THE CORPORATE ACTION NETWORK:
Keep Your Promises DuPont | Chemours Investor Briefing

    June 9, 2015/1:45 p.m. EDT

 

SPEAKERS

Douglas Land
Robert Masciola
Ken Cook
Dr. Paul Brooks

 

 

PRESENTATION

 

Moderator                  Ladies and gentlemen, thank you for joining the Keep Your Promises DuPont Media Briefing.

Before we begin, please be advised of the following disclaimer. The information contained in this document and on this call are for discussion purposes only. The Action Network Fund makes no representations about the accuracy, reliability, completeness, or timeliness of the information contained in this document and The Action Network Fund expressly disclaims any liability relating to such information or any inaccuracies or omissions therein.

This document includes forward-looking statements, estimates, projections, and opinions prepared with respect to, among other things, certain legal and regulatory issues DuPont faces and the potential impact of those issues on its future business, financial conditions, and results of operation. Such statements, estimates, projections, and opinions may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties beyond The Action Network Fund’s control.

The Action Network Fund does not undertake any obligation to update, modify, revise, or reorganize the information contained in this document or to notify you or any third party, should any such information be updated, modified, revised, or reorganized. In light of the foregoing, shareholders and others should conduct their own independent investigation and analysis of the matters discussed in this document before taking or refraining from taking any action in respect of DuPont or any other company.

As a reminder, today’s call will be recorded. This call will be moderated by Douglas Land, Chair of The Action Network Fund. The call will last around 20 minutes and be followed by a facilitated question and answer period.

Please remain on the line, and I would now like to introduce Douglas Land. Please begin.

 

Douglas                      Thank you very much. I appreciate the introduction. Doug Land here from The Action Network Fund. We’re partnering with the Keep Your Promises campaign and building a community organization which is dedicated to holding DuPont to the promises it’s made to the mid-Ohio Valley and those communities that were exposed to C8. We are really glad and appreciate that you’ve made the time to join us for this briefing today.

Very briefly I’m going to introduce the four speakers all at once, and then turn it over to the first speaker so that we can get right into the meat of it.

Our four speakers today begin with Robert Masciola; he’s an advisor to the Keep Your Promises Campaign and a professional researcher. He has more than 20 years of experience working on corporate accountability campaigns in the chemical and pharmaceutical industry. He’ll explain some of the significant disclosure issues that we’ve identified with regard to the proposed spin-off of the Chemours assets by DuPont. He’ll also identify some of the unquantified financial obligations that we believe are likely to accrue to this newly created entity.

Robert will be followed by Ken Cook. Ken is the president and co-founder of The Environmental Working Group, and Ken is widely recognized as one of the environmental community’s prominent influential leaders on issues in the US related to food and farm policy, as well as to issues regarding the protection of our families and children from toxic substances like C8. He’s also a founding chairman of the Food Policy Action. Ken’s going to provide an overview of some of the specific chemistry issues relating to C8 contamination and the long-term exposure and related health links, so that we can kind of put this overall issue into context.

Next we’re going to hear from Dr. Paul Brooks. Dr. Brooks is a family physician from Parkersburg, West Virginia. He’s been active in consulting with residents of Parkersburg on issues relating to C8 exposure and contamination for more than a decade. He was one of the principal authors of the C8 Health Project that was created as part of the settlement between DuPont and those residents that were exposed to C8 in Parkersburg.

That Health Project was the source of the information which identified the probable links to the diseases which will be discussed more fully in Dr. Brooks’s presentation. Finally, Dr. Brooks will provide his overall review of the failure of the ongoing medical monitoring program that was promised by DuPont to the citizens of Parkersburg.

Then we’ll hear from Bill Wolfe. Bill is the founder of the New Jersey Public Employees Environmental Responsibility Project, or PEER. PEER is a national alliance of local and state and federal resources dedicated to environmental compliance and remediation. Bill spent more than 20 years in the environmental field working with the Sierra Club as well as the New Jersey DEP. Bill will provide some very specific analysis of the huge potential liabilities and costs which DuPont is trying to transfer to Chemours as part of this spin-off and really help us understand some of the scope of the potential exposure at these sites.

