UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

(Exact Name of Registrant as Specified in Its Charter)

 

 

Condensed Consolidated Balance Sheets (Unaudited)

Interim Financial Statements

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

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

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance requires registrants to present the service cost component of net periodic benefit cost in the same income statement line item or items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Registrants will present the other components of net periodic benefit cost separately from the service cost component; and, the line item or items used in the income statement to present the other components of net periodic benefit cost must be disclosed. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. The new standard must be adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement, and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. The company plans to adoptadopted this guidance in the first quarter ofon January 1, 2018, and is currently evaluatingwill record the impact on the Consolidated Financial Statements and related disclosures. See Note 14 for theother components of net periodic benefit cost.cost in sundry income - net. The following table summarizes the reclassification of those costs from cost of goods sold, research and development expense, and selling, general and administrative expenses to sundry income - net in the interim Consolidated Statements of Operations:

In JanuaryAugust 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill2017-12, Derivatives and OtherHedging (Topic 350)815), Simplifying the TestTargeted Improvements to Accounting for Goodwill Impairment.Hedging Activities. The new guidance eliminatesexpands and refines hedge accounting for both nonfinancial and financial risk components and aligns the requirement to determinerecognition and presentation of the fair valueeffects of individual assetsthe hedging instrument and liabilities of a reporting unit to measure goodwill impairment. Under the amendmentshedged items in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amountfinancial statements. For cash flow and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The company is currently evaluating the timing of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under the new guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, requiring application at the beginning of the earliest comparative period presented. The company is currently evaluating the impact of adopting this guidance on the Consolidated Financial Statements and related disclosures. The company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. A complete discussion of these leases is included in the company's 20162017 Annual Report in Note 15,14, "Commitments and Contingent Liabilities."

Merger with Customers (Topic 606), which was further updated in March, April, May and December 2016. The new guidance clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP. The core principleDow

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

Prior to the Merger, shares of DuPont Common Stock were registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended and listed on the New York Stock Exchange (the “NYSE”). As a result of the Merger, on August 31, 2017, the company requested that the NYSE withdraw the shares of DuPont Common Stock from listing on the NYSE and filed a Form 25 with the U.S. Securities and Exchange Commission ("SEC") to report that DuPont Common Stock is thatno longer listed on the NYSE. DuPont continues to have preferred stock outstanding and it remains listed on the NYSE. DowDuPont Common Stock is listed and trades on the NYSE, ticker symbol DWDP.

Based on an entity should recognize revenue to depictevaluation of the transferprovisions of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsAccounting Standards Codification ("ASC") 805, "Business Combinations" ("ASC 805"), Dow was determined to be entitledthe accounting acquirer in the Merger. DowDuPont has applied the acquisition method of accounting with respect to the assets and liabilities of DuPont, which have been measured at fair value as of the date of the Merger. In connection with the Merger and the related accounting determination, DuPont has elected to apply push-down accounting and reflect in its financial statements the fair value of assets and liabilities. Such fair values have been reflected in the Successor Consolidated Financial Statements.

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

The new standard also willfollowing table summarizes the fair value of consideration exchanged as a result in additional disclosure requirementsof the Merger:

The acquisition method of accounting requires, among other things, that identifiable assets acquired and liabilities assumed be recognized on the balance sheet at their respective fair value as of the acquisition date. In determining the fair value, DowDuPont utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgments related to describe the nature, amount, timing and uncertainty of revenue andfuture net cash flows arising from contracts with customers. In July 2015,(including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), discount rates reflecting the FASB approved a deferralrisk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data, supplemented by current and anticipated market conditions, and growth rates.

The table below presents the preliminary fair value that was allocated to DuPont's assets and liabilities based upon fair values as determined by DowDuPont. The valuation process to determine the fair values is not yet complete. DuPont estimated the preliminary fair value of acquired assets and liabilities as of the ASU effective date from annualMerger Effectiveness Time based on information currently available and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. The company continues to evaluateadjust those estimates upon refinement of market participant assumptions for integrating businesses, finalization of tax returns in the impactpre-merger period and application of push-down accounting at the new standard on the Consolidated Financial Statements and related disclosures.  Based on the analysis conducted to date, the company does not believe the impact upon adoption will be material to its Consolidated Financial Statements.  The company plans to adopt the standard insubsidiary level. In the first quarter of 2018, underDowDuPont made measurement period adjustments to reflect facts and circumstances in existence as of the modified retrospective transition method.Merger Effectiveness Time. These adjustments primarily included a $282 million increase in goodwill, a $98 million decrease in property, plant, and equipment, an $80 million decrease in indefinite-lived trademarks and trade names and customer-related assets, a $56 million increase in noncontrolling interests, a $28 million decrease in investments in nonconsolidated affiliates and a $16 million decrease in assets held for sale. The preliminary fair values are substantially complete with the exception of identifiable intangible assets, property, plant, and equipment, income taxes and goodwill. As DuPont finalizes the fair values of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period, but no later than one year from the date of the Merger. DuPont will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized. Final determination of the fair values may result in further adjustments to the values presented in the following table.

