the measurement date. DuPont utilizes the mortality tables and generational mortality improvement scales, where available, developed in each of the respective countries in which the Company holds plans.
F-52
Summarized information on the Company's pension and other postretirement benefit plans is as follows:
| Change in Projected Benefit Obligations of All Plans | 2022 | 2021 | ||||||
| In millions | ||||||||
| Change in projected benefit obligations: | ||||||||
| Benefit obligations at beginning of year | $ | $ | ||||||
| Service cost | ||||||||
| Interest cost | ||||||||
| Plan participants' contributions | ||||||||
Actuarial changes in assumptions and experience | ( | ( | ||||||
| Benefits paid | ( | ( | ||||||
| Plan amendments | ( | |||||||
Acquisitions/divestitures/other 1, 2 | ( | ( | ||||||
| Effect of foreign exchange rates | ( | ( | ||||||
| Termination benefits/curtailment cost/settlements | ( | |||||||
| Benefit obligations at end of year | $ | $ | ||||||
1.The year ended 2022 is primarily related to the M&M Divestiture.
2.The year ended 2021 is primarily related to the N&B Transaction, partially offset by the Laird PM Acquisition.
| Change in Plan Assets and Funded Status of All Plans | 2022 | 2021 | ||||||
| In millions | ||||||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | $ | $ | ||||||
| Actual return on plan assets | ( | |||||||
| Employer contributions | ||||||||
| Plan participants' contributions | ||||||||
| Benefits paid | ( | ( | ||||||
Acquisitions/divestitures/other 1, 2 | ( | ( | ||||||
| Effect of foreign exchange rates | ( | ( | ||||||
| Fair value of plan assets at end of year | $ | $ | ||||||
| Funded status: | ||||||||
| Plans with plan assets | $ | $ | ||||||
| All other plans | ( | ( | ||||||
| Funded status at end of year | $ | ( | $ | ( | ||||
1.The year ended 2022 is primarily related to the M&M Divestiture.
2.The year ended 2021 is primarily related to the N&B Transaction, partially offset by the Laird PM Acquisition.
The following tables summarize the amounts recognized in the consolidated balance sheets for all significant plans:
| Amounts Recognized in the Consolidated Balance Sheets for All Significant Plans | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
Amounts recognized in the consolidated balance sheets: | ||||||||
| Deferred charges and other assets | $ | $ | ||||||
| Assets of discontinued operations | ||||||||
| Accrued and other current liabilities | ( | ( | ||||||
| Pension and other postretirement benefits - noncurrent | ( | ( | ||||||
| Liabilities of discontinued operations | ( | ( | ||||||
| Net amount recognized | $ | ( | $ | ( | ||||
| Pretax amounts recognized in accumulated other comprehensive loss (income): | ||||||||
| Net gain | $ | ( | $ | ( | ||||
| Prior service credit | ( | ( | ||||||
Pretax balance in accumulated other comprehensive loss at end of year | $ | ( | $ | ( | ||||
F-53
The decrease in the Company's actuarial gains for the year ended December 31, 2022 was primarily due to the changes in weighted-average discount rates, which increased from 1.32 percent at December 31, 2021 to 3.71 percent at December 31, 2022 offset by divestitures and losses on assets in excess of what was expected.
The accumulated benefit obligation for all pension plans was $2.6 billion and $4.0 billion at December 31, 2022 and 2021, respectively.
| Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Accumulated benefit obligations | $ | $ | ||||||
| Fair value of plan assets | $ | $ | ||||||
| Pension Plans with Projected Benefit Obligations in Excess of Plan Assets | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Projected benefit obligations | $ | $ | ||||||
| Fair value of plan assets | $ | $ | ||||||
| Net Periodic Benefit Costs for All Significant Plans for the Year Ended December 31, | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| Net Periodic Benefit Costs: | |||||||||||
Service cost 1 | $ | $ | $ | ||||||||
Interest cost 2 | |||||||||||
Expected return on plan assets 3 | ( | ( | ( | ||||||||
Amortization of prior service credit 4 | ( | ( | ( | ||||||||
Amortization of unrecognized net loss 5 | |||||||||||
Curtailment/settlement 6 | ( | ||||||||||
| Net periodic benefit costs (credits) - Total | $ | ( | $ | $ | |||||||
| Less: Net periodic benefit costs (credits) - Discontinued operations | ( | ( | |||||||||
| Net periodic benefit costs - Continuing operations | $ | $ | $ | ||||||||
| Changes in plan assets and benefit obligations recognized in other comprehensive loss (income): | |||||||||||
| Net (gain) loss | $ | ( | $ | ( | $ | ||||||
| Prior service credit | ( | ||||||||||
| Amortization of prior service credit | |||||||||||
| Amortization of unrecognized loss | ( | ( | ( | ||||||||
| Curtailment loss | ( | ||||||||||
| Settlement gain (loss) | ( | ( | |||||||||
| Effect of foreign exchange rates | ( | ||||||||||
| Total recognized in other comprehensive loss (income) | $ | ( | $ | ( | $ | ||||||
Noncontrolling interest | $ | $ | $ | ||||||||
| Total recognized in net periodic benefit costs (credits) and other comprehensive loss (income) | $ | ( | $ | ( | $ | ||||||
1.The service cost from continuing operations was $30 million, $33 million, and $42 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
2. The interest cost from continuing operations was $49 million, $39 million, and $47 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
3. The expected return on plan assets from continuing operations was $73 million, $78 million, and $77 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
4. The amortization of prior service credits from continuing operations was $4 million, $5 million, and $2 million for the years ended December 31, 2022, 2021 and 2020, respectively, for significant plans.
