RESULTS OF OPERATIONS
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Summary of Sales Results | Three Months Ended |
In millions | March 31, 2021 | March 31, 2020 |
Net sales | $ | 3,976 | | $ | 3,670 | |
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Summary of Sales Results | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Percent change | Sep 30, 2017 | Sep 30, 2016 | Percent change |
Net sales | $ | 15,354 |
| $ | 12,483 |
| 23 | % | $ | 42,418 |
| $ | 35,138 |
| 21 | % |
Pro forma net sales | $ | 18,285 |
| $ | 16,991 |
| 8 | % | $ | 59,469 |
| $ | 53,160 |
| 12 | % |
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Sales Variances by Segment and Geographic Region |
| Three Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2017 |
Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total |
Agriculture | (4 | )% | 1 | % | (3 | )% | 30 | % | 24 | % | (2 | )% | — | % | — | % | 8 | % | 6 | % |
Performance Materials & Coatings | 6 |
| 1 |
| 1 |
| — |
| 8 |
| 7 |
| — |
| 2 |
| 38 |
| 47 |
|
Industrial Intermediates & Infrastructure | 12 |
| 1 |
| 3 |
| — |
| 16 |
| 9 |
| — |
| 4 |
| — |
| 13 |
|
Packaging & Specialty Plastics | 2 |
| 1 |
| 6 |
| 3 |
| 12 |
| 8 |
| — |
| 4 |
| 1 |
| 13 |
|
Electronics & Imaging | — |
| — |
| 12 |
| 17 |
| 29 |
| (1 | ) | — |
| 11 |
| 21 |
| 31 |
|
Nutrition & Biosciences | — |
| 1 |
| 9 |
| 168 |
| 178 |
| (2 | ) | — |
| 11 |
| 56 |
| 65 |
|
Transportation & Advanced Polymers | (1 | ) | 1 |
| 4 |
| 129 |
| 133 |
| — |
| — |
| 5 |
| 90 |
| 95 |
|
Safety & Construction | 1 |
| — |
| 5 |
| 59 |
| 65 |
| — |
| (1 | ) | 3 |
| 20 |
| 22 |
|
Total | 4 | % | 1 | % | 5 | % | 13 | % | 23 | % | 6 | % | — | % | 4 | % | 11 | % | 21 | % |
U.S. & Canada | 2 | % | — | % | 5 | % | 11 | % | 18 | % | 6 | % | — | % | 4 | % | 9 | % | 19 | % |
EMEA | 9 |
| 4 |
| 4 |
| 12 |
| 29 |
| 10 |
| (1 | ) | 4 |
| 9 |
| 22 |
|
Asia Pacific | 3 |
| — |
| 10 |
| 17 |
| 30 |
| 3 |
| — |
| 8 |
| 18 |
| 29 |
|
Latin America | (1 | ) | — |
| (3 | ) | 17 |
| 13 |
| 1 |
| — |
| — |
| 9 |
| 10 |
|
Total | 4 | % | 1 | % | 5 | % | 13 | % | 23 | % | 6 | % | — | % | 4 | % | 11 | % | 21 | % |
The Company reported netfollowing table summarizes sales in the third quarter of 2017 of $15.4 billion, up 23 percent from $12.5 billion in the third quarter of 2016, reflecting broad-based sales growth with increases across all segmentsvariances by segment and geographic regions. The Merger contributed 13 percent ofregion from the sales increase, impacting all segments except Performance Materials & Coatingsprior year:
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Sales Variances by Segment and Geographic Region |
Percentage change from prior year | Three Months Ended March 31, 2021 |
Local Price & Product Mix | Currency | Volume | Portfolio & Other | Total |
Electronics & Industrial | (1) | % | 3 | % | 15 | % | — | % | 17 | % |
Water & Protection | — | | 3 | | 1 | | — | | 4 | |
Mobility & Materials | 1 | | 3 | | 7 | | — | | 11 | |
Corporate | 1 | | 1 | | (4) | | (27) | | (29) | |
Total | — | % | 3 | % | 7 | % | (2) | % | 8 | % |
U.S. & Canada | — | % | — | % | (4) | % | (5) | % | (9) | % |
EMEA 1 | (2) | | 7 | | — | | — | | 5 | |
Asia Pacific | 1 | | 3 | | 19 | | — | | 23 | |
Latin America | 6 | | (7) | | — | | — | | (1) | |
Total | — | % | 3 | % | 7 | % | (2) | % | 8 | % |
1.Europe, Middle East and Industrial Intermediates & Infrastructure. Volume increased 5 percent compared with the same period last year, with increases in all segments except Agriculture (down 3 percent), including a double-digit increase in Electronics & Imaging (up 12 percent). Volume increased in all geographic regions, except Latin America (down 3 percent), including a double-digit increase in Asia Pacific (up 10 percent). Local price and product mix was up 4 percent compared with the same period last year, driven by broad-based pricing actions primarily in response to higher feedstock and raw material costs. Price was mixed by segment as gains in Industrial Intermediates & Infrastructure (up 12 percent), Performance Materials & Coatings (up 6 percent), Packaging & Specialty Plastics (up 2 percent) and Safety & Construction (up 1 percent) more than offset declines in Agriculture (down 4 percent) and Transportation & Advanced Polymers (down 1 percent). Price remained flat in Electronics & Imaging and Nutrition & Biosciences. Price increased in all geographic regions, except Latin America (down 1 percent). Currency had a favorable impact of 1 percent on sales, driven by EMEA.Africa.
The Company reported net sales for the first ninethree months ended March 31, 2021 of 2017 of $42.4$4.0 billion, up 218 percent from $35.1$3.7 billion for the three months ended March 31, 2020, due to a 7 percent increase in the first nine months of 2016, primarily reflecting the Merger, the addition of Dow Corning’s silicones business, increased selling pricesvolume and demand growth. Sales growth was broad-based with increasesa 3 percent favorable currency impact offset by a 2 percent decline in all segments and geographic regions. Portfolio changes contributed 11 percent of the sales increase and impacted all segments, except Industrial Intermediates & Infrastructure. Volume increased 4 percent compared with the same period last year, with increases in all segments except Agriculture, which was flat. Double-digit volume increases were reported in Electronics & Imaging and Nutrition & Biosciences (both up 11 percent). Volume increased in all geographic regions, except Latin America which remained flat.portfolio actions. Local price and product mix remained flat. The volume growth was up 6 percent compared with the same period last year, primarilyfocused in response to higher feedstock and raw material costs. Price increased in all geographic regions, including a double-digit increase in EMEA (up 10 percent). Price was mixedAsia Pacific offset by segment with increases in Industrial Intermediates & Infrastructure (up 9 percent), Packaging & Specialty Plastics (up 8 percent) and Performance Materials & Coatings (up 7 percent) more than offsetting declines in Agriculture and NutritionU.S. & Biosciences (both down 2 percent) and Electronics & Imaging (down 1 percent). Price was flat in Transportation & Advanced Polymers and Safety & Construction. Currency was flat compared with the same period last year.
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Sales Variances by Segment and Geographic Region - Pro Forma Basis |
| Three Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2017 |
Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other 2 | Total |
Agriculture | (4 | )% | 2 | % | (5 | )% | 3 | % | (4 | )% | — | % | — | % | 1 | % | — | % | 1 | % |
Performance Materials & Coatings | 6 |
| 1 |
| 1 |
| — |
| 8 |
| 7 |
| — |
| 2 |
| 38 |
| 47 |
|
Industrial Intermediates & Infrastructure | 12 |
| 1 |
| 3 |
| — |
| 16 |
| 9 |
| — |
| 4 |
| — |
| 13 |
|
Packaging & Specialty Plastics | 1 |
| 1 |
| 6 |
| — |
| 8 |
| 7 |
| — |
| 4 |
| — |
| 11 |
|
Electronics & Imaging | (2 | ) | — |
| 13 |
| (6 | ) | 5 |
| (2 | ) | — |
| 13 |
| 5 |
| 16 |
|
Nutrition & Biosciences | — |
| 1 |
| — |
| (1 | ) | — |
| — |
| — |
| 3 |
| (1 | ) | 2 |
|
Transportation & Advanced Polymers | 3 |
| 1 |
| 5 |
| — |
| 9 |
| 1 |
| — |
| 8 |
| 7 |
| 16 |
|
Safety & Construction | — |
| — |
| 6 |
| — |
| 6 |
| (2 | ) | — |
| 5 |
| — |
| 3 |
|
Total | 3 | % | 1 | % | 4 | % | — | % | 8 | % | 4 | % | — | % | 4 | % | 4 | % | 12 | % |
U.S. & Canada | 1 | % | — | % | 3 | % | — | % | 4 | % | 3 | % | — | % | 3 | % | 3 | % | 9 | % |
EMEA | 7 |
| 4 |
| 5 |
| — |
| 16 |
| 8 |
| (1 | ) | 4 |
| 3 |
| 14 |
|
Asia Pacific | 2 |
| — |
| 10 |
| (2 | ) | 10 |
| 2 |
| — |
| 9 |
| 7 |
| 18 |
|
Latin America | (2 | ) | 1 |
| (4 | ) | 3 |
| (2 | ) | 1 |
| 1 |
| (1 | ) | 3 |
| 4 |
|
Total | 3 | % | 1 | % | 4 | % | — | % | 8 | % | 4 | % | — | % | 4 | % | 4 | % | 12 | % |
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1. | Pro forma net sales for Agriculture excludes sales related to the expected divestiture of a portion of Dow AgroSciences' corn seed business for the periods July 1, 2016 - September 30, 2016 and July 1, 2017 - August 31, 2017. Sales for the month of September 2017 are included in Portfolio/Other. Portfolio/Other for Electronics & Imaging reflects the recent divestitures of the SKC Haas Display Films group of companies (divested June 30, 2017) and authentication business (divested January 6, 2017). Portfolio/Other for Nutrition & Biosciences reflects the global food safety diagnostic business (divested on February 28, 2017). |
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2. | Pro forma net sales for Agriculture excludes sales related to the expected divestiture of a portion of Dow AgroSciences' corn seed business for the periods January 1, 2016 - September 30, 2016 and January 1, 2017 - August 31, 2017. Sales for the month of September 2017 are included in Portfolio/Other. Portfolio/Other also reflects sales from January 1, 2017 - May 31, 2017 related to the ownership restructure of Dow Corning on June 1, 2016 (impacts Performance Materials & Coatings, Electronics & Imaging and Transportation & Advanced Polymers), the divestitures of SKC Haas Display Films group of companies (divested June 30, 2017) and the authentication business (divested on January 6, 2017), impacting Electronics & Imaging, and the global food safety diagnostic business (divested February 28, 2017), impacting Nutrition & Biosciences. |
The Company reported pro forma net sales in the third quarter of 2017 of $18.3 billion, up 8 percent from $17.0 billion in the third quarter of 2016, with increasesCanada. Volume grew across all segments, except Agriculture (down 4 percent) and Nutrition & Biosciences (flat), and geographic regions, except Latin America (down 2 percent). Double-digit pro forma net sales increases were reported in Industrial Intermediates & Infrastructure (16 percent) and in EMEA (16 percent) and Asia Pacific (10 percent). Volume increased 4 percent compared with the same period last year, with gainsexception of the held for sale businesses in most segments, except Agriculture (down 5 percent) and Nutrition & Biosciences (flat). Volume increased in all geographic regions, except Latin AmericaCorporate (down 4 percent). Local price and product mixThe most notable volume increase was in Electronics & Industrial (up 15 percent). Currency was up 3 percent compared with the same period last year, driven primarily by pricing initiatives in response to higher feedstockEMEA (up 7 percent) and raw material costs. Price was mixed by segment as gains in Industrial Intermediates & Infrastructure (up 12 percent), Performance Materials & Coatings (up 6 percent), Transportation & Advanced PolymersAsia Pacific currencies (up 3 percent) and Packaging & Specialty Plastics (up 1 percent) more than offset declines in Agriculture (down 4 percent) and Electronics & Imaging (down 2 percent). Price was flat in Safety & Construction and Nutrition & Biosciences. Price increased in all geographic regions, except Latin America (down 2 percent). Currency was up 1 percent compared with the same period last year, primarily due to EMEA.
The Company reported pro forma net sales for the first nine months of 2017 of $59.5 billion, up 12 percent from $53.2 billion for the first nine months of 2016, primarily reflecting the addition of Dow Corning’s silicones business, increased selling prices and demand growth. Pro forma net sales increased across all segments and geographic regions. Portfolio and other increasedchanges offset sales by 4growth with a 2 percent primarily reflecting the impact of the addition of Dow Corning's silicones business. Volume increased 4 percent compared with the same period last year, with increases in all segments and geographic regions, except Latin Americadecrease which impacted Corporate (down 127 percent). Local price and product mix was up 4 percent, with increases in all geographic regions, primarily in response to higher feedstock and raw material costs. Price was mixed by segment as gains in Industrial Intermediates & Infrastructure (up 9 percent), Performance Materials & Coatings and Packaging & Specialty Plastics (both up 7 percent) and Transportation & Advanced Polymers (up 1 percent) more than offset declines in Electronics & Imaging and Safety & Construction (both down 2 percent). Price was flat in Agriculture and Nutrition & Biosciences. Currency was flat compared with the same period last year. Local price increased in Latin America (up 6 percent) and Asia Pacific (up 1 percent).
Cost of Sales
Cost of sales was $12.2$2.5 billion infor the third quarter of 2017,three months ended March 31, 2021, up from $9.8$2.3 billion infor the third quarter of last year.three months ended March 31, 2020. Cost of sales in the third quarter of 2017 was negatively impacted by a $360 million chargeincreased for the fair value step-up in inventories assumed in the Merger and related to Agriculture ($82 million), Packaging & Specialty Plastics ($28 million), Electronics & Imaging ($47 million), Nutrition & Biosciences ($104 million), Transportation & Advanced Polymers ($67 million), and Safety & Construction ($32 million) and an $8 million charge for transaction costs and productivity actions (related to Corporate). Cost of sales in the third quarter of 2016 was negatively impacted by a $212 million charge for the fair value step-up of inventories assumed in the ownership restructure of Dow Corning ("DCC Transaction") and related to Performance Materials & Coatings ($140 million), Electronics & Imaging ($44 million), and Transportation & Advanced Polymers ($28 million), and a $27 million charge for transaction costs and productivity actions (related to Corporate). Excluding these significant items, cost of sales increasedthree months ended March 31, 2021 primarily due to the Merger, increased sales volume and higher feedstock, energy and other raw material costs.currency impacts.
Year to date, costCost of Sales as a percentage of net sales was $33.1 billion, up from $27.1 billion in the first nine months of 2016. In addition to the items previously discussed, in the first nine months of 2017 cost of sales was negatively impacted by a $41 million charge for transaction costs and productivity actions (related to Corporate). The first nine months of 2016 included the amounts previously discussed and a $105 million charge63 percent for the fair value step-up of inventories assumed in the DCC Transactionthree months ended March 31, 2021 and related to Performance Materials & Coatings ($73 million), Electronics & Imaging ($25 million), and Transportation & Advanced Polymers ($7 million), and a $57 million charge for transaction costs and productivity actions (related to Corporate). Excluding these significant items, cost of sales increased primarily due to the Merger, increased sales volume, higher feedstock, energy and other raw material costs, higher commissioning expenses related to Dow's U.S. Gulf Coast growth projects and the addition of Dow Corning's silicones business. See Note 3 to the Consolidated Financial Statements for additional information on the Merger and the DCC Transaction.March 31, 2020.
Research and Development Expenses ("R&D")
R&D expenses totaled $522 million in the third quarter of 2017, up $123 million (31 percent) from $399 million in the third quarter of 2016, primarily due to the Merger. For the first nine months of 2017, R&D expenses totaled $1,343 million, up from $1,159$156 million in the first ninequarter of 2021, down from $173 million in the first quarter of 2020. R&D as a percentage of net sales was 4 percent and 5 percent for the three months ended March 31, 2021 and 2020, respectively. The decrease for the three months ended March 31, 2021 as compared with the same period of 2016,the prior year was primarily due to the Mergerproductivity actions and the addition of Dow Corning's silicones business.temporary cost reductions related to COVID-19.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses were $990$456 million in the thirdfirst quarter of 2017, up $252 million (34 percent)2021, down from $738$482 million in the thirdfirst quarter of last year.2020. SG&A in the third quarteras a percentage of 2017net sales was negatively impacted by a $2 million charge for transaction costs11 percent and productivity actions, related to Corporate ($9 million13 percent for the third quarter of 2016). Excluding these significant items, SG&A inthree months ended March 31, 2021 and 2020, respectively. The decrease for the third quarter of 2017 increasedthree months ended March 31, 2021 as compared with the same period lastof the prior year was primarily due to the Merger.
For the first nine months of 2017, SG&A expenses totaled $2,468 million, up from $2,166 million for the first nine months of 2016. SG&A in the first nine months of 2017 was negatively impacted by a $9 million charge for transaction costs and productivity
actions and related to Corporate ($23 million for the first nine months of 2016). Excluding these significant items, SG&A in the first nine months of 2017 increased with the same period last year primarily due to the Merger and the addition of Dow Corning's silicones business, which was partially offset by cost reduction initiatives and reduced litigation expenses.spending.
Amortization of Intangibles
Amortization of intangibles was $244$167 million in the thirdfirst quarter of 2017, up2021, down from $162$178 million in the thirdfirst quarter of 2016, primarily related to the Merger. In the first nine months of 2017, amortization of intangibles was $556 million, up from $387 million in the same period last year, primarily due to the Merger and the addition of Dow Corning's silicones business.2020. See Note 1012 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring and Asset Related Charges - Net
Restructuring and asset related charges - net were $2 million in the first quarter of 2021, down from $398 million in the first quarter of 2020. The activity in the first quarter of 2021 is due to a $2 million charge related to the 2020 Restructuring Program. The activity in the first quarter of 2020 included a $270 million impairment charge related to long-lived assets in Corporate, a $105 million charge related to the 2020 Restructuring Program, $18 million charge related to the 2019 Restructuring Program and a $5 million charge related to the DowDuPont Cost Synergy Program
In September 2017, the Company approved initial post-merger actions under the Cost Synergy Program which is designed to integrate and optimize the organization following the Merger. As a result of these actions, the Company recorded pretax restructuring charges of $179 million (related to Corporate) in the third quarter of 2017, comprised of severance and related benefit costs. These actions are expected to be substantially completed by September 30, 2019.
Subsequent Event
On November 1, 2017, the Board approved restructuring actions under the Synergy Program. The Company expects to record total pretax restructuring charges of about $2 billion, comprised of approximately $875 million to $975 million of severance and related benefits costs; $450 million to $800 million of asset related charges, and $400 million to $450 million of costs related to contract terminations. Current estimated total pretax restructuring charges includes the $180 million recorded in the third quarter of 2017, comprised of severance and related benefit costs. The Company expects to record pretax restructuring charges of approximately $1 billion in the fourth quarter of 2017, with the remaining restructuring charges to be incurred by the end of 2019. The Synergy Program includes certain asset actions, including strategic decisions regarding the cellulosic biofuel business reflected in the preliminary fair value measurement of DuPont’s assets as of the merger date. Current estimated total pretax restructuring charges could be impacted by future adjustments to the preliminary fair value of DuPont’s assets.
Dow 2016 Restructuring Plan
On June 27, 2016, the Board of Directors of Dow approved a restructuring plan that incorporated actions related to the DCC Transaction. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the DCC Transaction. These actions are expected to be substantially completed by June 30, 2018. As a result, Dow recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance and related benefit costs of $268 million, asset related charges and other of $153 million and costs associated with exit and disposal activities of $28 million and are related to Performance Materials & Coatings ($42 million), Industrial Intermediates & Infrastructure ($83 million), Packaging & Specialty Plastics ($10 million) and Corporate ($314 million).
In the first nine months of 2017, Dow recorded a favorable adjustment to the 2016 restructuring charge for costs associated with exit and disposal activities of $3 million (related to Performance Materials & Coatings). See Note 4 to the interim Consolidated Financial Statements for details onadditional information.
Goodwill Impairment Charge
There were no goodwill related impairments for the Company's restructuring activities.three months ended March 31, 2021. For the three months ended March 31, 2020, goodwill impairment charge was $533 million. The goodwill impairment charge relates to businesses to be divested in 2021 which are included in Corporate. See Note 12 to the interim Consolidated Financial Statements for additional information.
Integration and Separation Costs
Integration and separation costs, which reflectprimarily consist of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees. In the first quarter of 2021, these costs were primarily associated with the execution of activities related to strategic initiatives including the divestiture of the Held for Sale Disposal Group. In the first quarter of 2020, these costs were primarily associated with the execution of activities related to the post-DWDP Merger integration and the ownership restructure of Dow Corning, were $354 million in the third quarter of 2017, up from $127 million in the third quarter of 2016. In the first nine months of 2017, integration and separationDWDP Distributions. These costs were $599 million, compared with $228$6 million in the first nine monthsquarter of 2016. Integration and separation costs are2021, down from $123 million in the first quarter of 2020. The decline was primarily related to Corporate.the timing of the post-DWDP Merger integration activities and the DWDP Distributions.
