10-Q 1 dowdupont3q18093018.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission file number: 001-38196

DOWDUPONT INC.
(Exact name of registrant as specified in its charter)
Delaware
81-1224539
State or other jurisdiction of incorporation or organization
(I.R.S. Employer Identification No.)

c/o The Dow Chemical Company
 
c/o E. I. du Pont de Nemours and Company
2211 H.H. Dow Way, Midland, MI 48674
 
974 Centre Road, Wilmington, DE 19805
(989) 636-1000
 
(302) 774-1000
(Name, address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
 
þ
 
Accelerated filer
 
¨
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes þ No

The registrant had 2,294,243,816 shares of common stock, $0.01 par value, outstanding at October 31, 2018.



DOWDUPONT INC.

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 30, 2018

TABLE OF CONTENTS


PAGE
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 4.
Item 5.
Item 6.
 
 
 


2


DowDuPont Inc.

Throughout this Quarterly Report on Form 10-Q, except as otherwise noted by the context, the terms "Company" or "DowDuPont" used herein mean DowDuPont Inc. and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS
This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “anticipate,” “believe,” “expect,” “intend,” “plan,” “see,” “seek,” “target,” “will,” “would,” and similar expressions and variations or negatives of these words.

On December 11, 2015, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) entered into an Agreement and Plan of Merger, as amended on March 31, 2017, (the “Merger Agreement”) under which the companies would combine in an all-stock merger of equals transaction (the “Merger”). Effective August 31, 2017, the Merger was completed and each of Dow and DuPont became subsidiaries of DowDuPont.

Forward-looking statements by their nature address matters that are, to varying degrees, uncertain, including the intended separation, subject to approval of DowDuPont's Board of Directors and customary closing conditions, of DowDuPont’s agriculture, materials science and specialty products businesses in one or more tax-efficient transactions on anticipated terms (the “Intended Business Separations”). Forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events which may not be realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond DowDuPont’s control. Some of the important factors that could cause DowDuPont’s, Dow’s or DuPont’s actual results (including DowDuPont's agriculture business, materials science business or specialty products business as conducted by and through Dow and DuPont) to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) costs to achieve and achieving the successful integration of the respective agriculture, materials science and specialty products businesses of DowDuPont (either directly or as conducted through Dow and DuPont), anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, productivity actions, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the combined operations; (ii) costs to achieve and achievement of the anticipated synergies by the combined agriculture, materials science and specialty products businesses; (iii) risks associated with the Intended Business Separations, associated costs, disruptions in the financial markets or other potential barriers; (iv) disruptions or business uncertainty, including from the Intended Business Separations, could adversely impact DowDuPont’s business (either directly or as conducted by and through Dow or DuPont), or financial performance and its ability to retain and hire key personnel; (v) uncertainty as to the long-term value of DowDuPont common stock; and (vi) risks to DowDuPont’s, Dow’s and DuPont’s business, operations and results of operations from: the availability of and fluctuations in the cost of feedstocks and energy; balance of supply and demand and the impact of balance on prices; failure to develop and market new products and optimally manage product life cycles; ability, cost and impact on business operations, including the supply chain, of responding to changes in market acceptance, rules, regulations and policies and failure to respond to such changes; outcome of significant litigation, environmental matters and other commitments and contingencies; failure to appropriately manage process safety and product stewardship issues; global economic and capital market conditions, including the continued availability of capital and financing, as well as inflation, interest and currency exchange rates; changes in political conditions, including trade disputes and retaliatory actions; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, natural disasters and weather events and patterns which could result in a significant operational event for DowDuPont, adversely impact demand or production; ability to discover, develop and protect new technologies and to protect and enforce DowDuPont’s intellectual property rights; failure to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio changes; unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks are and will be more fully discussed in the current, quarterly and annual reports filed with the U.S. Securities and Exchange Commission by DowDuPont, as well as the preliminary registration statements on Form 10, in each case as amended from time to time, of each of Dow Holdings Inc. and Corteva, Inc. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on DowDuPont’s, Dow’s, DuPont’s, Dow Holdings Inc.'s or Corteva, Inc.'s consolidated financial condition, results of operations, credit rating or liquidity. None of DowDuPont, Dow, DuPont, Dow Holdings Inc. or Corteva, Inc. assumes any obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.

3


A detailed discussion of some of the significant risks and uncertainties which may cause results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A) of the 2017 annual reports on Form 10-K of each of DowDuPont, Dow and DuPont and as set forth in the preliminary registration statements on Form 10, in each case as amended from time to time, of each of Dow Holdings Inc. and Corteva, Inc.

4


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
DowDuPont Inc.
Consolidated Statements of Income

 
Three Months Ended
Nine Months Ended
In millions, except per share amounts (Unaudited)
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Net sales
$
20,123

$
15,354

$
65,878

$
42,418

Cost of sales
15,477

12,186

49,766

33,141

Research and development expenses
740

528

2,311

1,355

Selling, general and administrative expenses
1,496

1,001

5,143

2,480

Amortization of intangibles
462

244

1,424

556

Restructuring and asset related charges - net
290

179

741

166

Integration and separation costs
666

354

1,681

599

Equity in earnings of nonconsolidated affiliates
178

152

685

402

Sundry income (expense) - net
47

394

340

272

Interest expense and amortization of debt discount
362

283

1,072

728

Income from continuing operations before income taxes
855

1,125

4,765

4,067

Provision for income taxes on continuing operations
320

571

1,274

1,239

Income from continuing operations, net of tax
535

554

3,491

2,828

Loss from discontinued operations, net of tax

(20
)
(5
)
(20
)
Net income
535

534

3,486

2,808

Net income attributable to noncontrolling interests
38

20

117

85

Net income available for DowDuPont Inc. common stockholders
$
497

$
514

$
3,369

$
2,723

 
 
 
 
 
 
 
 
 
 
Per common share data:
 
 
 
 
Earnings per common share from continuing operations - basic
$
0.22

$
0.33

$
1.45

$
2.05

Loss per common share from discontinued operations - basic

(0.01
)

(0.01
)
Earnings per common share - basic
$
0.22

$
0.32

$
1.45

$
2.04

Earnings per common share from continuing operations - diluted
$
0.21

$
0.33

$
1.44

$
2.02

Loss per common share from discontinued operations - diluted

(0.01
)

(0.01
)
Earnings per common share - diluted
$
0.21

$
0.32

$
1.44

$
2.01

 
 
 
 
 
Dividends declared per share of common stock
$

$
0.46

$
1.14

$
1.38

Weighted-average common shares outstanding - basic
2,296.2

1,577.8

2,307.3

1,330.7

Weighted-average common shares outstanding - diluted
2,311.3

1,595.3

2,323.1

1,348.8

 
 
 
 
 
Depreciation
$
940

$
708

$
2,833

$
1,820

Capital expenditures
$
972

$
752

$
2,558

$
2,301

See Notes to the Consolidated Financial Statements.