I thank you all for joining us. Again, I’m now going to turn the program over to Robert Masciola, and to discuss some of the issues relating specifically to the financial disclosures in the proposed Chemours spin-off. Robert.

 

Robert                        Thank you, Doug, and good afternoon, everyone. As Moody’s has recently described, Chemours is a substantial credit risk, being highly leveraged, facing continued weakness in the global titanium dioxide market, having no track record as an independent company, facing high exposure to current and future environmental costs that include taking on the obligations of more than 90 hazardous waste sites, and being subject to significant potential litigation costs, which include a growing number of PFOA lawsuits, 3,500 at present, 32 for wrongful death.

If we only take a close look at litigation and remediation costs, Chemours may be at great risk. With thousands in lawsuits already filed and close to 100 hazardous waste sites needed to clean up, the company could be exposed to billions in lawsuits, which would certainly be material. Now we learn from its most recent filing, even before Chemours becomes an independent company, it already needs to implement a restructuring plan. This is not a recipe for success. The negatives far outweigh the positives here, and we believe investors and bondholders should remain vigilant about their investment in this company.

On the next slide I’d like to highlight a few passages from the preliminary separation agreement and Chemours’s most recent Form 10. In every instance we have reviewed, DuPont’s shed this responsibility for past, current, and future liabilities. And who assumes each time? Chemours. The span of assumption includes judgments, settlements, perhaps in the billions; however, as of Q1 2015 DuPont had only accrued $14 million for this expense.

Environmental remediation accrued amounts are already in the hundreds of millions, but how much more will be necessary? Defense costs, chronic liabilities, and other obligations—no timeline can be placed on these responsibilities for Chemours since DuPont secured an indefinite indemnification from the company.

There is a strong chance that taking on these obligations may very well be material. DuPont’s playing a classic game of pass the trash, except this time lives are at stake. The spin-off is a great idea for DuPont’s management and board, but a terrible one for other parties involved.

Finally, let me address DuPont’s balance sheet for liabilities for environmental remediation. As of Q1 2015, the accrued amount was less than $500 million. But, the company does state, “These liabilities could rise to about $1.6 billion.” We believe even this estimate is absurdly low. In fact, the total liabilities could be in the multiple billions. There is simply too much uncertainty. There is a consensus that Chemours is a high-risk investment, it’s taken majority of DuPont’s liabilities while settling for only about 25% of its remediation liabilities and settling for only about 25% of its revenues.

If adverse outcomes are realized in litigation and remediation, this could spell disaster for the company, and Chemours admits it may not have adequate insurance or cash flow to offset these costs. If this scenario takes place what will this mean for DuPont shareholders and all other stakeholders? It would very likely be a devastating outcome.

Back to you, Doug.

 

Douglas                      Thanks, Robert. Appreciate that and again, it’s certainly a number of issues right there.

Now, I’m going to pass the call to Ken, from EWG, and really looking forward to his comments regarding the specific chemistry and chemical impacts around C8. So, Ken.

 

Ken                             Thanks, Doug. C8 was a chemical not on the radar screen of independent scientists or government regulators until relatively recently, the early 2000s. But, in the brief interval that followed, it became one of the chemical industry’s worst actors with regard to environment and human health in the viewpoint of scientists around the world.

A recent EWG report identified some of the problems and potential liabilities with the replacement chemistry. But to go back to C8 first, it’s an industrial polymer that does not break down in the environment. Internal documents from the chemical industry showed it was geologically stable, was the term, and that chemical, C8, now contaminates the biosphere, the living world, even in very remote regions. This is a chemical, and by and large a chemical family, that builds up in people and contaminates nearly every American according to the Centers for Disease Control, beginning in the womb.

Exposure sources include food, tap water, air, dust, food packaging, potentially consumer products that have the coating on it to shed water and grease. In some cases we don’t really know the exposure routes. C8 has also been linked to a disturbing range of health effects, impaired growth development, reproduction, cancer, and impaired liver function. C8 has also spread to lots of sites including water bodies and drinking water supplies far beyond where it’s been used in manufacturing.

