Quarterly Report (10-q)

Date : 11/02/2018 @ 2:08PM
Source : Edgar (US Regulatory)
Stock : DuPont de Nemours Inc (DD)
Quote : 65.1533  -0.7867 (-1.19%) @ 4:07PM

Quarterly Report (10-q)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-815  
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
51-0014090
(State or other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
974 Centre Road, Wilmington, Delaware 19805
(Address of Principal Executive Offices)
 
(302) 774-1000
(Registrant’s Telephone Number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x    No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.)  Yes   x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer  o
 
Smaller reporting company o
 
 
 
 
 
Emerging growth company o
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.  o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  o    No   x
The Registrant had 100 shares of common stock, $0.30 par value, outstanding at September 30, 2018 , all of which are held by DowDuPont Inc.



The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q (as modified by a grant of no-action relief dated February 12, 2018) and is therefore filing this form with reduced disclosure format.



E. I. DU PONT DE NEMOURS AND COMPANY

Table of Contents
 
The terms “DuPont” or the “company” as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries, or to E. I. du Pont de Nemours and Company, as the context may indicate. 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


PART I.  FINANCIAL INFORMATION  

Item 1.
CONSOLIDATED FINANCIAL STATEMENTS

E. I. du Pont de Nemours and Company
Consolidated Statements of Operations (Unaudited)
 
 
Successor
Predecessor
(In millions, except per share amounts)
Three Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
Net sales
$
5,294

$
1,735

$
2,991

Cost of goods sold
3,686

1,531

1,937

Other operating charges
 


136

Research and development expense
367

120

267

Selling, general and administrative expenses
823

276

776

Amortization of intangibles
307

89

 
Restructuring and asset related charges - net
182

40

11

Integration and separation costs
344

71

 
Goodwill impairment charge
4,503



Sundry income (expense) - net
52

121

(183
)
Interest expense
82

27

71

Loss from continuing operations before income taxes
(4,948
)
(298
)
(390
)
Provision for (benefit from) income taxes on continuing operations
12

(23
)
(132
)
 Loss from continuing operations after income taxes
(4,960
)
(275
)
(258
)
 (Loss) income from discontinued operations after income taxes

(20
)
29

Net loss
(4,960
)
(295
)
(229
)
Net (loss) income attributable to noncontrolling interests

(2
)
5

Net loss attributable to DuPont
$
(4,960
)
$
(293
)
$
(234
)
Basic (loss) earnings per share of common stock:
 
 
 
Basic loss per share of common stock from continuing operations
 
 
$
(0.30
)
Basic earnings per share of common stock from discontinued operations
 
 
0.03

Basic loss per share of common stock
 
 
$
(0.27
)
Diluted (loss) earnings per share of common stock:
 
 
 
Diluted loss per share of common stock from continuing operations
 
 
$
(0.30
)
Diluted earnings per share of common stock from discontinued operations
 
 
0.03

Diluted loss per share of common stock
 
 
$
(0.27
)
Dividends declared per share of common stock
 
 
$
0.38


See Notes to the Consolidated Financial Statements beginning on page 8.










2


E. I. du Pont de Nemours and Company
Consolidated Statements of Operations (Unaudited)

 
Successor
Predecessor
(In millions, except per share amounts)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Net sales
$
20,538

$
1,735

$
17,281

Cost of goods sold
14,202

1,531

10,052

Other operating charges




504

Research and development expense
1,145

120

1,022

Selling, general and administrative expenses
2,964

276

3,222

Amortization of intangibles
955

89



Restructuring and asset related charges - net
370

40

323

Integration and separation costs
926

71



Goodwill impairment charge
4,503



Sundry income (expense) - net
293

121

(113
)
Interest expense
248

27

254

(Loss) income from continuing operations before income taxes
(4,482
)
(298
)
1,791

Provision for (benefit from) income taxes on continuing operations
180

(23
)
149

(Loss) income from continuing operations after income taxes
(4,662
)
(275
)
1,642

 (Loss) income from discontinued operations after income taxes
(5
)
(20
)
119

Net (loss) income
(4,667
)
(295
)
1,761

Net income (loss) attributable to noncontrolling interests
8

(2
)
20

Net (loss) income attributable to DuPont
$
(4,675
)
$
(293
)
$
1,741

Basic earnings per share of common stock:
 
 
 
Basic earnings per share of common stock from continuing operations
 
 
$
1.86

Basic earnings per share of common stock from discontinued operations
 
 
0.13

Basic earnings per share of common stock
 
 
$
2.00

Diluted earnings per share of common stock:
 
 

Diluted earnings per share of common stock from continuing operations
 
 
$
1.85

Diluted earnings per share of common stock from discontinued operations
 
 
0.13

Diluted earnings per share of common stock
 
 
$
1.99

Dividends declared per share of common stock
 
 
$
1.14


See Notes to the Consolidated Financial Statements beginning on page 8.

3


E. I. du Pont de Nemours and Company
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

 
Successor
Predecessor
(In millions)
Three Months Ended
September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
Net loss
$
(4,960
)
$
(295
)
$
(229
)
Other comprehensive (loss) income - net of tax:
 




Cumulative translation adjustments
(76
)
(572
)
389

Adjustments to pension benefit plans
4


50

Adjustments to other benefit plans


3

Derivative instruments
(3
)

1

Total other comprehensive (loss) income
(75
)
(572
)
443

Comprehensive (loss) income
(5,035
)
(867
)
214

Comprehensive (loss) income attributable to noncontrolling interests - net of tax

(2
)
5

Comprehensive (loss) income attributable to DuPont
$
(5,035
)
$
(865
)
$
209


 
Successor
Predecessor
(In millions)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Net (loss) income
$
(4,667
)
$
(295
)
$
1,761

Other comprehensive (loss) income - net of tax:






Cumulative translation adjustments
(1,042
)
(572
)
1,042

Adjustments to pension benefit plans
11


247

Adjustments to other benefit plans


10

Derivative instruments
(8
)

(10
)
Total other comprehensive (loss) income
(1,039
)
(572
)
1,289

Comprehensive (loss) income
(5,706
)
(867
)
3,050

Comprehensive income (loss) attributable to noncontrolling interests - net of tax
8

(2
)
20

Comprehensive (loss) income attributable to DuPont
$
(5,714
)
$
(865
)
$
3,030


See Notes to the Consolidated Financial Statements beginning on page 8.

4


E. I. du Pont de Nemours and Company
Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except share amounts)
September 30, 2018
December 31, 2017
Assets
 

 

Current assets
 

 

Cash and cash equivalents
$
3,536

$
7,250

Marketable securities
264

952

Accounts and notes receivable - net
7,079

5,239

Inventories
6,852

8,633

Other current assets
1,188

981

Total current assets
18,919

23,055

Investment in nonconsolidated affiliates
1,416

1,595

Property, plant and equipment - net of accumulated depreciation (September 30, 2018 - $1,367; December 31, 2017 - $443)
11,832

12,435

Goodwill
40,988

45,589

Other intangible assets
26,454

27,726

Deferred income taxes
276

480

Other assets
1,839

2,084

Total Assets
$
101,724

$
112,964

Liabilities and Equity
 

 

Current liabilities
 

 

Short-term borrowings and capital lease obligations
$
4,360

$
2,779

Accounts payable
4,208

4,831

Income taxes payable
88

149

Accrued and other current liabilities
2,612

4,384

Total current liabilities
11,268

12,143

Long-Term Debt
10,208

10,291

Other Noncurrent Liabilities
 
 
Deferred income tax liabilities
5,456

5,836

Pension and other post employment benefits - noncurrent
6,151

7,787

Other noncurrent obligations
1,667

1,975

Total noncurrent liabilities
23,482

25,889

Commitments and contingent liabilities
 
 
Stockholders’ equity
 

 

Preferred stock, without par value – cumulative; 23,000,000 shares authorized;
     issued at September 30, 2018 and December 31, 2017:
 
 
$4.50 Series – 1,673,000 shares (callable at $120)
169

169

$3.50 Series – 700,000 shares (callable at $102)
70

70

Common stock, $0.30 par value; 1,800,000,000 shares authorized;
issued at September 30, 2018 and December 31, 2017 - 100


Additional paid-in capital
74,909

74,727

(Accumulated deficit) retained earnings
(6,988
)
175

Accumulated other comprehensive loss
(1,420
)
(381
)
Total DuPont stockholders’ equity
66,740

74,760

Noncontrolling interests
234

172

Total equity
66,974

74,932

Total Liabilities and Equity
$
101,724

$
112,964


See Notes to the Consolidated Financial Statements beginning on page 8.