5

DowDuPont Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended
Nine Months Ended
In millions (Unaudited)
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Net income
$
535

$
534

$
3,486

$
2,808

Other comprehensive income (loss), net of tax
 
 


Unrealized gains (losses) on investments
8

(51
)
(31
)
(43
)
Cumulative translation adjustments
(174
)
(379
)
(1,234
)
247

Pension and other postretirement benefit plans
127

105

384

308

Derivative instruments
205

32

324

(57
)
Total other comprehensive income (loss)
166

(293
)
(557
)
455

Comprehensive income
701

241

2,929

3,263

Comprehensive income attributable to noncontrolling interests, net of tax
33

26

73

119

Comprehensive income attributable to DowDuPont Inc.
$
668

$
215

$
2,856

$
3,144

See Notes to the Consolidated Financial Statements.

6

DowDuPont Inc.
Consolidated Balance Sheets

In millions, except per share amounts (Unaudited)
Sep 30, 2018
Dec 31, 2017
Assets
 
 
Current Assets
 
 
Cash and cash equivalents (variable interest entities restricted - 2018: $133; 2017: $107)
$
6,939

$
13,438

Marketable securities
370

956

Accounts and notes receivable:


  Trade (net of allowance for doubtful receivables - 2018: $168; 2017: $127)
14,542

11,314

  Other
5,006

5,579

Inventories
16,441

16,992

Other current assets
2,107

1,614

Total current assets
45,405

49,893

Investments


Investment in nonconsolidated affiliates
5,234

5,336

Other investments (investments carried at fair value - 2018: $1,874; 2017: $1,512)
2,712

2,564

Noncurrent receivables
526

680

Total investments
8,472

8,580

Property


Property
74,305

73,304

Less accumulated depreciation
39,077

37,057

Net property (variable interest entities restricted - 2018: $769; 2017: $907)
35,228

36,247

Other Assets


Goodwill
59,362

59,527

Other intangible assets (net of accumulated amortization - 2018: $6,915; 2017: $5,550)
31,508

33,274

Deferred income tax assets
1,642

1,869

Deferred charges and other assets
2,836

2,774

Total other assets
95,348

97,444

Total Assets
$
184,453

$
192,164

Liabilities and Equity
 
 
Current Liabilities
 
 
Notes payable
$
4,757

$
1,948

Long-term debt due within one year
3,118

2,067

Accounts payable:


  Trade
8,631

9,134

  Other
4,321

3,727

Income taxes payable
701

843

Accrued and other current liabilities
6,152

8,409

Total current liabilities
27,680

26,128

Long-Term Debt (variable interest entities nonrecourse - 2018: $148; 2017: $249)
27,293

30,056

Other Noncurrent Liabilities


Deferred income tax liabilities
5,908

6,266

Pension and other postretirement benefits - noncurrent
15,288

18,581

Asbestos-related liabilities - noncurrent
1,164

1,237

Other noncurrent obligations
7,376

7,969

Total other noncurrent liabilities
29,736

34,053

Stockholders' Equity


Common stock (authorized 5,000,000,000 shares of $0.01 par value each;
issued 2018: 2,351,801,548 shares; 2017: 2,341,455,518 shares)
24

23

Additional paid-in capital
81,838

81,257

Retained earnings
30,933

29,211

Accumulated other comprehensive loss
(10,566
)
(8,972
)
Unearned ESOP shares
(139
)
(189
)
Treasury stock at cost (2018: 57,760,794 shares; 2017: 14,123,049 shares)
(4,000
)
(1,000
)
DowDuPont's stockholders' equity
98,090

100,330

Noncontrolling interests
1,654

1,597

Total equity
99,744

101,927

Total Liabilities and Equity
$
184,453

$
192,164

See Notes to the Consolidated Financial Statements.

7

DowDuPont Inc.
Consolidated Statements of Cash Flows

 
Nine Months Ended
In millions (Unaudited)
Sep 30, 2018
Sep 30, 2017
Operating Activities
 
 
Net income
$
3,486

$
2,808

Adjustments to reconcile net income to net cash used for operating activities:
 
 
Depreciation and amortization
4,450

2,518

Provision (Credit) for deferred income tax
(111
)
570

Earnings of nonconsolidated affiliates less than dividends received
155

201

Net periodic pension benefit cost
85

306

Pension contributions
(2,804
)
(463
)
Net gain on sales of assets, businesses and investments
(65
)
(475
)
Adjustment to gain on step acquisition of nonconsolidated affiliate
47


Restructuring and asset related charges - net
741

166

Amortization of Merger-related inventory step-up
1,494

429

Other net loss
573

228

Changes in assets and liabilities, net of effects of acquired and divested companies:
 
 
Accounts and notes receivable
(3,765
)
(8,204
)
Inventories
(1,139
)
(1,490
)
Accounts payable
350

1,627

Other assets and liabilities, net
(3,867
)
(743
)
Cash used for operating activities
(370
)
(2,522
)
Investing Activities
 
 
Capital expenditures
(2,558
)
(2,301
)
Investment in gas field developments
(82
)
(98
)
Purchases of previously leased assets

(2
)
Proceeds from sales of property and businesses, net of cash divested
104

522

Acquisitions of property and businesses, net of cash acquired
(20
)
3

Cash acquired in Merger transaction

4,005

Investments in and loans to nonconsolidated affiliates
(11
)
(694
)
Distributions and loan repayments from nonconsolidated affiliates
55

56

Proceeds from sale of ownership interests in nonconsolidated affiliates

64

Purchases of investments
(2,536
)
(476
)
Proceeds from sales and maturities of investments
2,956

2,088

Proceeds from interests in trade accounts receivable conduits
657

6,989

Other investing activities, net
(4
)
(2
)
Cash provided by (used for) investing activities
(1,439
)
10,154

Financing Activities
 
 
Changes in short-term notes payable
2,807

953

Proceeds from issuance of long-term debt
756


Payments on long-term debt
(2,396
)
(591
)
Purchases of treasury stock
(3,000
)

Proceeds from issuance of company stock
187

32

Proceeds from sales of common stock

423

Employee taxes paid for share-based payment arrangements
(124
)
(89
)
Contingent payment for acquisition of businesses

(31
)
Distributions to noncontrolling interests
(83
)
(58
)
Dividends paid to stockholders
(2,625
)
(1,947
)
Other financing activities, net
(6
)
(2
)
Cash used for financing activities
(4,484
)
(1,310
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(246
)
254

Cash reclassified as held for sale

(37
)
Summary
 
 
Increase (Decrease) in cash, cash equivalents and restricted cash
(6,539
)
6,539

Cash, cash equivalents and restricted cash at beginning of period
14,015

6,624

Cash, cash equivalents and restricted cash at end of period
$
7,476

$
13,163

Less: Restricted cash and cash equivalents, included in "Other current assets"
537

15

Cash and cash equivalents at end of period
$
6,939

$
13,148

See Notes to the Consolidated Financial Statements.