5. The amortization of unrecognized net loss from continuing operations was $4 million for the year ended December 31, 2022, and losses of $11
6. The curtailment and settlement costs from continuing operations was a gain of $4 million for the year ended December 31, 2022, and a loss of $3 million, and $9 million for the years ended December 31, 2021, and 2020 respectively, for significant plans.
F-54
Estimated Future Benefit Payments
The estimated future benefit payments of continuing operations, reflecting expected future service, as appropriate, are presented in the following table:
| Estimated Future Benefit Payments at December 31, 2022 | |||||
| In millions | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Years 2028-2032 | |||||
| Total | $ | ||||
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and alternative investments such as insurance contracts, pooled investment vehicles and private market securities. At December 31, 2022, plan assets totaled $2.6 billion.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset liability studies are utilized in this process. The assets are managed by professional investment firms unrelated to the Company. Pension trust funds are permitted to enter into certain contractual arrangements generally described as derivative instruments. Derivatives are primarily used to reduce specific market risks, hedge currency and adjust portfolio duration and asset allocation in a cost-effective manner.
Equity securities primarily included investments in large- and small-cap companies located in both developed and emerging markets around the world. Global equity securities include varying market capitalization levels. U.S. equity investments are primarily large-cap companies. Fixed income securities included investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Global fixed income investments include corporate-issued, government-issued and asset-backed securities. Corporate debt investments include a range of credit risk and industry diversification. U.S. fixed income investments are weighted heavier than non-U.S fixed income securities. Alternative investments primarily included investments in real estate, various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges. Other investments include cash and cash equivalents, pooled investment vehicles, hedge funds and private market securities such as interests in private equity and venture capital partnerships.
The weighted-average target allocation for plan assets of DuPont's pension plans is summarized as follows:
| Target Allocation for Plan Assets at December 31, 2022 | DuPont | ||||
| Asset Category | |||||
| Equity securities | % | ||||
| Fixed income securities | |||||
| Alternative investments | |||||
| Hedge funds | |||||
| Pooled investment vehicles | |||||
| Other investments | |||||
| Total | % | ||||
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
F-55
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Valuations of the investments are provided by investment managers or fund managers. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Valuations of insurance contracts are contractually determined and are based on exit price valuations or contract value. Adjustments to valuations are made where appropriate.
Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. Where available, audited annual financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation. These funds are not classified within the fair value hierarchy.
F-56
The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 2022 and 2021:
| Basis of Fair Value Measurements | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| U.S. equity securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Non - U.S. equity securities | ||||||||||||||||||||||||||
| Total equity securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||
| Debt - government-issued | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Debt - corporate-issued | ||||||||||||||||||||||||||
| Debt - asset-backed | ||||||||||||||||||||||||||
| Total fixed income securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Alternative investments: | ||||||||||||||||||||||||||
| Real estate | $ | $ | $ | |||||||||||||||||||||||
| Insurance contracts | ||||||||||||||||||||||||||
| Derivatives - asset position | ||||||||||||||||||||||||||
| Derivatives - liability position | ||||||||||||||||||||||||||
| Total alternative investments | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Other Investments: | ||||||||||||||||||||||||||
| Pooled Investment Vehicles | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total other investments | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Investments measured at net asset value: | ||||||||||||||||||||||||||
| Debt - government-issued | $ | $ | ||||||||||||||||||||||||
| Hedge funds | ||||||||||||||||||||||||||
| Private market securities | ||||||||||||||||||||||||||
Total investments measured at net asset value | $ | $ | ||||||||||||||||||||||||
Items to reconcile to fair value of plan assets: | ||||||||||||||||||||||||||
Pension trust receivables 1 | $ | $ | ||||||||||||||||||||||||
Pension trust payables 2 | ||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