5


E. I. du Pont de Nemours and Company
Condensed Consolidated Statements of Cash Flows (Unaudited)

 
Successor
Predecessor
(In millions)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Operating activities
 
 
 
Net (loss) income
$
(4,667
)
$
(295
)
$
1,761

Adjustments to reconcile net (loss) income to cash used for operating activities:






Depreciation and amortization
1,948

200

749

Provision for deferred income tax
119

211



Net periodic pension (benefit) cost
(242
)
(28
)
295

Pension contributions
(1,266
)
(19
)
(3,024
)
Net gain on sales of property, businesses, consolidated companies, and investments
(11
)
(1
)
(204
)
Restructuring and asset related charges - net
370

40



Asset related charges




279

Amortization of inventory step-up
1,494

429



Goodwill impairment charge
4,503



Other net loss (gain)
306

(61
)
481

Changes in operating assets and liabilities - net
(5,115
)
(786
)
(4,286
)
Cash used for operating activities
(2,561
)
(310
)
(3,949
)
Investing activities
 

 
 
Capital expenditures
(911
)
(92
)
(687
)
Proceeds from sales of property, businesses, and consolidated companies - net of cash divested
54

1

300

Acquisitions of businesses - net of cash acquired

3

(246
)
Investments in and loans to nonconsolidated affiliates


(22
)
Purchases of investments
(1,235
)
(26
)
(5,457
)
Proceeds from sales and maturities of investments
1,930

1,049

3,977

Foreign currency exchange contract settlements




(206
)
Other investing activities - net
(4
)

(41
)
Cash (used for) provided by investing activities
(166
)
935

(2,382
)
Financing activities
 

 
 
Change in short-term (less than 90 days) borrowings
2,381

588

3,610

Proceeds from issuance of long-term debt
756


2,734

Payments on long-term debt
(1,534
)
(41
)
(229
)
Proceeds from exercise of stock options
81

11

235

Dividends paid to stockholders
(7
)
(326
)
(666
)
Distributions to DowDuPont
(2,481
)



Other financing activities
(48
)
(2
)
(52
)
Cash (used for) provided by financing activities
(852
)
230

5,632

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(187
)
(69
)
187

Change in cash classified as held for sale

(37
)
(31
)
(Decrease) increase in cash, cash equivalents and restricted cash
(3,766
)
749

(543
)
Cash, cash equivalents and restricted cash at beginning of period
7,808

4,005

4,548

Cash, cash equivalents and restricted cash at end of period
$
4,042

$
4,754

$
4,005


See Notes to the Consolidated Financial Statements beginning on page 8.


6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 
E.I. du Pont de Nemours and Company
 
 
Notes to the Consolidated Financial Statements (Unaudited)
 


Table of Contents





7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.  Results for interim periods should not be considered indicative of results for a full year.  These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2017, collectively referred to as the “2017 Annual Report.”  The interim Consolidated Financial Statements include the accounts of the company and all of its subsidiaries in which a controlling interest is maintained.

Principles of Consolidation and Basis of Presentation
DowDuPont Inc. ("DowDuPont") was formed on December 9, 2015 to effect an all-stock, merger of equals strategic combination between The Dow Chemical Company ("Dow") and DuPont (the "Merger Transaction"). On August 31, 2017 at 11:59 pm ET, (the "Merger Effectiveness Time") pursuant to the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 (the "Merger Agreement"), Dow and DuPont each merged with wholly owned subsidiaries of DowDuPont ("Mergers") and, as a result of the Mergers, Dow and DuPont became subsidiaries of DowDuPont (collectively, the "Merger"). Prior to the Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the Merger Agreement. DowDuPont intends to pursue, subject to certain customary conditions, including, among others, the effectiveness of registration statements filed with the U.S. Securities and Exchange Commission ("SEC") and approval by the Board of Directors of DowDuPont, the separation of the combined company's agriculture business, specialty products business and materials science business through a series of tax-efficient transactions (collectively, the "Intended Business Separations").

For purposes of DowDuPont's financial statement presentation, Dow was determined to be the accounting acquirer in the Merger and DuPont's assets and liabilities are reflected at fair value as of the Merger Effectiveness Time. In connection with the Merger and the related accounting determination, DuPont has elected to apply push-down accounting and reflect in its financial statements the fair value of its assets and liabilities. DuPont's interim Consolidated Financial Statements for periods following the close of the Merger are labeled “Successor” and reflect DowDuPont’s basis in the fair values of the assets and liabilities of DuPont. All periods prior to the closing of the Merger reflect the historical accounting basis in DuPont's assets and liabilities and are labeled “Predecessor.” The interim Consolidated Financial Statements and footnotes include a black line division between the columns titled "Predecessor" and "Successor" to signify that the amounts shown for the periods prior to and following the Merger are not comparable. See Note 3 for additional information on the Merger.

Transactions between DuPont and DowDuPont, Dow and their affiliates and other associated companies are reflected in the Successor consolidated financial statements and disclosed as related party transactions when material. Related party transactions with Dow and DowDuPont are included in Note 7 .

As a condition of the regulatory approval for the Merger Transaction, the company was required to divest certain assets related to its crop protection business and research and development ("R&D") organization, specifically the company’s Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, including Rynaxypyr ® , Cyazypyr ®  and Indoxacarb as well as the crop protection R&D pipeline and organization, excluding seed treatment, nematicides, and late-stage R&D programs. On March 31, 2017, the company entered into a definitive agreement (the "FMC Transaction Agreement") with FMC Corporation ("FMC"). Under the FMC Transaction Agreement, FMC would acquire the crop protection business and R&D assets that DuPont was required to divest in order to obtain European Commission ("EC") approval of the Merger Transaction as described above, (the "Divested Ag Business") and DuPont agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products (the "H&N Business") (collectively, the "FMC Transactions").

On November 1, 2017, the company completed the FMC Transactions through the disposition of the Divested Ag Business and the acquisition of the H&N Business. The sale of the Divested Ag Business meets the criteria for discontinued operations and as such, results of operations are presented as discontinued operations and have been excluded from continuing operations for all periods presented. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The comprehensive income and cash flows related to the Divested Ag Business have not been segregated and are included in the interim Consolidated Statements of Comprehensive (Loss) Income and interim Condensed Consolidated Statements of Cash Flows, respectively, for all periods presented. Amounts related to the Divested Ag Business are consistently included or excluded from the Notes to the interim Consolidated Financial Statements based on the respective financial statement line item. See Note 4 for additional information.


8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Certain reclassifications of prior year's data have been made to conform to current year's presentation. As described in Note 2 , effective January 1, 2018, the company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. In conjunction with the adoption of this ASU, the company retrospectively reclassified the non-service components of net periodic benefit cost in the interim Consolidated Statements of Operations. See Note 2 for more information.

Significant Accounting Policies
The company has updated its revenue recognition policy since issuance of its 2017 Annual Report as a result of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) in the first quarter 2018. See Notes 2 and 5 for additional information. See Note 1, "Summary of Significant Accounting Policies," in the 2017 Annual Report for more information on DuPont's other significant accounting policies.

Revenue
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 Topic 606, the company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 5 for additional information on revenue recognition.

Changes in Accounting and Reporting
Within the Successor periods, DuPont made the following changes in accounting and reporting to harmonize its accounting and reporting with DowDuPont.