On the next slide, we know that very few of the next generation PFCs have been adequately tested for safety, and most of the names, the composition of the chemicals, and their health effects are still hidden behind trade secrecy proclamations. The federal EPA does not require safety testing before new chemicals like these are brought into commerce and used in products. If a company conducts studies it doesn’t necessarily have to make them public unless there’s a severe, adverse effect, and in the past some of those studies were not disclosed, resulting in settlements against DuPont, among other companies.

The studies suggest that short term, short chain, shorter perfluorinated chemicals are more likely to end up in tap water, because it’s easier to remove the long chain chemicals like PFOA or C8 by conventional water treatment, and no liability for this contamination risk and these new chemicals has been reported in the materials presented by DuPont or Chemours.

C8 is a current and future problem. This is a chemistry that is full of surprises and almost all of them, from the standpoint of human health and the environment, almost all of those surprises are bad. A very prominent group of prominent international scientists published a public warning earlier this year, just last month in fact, where they state, “These replacements for C8 will be similarly resistant to ultimate degradation. They’ll be persistent in the environment.” So they’ll be around potentially for a long time, causing who knows what problems because they haven’t been well-studied, and who knows what liability because we can only guess.

The industry will not offer proof that next-generation PFCs are any safer than C8, and the current federal law, the Toxic Substances Control Act, lacks the teeth to enforce that transparency. So, it’s pretty clear that C8 and shorter chain replacement chemicals are dirty business. They have a questionable history and a legacy of significant ongoing liabilities, and in some, C8 and its children, its successor materials, really are the epitome of the kind of chemistry that we should not be pursuing.

 

Douglas                      Great, Ken. Thank you very much. That’s actually a great segway into Dr. Brooks, because Dr. Brooks is really going to link this discussion of C8 as a chemistry that we should not be pursuing, as Ken just said, to the actual health impacts and the links that were identified through the studies that he undertook and how important it is to actually pursue the ongoing medical monitoring and related promises that were made to the residents of Parkersburg.

So with that I’m going to turn this over to Dr. Brooks and he can talk about where we are in terms of DuPont’s promises and the medical monitoring program that’s in place.

 

Dr. Brooks                 Thanks, Doug, and good afternoon, and thanks to the participants who are listening to this briefing. I’m just going to cover in the settlement agreement briefly the one, two, and three. I’ve been involved now since 2005 with this C8 situation because of a part of a legal settlement of a case that arose here in DuPont’s use of the chemical C8. The company agreed to fund a C8 Health Project to collect data on individuals that were exposed in six water districts. The data was used by a three member panel, the so-called science panel, which was three epidemiologists, to determine if a probable link or links existed between C8 and human disease.

Brookmar was an entity that was selected by the court to administer the project and I was one of the leaders of that effort. We—nearly 70,000 participants, male and female, ages three to ninety, were processed. The data included the detailed health survey, 51 standard blood tests, and 9 blood tests for fluorocarbons, which included C8.

The data collection was then submitted to the science panel and used to determine the six diseases deemed to have a probable link due to exposure to DuPont’s C8. Those diseases are listed as kidney cancer, thyroid disease, osteo colitis, hyper cholesterol, demia, or increased cholesterol in people’s blood, testicular cancer, and preeclampsia, or hypertension early in pregnancy, or during pregnancy.

At that time DuPont agreed not to contest any future claims based on the probable link diseases and to fund $235 million medical monitoring fund to monitor class members for the development of any of those linked diseases. The benefit derived, of course, would be early diagnosis and treatment which would hopefully lead to a better cure rate or certainly a much better treatment rate. But, now DuPont is denying any responsibility and vigorously fighting those people or participants who are seeking compensation, and failing to effectively administer the medical monitoring fund.

In November 2012 the medical monitoring program was established with Brookmar designated to work alongside a DuPont-appointed director, Michael Rozen, a partner of New York law firm of Feinberg Rozen, LLC. It was determined by Brookmar as early as September 2013 that Rozen’s plan as presented would be a colossal failure and wanted no part of a flawed project since Brookmar had carried out a very successful epidemiological collection in the C8 Health Project.