8

DowDuPont Inc.
Consolidated Statements of Equity


In millions, except per share amounts (Unaudited)
Common Stock
Add'l Paid in Capital
Retained Earnings
Accum Other Comp Loss
Unearned ESOP
Treasury Stock
Non-controlling Interests
Total Equity
2017
 
 
 
 
 
 
 
 
Balance at Dec 31, 2016
$
3,107

$
4,262

$
30,338

$
(9,822
)
$
(239
)
$
(1,659
)
$
1,242

$
27,229

Net income available for DowDuPont Inc. common stockholders


2,723





2,723

Other comprehensive income



455




455

Dividends ($1.38 per common share)


(1,673
)




(1,673
)
Common stock issued/sold

455




724


1,179

Stock-based compensation and allocation of ESOP shares

(428
)


47



(381
)
Impact of noncontrolling interests






346

346

Merger impact
(3,084
)
76,829




935


74,680

Other

(2
)
(22
)




(24
)
Balance at Sep 30, 2017
$
23

$
81,116

$
31,366

$
(9,367
)
$
(192
)
$

$
1,588

$
104,534

2018
 
 
 
 
 
 
 
 
Balance at Dec 31, 2017
$
23

$
81,257

$
29,211

$
(8,972
)
$
(189
)
$
(1,000
)
$
1,597

$
101,927

Adoption of accounting standards (Note 1)


996

(1,037
)



(41
)
Net income available for DowDuPont Inc. common stockholders


3,369





3,369

Other comprehensive loss



(557
)



(557
)
Dividends ($1.14 per common share)


(2,625
)




(2,625
)
Common stock issued/sold
1

187






188

Stock-based compensation and allocation of ESOP shares

394



50



444

Impact of noncontrolling interests






57

57

Treasury stock purchases





(3,000
)

(3,000
)
Other


(18
)




(18
)
Balance at Sep 30, 2018
$
24

$
81,838

$
30,933

$
(10,566
)
$
(139
)
$
(4,000
)
$
1,654

$
99,744

See Notes to the Consolidated Financial Statements.


9


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents


NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Effective August 31, 2017, pursuant to 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 ("Merger Agreement"), The Dow Chemical Company ("Dow") and E. I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont" or the "Company") and, as a result, Dow and DuPont became subsidiaries of DowDuPont (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. Dow was determined to be the accounting acquirer in the Merger. As a result, the historical financial statements of Dow for periods prior to the Merger are considered to be the historical financial statements of DowDuPont.

The unaudited interim consolidated financial statements of DowDuPont and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. Results from interim periods should not be considered indicative of results for the full year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Except as otherwise indicated by the context, the term "Dow" includes Dow and its consolidated subsidiaries, "DuPont" includes DuPont and its consolidated subsidiaries, "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of Dow, and "Dow Silicones" means Dow Silicones Corporation (formerly known as Dow Corning Corporation, which changed its name effective as of February 1, 2018), a wholly owned subsidiary of Dow.


10


Changes to Prior Period Consolidated Financial Statements
In the first quarter of 2018, the Company adopted new accounting standards that required retrospective application. The Company updated the consolidated statements of income as a result of adopting Accounting Standards Update ("ASU") 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The consolidated statements of cash flows were updated as a result of adopting ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" and ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." See Note 2 for additional information on the ASUs. In the third quarter of 2018, the U.S. Securities and Exchange Commission's ("SEC") Office of the Chief Accountant provided additional guidance related to ASU 2016-15 that indicated an entity must evaluate daily transaction activity to calculate the value of cash received from beneficial interests in conduits, resulting in additional updates to the consolidated statements of cash flows.

Changes to the consolidated financial statements as a result of the retrospective application of the new accounting standards are summarized as follows:

Summary of Changes to the Consolidated Statements of Income
Three Months Ended Sep 30, 2017
Nine Months Ended Sep 30, 2017
In millions
As Filed
Updated 1
As Filed
Updated 1
Cost of sales
$
12,170

$
12,186

$
33,130

$
33,141

Research and development expenses
$
522

$
528

$
1,343

$
1,355

Selling, general and administrative expenses
$
990

$
1,001

$
2,468

$
2,480

Sundry income (expense) - net
$
361

$
394

$
237

$
272

1.
Reflects changes resulting from the adoption of ASU 2017-07. See Note 2 for additional information.

Summary of Changes to the Consolidated Statements of Cash Flows
Nine Months Ended Sep 30, 2017
In millions
As Filed
Updated 1
Operating Activities
 
 
Proceeds from interests in trade accounts receivable conduits
$
939

$

Accounts and notes receivable
$
(2,154
)
$
(8,204
)
Other assets and liabilities, net
$
(741
)
$
(743
)
Cash provided by (used for) operating activities
$
4,469

$
(2,522
)
Investing Activities




Payment into escrow account
$
(130
)
$

Distribution from escrow account
$
130

$

Acquisitions of property and businesses, net of cash acquired
$
(28
)
$
3

Proceeds from interests in trade accounts receivable conduits
$

$
6,989

Cash provided by investing activities
$
3,134

$
10,154

Financing Activities




Contingent payment for acquisition of businesses
$

$
(31
)
Cash used for financing activities
$
(1,279
)
$
(1,310
)
Summary


 
Increase in cash, cash equivalents and restricted cash
$
6,541

$
6,539

Cash, cash equivalents and restricted cash at beginning of period
$
6,607

$
6,624

Cash, cash equivalents and restricted cash at end of period
$
13,148

$
13,163

1.
Reflects the adoption of ASU 2016-15 and ASU 2016-18. See Note 2 for additional information. In connection with the review and implementation of ASU 2016-15, the Company also changed the prior year value of “Proceeds from interests in trade accounts receivable conduits” due to additional interpretive guidance of the required method for calculating the cash received from beneficial interests in the conduits, including additional guidance from the SEC's Office of the Chief Accountant issued in the third quarter of 2018.