Within the Successor periods of the interim Consolidated Statements of Operations:
Included royalty income within net sales. In the Predecessor periods, royalty income is included within sundry income (expense) - net.
Eliminated the other operating charges line item. In the Successor periods, a majority of these costs are included within cost of goods sold. These costs are also included in selling, general and administrative expenses and amortization of intangibles in the Successor periods.
Presented amortization of intangibles as a separate line item. In the Predecessor periods, amortization is included within selling, general and administrative expenses, other operating charges, and research and development expenses.
Presented integration and separation costs as a separate line item. In the Predecessor periods, these costs are included within selling, general and administrative expenses.
Included interest accrued related to unrecognized tax benefits within the provision for income taxes on continuing operations. In the Predecessor periods, interest accrued related to unrecognized tax benefits is included within sundry income (expense) - net.

Within the Successor period of the interim Condensed Consolidated Statements of Cash Flows:
Included foreign currency exchange contract settlements within cash flows from operating activities, regardless of hedge accounting qualification. In the Predecessor period, DuPont reflected non-qualified hedge programs, specifically forward contracts, options and cash collateral activity, within cash flows from investing activities. In the Predecessor period, DuPont reflected cash flows from qualified hedge programs within the line item to which the program related (i.e., revenue hedge cash flows presented within changes from accounts receivable).




9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 2 - RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) which was further updated in March, April, May and December 2016, as well as September and November 2017.  The new guidance clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  The new standard resulted in additional disclosure requirements to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard permits the use of either the retrospective or modified retrospective (cumulative-effect) transition method of adoption. 

The company adopted this standard in the first quarter of 2018 and applied the modified retrospective transition method to contracts not completed at the date of initial application. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting under Topic 605 (Revenue Recognition). The company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of retained earnings in the beginning of 2018. See Note 5 for additional disclosures regarding the company's contracts with customers.

In accordance with Topic 606, the disclosure of the impact of adoption to the company's Consolidated Balance Sheet was as follows:
(In millions, except per share amounts)
As Reported
December 31, 2017
Effect of Adoption of ASU 2014-09
Updated
January 1, 2018
Current assets
 
 
 
  Accounts and notes receivable - net
$
5,239

$
79

$
5,318

Inventories
8,633

(53
)
8,580

Other current assets
981

101

1,082

 






Deferred income taxes
$
480

$
1

$
481

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
4,831

$
(3
)
$
4,828

Accrued and other current liabilities
4,384

120

4,504

 






Deferred income tax liabilities
$
5,836

$
3

$
5,839

 






Retained earnings
$
175

$
8

$
183


The most significant changes as a result of adopting ASU No. 2014-09 relate to the reclassification of the company's return assets and refund liabilities in the agriculture product line on the interim Condensed Consolidated Balance Sheets. Under previous guidance, the company accrued the amount of expected product returns as a reduction of net sales and a reduction of accounts and notes receivable - net, and the value associated with the products expected to be recovered in inventory along with a corresponding reduction in cost of goods sold. Under Topic 606, the company now separately presents the amount of expected product returns as refund liabilities, included in accrued and other current liabilities, and the products expected to be recovered as return assets, included in other current assets in the consolidated balance sheets. The reclassification of return assets and refund liabilities was $61 million and $119 million , respectively, at January 1, 2018.


10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The effect on the interim Condensed Consolidated Statement of Cash Flows was not material. The following table summarizes the effects of adopting the new accounting standard related to revenue recognition on the company's interim Condensed Consolidated Balance Sheet:
 
September 30, 2018
(In millions, except per share amounts)
As Reported
Effect of Change
Balance without Adoption of Topic 606
Current assets
 
 
 
  Accounts and notes receivable - net
$
7,079

$
(22
)
$
7,057

Inventories
6,852

12

6,864

Other current assets
1,188

(59
)
1,129

 






Deferred income taxes
$
276

$
(1
)
$
275

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Accrued and other current liabilities
$
2,612

$
(40
)
$
2,572

 






Deferred income tax liabilities
$
5,456

$
(8
)
$
5,448

 






Accumulated deficit
$
(6,988
)
$
(22
)
$
(7,010
)

In accordance with Topic 606, the impact of adoption to the company’s interim Consolidated Statements of Operations primarily related to the accounting for interest income from its customer financing arrangements in the agriculture product line.  Under previous guidance, the company recorded the interest income from these arrangements over the financing period within sundry income (expense) - net.  Under Topic 606, the company elected the practical expedient and does not adjust the promised amount of consideration for the effects of a significant financing component for contracts where payment terms are one year or less. Accordingly, the entire arrangement consideration is recorded in net sales upon satisfaction of the performance obligation. Performance obligations for these arrangements are generally satisfied during the first half of the fiscal year, consistent with the North America growing season. The following tables summarize the effects of adopting the new accounting standard related to revenue recognition on the company's interim Consolidated Statements of Operations for the three and nine months ended September 30, 2018 :
 
For the Three Months Ended September 30, 2018 (Successor)
(In millions, except per share amounts)
As Reported
Effect of Change
Balance without Adoption of Topic 606
Net sales
$
5,294

$
(3
)
$
5,291

Sundry income - net
$
52

$
20

$
72

Loss from continuing operations before income taxes
$
(4,948
)
$
17

$
(4,931
)
Provision for income taxes on continuing operations
$
12

$
4

$
16

Loss from continuing operations after income taxes
$
(4,960
)
$
13

$
(4,947
)

11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 
For the Nine Months Ended September 30, 2018 (Successor)
(In millions, except per share amounts)
As Reported
Effect of Change
Balance without Adoption of Topic 606
Net sales
$
20,538

$
(75
)
$
20,463

Sundry income - net
$
293

$
57

$
350

Loss from continuing operations before income taxes
$
(4,482
)
$
(18
)
$
(4,500
)
Provision for income taxes on continuing operations
$
180

$
(4
)
$
176

Loss from continuing operations after income taxes
$
(4,662
)
$
(14
)
$
(4,676
)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The new guidance makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the company would be required to apply the amendments prospectively as of the earliest date practicable. The company adopted this standard on January 1, 2018 and there was no material impact.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The company adopted this standard on January 1, 2018 and there was no adjustment to retained earnings.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows, and, as a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The company adopted this standard on January 1, 2018. See the interim Condensed Consolidated Statement of Cash Flows for the new presentation of restricted cash as well as Note 8 for a reconciliation of cash, cash equivalents and restricted cash (included in other current assets) presented on the interim Condensed Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash presented in the interim Condensed Consolidated Statements of Cash Flows.
 
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The new guidance narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the "set") is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and should be applied prospectively. Early adoption is permitted. The company adopted this standard on January 1, 2018 and will apply it prospectively to all applicable transactions after the adoption date.


12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance requires registrants to present the service cost component of net periodic benefit cost in the same income statement line item or items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Registrants will present the other components of net periodic benefit cost separately from the service cost component; and, the line item or items used in the income statement to present the other components of net periodic benefit cost must be disclosed. The new standard must be adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement, and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. The company adopted this guidance on January 1, 2018, and will record the other components of net periodic benefit cost in sundry income (expense) - net. The following tables summarize the reclassification of those costs from cost of goods sold, research and development expense, and selling, general and administrative expenses to sundry income (expense) - net in the interim Consolidated Statements of Operations:

Summary of Changes to the interim Consolidated Statement of Operations
For the Month Ended September 30, 2017 (Successor)
(in millions)
As Reported
Effect of Change
Updated
Cost of goods sold
$
1,511

$
20

$
1,531

Research and development expense
$
116

$
4

$
120

Selling, general and administrative expenses
$
267

$
9

$
276

Sundry income (expense) - net
$
88

$
33

$
121

  
Summary of Changes to the interim Consolidated Statement of Operations
For the Period July 1 - August 31, 2017 (Predecessor)
(in millions)
As Reported
Effect of Change
Updated
Cost of goods sold
$
1,975

$
(38
)
$
1,937

Research and development expense
$
278

$
(11
)
$
267

Selling, general and administrative expenses
$
798

$
(22
)
$
776

Sundry income (expense) - net
$
(112
)
$
(71
)
$
(183
)

Summary of Changes to the interim Consolidated Statement of Operations
For the Period January 1 - August 31, 2017 (Predecessor)
(in millions)
As Reported
Effect of Change
Updated
Cost of goods sold
$
10,205

$
(153
)
$
10,052

Research and development expense
$
1,064

$
(42
)
$
1,022

Selling, general and administrative expenses
$
3,306

$
(84
)
$
3,222

Sundry income (expense) - net
$
166

$
(279
)
$
(113
)

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The new guidance expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged items in the financial statements. For cash flow and net investment hedges existing as of the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which an entity adopts. Presentation and disclosure guidance is required to be adopted prospectively. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted in any interim period. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The company early adopted the new guidance in the second quarter of 2018, and adoption did not have a material impact on the interim Consolidated Financial Statements.