Equity in Earnings of Nonconsolidated Affiliates
The Company's share of the earnings of nonconsolidated affiliates was $152$26 million in the first quarter of 2021, down from $39 million in the first quarter of 2020. The decrease is primarily due to the sale of the HSC Group in the third quarter of 2017, up from $70 million in the third quarter of 2016, primarily due to higher equity earnings from the Kuwait joint ventures and the HSC Group. Equity earnings in the third quarter of 2017 were also negatively impacted by a $7 million charge for the amortization of a basis difference in the fair value step-up in inventories and related to Agriculture ($1 million), Safety & Construction ($2 million), Transportation & Advanced Polymers ($1 million) and Electronics & Imaging ($3 million).2020.
In the first nine months of 2017, Dow's share of the earnings of nonconsolidated affiliates was $402 million, up from $191 million in the first nine months of 2016, as higher equity earnings from the Kuwait joint ventures and the HSC Group were partially offset by lower equity earnings resulting from the DCC Transaction and from the Thai joint ventures. Equity earnings for the first nine months of 2016 also declined due to a charge of $22 million for a loss on the early redemption of debt incurred by Dow Corning
and related to Performance Materials & Coatings ($15 million), Electronics & Imaging ($5 million) and Transportation & Advanced Polymers ($2 million).
Sundry Income (Expense) - Net
Sundry income (expense) –- net includes a variety of income and expense items such as the gain or loss on foreign currency exchange gains or losses, interest income, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other post-employment benefit plan credits or costs, and certain litigation matters. Sundry income (expense) –- net in the thirdfirst quarter of 20172021 was income of $361 million, an increase of $339$16 million compared with income of $22$212 million in the thirdfirst quarter of 2016.2020. The thirdfirst quarter of 20172021 included a $227benefits related to the sale of assets within the Electronics & Industrial segment of $24 million gain from Dow's divestitureand income related to non-operating pension and other post-employment benefit credits of $12 million, partially offset by an impairment charge related to the held for sale classification of Chestnut Run labs of $15 million and foreign currency exchange losses of $9 million. The first quarter of 2020 included benefits related to sales of the EAA copolymersCompound Semiconductor Solutions business unit of $197 million and ionomers business (related to Packaging & Specialty Plastics). The third quarter of 2016 included a $33 million charge for transaction costs and productivity actions,income related to Corporate.non-operating pension and other post-employment benefit credits of $11 million.
Year to date, sundry income (expense) - netInterest Expense
Interest expense was income of $237$146 million aand $171 million for the three months ended March 31, 2021 and 2020, respectively. The decrease of $1,132 million compared with income of $1,369 million in the same period last year. In additionprimarily relates to the amounts previously discussed, the first nine months of 2017 included a $469 million loss from the Bayer CropScience arbitration matter (related to Agriculture), a $137 million gain from the Nova patent infringement matter (related to Packaging & Specialty Plastics), a $7 million gain adjustment on the split-offmaturity of the chlorine value chain (related to Corporate) and gains on sales of other assets and investments. The first nine months of 2016 includedNovember 2020 Notes, the amounts previously discussed and a $1,235 million loss from the settlementearly repayment of the urethane matters class action lawsuit$3.0 billion Term Loan Facilities, and the opt-out cases litigation (related to Industrial Intermediates & Infrastructure), a $2,445 million gain from the DCC Transaction,absence of commercial paper borrowings, partially offset by financing costs related to Performance Materials & Coatings ($1,617 million), Electronics & Imaging ($512 million) and Transportation & Advanced Polymers ($316 million), a $6 million gain adjustment on the split-off of the chlorine value chain (relatedMay Debt Offering. Refer to Industrial Intermediates & Infrastructure) and gains on sales of other assets and investments. See Notes 3 andNote 13 to the interim Consolidated Financial Statements for additional information.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $283 million in the third quarter of 2017, up from $220 million in the third quarter of last year. Year to date, interest expense and amortization of debt discount was $728 million compared with $629 million in the first nine months of 2016. The increase was primarily related to the Merger and the effect of the long-term debt assumed in the DCC Transaction.
Provision for Income Taxes on Continuing Operations
The Company's effective tax rate fluctuates based on, among other factors, where income is earned reinvestment assertions regarding foreign income and the level of income relative to tax credits available. For example, as the percentage of foreign sourced income increases, the Company's effective tax rate declines. The Company's tax rate is also influenced by the level of equity earnings, since most of the earnings from the Company's equity method investments are taxed at the joint venture level.
attribute. The effective tax rate fromon continuing operations for the thirdfirst quarter of 20172021 was 50.85.6 percent, compared with 24.9 percent for the third quarter of 2016. The increase in thean effective tax rate was primarily due to a $267 million charge related to changes in tax attributes in the United States and Germany as a result of the Merger, the geographic mix of DuPont's amortization of the inventory step-up and the impact of certain foreign exchange losses recognized on the remeasurement of net monetary asset positions which were not deductible in the local jurisdictions. For the first nine months of 2017, the effective tax rate was 30.5 percent, compared with 6.3(20.6) percent for the first nine monthsquarter of 2016. In addition to the factors previously discussed, the2020. The effective tax rate for the first nine monthsquarter of 2017 reflects2021 was principally the result of a $59 million tax benefit fromrelated to the Bayer CropScience arbitration matter and the adoption of Accounting Standards Update ("ASU") 2016-09, which resultedstep-up in tax basis in the recognitiongoodwill of excess tax benefits related to equity compensation in the provision for income taxes.Company’s European regional headquarters legal entity. The effective tax rate for the first nine months of 2016 was impacted by the non-taxable gain on the DCC Transaction, a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the investment in Dow Corning and a tax benefit related to the urethane matters class action lawsuit and opt-out cases settlements which more than offset the $57 million tax charge related to the adjustment of an uncertain tax position. See Notes 1, 2, 3, 6 and 13 to the Consolidated Financial Statements for additional information.
Loss from Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax was $20 million in the third quarter of 2017 and for2020 was principally the first nine months of 2017, and is related to DuPont's Merger remedy. See Note 3 to the Consolidated Financial Statements for additional information.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $20 million in the third quarter of 2017, up from $14 million in the third quarter of 2016. For the first nine months of 2017, net income attributable to noncontrolling interests was $85 million, up from$54 million in the same period last year.
Preferred Stock Dividends
On December 30, 2016, Dow converted all outstanding shares of its Cumulative Convertible Perpetual Preferred Stock, Series A ("Dow Preferred Stock") into shares of Dow's common stock. As a result of this conversion, no sharesthe non-tax-deductible goodwill impairment charge impacting Corporate.
Net Income Available for DowDuPont Inc. Common Stockholders
Net income available for common stockholders was $514 million, or $0.32 per share, in the third quarter of 2017, compared with $719 million, or $0.63 per share, in the third quarter of 2016. Net income available for common stockholders for the first nine months of 2017 was $2,723 million, or $2.01 per share, compared with $4,011 million, or $3.48 per share for the same period of 2016. See Note 7 to the Consolidated Financial Statements for details on the Company's earnings per share calculations.
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following supplemental unaudited pro forma combined statements of income (the "unaudited pro forma income statements") for DowDuPont are presented to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. For the periods presented below, activity prior to August 31, 2017 (the “Merger Date”) was prepared on a pro forma basis (the “unaudited pro forma information”) and activity after the Merger Date was prepared on a combined U.S. GAAP basis. The unaudited pro forma information was prepared in accordance with Article 11 of Regulation S-X. Pro forma adjustments have been made for (1) the preliminary purchase accounting impact, (2) accounting policy alignment, (3) eliminate the effect of events that are directly attributable to the Merger Agreement (e.g., one-time transaction costs), (4) eliminate the impact of transactions between Dow and DuPont, and (5) eliminate the effect of consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger. Events that are not expected to have a continuing impact on the combined results (e.g., inventory step-up costs) are excluded. The unaudited pro forma information does not reflect restructuring or integration activities or other costs following the Merger that may be incurred to achieve cost or growth synergies of DowDuPont. The unaudited pro forma income statements provide shareholders with summary financial information and historical data that is on a basis consistent with how DowDuPont reports current financial information.
The Merger was accounted for under Accounting Standards Codification ("ASC") Topic 805, "Business Combinations" ("ASC 805"), under which Dow has been designated as the accounting acquirer in the Merger for accounting purposes. Under ASC 805, Dow accounted for the transaction by using Dow historical financial information and accounting policies and adding the assets and liabilities of DuPont as of the Merger Date at their respective fair values. The assets and liabilities of DuPont have been measured based on various preliminary estimates at the Merger Date using assumptions that DowDuPont believes are reasonable based on information that is currently available. DowDuPont intends to complete the valuations and other studies and will finalize the allocation of consideration as soon as practicable within the measurement period in accordance with ASC 805, but no later than one year following the closing date of the Merger. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could have a material impact on the accompanying unaudited pro forma income statements and DowDuPont’s future results of operations.
The unaudited pro forma information was prepared in accordance with Article 11 of Regulation S-X which is a different basis than the unaudited pro forma information presented in Note 3 to the Consolidated Financial Statements, which was prepared in accordance with the requirements of ASC 805.
The unaudited pro forma income statements have been presented for informational purposes only and are not necessarily indicative of what DowDuPont’s results of operations actually would have been had the Merger been completed on January 1, 2016. In addition, the unaudited pro forma income statements do not purport to project the future operating results of the Company. The unaudited pro forma income statements were based on and should be read in conjunction with the separate historical financial statements and accompanying notes contained in each of the Dow and DuPont Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K for the applicable periods. See Notes 1 and 3 to the Consolidated Financial Statements for additional information.
|
| | | | | | | | | | | | |
Unaudited Pro Forma Combined Statements of Income
| Three Months Ended | Nine Months Ended |
In millions, except per share amounts | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 18,285 |
| $ | 16,991 |
| $ | 59,469 |
| $ | 53,160 |
|
Cost of sales | 14,246 |
| 12,940 |
| 43,676 |
| 38,308 |
|
Research and development expenses | 796 |
| 770 |
| 2,390 |
| 2,299 |
|
Selling, general and administrative expenses | 1,583 |
| 1,586 |
| 5,223 |
| 5,153 |
|
Amortization of intangibles | 423 |
| 429 |
| 1,286 |
| 1,201 |
|
Restructuring and asset related charges - net | 180 |
| 172 |
| 479 |
| 614 |
|
Integration and separation costs | 459 |
| 160 |
| 997 |
| 253 |
|
Equity in earnings of nonconsolidated affiliates | 161 |
| 86 |
| 442 |
| 233 |
|
Sundry income (expense) - net | 226 |
| (37 | ) | 226 |
| 1,621 |
|
Interest expense and amortization of debt discount | 334 |
| 283 |
| 902 |
| 817 |
|
Income from continuing operations before income taxes | 651 |
| 700 |
| 5,184 |
| 6,369 |
|
Provision for income taxes on continuing operations | 392 |
| 101 |
| 1,113 |
| 611 |
|
Income from continuing operations, net of tax | 259 |
| 599 |
| 4,071 |
| 5,758 |
|
Net income attributable to noncontrolling interests | 27 |
| 20 |
| 112 |
| 75 |
|
Net income attributable to DowDuPont Inc. | 232 |
| 579 |
| 3,959 |
| 5,683 |
|
Preferred stock dividends | — |
| 85 |
| — |
| 255 |
|
Net income available for DowDuPont Inc. common stockholders | $ | 232 |
| $ | 494 |
| $ | 3,959 |
| $ | 5,428 |
|
| | | | |
Per common share data: | | | | |
Earnings per common share from continuing operations - basic | $ | 0.10 |
| $ | 0.22 |
| $ | 1.70 |
| $ | 2.43 |
|
Earnings per common share from continuing operations - diluted | $ | 0.10 |
| $ | 0.22 |
| $ | 1.68 |
| $ | 2.41 |
|
| | | | |
Weighted-average common shares outstanding - basic | 2,328.0 |
| 2,225.6 |
| 2,322.9 |
| 2,222.0 |
|
Weighted-average common shares outstanding - diluted | 2,349.7 |
| 2,247.1 |
| 2,346.2 |
| 2,242.4 |
|
|
| | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Combined Statement of Income | Three Months Ended Sep 30, 2017 |
| | Adjustments | |
In millions, except per share amounts | DWDP 1 | Historical DuPont 2 | Reclass 3 | Divestitures 4 | Pro Forma 5 | Pro Forma |
Net sales | $ | 15,354 |
| $ | 3,182 |
| $ | 11 |
| $ | (225 | ) | $ | (37 | ) | $ | 18,285 |
|
Cost of sales | 12,170 |
| 2,054 |
| 115 |
| (106 | ) | 13 |
| 14,246 |
|
Other operating charges | — |
| 141 |
| (141 | ) | — |
| — |
| — |
|
Research and development expenses | 522 |
| 302 |
| (7 | ) | (26 | ) | 5 |
| 796 |
|
Selling, general and administrative expenses | 990 |
| 844 |
| (217 | ) | (41 | ) | 7 |
| 1,583 |
|
Other (loss) income, net | — |
| (112 | ) | 112 |
| — |
| — |
| — |
|
Amortization of intangibles | 244 |
| — |
| 31 |
| — |
| 148 |
| 423 |
|
Restructuring and asset related charges - net | 179 |
| 11 |
| — |
| — |
| (10 | ) | 180 |
|
Integration and separation costs | 354 |
| — |
| 219 |
| (9 | ) | (105 | ) | 459 |
|
Equity in earnings of nonconsolidated affiliates | 152 |
| — |
| 13 |
| — |
| (4 | ) | 161 |
|
Sundry income (expense) - net | 361 |
| — |
| (134 | ) | (1 | ) | — |
| 226 |
|
Interest expense and amortization of debt discount | 283 |
| 71 |
| — |
| — |
| (20 | ) | 334 |
|
Income (loss) from continuing operations before income taxes | 1,125 |
| (353 | ) | 2 |
| (44 | ) | (79 | ) | 651 |
|
Provision (credit) for income taxes on continuing operations | 571 |
| (124 | ) | 2 |
| (10 | ) | (47 | ) | 392 |
|
Income (loss) from continuing operations, net of tax | 554 |
| (229 | ) | — |
| (34 | ) | (32 | ) | 259 |
|
Net income attributable to noncontrolling interests | 20 |
| 5 |
| — |
| — |
| 2 |
| 27 |
|
Net income (loss) attributable to DowDuPont Inc. | 534 |
| (234 | ) | — |
| (34 | ) | (34 | ) | 232 |
|
Preferred stock dividends | — |
| 2 |
| — |
| — |
| (2 | ) | — |
|
Net income (loss) available for DowDuPont Inc. common stockholders | $ | 534 |
| $ | (236 | ) | $ | — |
| $ | (34 | ) | $ | (32 | ) | $ | 232 |
|
| | | | | | |
Per common share data: | | | | | | |
Earnings per common share from continuing operations - basic | | | | $ | 0.10 |
|
Earnings per common share from continuing operations - diluted | | | | $ | 0.10 |
|
| | | | | | |
Weighted-average common shares outstanding - basic | | | | 2,328.0 |
|
Weighted-average common shares outstanding - diluted | | | | 2,349.7 |
|
| |
1. | See the U.S. GAAP consolidated statements of income. |
2. Reflects DuPont activity for the period from July 1, 2017 to August 31, 2017.
3. Certain reclassifications were made to conform to the presentation that will be used for DowDuPont.
4. Includes the following consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger, including: Dow’s global EAA copolymers and ionomers business (divested on September 1, 2017); a portion of Dow AgroSciences’ corn seed business in Brazil (for the period of July 1, 2017 through August 31, 2017); and DuPont’s cereal broadleaf herbicides and chewing insecticides portfolio as well as its crop protection research and development pipeline and organization (for the period of July 1, 2017 through August 31, 2017; September 2017 activity has been treated as discontinued operations).
5. Certain pro forma adjustments were made to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. Refer to Summary of Pro Forma Adjustments at the end of this section for additional details.
|
| | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Combined Statement of Income | Three Months Ended Sep 30, 2016 |
| | Adjustments | |
In millions, except per share amounts | Historical Dow 1 | Historical DuPont 2 | Reclass 3 | Divestitures 4 | Pro Forma 5 | Pro Forma |
Net sales | $ | 12,483 |
| $ | 4,917 |
| $ | 27 |
| $ | (389 | ) | $ | (47 | ) | $ | 16,991 |
|
Cost of sales | 9,841 |
| 3,090 |
| 141 |
| (166 | ) | 34 |
| 12,940 |
|
Other operating charges | — |
| 176 |
| (176 | ) | — |
| — |
| — |
|
Research and development expenses | 399 |
| 410 |
| (10 | ) | (36 | ) | 7 |
| 770 |
|
Selling, general and administrative expenses | 864 |
| 1,016 |
| (249 | ) | (56 | ) | 11 |
| 1,586 |
|
Other (loss) income, net | — |
| (16 | ) | 16 |
| — |
| — |
| — |
|
Amortization of intangibles | 162 |
| — |
| 45 |
| — |
| 222 |
| 429 |
|
Restructuring and asset related charges - net | — |
| 172 |
| — |
| — |
| — |
| 172 |
|
Integration and separation costs | — |
| — |
| 249 |
| — |
| (89 | ) | 160 |
|
Equity in earnings of nonconsolidated affiliates | 70 |
| — |
| 22 |
| — |
| (6 | ) | 86 |
|
Sundry income (expense) - net | (4 | ) | — |
| (32 | ) | (1 | ) | — |
| (37 | ) |
Interest income | 26 |
| — |
| (26 | ) | — |
| — |
| — |
|
Interest expense and amortization of debt discount | 220 |
| 93 |
| — |
| — |
| (30 | ) | 283 |
|
Income (loss) from continuing operations before income taxes | 1,089 |
| (56 | ) | 7 |
| (132 | ) | (208 | ) | 700 |
|
Provision (credit) for income taxes on continuing operations | 271 |
| (69 | ) | 7 |
| (30 | ) | (78 | ) | 101 |
|
Income from continuing operations, net of tax | 818 |
| 13 |
| — |
| (102 | ) | (130 | ) | 599 |
|
Net income attributable to noncontrolling interests | 14 |
| 4 |
| — |
| — |
| 2 |
| 20 |
|
Net income attributable to DowDuPont Inc. | 804 |
| 9 |
| — |
| (102 | ) | (132 | ) | 579 |
|
Preferred stock dividends | 85 |
| 2 |
| — |
| — |
| (2 | ) | 85 |
|
Net income available for DowDuPont Inc. common stockholders | $ | 719 |
| $ | 7 |
| $ | — |
| $ | (102 | ) | $ | (130 | ) | $ | 494 |
|
| | | | | | |
Per common share data: | | | | | | |
Earnings per common share from continuing operations - basic | | | | $ | 0.22 |
|
Earnings per common share from continuing operations - diluted | | | | $ | 0.22 |
|
| | | | | | |
Weighted-average common shares outstanding - basic | | | | 2,225.6 |
|
Weighted-average common shares outstanding - diluted | | | | 2,247.1 |
|
1. See the consolidated statements of income included in Dow's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
2. See the consolidated statements of income included in DuPont's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
3. Certain reclassifications were made to conform to the presentation that will be used for DowDuPont.
4. Includes the following consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger, including: Dow’s global EAA copolymers and ionomers business; a portion of Dow AgroSciences’ corn seed business in Brazil; and DuPont’s cereal broadleaf herbicides and chewing insecticides portfolio as well as its crop protection research and development pipeline and organization.