1. Primarily receivables for investment securities sold.
2. Primarily payables for investment securities purchased.
F-57
The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 2022 and 2021:
| Fair Value Measurement of Level 3 Pension Plan Assets | Real Estate | Insurance Contracts | Total | ||||||||
| In millions | |||||||||||
| Balance at Jan 1, 2021 | $ | $ | $ | ||||||||
| Actual return on assets: | |||||||||||
| Relating to assets sold during 2021 | |||||||||||
| Relating to assets held at Dec 31, 2021 | ( | ( | ( | ||||||||
| Purchases, sales and settlements, net | ( | ( | |||||||||
Transfers into Level 3 1 | |||||||||||
Transfers out of Level 3 2 | ( | ( | ( | ||||||||
| Balance at Dec 31, 2021 | $ | $ | $ | ||||||||
| Actual return on assets: | |||||||||||
| Relating to assets sold during 2022 | |||||||||||
| Relating to assets held at Dec 31, 2022 | ( | ( | ( | ||||||||
| Purchases, sales and settlements, net | ( | ( | |||||||||
| Transfers into Level 3 | |||||||||||
Transfers out of Level 3 3 | ( | ( | |||||||||
| Balance at Dec 31, 2022 | $ | $ | $ | ||||||||
1. Related to the Laird PM Acquisition.
2. Related to the N&B Transaction.
3. Related to the M&M Divestiture
Defined Contribution Plans
The Company provides defined contribution benefits to its employees. The most significant is the U.S. Retirement Savings Plan ("the Plan"), which covers all U.S. full-service employees. This Plan includes a non-leveraged Employee Stock Ownership Plan ("ESOP"). Employees are not required to participate in the ESOP and those who do are free to diversify out of the ESOP. The purpose of the Plan is to provide retirement savings benefits for employees and to provide employees an opportunity to become stockholders of the Company. The Plan is a tax qualified contributory profit sharing plan, with cash or deferred arrangement and any eligible employee of the Company may participate. Currently, the Company contributes 100 percent of the first 6 percent of the employee's contribution election and also contributes 3 percent of each eligible employee's eligible compensation regardless of the employee's contribution. The Company's matching contributions vest immediately upon contribution. The 3 percent nonmatching employer contribution vests after employees complete three years of service. The Company's contributions to the Plan were $72 million in 2022 and $71 million in 2021. Both periods are inclusive of M&M activity related to discontinued operations. 2021 is inclusive of N&B activity related to discontinued operations.
In addition, the Company made contributions to other defined contribution plans in 2022 in the amount of $33 million and $35 million in 2021. Both periods are inclusive of M&M activity and the 2021 period is inclusive of N&B activity related to discontinued operations.
F-58
NOTE 20 - STOCK-BASED COMPENSATION
Effective with the DWDP Merger, on August 31, 2017, DowDuPont assumed all TDCC and EIDP equity incentive compensation awards outstanding immediately prior to the DWDP Merger. The TDCC and EIDP stock-based compensation plans were assumed by DowDuPont and remained in place with the ability to grant and issue DowDuPont common stock until the DWDP Distributions.
Immediately following the Corteva Distribution, DuPont adopted the DuPont Omnibus Incentive Plan ("DuPont OIP") which provides for equity-based and cash incentive awards to certain employees, directors, independent contractors and consultants. Upon adoption of the DuPont OIP, the TDCC and EIDP plans were rolled into the DuPont OIP as separate subplans and no longer granted new awards. All previously granted equity awards under these subplans have the same terms and conditions that were applicable to the awards under the TDCC and EIDP plans immediately prior to the DWDP Distributions. Due to reaching the plan term of the DuPont OIP, no further awards will be granted from the plan. Awards that are outstanding under the DuPont OIP remain outstanding in accordance with their terms.
During the second quarter of 2020, the stockholders of DuPont approved the DuPont 2020 Equity and Incentive Plan (the "2020 EIP"), which allows the Company to grant options, share appreciation rights, restricted shares, restricted stock units ("RSUs"), share bonuses, other share-based awards, cash awards, each as defined in the 2020 EIP, or any combination of the foregoing. Under the EIP, a maximum of 17 million shares of common stock are available for award as of December 31, 2022. The approval of the 2020 Plan had no effect on the Company’s ability to make future grants under the DuPont OIP in accordance with its terms, and awards that are outstanding under the DuPont OIP remain outstanding in accordance with their terms.
A description of the Company's stock-based compensation is discussed below followed by a description of TDCC and EIDP stock-based compensation.
Accounting for Stock-Based Compensation
The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments issued to employees is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.