13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Accounting Guidance Issued But Not Adopted as of September 30, 2018
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under the new guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The company has a cross-functional team in place to evaluate and implement the new guidance. The team continues to review existing lease arrangements and has engaged a third party to assist with the collection of lease data. The company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The impact of applying other practical expedients and accounting policy elections has been evaluated and the company is in the process of documenting the related considerations and decisions. The company is currently implementing a software solution in connection with the adoption of this ASU; however, this system is still being developed to comply with the new ASU.  The company continues to enhance accounting systems and update business processes and controls related to the new guidance for leases. Collectively, these activities are expected to facilitate the company's ability to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019. The company is working to quantify the impact and anticipates that the adoption of the new standard will result in a material increase in lease-related assets and liabilities in the Consolidated Balance Sheets. The impact to the company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows is not expected to be material. The company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. A complete discussion of these leases is included in the company's 2017 Annual Report in Note 14, "Commitments and Contingent Liabilities."

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.  This amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. New disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The new standard is effective for fiscal years beginning after December 15, 2020, and must be applied retrospectively for all periods presented. Early adoption is permitted. The company is currently evaluating the timing of adoption and the impact this guidance will have on the Consolidated Financial Statements and related disclosures, but does not expect there to be a significant impact.

Note 3 - BUSINESS COMBINATIONS

Merger with Dow
Upon completion of the Merger, (i) each share of common stock, par value $0.30 per share, of the company (the "DuPont Common Stock") was converted into the right to receive 1.2820 fully paid and non-assessable shares of DowDuPont common stock, par value $0.01 per share, ("DowDuPont Common Stock"), in addition to cash in lieu of any fractional shares of DowDuPont Common Stock, and (ii) each share of DuPont Preferred Stock— $4.50 Series and DuPont Preferred Stock— $3.50 Series (collectively "DuPont Preferred Stock") issued and outstanding immediately prior to the Merger Effectiveness Time remains issued and outstanding and was unaffected by the Merger.

As provided in the Merger Agreement, at the Merger Effectiveness Time, all options relating to shares of DuPont Common Stock that were outstanding immediately prior to the effective time of the Merger were generally automatically converted into options relating to shares of DowDuPont Common Stock and all restricted stock units and performance based restricted stock units relating to shares of DuPont Common Stock that were outstanding immediately prior to the effective time of the Mergers were generally automatically converted into restricted stock units relating to shares of DowDuPont Common Stock, in each case, after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the Merger Effectiveness Time.

Prior to the Merger, shares of DuPont Common Stock were registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended and listed on the New York Stock Exchange (the “NYSE”). As a result of the Merger, on August 31, 2017 , the company requested that the NYSE withdraw the shares of DuPont Common Stock from listing on the NYSE and filed a Form 25 with the SEC to report that DuPont Common Stock is no longer listed on the NYSE. DuPont continues to have preferred stock outstanding and it remains listed on the NYSE. DowDuPont Common Stock is listed and trades on the NYSE, ticker symbol DWDP.


14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


As a condition of the regulatory approval of the Merger, DuPont was required to divest a portion of its crop protection business, including certain research and development capabilities. See Note 4 for additional information.

Allocation of Purchase Price
Based on an evaluation of the provisions of Accounting Standards Codification ("ASC") 805, "Business Combinations" ("ASC 805"), Dow was determined to be the accounting acquirer in the Merger. DowDuPont has applied the acquisition method of accounting with respect to the assets and liabilities of DuPont, which have been measured at fair value as of the date of the Merger. In connection with the Merger and the related accounting determination, DuPont has elected to apply push-down accounting and reflect in its financial statements the fair value of assets and liabilities. Such fair values have been reflected in the Successor periods of the Consolidated Financial Statements.

DuPont's assets and liabilities were measured at estimated fair values as of the Merger Effectiveness Time, primarily using Level 3 inputs. Estimates of fair value represent management's best estimate which require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities.

The total fair value of consideration transferred for the Merger was $74,680 million . Total consideration is comprised of the equity value of the DowDuPont shares as of the Merger Effectiveness Time that were issued in exchange for DuPont shares, the cash value for fractional shares, and the portion of DuPont's share awards and share options earned as of the Merger Effectiveness Time.

The following table summarizes the fair value of consideration exchanged as a result of the Merger:
(In millions, except exchange ratio)
 
DuPont Common Stock outstanding as of the Merger Effectiveness Time
868.3

DuPont exchange ratio
1.2820

DowDuPont Common Stock issued in exchange for DuPont Common Stock
1,113.2

Fair value of DowDuPont Common Stock issued 1
$
74,195

Fair value of DowDuPont equity awards issued in exchange for outstanding DuPont equity awards 2
485

Total consideration
$
74,680

1.
Amount was determined based on the price per share of Dow Common Stock of $66.65 on August 31, 2017.
2.
Represents the fair value of replacement awards issued for DuPont's equity awards outstanding immediately before the Merger and attributable to the service periods prior to the Merger. The previous DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock.

The acquisition method of accounting requires, among other things, that identifiable assets acquired and liabilities assumed be recognized on the balance sheet at their respective fair value as of the acquisition date. In determining the fair value, DowDuPont utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgments related to future net cash flows (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data, supplemented by current and anticipated market conditions, and growth rates.


15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The table below presents the final fair value that was allocated to DuPont's assets and liabilities based upon fair values as determined by DowDuPont. The valuation process to determine the fair values is complete. For the nine months ended September 30, 2018, DowDuPont made measurement period adjustments to reflect facts and circumstances in existence as of the Merger Effectiveness Time. These adjustments primarily included a $392 million increase in goodwill, a $257 million decrease in property, plant, and equipment, and a $150 million decrease in indefinite-lived trademarks and trade names and customer-related assets.
 
 Final fair value
(In millions)
Fair Value of Assets as of the Merger Effectiveness Time
 
Cash and cash equivalents
$
4,005

Marketable securities
2,849

Accounts and notes receivable
7,834

Inventories
8,805

Other current assets
420

Investment in nonconsolidated affiliates
1,596

Assets held for sale - current
3,732

Property, plant and equipment
11,684

Goodwill
45,497

Other intangible assets
27,071

Deferred income tax assets
279

Other assets
2,066

Total Assets
$
115,838

Fair Value of Liabilities
 
Short-term borrowings and capital lease obligations
$
5,319

Accounts payable
3,298

Income taxes payable
261

Accrued and other current liabilities
3,517

Liabilities held for sale - current
125

Long-term debt
9,878

Deferred income tax liabilities
8,259

Pension and other post employment benefits - noncurrent
8,056

  Other noncurrent obligations
1,967

Total Liabilities
$
40,680

Noncontrolling interests
239

Preferred stock
239

Fair Value of Net Assets (Consideration for the Merger)
$
74,680



16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Integration and Separation Costs
Integration and separation costs have been and are expected to be significant. These costs to date primarily have consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger and the Intended Business Separations. These costs are recorded within integration and separation costs in the Successor periods and within selling, general and administrative expenses in the Predecessor periods within the interim Consolidated Statements of Operations.
 