5. Certain pro forma adjustments were made to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. Refer to Summary of Pro Forma Adjustments at the end of this section for additional details.
|
| | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Combined Statement of Income | Nine Months Ended Sep 30, 2017 |
| | Adjustments | |
In millions, except per share amounts | DWDP 1 | Historical DuPont 2 | Reclass 3 | Divestitures 4 | Pro Forma 5 | Pro Forma |
Net sales | $ | 42,418 |
| $ | 18,349 |
| $ | 84 |
| $ | (1,219 | ) | $ | (163 | ) | $ | 59,469 |
|
Cost of sales | 33,130 |
| 10,617 |
| 387 |
| (523 | ) | 65 |
| 43,676 |
|
Other operating charges | — |
| 521 |
| (521 | ) | — |
| — |
| — |
|
Research and development expenses | 1,343 |
| 1,159 |
| (27 | ) | (104 | ) | 19 |
| 2,390 |
|
Selling, general and administrative expenses | 2,468 |
| 3,452 |
| (583 | ) | (143 | ) | 29 |
| 5,223 |
|
Other (loss) income, net | — |
| 173 |
| (173 | ) | — |
| — |
| — |
|
Amortization of intangibles | 556 |
| — |
| 139 |
| — |
| 591 |
| 1,286 |
|
Restructuring and asset related charges - net | 166 |
| 323 |
| — |
| — |
| (10 | ) | 479 |
|
Integration and separation costs | 599 |
| — |
| 605 |
| (24 | ) | (183 | ) | 997 |
|
Equity in earnings of nonconsolidated affiliates | 402 |
| — |
| 55 |
| — |
| (15 | ) | 442 |
|
Sundry income (expense) - net | 237 |
| — |
| 1 |
| (12 | ) | — |
| 226 |
|
Interest expense and amortization of debt discount | 728 |
| 254 |
| — |
| — |
| (80 | ) | 902 |
|
Income from continuing operations before income taxes | 4,067 |
| 2,196 |
| (33 | ) | (437 | ) | (609 | ) | 5,184 |
|
Provision for income taxes on continuing operations | 1,239 |
| 228 |
| (33 | ) | (88 | ) | (233 | ) | 1,113 |
|
Income from continuing operations, net of tax | 2,828 |
| 1,968 |
| — |
| (349 | ) | (376 | ) | 4,071 |
|
Net income attributable to noncontrolling interests | 85 |
| 20 |
| — |
| — |
| 7 |
| 112 |
|
Net income attributable to DowDuPont Inc. | 2,743 |
| 1,948 |
| — |
| (349 | ) | (383 | ) | 3,959 |
|
Preferred stock dividends | — |
| 7 |
| — |
| — |
| (7 | ) | — |
|
Net income available for DowDuPont Inc. common stockholders | $ | 2,743 |
| $ | 1,941 |
| $ | — |
| $ | (349 | ) | $ | (376 | ) | $ | 3,959 |
|
| | | | | | |
Per common share data: | | | | | | |
Earnings per common share from continuing operations - basic | | | | $ | 1.70 |
|
Earnings per common share from continuing operations - diluted | | | | $ | 1.68 |
|
| | | | | | |
Weighted-average common shares outstanding - basic | | | | 2,322.9 |
|
Weighted-average common shares outstanding - diluted | | | | 2,346.2 |
|
| |
1. | See the U.S. GAAP consolidated statements of income. |
2. Reflects DuPont activity for the period from January 1, 2017 to August 31, 2017, prior to the Merger.
3. Certain reclassifications were made to conform to the presentation that will be used for DowDuPont.
4. Includes the following consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger, including: Dow’s global EAA copolymers and ionomers business (divested on September 1, 2017); a portion of Dow AgroSciences’ corn seed business in Brazil (for the period of January 1, 2017 through August 31, 2017); and DuPont’s cereal broadleaf herbicides and chewing insecticides portfolio as well as its crop protection research and development pipeline and organization (for the period of January 1, 2017 through August 31, 2017; September 2017 activity has been treated as discontinued operations).
5. Certain pro forma adjustments were made to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. Refer to Summary of Pro Forma Adjustments at the end of this section for additional details.
|
| | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Combined Statement of Income | Nine Months Ended Sep 30, 2016 |
| | Adjustments | |
In millions, except per share amounts | Historical Dow 1 | Historical DuPont 2 | Reclass 3 | Divestitures 4 | Pro Forma 5 | Pro Forma |
Net sales | $ | 35,138 |
| $ | 19,383 |
| $ | 108 |
| $ | (1,305 | ) | $ | (164 | ) | $ | 53,160 |
|
Cost of sales | 27,067 |
| 11,322 |
| 414 |
| (557 | ) | 62 |
| 38,308 |
|
Other operating charges | — |
| 504 |
| (504 | ) | — |
| — |
| — |
|
Research and development expenses | 1,159 |
| 1,260 |
| (30 | ) | (111 | ) | 21 |
| 2,299 |
|
Selling, general and administrative expenses | 2,393 |
| 3,355 |
| (478 | ) | (150 | ) | 33 |
| 5,153 |
|
Other (loss) income, net | — |
| 407 |
| (407 | ) | — |
| — |
| — |
|
Amortization of intangibles | 387 |
| — |
| 148 |
| — |
| 666 |
| 1,201 |
|
Restructuring and asset related charges - net | 452 |
| 159 |
| — |
| 3 |
| — |
| 614 |
|
Integration and separation costs | — |
| — |
| 450 |
| — |
| (197 | ) | 253 |
|
Equity in earnings of nonconsolidated affiliates | 191 |
| — |
| 60 |
| — |
| (18 | ) | 233 |
|
Sundry income (expense) - net | 1,305 |
| — |
| 323 |
| (7 | ) | — |
| 1,621 |
|
Interest income | 64 |
| — |
| (64 | ) | — |
| — |
| — |
|
Interest expense and amortization of debt discount | 629 |
| 278 |
| — |
| — |
| (90 | ) | 817 |
|
Income from continuing operations before income taxes | 4,611 |
| 2,912 |
| 20 |
| (497 | ) | (677 | ) | 6,369 |
|
Provision for income taxes on continuing operations | 291 |
| 643 |
| 20 |
| (103 | ) | (240 | ) | 611 |
|
Income from continuing operations, net of tax | 4,320 |
| 2,269 |
| — |
| (394 | ) | (437 | ) | 5,758 |
|
Net income attributable to noncontrolling interests | 54 |
| 14 |
| — |
| — |
| 7 |
| 75 |
|
Net income attributable to DowDuPont Inc. | 4,266 |
| 2,255 |
| — |
| (394 | ) | (444 | ) | 5,683 |
|
Preferred stock dividends | 255 |
| 7 |
| — |
| — |
| (7 | ) | 255 |
|
Net income available for DowDuPont Inc. common stockholders | $ | 4,011 |
| $ | 2,248 |
| $ | — |
| $ | (394 | ) | $ | (437 | ) | $ | 5,428 |
|
| | | | | | |
Per common share data: | | | | | | |
Earnings per common share from continuing operations - basic | | | | $ | 2.43 |
|
Earnings per common share from continuing operations - diluted | | | | $ | 2.41 |
|
| | | | | | |
Weighted-average common shares outstanding - basic | | | | 2,222.0 |
|
Weighted-average common shares outstanding - diluted | | | | 2,242.4 |
|
1. See the consolidated statements of income included in Dow's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
2. See the consolidated statements of income included in DuPont's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
3. Certain reclassifications were made to conform to the presentation that will be used for DowDuPont.
4. Includes the following consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger, including: Dow’s global EAA copolymers and ionomers business; a portion of Dow AgroSciences’ corn seed business in Brazil; and DuPont’s cereal broadleaf herbicides and chewing insecticides portfolio as well as its crop protection research and development pipeline and organization.
5. Certain pro forma adjustments were made to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. Refer to Summary of Pro Forma Adjustments at the end of this section for additional details.
|
| | | | | | | | | | | | |
Summary of Pro Forma Adjustments
| Three Months Ended | Nine Months Ended |
In millions (Unaudited) | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | | | | |
Intercompany transactions 1 | $ | (37 | ) | $ | (47 | ) | $ | (163 | ) | $ | (164 | ) |
Cost of sales | | | | |
Intercompany transactions 1 | $ | (37 | ) | $ | (47 | ) | $ | (163 | ) | $ | (164 | ) |
Policy harmonization 2 | (4 | ) | — |
| 11 |
| (17 | ) |
Depreciation expense 3 | 54 |
| 81 |
| 217 |
| 243 |
|
Total cost of sales | $ | 13 |
| $ | 34 |
| $ | 65 |
| $ | 62 |
|
Research and development expenses: | | | | |
Depreciation expense 3 | $ | 5 |
| $ | 7 |
| $ | 19 |
| $ | 21 |
|
Selling, general and administrative expenses | | | | |
Depreciation expense 3 | $ | 7 |
| $ | 11 |
| $ | 29 |
| $ | 33 |
|
Amortization of intangibles | | | | |
Amortization expense 4 | $ | 148 |
| $ | 222 |
| $ | 591 |
| $ | 666 |
|
Restructuring and asset related charges - net | | | | |
Transaction costs 5 | $ | (10 | ) | $ | — |
| $ | (10 | ) | $ | — |
|
Integration and separation costs | | | | |
Transaction costs 5 | $ | (105 | ) | $ | (89 | ) | $ | (183 | ) | $ | (197 | ) |
Equity in earnings of nonconsolidated affiliates | | | | |
Fair value of nonconsolidated affiliates 6 | $ | (4 | ) | $ | (6 | ) | $ | (15 | ) | $ | (18 | ) |
Interest expense and amortization of debt discount | | | | |
Amortization of debt discount 7 | $ | (20 | ) | $ | (30 | ) | $ | (80 | ) | $ | (90 | ) |
Total pro forma adjustments to income from continuing operations before income taxes | $ | (79 | ) | $ | (208 | ) | $ | (609 | ) | $ | (677 | ) |
Provision for income taxes on continuing operations 8 | | | | |
Policy harmonization 2 | $ | 2 |
| $ | — |
| $ | (4 | ) | $ | 6 |
|
Depreciation expense 3 | (23 | ) | (33 | ) | (91 | ) | (99 | ) |
Amortization expense 4 | (46 | ) | (70 | ) | (184 | ) | (210 | ) |
Transaction costs 5 | 14 |
| 16 |
| 22 |
| 36 |
|
Fair value of nonconsolidated affiliates 6 | (1 | ) | (2 | ) | (5 | ) | (6 | ) |
Amortization of debt discount 7 | 7 |
| 11 |
| 29 |
| 33 |
|
Total provision for income taxes on continuing operations | $ | (47 | ) | $ | (78 | ) | $ | (233 | ) | $ | (240 | ) |
Total pro forma adjustments to income from continuing operations, net of tax | $ | (32 | ) | $ | (130 | ) | $ | (376 | ) | $ | (437 | ) |
Net income attributable to noncontrolling interests | | | | |
Reclass historical dividends 9 | $ | 2 |
| $ | 2 |
| $ | 7 |
| $ | 7 |
|
Net income from continuing operations attributable to DowDuPont Inc. | $ | (34 | ) | $ | (132 | ) | $ | (383 | ) | $ | (444 | ) |
Preferred stock dividends | | | | |
Reclass historical dividends 9 | $ | (2 | ) | $ | (2 | ) | $ | (7 | ) | $ | (7 | ) |
Net income from continuing operations available for DowDuPont Inc. common stockholders | $ | (32 | ) | $ | (130 | ) | $ | (376 | ) | $ | (437 | ) |
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1. | Elimination of intercompany transactions between Dow and DuPont. |
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2. | Adjustment to conform DuPont's accounting policy of deferring and amortizing expense for planned major maintenance activities to Dow's accounting policy of directly expensing the costs as incurred. |
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3. | Increase in depreciation expense for the fair value step-up of DuPont's property, plant and equipment. |
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4. | Increase in amortization expense for the fair value step-up of DuPont's finite-lived intangibles. |
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5. | Elimination of one-time transaction costs directly attributable to the Merger. |
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6. | Decrease in equity in earnings of nonconsolidated affiliates for the fair value adjustment to DuPont's investment in nonconsolidated affiliates. |
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7. | Decrease in interest expense related to amortization of the fair value adjustment to DuPont's long-term debt. |
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8. | Represents the income tax effect of the pro forma adjustments related to the Merger calculated using a blended statutory income tax rate, inclusive of state taxes. Management believes the blended statutory income tax rate resulting from this calculation provides a reasonable basis for the pro forma adjustments, however the effective tax rate of DowDuPont could be significantly different depending on the mix of activities. |
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9. | Reclassify historical dividends for DuPont preferred stock from "Preferred stock dividends" to "Net income attributable to noncontrolling interests." |
OUTLOOK
Consumer-led demand continues to drive global economic activity, which remains robust across most major economies, including Europe, China and the United States. DowDuPont's demand outlook is positive for the majority of the Company's key end-markets. DowDuPont still sees some market headwinds, the most notable being in agriculture where the Company continues to closely monitor the situation in Brazil due to the slow start to the summer season. But the Company remains confident that it will have a solid year across its newly combined Ag division.
Looking forward, DowDuPont has all the levers it needs to execute near-term priorities: delivering earnings and cash flow growth; executing cost synergy actions and realizing the savings; advancing stand-up activities for the intended growth companies; and unlocking the shareholder value creation envisaged through this historic transaction.
SEGMENT RESULTS
Effective August 31, 2017, Dow and DuPont completed the previously announced merger of equals transaction pursuant to the Merger Agreement resulting in a newly formed corporation named DowDuPont. See Note 3 to the Consolidated Financial Statements for additional information on the Merger. As a result of the Merger, new operating segments were created which are used by management to allocate Company resources and assess performance. The new segments are aligned with the market verticals they serve, while maintaining integration and innovation strengths within strategic value chains. DowDuPont is comprised of nine operating segments, which are aggregated into eight reportable segments: Agriculture; Performance Materials & Coatings; Industrial Intermediates & Infrastructure; Packaging & Specialty Plastics; Electronics & Imaging; Nutrition & Biosciences; Transportation & Advanced Polymers and Safety & Construction. Corporate contains the reconciliation between the totals for the reportable segments and the Company’s totals. The Company’s Nutrition & Biosciences segment consists of two operating segments, Nutrition & Health and Industrial Biosciences, which individually did not meet the quantitative thresholds.
DowDuPont will report geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America, and EMEA. As a result of the Merger, Dow changed the geographic alignment for the country of India to be reflected in Asia Pacific (previously reported in EMEA) and aligned Puerto Rico to U.S. & Canada (previously reported in Latin America).
Effective with the Merger, the Company changed itsCompany's measure of profit/loss for segment reporting purposes from Operating EBITDA to pro formais Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assessesassessed performance and allocates resources. The Company defines pro formaOperating EBITDA as earnings (i.e., pro forma “Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains (losses). Pro forma Operating EBITDA is defined as pro forma EBITDA excluding the impact of/ losses, adjusted for significant items. A reconciliationReconciliations of “Income from continuing operations, net of tax” to pro forma Operating EBITDAthese measures can be found in Note 2122 to the interim Consolidated Financial Statements. Prior year data has
Effective February 1, 2021, DuPont changed its management and reporting structure. The reporting changes have been updated to conform with current year presentation.
The Company is also presenting pro forma net sales as it is includedretrospectively reflected in management's measurethe following discussion of segment performance and regularly reviewed by the CODM.
Pro forma adjustments used in the calculation of pro forma net sales and pro forma Operating EBITDA were determined in accordance with Article 11 of Regulation S-X and were based on the historical consolidated financial statements of Dow and DuPont, adjusted to give effectresults for all periods presented. See Note 22 to the Merger as if it had been consummated on January 1, 2016. For additional information on the pro forma adjustments made, see Supplemental Unaudited Pro Forma Combined Financial Information in the preceding section.
AGRICULTURE
The Agriculture segment leverages the Company’s technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply and the global production agriculture industry. Land available for worldwide agricultural production is increasingly limited so production growth will need to be achieved principally through improving crop yields and productivity. The segment’s two global businesses, Seed and Crop Protection, deliver a broad portfolio of products and services that are specifically targeted to achieve gains in crop yields and productivity, including well-established brands of seed products, crop protection products, seed treatment, agronomy and digital services. Research and development ("R&D") focuses on leveraging germplasm and plant science technology to increase grower productivity and to enhance the value of grains and oilseeds through improved seed traits, superior seed germplasm and effective use of crop protection solutions.
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Agriculture | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 1,532 |
| $ | 1,233 |
| $ | 4,729 |
| $ | 4,456 |
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Pro forma net sales | $ | 1,911 |
| $ | 1,998 |
| $ | 11,555 |
| $ | 11,396 |
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Pro forma Operating EBITDA | $ | (239 | ) | $ | (172 | ) | $ | 2,387 |
| $ | 2,222 |
|
Equity earnings (losses) | $ | (5 | ) | $ | 5 |
| $ | (1 | ) | $ | 5 |
|
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| | | | |
Agriculture | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | (4 | )% | (2 | )% |
Currency | 1 |
| — |
|
Volume | (3 | ) | — |
|
Portfolio & other | 30 |
| 8 |
|
Total | 24 | % | 6 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | (4 | )% | — | % |
Currency | 2 |
| — |
|
Volume | (5 | ) | 1 |
|
Portfolio & other | 3 |
| — |
|
Total | (4 | )% | 1 | % |
Agriculture net sales were $1,532 million in the third quarter of 2017, up 24 percent from $1,233 million in the third quarter of 2016. Agriculture pro forma net sales for the third quarter of 2017 were $1,911 million, down 4 percent from $1,998 million in 2016. Compared with the same period last year, pro forma volume and local price declined 5 percent and 4 percent respectively, which was partially offset by portfolio and currency benefits. Pro forma volume declines were driven by a reduction in expected corn planted area in Brazil, a delayed start to the Brazil summer season, and high channel inventories for Crop Protection in Latin America. Reductions in volume were partially offset by continued penetration of new products including ArylexTM herbicide, Vessarya® fungicide, Leptra® corn hybrids, and Isoclast® insecticide. Pro forma local price declines were driven by the above noted high channel inventories for Crop Protection and an increase in soybean seed replant in North America.
The portfolio pro forma gains for the third quarter of 2017 as compared to 2016, were due to the Dow AgroSciences corn seed remedy in Brazil, which is excluded from pro forma results for periods prior to the Merger, but will be included in reported results subsequent to the Merger and until the close of the sale, which is expected in the fourth quarter of 2017.
Agriculture pro forma Operating EBITDA for the third quarter of 2017 was a loss of $239 million, compared to a pro forma loss of $172 million in the same quarter last year. Lower product costs, favorable currency, lower pension and other postretirement costs and portfolio changes were more than offset by reduced volume and price, particularly due to weakness in Brazil.
Agriculture net sales were $4,729 million for the first nine months of 2017, up 6 percent from $4,456 million for the first nine months of 2016. Agriculture pro forma net sales were $11,555 million for the first nine months of 2017, up 1 percent from $11,396 million in the first nine months of 2016, driven by volume increase of 1 percent. Pro forma volume growth was driven by a change in the timing of seed deliveries, including the southern U.S. route-to-market change, higher soybean seed sales in North America and an increase in sunflower and corn seed sales in Europe. These were partially offset by lower North America corn seed volumes impacted by a decrease in corn planted area. Pro forma price declines driven by competitive pressure in Crop Protection in Latin America were offset by the continued penetration of new products.
Agriculture pro forma Operating EBITDA for the first nine months of 2017 was $2,387 million compared with $2,222 million in 2016. Compared with the same period last year, pro forma Operating EBITDA increased due to growth in volumes and new product sales.
PERFORMANCE MATERIALS & COATINGS
The Performance Materials & Coatings segment consists of two global businesses - Coatings & Performance Monomers and Consumer Solutions. Using silicones, acrylics and cellulosics-based technology platforms, these businesses serve the needs of the coatings, home care, personal care, appliance and industrial end-markets. The segment has broad geographic reach and R&D and manufacturing facilities located in key geographic regions. This segment also includes the results of the HSC Group, joint ventures of the Company.
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Performance Materials & Coatings | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 2,228 |
| $ | 2,058 |
| $ | 6,580 |
| $ | 4,480 |
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Pro forma net sales | $ | 2,219 |
| $ | 2,046 |
| $ | 6,537 |
| $ | 4,440 |
|
Pro forma Operating EBITDA | $ | 487 |
| $ | 345 |
| $ | 1,508 |
| $ | 836 |
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Equity earnings | $ | 39 |
| $ | 31 |
| $ | 171 |
| $ | 126 |
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| | | | |
Performance Materials & Coatings | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | 6 | % | 7 | % |
Currency | 1 |
| — |
|
Volume | 1 |
| 2 |
|
Portfolio & other | — |
| 38 |
|
Total | 8 | % | 47 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | 6 | % | 7 | % |
Currency | 1 |
| — |
|
Volume | 1 |
| 2 |
|
Portfolio & other | — |
| 38 |
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Total | 8 | % | 47 | % |
Performance Materials & Coatings net sales were $2,228 million in the third quarter of 2017, up from $2,058 million in the third quarter of 2016. Performance Materials & Coatings pro forma net sales were $2,219 million in the third quarter of 2017, up from $2,046 million in the third quarter of 2016. Pro forma net sales increased 8 percent compared with the third quarter of 2016, with local price up 6 percent and volume and currency each up 1 percent. Local price and product mix increased in both businesses and all geographic regions. Price increased in Coatings & Performance Monomers in response to tight supply and demand fundamentals for acrylates and methacrylates, higher raw material costs following hurricane-related disruptions and pricing actions for architectural coatings in Asia Pacific. Consumer Solutions price increased primarily due to pricing initiatives for silicone intermediates in EMEA and Asia Pacific. Volume increased in all geographic regions, except Latin America. Volume increased in Consumer Solutions, primarily in EMEA and Asia Pacific, driven by strong demand in packaging, personal care and construction end-markets. Coatings & Performance Monomers volume declined due to lost merchant sales resulting from hurricane-related disruptions and soft peak season demand for coatings in EMEA and North America.
Pro forma Operating EBITDA was $487 million in the third quarter of 2017, up from $345 million in the third quarter of 2016. Pro forma Operating EBITDA improved compared with the same quarter last year as higher selling prices and the continued realization of cost synergies related to the integration of Dow Corning's silicones business more than offset higher feedstock, energy and other raw material costs.