11


Opening Balance Sheet Impact of Accounting Standards Adoption
In the first quarter of 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" and the associated ASUs (collectively, "Topic 606"), ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." See Note 2 for additional information on these ASUs. The cumulative effect on the Company's January 1, 2018, consolidated balance sheet as a result of adopting these accounting standards is summarized in the following table:

Summary of Impacts to the Consolidated Balance Sheet
Dec 31, 2017
Adjustments due to:
Jan 1, 2018
In millions
As Filed
Topic 606
ASU 2016-01
ASU 2016-16
Updated
Assets
 
 
 
 
 
Accounts and notes receivable - Trade
$
11,314

$
87

$

$

$
11,401

Accounts and notes receivable - Other
$
5,579

$
(8
)
$

$

$
5,571

Inventories
$
16,992

$
(64
)
$

$

$
16,928

Other current assets
$
1,614

$
130

$

$
31

$
1,775

Total current assets
$
49,893

$
145

$

$
31

$
50,069

Deferred income tax assets
$
1,869

$
26

$

$
10

$
1,905

Deferred charges and other assets
$
2,774

$
43

$

$

$
2,817

Total other assets
$
97,444

$
69

$

$
10

$
97,523

Total Assets
$
192,164

$
214

$

$
41

$
192,419

Liabilities
 
 
 
 
 
Accounts payable - Trade
$
9,134

$
(3
)
$

$

$
9,131

Accounts payable - Other
$
3,727

$
10

$

$

$
3,737

Income taxes payable
$
843

$
(2
)
$

$

$
841

Accrued and other current liabilities
$
8,409

$
171

$

$

$
8,580

Total current liabilities
$
26,128

$
176

$

$

$
26,304

Deferred income tax liabilities
$
6,266

$
3

$

$

$
6,269

Other noncurrent obligations
$
7,969

$
117

$

$

$
8,086

Total other noncurrent liabilities
$
34,053

$
120

$

$

$
34,173

Stockholders' Equity
 
 
 
 
 
Retained earnings
$
29,211

$
(82
)
$
(20
)
$
41

$
29,150

Accumulated other comprehensive loss
$
(8,972
)
$

$
20

$

$
(8,952
)
DowDuPont's stockholders' equity
$
100,330

$
(82
)
$

$
41

$
100,289

Total equity
$
101,927

$
(82
)
$

$
41

$
101,886

Total Liabilities and Equity
$
192,164

$
214

$

$
41

$
192,419


The most significant changes as a result of adopting Topic 606 relate to the reclassification of the Company's return assets and refund liabilities in the Agriculture segment in the consolidated balance sheets. Under previous guidance, the Company accrued the amount of expected product returns as a reduction of "Accounts and notes receivable - Trade" with the value associated with the expected returns recorded in "Inventories" in the consolidated balance sheets. Under Topic 606, the Company now records the amount of expected product returns as refund liabilities, included in "Accrued and other current liabilities" and the products expected to be recovered as return assets, included in "Other current assets" in the consolidated balance sheets. The reclassifications of return assets and refund liabilities were $61 million and $119 million, respectively, at January 1, 2018. In addition, deferred revenue, included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets, increased as certain performance obligations, which were previously recognized over time and related to the licensing of certain rights to patents and technology, as well as other performance obligations, are now recognized at a point in time as none of the three criteria for 'over time' recognition under Topic 606 are met.

In the second quarter of 2018, the Company early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This standard was adopted on April 1, 2018, and resulted in a $1,057 million increase to retained earnings due to the reclassification from accumulated other comprehensive loss. The reclassification was primarily related to the change in the federal corporate tax rate and the effect of the Tax Cuts and Jobs Act of 2017 ("The Act") on the Company's pension plans, derivative instruments, available-for-sale securities

12


and cumulative translation adjustments. This reclassification is reflected in the "Adoption of accounting standards" line in the consolidated statements of equity. See Note 2 for additional information.

Current Period Impact of Topic 606
The following table summarizes the effects of adopting Topic 606 on the Company's consolidated balance sheets, which was applied prospectively to contracts not completed at January 1, 2018. The effects of adopting Topic 606 did not have a material impact on the consolidated statements of income and the consolidated statements of cash flows.

Summary of Impacts to the Consolidated Balance Sheets



As Reported at Sep 30, 2018
Adjustments
Balance at Sep 30, 2018 Excluding Adoption of Topic 606
In millions
Assets
 
 
 
Accounts and notes receivable - Trade
$
14,542

$
(51
)
$
14,491

Accounts and notes receivable - Other
$
5,006

$
29

$
5,035

Inventories
$
16,441

$
12

$
16,453

Other current assets
$
2,107

$
(77
)
$
2,030

Total current assets
$
45,405

$
(87
)
$
45,318

Deferred income tax assets
$
1,642

$
(30
)
$
1,612

Deferred charges and other assets
$
2,836

$
(43
)
$
2,793

Total other assets
$
95,348

$
(73
)
$
95,275

Total Assets
$
184,453

$
(160
)
$
184,293

Liabilities
 
 
 
Accounts payable - Other
$
4,321

$
(10
)
$
4,311

Income taxes payable
$
701

$
2

$
703

Accrued and other current liabilities
$
6,152

$
(57
)
$
6,095

Total current liabilities
$
27,680

$
(65
)
$
27,615

Deferred income tax liabilities
$
5,908

$
(8
)
$
5,900

Other noncurrent obligations
$
7,376

$
(134
)
$
7,242

Total other noncurrent liabilities
$
29,736

$
(142
)
$
29,594

Stockholders' Equity
 
 
 
Retained earnings
$
30,933

$
47

$
30,980

DowDuPont's stockholders' equity
$
98,090

$
47

$
98,137

Total equity
$
99,744

$
47

$
99,791

Total Liabilities and Equity
$
184,453

$
(160
)
$
184,293


Significant Accounting Policy Updates
The Company's significant accounting policy for revenue was updated as a result of the adoption of Topic 606:

Revenue
The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 4 for additional information on revenue recognition.

Revenue related to Dow's insurance operations includes third-party insurance premiums, which are earned over the terms of the related insurance policies and reinsurance contracts.

As a result of the adoption of ASU 2018-02, the Company's significant accounting policy for income taxes was updated to indicate the Company uses the portfolio approach for releasing income tax effects from accumulated other comprehensive loss.

13


NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In the second quarter of 2018, the Company early adopted ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which amends the hedge accounting recognition and presentation under Accounting Standards Codification ("ASC") 815, with the objectives of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities and simplifying the application of hedge accounting by preparers. The new standard expands the strategies eligible for hedge accounting, relaxes the timing requirements of hedge documentation and effectiveness assessments, and permits, in certain cases, the use of qualitative assessments on an ongoing basis to assess hedge effectiveness. The new guidance also requires new disclosures and presentation. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted in any interim or annual period after issuance of the ASU. Entities must adopt the new guidance by applying a modified retrospective approach to hedging relationships existing as of the adoption date. The adoption of the new guidance did not have a material impact on the consolidated financial statements.