Successor
Predecessor
(In millions)
Three Months Ended
September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
Integration and separation costs
$
344

$
71



Selling, general and administrative expenses




$
210


 
Successor
Predecessor
(In millions)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Integration and separation costs
$
926

$
71



Selling, general and administrative expenses




$
581


H&N Business
On November 1, 2017, the company completed the FMC Transactions through the acquisition of the H&N Business and the divestiture of the Divested Ag Business. The acquisition is being integrated into the nutrition and health product line to enhance DuPont’s position as a leading provider of sustainable, bio-based food ingredients and allow for expanded capabilities in the pharma excipients space. 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. The preliminary fair value allocated to the assets acquired and liabilities assumed for the H&N Business at November 1, 2017 was $1,970 million . The valuation process is currently in the process of being finalized as the company has reached the end of the measurement period on November 1, 2018.  There are no material updates to the preliminary purchase accounting and purchase price allocation. For additional information regarding the acquisition of the H&N Business, see Note 3, "Business Combinations," in the 2017 Annual Report. 
 
NOTE 4 - DIVESTITURES AND OTHER TRANSACTIONS

Merger Remedy - Divested Ag Business
On March 31, 2017, the company and FMC entered into the FMC Transaction Agreement. Under the FMC Transaction Agreement, and effective upon the closing of the transaction on November 1, 2017, FMC acquired the Divested Ag Business that DuPont was required to divest in order to obtain EC approval of the Merger Transaction and DuPont acquired the H&N Business. See further discussion of the FMC Transactions in Note 1 . The sale of the Divested Ag Business meets the criteria for discontinued operations and as such, earnings are included within (loss) income from discontinued operations after income taxes for all periods presented.


17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For the nine months ended September 30, 2018, the company recorded a loss from discontinued operations before income taxes related to the Divested Ag Business of $10 million ( $5 million after tax). The following table summarizes the results of operations of the Divested Ag Business presented as discontinued operations for the successor period September 1 through September 30, 2017 and the predecessor periods July 1 through August 31, 2017 and January 1 through August 31, 2017:
 
Successor
Predecessor
(In millions)
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
For the Period
January 1 - August 31, 2017
Net sales
$
116

$
191

$
1,068

Cost of goods sold
110

79

412

Other operating charges


5

17

Research and development expenses
9

24

95

Selling, general and administrative expenses
29

46

146

Sundry income - net


7

(Loss) income from discontinued operations before income taxes
(32
)
37

405

(Benefit from) provision for income taxes
(12
)
8

79

(Loss) income from discontinued operations after income taxes
$
(20
)
$
29

$
326


The following table presents depreciation and capital expenditures of the discontinued operations related to the Divested Ag Business:
 
Successor
Predecessor
(In millions)
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
For the Period
January 1 - August 31, 2017
Depreciation
$

$
5

$
21

Capital expenditures
$
4

$

$
8


Food Safety Diagnostic Sale
In February 2017, the company completed the sale of global food safety diagnostics to Hygiena LLC.  The sale resulted in a pre-tax gain of $162 million ( $86 million after tax). The gain was recorded in sundry income (expense) - net in the company's interim Consolidated Statement of Operations for the period January 1 through August 31, 2017.

Performance Chemicals
On July 1, 2015, DuPont completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (the "Chemours Separation"). In connection with the Chemours Separation, the company and The Chemours Company ("Chemours") entered into a Separation Agreement (the "Chemours Separation Agreement"). Pursuant to the Chemours Separation Agreement and the amendment to the Chemours Separation Agreement, as discussed below, Chemours indemnifies DuPont against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In 2017, DuPont and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future perfluorooctanoic acid (“PFOA”) liabilities for a period of five years beginning July 6, 2017. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At September 30, 2018, the indemnification assets are $95 million within accounts and notes receivable - net and $313 million within other assets along with the corresponding liabilities of $95 million within accrued and other current liabilities and $313 million within other noncurrent obligations in the interim Condensed Consolidated Balance Sheet. See Note 14 for further discussion of the amendment to the Chemours Separation Agreement and certain litigation and environmental matters indemnified by Chemours.

Income from discontinued operations after taxes during the period January 1 through August 31, 2017 includes a tax benefit of $10 million associated with an adjustment to the tax benefit recognized in the first quarter of 2017 related to the charge for the PFOA multidistrict litigation settlement. Income from discontinued operations after income taxes for the period January 1 through August 31, 2017 includes a charge of $335 million ( $214 million after tax) in connection with the PFOA multi-district litigation settlement. See Note 14 for further discussion.

18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


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, distributors, and farmers. 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 according to shipping terms. Payment terms for contracts related to product lines other than agriculture generally average 30 to 60 days after invoicing, depending on business and geography. Payment terms for agriculture product line contracts are generally less than one year from invoicing. The company elected the practical expedient and will not adjust the promised amount of consideration for the effects of a significant financing component when DuPont expects it will be one year or less between when a customer obtains control of the company's product and when payment is due. The company has elected to recognize shipping and handling activities when control has transferred to the customer as an expense in cost of goods sold. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. In addition, DuPont elected the practical expedient to expense any costs to obtain contracts as incurred, as the amortization period for these costs would have been one year or less.

The transaction price includes estimates of variable consideration, such as rights of return, rebates, and discounts, that are reductions in revenue. All estimates are based on the company's historical experience, anticipated performance, and the company's best judgment at the time the estimate is made. Estimates of variable consideration included in the transaction price utilize either the expected value method or most likely amount depending on the nature of the variable consideration. These estimates are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. The majority of contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per unit. For contracts with multiple performance obligations, DuPont 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.

Licenses of Intellectual Property
DuPont enters into licensing arrangements with customers under which it licenses its intellectual property, such as patents and trademarks. Revenue from the majority of intellectual property licenses is derived from sales-based royalties. The company estimates the expected amount of sales-based royalties based on historical sales by customer. Revenue for licensing agreements that contain sales-based royalties is recognized at the later of (i) when the subsequent sale occurs or (ii) when the performance obligation to which some or all of the royalty has been allocated is satisfied.


19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Contract Balances
Contract liabilities primarily reflect deferred revenue from prepayments under agriculture product line contracts with customers where the company receives advance payments for products to be delivered in future periods. DuPont classifies deferred revenue as current or noncurrent based on the timing of when the company expects to recognize revenue. Contract assets primarily include amounts related to contractual rights to consideration for completed performance not yet invoiced within the industrial biosciences product line. Accounts receivable are recorded when the right to consideration becomes unconditional.

Contract Balances
September 30, 2018
Topic 606 Adjustments
January 1, 2018
December 31, 2017
(In millions)
Accounts and notes receivable - trade 1
$
5,766

$
87

$
3,976

Contract assets - current 2
$
46

$
40

$

Deferred revenue - current 3
$
334

$
2

$
2,014

Deferred revenue - noncurrent 4
$
38

$

$
48

1.  
Included in accounts and notes receivable - net in the Consolidated Balance Sheets.
2.  
Included in other current assets in the Consolidated Balance Sheets.
3.  
Included in accrued and other current liabilities in the Consolidated Balance Sheets.
4.  
Included in other noncurrent obligations in the Consolidated Balance Sheets.

The change in deferred revenue from December 31, 2017 to September 30, 2018 was substantially due to the timing of agriculture product line seed deliveries to customers for the North America growing season . Revenue recognized during the nine months ended September 30, 2018 from amounts included in deferred revenue at the beginning of the period was $1,906 million .

Disaggregation of Revenue
Effective with the Merger, DuPont’s business activities are components of DowDuPont’s business operations. DuPont’s business activities, including the assessment of performance and allocation of resources, are reviewed and managed by DowDuPont. Information used by the chief operating decision maker of DuPont relates to the company in its entirety. Accordingly, there are no separate reportable business segments for DuPont under ASC 280 “Segment Reporting” and DuPont's business results are reported in this Form 10-Q as a single operating segment.