Performance Materials & Coatings net sales were $6,580 million in the first nine months of 2017, up 47 percent from $4,480 million in the first nine months of 2016. Performance Materials & Coatings pro forma net sales were $6,537 million in the first nine months of 2017, up 47 percent from $4,440 million in the first nine months of 2016. Compared with the same period last year, portfolio actions contributed to 38 percent of the pro forma net sales increase, reflecting the addition of Dow Corning’s silicones business, local price increased 7 percent and volume increased 2 percent. Local price increased in both businesses and all geographic regions, and volume increased in both businesses and all geographic regions, except Latin America.
Pro forma Operating EBITDA was $1,508 million in the first nine months of 2017, up from $836 million in the first nine months of 2016. Pro forma Operating EBITDA improved compared with the same period last year as the favorable impact of earnings from Dow Corning's silicones business, higher selling prices, gains from sales of assets and increased equity earnings from the HSC Group more than offset higher feedstock, energy and other raw material costs.
As indicated in Note 10 to theinterim Consolidated Financial Statements the Company is currently monitoring the performance of the Coatings & Performance Monomers reporting unit. At September 30, 2017, the Company concluded that no events or changes in circumstances have occurred which would indicate that the fair value of the Coatings & Performance Monomers reporting unit has more likely than not been reduced below its carrying value. If the Coatings & Performance Monomers reporting unit does not achieve the financial performance that the Company expects, it is reasonably possible that an impairment of goodwill may result. An annual goodwill impairment test for the Coatings & Performance Monomers reporting unit will be completed in the fourth quarter of 2017. At September 30, 2017, the Coatings & Performance Monomers reporting unit had goodwill of $2,509 million.additional information.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
The Industrial Intermediates & Infrastructure segment consists of four global businesses: Construction Chemicals, Energy Solutions, Industrial Solutions, and Polyurethanes & CAV. These customer-centric global businesses develop and market customized materials using advanced technology and unique chemistries. These businesses serve the needs of market segments as diverse as: appliance; coatings; infrastructure; and oil and gas. The segment has broad geographic reach and R&D and manufacturing facilities located in key geographic regions. This segment also includes a portion of the results of EQUATE Petrochemicals Company K.S.C. ("EQUATE"), The Kuwait Olefins Company K.S.C. ("TKOC"), Map Ta Phut Olefins Company Limited and Sadara Chemical Company ("Sadara"), all joint ventures of the Company.
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Industrial Intermediates & Infrastructure | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 3,228 |
| $ | 2,773 |
| $ | 9,094 |
| $ | 8,024 |
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Pro forma net sales | $ | 3,226 |
| $ | 2,770 |
| $ | 9,086 |
| $ | 8,015 |
|
Pro forma Operating EBITDA | $ | 676 |
| $ | 401 |
| $ | 1,605 |
| $ | 1,183 |
|
Equity earnings (losses) | $ | 41 |
| $ | (7 | ) | $ | 101 |
| $ | (49 | ) |
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| | | | |
Industrial Intermediates & Infrastructure | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | 12 | % | 9 | % |
Currency | 1 |
| — |
|
Volume | 3 |
| 4 |
|
Portfolio & other | — |
| — |
|
Total | 16 | % | 13 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | 12 | % | 9 | % |
Currency | 1 |
| — |
|
Volume | 3 |
| 4 |
|
Portfolio & other | — |
| — |
|
Total | 16 | % | 13 | % |
Industrial Intermediates & Infrastructure net sales were $3,228 million in the third quarter of 2017, up 16 percent from $2,773 million in the third quarter of 2016. Pro forma net sales were $3,226 million in the third quarter of 2017, up from $2,770 million in the third quarter of 2016. Pro forma net sales increased 16 percent in the third quarter of 2017, with local price up 12 percent, volume up 3 percent and currency up 1 percent. Local price was up in all geographic regions and all businesses, except for Construction Chemicals (flat), driven by pricing initiatives and tight supply conditions due to hurricane-related supply disruptions in the United States. Polyurethanes & CAV volume increased due to strong demand for downstream, higher margin systems applications and increased demand for vinyl chloride monomer in EMEA and North America. Volume increased in Industrial Solutions, as volume growth driven by new production from Sadara, most notably glycol ethers, more than offset a decline in fluids used in concentrated solar power applications. Construction Chemicals reported volume gains driven by higher
demand for methyl cellulosics in EMEA. Volume decreased in Energy Solutions due to reduced project activity in energy market sectors.
Pro forma Operating EBITDA was $676 million in the third quarter of 2017, up from $401 million in the third quarter of 2016. Compared with the same period last year, pro forma Operating EBITDA increased as higher selling prices, increased sales volume and higher equity earnings from the Kuwait joint ventures more than offset higher feedstock, energy and other raw material costs and hurricane-related repair expenses.
Industrial Intermediates & Infrastructure net sales were $9,094 million for the first nine months of 2017, up 13 percent from $8,024 million for the first nine months of 2016. Pro forma net sales were $9,086 million for the first nine months of 2017, up from $8,015 million for the first nine months of 2016. Pro forma net sales increased 13 percent in the first nine months of 2017, with local price up 9 percent and volume up 4 percent. Local price increased in all geographic regions and in Industrials Solutions and Polyurethanes & CAV and remained flat in Construction Chemicals and Energy Solutions. Volume increased in all businesses and geographic regions.
Pro forma Operating EBITDA was $1,605 million for the first nine months of 2017, up from $1,183 million in the same period last year. Pro forma Operating EBITDA increased compared with the same period last year as higher selling prices, increased sales volume and higher equity earnings from the Kuwait joint ventures more than offset higher feedstock, energy and other raw material costs.
PACKAGING & SPECIALTY PLASTICS
The Packaging & Specialty Plastics segment is a market-oriented portfolio composed of two global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach, with manufacturing facilities located in all geographic regions. It also benefits from R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in packaging. Taken together, the businesses in this segment represent the world's leading plastics franchise. This segment also includes the results of The Kuwait Styrene Company K.S.C. ("TKSC") and the SCG-Dow Group, as well as a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.
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Packaging & Specialty Plastics | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 5,260 |
| $ | 4,702 |
| $ | 15,364 |
| $ | 13,561 |
|
Pro forma net sales | $ | 5,490 |
| $ | 5,070 |
| $ | 16,300 |
| $ | 14,636 |
|
Pro forma Operating EBITDA | $ | 1,147 |
| $ | 1,386 |
| $ | 3,424 |
| $ | 3,856 |
|
Equity earnings | $ | 64 |
| $ | 39 |
| $ | 130 |
| $ | 83 |
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Packaging & Specialty Plastics | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | 2 | % | 8 | % |
Currency | 1 |
| — |
|
Volume | 6 |
| 4 |
|
Portfolio & other | 3 |
| 1 |
|
Total | 12 | % | 13 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | 1 | % | 7 | % |
Currency | 1 |
| — |
|
Volume | 6 |
| 4 |
|
Portfolio & other | — |
| — |
|
Total | 8 | % | 11 | % |
Packaging & Specialty Plastics net sales were $5,260 million in the third quarter of 2017, up 12 percent from $4,702 million in the third quarter of 2016. Pro forma net sales were $5,490 million in the third quarter of 2017, up from $5,070 million in the third
quarter of 2016. Pro forma net sales increased 8 percent in the third quarter of 2017, with volume up 6 percent, local price up 1 percent and currency up 1 percent, primarily in EMEA. Local price increased in North America and EMEA in response to higher feedstock, energy and other raw material costs, and price also increased in North America as a result of tight supply conditions due to hurricane-related supply disruptions. Volume increased across all geographic regions, except Latin America (flat). Packaging and Specialty Plastics volume growth was driven by continued consumer-led demand in health and hygiene end-markets in the Americas, strong demand for food and specialty packaging solutions, particularly in Asia Pacific, and increased use of elastomers in packaging and footwear applications. Volume growth in EMEA and Asia Pacific was enabled by an increase in production volume at Sadara, while volume in North America and Latin America declined as a result of hurricane-related production disruptions. Hydrocarbons & Energy volume increased in all geographic regions compared with the same quarter last year, primarily due to higher sales of ethylene and ethylene by-products, and the start-up of a world-scale ethylene production facility in Texas in September. In North America, the Company's hurricane preparation plans along with its multifaceted feedstock pipeline and wells allowed DowDuPont to continue to operate ethylene facilities through the hurricane.
Pro forma Operating EBITDA was $1,147 million in the third quarter of 2017, down from $1,386 million in the third quarter of 2016. Compared with the same quarter last year, pro forma Operating EBITDA decreased as the impact of higher feedstock and energy costs, U.S. Gulf Coast start-up and commissioning costs and hurricane-related expenses more than offset higher sales volume, increased selling prices and higher equity earnings.
Packaging & Specialty Plastics net sales for the first nine months of 2017 were $15,364 million, an increase of 13 percent from $13,561 million in the first nine months of 2016. Pro forma net sales were $16,300 million for the first nine months of 2017, compared with $14,636 million in the first nine months of 2016, an increase of 11 percent. Local price increased in all geographic regions in response to higher feedstock, energy and other raw material costs. Volume increased in all geographic regions, except Latin America. Volume was impacted by Sadara production and the start-up of a new world-scale ethylene production facility in Texas in the third quarter of 2017.
Pro forma Operating EBITDA was $3,424 million for the first nine months of 2017, down from $3,856 million for the first nine months of 2016. Pro forma Operating EBITDA decreased compared with the first nine months of 2016 as the impact of higher feedstock, energy and other raw material costs, planned maintenance turnaround spending, increased U.S. Gulf Coast start-up and commissioning costs, and hurricane-related expenses more than offset higher selling prices and higher equity earnings.
On September 21, 2017, the Company announced the startup of its new integrated, world-scale ethylene production facility and its new ELITE™ enhanced polyethylene production facility, both located in Freeport, Texas. These two key milestones enable the Company to capture benefits from increasing supplies of U.S. shale gas to deliver differentiated downstream solutions in its core market verticals. Both units are expected to reach full run rates in the fourth quarter of 2017.
ELECTRONICS & IMAGINGINDUSTRIAL
The Electronics & ImagingIndustrial segment is a leading global supplier of differentiated materials and systems for a broad range of consumer electronics including mobile devices, television monitors, personal computers and electronics used in a variety of industries, and also serves the photovoltaics ("PV") and advanced printing industries. The segment is a leading provider of materials and solutions for the fabrication of semiconductors and integrated circuits, and provides innovative metallization processes for metal finishing, decorative, and industrial applications. Electronics & Industrial is a leading global supplierprovider of innovative metallization pastesplatemaking systems and back sheet materialsphotopolymer plates for the PV industry. In addition, Electronics & Imaging is a leading supplier in the packaging graphics industry, providing materials used in digital printing applicationsinks and provides cutting-edge materials for the manufacturing inof displays for organic light emitting diode ("OLED"). In addition, the displays market.segment produces innovative engineering polymer solutions, high performance parts, medical silicones and specialty lubricants.
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Electronics & Industrial | Three Months Ended |
In millions | March 31, 2021 | March 31, 2020 |
Net sales | $ | 1,300 | | $ | 1,115 | |
| | |
Operating EBITDA | $ | 436 | | $ | 327 | |
Equity earnings | $ | 9 | | $ | 9 | |
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Electronics & Industrial | Three Months Ended |
Percentage change from prior year | March 31, 2021 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | (1) | % |
Currency | 3 | |
Volume | 15 | |
Portfolio & other | — | |
Total | 17 | % |
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Electronics & Imaging | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 832 |
| $ | 646 |
| $ | 2,164 |
| $ | 1,647 |
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Pro forma net sales | $ | 1,198 |
| $ | 1,138 |
| $ | 3,583 |
| $ | 3,084 |
|
Pro forma Operating EBITDA | $ | 382 |
| $ | 341 |
| $ | 1,119 |
| $ | 842 |
|
Equity earnings | $ | — |
| $ | — |
| $ | — |
| $ | 24 |
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| | | | |
Electronics & Imaging | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | — | % | (1 | )% |
Currency | — |
| — |
|
Volume | 12 |
| 11 |
|
Portfolio & other | 17 |
| 21 |
|
Total | 29 | % | 31 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | (2 | )% | (2 | )% |
Currency | — |
| — |
|
Volume | 13 |
| 13 |
|
Portfolio & other | (6 | ) | 5 |
|
Total | 5 | % | 16 | % |
Electronics & Imaging net sales in the third quarter of 2017 were $832 million, up from $646 million in the third quarter of 2016. Pro forma net sales in the third quarter of 2017 were $1,198 million, up from $1,138 million in the third quarter of 2016. Pro forma net sales growth of 5 percent was led by pro forma volume gains of 13 percent, which more than offset a 6 percent negative pro forma impact from portfolio and pro forma local price decline of 2 percent. Pro forma volume growth was broad-based across key end-markets, led by growth in semiconductor, consumer electronics, industrial, photovoltaic and display end-markets across almost all geographies, primarily in Asia Pacific. Continued demand for mobile phones and other consumer electronics, as well as automotive applications drove sales gains. Increased semiconductor content in end-use applications drove strong demand in both memory and logic market segments. Growth in photovoltaics led by demand for Tedlar® film was partially offset by declines in Solamet® paste. The negative pro forma portfolio impact resulted from the sales of SKC Haas Display Films in June 2017 and the Authentications business in January 2017. Pro forma price declines were driven by competitive pressure in photovoltaic and advanced printing applications.
Pro forma Operating EBITDA in the third quarter of 2017 was $382 million, up 12 percent from $341 million in the third quarter of 2016 as broad-based volume growth, mix enrichment and lower pension/OPEB costs were partially offset by lower local price and the negative impact from portfolio changes.
Electronics & ImagingIndustrial net sales were $2,164$1,300 million for the first ninethree months of 2017,ended March 31, 2021, up 17 percent from $1,647$1,115 million in the first nine months of 2016. Pro forma net sales for the first ninethree months of 2017 were $3,583 million, up from $3,084 millionended March 31, 2020. Net sales increased due to a 15 percent increase in the first nine months of 2016. Pro forma net sales growth of 16 percent was led by pro forma volume gains of 13 percent and a net 53 percent favorable pro formacurrency impact from portfolio, slightly offset by a 2 percent decline in pro forma local price. Pro forma volume growth was due to increased demand in semiconductor, consumer electronics, photovoltaic, and display end-markets. The net favorable impact of the portfolio change related primarily to the addition of Dow Corning's silicones business in June 2016.
Pro forma Operating EBITDA for the first nine months of 2017 was $1,119 million, up 33 percent from $842 million in the first nine months of 2016. Pro forma Operating EBITDA for the first nine months of 2017 increased compared with the same period last year on broad-based volume growth and the favorable portfolio impact from the Dow Corning silicones business, partially offset by lower local price.
NUTRITION & BIOSCIENCES
The Nutrition & Biosciences segment is an innovation-driven and customer-focused segment that provides solutions for the global food and beverage, pharma, personal care, and animal nutrition markets. The segment consists of two operating segments: Nutrition & Health and Industrial Biosciences. The Nutrition & Health business is one of the world's largest producers of specialty food ingredients, developing and manufacturing solutions for the global food and beverage market. In addition, the Nutrition & Health business is one of the world's largest producers of cellulosic- and alginates-based pharma excipients. The Industrial Biosciences business is an industry pioneer and innovator that works with customers to improve the performance, productivity and sustainability of their products and processes through biotechnology and engineering solutions including enzymes, biomaterials, biocides and antimicrobial solutions and process technology.
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| | | | | | | | | | | | |
Nutrition & Biosciences | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 689 |
| $ | 248 |
| $ | 1,223 |
| $ | 741 |
|
Pro forma net sales | $ | 1,473 |
| $ | 1,469 |
| $ | 4,391 |
| $ | 4,313 |
|
Pro forma Operating EBITDA | $ | 315 |
| $ | 321 |
| $ | 950 |
| $ | 918 |
|
Equity earnings | $ | 3 |
| $ | 3 |
| $ | 9 |
| $ | 8 |
|
|
| | | | |
Nutrition & Biosciences | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | — | % | (2 | )% |
Currency | 1 |
| — |
|
Volume | 9 |
| 11 |
|
Portfolio & other | 168 |
| 56 |
|
Total | 178 | % | 65 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | — | % | — | % |
Currency | 1 |
| — |
|
Volume | — |
| 3 |
|
Portfolio & other | (1 | ) | (1 | ) |
Total | — | % | 2 | % |
Nutrition & Biosciences net sales in the third quarter of 2017 were $689 million, up from $248 million in the third quarter of 2016. Pro forma net sales in the third quarter of 2017 were $1,473 million, compared with pro forma net sales of $1,469 million in the third quarter of 2016. Pro forma net sales were essentially flat as a 1 percent benefit from currency was offset by a 1 percent negative impact from portfolio. Sales growth in Industrial Biosciences was offset by declines in the Nutrition & Health business. Industrial Biosciences gains were led by growth for microbial control solutions in energy markets in North America, continued growth in biomaterials on local pricing gains and strength in apparel markets, as well as demand for bioactives in animal nutrition markets. In Nutrition & Health, continued growth in probiotics was more than offset by declines in protein solutions and systems and texturants due to weakness in global packaged food markets and specific actions taken to exit low-margin market segments. The negative portfolio impact was driven by the sale of the global food safety diagnostics business in February 2017.
Pro forma Operating EBITDA in the third quarter of 2017 was $315 million, down 2 percent from $321 million in the third quarter of 2016 as growth in Industrial Biosciences and lower pension/OPEB costs were more than offset by declines in Nutrition & Health.
Nutrition & Biosciences net sales for the first nine months of 2017 were $1,223 million, up from $741 million in the first nine months of 2016. Pro forma net sales for the first nine months of 2017 were $4,391 million, up from $4,313 million in the first
nine months of 2016. Pro forma net sales increased 2 percent as volume was up 3 percent, partially offset by a 1 percent negative impact from portfolio. Pro forma volume growth was led by Industrial Biosciences, particularly strong demand for microbial control solutionsdecline in energy markets and continued growth in biomaterials in apparel markets and bioactives in the grain processing market. Pro forma volume growth in Nutrition & Health remained flat as growth in probiotics and pharmaceuticals were offset by declines in protein solutions and systems and texturants. Pro forma local price gains in Industrial Biosciences for biomaterials were offset by declines in Nutrition & Health.
Pro forma Operating EBITDA for the first nine months of 2017 was $950 million, up 3 percent from $918 million in the first nine months of 2016. Pro forma Operating EBITDA for the first nine months of 2017 improved compared with the same period last year on volume growth, mix enrichment and cost savings, partially offset by portfolio impact.
TRANSPORTATION & ADVANCED POLYMERS
The Transportation & Advanced Polymers segment provides high-performing engineering resins, adhesives, lubricants and parts to engineers and designers in the transportation, electronics and medical end-markets to enable systems solutions for demanding applications and environments. The segment delivers a broad range of polymer-based high-performance materials in its portfolio, including elastomers and thermoplastic and thermoset engineering polymers which are used by customers to fabricate components for mechanical, chemical and electrical systems. In addition, the segment produces innovative and differentiated adhesive technologies to meet customer specifications for durability, crash performance, and healthcare applications. Transportation and Advanced Polymers also targets the performance plastics and fluid solutions markets by developing technologies that differentiate customers' products with improved performance characteristics.
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Transportation & Advanced Polymers | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 636 |
| $ | 273 |
| $ | 1,224 |
| $ | 629 |
|
Pro forma net sales | $ | 1,299 |
| $ | 1,187 |
| $ | 3,834 |
| $ | 3,316 |
|
Pro forma Operating EBITDA | $ | 325 |
| $ | 303 |
| $ | 954 |
| $ | 769 |
|
Equity earnings | $ | 1 |
| $ | — |
| $ | 1 |
| $ | 9 |
|
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| | | | |
Transportation & Advanced Polymers | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | (1 | )% | — | % |
Currency | 1 |
| — |
|
Volume | 4 |
| 5 |
|
Portfolio & other | 129 |
| 90 |
|
Total | 133 | % | 95 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | 3 | % | 1 | % |
Currency | 1 |
| — |
|
Volume | 5 |
| 8 |
|
Portfolio & other | — |
| 7 |
|
Total | 9 | % | 16 | % |
Transportation & Advanced Polymers net sales in the third quarter of 2017 were $636 million, up from $273 million in the third quarter of 2016. Pro forma net sales were $1,299 million in the third quarter of 2017, up from $1,187 million in the third quarter of 2016. Pro forma net sales grew 9 percent, led by pro forma volume growth of 5 percent as well as pro forma local price gains of 3 percent, with gains in most geographies. Growth was led by strong demand from the automotive market, particularly in Asia Pacific and EMEA, and demand from electronics and industrial markets.price. Volume growth was driven by strengthSemiconductor Technologies new technology ramps at advanced nodes within the logic and foundry segment and increased memory demand in the automotive market as demand for engineering polymers, structural adhesivesservers and Molykote® lubricants outpaced global autobuild rates.data centers. Volume growth within Interconnect Solutions was driven by higher material content in next-generation smartphones. Within Industrial Solutions, volume gains were also achieved by Kalrez®in display materials and Vespel® high-performance parts as strengthhealthcare more than offset weakness in the aerospace and electronics market remained robust.flexographic printing.