In the second quarter of 2018, the Company early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from The Act, which was enacted on December 22, 2017, and requires certain disclosures about stranded tax effects. An entity has the option of applying the new guidance at the beginning of the period of adoption or retrospectively to each period (or periods) in which the tax effects related to items remaining in accumulated other comprehensive income are recognized. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted, including adoption in an interim period for reporting periods for which financial statements have not yet been issued. The Company's adoption of the new standard was applied prospectively at the beginning of the second quarter of 2018, with a reclassification of the stranded tax effects as a result of The Act from accumulated other comprehensive loss to retained earnings. See Note 1 for additional information.

In the first quarter of 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition," and most industry specific guidance. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In 2015 and 2016, the Financial Accounting Standards Board ("FASB") issued additional ASUs related to Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identification of performance obligations, and accounting for licenses, and included other improvements and practical expedients. The new guidance was effective for annual and interim periods beginning after December 15, 2017. The Company elected to adopt the new guidance using the modified retrospective transition method for all contracts not completed as of the date of adoption. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of retained earnings at the beginning of the first quarter of 2018. The comparative periods have not been restated and continue to be accounted for under Topic 605. The adoption of the new guidance did not have a material impact on the consolidated financial statements. See Notes 1 and 4 for additional disclosures regarding the Company's contracts with customers as well as the impact of adopting Topic 606.

In the first quarter of 2018, the Company adopted ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company applied the amendments in the new guidance by means of a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the first quarter of 2018. The adoption of the new guidance did not have a material impact on the consolidated financial statements. See Notes 1 and 18 for additional information.

In the first quarter of 2018, the Company adopted ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which addresses diversity in practice in how certain cash receipts and cash payments are presented and classified in the statements of cash flows and addresses eight specific cash flow issues. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. A key provision in the new guidance impacted the presentation of interests in certain trade accounts receivable conduits, which were retrospectively reclassified from "Operating Activities" to "Investing Activities" in the consolidated statements of cash flows. See Note 1 for additional information.

14


In the first quarter of 2018, the Company adopted ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The new guidance was applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the first quarter of 2018. The adoption of this guidance did not have a material impact on the consolidated financial statements. See Note 1 for additional information.

In the first quarter of 2018, the Company adopted ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which clarifies how entities should present restricted cash and restricted cash equivalents in the statements of cash flows, and as a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statements of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The new guidance changed the presentation of restricted cash in the consolidated statements of cash flows and was implemented on a retrospective basis in the first quarter of 2018. See Notes 1 and 6 for additional information.

In the first quarter of 2018, the Company adopted ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively the "set") is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied prospectively. The Company will apply the new guidance to all applicable transactions after the adoption date.

In the first quarter of 2018, the Company adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost must be presented separately from the line items that includes the service cost. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Entities were required to use a retrospective transition method to adopt the requirement for separate income statement presentation of the service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. Accordingly, in the first quarter of 2018, the Company used a retrospective transition method to reclassify net periodic benefit cost, other than the service component, from "Cost of sales," "Research and development expenses" and "Selling, general and administrative expenses" to "Sundry income (expense) - net" in the consolidated statements of income. See Note 1 for additional information.

Accounting Guidance Issued But Not Adopted at September 30, 2018
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," and associated ASUs for Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months, and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, using a modified retrospective approach, and early adoption is permitted. The Company has a cross-functional team in place to evaluate and implement the new guidance. The team continues to review existing lease arrangements and has engaged third parties to assist with the collection of lease data. The Company will elect the optional transition method that allows for a cumulative effect adjustment in the period of adoption, and prior periods will not be restated. The impact of applying other practical expedients and accounting policy elections has been evaluated and the Company is in the process of documenting the related decisions. The Company is currently implementing third-party software solutions in connection with the adoption of the ASU; however, these systems are still being modified to comply with the new guidance. The Company continues to enhance accounting systems and update business processes and controls related to the new guidance for leases. Collectively, these activities are expected to facilitate the Company's ability to meet the new accounting and disclosure requirements upon

15


adoption in the first quarter of 2019. The Company is working to quantify the impact and anticipates that the adoption of the new standard will result in a material increase in lease-related assets and liabilities in the consolidated balance sheets. The impact to the Company's consolidated statements of income and consolidated statements of cash flows is not expected to be material.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in ASC 820, "Fair Value Measurement." The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans," which, as part of the FASB disclosure framework project, removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements that are considered relevant for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The new standard is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The new guidance should be applied on a retrospective basis for all periods presented. The Company is currently evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance.


NOTE 3 - 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").


16


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.

17


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
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
)


18


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
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

19


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
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.


20


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. 


NOTE 4 - REVENUE
Revenue Recognition
The majority of the Company's revenue is derived from product sales. In the three and nine months ended September 30, 2018, 99 percent of the Company's sales related to product sales (98 percent in the three and nine months ended September 30, 2017). The remaining sales were primarily related to Dow's insurance operations and licensing of patents and technologies. As of January 1, 2018, the Company accounts for revenue in accordance with Topic 606, except for revenue from Dow's insurance operations, which is accounted for in accordance with Topic 944, "Financial Services - Insurance."

Product Sales
Product sales consist of sales of the Company's products to manufacturers, distributors and farmers. The Company considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. Product sale contracts are generally short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year. However, the Company has some long-term contracts which can span multiple years.

Revenue from product sales is recognized when the customer obtains control of the Company’s product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing depending on business and geographic region, with the exception of the Agriculture segment, where payment terms are generally less than one year after invoicing. The Company has elected the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between payment and transfer of the goods will be one year or less. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and the costs are accrued when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. The Company has elected to use the practical expedient to expense cash and non-cash sales incentives as the amortization period for the costs to obtain the contract would have been one year or less.

Certain long-term contracts include a series of distinct goods that are delivered continuously to the customer through a pipeline (e.g., feedstocks). For these types of product sales, the Company invoices the customer in an amount that directly corresponds with the value to the customer of the Company’s performance-to-date. As a result, the Company recognizes revenue based on the amount billable to the customer in accordance with the right to invoice practical expedient.