The company has one reportable segment with the following principal product lines: agriculture, packaging and specialty plastics, electronics and imaging, nutrition and health, industrial biosciences, transportation and advanced polymers, and safety and construction. The company believes disaggregation of revenue by principal product line best depicts the nature, amount, timing, and uncertainty of its revenue and cash flows. Net sales by principal product line are included below:

(In millions)
Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
Agriculture
$
994

$
7,395

Packaging and Specialty Plastics
389

1,224

Electronics and Imaging
518

1,598

Nutrition and Health
1,000

3,081

Industrial Biosciences
407

1,242

Transportation and Advanced Polymers
1,111

3,374

Safety and Construction
873

2,617

Other
2

7

Total
$
5,294

$
20,538



20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Sales are attributed to geographic regions based on customer location. Net sales by geographic region are included below:

(In millions)
Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
U.S. & Canada
$
1,649

$
8,919

EMEA 1
1,253

4,983

Asia Pacific
1,617

4,889

Latin America
775

1,747

Total
$
5,294

$
20,538

1.  
Europe, Middle East, and Africa ("EMEA").

NOTE 6 - RESTRUCTURING AND ASSET RELATED CHARGES - NET

DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont and the company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), adopted by the DowDuPont Board of Directors. The Synergy Program is designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations. Based on all actions approved to date under the Synergy Program, DuPont expects to record total pre-tax restructuring charges of $460 million to $715 million , comprised of approximately $350 million to $400 million of severance and related benefits costs; $110 million to $140 million of costs related to contract terminations; and up to $175 million of asset related charges.

For the three and nine months ended September 30, 2018, the company recorded pre-tax charges of $61 million and $252 million , respectively, recognized in restructuring and asset related charges - net in the company's interim Consolidated Statements of Operations. The charge for the three months ended September 30, 2018 was comprised of severance and related benefit costs of $24 million , contract termination costs of $9 million and asset related charges of $28 million . The charge for the nine months ended September 30, 2018, was comprised of severance and related benefit costs of $176 million , contract termination costs of $42 million and asset related charges of $34 million . The company recorded pre-tax restructuring charges of $40 million for the period September 1 through September 30, 2017 comprised of severance and related benefit costs. The company recorded pre-tax restructuring charges of $439 million to date under the Synergy Program.

Substantially all the remaining restructuring charges are expected to be incurred in 2018 and the related actions, including employee separations, associated with this plan are expected to be substantially complete by the end of 2019.

DuPont account balances and activity for the Synergy Program are summarized below:
(In millions)
Severance and Related Benefit Costs
Contract Termination Charges
Asset Related Charges
Total
Balance at December 31, 2017
$
133

$
28

$

$
161

Charges to income from continuing operations for the nine months ended September 30, 2018
176

42

34

252

Payments
(86
)
(31
)

(117
)
Net translation adjustment
(2
)


(2
)
Asset write-offs


(34
)
(34
)
Balance at September 30, 2018
$
221

$
39

$

$
260



21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


2017 Restructuring Program
At September 30, 2018, total liabilities related to the program were $7 million . The actions associated with this plan were substantially complete in 2017. A complete discussion of restructuring initiatives is included in the company's 2017 Annual Report in Note 5, "Restructuring and Asset Related Charges - Net."

The company incurred pre-tax charges of $1 million and $313 million for the periods July 1 through August 31, 2017 and January 1 through August 31, 2017, respectively, recognized in restructuring and asset related charges - net in the company's interim Consolidated Statements of Operations. The charge for the period July 1 through August 31, 2017 is severance and related benefit costs. The charge for the period January 1 through August 31, 2017 was comprised of $279 million of asset related charges and $34 million in severance and related benefit costs. The asset related charges mainly consist of accelerated depreciation associated with the closure of the safety and construction product line at the Cooper River manufacturing site located near Charleston, South Carolina.

2016 Global Cost Savings and Restructuring Plan
The company incurred pre-tax charges of $10 million period July 1 through August 31, 2017 and January 1 through August 31, 2017, recognized in restructuring and asset related charges - net in the company's interim Consolidated Statements of Operations. The actions associated with this plan were substantially complete in 2017. 

Asset Impairments
During the three and nine months ended September 30, 2018, the company recognized an  $85 million  pre-tax ( $66 million after-tax) impairment charge in restructuring and asset related charges - net in the company's interim Consolidated Statements of Operations related to certain in-process research and development (“IPR&D") assets within the agriculture reporting unit. Refer to Note 12 for further information.

In addition, based on updated projections for the company’s investment in nonconsolidated affiliates in China related to the agriculture product line, management determined the fair value of the investment in nonconsolidated affiliates is below the carrying value and has no expectation the fair value will recover due to the continuing unfavorable regulatory environment including lack of intellectual property protection, uncertain product registration timing, and limited freedom to operate. As a result, management concluded the impairment is other than temporary and recorded an impairment charge of $41 million in restructuring and asset related charges - net in the company's interim Consolidated Statements of Operations, none of which is tax-deductible, for the three and nine months ended September 30, 2018.

NOTE 7 - RELATED PARTIES

Services Provided by and to Dow and its affiliates
Following the Merger, DuPont reports transactions with Dow and its affiliates as related party transactions. DuPont sells to and procures from Dow and its affiliates certain feedstocks and raw materials that are consumed in each company's manufacturing process, as well as finished goods. DuPont also provides to Dow and its affiliates certain seed production and distribution services.  The following table presents amounts due to or due from Dow and its affiliates at September 30, 2018 and December 31, 2017:

(In millions)
September 30, 2018
December 31, 2017
Accounts and notes receivable - net
$
91

$
12

Accounts payable
$
117

$
26


The table below presents revenue earned and expenses incurred in transactions with Dow and its affiliates following the Merger:

(In millions)
Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
Net sales
$
73

$
151

Cost of goods sold  
$
63

$
126


For the three and nine months ended September 30, 2018, purchases from Dow and its affiliates were $73 million and $180 million , respectively. DuPont also received transfers of certain feedstocks and energy from Dow and its affiliates at cost which totaled $93 million and $259 million for the three and nine months ended September 30, 2018, respectively.


22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Transactions with DowDuPont
DowDuPont relies on distributions and other intercompany transfers from DuPont and Dow to fund payment of its costs and expenses. In November 2017, DowDuPont's Board of Directors authorized an initial $4,000 million share repurchase program to buy back shares of DowDuPont common stock. The $4,000 million share repurchase program was completed in the third quarter of 2018. In February, May and August 2018, the Board declared first, second and third quarter dividends per share of DowDuPont common stock payable on March 15, 2018, June 15, 2018 and September 15, 2018, respectively. For the nine months ended September 30, 2018, DuPont declared and paid distributions to DowDuPont of about $2,481 million , primarily to fund a portion of DowDuPont's first, second and third quarter share repurchases and dividend payments.

In addition, at September 30, 2018 and December 31, 2017, DuPont had a payable to DowDuPont of $250 million and $354 million , respectively, included in accounts payable in the Condensed Consolidated Balance Sheets related to its estimated 2017 and 2018 tax liability. See Note 9 for additional information.

NOTE 8 - SUPPLEMENTARY INFORMATION

Sundry Income (Expense) - Net
Successor
Predecessor
(In millions)
Three Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
Royalty income 1




$
11

Interest income
13

12

26

Equity in earnings (losses) of affiliates - net
13

(4
)
13

Net (loss) gain on sales of businesses and other assets
(2
)
1

2

Net exchange (losses) gains
(77
)
77

(195
)
Non-operating pension and other post employment benefit credit (cost) 2
91

34

(70
)
Miscellaneous income and expenses - net 3
14

1

30

Sundry income (expense) - net
$
52

$
121

$
(183
)
 

Sundry Income (Expense) - Net
Successor
Predecessor
(In millions)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Royalty income 1




$
84

Interest income
71

12

83

Equity in earnings (losses) of affiliates - net
46

(4
)
55

Net gain on sales of businesses and other assets 4
11

1

205

Net exchange (losses) gains
(186
)
77

(394
)
Non-operating pension and other post employment benefit credit (cost) 2
278

34

(278
)
Miscellaneous income and expenses - net 3
73

1

132

Sundry income (expense) - net
$
293

$
121

$
(113
)
 
1.  
In the Successor periods, royalty income of $26 million , $111 million , and $9 million is included in net sales for the three and nine months ended September 30, 2018 and for the period September 1 through September 30, 2017, respectively.
2.  
Includes non-service related components of net periodic benefit credits (costs) (interest cost, expected return on plan assets, amortization of unrecognized (gain) loss, amortization of prior service benefit and curtailment/settlement gain).  See Note 2 for discussion of the retrospective adoption of ASU No. 2017-07.
3.  
Miscellaneous income and expenses - net, includes interest accrued related to unrecognized tax benefits (Predecessor periods only), gains related to litigation settlements, and other items.
4.  
Includes a pre-tax gain of $162 million ( $86 million after tax) for the for the period January 1 through August 31, 2017 related to the sale of global food safety diagnostics. See Note 4 for additional information.