DuPont recognized share-based compensation expense in continuing operations of $75 million, $67 million, and $93 million during the years ended December 31, 2022, 2021 and 2020, respectively. The income tax benefits related to stock-based compensation arrangements were $16 million, $13 million, and $18 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Total unrecognized pretax compensation cost in continuing operations related to nonvested stock option awards of $5 million at December 31, 2022, is expected to be recognized over a weighted-average period of 1.7 years. Total unrecognized pretax compensation cost in continuing operations related to RSUs and performance based stock units ("PSUs") of $63 million at December 31, 2022, is expected to be recognized over a weighted average period of 1.7 years. The total fair value of RSUs and PSUs vested in the year ended December 31, 2022 was $79 million. The weighted average grant-date fair value of RSUs and PSUs granted during 2022 was $76.30 .
At the time of the N&B separation, outstanding, unvested share-based compensation awards that were denominated in DuPont common stock and held by N&B Employees were terminated and reissued as equity awards issued under the IFF stock plan.
At the time of the M&M separation, outstanding, unvested share-based compensation awards granted in 2022 and held by Employees transferred to Celanese were terminated and reissued as equity awards under the Celanese stock plan. Pre-2022 awards held by M&M Employees were settled by DuPont based on vesting conditions noted in respective grant agreements.
DuPont 2020 Equity Incentive Plan
EIP Stock Options
The exercise price of shares subject to option is equal to the market price of the Company's stock on the date of grant. Stock option awards expire 10 years after the grant date. The plan allows retirement-eligible employees of the Company to retain any granted awards upon retirement provided the employee has rendered at least 12 months of service following the grant date.
F-59
The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards and the assumptions set forth in the table below. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| EIP Weighted-Average Assumptions | 2022 | 2021 | ||||||
| Dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life of stock options granted during period (years) | ||||||||
The Company determines the dividend yield by dividing the annualized dividend on DuPont's common stock by the option exercise price. A historical daily measurement of volatility is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to DuPont's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under the EIP:
| EIP Stock Options | 2022 | |||||||||||||
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) 1 | |||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Exercised | $ | |||||||||||||
| Forfeited/Expired | ( | $ | ||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||
| Exercisable at December 31, 2022 | $ | $ | ||||||||||||
Additional Information about EIP Stock Options | ||||||||
| In millions, except per share amounts | 2022 | 2021 | ||||||
| Weighted-average fair value per share of options granted | $ | $ | ||||||
Total compensation expense for stock options plans 1 | $ | $ | ||||||
Related tax benefit 1 | $ | $ | ||||||
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year end.
EIP Restricted Stock Units and Performance Based Stock Units
The Company grants RSUs to certain employees that generally vest over a three-year period and, upon vesting, convert one -for-one to DuPont common stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least 12 months of service following the grant date. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
The Company grants PSUs to senior leadership under the DuPont EIP. Vesting for PSUs granted is based upon achieving certain return on invested capital ("ROIC") targets and certain adjusted corporate net income annual growth targets, weighted evenly between the metrics and modified by a relative total shareholder return ("TSR") percentile ranking goal as compared to the S&P 500. The actual award, delivered as DuPont common stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs, subject to the TSR metric, is based upon the market price of the underlying common stock as of the grant date and estimated using a Monte Carlo simulation.
F-60
Nonvested awards of RSUs and PSUs are shown below:
| EIP RSUs and PSUs | 2022 | |||||||
| Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) | |||||||
| Nonvested at January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | $ | ||||||
| Forfeited | ( | $ | ||||||
| Nonvested at December 31, 2022 | $ | |||||||
DuPont Omnibus Incentive Plan
The DuPont OIP has two subplans that have the same terms and conditions of the TDCC and EIDP plans immediately prior to the DWDP Distributions. Awards previously granted under those plans that were nonvested will now vest in each subplan. No awards were granted by the Company out of the OIP plan in 2022. All new awards will be granted by the EIP.
OIP Stock Options
The exercise price of shares subject to option is equal to the market price of the Company's stock on the date of grant. Stock option awards expire 10 years after the grant date. The plan allows retirement-eligible employees of the Company to retain any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards and the assumptions set forth in the table below. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| OIP Weighted-Average Assumptions | 2021 | 2020 | ||||||
| Dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life of stock options granted during period (years) | ||||||||
The Company determines the dividend yield by dividing the annualized dividend on DuPont's common stock by the option exercise price. A historical daily measurement of volatility (using DowDuPont stock information after the DWDP Merger date and a weighted average of TDCC and EIDP prior to DWDP Merger date) is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to DuPont's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under the OIP:
| OIP Stock Options | 2022 | |||||||||||||
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Exercised | ( | $ | ||||||||||||
| Forfeited/Expired | ( | $ | ||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||
| Exercisable at December 31, 2022 | $ | $ | ||||||||||||
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Additional Information about OIP Stock Options 1 | |||||||||||
| In millions, except per share amounts | 2022 | 2021 | 2020 | ||||||||
| Weighted-average fair value per share of options granted | $ | $ | $ | ||||||||
Total compensation expense for stock options plans 2 | $ | $ | $ | ||||||||
Related tax benefit 2 | $ | $ | $ | ||||||||
1. No awards were granted by the Company out of the OIP plan in 2022.
2.These amount represent life to date.
