BUSINESS COMBINATIONS

Merger of Equals of Dow and DuPont

At the effective time of the Merger, each share of common stock, par value $2.50 per share, of Dow ("Dow Common Stock") (excluding any shares of Dow Common Stock that were held in treasury immediately prior to the effective time of the Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive one fully paid and non-assessable share of common stock, par value $0.01 per share, of DowDuPont ("DowDuPont Common Stock"). Upon completion of the Merger, (i) each share of common stock, par value $0.30 per share, of DuPont (“DuPont Common Stock”) (excluding any shares of DuPont Common Stock that were held in treasury immediately prior to the effective time of the Merger, which were automatically canceled and retired for no consideration) 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, and (ii) each share of DuPont Preferred Stock $4.50 Series and DuPont Preferred Stock $3.50 Series (collectively, the “DuPont Preferred Stock”) issued and outstanding immediately prior to the effective time of the Merger remains issued and outstanding and was unaffected by the Merger.

As provided in the Merger Agreement, at the effective time of the Merger, Dow stock options and other equity awards were generally automatically converted into stock options and equity awards with respect to DowDuPont Common Stock and DuPont stock options and other equity awards, after giving effect to the exchange ratio, were converted into stock options and equity awards with respect to DowDuPont Common Stock, and otherwise generally on the same terms and conditions under the applicable plans and award agreements immediately prior to the effective time of the Merger.

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, materials science and specialty products businesses through one or more tax-efficient transactions ("Intended Business Separations").

Allocation of Purchase Price

Based on an evaluation of the provisions of ASC 805, "Business Combinations" ("ASC 805"), Dow was determined to be the accounting acquirer in the Merger. DowDuPont has applied the acquisition method of accounting with respect to the assets and liabilities of DuPont, which have been measured at fair value as of the date of the Merger.

DuPont's assets and liabilities were measured at estimated fair values at August 31, 2017, primarily using Level 3 inputs. Estimates of fair value represent management's best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities.

The total fair value of consideration transferred for the Merger was $74,680 million. Total consideration is comprised of the equity value of the DowDuPont shares at August 31, 2017, that were issued in exchange for DuPont shares, the cash value for fractional shares, and the portion of DuPont's share awards and share options earned at August 31, 2017. The following table summarizes the fair value of consideration exchanged as a result of the Merger:



Merger Consideration
In millions (except exchange ratio)
DuPont Common Stock outstanding at Aug 31, 2017	868.3
DuPont exchange ratio	1.2820
DowDuPont Common Stock issued in exchange for DuPont Common Stock	1,113.2
Fair value of DowDuPont Common Stock issued ¹	$	74,195
Fair value of DowDuPont equity awards issued in exchange for outstanding DuPont equity awards ²	485
Total consideration	$	74,680


1.	Amount was determined based on the price per share of Dow Common Stock of $66.65 on August 31, 2017.


2.	Represents the fair value of replacement awards issued for DuPont's equity awards outstanding immediately before the Merger and attributable to the service periods prior to the Merger. The previous DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock.

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

The table below presents the final fair value that was allocated to DuPont's assets and liabilities based upon fair values as determined by DowDuPont. The valuation process to determine the fair values is complete. For the nine months ended September 30, 2018, DowDuPont made measurement period adjustments to reflect facts and circumstances in existence as of the effective time of the Merger. These adjustments primarily included a $392 million increase in goodwill, a $257 million decrease in property, and a $150 million decrease in indefinite-lived trademarks, tradenames and customer-related assets.



DuPont Assets Acquired and Liabilities Assumed on Aug 31, 2017	Final fair value
In millions	Final fair value
Fair Value of Assets Acquired
Cash and cash equivalents	$	4,005
Marketable securities	2,849
Accounts and notes receivable - Trade	6,199
Accounts and notes receivable - Other	1,635
Inventories	8,805
Other current assets	420
Assets held for sale	3,732
Investment in nonconsolidated affiliates	1,596
Other investments	50
Noncurrent receivables	84
Property	11,684
Goodwill	45,497
Other intangible assets	27,071
Deferred income tax assets	279
Deferred charges and other assets	1,932
Total Assets	$	115,838
Fair Value of Liabilities Assumed
Notes payable	$	4,046
Long-term debt due within one year	1,273
Accounts payable - Trade	2,346
Accounts payable - Other	952
Income taxes payable	261
Accrued and other current liabilities	3,517
Liabilities held for sale	125
Long-term debt	9,878
Deferred income tax liabilities	8,259
Pension and other postretirement benefits - noncurrent	8,056
Other noncurrent obligations	1,967
Total Liabilities	$	40,680
Noncontrolling interests	478
Net Assets (Consideration for the Merger)	$	74,680