23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations. The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The hedging program gains (losses) are largely taxable (tax deductible) in the United States ("U.S."), whereas the offsetting exchange gains (losses) on the remeasurement of the net monetary asset positions are often not taxable (tax deductible) in their local jurisdictions. The net pre-tax exchange gains (losses) are recorded in sundry income (expense) - net and the related tax impact is recorded in provision for income taxes on continuing operations in the interim Consolidated Statements of Operations.
 
Successor
Predecessor
(In millions)
Three Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
July 1 - August 31, 2017
Subsidiary Monetary Position (Losses) Gains
 
 
 
Pre-tax exchange (losses) gains 1
$
(108
)
$
(35
)
$
65

Local tax benefits (expenses)
33

(31
)
88

Net after-tax impact from subsidiary exchange (losses) gains
$
(75
)
$
(66
)
$
153

 
 
 
 
Hedging Program Gains (Losses)
 
 
 
Pre-tax exchange gains (losses)
$
31

$
112

$
(260
)
Tax (expenses) benefits
(7
)
(40
)
94

Net after-tax impact from hedging program exchange gains (losses)
$
24

$
72

$
(166
)
 
 
 
 
Total Exchange (Losses) Gains
 
 
 
Pre-tax exchange (losses) gains
$
(77
)
$
77

$
(195
)
Tax benefits (expenses)
26

(71
)
182

Net after-tax exchange (losses) gains
$
(51
)
$
6

$
(13
)
 
 
Successor
Predecessor
(In millions)
Nine Months Ended September 30, 2018
For the Period
September 1 - September 30, 2017
For the Period
January 1 - August 31, 2017
Subsidiary Monetary Position (Losses) Gains
 
 
 
Pre-tax exchange (losses) gains 1
$
(213
)
$
(35
)
$
37

Local tax benefits (expenses)
57

(31
)
217

Net after-tax impact from subsidiary exchange (losses) gains
$
(156
)
$
(66
)
$
254

 
 
 
 
Hedging Program Gains (Losses)
 
 
 
Pre-tax exchange gains (losses) 2
$
27

$
112

$
(431
)
Tax (expenses) benefits
(6
)
(40
)
155

Net after-tax impact from hedging program exchange gains (losses)
$
21

$
72

$
(276
)
 
 
 
 
Total Exchange (Losses) Gains
 
 
 
Pre-tax exchange (losses) gains
$
(186
)
$
77

$
(394
)
Tax benefits (expenses)
51

(71
)
372

Net after-tax exchange (losses) gains
$
(135
)
$
6

$
(22
)
 
1.
Includes a net $44 million and $80 million pre-tax exchange loss associated with the devaluation of the Argentine peso for the three and nine months ended September 30, 2018, respectively.
2.
Includes a $50 million foreign exchange loss for the nine months ended September 30, 2018 related to adjustments to foreign currency exchange contracts as a result of U.S. tax reform.
 



24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash (included in other current assets) presented in the Condensed Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash presented in the interim Condensed Consolidated Statements of Cash Flows.

(In millions)
September 30, 2018
December 31, 2017
Cash and cash equivalents
$
3,536

$
7,250

Restricted cash
506

558

Total cash, cash equivalents and restricted cash
$
4,042

$
7,808


DuPont entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring DuPont to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. Restricted cash at September 30, 2018 and December 31, 2017 is related to the Trust.

Accounts and Notes Receivable - Net
Accounts and notes receivable - net was $7,079 million at September 30, 2018 and $5,239 million at December 31, 2017. Notes receivable, which is a component of accounts and notes receivable - net, was $1,625 million at September 30, 2018 and $199 million at December 31, 2017. The increase was primarily due to normal seasonality in the sales and cash collections cycle in the agriculture product line.

NOTE 9 - INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent , requires companies to pay a one-time transition tax (“transition tax”) on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves towards a territorial system. At September 30, 2018, the company had not completed its accounting for the tax effects of The Act; however, as described below, the company has made reasonable estimates of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118 ("SAB 118"), during the measurement period, income tax effects of The Act may be refined upon obtaining, preparing, or analyzing additional information, and such changes could be material. During the measurement period, provisional amounts may also be adjusted for the effects, if any, of interpretive guidance issued by U.S. regulatory and standard-setting bodies.

As a result of The Act, the company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent . However, the company is still analyzing certain aspects of The Act and refining its calculations. In the three and nine months ended September 30, 2018 , benefits of $99 million and $44 million , respectively, were recorded to provision for income taxes on continuing operations in the company's interim Consolidated Statements of Operations to adjust the provisional amount related to the remeasurement of the company's deferred tax balance, resulting in a benefit of $2,760 million since the enactment of The Act. Of the $99 million benefit booked in the three months ended September 30, 2018, $114 million relates to the company's discretionary pension contribution in 2018, which was deducted on a 2017 tax return.

The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”), which results in a one-time transition tax. The company has not yet completed its calculation of the total post-1986 foreign E&P for its foreign subsidiaries as E&P will not be finalized until the Federal income tax return is filed. The company has not recorded a change to the $715 million provisional charge recorded during the fourth quarter 2017 with respect to the one-time transition tax.

In the nine months ended September 30, 2018 , the company recognized a charge of $16 million to provision for income taxes on continuing operations in the company's interim Consolidated Statements of Operations as a result of an indirect impact of the Act related to certain inventory.

For tax years beginning after December 31, 2017, The Act introduces new provisions for U.S. taxation of certain global intangible low-taxed income ("GILTI"). The company is evaluating the policy election on whether the additional liability will be recorded in the period in which it is incurred or recognized for the basis differences that would be expected to reverse in future years.


25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


DuPont and its subsidiaries are included in DowDuPont's consolidated federal income tax group and consolidated tax return.  Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year will be apportioned among the members of the consolidated group based on each member’s separate taxable income.  DuPont 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 a tax sharing agreement and/or tax matters agreement.

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.

During the three months ended September 30, 2018, it was determined that a full valuation allowance against the net deferred tax asset position of a legal entity in Brazil was required. This determination was based on a change in judgment about the realizability of the deferred tax asset due to revised cash flow projections reflecting declines in the forecasted sales and profitability of the agriculture reporting unit in Latin America. The revised cash flow projections quantify the impacts of market conditions, events and circumstances that have developed throughout 2018. See Note 12 for additional information. As a result, the company recognized tax expense of $75 million in the three and nine months ended September 30, 2018.

During 2018, the company has and expects to continue repatriating certain funds from its foreign subsidiaries that are not needed to finance local operations or separation activities. During the three and nine months ended September 30, 2018, the company has recorded tax expense of $61 million associated with these repatriation activities.

During the three and nine months ended September 30, 2018, the company recognized tax expense of $27 million associated with the reduction of a tax benefit recorded in 2017 due to taxable income limitations triggered by the company's decision to deduct the third quarter 2018 principal U.S. pension plan contribution on its 2017 consolidated U.S. tax return.

During the three and nine months ended September 30, 2018, the company recognized tax expense of $26 million related to an internal entity restructuring associated with the Intended Business Separations. 

During the period July 1 through August 31, 2017 , the company recognized tax expense of $29 million associated with the elimination of a tax benefit recorded in 2016 due to taxable income limitations triggered by the company's decision to deduct the second quarter 2017 principal U.S. pension plan contribution on its 2016 consolidated U.S. tax return.