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year end.
OIP Restricted Stock Units and Performance Based Stock Units
The Company grants RSUs to certain employees that serially vested over a three-year period and, upon vesting, convert one -for-one to DuPont common stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
The Company grants PSUs to senior leadership under a subplan of the DuPont OIP. Vesting for PSUs granted is based upon achieving certain return on invested capital ("ROIC") targets and certain adjusted corporate net income annual growth targets, weighted evenly between the metrics and modified by a relative total shareholder return ("TSR") percentile ranking goal as compared to the S&P 500. The actual award, delivered as DuPont common stock, can range from zero percent to 200 percent of the original grant. The weighted-average grant-date fair value of the PSUs, subject to the TSR metric, is based upon the market price of the underlying common stock as of the grant date and estimated using a Monte Carlo simulation.
Nonvested awards of RSUs and PSUs are shown below.
| OIP RSUs and PSUs | 2022 | |||||||
| Number of Shares (in thousands) | Weighted Average Grant Date Fair Value (per share) | |||||||
Nonvested at January 1, 2022 1 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | $ | ||||||
| Forfeited | ( | $ | ||||||
| Nonvested at December 31, 2022 | $ | |||||||
1. The opening weighted average fair value has been recast and is consistent with current year presentation.
TDCC Stock Incentive Plan
In connection with the DWDP Merger, on August 31, 2017 all outstanding TDCC stock options under the TDCC 2012 Stock Incentive Plan (the "2012 Plan") were converted into stock options with respect to DowDuPont Common Stock.
TDCC Stock Options
TDCC granted stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of TDCC’s stock on the grant date. Options vest from one year to three years , and had a maximum term of 10 years. To measure the fair value of the awards on the date of grant, TDCC used the Black-Scholes option pricing model. No
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The following table summarizes stock option activity for 2022:
| TDCC Stock Options | 2022 | |||||||||||||
| Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||
Outstanding at January 1, 2022 1 | $ | |||||||||||||
| Exercised | ( | $ | ||||||||||||
| Forfeited/Expired | ( | $ | ||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||
| Exercisable at December 31, 2022 | $ | $ | ||||||||||||
EIDP Equity Incentive Plan
EIDP Stock Options
The exercise price of shares subject to option is equal to the market price of EIDP's stock on the date of grant. All options vest serially over a three-year period. Stock option awards granted between 2010 and 2015 expire seven years after the grant date and options granted between 2016 and 2018 expire ten years after the grant date. The plan allowed retirement-eligible employees of EIDP to retain any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date.
There were no
EIDP determined the dividend yield by dividing the annualized dividend on DowDuPont's Common Stock by the option exercise price. A historical daily measurement of volatility (using DowDuPont stock information after the DWDP Merger date and a weighted average of TDCC and EIDP prior to DWDP Merger date) is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to EIDP's historical experience, adjusted for expected exercise patterns of in-the-money options.
The following table summarizes stock option activity for 2022 under EIDP's EIP:
| EIDP Stock Options | 2022 | |||||||||||||
Number of Shares (in thousands) | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||||
| Exercised | ( | $ | ||||||||||||
| Forfeited/Expired | ( | $ | ||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||
| Exercisable at December 31, 2022 | $ | $ | ||||||||||||
EIDP Restricted Stock Units
EIDP issued RSUs that serially vested over a three-year period and, upon vesting, convert one -for-one to DowDuPont Common Stock. A retirement eligible employee retains any granted awards upon retirement provided the employee has rendered at least six months of service following the grant date. Additional RSUs were also granted periodically to key senior management employees. These RSUs generally vested over periods ranging from three years to five years . The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date. The awards have the same terms and conditions as were applicable to such equity awards immediately prior to the DWDP Merger closing date.
EIDP granted PSUs to senior leadership. Upon a change in control, EIDP's EIP provisions required PSUs to be converted into RSUs based on the number of PSUs that would vest by assuming that target levels of performance are achieved. Service requirements for vesting in the RSUs replicate those inherent in the exchanged PSUs. In accordance with the DWDP Merger Agreement, PSUs converted to RSU awards based on an assessment of the underlying market conditions in the PSUs at the
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greater of target or actual performance levels as of the closing date. As the actual performance levels were not in excess of target as of the closing date, all PSUs converted to RSUs based on target and there was no incremental benefit from the DWDP Merger Agreement when compared with EIDP’s EIP.