The transaction price includes estimates for reductions in revenue from customer rebates and rights of return on product sales. These amounts are estimated based upon the most likely amount of consideration to which the customer will be entitled. The Company’s obligation for rights of return is limited primarily to the Agriculture segment. All estimates are based on historical experience, anticipated performance and the Company’s best judgment at the time, to the extent it is probable, that a significant reversal of revenue recognized will not occur. All estimates for variable consideration are reassessed periodically.

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.


21


Patents, Trademarks and Licenses
The Company enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from the majority of the Company’s licenses for patents and technology is derived from sales-based royalties. The Company estimates the amount of sales-based royalties to which it expects to be entitled to based on historical sales to the customer. For the remaining revenue from licensing arrangements, payments are typically received from the Company’s licensees based on billing schedules established in each contract. Revenue is recognized by the Company when the performance obligation is satisfied.

Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. At September 30, 2018, the Company had remaining performance obligations related to material rights granted to customers for contract renewal options of $103 million and unfulfilled performance obligations for the licensing of technology of $227 million. The Company expects revenue to be recognized for the remaining performance obligations over the next one to six years.

The remaining performance obligations are for product sales that have expected durations of one year or less, product sales of materials delivered through a pipeline for which the Company has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 22 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.


22


Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by segment and business or major product line and geographic region, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See details in the tables below:

Net Trade Revenue by Segment and Business or Major Product Line 1
Three Months Ended
Sep 30, 2018
Nine Months Ended
 Sep 30, 2018
In millions
Crop Protection
$
1,366

$
4,714

Seed
580

6,770

Agriculture
$
1,946

$
11,484

Coatings & Performance Monomers
$
1,029

$
3,054

Consumer Solutions
1,447

4,325

Performance Materials & Coatings
$
2,476

$
7,379

Industrial Solutions
$
1,211

$
3,562

Polyurethanes & CAV
2,607

7,849

Other
3

10

Industrial Intermediates & Infrastructure
$
3,821

$
11,421

Hydrocarbons & Energy
$
1,983

$
5,636

Packaging and Specialty Plastics
4,136

12,592

Packaging & Specialty Plastics
$
6,119

$
18,228

Advanced Printing
$
129

$
387

Display & Other Technologies
88

230

Interconnect Solutions
313

892

Photovoltaic & Advanced Materials
255

826

Semiconductor Technologies
410

1,216

Electronics & Imaging
$
1,195

$
3,551

Industrial Biosciences
$
533

$
1,635

Nutrition & Health
1,145

3,538

Nutrition & Biosciences
$
1,678

$
5,173

Engineering Polymers
$
699

$
2,066

Performance Resins
450

1,287

Performance Solutions
259

948

Transportation & Advanced Polymers
$
1,408

$
4,301

Aramids
$
399

$
1,190

Construction
433

1,253

TYVEK® Enterprise
298

906

Water Solutions
272

763

Safety & Construction
$
1,402

$
4,112

Corporate
$
78

$
229

Total
$
20,123

$
65,878

1.
Beginning in the third quarter of 2018, DowDuPont realigned certain global businesses and product lines in preparation for the Intended Business Separations. These changes have been retrospectively reflected in the results presented. See Note 21 for additional information.

Net Trade Revenue by Geographic Region
Three Months Ended
Sep 30, 2018
Nine Months Ended
Sep 30, 2018
In millions
U.S. & Canada
$
6,838

$
25,199

EMEA 1
5,687

18,900

Asia Pacific
5,096

15,284

Latin America
2,502

6,495

Total
$
20,123

$
65,878

1.
Europe, Middle East and Africa.


23


Contract Balances
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are realized when the associated revenue is recognized under the contract. "Contract liabilities - current" primarily reflects deferred revenue from prepayments in the Agriculture segment for contracts with customers where the Company receives advance payments for product to be delivered in future periods. "Contract liabilities - noncurrent" includes advance payment for product that the Company has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract. The Company classifies deferred revenue as current (12 months or less) or noncurrent based on the timing of when the Company expects to recognize revenue.

Revenue recognized in the first nine months of 2018 from amounts included in contract liabilities at the beginning of the period was approximately $2.1 billion. The decrease in deferred revenue from December 31, 2017 to September 30, 2018 was primarily due to the timing of seed deliveries to customers for the growing season in U.S. & Canada in the Agriculture segment. In the first nine months of 2018, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was insignificant. The Company did not recognize any asset impairment charges related to contract assets during the period.

Contract Balances

Sep 30, 2018
Topic 606 Adjustments Jan 1, 2018

Dec 31, 2017
In millions
Accounts and notes receivable - Trade
$
14,542

$
87

$
11,314

Contract assets - current 1
$
82

$
58

$

Contract assets - noncurrent 2
$
47

$
43

$

Contract liabilities - current 3
$
499

$
52

$
2,131

Contract liabilities - noncurrent 4
$
1,449

$
117

$
1,413

1.
Included in "Other current assets" in the consolidated balance sheets.
2.
Included in "Deferred charges and other assets" in the consolidated balance sheets.
3.
Included in "Accrued and other current liabilities" in the consolidated balance sheets.
4.
Included in "Other noncurrent obligations" in the consolidated balance sheets.


NOTE 5 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont 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, the Company expects to record total pretax restructuring charges of approximately $2 billion, comprised of approximately $875 million to $975 million of severance and related benefit costs; $400 million to $615 million of asset write-downs and write-offs; and $400 million to $450 million of costs associated with exit and disposal activities.

As a result of these actions, the Company recorded pretax restructuring charges of $179 million for the three and nine months ended September 30, 2017, comprised of severance and related benefit costs. For the three months ended September 30, 2018, the Company recorded pretax restructuring charges of $162 million, consisting of severance and related benefit costs of $67 million, asset write-downs and write-offs of $86 million and costs associated with exit and disposal activities of $9 million. For the nine months ended September 30, 2018, the Company recorded pretax restructuring charges of $604 million, consisting of severance and related benefit costs of $361 million, asset write-downs and write-offs of $167 million and costs associated with exit and disposal activities of $76 million. The impact of these charges is shown as "Restructuring and asset related charges - net" in the consolidated statements of income. The Company expects to record additional restructuring charges in 2018 and 2019 and expects the Synergy Program to be completed by the end of 2019.

The Company recorded pretax restructuring charges of $1,478 million inception-to-date under the Synergy Program, consisting of severance and related benefit costs of $871 million, asset write-downs and write-offs of $457 million and costs associated with exit and disposal activities of $150 million.


24


The following table summarizes the activities related to the Synergy Program. At September 30, 2018, $507 million was included in "Accrued and other current liabilities" ($377 million at December 31, 2017) and $81 million was included in "Other noncurrent obligations" ($133 million at December 31, 2017) in the consolidated balance sheets.