Additionally, during the period January 1 through August 31, 2017 , the company recognized a tax benefit of $57 million , as well as a $50 million pre-tax benefit on associated accrued interest reversals, related to a reduction in the company's unrecognized tax benefits due to the closure of various tax statutes of limitations. Income from continuing operations during the period January 1 through August 31, 2017 includes a tax benefit of $53 million and a pre-tax benefit of $47 million for accrued interest reversals (recorded in sundry income (expense) - net). Income from discontinued operations during the period January 1 through August 31, 2017 includes a tax benefit of $4 million and a pre-tax benefit of $3 million for the accrued interest reversal.  


26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 10 - EARNINGS PER SHARE OF COMMON STOCK

Upon completion of the Merger, each share of DuPont Common Stock was converted into the right to receive 1.2820 fully paid and non-assessable shares of DowDuPont Common Stock, in addition to cash in lieu of any fractional shares of DowDuPont Common Stock issued and therefore earnings per share of common stock information is not presented for the Successor periods.

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the Predecessor periods indicated below:
(In millions, except share amounts)
For the Period
July 1 - August 31, 2017
For the Period
January 1 - August 31, 2017
Numerator:
 
 
(Loss) income from continuing operations after income taxes attributable to DuPont
$
(263
)
$
1,624

Preferred dividends
(2
)
(7
)
(Loss) income from continuing operations after income taxes available to DuPont common stockholders
(265
)
1,617

 
 
 
Income from discontinued operations after income taxes available to DuPont common stockholders
29

117

 
 


Net (loss) income available to common stockholders
$
(236
)
$
1,734

 
 
 
Denominator:
 
 
Weighted-average number of common shares outstanding - Basic
868,992,000

867,888,000

Dilutive effect of the company’s employee compensation plans 1

4,532,000

Weighted-average number of common shares outstanding - Diluted 1
868,992,000

872,420,000

1.  
Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

The following average number of stock options were antidilutive, and therefore not included in the dilutive earnings per share calculations:
 
For the Period
July 1 - August 31, 2017
For the Period
January 1 - August 31, 2017
Average number of stock options
4,832,000

1,906


NOTE 11 - INVENTORIES

(In millions)
September 30,
2018
December 31,
2017
Finished products
$
3,681

$
4,500

Semi-finished products
1,810

2,769

Raw materials
508

371

Stores and supplies
338

447

Total
$
6,337

$
8,087

Adjustment of inventories to a last-in, first out ("LIFO") basis
515

546

Total inventories
$
6,852

$
8,633



27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 12 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
The following table summarizes changes in the carrying amount of goodwill for the nine months ended September 30, 2018 :
(In millions)
 
Balance as of December 31, 2017
$
45,589

Currency translation adjustment
(488
)
Impairment loss
(4,503
)
Measurement period adjustments - Merger
392

Measurement period adjustments - H&N Business
(2
)
Balance as of September 30, 2018
$
40,988


The company tests goodwill and intangible assets for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. As mentioned in Note 1 , in connection with the Merger, the company’s assets and liabilities were measured at fair value as of the date of the Merger. As the carrying value and the fair value of all reporting units and assets were equal at this date, this resulted in little, if any, margin of fair value in excess of carrying value. As a result, the company’s reporting units became susceptible to impairment for any decline in fair value.

In connection with the Merger, the company adopted the policy of DowDuPont and performs its annual goodwill impairment test in the fourth quarter.  In the fourth quarter 2017, a qualitative assessment was performed on all reporting units that carry goodwill. Based on the qualitative assessment, management concluded it was not more likely than not that the carrying value of the reporting unit exceeds the fair value of the reporting unit, and therefore no impairment was recorded.

During the three months ended September 30, 2018, and in connection with strategic business reviews, the company assembled updated cash flow projections. The revised cash flow projections of the agriculture reporting unit assessed and quantified the impacts of developing market conditions, events and circumstances that have evolved throughout 2018, resulting in a reduction in the forecasts of sales and profitability as compared to prior forecasts. The reduction in cash flow projections was principally driven by lower growth in sales and margins in North America and Latin America and unfavorable currency impacts related to the Brazilian real.  The lower growth expectation is driven by reduced planted area, an expected unfavorable shift to soybeans from corn in Latin America, and delays in expected product registrations. In addition, decreases in commodity prices and higher than anticipated industry grain inventories are expected to impact farmers’ income and buying choices resulting in shifts to lower technologies and pricing pressure. The company considered the combination of these factors and the resulting reduction in its forecasted projections for the agriculture reporting unit and determined it was more likely than not that the fair value of the agriculture reporting unit was less than the carrying value, thus requiring the performance of an updated goodwill and intangible asset impairment analysis for the agriculture reporting unit as of September 30, 2018.

The company performed an interim impairment analysis for the agriculture reporting unit using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs. The company’s significant estimates in this analysis include, but are not limited to, future cash flow projections, Merger-related cost and growth synergies, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company believes the current assumptions and estimates utilized are both reasonable and appropriate. The key assumption driving the change in fair value was the lower financial projections discussed above. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. If the company’s ongoing estimates of future cash flows are not met, the company may have to record additional impairment charges in future periods. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategy. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Based on the analysis performed, the company determined that the carrying amount of the agriculture reporting unit exceeded its fair value resulting in a pre-tax, non-cash goodwill impairment charge of $4,503 million , reflected in goodwill impairment charge in the company’s interim Consolidated Statements of Operations for the three and nine months ended September 30, 2018. None of the charge was tax-deductible.


28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In reviewing the indefinite-lived intangible assets, the company also determined that the fair value of certain IPR&D assets had declined as a result of delays in timing of commercialization and increases to expected R&D costs. The company performed an analysis of the fair value using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy, as described in the company’s 2017 Annual Report in Note 1, “Summary of Significant Accounting Policies.” The key assumptions used in the calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. As a result, the company recorded a pre-tax, non-cash intangible asset impairment charge of $85 million ( $66 million after tax), which is reflected in restructuring and asset related charges - net, in the company's interim Consolidated Statements of Operations for the three and nine months ended September 30, 2018.

There were no other indicators for the company’s other reporting units that would suggest that it is more likely than not that the fair value is less than its carrying value at September 30, 2018. Due to the carrying value and fair value of these reporting units being equal at the date of the Merger resulting in little, if any, margin of fair value in excess of carrying value, the company believes these reporting units are at risk to have impairment charges in future periods. The company will perform its annual goodwill and intangible asset impairment test in the fourth quarter, which may result in additional impairments.

Other Intangible Assets
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows: 
(In millions)
September 30, 2018
December 31, 2017
 
Gross
Accumulated
Amortization
Net
Gross
Accumulated
Amortization
Net
Intangible assets subject to amortization (Definite-lived):
 

 

 

 

 

 

Customer-related
$
9,385

$
(607
)
$
8,778

$
9,502

$
(186
)
$
9,316

Developed technology
4,503

(502
)
4,001

4,364

(144
)
4,220

Trademarks/trade names
1,087

(92
)
995

1,117

(26
)
1,091

Favorable supply contracts
475

(88
)
387

495

(17
)
478

Microbial cell factories
394

(19
)
375

397

(6
)
391

Other 1
376

(26
)
350

459

(10
)
449

Total other intangible assets with finite lives
16,220

(1,334
)
14,886

16,334

(389
)
15,945

 
 
 
 
 
 
 
Intangible assets not subject to amortization (Indefinite-lived):
 

 

 

 

 

 

IPR&D 2
545


545

660


660

Germplasm 3
6,265


6,265

6,265


6,265

Trademarks / trade names
4,758


4,758

4,856


4,856

Total other intangible assets
11,568


11,568

11,781


11,781

Total
$
27,788

$
(1,334
)
$
26,454

$
28,115

$
(389
)
$
27,726

1.  
Primarily consists of sales and farmer networks, marketing and manufacturing alliances and noncompetition agreements.
2.  
Refer to discussion of interim impairment analysis completed above.
3.  
Germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life.

The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $307 million and $955 million for the three and