For the Acquired H&N Business. DuPont will retain accounts receivable and accounts payable associated withthree months ended March 31, 2018, the company recorded a loss from discontinued operations before income taxes related to the Divested Ag Business with an expected net value of $425 at closing.$10 million ($5 million after tax). The following table summarizes the results of operations of the Divested Ag Business presented as discontinued operations for the three months ended March 31, 2017:

Food Safety Diagnostic Sale

In February 2017, the company completed the sale of its global food safety diagnostic business, a part of the Nutrition & Health segment,diagnostics to Hygiena LLC.  The sale resulted in a pre-tax gain of $162 million ($86 million net of tax). The gain was recorded in other (loss)sundry income - net in the company's interim Consolidated Income Statement of Operations for the sixthree months ended June 30,March 31, 2017.

Substantially all of DuPont's revenue is derived from discontinued operationsproduct sales. Product sales consist of sales of DuPont's products to supply manufacturers, distributors, and farmers. DuPont considers purchase orders, which in some cases are governed by master supply agreements, to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year.

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

DowDuPont Cost Synergy Program

DuringIn September and November 2017, DowDuPont and the first quarter 2017,company approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), adopted by the DowDuPont Board of Directors. The plan is designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations.  Based on all actions approved to date under the Synergy Program, DuPont committedexpects to takerecord total pre-tax restructuring charges of $430 million to $600 million, comprised of approximately $320 million to $360 million of severance and related benefits costs; $110 million to $140 million of costs related to contract terminations; and up to $100 million of asset related charges. The Synergy Program includes certain asset actions to improve plant productivity and better position its businesses for productivity and growth before and afterthat are reflected in the anticipated closingpreliminary fair value measurement of DuPont’s assets as of the Merger Transaction (the 2017merger date. Current estimated total pre-tax restructuring program). In connection withcharges could be impacted by future adjustments to the preliminary fair value of DuPont’s assets.

As a result of these actions, the company incurredrecorded pre-tax restructuring charges of $160$187 million for the period September 1 through December 31, 2017, consisting of severance and $312, during the threerelated benefit costs of $153 million, contract termination costs of $31 million and six months ended June 30, 2017, respectively, recognized in employee separation / asset related charges net inof $3 million.

For the company's interim Consolidated Income Statements.three months ended March 31, 2018, DuPont recorded a pre-tax charge of $97 million, consisting of severance and related benefit costs of $68 million and contract termination costs of $29 million. The charge for the three months ended June 30, 2017 is comprised of $160 ofMarch 31, 2018 was recognized in restructuring and asset related charges. The charge forcharges - net in the six months ended June 30, 2017 is comprisedcompany's interim Consolidated Statements of $279 of asset-related charges and $33 in severance and related benefit costs. The charges primarily relate to the second quarter closureOperations. Substantially all of the Protection Solutions segment's Cooper River manufacturing site located near Charleston, South Carolina. The asset-relatedremaining restructuring charges mainly consist of accelerated depreciation associated withare expected to be incurred in 2018 and the closure. Therelated actions, including employee separations, associated with this plan are expected to be substantially complete by the end of 2017.

2016 Global Cost Savings and2017 Restructuring PlanProgram

At June 30, 2017,March 31, 2018, total liabilities related to the program were $44.$15 million. The restructuring actions associated with the chargethis plan were substantially completedcomplete in 2016.2017. A complete discussion of restructuring initiatives is included in the company's 20162017 Annual Report in Note 4, "Employee Separation /5, "Restructuring and Asset Related Charges - Net."

The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations for the three and six months ended June 30, 2017 and 2016.operations. The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The hedging program gains (losses) are largely taxable (tax deductible) in the U.S.United States (U.S.), whereas the offsetting exchange gains (losses) on the re-measurementremeasurement of certainthe net monetary asset positions are often not taxable (tax deductible) in their local jurisdictions. The net pre-tax exchange gains (losses) are recorded in other (loss)sundry income - net and the related tax impact is recorded in provision for income taxes on continuing operations in the interim Consolidated Income Statements.Statements of Operations.

Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company’scompany's financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. ItThe ultimate resolution of such uncertainties is reasonably possible that changesnot expected to have a material impact on the company's global unrecognized tax benefits could be significant; however, due to the uncertainty regarding the timingresults of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.operations.

During the three months ended June 30, 2017, the company recognized tax expense of $29 associated with the elimination of the U.S. domestic manufacturing deduction recorded in 2016 due to taxable income limitations triggered by the Company's decision to deduct the second quarter 2017 principal U.S. pension plan contribution on its 2016 consolidated U.S. tax return.

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

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:Predecessor period indicated below:

The following average number of stock options were antidilutive, and therefore not included in the dilutive earnings per share calculations:

Other Intangible Assets

The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows: 

The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $57$315 million and $108$51 million for the three and six months ended June 30,March 31, 2018 and 2017, and $104 and $226 for the three and six months ended June 30, 2016, respectively. The estimated aggregate pre-tax amortization expense from continuing operations for the remainder of 20172018 and each of the next five years is approximately $95, $211, $210, $194, $141$950 million, $1,254 million, $1,244 million, $1,228 million, $1,221 million and $115,$1,207 million, respectively.