Pro forma Operating EBITDA was $325$436 million in the third quarter of 2017, up 7 percent from $303 million in the third quarter of 2016. The increase primarily reflects volume and pricing gains, as well as lower pension/OPEB costs, partly offset by higher raw material costs.
Transportation & Advanced Polymers net sales for the first ninethree months of 2017 were $1,224 million,ended March 31, 2021, up from $629 million in the first nine months of 2016. Pro forma net sales in the first nine months of 2017 were $3,834 million, up from $3,316 million in the first nine months of 2016. Pro forma net sales were up 1633 percent compared with $327 million for the same period last year,three months ended March 31, 2020 driven by 8 percent pro formastrong volume growth and a 7 percent favorable pro forma impact from portfolio changes and 1 percent increase in pro forma local price. Increased demand for polymers in automotive markets and increased demand for high-performance parts in semiconductor and aerospace markets drove pro forma volume growth. The favorable pro forma impact from portfolio changes relates togain on the additionsale of Dow Corning's silicones business in June 2016.assets.
Pro forma Operating EBITDA for the first nine months
SAFETYWATER & CONSTRUCTIONPROTECTION
The SafetyWater & ConstructionProtection segment is a leading provider of engineered products and integrated systems for a number of industry verticalsindustries including construction, worker safety, energy, oil and gas, transportation, medical devices and water purification and separation.separation, aerospace, energy, medical packaging and building materials. The segment satisfies the growing global needs of businesses, governments, and consumers for solutions that make life safer, healthier, and better. By uniting market-driven science with the strength of highly regarded brands, the segment deliversstrives to bring new products and solutions to a broad array of markets, including industrial, buildingsolve customers' needs faster, better and construction, consumer, military and law enforcement, automotive, aerospace, water processing and energy. The segment is a leader in construction, delivering insulation, air sealing and weatherization systems and is also a leading provider of purification and separation technologies.more cost effectively.
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Water & Protection | Three Months Ended |
In millions | March 31, 2021 | March 31, 2020 |
Net sales | $ | 1,328 | | $ | 1,276 | |
Operating EBITDA | $ | 355 | | $ | 357 | |
Equity earnings | $ | 12 | | $ | 7 | |
| | | | | |
Water & Protection | Three Months Ended |
Percentage change from prior year | March 31, 2021 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | — | % |
Currency | 3 | |
Volume | 1 | |
Portfolio & other | — | |
Total | 4 | % |
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| | | | | | | | | | | | |
Safety & Construction | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 792 |
| $ | 479 |
| $ | 1,716 |
| $ | 1,399 |
|
Pro forma net sales | $ | 1,310 |
| $ | 1,238 |
| $ | 3,852 |
| $ | 3,748 |
|
Pro forma Operating EBITDA | $ | 351 |
| $ | 282 |
| $ | 905 |
| $ | 903 |
|
Equity earnings (losses) | $ | (1 | ) | $ | — |
| $ | (1 | ) | $ | 1 |
|
|
| | | | |
Safety & Construction | Three Months Ended | Nine Months Ended |
Percentage change from prior year | Sep 30, 2017 | Sep 30, 2017 |
Change in Net Sales from Prior Period due to: | | |
Local price & product mix | 1 | % | — | % |
Currency | — |
| (1 | ) |
Volume | 5 |
| 3 |
|
Portfolio & other | 59 |
| 20 |
|
Total | 65 | % | 22 | % |
Change in Pro Forma Net Sales from Prior Period due to: | | |
Local price & product mix | — | % | (2 | )% |
Currency | — |
| — |
|
Volume | 6 |
| 5 |
|
Portfolio & other | — |
| — |
|
Total | 6 | % | 3 | % |
SafetyWater & ConstructionProtection net sales inwere $1,328 million for the third quarter of 2017 were $792 million,three months ended March 31, 2021, up from $479$1,276 million infor the third quarter of 2016. Pro forma net sales in the third quarter of 2017 were $1,310 million, up from $1,238 million in the third quarter of 2016. Pro forma net sales grew 6 percent,three months ended March 31, 2020 driven by a pro forma3 percent favorable impact from currency and volume increasegrowth of 6 percent, with1 percent. Local price and portfolio remained flat. Strong volume gains in all geographies. StrongerWater Solutions and increased demand from industrial markets, particularly oilwithin Shelter Solutions residential construction and gas, contributed to gainsdo-it-yourself applications were offset by volume declines in Nomex® thermal-resistant garments and in Kevlar® high-strength materials, including umbilicals for deep sea drilling, as well as higher sales of intermediaries. Gains in Tyvek® protective materials reflected growth in graphics and house wraps. Volume increases in water filtration reflected gains in reverse osmosis membranes,Safety Solutions.
due to strong demand from industrial markets, as well as recent capacity increases. Regionally, volume gains came from Nomex® thermal apparel in North America, Kevlar® high-strength materials in Asia Pacific and Latin America, and Tyvek® protective materials for graphics and house wrap in EMEA and Asia Pacific.
Pro forma Operating EBITDA inwas $355 million for the third quarter of 2017 was $351three months ended March 31, 2021, flat compared with $357 million up 24 percent from $282 million infor the third quarter of 2016. Pro forma Operating EBITDA increasedthree months ended March 31, 2020 as volume gains lower pension/OPEB costs and improved plant performance more thanproductivity actions were offset by higher manufacturing and supply chain costs.
MOBILITY & MATERIALS
The Mobility & Materials segment provides high-performance engineering resins and adhesives to engineers and designers in the impacttransportation, electronics, industrial and consumer end-markets to enable systems solutions for demanding applications and environments. The segment delivers a broad range of higher raw material costs. Pro forma Operating EBITDApolymer-based high-performance materials in its product portfolio, including elastomers and thermoplastic and thermoset engineering polymers which are used by customers to fabricate components for mechanical, chemical and electrical systems. In addition, the segment supplies key materials for the third quartermanufacturing of 2017 included benefits totaling $30 million, due primarilyphotovoltaic cells and panels, including backsheet materials and silicone encapsulates and adhesives. The segment provides specialty pastes and films used in consumer electronics, automotive, and aerospace markets. Mobility & Materials is a global leader of advanced materials that provides technologies that differentiate customers’ products with improved performance characteristics enabling the transition to a gain related to an acquisition.hybrid-electric-connected vehicles and high speed high frequency connectivity.
| | | | | | | | |
Mobility & Materials | Three Months Ended |
In millions | March 31, 2021 | March 31, 2020 |
Net sales | $ | 1,215 | | $ | 1,091 | |
| | |
Operating EBITDA | $ | 278 | | $ | 215 | |
Equity earnings | $ | 3 | | $ | 1 | |
Safety
| | | | | |
Mobility & Materials | Three Months Ended |
Percentage change from prior year | March 31, 2021 |
Change in Net Sales from Prior Period due to: | |
Local price & product mix | 1 | % |
Currency | 3 | |
Volume | 7 | |
Portfolio & other | — | |
Total | 11 | % |
Mobility & Construction net sales for the first nine months of 2017 were $1,716 million, up from $1,399 million in the first nine months of 2016. Pro formaMaterials net sales were $3,852$1,215 million for the first ninethree months of 2017,ended March 31, 2021, up from $3,748$1,091 million for the three months ended March 31, 2020. Net sales increased due to a 7 percent increase in the first nine months of 2016. Pro forma net sales grewvolume, a 3 percent driven by pro forma volumefavorable currency impact and a 1 percent increase of 5 percent, partially offset by pro formain local price decline of 2 percent driven by competitive pressure. Broad-based pro forma volumeprice. Volume growth was driven by increasedgains in Performance Resins and Advanced Solutions attributable to the continued recovery of the global automotive market as well as strong demand for Nomex® thermal-resistant garments, Kevlar® high-strength materials, and water filtration.microcircuit materials. Engineering Polymers volume declined due to global supply constraints on key raw materials.
Pro forma Operating EBITDA was $905$278 million for the first ninethree months of 2017,ended March 31, 2021, up 29 percent compared with $903$215 million infor the first ninethree months of 2016, asended March 31, 2020 driven by volume growth was offset by unfavorable product mixgains and higher raw material costs.cost savings from productivity actions.
CORPORATECorporate
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, geographic management, etc.); the results of Ventures (including business incubation platformsincluding non-allocated corporate overhead costs and non-business aligned joint ventures); gains and losses on the sales of financial assets; severance costs;support functions, leveraged services, non-business aligned litigation expenses; discontinued or non-alignedexpenses and other costs not absorbed by reportable segments. The sales and activity of to be divested and previously divested businesses including the operations of Biomaterials, Clean Technologies, and pre-commercial activities.
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| | | | | | | | | | | | |
Corporate | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Net sales | $ | 157 |
| $ | 71 |
| $ | 324 |
| $ | 201 |
|
Pro forma net sales | $ | 159 |
| $ | 75 |
| $ | 331 |
| $ | 212 |
|
Pro forma Operating EBITDA | $ | (223 | ) | $ | (185 | ) | $ | (624 | ) | $ | (600 | ) |
Equity earnings (losses) | $ | 10 |
| $ | (1 | ) | $ | (8 | ) | $ | (16 | ) |
Net sales for Corporate, which primarily relate to Dow's insurance operations, were $157 millionSolamet® business units, and the trichlorosilane business (“TCS Business”) along with its equity ownership interest in DC HSC Holdings LLC and Hemlock Semiconductor L.L.C. (the "HSC Group”) historically included in the third quarterNon-Core segment are reflected as Corporate activity.
CHANGES IN FINANCIAL CONDITION
Liquidity & Capital Resources
Information related to the Company's liquidity and capital resources can be found in the third quarterCompany's 2020 Annual Report, Part II, Item 7. Management's Discussion and Analysis of 2016. Pro forma net sales were $159 million inFinancial Condition and Results of Operations, Liquidity and Capital Resources. Discussion below provides the third quarter of 2017, up from $75 million in the third quarter of 2016. For the first nine months of 2017, net sales were $324 million, up from $201 million in the same period of 2016. Pro forma net sales were $331 millionupdates to this information for the first nine months of 2017, up from $212 million for the first nine months of 2016. Net sales and pro forma net sales increased for the three- and nine-month periods ended September 30, 2017, primarily due to a one-time sale of investments aligned with Dow's insurance operations.
Pro forma Operating EBITDA in the third quarter of 2017 was a loss of $223 million (loss of $624 million for the ninethree months ended September 30, 2017), compared with a loss of $185 million in the third quarter of 2016 (loss of $600 million for the nine months ended September 30, 2016).March 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company hadcontinually reviews its sources of liquidity and debt portfolio and may make adjustments to one or both to ensure adequate liquidity and increase the Company’s optionality and financing efficiency as it relates to financing cost and balancing terms/maturities. The Company’s primary source of incremental liquidity is cash flows from operating activities. Management expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company’s and its subsidiaries obligations as they come due.
| | | | | | | | |
In millions | March 31, 2021 | December 31, 2020 |
Cash, cash equivalents, and marketable securities | $ | 6,385 | | $ | 2,544 | |
Total debt | $ | 12,622 | | $ | 15,612 | |
The Company's cash, cash equivalents, and marketable securities at March 31, 2021 and December 31, 2020 were $6.4 billion and $2.5 billion, respectively, of $14,974 millionwhich $1.9 billion at September 30, 2017March 31, 2021 and $6,607 million$1.8 billion at December 31, 2016, of which $11,453 million at September 30, 2017 and $4,890 million at December 31, 2016 was2020 were held by subsidiaries in foreign countries, including United States territories. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States.
Total debt at March 31, 2021 and December 31, 2020 was $12.6 billion and $15.6 billion, respectively. The decrease was primarily due to the termination and repayment of the Company's $3 billion Term Loan Facilities in the first quarter of 2021.
As of March 31, 2021, the Company is contractually obligated to make future cash held by foreign subsidiaries for permanent reinvestmentpayments of $12,702 million and $6,457 million associated with principal and interest, respectively, on debt obligations. Related to the principal balance, $2,000 million, which relates to the May 2020 Notes, will be redeemed on May 13, 2021 and the remainder will be due subsequent to March 31, 2022. Related to interest, $525 million will be due in the next twelve months and the remainder will be due subsequent to March 31, 2022. The decrease in debt and interest obligations since December 31, 2020 is due to the release of obligations associated with the N&B Notes Offering that were separated from the Company on February 1, 2021, upon consummation of the N&B Transaction. This resulted in $6,250 million of principal, mostly due subsequent to 2025, and related $2,637 million of future interest obligations being separated from the Company.
Special Cash Payment
In connection with and in accordance with the terms of the N&B Transaction, prior to consummation of the Exchange Offer and the N&B Merger, DuPont received a one-time cash payment of approximately $7.3 billion, (the "Special Cash Payment"), which is subject to post-closing adjustment pursuant to the terms of the N&B Separation and Distribution Agreement. The Company utilized the Special Cash Payment to repay the $3 billion Term Loan Facilities and will use a portion of the Special Cash Payment to redeem the May 2020 Notes, as discussed below.
Term Loan and Revolving Credit Facilities
In November 2018, the Company entered into a term loan agreement that establishes two term loan facilities in the aggregate principal amount of $3 billion, (the “Term Loan Facilities”) as well as a five-year $3 billion revolving credit facility (the “Five-Year Revolving Credit Facility”). Effective May 2, 2019, the Company fully drew the two Term Loan Facilities in the aggregate principal amount of $3.0 billion and the Five-Year Revolving Credit Facility became effective and available. The Five-Year Revolving Credit Facility is generally expected to remain undrawn, and serve as a backstop to the Company’s commercial paper and letter of credit issuance.
On February 1, 2021, the Company terminated its fully drawn $3 billion Term Loan Facilities. The termination triggered the repayment of the aggregate outstanding principal amount of $3 billion, plus accrued and unpaid interest through and including January 31, 2021. The Company funded the repayment with proceeds from the Special Cash Payment.
On April 15, 2021, the Company entered into an updated $1.0 billion 364-day revolving credit facility (the “2021 $1B Revolving Credit Facility") as the $1.0 billion 364-day revolving credit facility entered in April 2020 (the “2020 $1B
Revolving Credit Facility") expired mid-April. As of the effectiveness of the 2021 $1B Revolving Credit Facility, the 2020 $1B Revolving Credit Facility was terminated. The $1B Revolving Credit facility may be used for general corporate purposes.
May Debt Offering
On May 1, 2020, the Company completed an underwritten public offering of senior unsecured notes (the “May 2020 Notes”) in the aggregate principal amount of $2 billion of 2.169 percent fixed rate Notes due May 1, 2023 (the “May Debt Offering”). Upon consummation of the N&B Transaction, the special mandatory redemption feature of the May Debt Offering was triggered, requiring the Company to financeredeem all of the subsidiaries' operational activitiesMay 2020 Notes at a redemption price equal to 100% of the aggregate principal amount of the May 2020 Notes plus accrued and future foreign investments. A deferred tax liability has been accruedunpaid interest. On May 3, 2021, the Company provided notice that it will redeem the May 2020 Notes on May 13, 2021. The Company will fund the redemption with proceeds from the Special Cash Payment.
Laird Performance Materials
On March 8, 2021, the Company announced that it had entered into a definitive agreement with Advent International to acquire Laird Performance Materials for $2.3 billion. The acquisition is expected to close in the third quarter of 2021, subject to regulatory approvals and other customary closing conditions, and will be part of the Electronic & Industrials segment. The Company intends to pay for the funds that are available to be repatriatedacquisition from existing cash balances.
Credit Ratings
The Company's credit ratings impact its access to the United States.debt capital markets and cost of capital. The Company remains committed to a strong financial position and strong investment-grade rating. At SeptemberApril 30, 2017, management believed2021, DuPont's credit ratings were as follows:
| | | | | | | | | | | |
Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook |
Standard & Poor’s | BBB+ | A-2 | Stable |
Moody’s Investors Service | Baa1 | P-2 | Stable |
Fitch Ratings | BBB+ | F-2 | Stable |
The Company's indenture covenants related to its 2018 Senior Notes and May 2020 Notes contains certain limitations on the Company’s ability to incur liens and enter into sale lease-back transactions, mergers and consolidations as well as customary events of default. The Five-Year Revolving Credit Facility and the 2020 and 2021 $1B Revolving Credit Facilities contain a financial covenant, typical for companies with similar credit ratings, requiring that sufficient liquidity was available in the United States. However, in the unusual event that additional foreign funds are needed in the United States,ratio of Total Indebtedness to Total Capitalization for the Company hasand its consolidated subsidiaries not exceed 0.60. At March 31, 2021, the ability to repatriate additional funds. The repatriation could resultCompany was in an adjustment to the tax liability after considering available foreign tax credits and other tax attributes. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings.compliance with this financial covenant.
Summary of Cash Flows
The Company’s cash flows from operating, investing and financing activities, as reflected in the consolidated statementsinterim Consolidated Statements of cash flows,Cash Flows, are summarized in the following table:table. The cash flows related to N&B have not been segregated and are included in the interim Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020.
| | | | | | | | |
Cash Flow Summary | Three Months Ended |
In millions | March 31, 2021 | March 31, 2020 |
Cash provided by (used for): | | |
Operating activities | $ | 378 | | $ | 718 | |
Investing activities | $ | (2,260) | | $ | (124) | |
Financing activities | $ | (2,458) | | $ | (344) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | (37) | | $ | (45) | |
Cash, cash equivalents and restricted cash reclassified as discontinued operations | $ | — | | $ | 6 | |
| | |
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| | |
| | |
| | |
| | |
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| | | | | | |
Cash Flow Summary | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 |
Cash provided by (used in): | | |
Operating activities | $ | 4,469 |
| $ | 3,719 |
|
Investing activities | 3,134 |
| (2,498 | ) |
Financing activities | (1,279 | ) | (2,792 | ) |
Effect of exchange rate changes on cash | 254 |
| 26 |
|
Cash reclassified as held for sale | (37 | ) | — |
|
Summary | | |
Increase (decrease) in cash and cash equivalents | $ | 6,541 |
| $ | (1,545 | ) |
Cash and cash equivalents at beginning of year | 6,607 |
| 8,577 |
|
Cash and cash equivalents at end of period | $ | 13,148 |
| $ | 7,032 |
|
Cash Flows from Operating Activities
In the first ninethree months of 2017,2021, cash provided by operating activities was $4,469$378 million, reflecting a one-time cash receipt forcompared with $718 million in the Nova patent infringement award, advance payments from customers for long-term ethylene supply agreements and cash payments related to the Bayer CropScience arbitration matter and the PFOA multi-district litigation settlement. In the first nine months of 2016,same period last year. The decrease in cash provided by operating activities was $3,719 million, reflectingprimarily due to an increase in the impactuse of cash paymentsfor net working capital, as well as a decrease in net income after adjustment for non-cash items such as net gain on sales of businesses and investments, restructuring and asset related charges, goodwill impairment charges, and depreciation and amortization. Activity related to the settlementN&B business is included in all three months of the urethane matters class action lawsuitcomparative period and opt-out cases litigation.the first month of 2021.
| | Net Working Capital
| Sep 30, 2017 | Dec 31, 2016 | |
In millions | |
Net Working Capital 1 | | Net Working Capital 1 | March 31, 2021 | Dec 31, 2020 |
In millions (except ratio) | | In millions (except ratio) |
Current assets | $ | 54,801 |
| $ | 23,659 |
| Current assets | $ | 12,540 | | $ | 8,349 | |
Current liabilities | 27,278 |
| 12,604 |
| Current liabilities | 5,667 | | 3,616 | |
Net working capital | $ | 27,523 |
| $ | 11,055 |
| Net working capital | $ | 6,873 | | $ | 4,733 | |
Current ratio | 2.01:1 |
| 1.88:1 |
| Current ratio | 2.21:1 | 2.31:1 |
1.Net working capital increased from December 31, 2016has been presented to September 30, 2017, primarilyexclude the assets and liabilities related to the Merger as increases in "CashN&B Transaction. The assets and cash equivalents," "Marketable securities," "Accounts and notes receivable," and "Inventories" more than offset increases in "Notes payable" and "Accounts payable." See Note 3liabilities related to the N&B Transaction are presented as assets of discontinued operations and liabilities of discontinued operations, respectively, in the Condensed Consolidated Financial StatementsBalance Sheets for more information on the Merger.year ended December 31, 2020.
Cash Flows from Investing Activities
In the first ninethree months of 2017,2021, cash provided byused for investing activities was $3,134$2,260 million, reflecting net cash acquired in the Merger and proceeds from sales and maturities of investments, which was partially offset by capital expenditures and investments in and loans to nonconsolidated affiliates, primarilycompared with Sadara. In the first nine months of 2016, cash used in investing activities was $2,498 million, primarily due to capital expenditures, including U.S. Gulf Coast projects, and investments in and loans to nonconsolidated affiliates, primarily with Sadara, which were partially offset by net cash acquired in the DCC Transaction.