Nonvested awards of RSUs are shown below. There were no
| EIDP RSUs | 2022 | |||||||
| Shares in thousands | Shares | Grant Date Fair Value 1 | ||||||
| Nonvested at January 1, 2022 | $ | |||||||
| Vested | ( | $ | ||||||
| Forfeited | $ | |||||||
| Nonvested at December 31, 2022 | $ | |||||||
1. Weighted-average per share.
NOTE 21 - FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at December 31, 2022 and December 31, 2021:
| Fair Value of Financial Instruments | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value | ||||||||||||||||||
| Cash equivalents | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||
Restricted cash equivalents 1 | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total cash and restricted cash equivalents and marketable securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Long-term debt including debt due within one year | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ( | ||||||||||||
| Derivatives relating to: | ||||||||||||||||||||||||||
Net investment hedge 2 | ||||||||||||||||||||||||||
Foreign currency 3, 4 | ( | ( | ( | ( | ||||||||||||||||||||||
Interest rate swap agreements 5 | ( | ( | ||||||||||||||||||||||||
| Total derivatives | $ | $ | $ | ( | $ | $ | $ | $ | ( | $ | ||||||||||||||||
1.At December 31, 2022 there was $7 million of restricted cash classified as "" and $103 million classified as "" in the Consolidated Balance Sheets. At December 31, 2021 there was $12 million of restricted cash classified as "" and $53 million classified as "" in the Consolidated Balance Sheets. See Note 7 for more information on restricted cash.
2.Classified as "Deferred charges and other assets" in the Consolidated Balance Sheets.
3.Classified as "Prepaid and other current assets" and "Accrued and other current liabilities" in the Consolidated Balance Sheets.
4.Presented net of cash collateral where master netting arrangements allow.
5.Classified as "Other noncurrent obligations" in the 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
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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 reported to management.
The notional amounts of the Company's derivative instruments were as follows:
| Notional Amounts | December 31, 2022 | December 31, 2021 | ||||||
| In millions | ||||||||
| Derivatives designated as hedging instruments: | ||||||||
| Net investment hedge | $ | $ | ||||||
| Interest rate swap agreements | $ | $ | ||||||
| Derivatives not designated as hedging instruments: | ||||||||
Foreign currency contracts 1 | $ | $ | ( | |||||
1.Presented net of contracts bought and sold.
Derivatives Designated in Hedging Relationships
Net Foreign Investment Hedge
In the second quarter of 2021, the Company entered into a 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 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 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 also uses 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 pretax basis related to foreign currency derivatives not designated as a hedge, which was included in “Sundry income (expense) - net” in the Consolidated Statements of Operations, was a loss of $32 million for the year ended December 31, 2022 ($40 million loss for the year ended December 31, 2021 and $1 million loss for the year ended December 31, 2020). 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 December 31, 2022 | Significant Other Observable Inputs (Level 2) | ||||
| In millions | |||||
| Assets at fair value: | |||||
Cash equivalents and restricted cash equivalents 1 | $ | ||||
Marketable securities 2 | |||||
Derivatives relating to: 3 | |||||
| Net investment hedge | |||||
Foreign currency contracts 4 | |||||
| Total assets at fair value | $ | ||||
| Liabilities at fair value: | |||||
Long-term debt including debt due within one year 5 | $ | ||||
Derivatives relating to: 3 | |||||
| Interest rate swap agreements | |||||
Foreign currency contracts 4 | |||||
| Total liabilities at fair value | $ | ||||
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 Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2.Time deposits classified as held to maturity, with maturities of greater than three months and less than twelve months at time of acquisition, which are recorded at amortized cost which approximates fair value.
3. See Note 21 for the classification of derivatives in the Consolidated Balance Sheets.
4. Assets and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Consolidated Balance Sheets. The offsetting counterparty and cash collateral amounts were $17
5. 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.
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 | $ | ||||
Derivatives relating to: 2 | |||||
| Net investment hedge | |||||
Foreign currency contracts 3 | |||||
| Total assets at fair value | $ | ||||
| Liabilities at fair value: | |||||
Long-term debt including debt due within one year 4 | $ | ||||
Derivatives relating to: 2 | |||||
Foreign currency contracts 3 | |||||
| Total liabilities at fair value | $ | ||||
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 Consolidated Balance Sheets and held at amortized cost, which approximates fair value.
2. See Note 21 for the classification of derivatives in the Consolidated Balance Sheets.
3. Assets and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the Consolidated Balance Sheets. The offsetting counterparty and cash collateral amounts were $6
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.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. For time deposits classified as held-to-maturity investments and reported at amortized cost, fair value is based on an observable interest rate for similar securities.
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Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
There were no transfers between Levels 1 and 2 during the years ended December 31, 2022 and December 31, 2021.
Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the basis used to measure certain assets at fair value on a nonrecurring basis:
Basis of Fair Value Measurements on a Nonrecurring Basis 1 | Significant Other Unobservable Inputs (Level 3) | Total Losses | ||||||||||||
| In millions | ||||||||||||||
| 2022 | ||||||||||||||
| Assets at fair value: | ||||||||||||||
| Long-lived assets, intangible assets, and other assets | $ | $ | ( | |||||||||||
| 2020 | ||||||||||||||
| Assets at fair value: | ||||||||||||||
| Long-lived assets, intangible assets, and other assets | $ | $ | ( | |||||||||||
2022 Fair Value Measurements on a Nonrecurring Basis
During the first quarter of 2022, the Company recorded an impairment charge related to equity method investments within Electronics & Industrial. The impairment analysis was performed using Level 3 inputs within the fair value hierarchy. See Note 6 for further discussion.
2020 Fair Value Measurements on a Nonrecurring Basis
During the third quarter of 2020, the Company recorded impairment charges related to indefinite-lived intangible assets and long-lived assets within Corporate & Other segment. These impairment analyses were performed using Level 3 inputs within the fair value hierarchy. See Notes 4 and 6 for further discussion.
During the first quarter of 2020, the Company recorded impairment charges related to long-lived assets within Corporate & Other. See Notes 6 for further discussion of these fair value measurements.
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NOTE 23 - SEGMENTS AND GEOGRAPHIC REGIONS
The Company's segments are aligned with the market verticals they serve, while maintaining integration and innovation strengths within strategic value chains. DuPont is comprised of two operating segments: Electronics & Industrial and Water & Protection. Major products by segment include: Electronics & Industrial (printing and packaging materials, photopolymers, electronic materials, specialty silicones and lubricants); and Water & Protection (nonwovens, aramids, construction materials, water filtration and purification resins, elements and membranes). The Company operates globally in substantially all of its product lines. Transfers of products between operating segments are generally valued at cost.
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 prior to the November 1, 2022 M&M Divestiture and costs which the Company will no longer incur upon the close of the Delrin® Divestiture. 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 are provided on the following pages.
Sales are attributed to geographic regions based on customer location; long-lived assets are attributed to geographic regions based on asset location.
| Net Trade Revenue by Geographic Region | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| United States | $ | $ | $ | ||||||||
| Canada | |||||||||||
EMEA 1 | |||||||||||
Asia Pacific 2 | |||||||||||
| Latin America | |||||||||||
| Total | $ | $ | $ | ||||||||
1.Europe, Middle East and Africa.
2. Net sales attributed to China/Hong Kong, for the years ended December 31, 2022, 2021 and 2020 were $2,744 million, $2,822 million, and $2,311 million, respectively.
| Long-lived Assets by Geographic Region | December 31, | ||||||||||
| In millions | 2022 | 2021 | 2020 | ||||||||
| United States | $ | $ | $ | ||||||||
| Canada | |||||||||||
EMEA 1 | |||||||||||
| Asia Pacific | |||||||||||
| Latin America | |||||||||||
| Total | $ | $ | $ | ||||||||
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| Segment Information | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
| For the Year Ended December 31, 2022 | ||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||
Operating EBITDA 1 | ( | |||||||||||||
| Equity in earnings of nonconsolidated affiliates | ||||||||||||||
Restructuring and asset related charges - net 2 | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Assets of continuing operations | ||||||||||||||
| Investment in nonconsolidated affiliates | ||||||||||||||
| Capital expenditures | ||||||||||||||
| For the Year Ended December 31, 2021 | ||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||
Operating EBITDA 1 | ||||||||||||||
| Equity in earnings of nonconsolidated affiliates | ||||||||||||||
Restructuring and asset related charges - net 2 | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Assets of continuing operations | ||||||||||||||
| Investment in nonconsolidated affiliates | ||||||||||||||
| Capital expenditures | ||||||||||||||
| For the Year Ended December 31, 2020 | ||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||
Operating EBITDA 1 | ||||||||||||||
Equity in earnings of nonconsolidated affiliates | ||||||||||||||
Restructuring asset related charges - net 2 | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Assets of continuing operations | ||||||||||||||
| Investment in nonconsolidated affiliates | ||||||||||||||
| Capital expenditures | ||||||||||||||
1.A reconciliation of "Income (loss) from continuing operations, net of tax" to Operating EBITDA is provided in the table on the following page.