The following table provides "Net sales" and "Loss from continuing operations before income taxes" of DuPont included in the Company's results for the period September 1 through September 30, 2017. Included in the results from DuPont was $40 million of "Restructuring and asset related charges - net" (see Note 5 for additional information), $360 million that was recognized in "Cost of sales" as inventory was sold related to the fair value step-up of inventories and $71 million of "Integration and separation costs."



DuPont Results of Operations	Sep 1 -
In millions	Sep 30, 2017
Net sales	$	1,734
Loss from continuing operations before income taxes	$	(303	)

As a condition of the European Commission ("EC"), Chinese Ministry of Commerce, Brazilian Administrative Council for Economic Defense and the U.S. Department of Justice ("DOJ") approval of the Merger, Dow and DuPont were required to divest the following:

Dow Merger Remedy - Divestiture of the Global Ethylene Acrylic Acid Copolymers and Ionomers Business

On February 2, 2017, as a condition of regulatory approval of the Merger, Dow announced it would divest its global ethylene acrylic acid copolymers and ionomers business ("EAA Business") to SK Global Chemical Co., Ltd. The divestiture included production assets located in Freeport, Texas, and Tarragona, Spain, along with associated intellectual property and product trademarks. Under terms of the purchase agreement, SK Global Chemical Co., Ltd will honor certain customer and supplier contracts and other agreements. On September 1, 2017, the sale was completed for $296 million, net of working capital adjustments, costs to sell and other adjustments, with proceeds subject to customary post-closing adjustments.

In the third quarter of 2017, the Company recognized a pretax gain of $227 million on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Packaging & Specialty Plastics segment.

Dow Merger Remedy - Divestiture of a Portion of Dow AgroSciences' Corn Seed Business

On July 11, 2017, as a condition of regulatory approval of the Merger, Dow announced it entered into a definitive agreement with CITIC Agri Fund to sell a select portion of Dow AgroSciences' corn seed business in Brazil, part of the Agriculture segment, for a purchase price of $1.1 billion. The agreement included the sale of some seed processing plants and seed research centers, a copy of Dow AgroSciences' Brazilian corn germplasm bank, the MORGAN™ brand and a license for the use of the DOW SEMENTES™ brand for a certain period of time. The sale closed in the fourth quarter of 2017.

The Company evaluated the divestiture of the EAA Business and determined it did not represent a strategic shift that had a major effect on the Company’s operations and financial results and did not qualify as an individually significant component of the Company. The divestiture of a portion of Dow AgroSciences' corn seed business did not qualify as a component of the Company. As a result, these divestitures were not reported as discontinued operations.

DuPont Merger Remedy - Divested Ag Business

DuPont was required to sell certain assets related to its Crop Protection business and research and development ("R&D") organization, specifically DuPont’s Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, including RYNAXYPYR®, CYAZYPYR®, and Indoxacarb as well as the crop protection R&D pipeline and organization, excluding seed treatment, nematicides, and late-stage R&D programs. On March 31, 2017, DuPont entered into a definitive agreement (the "FMC Transaction Agreement") with FMC Corporation ("FMC"). Under the FMC Transaction Agreement, FMC acquired the Crop Protection business and R&D assets that DuPont was required to divest in order to obtain EC approval of the Merger as described above (the "Divested Ag Business"), and DuPont agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products, (the "H&N Business") (collectively, the "FMC Transactions"). Earnings of the Divested Ag Business are included in “Loss from discontinued operations, net of tax" in periods subsequent to the Merger.

The results of operations of DuPont's Divested Ag Business are presented as discontinued operations as summarized below, representing activity subsequent to the Merger:



Results of Operations of DuPont's Divested Ag Business	Three and Nine Months Ended Sep 30, 2017 ¹
In millions	Three and Nine Months Ended Sep 30, 2017 ¹
Net sales	$	116
Cost of sales	110
Research and development expenses	9
Selling, general and administrative expenses ²	29
Loss from discontinued operations before income taxes	$	(32	)
Benefit from income taxes	(12		)
Loss from discontinued operations, net of tax	$	(20	)


1.	The Divested Ag Business was disposed of on November 1, 2017.


2.	Includes $8 million of transaction costs associated with the disposal of the Divested Ag Business.

Unaudited Supplemental Pro Forma Information

The DowDuPont unaudited pro forma results presented below were prepared pursuant to the requirements of ASC 805, "Business Combinations" and give effect to the Merger as if it had been consummated on January 1, 2016. The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the Merger been completed on January 1, 2016. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved by DowDuPont from the Merger.