Capital spending was $2,301$124 million in the first ninethree months of 2017, compared with $2,877 million2020. The increase in cash used was primarily attributable to an increase in purchases of investments and a decrease in proceeds from sales of property and businesses (net of cash dividend), partially offset by a decrease in capital expenditures. Activity related to the N&B business is included in all three months of the comparative period and the first nine monthsmonth of 2016.2021.
In the first nine months of 2017, Dow loaned an additional $683 million to Sadara and converted $648 million of the loan balance into equity. Dow loaned $52 million to Sadara during October 2017 and does not anticipate extending any additional loans in 2017. All or a portion of the outstanding loans to Sadara could potentially be converted into equity in future periods.
Cash Flows from Financing Activities
In the first ninethree months of 2017,2021, cash used infor financing activities decreasedwas $2,458 million compared with $344 million in the same period last year, primarily due toyear. The primary driver of the increase in cash used was an increase in payments on long-term debt and an increase in share purchases of common stock, partially offset by proceeds from issuance of commercial paper and the absence of treasury stock purchases and purchases of noncontrolling interests.
Free Cash Flow
The Company defines free cash flow as cash provided by operating activities less capital expenditures. Under this definition, free cash flow represents the cash that remains available to the Company, after investing in its asset base, to fund obligations using the Company's primary source of incremental liquidity - cash provided by operating activities. Free cash flow is an integral financial measure used in the Company's financial planning process. This financial measure is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP financial measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the Company's free cash flow definition may not be consistent with the methodologies used by other companies.
For further information relating to the change in cash provided by operating activities, see the discussion above under the section entitled "Cash Flows from Operating Activities."
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| | | | | | |
Reconciliation of "Cash Provided by Operating Activities" to Free Cash Flow | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 |
Cash provided by operating activities | $ | 4,469 |
| $ | 3,719 |
|
Capital expenditures | (2,301 | ) | (2,877 | ) |
Free Cash Flow | $ | 2,168 |
| $ | 842 |
|
Liquidity & Financial Flexibility
The Company’s primary source of incremental liquidity is cash provided by operating activities. The generation of cash from operations and each of Dow's and DuPont's (the "Subsidiaries") ability to access the commercial paper market, the long-term debt market, syndicated credit lines, bilateral credit lines, bank financing, including receivable sales facilities and committed repurchase facilities are expectedtransferred to meet the Company’s cash requirements for working capital, capital expenditures, debt maturities, dividend payments, share repurchase programs, contributions to pension plans and other needs. The Company’s primary liquidity sources are through the Subsidiaries as discussed below. Management expects that the Company and each of the Subsidiaries will continue to have sufficient liquidity and financial flexibility to meet respective business obligations as they come due.
Dow's Liquidity Sources
Credit Ratings
At October 31, 2017, Dow's credit ratings were as follows:
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| | | |
Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook |
Standard & Poor’s | BBB | A-2 | Stable |
Moody’s Investors Service | Baa2 | P-2 | Stable |
Fitch Ratings | BBB | F2 | Watch Positive |
Downgrades in Dow's credit ratings will increase borrowing costs on certain indentures and could impact its ability to access debt capital markets and the Company's cost of capital.
Commercial Paper
Dow issues promissory notes under U.S. and Euromarket commercial paper programs. At September 30, 2017, Dow had $249 million of commercial paper outstanding. Dow maintains access to the commercial paper marketIFF at competitive rates. Amounts outstanding under Dow's commercial paper programs during the period may be greater, or less, than the amount reported at the end of the period. Subsequent to September 30, 2017, Dow issued approximately $850 million of commercial paper that remains outstanding at November 6, 2017.
Committed Credit Facilities
In the event the Company has short-term liquidity needs, it can access liquidity through Dow's committed and available credit facilities. At September 30, 2017, Dow had total committed credit facilities of $10.9 billion and available credit facilities of $6.4 billion. See Note 12 for additional information on committed and available credit facilities.
In connection with the DCC Transaction, on May 31, 2016, Dow Corning incurred $4.5 billion of indebtedness under a certain third party credit agreement ("DCC Term Loan Facility") in order to fund the contribution of cash to HS Upstate Inc. Subsequent to the DCC Transaction, Dow guaranteed the obligations of Dow Corning under the DCC Term Loan Facility and, as a result, the covenants and events of default applicable to the DCC Term Loan Facility are substantially similar to the covenants and events of default set forth in Dow's Five Year Competitive Advance and Revolving Credit Facility. In the second quarter of 2017, Dow Corning exercised a 364-day extension option making amounts borrowed under the DCC Term Loan Facility repayable on May 29, 2018, subject to a 19-month extension option, at Dow Corning’s election, upon satisfaction of certain customary conditions precedent. Dow Corning intends to exercise the extension option on the DCC Term Loan Facility. See Note 3 for additional information on the DCC Transaction.
Accounts Receivable Securitization Facilities
Dow has access to committed accounts receivable securitization facilities in the United States and Europe, from which amounts available for funding are based upon available and eligible accounts receivable within each of the facilities. Dow renewed the United States facility in June 2015 for a term that extends to June 2018. The Europe facility was renewed in July 2015 for a term that extends to July 2018. See Note 11 to the Consolidated Financial Statements for further information.
DuPont's Liquidity Sources
Credit Ratings
At October 31, 2017, DuPont's credit ratings were as follows:
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| | | |
Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook |
Standard & Poor’s | A- | A-2 | Stable |
Moody’s Investors Service | A3 | P-2 | Negative |
Fitch Ratings | A | F1 | Rating Watch Negative |
Downgrades in DuPont's credit ratings will increase borrowing costs on certain indentures and could impact its ability to access debt capital markets and the Company's cost of capital.
Commercial Paper
DuPont issues promissory notes under U.S. commercial paper programs. At September 30, 2017, DuPont had $3,244 million of commercial paper outstanding. DuPont maintains access to the commercial paper market at competitive rates.
Committed Credit Facilities
In the event the Company has short-term liquidity needs, it can access liquidity through DuPont's committed and available credit facilities. At September 30, 2017, DuPont had total committed credit facilities of $8.8 billion and available credit facilities of $6.4 billion. See Note 12 for additional information on committed and available credit facilities.
Term Loan
In March 2016, DuPont entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4.5 billion (as amended from time to time, the "Term Loan Facility"). In the first quarter of 2017, the Term Loan Facility was amended to extend the date on which the commitment to lend terminates. As a result, DuPont may make up to seven term loan borrowings through July 27, 2018; amounts repaid or prepaid are not available for subsequent borrowings. The Term Loan Facility matures in March 2019 at which time all outstanding borrowings, including accrued but unpaid interest, become immediately due and payable. At September 30, 2017, DuPont had borrowed $1.0 billion and had unused
commitments of $3.5 billion under the Term Loan Facility. DuPont may elect to borrow under the Term Loan Facility to meet its short-term liquidity needs.
In October 2017, under the Term Loan Facility, DuPont borrowed $500 million at the LIBOR Loan Rate, primarily to pay down commercial paper.
Committed Receivable Repurchase Facility
DuPont has a committed receivable repurchase agreement of up to $1.3 billion ("Repurchase Facility") that expires on November 30, 2017. Under the Repurchase Facility, DuPont may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agrees to repurchase at a future date. At September 30, 2017, DuPont had outstanding borrowings under the Repurchase Facility of $1.3 billion. See Note 12 to the Consolidated Financial Statements for further information.
Debt
The Company’s public debt instruments and primary, private credit agreements (collectively "Debt Instruments") reside primarily with the Subsidiaries. See Note 12 to the Consolidated Financial Statements for informationsplit-off. Activity related to the Subsidiaries' notes payable and long-term debt activity, including debt retired and issued. The following table reflects the amountsN&B business is included in all three months of the Subsidiaries:comparative period and the first month of 2021.
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| | | | | | | | | | | | |
Total Debt | Sep 30, 2017 | Dec 31, 2016 |
In millions | Dow | DuPont | Total |
Notes payable | $ | 584 |
| $ | 4,592 |
| $ | 5,176 |
| $ | 272 |
|
Long-term debt due within one year | 578 |
| 1,328 |
| 1,906 |
| 635 |
|
Long-term debt | 20,004 |
| 9,815 |
| 29,819 |
| 20,456 |
|
Total debt | $ | 21,166 |
| $ | 15,735 |
| $ | 36,901 |
| $ | 21,363 |
|
The Debt Instruments of the Subsidiaries contain, among other provisions, certain customary restrictive covenant and default provisions. Dow’s Five Year Competitive Advance and Revolving Credit Facility contains a financial covenant that Dow must maintain its ratio of consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility equals or exceeds $500 million. The ratio of Dow’s consolidated indebtedness to consolidated capitalization was 0.40 to 1.00 at September 30, 2017. DuPont’s Term Loan Facility and amended Revolving Credit Facility contain a financial covenant requiring that the ratio of total indebtedness to total capitalization for DuPont and its consolidated subsidiaries not exceed 0.6667 to 1.00. At September 30, 2017, Dow and DuPont were in compliance with their financial covenants.
At September 30, 2017, management believes each of the Subsidiaries was in compliance with all of its respective covenants and default provisions. For information on the Subsidiaries' covenants and default provisions, see Note 12 to the Consolidated Financial Statements.
Dividends
Prior toOn February 18, 2021, the Merger Effective Date, DowBoard of Directors declared a first quarter dividend of $0.46$0.30 per share, to Dow stockholders of record as of July 31, 2017, which was paid on October 2, 2017. Also priorMarch 15, 2021, to the Merger Effective Date, DuPont declared a dividend of $0.38 per share to DuPont shareholders of record as of July 31, 2017, which was paid on September 29, 2017.March 1, 2021.
On November 2, 2017, DowDuPontApril 28, 2021, the Company announced that its Board declared a fourthsecond quarter dividend of $0.38$0.30 per share payable on DecemberJune 15, 20172021, to shareholders of record on November 15, 2017.May 28, 2021.
Share Repurchase ProgramBuyback Programs
In connection withOn June 1, 2019, the Merger, Dow's $9.5Company's Board of Directors authorized a $2 billion share repurchasebuyback program, was canceled. At the timewhich expires on June 1, 2021 ("2019 Share Buyback Program"). As of cancellation, Dow had spent $8.1 billion on repurchases of Dow common stock under the share repurchase program.
On November 2, 2017,March 31, 2021, the Company announced the Board authorized an initial $4 billion share repurchaserepurchased 23.7 million shares under this program which has no expiration date.
For additional information related to the share repurchase program, seesince inception at a total cost of $1.5 billion. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds, for additional information.
In the first quarter of 2021, the Company's Board of Directors authorized a new $1.5 billion share buyback program, which expires on June 30, 2022 ("2021 Share Buyback Program"). The Company expects to repurchase shares under the 2021 Share Buyback Program after the completion of the 2019 Share Buyback Program.
Rabbi TrustPension and Other Post-Employment Plans
DuPont entered into a trust agreement in 2013 (as amended and restatedexpects to make additional contributions in the third quarteraggregate of 2017) that establishesapproximately $75 million by year-end 2021 to certain non-US pension and requires DuPontother post-employment benefit plans. Any such contribution could be funded by existing cash balances and/or cash from other available sources of liquidity.
Restructuring
In March 2020, the Company approved restructuring actions designed to fund a trust (the "Trust") for cash obligations undercapture near-term cost reductions and to further simplify certain nonqualified benefit and deferred compensation plans upon a change-in-control event as definedorganizational structures in the Trust agreement. Under the Trust agreement, the consummationanticipation of the Merger was a change-in-control event.N&B Transaction (the "2020 Restructuring Program"). As a result within 90 days following August 31, 2017, DuPont is required to contribute toof these actions, the Trust approximately $570 million. DuPont may use one or more sourcesCompany recorded pre-tax restructuring charges of liquidity to fund the contribution. Management is currently evaluating and will finalize the funding source(s) in the fourth quarter$170 million inception-to-date, consisting of 2017.
Pension Plans
Dow and DuPont did not merge their pension plans and other postretirement benefit plans as a result of the Merger. Dow and DuPont have defined benefit pension plans in the United States and a number of other countries. Dow and DuPont’s funding policies are to contribute to defined benefit pension plans in the United States and a number of other countries based on pension funding laws and local country requirements. Contributions exceeding funding requirements may and have been made at Dow and DuPont’s discretion. During the first nine months of 2017, Dow contributed approximately $440 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. DuPont contributed $19 million post-Merger to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. Dow expects to contribute approximately $80 million to its pension plans and DuPont expects to contribute approximately $50 million to its pension plans in the remainder of 2017. See Note 16 to the Consolidated Financial Statements for additional information concerning Dow and DuPont’s pension plans.
Dow
The provisions of a U.S. non-qualified pension plan for Dow require the payment of plan obligations to certain participants upon a change in control of the company, which occurred when Dow merged with DuPont. Certain participants can elect to receive a lump-sum payment or direct Dow to purchase an annuity on their behalf. In the fourth quarter of 2017, Dow expects to make payments of approximately $900 million and record a settlement charge of approximately $450 million, subject to fourth quarter participant annuity elections, which could materially impact the projected payments and settlement charge once known and quantifiable. On October 6, 2017, Dow transferred $410 million to an insurance company in anticipation of annuity purchases for plan participants who will receive a lump sum distribution of their plan benefits as a result of the plan's change in control provision and who elect to direct Dow to purchase an annuity on their behalf using the after-tax proceeds of the lump sum. All transactions are expected to be completed by December 31, 2017.
DuPont
Prior to the Merger, DuPont made total contributions of $2.9 billion to its principal U.S pension plan in 2017, reflecting discretionary contributions. The $2.9 billion contribution was taken as a deduction on DuPont’s 2016 federal tax return and resulted in a net operating loss for tax purposes. This loss generated an overpayment of taxes of approximately $800 million. A portion of the overpayment will be applied against the current year tax liability. The remainder of the loss generated a refund of approximately $700 million, which was received during the fourth quarter of 2017.
Restructuring and Asset Related Charges - Net
DowDuPont Cost Synergy Program
The third quarter of 2017 activities related to the DowDuPont Cost Synergy Program ("Synergy Program") are expected to result in additional cash expenditures of approximately $150 million, primarily through September 30, 2019, related to severance and related benefit costs (see Note 4 to the Consolidated Financial Statements). The Company expects to incur additional costs in the future related to its restructuring activities, as the Company continually looks for ways to enhance the efficiencyof $118 million and cost effectiveness of its operations, and to ensure competitiveness across its businesses and geographic areas. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these costs will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
On November 1, 2017, DowDuPont's Board approved restructuring actions under the Synergy Program. The Company expects to record total pretax restructuring charges of about $2 billion, comprised of approximately $875 million to $975 million of severance and related benefits costs; $450 million to $800 million of asset related charges and $400 million to $450 million of costs related to contract terminations. Current estimated total pretax restructuring charges includes the $180 million recorded in the third quarter of 2017, comprised of severance and related benefit costs. The Company expects to record pretax restructuring charges of approximately $1 billion in the fourth quarter of 2017,$52 million. Actions associated with the remaining restructuring charges to be incurred by the end of 2019. The Synergy2020 Restructuring Program includes certain asset actions, including strategic decisions regarding the cellulosic biofuel business reflected in the preliminary fair value measurement of DuPont’s assets as of the merger date. Current estimated total pretax restructuring charges could be impacted by future adjustments to the preliminary fair value of DuPont’s assets.are considered substantially complete. Future cash
payments related to this chargethe 2020 Restructuring Program are anticipated to be approximately $1,275 million to $1,425$36 million primarily related to the payment of severance and related benefitsbenefits.
In June 2019, DuPont approved restructuring actions to simplify and contract termination costs.
optimize certain organizational structures following the completion of the DWDP Distributions (the "2019 Restructuring Plans Initiated Prior to Merger
The activities related toProgram"). As a result of these actions, the Dow 2016Company has recorded pre-tax restructuring plan are expected to result in additional cash expenditurescharges of approximately$85$124 million to be substantially completed by June 30, 2018, related toinception-to-date, consisting of severance and related benefit costs of $97 million and costsasset related charges of $27 million. Actions associated with exit and disposal activities, including environmental remediation.
Contractual Obligations
The following table summarizes the Subsidiaries' obligations at September 30, 2017. Additional information2019 Restructuring Program are considered substantially complete. Future cash payments related to these obligations canthe 2019 Restructuring Program are anticipated to be found in Notes 12, 13$6 million and 16relate to the payment of severance and related benefits.
In September and November 2017, 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 was designed to integrate and optimize the organization following the DWDP Merger and in preparation for the DWDP Distributions whereby the Company has recorded pre-tax restructuring charges attributable to the continuing operations of DuPont of $346 million inception-to-date, consisting of severance and related benefit costs of $138 million, asset related charges of $159 million and contract termination charges of $49 million. Actions associated with the Synergy Program, including employee separations, are considered substantially complete. Future cash payments related to the Synergy Program are anticipated to be $13 million and relate to the payment of severance and related benefits.
See Note 4 to the interim Consolidated Financial Statements.Statements for more information on the Company's restructuring programs.
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| | | | | | | | | | | | | | | |
Contractual Obligations | Payments Due In |
In millions | 2017 | 2018-2019 | 2020-2021 | 2022 and beyond | Total |
Long-term debt obligations 1 | $ | 80 |
| $ | 10,475 |
| $ | 7,902 |
| $ | 13,093 |
| $ | 31,550 |
|
Expected cash requirements for interest 2 | 358 |
| 2,533 |
| 1,627 |
| 8,281 |
| 12,799 |
|
Pension and other postretirement benefits | 1,180 |
| 1,659 |
| 2,563 |
| 14,398 |
| 19,800 |
|
Operating leases | 153 |
| 1,026 |
| 731 |
| 1,266 |
| 3,176 |
|
Purchase obligations 3 | 2,928 |
| 5,989 |
| 4,511 |
| 8,172 |
| 21,600 |
|
License agreements | — |
| 450 |
| 344 |
| 390 |
| 1,184 |
|
Other noncurrent obligations 4 | 141 |
| 1,339 |
| 687 |
| 3,187 |
| 5,354 |
|
Total contractual obligations | $ | 4,840 |
| $ | 23,471 |
| $ | 18,365 |
| $ | 48,787 |
| $ | 95,463 |
|
| |
1. | Excludes unamortized debt discount and issuance costs of $354 million and unamortized debt step-up premium of $529 million. Includes capital lease obligations of $286 million. Assumes the option to extend the DCC Term Loan facility for an additional 19 months will be exercised. |
| |
2. | Cash requirements for interest on long-term debt was calculated using current interest rates at September 30, 2017, and includes approximately $5,173 million of various floating rate notes. |
| |
3. | Includes take-or-pay and throughput obligations and outstanding purchase orders and other commitments greater than $1 million, obtained through a survey conducted by the Subsidiaries. |
| |
4. | Includes liabilities related to asbestos litigation, environmental remediation, legal settlements and other noncurrent liabilities. Dow's other noncurrent obligations did not change significantly from December 31, 2016 and as such, the table above reflects the amounts at December 31, 2016, adjusted to conform to the presentation adopted for DowDuPont. DuPont's other noncurrent obligations are as of September 30, 2017. The table excludes uncertain tax positions of $668 million due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities. The table also excludes deferred tax liabilities of $9,125 million as it is impractical to determine whether there will be a cash impact related to these liabilities. |
The Subsidiaries expect to meet their contractual obligations through their normal sources of liquidity and believe they have the financial resources to satisfy these contractual obligations.
Off-balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Subsidiaries have with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Subsidiaries hold variable interests in joint ventures accounted for under the equity method of accounting. The Subsidiaries are not the primary beneficiaries of these joint ventures and therefore are not required to consolidate the entities (see Note 20 to the Consolidated Financial Statements). In addition, see Note 11 to the Consolidated Financial Statements for information regarding the transfer of financial assets.
Guarantees arise duringin the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Subsidiaries undertakeCompany undertakes an obligation to guarantee the performance of others if specific triggering events occur. The Subsidiaries had combined outstanding guarantees at September 30, 2017 of $6,136 million, compared with $6,043 million atAt March 31, 2021 and December 31, 2016.2020, the Company had directly guaranteed $180 million and $189 million, respectively, of such obligations. Additional information related to the guarantees of the Subsidiaries can be found in the “Guarantees” section of Note 1314 to the interim Consolidated Financial Statements.
Fair Value Measurements
See Note 19 to the Consolidated Financial Statements for additional information concerning fair value measurements, including the Company’s interests held in trade receivable conduits.
OTHER MATTERS
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. DowDuPont’s critical accounting policies that are impacted by judgments, assumptions and estimates are described below.
Litigation
The Company and its subsidiaries are subject to legal proceedings and claims arising out of the normal course of business including product liability, patent infringement, governmental regulation, contract and commercial litigation, and other actions. The Company routinely assesses the legal and factual circumstances of each matter, the likelihood of any adverse outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim. The Company has an active risk management program consisting of numerous insurance policies secured from many carriers covering various timeframes. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies. The required reserves may change in the future due to new developments in each matter.