2.See Note 6 for information regarding the Company's restructuring programs and asset related charges.
| Segment Information Reconciliation to Consolidated Financial Statements | Segment Totals | M&M Divestitures | N&B Separation | Other 1 | Total | ||||||||||||
| In millions | |||||||||||||||||
| For the Year Ended December 31, 2022 | |||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | ( | $ | |||||||||||
| Depreciation and amortization | $ | $ | $ | $ | |||||||||||||
| For the Year Ended December 31, 2021 | |||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | ( | $ | |||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | ||||||||||||
| For the Year Ended December 31, 2020 | |||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | ||||||||||||
1.Reflects the incremental cash spent or unpaid on capital expenditures; total capital expenditures are presented on a cash basis.
| Total Asset Reconciliation at December 31, | 2022 | 2021 | 2020 | ||||||||
| In millions | |||||||||||
| Assets of continuing operations | $ | $ | $ | ||||||||
| Assets held for sale | |||||||||||
| Assets of discontinued operations | |||||||||||
| Total assets | $ | $ | $ | ||||||||
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| Reconciliation of "Income (Loss) from continuing operations, net of tax" to Operating EBITDA | 2022 | 2021 | 2020 | |||||||||||
| In millions | ||||||||||||||
| Income (Loss) from continuing operations, net of tax | $ | $ | $ | ( | ||||||||||
| + | Provision for income taxes on continuing operations | |||||||||||||
| Income (Loss) from continuing operations before income taxes | $ | $ | $ | ( | ||||||||||
| + | Depreciation and amortization | |||||||||||||
| - | Interest income 1 | |||||||||||||
| + | Interest expense 2 | |||||||||||||
| - | Non-operating pension/OPEB benefit 1 | |||||||||||||
| - | Foreign exchange losses (gains), net 1 | ( | ( | |||||||||||
| + | Future reimbursable indirect costs | |||||||||||||
| - | Significant items | ( | ( | ( | ||||||||||
| Operating EBITDA | $ | $ | $ | |||||||||||
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 Year Ended December 31, 2022 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | $ | $ | ( | $ | ( | ||||||||
Restructuring and asset related charges - net 2 | ( | ( | ( | ( | ||||||||||
Asset impairment charges 3 | ( | ( | ||||||||||||
Gain on divestiture 4 | ||||||||||||||
Terminated Intended Rogers Acquisition financing fees 5 | ( | ( | ||||||||||||
Employee Retention Credit 6 | ||||||||||||||
| Total | $ | ( | $ | $ | ( | $ | ( | |||||||
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 termination fee of $162.5 million associated with the Terminated 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." Refer to Note 4 for additional information.
5. Includes acquisition costs associated with the Terminated 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 Year Ended December 31, 2021 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | $ | $ | ( | $ | ( | ||||||||
Restructuring and asset related charges - net 2 | ( | ( | ( | ( | ||||||||||
Merger-related inventory step-up amortization 3 | ( | ( | ||||||||||||
Gain on divestiture 4 | ||||||||||||||
Terminated Intended Rogers Acquisition financing fees 5 | ( | ( | ||||||||||||
| Total | $ | ( | $ | ( | $ | $ | ( | |||||||
1. Acquisition, integration and separation costs related to strategic initiatives including the acquisition of Laird PM, the M&M Divestitures, the Terminated Intended Rogers Acquisition, and the completed and planned divestitures of the held for sale businesses included within Corporate & Other.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Includes the amortization of the fair value step-up in Laird PM's inventories as a result of the acquisition.
4. Reflected in "Sundry income (expense) - net." Refer to Note 4 for additional information.
5. Includes acquisition costs associated with the Terminated Intended Rogers Acquisition related to the financing agreements, specifically the structuring fees and the amortization of the commitment fees reflected in "Interest Expense."
F-70
| Significant Items by Segment for the Year Ended December 31, 2020 | Electronics & Industrial | Water & Protection | Corporate & Other | Total | ||||||||||
| In millions | ||||||||||||||
Acquisition, integration and separation costs 1 | $ | $ | $ | ( | $ | ( | ||||||||
Restructuring and asset related charges - net 2 | ( | ( | ( | ( | ||||||||||
Goodwill impairment charges 3 | ( | ( | ( | |||||||||||
Asset impairment charges 4 | ( | ( | ||||||||||||
Gain on divestiture 5 | ||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
1.Acquisition, integration and separation costs related to strategic initiatives including the divestiture of the held for sale businesses and post-DWDP Merger integration.
2. Includes Board approved restructuring plans and asset related charges. See Note 6 for additional information.
3. Reflects non-cash goodwill impairment charges recorded as follows: a $533 million charge recorded in the first quarter 2020 related to PVAM reflected in Corporate & Other; a $1,146 million charge recorded in the second quarter 2020 related to the Electronics & Industrial and Corporate & Other; and $183 million in charges recorded in the third quarter of 2020 related to the PVAM business reflected in Corporate & Other. The impairment analysis were performed due to lower than expected proceeds of a potential divestiture serving as a triggering event, demand declines due to COVID-19, and softening conditions in certain end markets.
4. See Note 6 for additional information.
5. Refer to Note 4 for additional information.
F-71