The pro forma results include adjustments for the preliminary purchase accounting impact (including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, amortization of the fair value adjustment to investment in nonconsolidated affiliates, and reduction of interest expense related to the fair value adjustment to long-term debt, along with the related tax impacts), the alignment of accounting policies, and the elimination of transactions between Dow and DuPont. The fair value estimates reflected in the unaudited pro forma information are based on those used in the Current Report on Form 8‑K/A filed with the SEC on October 26, 2017, and subsequent measurement period adjustments are not reflected. Other adjustments are reflected in the pro forma results as follows:

•

For the nine months ended September 30, 2017, Dow and DuPont collectively incurred $66 million after tax ($94 million pretax) of costs to prepare for and close the Merger. These Merger costs have been reflected within the results of operations in the pro forma results presented below as if they were incurred on January 1, 2016. The costs incurred related to integration and preparation for the Intended Business Separations are reflected in the pro forma results in the period in which they were incurred.


•	The Company incurred an after tax charge of $253 million ($302 million pretax) in the third quarter of 2017 related to the fair value step-up of inventories acquired and sold, excluding the acquired inventory related to DuPont's Seed business. The 2017 pro forma results were adjusted to exclude this charge.

•

To align with seasonality, charges related to the fair value step-up of acquired inventory related to DuPont’s Seed business are reflected in the pro forma results based on actual quantity of units sold during those periods as if the fair value step-up of inventories had occurred on January 1, 2016. Accordingly, $35 million after tax ($50 million pretax) and $273 million after tax ($393 million pretax) of charges for the three and nine months ended September 30, 2017 are reflected in the pro forma results.


•	The 2017 pro forma results were adjusted to exclude a $170 million after tax charge incurred in September 2017 related to the impact of change in tax attributes.

The unaudited pro forma results for all periods exclude the results of operations of the DuPont Divested Ag Business as this divestiture is reflected as discontinued operations. The Dow global EAA Business, through August 31, 2017, and a portion of Dow Agrosciences’ corn seed business divestitures are included in the results from continuing operations in the unaudited pro forma results presented below, for all periods presented, as these divestitures do not qualify for discontinued operations.



DowDuPont Pro Forma Results of Operations	Three Months Ended		Nine Months Ended
	Sep 30, 2017		Sep 30, 2017
In millions	Sep 30, 2017		Sep 30, 2017
Net sales	$	18,319	$	59,620
Income from continuing operations, net of tax	$	762	$	4,351
Earnings per common share from continuing operations - basic	$	0.31	$	1.82
Earnings per common share from continuing operations - diluted	$	0.31	$	1.80

Integration and Separation Costs

Integration and separation costs have been and are expected to be significant in the future. The Company incurred "Integration and separation costs," reflected in "Income from continuing operations before income taxes" in the consolidated statements of income, of $666 million and $1,681 million for the three and nine months ended September 30, 2018, respectively, and $354 million and $599 million for the three and nine months ended September 30, 2017, respectively. These costs to date primarily consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger, post-merger integration and separation, and the ownership restructure of Dow Silicones. While the Company assumed that a certain level of expenses would be incurred, there are many factors that could affect the total amount or the timing of these expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate.

H&N Business

On November 1, 2017, DuPont completed the FMC Transactions through the acquisition of the H&N Business and the divestiture of the Divested Ag Business. The acquisition is being integrated into the Nutrition & Biosciences segment to enhance the Company’s position as a leading provider of sustainable, bio-based food ingredients and allow for expanded capabilities in the pharma excipients space. DuPont accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. The preliminary fair value allocated to the assets acquired and liabilities assumed for the H&N Business at November 1, 2017 was $1,970 million. The valuation process is currently in the process of being finalized as DuPont has reached the end of the measurement period on November 1, 2018. There are no material updates to the preliminary purchase accounting and purchase price allocation. For additional information regarding the acquisition of the H&N Business, see Note 3 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.