In January 2014 Brookmar notified Michael Rozen that it could not and would not participate in the medical monitoring program. To date, the numbers of the project are really deplorable, with only about 6,483 that are registered, been 5,702 qualified but we don’t know what state of monitoring they’re in, whether they actually have had any testing done. Just $322,000 has been allocated from the $235 million fund, while Feinberg Rozen has been paid over $10 million in this period of time.

As a comparison, Brookmar enrolled 8,000 the first week of the C8 Health Project. So by any criteria the medical monitoring program directed by Feinberg and Rozen has been a failure. Now we are trying to take action to request that settling parties disqualify Feinberg Rozen and assign someone who is capable of effectively administrating the monitoring process. The reason for this is there’s at least 100,000 lives in this area at risk and they need to be monitored properly.

Thank you very much for listening to the presentation.

 

Douglas                      Dr. Brooks, we thank you very much and congratulations on the successful project that you were able to administer and we certainly hope that we can get this medical monitoring program back on track.

 

Dr. Brooks                 Thank you.

 

Douglas                      Now I’d like to turn the call over to Bill Wolfe. While there certainly are a number of issues associated with the Parkersburg and the C8 problem that we’ve been discussing in addition as Robert Masciola identified at the beginning of the call, there are significant other liabilities that we know that DuPont is going to be transferring over to Chemours as part of this plan, and Mr. Wolfe’s going to give us a little bit more information specifically about the potential remediation and other costs associated with these hazardous waste sites.

So, Bill Wolfe, off to you.

I think we have a problem with Bill’s connection.

 

Moderator                  Unfortunately it looks like his line has dropped.

 

Douglas                      Okay. Well, I can pick up on some of it and then we’ll actually turn it back over to Mr. Masciola for a little bit of a wrap-up on the future liabilities issue.

Essentially the issues that have been identified with regard to the overall cleanup liabilities really have to do with the fact that while a number of the sites that have been identified, which we believe there’s over 100 active sites which are going to require some form of active monitoring and remediation. It doesn’t appear through the financial materials that have been reviewed, that there’s been any attempt to do the appropriate investigation and measure the significant risks associated with the future exposure.

A number of places throughout the financial materials that DuPont prepared in connection with the spin-off, they make reference to potential negative impacts on the company’s liquidity if there are certain of these remediation liabilities become realities, but without really making the specifics associated with those potential liabilities clear to any of the readers. For instance, we know in the Chambers work site there was almost a 1,500 acre manufacturing complex that was bordered by both residential and recreational areas.

In addition, at the Rampanow [ph] site these are just in New Jersey, you have a 1,900 acre site where products including dynamite, acids, and other compounds, all of which require constant monitoring and for which, again, DuPont is passing all these liabilities off to its new subsidiary, which is going to be saddled with all the potential cleanup costs. We have great concerns that the overall liabilities associated with these costs have not been properly identified.

In addition, as they said, there’s over 90 other unresolved waste sites which are going to be transferred over to Chemours. Each of these have their own implications. Some of them certainly have significant remediation obligations and the overall liability which could accrue, while identified as an unknown amount in a number of the DuPont documents, would indeed potentially amount to billions of dollars of exposure if full cleanup and remediation of all these sites are required.

Robert, do you have any other comments on the potential remediation sites, just in closing out?

 

Robert                        I think you covered it well there, Doug. The only other significant one that’s out there, Pompton Lakes, also in New Jersey, where DuPont manufactured munitions for decades. The company’s already spent more than $200 million for cleanup, but there’s still a long way to go. The groundwater cleanup there has been ineffective and now there’s the issue of vapor intrusion.

A neighborhood of 450 homes was found to have this vapor intrusion. These are dangerous vapors that seep inside homes. That issue has not been addressed at all, so I think when we collectively look at these sites in New Jersey, what we’re looking at in the mid-Ohio Valley, and like you said, Doug, about 90 other sites scattered around the country, each a unique site that could have millions, tens of millions in remediation. It’s unclear right now.