Synergy Program
Severance and Related Benefit Costs
Asset Write-downs and Write-offs
Costs Associated with Exit and Disposal Activities
Total
In millions
2017 restructuring charges
$
510

$
290

$
74

$
874

Charges against the reserve

(290
)

(290
)
Non-cash compensation
(7
)


(7
)
Cash payments
(64
)

(3
)
(67
)
Reserve balance at Dec 31, 2017
$
439

$

$
71

$
510

2018 restructuring charges 1
361

167

76

604

Charges against the reserve

(167
)

(167
)
Cash payments
(289
)

(68
)
(357
)
Net translation adjustment
(2
)


(2
)
Reserve balance at Sep 30, 2018
$
509

$

$
79

$
588

1. Included in "Restructuring and asset related charges - net" in the consolidated statements of income.

Restructuring charges recorded for severance and related benefit costs were related to Corporate. The Company recorded restructuring charges for asset write-downs and write-offs for the three months ended September 30, 2018, of $86 million, related to Agriculture ($80 million), Packaging & Specialty Plastics ($4 million) and Safety & Construction ($2 million). The Company recorded restructuring charges for asset write-downs and write-offs for the nine months ended September 30, 2018, of $167 million, related to Agriculture ($138 million), Safety & Construction ($5 million), Packaging & Specialty Plastics ($4 million), Electronics & Imaging ($2 million) and Corporate ($18 million). The restructuring charges for asset write-downs and write-offs aligned with Agriculture for the three and nine months ended September 30, 2018, related primarily to the consolidation or shutdown of manufacturing, R&D and other non-manufacturing facilities and the write-down of inventory.

The Company recorded restructuring charges of $9 million for costs associated with exit and disposal activities for the three months ended September 30, 2018 related to Agriculture ($8 million) and Corporate ($1 million). The Company recorded restructuring charges of $76 million for costs associated with exit and disposal activities for the nine months ended September 30, 2018 related to Agriculture (charge of $45 million), Industrial Intermediates & Infrastructure (charge of $11 million), Packaging & Specialty Plastics (charge of $3 million), Transportation & Advanced Polymers (benefit of $1 million), Safety & Construction (charge of $16 million) and Corporate (charge of $2 million).

The Company expects to incur additional costs in the future related to its restructuring activities. 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.

Restructuring Plans Initiated Prior to Merger
Dow 2016 Restructuring Plan
The 2016 restructuring activities were substantially complete at June 30, 2018, with remaining liabilities for severance and related benefit costs and costs associated with exit and disposal activities to be settled over time.

Asset Impairments
During the three months ended September 30, 2018, the Company recognized an $85 million pretax impairment charge in “Restructuring and asset related charges - net” in the consolidated statements of income related to certain in-process research and development (“IPR&D") assets within the Agriculture segment.
In addition, based on updated projections for the Company’s equity method investments in joint ventures in China related to the Agriculture segment, management determined the fair value of the equity method investments is below the carrying value and has no expectation the fair value will recover due to the continuing unfavorable regulatory environment, including lack of intellectual property protection, uncertain product registration timing and limited freedom to operate. As a result, management concluded the impairment is other than temporary and recorded an impairment charge of $41 million in “Restructuring and asset related charges - net” in the consolidated statements of income. See Notes 10 and 19 for additional information.

25


NOTE 6 - SUPPLEMENTARY INFORMATION
The Company uses "Sundry income (expense) – net" to record a variety of income and expense items such as foreign currency exchange gains and losses, interest income, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other postretirement benefit plan credits or costs, and certain litigation matters. For the three months ended September 30, 2018, "Sundry income (expense) - net" was income of $47 million (income of $394 million for the three months ended September 30, 2017). For the nine months ended September 30, 2018, "Sundry income (expense) - net" was income of $340 million (income of $272 million for the nine months ended September 30, 2017).

The following table provides the most significant transactions recorded in "Sundry income (expense) - net" for the three and nine months ended September 30, 2018 and 2017:
            
Sundry Income (Expense) - Net
Three Months Ended
Nine Months Ended
In millions
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Non-operating pension and other postretirement benefit plan net credit 1
$
109

$
34

$
332

$
36

Interest income
$
38

$
39

$
144

$
86

Gain (loss) on sales of other assets and investments 2
$
(3
)
$
11

$
66

$
148

Adjustments related to Dow Silicones ownership restructure
$
(6
)
$

$
(47
)
$

Foreign exchange gains (losses), net 3
$
(103
)
$
72

$
(308
)
$
16

Gain on divestiture of Dow's EAA Business 4
$

$
227

$

$
227

Gain related to Nova patent infringement award 5
$

$

$

$
137

Loss related to Dow's Bayer CropScience arbitration matter 5
$

$

$

$
(469
)
1.
Presented in accordance with newly implemented ASU 2017-07. See Notes 1 and 2 for additional information.
2.
Includes a $20 million gain in the first quarter of 2018 related to Dow's sale of its equity interest in MEGlobal.
3.
Includes a $50 million foreign exchange loss in the first quarter of 2018 related to adjustments to DuPont's foreign currency exchange contracts as a result of U.S. tax reform.
4.
See Note 3 for additional information.
5.
See Note 13 for additional information.

Accounts and Notes Receivable - Trade
“Accounts and notes receivable - Trade” in the consolidated balance sheets was $14,542 million at September 30, 2018 and $11,314 million at December 31, 2017. Notes receivable, which is a component of “Accounts and notes receivable - Trade," was $1,735 million at September 30, 2018 and $309 million at December 31, 2017. The increase was primarily due to normal seasonality in the sales and cash collections cycle in the Agriculture segment. No other components of “Accounts and notes receivable - Trade” were more than 10 percent of the total of “Accounts and notes receivable - Trade."

Accrued and Other Current Liabilities
"Accrued and other current liabilities" in the consolidated balance sheets were $6,152 million at September 30, 2018 and $8,409 million at December 31, 2017. Accrued payroll, which is a component of "Accrued and other current liabilities," was $1,563 million at September 30, 2018 and $1,931 million at December 31, 2017. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.

Cash, Cash Equivalents and Restricted Cash
The Company is required to set aside funds for various activities that arise in the normal course of business including, but not limited to, insurance contracts, legal matters and other agreements. These funds typically have legal restrictions associated with them and are deposited in an escrow account or held in a separately identifiable account by the Company. At September 30, 2018, the Company had restricted cash of $537 million ($577 million at December 31, 2017).

DuPont entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring DuPont to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. At September 30, 2018, $506 million of the restricted cash balance was related to the Trust ($558 million at December 31, 2017).



26


NOTE 7 - INCOME TAXES
On December 22, 2017, The Act was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves towards a territorial system. At September 30, 2018, the Company has not completed its accounting for the tax effects of The Act; however, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118, income tax effects of The Act may be refined upon obtaining, preparing, or analyzing additional information during the measurement period and such changes could be material. During the measurement period, provisional amounts may also be adjusted for the effects, if any, of interpretative guidance issued by U.S. regulatory and standard-setting bodies.

As a result of The Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. However, the Company is still analyzing certain aspects of The Act and refining its calculations. In the three and nine months ended September 30, 2018, benefits of $127 million and $103 million, respectively, were recorded to “Provision for income taxes on continuing operations" in the consolidated statements of income to adjust the provisional amount related to the remeasurement of the Company's deferred tax balance, resulting in a net benefit of $2,769 million since the enactment of The Act. Of the benefit recorded in the three months ended September 30, 2018, $154 million relates to Dow's and DuPont's discretionary pension contributions in 2018, which were deducted on 2017 tax returns.

The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”), which results in a one-time transition tax. The Company has not yet completed its calculation of the total post-1986 foreign E&P for its foreign subsidiaries as E&P will not be finalized until the fourth quarter of 2018, after the federal income tax return is filed. The Company recorded a charge of $11 million for the three and nine months ended September 30, 2018 to "Provision for income taxes on continuing operations." To date, the Company has recorded a cumulative provisional charge of $1,591 million with respect to the one-time transition tax.

In the nine months ended September 30, 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to the inventory was a $54 million charge to "Provision for income taxes on continuing operations."

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

During the three months ended September 30, 2018, it was determined that a full valuation allowance against the net deferred tax asset position of a DuPont legal entity in Brazil was required. This determination was based on a change in judgment about the realizability of the deferred tax asset due to revised cash flow projections reflecting expected declines in the sales and profitability associated with the Agriculture segment. As a result, the Company recognized a tax charge of $75 million in the three and nine months ended September 30, 2018.

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

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

During 2018, the Company has and expects to continue repatriating certain funds from its foreign subsidiaries that are not needed to finance local operations or separation activities. During the three and nine months ended September 30, 2018, the Company recorded a tax charge of $61 million associated with these repatriation activities to "Provision for income taxes on continuing operations."

As a result of the Merger and subsequent change in ownership, certain net operating loss carryforwards available for Dow's consolidated German tax group were derecognized. In addition, the sale of stock between two Dow consolidated subsidiaries in 2014 created a gain that was initially deferred for tax purposes. This deferred gain became taxable as a result of activities executed in anticipation of the Intended Business Separations. As a result, in the third quarter of 2017, the Company decreased “Deferred

27


income tax assets” in the consolidated balance sheets and recorded a charge to “Provision for income taxes on continuing operations” of $267 million.

Each year the Company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.

28


NOTE 8 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for the three and nine months ended September 30, 2018 and 2017:

Net Income for Earnings Per Share Calculations - Basic
Three Months Ended
Nine Months Ended

In millions
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Income from continuing operations, net of tax
$
535

$
554

$
3,491

$
2,828

Net income attributable to noncontrolling interests
(38
)
(20
)
(117
)
(85
)
Net income attributable to participating securities 1
(2
)
(3
)
(15
)
(13
)
Income from continuing operations attributable to common stockholders
$
495

$
531

$
3,359

$
2,730

Loss from discontinued operations, net of tax

(20
)
(5
)
(20
)
Net income attributable to common stockholders
$
495

$
511

$
3,354

$
2,710


Earnings Per Share Calculations - Basic
Three Months Ended
Nine Months Ended
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Dollars per share
Income from continuing operations attributable to common stockholders
$
0.22

$
0.33

$
1.45

$
2.05

Loss from discontinued operations, net of tax

(0.01
)

(0.01
)
Net income attributable to common stockholders
$
0.22

$
0.32

$
1.45

$
2.04


Net Income for Earnings Per Share Calculations - Diluted
Three Months Ended
Nine Months Ended
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
In millions
Income from continuing operations, net of tax
$
535

$
554

$
3,491

$
2,828

Net income attributable to noncontrolling interests
(38
)
(20
)
(117
)
(85
)
Net income attributable to participating securities 1
(2
)
(3
)
(15
)
(13
)
Income from continuing operations attributable to common stockholders
$
495

$
531

$
3,359

$
2,730

Loss from discontinued operations, net of tax

(20
)
(5
)
(20
)
Net income attributable to common stockholders
$
495

$
511

$
3,354

$
2,710


Earnings Per Share Calculations - Diluted
Three Months Ended
Nine Months Ended
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Dollars per share
Income from continuing operations attributable to common stockholders
$
0.21

$
0.33

$
1.44

$
2.02

Loss from discontinued operations, net of tax

(0.01
)

(0.01
)
Net income attributable to common stockholders
$
0.21

$
0.32

$
1.44

$
2.01


Share Count Information
Three Months Ended
Nine Months Ended
Sep 30, 2018
Sep 30, 2017
Sep 30, 2018
Sep 30, 2017
Shares in millions
Weighted-average common shares - basic 2
2,296.2

1,577.8

2,307.3

1,330.7

Plus dilutive effect of equity compensation plans 2
15.1

17.5

15.8

18.1

Weighted-average common shares - diluted 2
2,311.3

1,595.3

2,323.1

1,348.8

Stock options and restricted stock units excluded from EPS calculations 3
9.6

2.2

8.2

1.8

1.
Dow restricted stock units (formerly termed deferred stock) are considered participating securities due to Dow's practice of paying dividend equivalents on unvested shares.
2.
As a result of the Merger, the share amounts for the three and nine months ended September 30, 2017, reflect a weighted averaging effect of Dow shares outstanding prior to August 31, 2017 and DowDuPont shares outstanding on and after August 31, 2017.
3.
These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.

29


NOTE 9 - INVENTORIES
The following table provides a breakdown of inventories:

Inventories
Sep 30, 2018
Dec 31, 2017
In millions
Finished goods
$
9,535

$
9,701

Work in process
4,194

4,512

Raw materials
1,560

1,267

Supplies
1,198

1,296

Total
$
16,487

$
16,776

Adjustment of inventories to a LIFO basis
(46
)
216

Total inventories
$
16,441

$
16,992



NOTE 10 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table reflects the carrying amounts of goodwill by reportable segment: 

Goodwill
Agri-culture
Perf. Materials & Coatings
Ind. Interm. & Infrast.
Pack. & Spec. Plastics
Elect. & Imaging
Nutrition & Biosciences
Transp. & Adv. Polymers
Safety & Const.
Total
In millions
Net goodwill at Dec 31, 2017 1
$
14,873

$
3,689