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of Dow, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. ("Amchem"). Each year, Ankura Consulting Group, LLC ("Ankura") performs a review for Union Carbide based upon historical asbestos claims, resolution and historical defense spending. Union Carbide compares current asbestos claim, resolution and defense spending activity to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.
Environmental Matters
The Company determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress, or as additional technical or legal information becomes available. At September 30, 2017, the Company had accrued obligations of $1,339 million for probable environmental remediation and restoration costs, including $229 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two times that amount.
Goodwill
The Company assesses goodwill recoverability through business financial performance reviews, enterprise valuation analysis and impairment tests. Annual goodwill impairment tests are completed by the Company during the fourth quarter of the year in accordance with the measurement provisions of the accounting guidance for goodwill. The tests are performed at the reporting unit level which is defined as one level below operating segment with the exception of Agriculture, which is both an operating segment and a reporting unit. Reporting units are the level at which discrete financial information is available and reviewed by business management on a regular basis.
In addition to the annual goodwill impairment tests, the Company reviews the financial performance of its reporting units over the course of the year to assess whether circumstances have changed that would indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. In cases where an indication of impairment is determined to exist, the Company completes an interim goodwill impairment test specifically for that reporting unit.
As part of its annual goodwill impairment testing, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The qualitative assessment is also used as a basis for determining whether it is necessary to perform the quantitative test. Qualitative factors assessed at the Company level include, but are not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned
capacity and new product launches, cost factors such as raw material prices, and financial performance of the reporting unit. If the Company chooses to not complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.
The first step of the quantitative test requires the fair value of the reporting unit to be compared with its carrying value. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. This valuation technique has been selected by management as the most meaningful valuation method due to the limited number of market comparables for the Company's reporting units. However, where market comparables are available, the Company includes EBIT/EBITDA multiples as part of the reporting unit valuation analysis. The discounted cash flow valuations are completed using the following key assumptions (including certain ranges used for the 2016 testing): projected revenue growth rates, or compounded annual growth rates, over a ten-year cash flow forecast period, which ranged from 4.9 percent to 6.4 percent and varied by reporting unit based on underlying business fundamentals and future expectations; discount rates, which ranged from 8.9 percent to 9.5 percent; tax rates; terminal values, differentiated based on the cash flow projection of each reporting unit and the projected net operating profit after tax ("NOPAT") growth rate, which ranged from 2 percent to 3.5 percent; currency exchange rates; and forecasted long-term hydrocarbon and energy prices, by geographic area and by year, which included the Company's key feedstocks as well as natural gas and crude oil (due to its correlation to naphtha). Currency exchange rates and long-term hydrocarbon and energy prices are established for the Company as a whole and applied consistently to all reporting units, while revenue growth rates, discount rates and tax rates are established by reporting unit to account for differences in business fundamentals and industry risk.
The second step of the quantitative test is required if the first step of the quantitative test indicates a potential impairment. The second step requires the Company to compare the implied fair value of a reporting unit's goodwill with the carrying amount of goodwill. If the carrying amount of goodwill is greater than its implied fair value, an impairment loss is recorded.
The Company also monitors and evaluates its market capitalization relative to book value. When the market capitalization of the Company falls below book value, management undertakes a process to evaluate whether a change in circumstances has occurred that would indicate it is more likely than not that the fair value of any of its reporting units has declined below carrying value. This evaluation process includes the use of third-party market-based valuations and internal discounted cash flow analysis. As part of the annual goodwill impairment test, the Company also compares market capitalization with the most recent total estimated fair value of its reporting units to ensure that significant differences are understood.
As part of its 2016 annual goodwill impairment testing, Dow performed additional sensitivity analysis which indicated that the fair value of the Dow Coating Materials reporting unit (now part of Coatings & Performance Monomers) did not significantly exceed its carrying amount. Dow has continued to monitor the performance of the Coatings & Performance Monomers reporting unit, as benchmarked against its long-term financial plan, and evaluates industry and company-specific circumstances which affect the financial results of this reporting unit, including customer consolidation, changes in demand growth in certain end-markets, fluctuations in sales growth in emerging geographies and results of new product launches. At September 30, 2017, the Company concluded that no events or changes in circumstances have occurred which would indicate that the fair value of the Coatings & Performance Monomers reporting unit has more likely than not been reduced below its carrying amount.
The long-term financial plan for the Coatings & Performance Monomers reporting unit, which underlies the above conclusion, contains numerous assumptions including, but not limited to: expected market growth rates; success of sales and marketing efforts; commercialization of innovation programs; benefit of cost reduction programs; availability of capital and expense resources to execute growth initiatives; impact of competitor actions; industry supply and demand balances; and, macroeconomic factors such as foreign currency exchange rates and interest rates. If the Coatings & Performance Monomers reporting unit does not achieve the financial performance that the Company expects, it is reasonably possible that an impairment of goodwill may result. An annual goodwill impairment test for the Coatings & Performance Monomers reporting unit will be completed during the fourth quarter of 2017. At September 30, 2017, the Coatings & Performance Monomers reporting unit had goodwill of $2,509 million.
In the fourth quarter of 2017, the Company is planning to early adopt Accounting Standards Update 2017-04, "Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment," as part of the annual goodwill impairment testing. See Note 2 to the Consolidated Financial Statements for additional information.
Pension and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods. The U.S. pension plans represent the majority of Dow and DuPont’s pension plan assets and pension obligations.
The following information relates to Dow and DuPont's U.S. plans only; a similar approach is used for Dow and DuPont's non-U.S. plans. Dow and DuPont determine the expected long-term rate of return on assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation and the underlying return fundamentals of each asset class. The historical experience of the pension fund asset performance is also considered. The expected return of each asset class is derived from a forecasted future return confirmed by historical experience. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Company’s pension plans.
The discount rates utilized to measure the pension and other postretirement obligations of the U.S. plans are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for Dow’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve to arrive at the plan’s obligations as of the measurement date. DuPont utilized spot rates under the Aon Hewitt AA_Above Median yield curve to arrive at the plan’s obligations as of the measurement date.
Dow and DuPont use generational mortality tables to value their U.S. pension and other postretirement obligations.
The following discussion relates to the Company’s U.S. pension plans. Dow and DuPont base the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. For Dow, this market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. For DuPont, the market-related value of assets is calculated by averaging market returns over 36 months. As a result, changes in the fair value of assets are not immediately reflected in the Company’s calculation of net periodic pension cost. Over the life of the plans, both gains and losses have been recognized and amortized.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Company recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.
In evaluating the ability to realize the deferred tax assets, the Company relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination.
The Company accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated.
Indemnification Assets
Pursuant to the Separation Agreement between DuPont and The Chemours Company ("Chemours") discussed in Note 13 to the Consolidated Financial Statements, DuPont is indemnified by Chemours against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the separation. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these indemnified matters, DuPont records an indemnification asset when recovery is deemed probable. In assessing the probability of recovery, DuPont considers the contractual rights under the Separation Agreement and any potential credit risk. Future events, such as potential disputes related to recovery as well as solvency of Chemours, could cause the indemnification assets to have a lower value than anticipated and recorded. The Company evaluates the recovery of the indemnification assets recorded when events or changes in circumstances indicate the carrying values may not be fully recoverable.
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.
The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants.
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Asbestos-Related Claim Activity | 2017 | 2016 |
Claims unresolved at Jan 1 | 16,141 |
| 18,778 |
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Claims filed | 5,598 |
| 5,909 |
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Claims settled, dismissed or otherwise resolved | (6,560 | ) | (7,052 | ) |
Claims unresolved at Sep 30 | 15,179 |
| 17,635 |
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Claimants with claims against both UCC and Amchem | (5,544 | ) | (6,444 | ) |
Individual claimants at Sep 30 | 9,635 |
| 11,191 |
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For additional information, see Asbestos-Related Matters of Union Carbide Corporation in Note 13 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.
Contents
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DowDuPont Inc.
PART I - FINANCIAL INFORMATION
ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DowDuPont's risk management programs are managed separately by its subsidiaries, DowSee Note 20 to the interim Consolidated Financial Statements. See also Part II, Item 7A. Quantitative and DuPont. Dow and DuPont have historically utilized different methods to report their quantitativeQualitative Disclosures About Market Risk, of the Company's 2020 Annual Report on Form 10-K for information about market risk. Dow uses a value-at-risk approach while DuPont uses sensitivity analysis. Both methods are acceptable under Regulation S-K and are viewed as equally effective from a risk monitoring perspective. Ason the risk management programs for both subsidiaries will continue to be managed separately, the quantitative and qualitative disclosures about market risk will be provided for each subsidiary, as discussed below.
Dow
Dow’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, Dow enters into hedging transactions, pursuant to established guidelines and policies, that enable it to mitigate the adverse effectsCompany's utilization of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and hedging activities, where appropriate. A secondary objective is to add value by creating additional non-specific exposure within established limits and policies; derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional exposures is not material to Dow’s results.
The global nature of Dow’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, Dow has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of Dow’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. To achieve this objective, Dow hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps, and nonderivative instruments in foreign currencies. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities. The largest exposures are denominated in European currencies, the Japanese yen and the Chinese yuan, although exposures also exist in other currencies of Asia Pacific, Canada, Latin America, Middle East, Africa and India.
The main objective of interest rate risk management is to reduce the total funding cost to Dow and to alter the interest rate exposure to the desired risk profile. Dow uses interest rate swaps, “swaptions,” and exchange-traded instruments to accomplish this objective. Dow’s primary exposure is to the U.S. dollar yield curve.
Dow has a portfolio of equity securities derived primarily from the investment activities of its insurance subsidiaries. This exposure is managed in a manner consistent with Dow’s market risk policies and procedures.
Inherent in Dow’s business is exposure to price changes for several commodities. Some exposures can be hedged effectively through liquid tradable financial instruments. Feedstocks for ethylene production and natural gas constitute the main commodity exposures. Over-the-counter and exchange traded instruments are used to hedge these risks, when feasible.
Dow uses value-at-risk (“VAR”), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by Dow is a variance/covariance model. This model uses a 97.5 percent confidence level and includes at least one year of historical data. The September 30, 2017, 2016 year-end and 2016 average daily VAR for the aggregate of all positions are shown below. These amounts are immaterial relative to the total equity of Dow.
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Total Daily VAR by Exposure Type | Sep 30, 2017 | 2016 |
In millions | Year-end | Average |
Commodities | $ | 35 |
| $ | 24 |
| $ | 23 |
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Equity securities | $ | 5 |
| $ | 17 |
| $ | 16 |
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Foreign exchange | $ | 38 |
| $ | 28 |
| $ | 9 |
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Interest rate | $ | 78 |
| $ | 82 |
| $ | 90 |
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Composite | $ | 156 |
| $ | 151 |
| $ | 138 |
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Dow’s daily VAR for the aggregate of all positions increased from a composite VAR of $151 million at December 31, 2016, to a composite VAR of $156 million at September 30, 2017. Commodities and foreign exchange VAR increased due to an increase in long-term managed exposures. Equity securities VAR decreased due to a reduction in managed exposures and a decline in equity volatility. The interest rate VAR decreased due to a drop in yield volatility.
DuPont
DuPont’s global operations are exposed to financial market risks relating to fluctuations in foreign currency exchange rates, commodity prices and interest rates. DuPont has established a variety of programs including use of derivative instruments and other financial instruments to manage the exposure to financial market risks as to minimize volatility of financial results. In the ordinary course of business, DuPont enters into derivative instruments to hedge its exposure to foreign currency, interest rate and commodity price risks under established procedures and controls. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and durationan analysis of the exposure, market volatility and economic trends.sensitivity of these instruments.
Foreign Currency Exchange Rate Risks
DuPont has significant international operations resulting in a large number of currency transactions that result from international sales, purchases, investments and borrowings. The primary currencies for which DuPont has an exchange rate exposure are the European euro, Chinese yuan, Brazilian real and Japanese yen. DuPont uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. In addition to the contracts disclosed in Note 18 to the Consolidated Financial Statements, from time to time, DuPont will enter into foreign currency exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency.
The following table illustrates the fair values of outstanding foreign currency contracts at September 30, 2017 and the effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed at September 30, 2017. The sensitivities for foreign currency contracts are based on a 10 percent adverse change in foreign exchange rates.
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Foreign Currency Contracts | Fair Value Asset/(Liability) | Fair Value Sensitivity |
In millions | Sep 30, 2017 | Sep 30, 2017 |
Foreign currency contracts | $ | (19 | ) | $ | (981 | ) |
Since DuPont's risk management programs are highly effective, the potential loss in value for each risk management portfolio described above would be largely offset by changes in the value of the underlying exposure.
Concentration of Credit Risk
DuPont maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed and DuPont has a policy to limit the dollar amount of credit exposure with any one institution.
As part of DuPont's financial risk management processes, it continuously evaluates the relative credit standing of all of the financial institutions that service DuPont and monitors actual exposures versus established limits. DuPont has not sustained credit losses from instruments held at financial institutions.
DuPont's sales are not materially dependent on any single customer. At September 30, 2017, no one individual customer balance represented more than five percent of DuPont's total outstanding receivables balance. Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with DuPont's global businesses.
DuPont also maintains strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by industry and region.
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DowDuPont Inc.
PART I - FINANCIAL INFORMATION
ItemITEM 4. Controls and Procedures
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CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and the Company’s management, including theCompany's Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), together with management, conducted an evaluation of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures pursuant to paragraph (b)Rules 13a-15(e) and 15d-15(e) of the Exchange Act Rules 13a-15 and 15d-15.Act. Based uponon that evaluation, the Chief Executive OfficerCEO and the Chief Financial OfficerCFO concluded that the Company’sthese disclosure controls and procedures wereare effective.
Changes in Internal Control Over Financial Reporting
Effective August 31, 2017, pursuant toThere were no changes in the merger of equals transactions contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) each merged with wholly owned subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Dow and DuPont became subsidiaries of DowDuPont. The Company has designedCompany's internal control over financial reporting for DowDuPont, while maintainingidentified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting for its subsidiaries, Dowreporting.
In connection with the N&B Transaction, there were several processes, policies, operations, technologies and DuPont.information systems that were transferred or separated. Through the quarter ended March 31, 2021, the Company continued to take steps to ensure that adequate controls were designed and maintained throughout this transition period.
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DowDuPontDuPont de Nemours Inc.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. Information regarding certain of these matters is set forth below and in Note 1314 to the interim Consolidated Financial Statements.
Litigation
Asbestos-Related Matters of Union Carbide Corporation, a wholly owned subsidiary of Dow
No material developments regarding this matter occurred during the third quarter of 2017. For a current status of this matter, seeSee Note 1314 to the interim Consolidated Financial Statements; and Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters of Union Carbide Corporation.Statements.
DuPont's Fayetteville Works Facility, Fayetteville, North Carolina
In August 2017, the U.S. Attorney’s Office for the Eastern District of North Carolina served DuPont with a subpoena for testimony and the production of documents to a grand jury. Information related to this matter is included in Note 13 to the Consolidated Financial Statements under the heading PFOA.
DuPont's La Porte Plant, La Porte, Texas - Crop Protection - Release Incident Investigations
On November 15, 2014, there was a release of methyl mercaptan at DuPont’s La Porte facility. The release occurred at the site’s Crop Protection unit resulting in four employee fatalities inside the unit. DuPont continues to cooperate with governmental agencies, including the U.S. Environmental Protection Agency ("EPA"), the Chemical Safety Board and the Department of Justice ("DOJ"), still conducting investigations. These investigations could result in sanctions and civil or criminal penalties against DuPont.
Environmental Proceedings
The Company believes it is remote that the following matters will have a material impact on its financial position, liquidity or results of operations. The descriptions aredescription is included per Regulation S-K, Item 103(5)(c) of the Securities Exchange Act of 1934.
Dow/Dow Corning Midland MatterDivested Neoprene Facility, La Place, Louisiana - EPA Compliance Inspection
Dow Corning Corporation ("Dow Corning"), a wholly owned subsidiary of Dow, has received the following notifications fromIn 2016, the EPA Region Five related to Dow Corning’s Midlandconducted a focused compliance investigation at the Denka Performance Elastomer LLC (“Denka”) neoprene manufacturing facility (the “Facility”): 1) a Noticein La Place, Louisiana. EID sold the neoprene business, including this manufacturing facility, to Denka in the fourth quarter of Violation2015. Subsequent to this inspection, the U.S. Environmental Protection Agency (“EPA”), the U.S. Department of Justice (“DOJ”), the Louisiana Department of Environmental Quality (“DEQ”), the Company (originally through EID), and FindingDenka began discussions in the spring of Violation (received in April 2012) which alleges a number2017 relating to the inspection conclusions and allegations of violations in connection with the detection, monitoring and control of certain organic hazardous air pollutants at the Facility and various recordkeeping and reporting violationsnoncompliance arising under the Clean Air Act, and 2) a Notice of Violation (received in May 2015) alleging a number of violations relating to the management of hazardous wastes at the Facility pursuant to the Resource Conservation and Recovery Act. While Dow Corning contests these allegations, resolution may result in a penalty in excess of $100,000. Discussions between the EPA, the DOJ and Dow Corning are ongoing.
Dow/FilmTec Edina, Minnesota Matter
On March 14, 2017, FilmTec Corporation ("FilmTec"), a wholly owned subsidiary of Dow, received notification from the EPA, Region 5 and the DOJ of a proposed penalty in excess of $100,000 for alleged violations of the Clean Air Act at FilmTec’s Edina, Minnesota, manufacturing facility. Discussion between the EPA, the DOJ and FilmTec are ongoing.
DuPont La Porte Plant, La Porte, Texas - EPA Multimedia Inspection
The EPA conducted a multimedia inspection at the La Porte facility in January 2008. DuPont, the EPA and the DOJ began discussions in the Fall 2011 relating to the management of certain materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions. These discussions continue.
DuPont Sabine Plant, Orange, Texas - EPA Multimedia Inspection
In June 2012, DuPont began discussions with the EPA and the DOJ related to a multimedia inspection that the EPA conducted at the Sabine facility in March 2009 and December 2015. The discussions involve the management of materials in the facility's waste water treatment system, hazardous waste management, flare and air emissions, including leak detection and repair. TheseDuPont, Denka, EPA, DOJ and DEQ are continuing these discussions, will continue.which include potential settlement options.
New Jersey Directive PFAS
On March 25, 2019, the New Jersey Department of Environmental Protection (“NJDEP”) issued a Directive and Notice to Insurers to a number of companies, including Chemours, DowDuPont, EID, and certain DuPont subsidiaries. NJDEP’s allegations relate to former operations of EID involving poly- and perfluoroalkyl substances, (“PFAS”), including PFOA and PFOA- replacement products. The NJDEP seeks past and future costs of investigating, monitoring, testing, treating, and remediating New Jersey’s drinking water and waste systems, private drinking water wells and natural resources including groundwater, surface water, soil, sediments and biota. The Directive seeks certain information as to future costs and information related to the historic uses of PFAS and replacement chemicals including “information ranging from use and discharge of the chemicals through wastewater treatment plants, air emissions, and sales of products containing the chemicals to current development, manufacture, use and release of newer chemicals in the state.”
ITEM 1A. RISK FACTORS
DowDuPont May Fail to Realize the Anticipated Benefits of the Merger. Combining the Businesses of DuPont and Dow May Be More Difficult, Costly or Time-Consuming than Expected, Which May Adversely Affect DowDuPont's Results and Negatively Affect the Value of DowDuPont Common Stock.
The success of the Merger depends on, among other things, DowDuPont's ability to combine the DuPont and Dow businesses in a manner that facilitates the intended separation of the Company's agriculture, materials science and specialty products businesses and realizes anticipated synergies. DowDuPont expects to benefit from significant cost synergies at both the business and corporate levels, including through the achievement of production cost efficiencies, enhancement of the agricultural supply chain, elimination of duplicative agricultural research and development programs, optimization of the combined Company’s global footprint across manufacturing, sales and research and development in the materials science business, optimizing action of manufacturing in the electronics space, the reduction of corporate and leveraged services costs, and the realization of significant procurement synergies. Management also expects the combined Company will achieve growth synergies and other meaningful savings and benefits as a result of the intended business separations.
The combination of DuPont and Dow's independent businesses is a complex, costly and time consuming process and the management of DowDuPont may face significant challenges in implementing such integration, many of which may be beyond the control of management, including, without limitation:
ongoing diversion of the attention of management from the operation of the combined company’s business as a result of the intended business separations;
impact of portfolio changes between materials science and specialty products on integration activities;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
the possibility of faulty assumptions underlying expectations regarding the integration process, including with respect to the intended tax efficient transactions;
unanticipated issues in integrating information technology, communications programs, financial procedures and operations, and other systems, procedures and policies;
difficulties in managing a larger combined company, addressing differences in business culture and retaining key personnel;
unanticipated changes in applicable laws and regulations;
managing tax costs or inefficiencies associated with integrating the operations of the combined company and the intended tax efficient separation transactions; and
coordinating geographically separate organizations.