More than three dozen have not had any remediation even to start, so this is just a difficult position in which Chemours is put in, to have to take on these liabilities as a new company. We’ll be interested to see how they fare.

 

Douglas                      Thank you, Robert. I think, again as you said in your presentation, it’s the classic example of DuPont trying to pass all of its dirty businesses off to a subsidiary and let the chips fall where they may. Well again, thank you on that.

Kind of in wrapping up now, I just want to say that we believe that based on the information we’ve presented here and the work that our team has done, that it’s clear that not nearly enough scrutiny has been given to the potential liabilities that this Chemours spin-off is going to be taking on. Indeed, certainly on the information that we’ve considered, we believe that the financial material presented regarding the spin-off woefully understates the extent of potential liabilities.

We know with regard to the thousands of lawsuits that have already been filed with respect to C8, which Chemours will take the responsibility for, they’ve accrued zero liabilities associated with those lawsuits on the basis that the future liability is unknown and therefore is not appropriate to accrue. So again, our view is that they have indeed underestimated the extent of such potential future liabilities and as a result, working with our partners at the Environmental Working Group, working with PEER, working with the Keep Your Promises campaign and The Action Network, are all going to take steps to urge the SEC and the EPA and other state regulatory agencies to take a much closer look at the adequacy of the disclosures, as well as other potential effects of this proposed transaction on all the stakeholders.

In addition, we are requesting and indeed going to demand that DuPont release all of their studies associated with PFOA as well as what we call the PFOA children, the new short chain replacements for the existing C8 compounds. We know as a result of the litigation and the prior settlement, both with the exposed citizens and the EPA, DuPont has numerous studies which they, absent litigation, have failed to release to the public, and we think that given the global outcry regarding the impact of PFOAs around the world that they really are obligated and indeed must release those studies.

Finally, we demand that they also release any internal inventories and analysis of their remediation obligations and expected remediation requirements at their hazardous waste sites throughout the country. Again, they are transferring more than 90 un-remediated or partially remediated sites to Chemours and the cost and potential impact of those sites should be made available to the public for scrutiny.

With that, I want to finish our formal presentation. We went a little bit long, but I appreciate everybody following along with us. We do have a couple of minutes for some Q&A, so I’d ask the operator to take any questions now as we go forward.

 

Moderator                  (Operator instructions.) We will open the line of Jeff Mordock, with News Journal. Please go ahead.

 

Jeff                              I just have a question. You said that you were going to notify the EPA. That you’re going to “take steps” were your exact words, with the SEC and the EPA about the adequacy of the disclosure. Can you talk more about the specific steps you’re going to take?

 

Douglas                      Sure. Specifically, the proposed spin-off for it to become—to actually happen, the SEC needs to declare their Form 10 effective. We’re basically going to be taking all—much of the information that we have with regard to this presentation and other information we’ve collected, and we’ll be sending it to the folks at the SEC that are reviewing and responsible for declaring the Form 10 effective, and raising the issue that the disclosure in our view and based on our review, is not adequate with regard to identifying these future potential liabilities.

So, in regards to the SEC again, because they’re in the process of the proposed spin-off, again a condition precedent to the spin-off is the SEC declaring the Form 10 effective. We will have that information in a presentation to them by the end of this week.

The EPA and the state regulatory agencies are really on a case-by-case basis with regard to specific of the sites that we have become aware of that may require remediation beyond there, but those will be more on a case-by-case basis and are not specific to the spin-off.

Again, anything that we file with the SEC, etc., we’ll make available to the public as well.

Are there other questions?

 

Moderator                  At this time there are no other questions in queue.

 

Douglas                      Okay, well again, I thank everybody for joining us on this call. We will be keeping the information updated on the Keep Your Promises website. Jeffrey at the Action Network is the contact person if there are additional information that anybody on the call would like to receive.

So, again we thank you all for participating this afternoon and appreciate your time.

 

Moderator                  Ladies and gentlemen, that does conclude your conference for today.