Some of these factors will be outside of the control of DowDuPont and any one of them could result in increased costs and diversion of management’s time and energy, as well as decreases in the amount of expected revenue which could materially impact DowDuPont's business, financial conditions and results of operations. The integration process and other disruptions resulting from the Merger may also adversely affect the combined company’s relationships with employees, suppliers, customers, distributors, licensors and others with whom DuPont and DowThere have business or other dealings, and difficulties in integrating the businesses or regulatory functions of DuPont and Dow could harm the reputation of DowDuPont.
If DowDuPont is not able to successfully combine the businesses of DuPont and Dow in an efficient, cost-effective and timely manner, the anticipated benefits and cost savings of the Merger (including the intended business separations) may not be realized fully, or at all, or may take longer to realize than expected, and the value of DowDuPont common stock, the revenues, levels of expenses and results of operations may be affected adversely. A variety of factors may adversely affect the Company's ability to realize the currently expected synergies, savings and other benefits of the Merger, including failure to successfully optimize the combined Company's facilities footprint, the failure to take advantage of the combined Company's global supply chain, the failure to identify and eliminate duplicative programs, and the failure to otherwise integrate Dow's or DuPont's respective businesses, including their technology platforms.
DowDuPont Will Incur Significant Costs in Connection with the Integration of Dow and DuPont.
There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Merger. While both DuPont and Dow have assumed that a certain level of expenses would be incurred in connection with the Merger and the other transactions contemplated by the merger agreement, there are many factors beyond their control that could affect the total amount of, or the timing of, anticipated expenses with respect to the integration and implementation of the combined businesses.
There may also be additional unanticipated significant costs in connection with the Merger that DowDuPont may not recoup. These costs and expenses could reduce the benefits and additional income DowDuPont expects to achieve from the Merger.
Although DowDuPont expects that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.
The Determination to Proceed with the Intended Business Separations is a Decision of the DowDuPont Board of Directors and the Expected Benefits of Such Transactions, if They Occur, Will Be Uncertain.
DowDuPont intends to pursue the separation of the combined company’s agriculture, materials science and specialty products businesses through one or more tax-efficient transactions (the "Intended Business Separations"), resulting in three independent, publicly traded companies. However, in the event that the DowDuPont board determines to proceed with the Intended Business Separations, it is currently anticipated that any such Intended Business Separation transaction would be effectuated through one or more pro-rata spin-off transactions, in which DowDuPont stockholders, at such time, would receive shares of capital stock in the resulting spin-off company or companies. The DowDuPont board may ultimately determine to abandon one or more of the Intended Business Separation transactions, and such determination could have an adverse impact on DowDuPont. There are many factors that could, prior to the determination by the DowDuPont board to proceed with the Intended Business Separations, impact the structure or timing of, the anticipated benefits from, or determination to ultimately proceed with, the intended business separations, including, among others, global economic conditions, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, tax considerations, and other challenges that could affect the global economy, specific market conditions in one or more of the industries of the businesses proposed to be separated, andbeen no material changes in the regulatory or legal environment. Such changes could adversely impact the value of one or more of the Intended Business Separation transactions to the combined company’s stockholders. Additionally, to the extent the DowDuPont board determines to proceed with the Intended Business Separations, the consummation of such transactions is a complex, costly and time-consuming process, and there can be no guaranty that the intended benefits of such transactions will be achieved. An inability to realize the full extent of the anticipated benefits of the intended business separations, as well as any delays encountered in the process, could have an adverse effect upon the revenues, level of expenses and operating results of the agriculture business, the specialty products business, the materials science business and/or the combined company.
Inability to Access the Debt Capital Markets Could Impair DowDuPont's Liquidity, Business or Financial Condition.
Each of DuPont and Dow has relied and continues to rely on access to the debt capital markets to finance their day-to-day and long-term operations. Dow and DuPont do not intend for DowDuPont to incur debt obligations or guarantee the debt obligations of Dow or DuPont. Any limitation on the part of either Dow’s or DuPont’s ability to raise money in the debt markets could have a substantial negative effect on their respective liquidity. Access to the debt capital markets in amounts adequate to finance each company’s activities could be impaired as a result of the existence of material nonpublic information about the intended business separations and other potentialCompany's risk factors including factors that are not specific to the companies, such as a severe disruption of the financial markets and interest rate fluctuations.
Prior to the Intended Business Separations, if pursued, the costs and availability of financing for DowDuPont from the debt capital markets will be dependent on credit ratings of each of Dow and DuPont. The level and quality of the respective earnings, operations, business and management, among other things, of each of Dow and DuPont will impact their respective credit ratings and those of the combined company. A decrease in the ratings assigned to Dow or DuPont by the ratings agencies may negatively impact their access to the debt capital markets and increase the combined company’s cost of borrowing. There can be no assurance that Dow and DuPont will maintain their current credit worthiness or prospective credit ratings. Any actual or anticipated changes or downgrades in such credit ratings may have a negative impact on the liquidity, capital position or access to capital markets of Dow and DuPont and, therefore, DowDuPont.
DowDuPont Will Be Exposed to the Risks Related to International Sales and Operations.
DuPont and Dow each derive a large portion of their total sales and revenue from operations outside of the United States. Therefore, DowDuPont will have exposure to risks of operating in many foreign countries, including:
difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;
unexpected changes in political or regulatory environments;
labor compliance and costs associated with a global workforce;
earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs;
exchange controls or other restrictions;
restrictions on, or difficulties and costs associated with, the repatriation of cash from foreign countries to the United States;
political and economic instability;
import and export restrictions and other trade barriers;
difficulties in maintaining overseas subsidiaries and international operations;
difficulties in obtaining approval for significant transactions;
government limitations on foreign ownership;
government takeover or nationalization of business;
government mandated price controls; and
fluctuations in foreign currency exchange rates.
Any one or more of the above factors could adversely affect the international operations of the combined company and could significantly affect the combined company’s results of operations, financial condition and cash flows.
Availability of Purchased Feedstocks and Energy, and the Volatility of these Costs, Impact the Company's Operating Costs and Add Variability to Earnings.
The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.
The Company has a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and natural gas liquids ("NGLs") derived from shale gas including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which commenced start-up in the third quarter of 2017. As a result of these investments, the Company's exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks.
While the Company expects abundant and cost-advantaged supplies of NGLs in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations.
Earnings Generated by the Company's Products Vary Baseddiscussed in Part on the Balance of Supply Relative to Demand within the Industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Company's results of operations.
The Costs of Complying with Evolving Regulatory Requirements Could Negatively Impact the Company's Financial Results. Actual or Alleged Violations of Environmental Laws or Permit Requirements Could Result in Restrictions or Prohibitions on Plant Operations, Substantial Civil or Criminal Sanctions, as well as the Assessment of Strict Liability and/or Joint and Several Liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.
Increased Concerns Regarding the Safe use of Chemicals in Commerce and their Potential Impact on the Environment as well as Perceived Impacts of Biotechnology on Health and the Environment have Resulted in More Restrictive Regulations and could Lead to New Regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment and the perceived impacts of biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.
To maintain its right to produce or sell existing products or to commercialize new products containing biotechnology traits, particularly seed products, the Company must be able to demonstrate its ability to satisfy the requirements of regulatory agencies. Sales into and use of seeds with biotechnology traits in jurisdictions where cultivation has been approved could be affected if key import markets have not approved the import of grains, food and food ingredients and other products derived from those seeds. If import of grains, food and food ingredients and other products derived from those seeds containing such biotechnology traits occurs in these markets, it could lead to disruption in trade and potential liability for the Company.
In addition, the Company’s regulatory compliance could be affected by the detection of low level presence of biotechnology traits in conventional seed or products produced from such seed. Furthermore, the detection of biotechnology traits not approved in the country of cultivation may affect the Company’s ability to supply product and could affect exports of products produced from such seeds and even result in crop destruction or product recalls.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
A Significant Operational Event could Negatively Impact the Company's Results of Operations.
The Company's operations, the transportation of products, cyber attacks, or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.
Major hurricanes have caused significant disruption in the Company's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of the Company's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact the Company's results of operations.
TheI, Item 1A, Risk of Loss of the Company’s Intellectual Property, Trade Secrets or other Sensitive Business Information or Disruption of Operations could Negatively Impact the Company’s Financial Results.
Cyber-attacks or security breaches could compromise confidential, business critical information, cause a disruptionFactors, in the Company’s operations or harmAnnual Report on Form 10-K for the Company's reputation. The Company has attractive information assets, including intellectual property, trade secrets and other sensitive, business critical information. While the Company has a comprehensive cyber security program that is continuously reviewed, maintained and upgraded, a significant cyber-attack could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on the Company’s financial results.year ended December 31, 2020.
Implementing Certain Elements of the Company's Strategy could Negatively Impact the Company's Financial Results.
The Company currently has manufacturing operations, sales and marketing activities, joint ventures, as well as proposed and existing projects of varying size in emerging geographies. Activities in these geographic areas are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected, resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement. If the manufacturing operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.
An Impairment of Goodwill or Intangible Assets could Negatively Impact the Company's Financial Results.
At least annually, the Company assesses both goodwill and indefinite-lived intangible assets for impairment. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings. Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.
As a result of the Merger and the related acquisition method of accounting, which resulted in DuPont's assets and liabilities being measured at fair value, the Company's goodwill increased by $45.5 billion and the Company's intangible assets increased by $27.8 billion. Future impairments of either could be recorded in results of operations due to changes in assumptions, estimates or circumstances and there can be no assurance that such impairments would be immaterial to the Company, Dow or DuPont.
Increased Obligations and Expenses related to Dow and DuPont's Defined Benefit Pension Plans and Other Postretirement Benefit Plans could Negatively Impact DowDuPont's Financial Condition and Results of Operations.
The Company's subsidiaries, Dow and DuPont, have defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries. The assets of the Dow and DuPont funded plans are primarily invested in fixed income and equity securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Dow and DuPont plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in Dow and DuPont's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.
Unpredictable Seasonal and Weather Factors Could Impact Sales and Earnings from the Company’s Agriculture Segment.
The agriculture industry is subject to seasonal and weather factors, which can vary unpredictably from period to period. Weather factors can affect the presence of disease and pests on a regional basis and, accordingly, can positively or adversely affect the demand for crop protection products, including the mix of products used. The weather also can affect the quality, volume and cost of seed produced for sale as well as demand and product mix. Seed yields can be higher or lower than planned, which could lead to higher inventory and related write-offs and affect the ability to supply.
Inability to Discover, Develop and Protect New Technologies and Enforce the Company's Intellectual Property Rights Could Adversely Affect the Company's Financial Results.
The Company competes with major global companies that have strong intellectual property estates, including intellectual property rights supporting the use of biotechnology to enhance products, particularly agricultural and bio-based products. Speed in discovering, developing and protecting new technologies and bringing related products to market is a significant competitive advantage. Failure to predict and respond effectively to this competition could cause the Company's existing or candidate products to become less competitive, adversely affecting sales. Competitors are increasingly challenging intellectual property positions and the outcomes can be highly uncertain. If challenges are resolved adversely, it could negatively impact the Company's ability to obtain licenses on competitive terms, commercialize new products and generate sales from existing products.
Intellectual property rights, including patents, plant variety protection, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to the Company's business. The Company endeavors to protect its intellectual property rights in jurisdictions in which its products are produced or used and in jurisdictions into which its products are imported. However, the Company may be unable to obtain protection for its intellectual property in key jurisdictions. Further, changes in government policies and regulations, including changes made in reaction to pressure from non-governmental organizations, could impact the extent of intellectual property protection afforded by such jurisdictions.
The Company has designed and implemented internal controls to restrict access to and distribution of its intellectual property. Despite these precautions, the Company's intellectual property is vulnerable to unauthorized access through employee error or actions, theft and cybersecurity incidents, and other security breaches. When unauthorized access and use or counterfeit products are discovered, the Company reports such situations to governmental authorities for investigation, as appropriate, and takes measures to mitigate any potential impact. Protecting intellectual property related to biotechnology is particularly challenging because theft is difficult to detect and biotechnology can be self-replicating. Accordingly, the impact of such theft can be significant.
DowDuPont's Ability to Obtain and Maintain Regulatory Approval for Some of its Products in the Agriculture Segment Could Limit Sales or Affect Profitability in Certain Markets.
In most jurisdictions, the Company must test the safety, efficacy and environmental impact of its agricultural products to satisfy regulatory requirements and obtain the necessary approvals. In certain jurisdictions the Company must periodically renew its approvals which may require it to demonstrate compliance with then-current standards. The regulatory environment is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. The regulatory environment may be impacted by the activities of non-governmental organizations and special interest groups and stakeholder reaction to actual or perceived impacts of new technology, products or processes on safety, health and the environment. Obtaining and maintaining regulatory approvals requires submitting a significant amount of information and data, which may require participation from technology providers. Regulatory standards and trial procedures are continuously changing. The pace of change together with the lack of regulatory harmony could result in unintended noncompliance.
Responding to these changes and meeting existing and new requirements may involve significant costs or capital expenditures or require changes in business practice that could result in reduced profitability. The failure to receive necessary permits or approvals could have near- and long-term effects on the Company’s ability to produce and sell some current and future products.
Failure to Effectively Manage Acquisitions, Divestitures, Alliances and Other Portfolio Actions Could Adversely Impact DowDuPont's Future Results.
From time to time, the Company evaluates acquisition candidates that may strategically fit its business and/or growth objectives. If the Company is unable to successfully integrate and develop acquired businesses, the Company could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on the Company’s financial results. The Company continually reviews its portfolio of assets for contributions to the Company’s objectives and alignment with its growth strategy. However, the Company may not be successful in separating underperforming or non-strategic assets and gains or losses on the divestiture of, or lost operating income from, such assets may affect the Company’s earnings. Moreover, the Company might incur asset impairment charges related to acquisitions or divestitures that reduce its earnings. In addition, if the execution or implementation of acquisitions, divestitures, alliances, joint ventures and other portfolio actions is not successful, it could adversely impact the Company’s financial condition, cash flows and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended September 30, 2017:March 31, 2021, under its share buyback program announced on June 1, 2019 which expires June 1, 2021:
| | | | | | | | | | | | | | |
Issuer Purchases of Equity Securities | | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (In millions) |
Period | Total number of shares purchased | Average price paid per share |
January | — | | — | | — | | 1,018 | |
February | 2,500,050 | | 70.01 | | 2,500,050 | | 843 | |
March | 4,349,157 | | 74.72 | | 4,349,157 | | 518 | |
First Quarter 2021 | 6,849,207 | | $ | 73.00 | | 6,849,207 | | $ | 518 | |
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Issuer Purchases of Equity Securities | | Total number of shares purchased as part of the Company's publicly announced share repurchase program (1) | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1) (In Millions) |
Period | Total number of shares purchased | Average price paid per share |
July 2017 | — |
| $ | — |
| — |
| $ | 1,396 |
|
August 2017 | — |
| $ | — |
| — |
| $ | 1,396 |
|
September 2017 | — |
| $ | — |
| — |
| $ | — |
|
Third quarter 2017 | — |
| $ | — |
| — |
| $ | — |
|
| |
1. | On February 13, 2013, the Dow Board of Directors approved a share buy-back program, authorizing up to $1.5 billion to be spent on the repurchase of Dow's common stock over a period of time. On January 29, 2014, the Dow Board of Directors announced an expansion of Dow's share buy-back authorization, authorizing an additional amount not to exceed $3 billion to be spent on the repurchase of the Dow's common stock over a period of time. On November 12, 2014, the Dow Board of Directors announced a new $5 billion tranche to its share buy-back program. As a result of these actions, the total authorized amount of the Dow share repurchase program was $9.5 billion. In connection with the Merger, Dow's $9.5 billion share repurchase program was canceled. |
On November 2, 2017,March 8, 2021, the Company announced the Board of Directors authorized an initial $4a new $1.5 billion share repurchasebuyback program, which expires on June 30, 2022. The Company has no expiration date.not made any repurchases under the new program.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicableapplicable.
ITEM 5. OTHER INFORMATION
Not applicable.None.
ITEM 6. EXHIBITS
See the Exhibit Index | | | | | | | | | | | |
| EXHIBIT NO. | | DESCRIPTION |
| | | Third Amended and Restated Certificate of Incorporation of DuPont de Nemours, Inc. incorporated by reference to Exhibit 3.1 to DuPont de Nemours, Inc.’s Current Report on Form 8-K filed April 30, 2021. |
| | | Fifth Amended and Restated Bylaws of DuPont de Nemours, Inc. incorporated by reference to Exhibit 3.2 to DuPont de Nemours, Inc.’s Current Report on Form 8-K filed April 30, 2021. |
| | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith
Contents
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DowDuPont Inc.
Trademark Listing
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®™ ARYLEX, BETAFORCE, BETAMATE, BETASEAL, CORIAN, CRASTIN, CYAZYPYR, DANISCO, DELRIN, DOW, DOW CORNING, DOW SEMENTES, DUPONT, ELITE, ENLIST, FILMTEC, GREAT STUFF, HOWARU, HYTREL, IMPRELIS, ISOCLAST, KALREZ, KEVLAR, LEPTRA, MOLYKOTE, MORGAN, MULTIBASE, NOMEX, PIONEER, RYNAXYPYR, RYNITE, SOLAMET, STYROFOAM, TEDLAR, TPSiV, TYNEX, TYVEK, VAMAC, VESPEL, VESSARYA, ZYTEL are trademarks of The Dow Chemical Company ("Dow") or E. I. du PontDuPont de Nemours, and Company ("DuPont") or affiliated companies of Dow or DuPont.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DOWDUPONTDUPONT DE NEMOURS, INC.
Registrant
Date: November 6, 2017May 4, 2021
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By: | /s/ JEANMARIE F. DESMONDMICHAEL G. GOSS | | By: | /s/ RONALD C. EDMONDS |
Name: | Jeanmarie F. Desmond | | Name: | Ronald C. Edmonds |
Title: | Co-Controller | | Title: | Co-Controller |
City: | Wilmington | | City: | Midland |
State: | Delaware | | State: | Michigan |
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DowDuPont Inc.
Exhibit Index
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EXHIBIT NO.Name: | DESCRIPTIONMichael G. Goss | | | |
Title: | AgreementVice President and Plan of Merger, dated as of December 11, 2015, among The Dow Chemical Company, E. I. du Pont de Nemours and Company, Diamond Merger Sub, Inc., Orion Merger Sub, Inc. and Diamond-Orion HoldCo Inc., incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on December 11, 2015.Controller | | | |
City: | Amendment No. 1 to Agreement and Plan of Merger, dated as of March 31, 2017, among The Dow Chemical Company, E. I. du Pont de Nemours and Company, Diamond Merger Sub, Inc., Orion Merger Sub, Inc. and DowDuPont Inc. (f/k/a Diamond-Orion HoldCo Inc.), incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on March 31, 2017.Wilmington | | | |
State: | The Amended and Restated Certificate of Incorporation of DowDuPont Inc. as filed with the Secretary of State, State of Delaware on August 31, 2017, incorporated by reference to Exhibit 3.1 to DowDuPont Inc. Current Report on Form 8-K filed September 1, 2017. |
| The Amended and Restated Bylaws of DowDuPont Inc., incorporated by reference to Exhibit 3.1 to DowDuPont Inc. Current Report on Form 8-K filed September 12, 2017. |
| The E. I. du Pont de Nemours and Company Equity Incentive Plan, incorporated by reference to Exhibit 4.1 to DowDuPont Inc. Registration Statement on Form S-8 filed September 1, 2017. |
| The E. I. du Pont de Nemours and Company Stock Performance Plan, incorporated by reference to Exhibit 4.2 to DowDuPont Inc. Registration Statement on Form S-8 filed September 1, 2017. |
| The E. I. du Pont de Nemours and Company Management Deferred Compensation Plan, incorporated by reference to Exhibit 4.3 to DowDuPont Inc. Registration Statement on Form S-8 filed September 1, 2017. |
| The E. I. du Pont de Nemours and Company Stock Accumulation and Deferred Compensation Plan for Directors, incorporated by reference to Exhibit 4.4 to DowDuPont Inc. Registration Statement on Form S-8 filed September 1, 2017. |
| The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan, incorporated by reference to Exhibit 4.1 to DowDuPont Inc. Registration Statement on Form S-8 filed September 5, 2017. |
| The Dow Chemical Company Amended and Restated 1988 Award and Option Plan, incorporated by reference to Exhibit 4.2 to DowDuPont Inc. Registration Statement on Form S-8 filed September 5, 2017. |
| Employment Agreement by and between E. I. du Pont de Nemours and Company, and Edward D. Breen, dated as of August 3, 2017, incorporated by reference to Exhibit 10.1 to E. I. du Pont de Nemours and Company's Current Report on Form 8-K dated September 1, 2017. |
| Ankura Consulting Group, LLC's Consent. |
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |