10-Q 1 dowdupont1q19033119.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 March 31, 2019

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.)

974 Centre Road, Wilmington, DE 19805
(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 every Interactive Data File required to be submitted 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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
DWDP
New York Stock Exchange

The registrant had 2,246,387,858 shares of common stock, $0.01 par value, outstanding at April 30, 2019.



DOWDUPONT INC.

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2019

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.

Effective as of 5:00 p.m. on April 1, 2019, DowDuPont completed the previously announced separation of its materials science business into a separate and independent public company by way of a distribution of Dow Inc. (“Dow”) through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Dow’s common stock, par value $0.01 per share (the “Dow Common Stock”), to holders of the Company’s common stock, par value $0.01 per share (the “DowDuPont Common Stock”), as of the close of business on March 21, 2019 (the “Dow Distribution”). DowDuPont expects to complete the previously announced intended separation of its agriculture business into a separate and independent public company on June 1, 2019, by way of a distribution of Corteva, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Corteva”), through a pro rata dividend in-kind of all of the then-issued and outstanding shares of Corteva’s common stock, par value $0.01 per share, to holders of DowDuPont Common Stock as of a record date to be set by the Company’s Board of Directors (the “Corteva Distribution” and, together with the Dow Distribution, the “Distributions”). Following the Corteva Distribution, DowDuPont will hold the specialty products business and operate as "DuPont." The assets and liabilities attributed to the materials science and agriculture businesses are included in the Company's consolidated balance sheets presented herein as of March 31, 2019 and December 31, 2018. Additionally, the Company's consolidated statements of income presented herein for the three months ended March 31, 2019 and 2018 include the results of operations of the materials science and agriculture businesses.

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 “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” and similar expressions and variations or negatives of these words.
 
Forward-looking statements by their nature address matters that are, to varying degrees, uncertain, including statements about the Corteva Distribution. Forward-looking statements, including those related to DowDuPont’s ability to complete, or to make any filing or take any other action required to be taken to complete, the Corteva Distribution, are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. 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 actual results to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) ability and costs to achieve all the expected benefits from the Corteva Distribution and the April 1, 2019 distribution by DowDuPont of all of the shares of common stock of Dow Inc. on a pro rata basis to the holders of DowDuPont common stock; (ii) restrictions under intellectual property cross license agreements entered into or to be entered into in connection with the Corteva Distribution and the Dow Distribution; (iii) ability to receive third-party consents required under the Separation Agreement entered into in connection with the Corteva Distribution and the Dow Distribution; (iv) non-compete restrictions under the Separation Agreement entered into in connection with the Corteva Distribution and the Dow Distribution; (v) the incurrence of significant costs in connection with the Corteva Distribution and the Dow Distribution, including increased costs from supply, service and other arrangements that, prior to the Dow Distribution, were between entities under the common control of DowDuPont; (vi) risks outside the control of DowDuPont which could impact the decision of the DowDuPont Board of Directors to proceed with the Corteva Distribution, including, among others, global economic conditions, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile foreign currency exchange rates, tax considerations, other challenges that could affect the global economy, specific market conditions in one or more of the industries of the businesses proposed to be separated, and changes in the regulatory or legal environment and the requirement to redeem $12.7 billion of DowDuPont notes if the Corteva Distribution is abandoned or delayed beyond May 1, 2020; (vii) potential liability arising from fraudulent conveyance and similar laws in connection with the Corteva Distribution and/or the Dow Distribution; (viii) disruptions or business uncertainty, including from the Corteva Distribution, could adversely impact DowDuPont’s business or financial performance and its ability to retain and hire key personnel; (ix) uncertainty as to the long-term value of DowDuPont common stock; (x) potential inability to access the capital markets; and (xi) risks to DowDuPont’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

3


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 DowDuPont’s current, quarterly and annual reports and other filings made with the U.S. Securities and Exchange Commission ("SEC"), in each case, as may be amended from time to time in future filings with the SEC. 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 or Corteva, Inc.’s consolidated financial condition, results of operations, credit rating or liquidity. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. DowDuPont assumes no 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. 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 DowDuPont’s 2018 Annual Report on Form 10-K and in the section titled "Risk Factors" (Part II, Item 1A of this Form 10-Q).

4


PART I - FINANCIAL INFORMATION

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

 
Three Months Ended
In millions, except per share amounts (Unaudited)
Mar 31, 2019
Mar 31, 2018
Net sales
$
19,649

$
21,510

Cost of sales
14,726

16,315

Research and development expenses
717

768

Selling, general and administrative expenses
1,672

1,714

Amortization of intangibles
474

474

Restructuring and asset related charges - net
287

262

Integration and separation costs
813

457

Equity in earnings of nonconsolidated affiliates
26

257

Sundry income (expense) - net
248

115

Interest expense and amortization of debt discount
454

350

Income from continuing operations before income taxes
780

1,542

Provision for income taxes on continuing operations
209

389

Income from continuing operations, net of tax
571

1,153

Loss from discontinued operations, net of tax

(5
)
Net income
571

1,148

Net income attributable to noncontrolling interests
51

44

Net income available for DowDuPont Inc. common stockholders
$
520

$
1,104

 
 
 
 
 
 
Per common share data:
 
 
Earnings per common share from continuing operations - basic
$
0.23

$
0.47

Loss per common share from discontinued operations - basic


Earnings per common share - basic
$
0.23

$
0.47

Earnings per common share from continuing operations - diluted
$
0.23

$
0.47

Loss per common share from discontinued operations - diluted


Earnings per common share - diluted
$
0.23

$
0.47

 
 
 
Weighted-average common shares outstanding - basic
2,250.1

2,317.0

Weighted-average common shares outstanding - diluted
2,259.2

2,334.3

 
 
 
Depreciation
$
957

$
953

Capital expenditures
$
1,139

$
776

See Notes to the Consolidated Financial Statements.

5

DowDuPont Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended
In millions (Unaudited)
Mar 31, 2019
Mar 31, 2018
Net income
$
571

$
1,148

Other comprehensive income (loss), net of tax


Unrealized gains (losses) on investments
67

(25
)
Cumulative translation adjustments
(97
)
1,333

Pension and other postretirement benefit plans
135

130

Derivative instruments
(75
)
17

Total other comprehensive income
30

1,455

Comprehensive income
601

2,603

Comprehensive income attributable to noncontrolling interests, net of tax
57

38

Comprehensive income attributable to DowDuPont Inc.
$
544

$
2,565

See Notes to the Consolidated Financial Statements.

6

DowDuPont Inc.
Consolidated Balance Sheets

In millions, except share and per share amounts (Unaudited)
Mar 31, 2019
Dec 31, 2018
Assets
 
 
Current Assets
 
 
Cash and cash equivalents (variable interest entities restricted - 2019: $109; 2018: $82)
$
11,543

$
13,482

Marketable securities
119

134

Accounts and notes receivable:


  Trade (net of allowance for doubtful receivables - 2019: $204; 2018: $191)
13,963

12,376

  Other
4,783

4,963

Inventories
16,604

16,621

Other current assets
2,236

2,027

Total current assets
49,248

49,603

Investments


Investment in nonconsolidated affiliates
4,687

5,204

Other investments (investments carried at fair value - 2019: $1,797; 2018: $1,699)
2,791

2,701

Noncurrent receivables
415

477

Total investments
7,893

8,382

Property


Property
75,958

75,343

Less accumulated depreciation
40,383

39,495

Net property (variable interest entities restricted - 2019: $718; 2018: $734)
35,575

35,848

Other Assets


Goodwill
58,948

59,032

Other intangible assets (net of accumulated amortization - 2019: $7,865; 2018: $7,414)
30,467

30,965

Deferred income tax assets
1,853

1,724

Deferred charges and other assets
5,801

2,476

Total other assets
97,069

94,197

Total Assets
$
189,785

$
188,030

Liabilities and Equity
 
 
Current Liabilities
 
 
Notes payable
$
2,995

$
2,165

Long-term debt due within one year
4,009

637

Accounts payable:


  Trade
8,333

9,457

  Other
3,735

3,656

Income taxes payable
836

857

Accrued and other current liabilities
8,672

7,943

Total current liabilities
28,580

24,715

Long-Term Debt (variable interest entities nonrecourse - 2019: $43; 2018: $75)
34,966

37,662

Other Noncurrent Liabilities


Deferred income tax liabilities
5,229

5,435

Pension and other postretirement benefits - noncurrent
15,626

15,909

Asbestos-related liabilities - noncurrent
1,133

1,142

Other noncurrent obligations
10,153

6,988

Total other noncurrent liabilities
32,141

29,474

Stockholders' Equity


Common stock (authorized 5,000,000,000 shares of $0.01 par value each;
issued 2019: 2,358,630,709 shares; 2018: 2,352,430,301 shares)
24

24

Additional paid-in capital
82,125

81,960

Retained earnings
29,764

30,536

Accumulated other comprehensive loss
(12,364
)
(12,394
)
Unearned ESOP shares
(105
)
(134
)
Treasury stock at cost (2019: 112,316,990 shares; 2018: 83,452,554 shares)
(7,000
)
(5,421
)
DowDuPont's stockholders' equity
92,444

94,571

Noncontrolling interests
1,654

1,608

Total equity
94,098

96,179

Total Liabilities and Equity
$
189,785

$
188,030

See Notes to the Consolidated Financial Statements.

7

DowDuPont Inc.
Consolidated Statements of Cash Flows

 
Three Months Ended
In millions (Unaudited)
Mar 31, 2019
Mar 31, 2018
Operating Activities
 
 
Net income
$
571

$
1,148

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
Depreciation and amortization
1,519

1,484

Credit for deferred income tax
(342
)
(33
)
Earnings of nonconsolidated affiliates less than dividends received
767

374

Net periodic pension benefit cost (credit)
(8
)
31

Pension contributions
(153
)
(378
)
Net gain on sales of assets, businesses and investments
(43
)
(35
)
Restructuring and asset related charges - net
287

262

Amortization of Merger-related inventory step-up
205

703

Other net loss
94

269

Changes in assets and liabilities, net of effects of acquired and divested companies:
 
 
Accounts and notes receivable
(1,643
)
(3,143
)
Inventories
(194
)
(1,170
)
Accounts payable
(732
)
405

Other assets and liabilities, net
(302
)
(2,054
)
Cash provided by (used for) operating activities
26

(2,137
)
Investing Activities
 
 
Capital expenditures
(1,139
)
(776
)
Investment in gas field developments
(25
)
(28
)
Proceeds from sales of property and businesses, net of cash divested
125

33

Proceeds from sale of ownership interests in nonconsolidated affiliates
21


Purchases of investments
(189
)
(758
)
Proceeds from sales and maturities of investments
212

1,376

Proceeds from interests in trade accounts receivable conduits

445

Other investing activities, net
(5
)
(2
)
Cash provided by (used for) investing activities
(1,000
)
290

Financing Activities
 
 
Changes in short-term notes payable
798

196

Proceeds from issuance of long-term debt
1,000

253

Payments on long-term debt
(363
)
(85
)
Purchases of treasury stock
(1,579
)
(1,000
)
Proceeds from issuance of company stock
63

108

Transaction financing, debt issuance and other costs
(13
)

Employee taxes paid for share-based payment arrangements
(76
)
(103
)
Distributions to noncontrolling interests
(11
)
(27
)
Dividends paid to stockholders
(851
)
(880
)
Other financing activities, net

(5
)
Cash used for financing activities
(1,032
)
(1,543
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
50

208

Summary
 
 
Decrease in cash, cash equivalents and restricted cash
(1,956
)
(3,182
)
Cash, cash equivalents and restricted cash at beginning of period
14,022

14,015

Cash, cash equivalents and restricted cash at end of period
$
12,066

$
10,833

Less: Restricted cash and cash equivalents, included in "Other current assets"
523

552

Cash and cash equivalents at end of period
$
11,543

$
10,281

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
2018
 
 
 
 
 
 
 
 
Balance at Dec 31, 2017
$
23

$
81,257

$
29,211

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

$
101,927

Adoption of accounting standards


(61
)
20




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


1,104





1,104

Other comprehensive income



1,455




1,455

Dividends ($0.38 per common share)


(880
)




(880
)
Common stock issued/sold

108






108

Stock-based compensation and allocation of ESOP shares

153



39



192

Impact of noncontrolling interests






67

67

Treasury stock purchases





(1,000
)

(1,000
)
Other


(8
)




(8
)
Balance at Mar 31, 2018
$
23

$
81,518

$
29,366

$
(7,497
)
$
(150
)
$
(2,000
)
$
1,664

$
102,924

2019
 
 
 
 
 
 
 
 
Balance at Dec 31, 2018
$
24

$
81,960

$
30,536

$
(12,394
)
$
(134
)
$
(5,421
)
$
1,608

$
96,179

Adoption of accounting standards (Notes 2, 10 and 15)


(111
)




(111
)
Net income available for DowDuPont Inc. common stockholders


520





520

Other comprehensive income



30




30

Dividends ($0.52 per common share)


(1,176
)




(1,176
)
Common stock issued/sold

63






63

Stock-based compensation and allocation of ESOP shares

102



29



131

Impact of noncontrolling interests






46

46

Treasury stock purchases





(1,579
)

(1,579
)
Other


(5
)




(5
)
Balance at Mar 31, 2019
$
24

$
82,125

$
29,764

$
(12,364
)
$
(105
)
$
(7,000
)
$
1,654

$
94,098

See Notes to the Consolidated Financial Statements.


9


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents



10


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the interim consolidated financial statements reflect all adjustments (including normal recurring accruals) which are considered necessary for the fair statement of the results for the periods presented. Results from interim periods should not be considered indicative of results for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The interim consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained.

Basis of Presentation
Effective August 31, 2017, pursuant to the merger of equals transaction 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 ("Historical Dow") and E. I. du Pont de Nemours and Company ("Historical DuPont") each merged with subsidiaries of DowDuPont and, as a result, Historical Dow and Historical 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. Historical Dow was determined to be the accounting acquirer in the Merger.

Except as otherwise indicated by the context, the term "Historical Dow" includes Historical Dow and its consolidated subsidiaries, "Historical DuPont" includes Historical DuPont and its consolidated subsidiaries, "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of Historical Dow, and "Dow Silicones" means Dow Silicones Corporation, a wholly owned subsidiary of Historical Dow.

Significant Accounting Policies
The Company updated its accounting policy for leases since the issuance of its Annual Report on Form 10-K for the year ended December 31, 2018 as a result of the adoption of Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" in the first quarter of 2019. See Notes 2 and 15 for additional information. See Note 1, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for more information on DowDuPont's other significant accounting policies.

Leases
The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use ("ROU") assets are included in "Deferred charges and other assets" on the consolidated balance sheets. Operating lease liabilities are included in "Accrued and other current liabilities" and "Other noncurrent obligations" on the consolidated balance sheets. Finance lease ROU assets are included in "Property" and the corresponding lease liabilities are included in "Long-term debt due within one year" and "Long-term debt" on the consolidated balance sheets.  

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide the lessor's implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.



11


NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, "Leases (Topic 842)," and associated ASUs related to 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, 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 requires 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 legacy U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance, "Revenue from Contracts with Customers (Topic 606)," issued in 2014.

The Company adopted the new standard in the first quarter of 2019, which allows for a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial adoption. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statement as its date of initial application. The Company has elected to apply the transition requirements at the January 1, 2019 effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods are not restated and continue to be reported in accordance with historic accounting under ASC 840 "Leases". In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company chose to not apply the standard to certain existing land easements, excluded short-term leases (term of 12 months or less) from the balance sheet and accounts for nonlease and lease components in a contract as a single component for all asset classes. The following table summarizes the impact of adoption to the consolidated balance sheet:

Summary of Changes to the Consolidated Balance Sheet
As Reported
Dec 31, 2018
Effect of Adoption of ASU 2016-02
Updated
Jan 1, 2019
In millions
Assets
 
 
 
Net property
$
35,848

$
9

$
35,857

Deferred income tax assets
$
1,724

$
(24
)
$
1,700

Deferred charges and other assets
$
2,476

$
3,386

$
5,862

Total other assets
$
94,197

$
3,362

$
97,559

Total Assets
$
188,030

$
3,371

$
191,401

Liabilities
 
 


Long-term debt due within one year
$
637

$
1

$
638

Accrued and other current liabilities
$
7,943

$
721

$
8,664

Total current liabilities
$
24,715

$
722

$
25,437

Long-Term Debt
$
37,662

$
8

$
37,670

Other noncurrent obligations
$
6,988

$
2,569

$
9,557

Total other noncurrent liabilities
$
29,474

$
2,569

$
32,043

Stockholders' Equity
 
 


Retained earnings 1
$
30,536

$
72

$
30,608

DowDuPont's stockholders' equity
$
94,571

$
72

$
94,643

Total equity
$
96,179

$
72

$
96,251

Total Liabilities and Equity
$
188,030

$
3,371

$
191,401

1. The net impact to retained earnings was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction.

The adoption of the new guidance did not have a material impact on the Company's consolidated statement of income and had no impact on the consolidation statement of cash flows.


12


Accounting Guidance Issued But Not Adopted at March 31, 2019
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 2018-15, "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 - INTENDED BUSINESS SEPARATIONS
As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, DowDuPont previously announced its intent to separate into three independent publicly traded companies - one for each of its agriculture, materials science and specialty products businesses (the “Intended Business Separations” and the transactions to accomplish the Intended Business Separations, the “separations”). DowDuPont formed two wholly owned subsidiaries: Dow Inc. ("Dow", formerly known as Dow Holdings Inc.), to serve as a holding company for its materials science business, and Corteva, Inc., to serve as a holding company for its agriculture business. Following the separations, DowDuPont will continue to hold the specialty products business and operate as "DuPont".

Effective as of 5:00 p.m. on April 1, 2019, DowDuPont completed the distribution of Dow. DowDuPont expects to complete the intended separation of Corteva on June 1, 2019. See Note 24 for additional information.

Integration and Separation Costs
The Company incurred "Integration and separation costs," of $813 million and $457 million for the three months ended March 31, 2019 and 2018, respectively, recorded in the consolidated statements of income. These costs 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. Integration and separation costs related to post-Merger integration and Intended Business Separation activities are expected to continue to be significant throughout 2019.


NOTE 4 - REVENUE
Revenue Recognition
The majority of the Company's revenue is derived from product sales. In the three months ended March 31, 2019, 98 percent of the Company's sales related to product sales (98 percent in the three months ended March 31, 2018) with the remaining balance primarily related to licensing of patents and technologies and Historical Dow's insurance operations. Product sales consist of sales of the Company's products to manufacturers, distributors and farmers and considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. The Company enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from the Company's licenses for patents and technology is derived from sales-based royalties and licensing arrangements based on billing schedules established in each contract.

Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. At March 31, 2019, the Company had remaining performance obligations related to material rights granted to customers for contract renewal options of $100 million ($102 million at December 31, 2018) and unfulfilled performance obligations for the licensing of technology of $519 million ($407 million at December 31, 2018). The Company expects revenue to be recognized for the remaining performance obligations over the next one to six years.


13


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.

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.

Net Trade Sales by Segment and Business or Major Product Line 1
Three Months Ended
In millions
Mar 31, 2019
Mar 31, 2018
Crop Protection
$
1,425

$
1,495

Seed
1,972

2,313

Agriculture
$
3,397

$
3,808

Coatings & Performance Monomers
$
890

$
941

Consumer Solutions
1,365

1,363

Performance Materials & Coatings
$
2,255

$
2,304

Industrial Solutions
$
1,103

$
1,155

Polyurethanes & CAV
2,296

2,556

Other
3

4

Industrial Intermediates & Infrastructure
$
3,402

$
3,715

Hydrocarbons & Energy
$
1,380

$
1,800

Packaging and Specialty Plastics
3,730

4,210

Packaging & Specialty Plastics
$
5,110

$
6,010

Advanced Printing
$
119

$
122

Display Technologies
84

60

Interconnect Solutions
238

281

Photovoltaic & Advanced Materials
254

289

Semiconductor Technologies
383

401

Electronics & Imaging
$
1,078

$
1,153

Industrial Biosciences
$
494

$
541

Nutrition & Health
1,165

1,179

Nutrition & Biosciences
$
1,659

$
1,720

Engineering Polymers
$
663

$
668

Performance Resins
308

351

Performance Solutions
384

406

Transportation & Advanced Polymers
$
1,355

$
1,425

Aramids
$
424

$
393

Construction
327

385

TYVEK® Enterprise
310

292

Water Solutions
261

229

Safety & Construction
$
1,322

$
1,299

Corporate
$
71

$
76

Total
$
19,649

$
21,510

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.


14


Net Trade Sales by Geographic Region
Three Months Ended
In millions
Mar 31, 2019
Mar 31, 2018
U.S. & Canada
$
7,014

$
7,909

EMEA 1
6,269

6,919

Asia Pacific
4,639

4,790

Latin America
1,727

1,892

Total
$
19,649

$
21,510

1.
Europe, Middle East and Africa.

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 three months of 2019 from amounts included in contract liabilities at the beginning of the period was approximately $525 million (approximately $640 million in the first three months of 2018). The increase in contract liabilities from December 31, 2018 to March 31, 2019 was primarily due to advanced payments received from customers for product supply agreements related to Agriculture and one customer related to Packaging & Specialty Plastics, partially offset by Agriculture seed deliveries to customers for the North America growing season, which were delayed due to weather conditions. In the first three months of 2019, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was insignificant (insignificant in the first three months of 2018). The Company did not recognize any asset impairment charges related to contract assets during the period.

Contract Balances

Mar 31, 2019

Dec 31, 2018
In millions
Accounts and notes receivable - Trade
$
13,963

$
12,376

Contract assets - current 1
$
62

$
85

Contract assets - noncurrent 2
$
47

$
47

Contract liabilities - current 3
$
2,266

$
2,092

Contract liabilities - noncurrent 4
$
1,767

$
1,420

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
Charges for restructuring programs and other asset related charges, which includes other asset impairments, were $287 million for the three months ended March 31, 2019 ($262 million for the three months ended March 31, 2018). These charges were recorded in "Restructuring and asset related charges - net" in the consolidated statements of income and consist primarily of the following:

DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the “Synergy Program”), which was designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations. The Company expects to record total pretax restructuring charges of approximately $2,200 million of which the Company recorded pretax restructuring charges of $2,027 million inception-to-date, consisting of severance and related benefit costs of $1,045 million, asset write-downs and write-offs of $695 million and costs associated with exit and disposal activities of $287 million.


15


For the three months ended March 31, 2019, the Company recorded pretax restructuring charges of $280 million of which $279 million was recorded in "Restructuring and asset related charges - net" and $1 million was recorded in "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income. The charge for the three months ended March 31, 2019 consisted of severance and related benefit costs of $112 million, asset write-downs and write-offs of $116 million, and costs associated with exit and disposal activities of $52 million. For the three months ended March 31, 2018, the Company recorded pretax restructuring charges of $260 million in "Restructuring and asset related charges - net." The charge for the three months ended March 31, 2018 consisted of severance and related benefit costs of $172 million, asset write-downs and write-offs of $48 million and costs associated with exit and disposal activities of $40 million. The Company expects to substantially complete the Synergy Program by the end of 2019.

The following table summarizes the activities related to the Synergy Program. At March 31, 2019, $464 million was included in "Accrued and other current liabilities" ($490 million at December 31, 2018) and $99 million was included in "Other noncurrent obligations" ($84 million at December 31, 2018) 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
Reserve balance at Dec 31, 2018
$
491

$

$
83

$
574

2019 restructuring charges
112

116

52

280

Charges against the reserve

(115
)

(115
)
Cash payments
(140
)

(36
)
(176
)
Reserve balance at Mar 31, 2019
$
463

$
1

$
99

$
563


Restructuring charges recorded for severance and related benefit costs were related to Corporate. The Company recorded $116 million of restructuring charges for asset write-downs and write-offs for the three months ended March 31, 2019, related to Nutrition & Biosciences ($10 million), Agriculture ($28 million), Safety & Construction ($2 million) Transportation & Advanced Polymers ($1 million), Packaging & Specialty Plastics ($1 million) and Corporate ($74 million). The asset write-downs and write-offs primarily related to the impairment of leased, non-manufacturing facilities and the write down of inventory.

The Company recorded restructuring charges of $52 million for costs associated with exit and disposal activities for the three months ended March 31, 2019, related to Agriculture ($19 million), Nutrition & Biosciences ($18 million) and Corporate ($15 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 which 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.

DowDuPont Agriculture Division Restructuring Program
During the fourth quarter of 2018 and in connection with the ongoing integration activities, DowDuPont approved restructuring actions to simplify and optimize certain organizational structures within the Agriculture segment in preparation for the Intended Business Separations ("Agriculture Division Program"). As a result of these actions, the Company expects to record total pretax charges of approximately $96 million, comprised of $83 million of severance and related benefit costs, $11 million of asset write-downs and write-offs and $2 million of costs associated with exit and disposal activities.

For the three months ended March 31, 2019, DowDuPont recorded a net pretax restructuring benefit of $1 million, consisting of a favorable adjustment of $4 million to the severance and related benefit costs reserve and asset write-downs and write-offs of $3 million. The impact of these items are shown as "Restructuring and asset related charges - net" in the consolidated statements of income. The Company expects actions related to the Agriculture Division Program to be substantially complete by mid 2019.

The Company recorded pretax restructuring charges of $83 million inception-to-date under the Agriculture Division Program, consisting of severance and related benefit costs of $74 million and asset write-downs and write-offs of $9 million.

16


The following table summarizes the activities related to the Agriculture Division Program. At March 31, 2019, $58 million ($77 million at December 31, 2018) was included in "Accrued and other current liabilities" in the consolidated balance sheets.

Agriculture Division Program
Severance and Related Benefit Costs
Asset Write-downs and Write-offs
Total
(In millions)
Reserve balance at Dec 31, 2018
$
77

$

$
77

2019 restructuring charges and adjustments 1
(4
)
3

(1
)
Charges against the reserve

(3
)
(3
)
Cash payments
(15
)

(15
)
Reserve balance at Mar 31, 2019
$
58

$

$
58

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

Restructuring adjustments recorded for severance and related benefit costs and charges recorded for asset write-downs and write‑offs were related to Corporate and Agriculture, respectively.


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 other assets, non-operating pension and other postretirement benefit plan credits or costs, and certain litigation matters. For the three months ended March 31, 2019, "Sundry income (expense) - net" was income of $248 million (income of $115 million for the three months ended March 31, 2018).

The following table provides the most significant transactions recorded in "Sundry income (expense) - net" for the three months ended March 31, 2019 and 2018:

Sundry Income (Expense) - Net
Three Months Ended
In millions
Mar 31, 2019
Mar 31, 2018
Non-operating pension and other postretirement benefit plan net credit
$
108

$
110

Interest income
$
75

$
55

Gains on sales of other assets and investments, net 1
$
50

$
34

Foreign exchange losses, net 2
$
(11
)
$
(148
)
1.
Includes a $51 million gain related to a sale of assets by Historical DuPont and $24 million loss related to Historical Dow's sale of a joint venture in the first quarter of 2019. Includes a $20 million gain in the first quarter of 2018 related to Historical Dow's sale of its equity interest in MEGlobal.
2.
Includes a $50 million foreign exchange loss in the first quarter of 2018 related to adjustments to Historical DuPont's foreign currency exchange contracts as a result of U.S. tax reform.

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 March 31, 2019, the Company had restricted cash of $523 million ($540 million at December 31, 2018), included in "Other current assets" in the consolidated balance sheets.

Historical DuPont entered into a trust agreement in 2013 (as amended and restated in 2017), establishing and requiring Historical 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 March 31, 2019, $480 million of the restricted cash balance was related to the Trust ($500 million at December 31, 2018).


17


NOTE 7 - INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax 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 December 31, 2018, the Company had completed its accounting for the tax effects of The Act.

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. In the first quarter of 2018, the Company recorded a charge of $17 million 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.

In the first quarter of 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."

During the first and second quarters of 2019, in connection with the Intended Business Separations, 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 months ended March 31, 2019, the Company recorded a tax charge of $13 million associated with these repatriation activities to "Provision for income taxes on continuing operations." Beyond these expected repatriations, the Company is still asserting indefinite reinvestment related to certain investments in foreign subsidiaries.

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.



18


NOTE 8 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for the three months ended March 31, 2019 and 2018:

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

In millions
Mar 31, 2019
Mar 31, 2018
Income from continuing operations, net of tax
$
571

$
1,153

Net income attributable to noncontrolling interests
(51
)
(44
)
Net income attributable to participating securities 1
(1
)
(6
)
Income from continuing operations attributable to common stockholders
$
519

$
1,103

Loss from discontinued operations, net of tax

(5
)
Net income attributable to common stockholders
$
519

$
1,098


Earnings Per Share Calculations - Basic
Three Months Ended
Mar 31, 2019
Mar 31, 2018
Dollars per share
Income from continuing operations attributable to common stockholders
$
0.23

$
0.47

Loss from discontinued operations, net of tax


Net income attributable to common stockholders
$
0.23

$
0.47


Net Income for Earnings Per Share Calculations - Diluted
Three Months Ended
Mar 31, 2019
Mar 31, 2018
In millions
Income from continuing operations, net of tax
$
571

$
1,153

Net income attributable to noncontrolling interests
(51
)
(44
)
Net income attributable to participating securities 1
(1
)
(6
)
Income from continuing operations attributable to common stockholders
$
519

$
1,103

Loss from discontinued operations, net of tax

(5
)
Net income attributable to common stockholders
$
519

$
1,098


Earnings Per Share Calculations - Diluted
Three Months Ended
Mar 31, 2019
Mar 31, 2018
Dollars per share
Income from continuing operations attributable to common stockholders
$
0.23

$
0.47

Loss from discontinued operations, net of tax


Net income attributable to common stockholders
$
0.23

$
0.47


Share Count Information
Three Months Ended
Mar 31, 2019
Mar 31, 2018
Shares in millions
Weighted-average common shares - basic
2,250.1

2,317.0

Plus dilutive effect of equity compensation plans
9.1

17.3

Weighted-average common shares - diluted
2,259.2

2,334.3

Stock options and restricted stock units excluded from EPS calculations 2
19.2

5.3

1.
Historical Dow restricted stock units are considered participating securities due to Historical Dow's practice of paying dividend equivalents on unvested shares.
2.
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.

19


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

Inventories
Mar 31, 2019
Dec 31, 2018
In millions
Finished goods
$
10,060

$
9,814

Work in process
3,561

3,969

Raw materials
1,461

1,419

Supplies
1,276

1,321

Total
$
16,358

$
16,523

Adjustment of inventories to a LIFO basis
246

98

Total inventories
$
16,604

$
16,621



NOTE 10 - NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates"), by classification in the consolidated balance sheets, are shown in the following table:

Investments in Nonconsolidated Affiliates
Mar 31, 2019
Dec 31, 2018
In millions
Investment in nonconsolidated affiliates
$
4,687

$
5,204

Accrued and other current liabilities
(81
)
(81
)
Other noncurrent obligations
(870
)
(495
)
Net investment in nonconsolidated affiliates
$
3,736

$
4,628


HSC Group
The carrying value of the Company's investments in the HSC Group, which includes Hemlock Semiconductor L.L.C. and DC HSC Holdings LLC, was adjusted as a result of the HSC Group's adoption of Topic 606. The resulting impact to the Company's investments in the HSC Group was a reduction to "Investment in nonconsolidated affiliates" of $71 million and an increase to "Other noncurrent obligations" of $168 million, as well as an increase to "Deferred income tax assets" of $56 million and a reduction to "Retained earnings" of $183 million in the consolidated balance sheet at January 1, 2019. The following table reflects the carrying value of the HSC Group investments at March 31, 2019 and December 31, 2018:

Investment in the HSC Group
 
Investment
In millions
Balance Sheet Classification
Mar 31, 2019
Dec 31, 2018
Hemlock Semiconductor L.L.C.
Other noncurrent obligations
$
(658
)
$
(495
)
DC HSC Holdings LLC
Investment in nonconsolidated affiliates
$
485

$
535


EQUATE
In the first quarter of 2019, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") paid a dividend of $440 million, reflected in "Earnings of nonconsolidated affiliates less than dividends received" in the consolidated statements of cash flows. As a result, the Company had a negative investment balance in EQUATE of $212 million at March 31, 2019, classified as "Other noncurrent obligations" in the consolidated balance sheets. At December 31, 2018, the Company had an investment balance in EQUATE of $131 million, classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets.



20


NOTE 11 - 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, 2018
$
14,689

$
3,650

$
1,096

$
5,101

$
8,188

$
12,643

$
6,967

$
6,698

$
59,032

Foreign currency impact
11

(20
)
(2
)
(7
)
(3
)
(29
)
(15
)
(19
)
(84
)
Net goodwill at Mar 31, 2019
$
14,700

$
3,630

$
1,094

$
5,094

$
8,185

$
12,614

$
6,952

$
6,679

$
58,948


Other Intangible Assets
The following table provides information regarding the Company's other intangible assets:

Other Intangible Assets
Mar 31, 2019
Dec 31, 2018
In millions
Gross
Carrying
Amount
Accum Amort
Net
Gross Carrying Amount
Accum Amort
Net
Intangible assets with finite lives:
 
 
 
 
 
 
  Developed technology 1
$
8,179

$
(2,731
)
$
5,448

$
7,761

$
(2,562
)
$
5,199

  Software
1,539

(900
)
639

1,529

(876
)
653

  Trademarks/tradenames
1,763

(773
)
990

1,772

(745
)
1,027

  Customer-related
14,208

(3,095
)
11,113

14,236

(2,895
)
11,341

  Microbial cell factories
384

(26
)
358

386

(22
)
364

  Favorable supply contracts 
493

(136
)
357

475

(111
)
364

  Other 2
612

(204
)
408

620

(203
)
417

Total other intangible assets with finite lives
$
27,178

$
(7,865
)
$
19,313

$
26,779

$
(7,414
)
$
19,365

Intangible assets with indefinite lives:
 
 
 
 
 
 
  IPR&D 1
149


149

594


594

  Germplasm 3
6,265


6,265

6,265


6,265

  Trademarks/tradenames
4,740


4,740

4,741


4,741

Total other intangible assets
$
38,332

$
(7,865
)
$
30,467

$
38,379

$
(7,414
)
$
30,965

1.
During the first quarter of 2019, Historical DuPont announced an expanded launch of its Qrome® corn hybrids following the receipt of regulatory approval from China. As a result, Historical DuPont reclassified the amounts from indefinite-lived IPR&D to developed technology.
2.
Primarily consists of sales and grower networks, marketing and manufacturing alliances and noncompetition agreements.
3.
Germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual or other factors which limit its useful life.

The following table provides information regarding amortization expense related to other intangible assets:
Amortization Expense
Three Months Ended
In millions
Mar 31, 2019
Mar 31, 2018
Other intangible assets, excluding software
$
474

$
474

Software, included in "Cost of sales"
$
25

$
23


Total estimated amortization expense for 2019 and the five succeeding fiscal years is as follows:
Estimated Amortization Expense
 
In millions
 
2019
$
2,008

2020
$
1,893

2021
$
1,851

2022
$
1,760

2023
$
1,612

2024
$
1,500



21


NOTE 12 - TRANSFERS OF FINANCIAL ASSETS
Historical Dow sold trade accounts receivable of select North American entities and qualifying trade accounts receivable of select European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). The proceeds received were comprised of cash and interests in specified assets of the conduits (the receivables sold by Historical Dow) that entitled Historical Dow to the residual cash flows of such specified assets in the conduits after the commercial paper was repaid. Neither the conduits nor the investors in those entities had recourse to other assets of Historical Dow in the event of nonpayment by the debtors.

In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In September and October 2018, the North American and European facilities, respectively, were amended and the terms of the agreements changed from off-balance sheet arrangements to secured borrowing arrangements. See Note 13 for additional information on the secured borrowing arrangements.

The following represents the cash flows between Historical Dow and the conduits:

 
Cash Proceeds
Three Months Ended
 
In millions
Mar 31, 2019
Mar 31, 2018
 
 
Interests in conduits 1
$

$
445

1.
Presented in "Investing Activities" in the consolidated statements of cash flows.


NOTE 13 - NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
A summary of Historical Dow's and Historical DuPont's notes payable, long-term debt and available credit facilities can be found in Note 15 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. If applicable, updates have been included in the respective section below.

2019 Activity
In the first three months of 2019, Historical Dow redeemed an aggregate principal amount of $72 million of International Notes at maturity.

In March 2019, Historical DuPont fully repaid $262 million of 5.75 percent coupon bonds at maturity.

DowDuPont Notes
In contemplation of the separations and distributions and in preparation to achieve the intended credit profiles of Corteva, Dow and DuPont, in the fourth quarter of 2018, DowDuPont consummated a public underwritten offer of eight series of senior unsecured notes (the "DowDuPont Notes") in an aggregate principal amount of $12.7 billion. The DowDuPont Notes are a senior unsecured obligation of the Company and will rank equally with the Company's future senior unsecured debt outstanding from time to time. On November 1, 2018, the Company announced a $3.0 billion share buyback program, which expired on March 31, 2019. In the first quarter of 2019, proceeds from the DowDuPont Notes were used to purchase $1.6 billion of shares. As a result, the share buyback program was complete at March 31, 2019.

Historical Dow Committed Credit Facilities
On March 9, 2019, Historical Dow renewed a $100 million Bilateral Revolving Credit Facility agreement, which has a maturity date in March 2020 and provides for interest at floating rates, as defined in the agreement.

Historical Dow Term Loan Facility
In connection with the ownership restructure of Dow Silicones on May 31, 2016, Dow Silicones incurred $4.5 billion of indebtedness under a certain third party credit agreement ("Historical Dow Term Loan Facility"). Historical Dow subsequently guaranteed the obligations of Dow Silicones under the Historical Dow Term Loan Facility and, as a result, the covenants and events of default applicable to the Historical Dow Term Loan Facility are substantially similar to the covenants and events of default set forth in Historical Dow's Five Year Competitive Advance and Revolving Credit Facility. In the second quarter of 2018, Dow Silicones exercised the 19 month extension option making amounts borrowed under the Historical Dow Term Loan Facility repayable on December 30, 2019. In addition, Dow Silicones amended the Historical Dow Term Loan Facility to include an additional two-year extension option, at Dow Silicones' election, upon satisfaction of certain customary conditions precedent. On April 5, 2019, Dow Silicones voluntarily repaid $2.0 billion of principal, which was classified as "Long-term debt due within one year" in the

22


consolidated balance sheets at March 31, 2019. Dow Silicones also intends to exercise the two-year extension option on the remaining principal balance of $2.5 billion.

Historical DuPont Term Loan and Revolving Credit Facilities
In March 2016, Historical DuPont entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4.5 billion (as may be amended, from time to time, the "Historical DuPont Term Loan Facility") under which Historical DuPont may make up to seven term loan borrowings and amounts repaid or prepaid are not available for subsequent borrowings. The proceeds from the borrowings under the Historical DuPont Term Loan Facility were used for Historical DuPont's general corporate purposes including debt repayment, working capital and funding a portion of the Company's costs and expenses. At March 31, 2019, Historical DuPont had made six term loan borrowings in an aggregate principal amount of $3.0 billion and had unused commitments of $1.5 billion under the Historical DuPont Term Loan Facility. See Note 24 for further discussion on the repayment of the Historical DuPont Term Loan Facility in May 2019.

Historical DuPont Repurchase Facility
In February 2019, Historical DuPont entered into a new committed receivable repurchase facility of up to $1,300 million (the "2019 Repurchase Facility") which expires in December 2019. Under the 2019 Repurchase Facility, Historical DuPont may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously agree to repurchase at a future date. The 2019 Repurchase Facility is considered a secured borrowing with the customer notes receivable inclusive of those that are sold and repurchased, equal to 105 percent of the outstanding amounts borrowed utilized as collateral. Borrowings under the 2019 Repurchase Facility have an interest rate of LIBOR plus 0.75 percent.

At March 31, 2019, $20 million of notes receivable, recorded in "Accounts and notes receivable - Trade," were pledged as collateral against outstanding borrowings under the 2019 Repurchase Facility of $19 million, recorded in "Notes payable" in the consolidated balance sheets.

Debt Covenants and Default Provisions
There were no material changes to the debt covenants and default provisions related to DowDuPont's, Historical Dow's and Historical DuPont's outstanding Notes, long-term debt and primary, private credit agreements for the three months ended March 31, 2019.

See Note 24 for details of actions taken to achieve credit profiles of DuPont, Corteva and Dow.

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
Asbestos-Related Matters of Union Carbide Corporation
A summary of Asbestos-Related Matters of Union Carbide Corporation can be found in Note 16 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Introduction
Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.

Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Estimating the Asbestos-Related Liability
Since 2003, Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review Union Carbide's historical asbestos-related claim and resolution activity in order to assist Union Carbide's management in estimating the asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study.


23


Based on the December 2018 Ankura review, and Union Carbide's own review of the data, Union Carbide's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was $1,260 million at December 31, 2018, and included in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

Each quarter, Union Carbide reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. Union Carbide also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of Union Carbide and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. Union Carbide's management considers all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on Union Carbide's review of 2019 activity, it was determined that no adjustment to the accrual was required at March 31, 2019.

Union Carbide's asbestos related liability for pending and future claims and defense and processing costs was $1,243 million at March 31, 2019. Approximately 17 percent of the recorded liability related to pending claims and approximately 83 percent related to future claims.

Summary
The Company's management believes the amounts recorded by Union Carbide for the asbestos-related liability (including defense and processing costs) reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year and the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for Union Carbide to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Because of the uncertainties described above, Union Carbide cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. As a result, it is reasonably possible that an additional cost of disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position.

Dow Silicones Chapter 11 Related Matters
A summary of the Dow Silicones Chapter 11 Related Matters can be found in Note 16 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Introduction
In 1995, Dow Silicones, then a 50:50 joint venture between Historical Dow and Corning Incorporated ("Corning"), voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve Dow Silicones' breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Silicones emerged from the Chapter 11 Proceeding on June 1, 2004 (the “Effective Date”) and is implementing the Joint Plan of Reorganization (the “Plan”). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. As of June 1, 2016, Dow Silicones is a wholly owned subsidiary of Historical Dow.

Breast Implant and Other Product Liability Claims
Under the Plan, a product liability settlement program administered by an independent claims office (the “Settlement Facility”) was created to resolve breast implant and other product liability claims. Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Dow Silicones has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At March 31, 2019, Dow Silicones and its insurers have made life-to-date payments of $1,762 million to the Settlement Facility and the Settlement Facility reported an unexpended balance of $110 million.

Dow Silicones' liability for breast implant and other product liability claims ("Implant Liability") was $263 million at March 31, 2019 and December 31, 2018, of which $157 million at March 31, 2019 ($111 million at December 31, 2018) was included in "Accrued and other current liabilities" and $106 million at March 31, 2019 ($152 million at December 31, 2018) was included in "Other noncurrent obligations" in the consolidated balance sheets. Dow Silicones is not aware of circumstances that would change the factors used in estimating the Implant Liability and believes the recorded liability reflects the best estimate of the remaining funding obligations under the Plan; however, the estimate relies upon a number of significant assumptions, including: future claim filing levels in the Settlement Facility will be similar to those in a prior settlement program, which management uses to estimate future claim filing levels for the Settlement Facility; future acceptance rates, disease mix, and payment values will be materially

24


consistent with historical experience; no material negative outcomes in future controversies or disputes over Plan interpretation will occur; and the Plan will not be modified. If actual outcomes related to any of these assumptions prove to be materially different, the future liability to fund the Plan may be materially different than the amount estimated. If Dow Silicones was ultimately required to fund the full liability up to the maximum capped value, the liability would be $2,148 million at March 31, 2019.

Commercial Creditor Issues
The Plan provides that each of Dow Silicones' commercial creditors (the “Commercial Creditors”) would receive in cash the sum of (a) an amount equal to the principal amount of their claims and (b) interest on such claims. The actual amount of interest that will ultimately be paid to these Commercial Creditors is uncertain due to pending litigation between Dow Silicones and the Commercial Creditors regarding the appropriate interest rates to be applied to outstanding obligations from the 1995 bankruptcy filing date through the Effective Date, as well as the presence of any recoverable fees, costs, and expenses. Upon the Plan becoming effective, Dow Silicones paid approximately $1,500 million to the Commercial Creditors, representing principal and an amount of interest that Dow Silicones considers undisputed.

On May 10, 2017, the U.S. District Court for the Eastern District of Michigan entered a stipulated order resolving pending discovery motions and established a discovery schedule for the Commercial Creditors matter. As a result, Dow Silicones and its third party consultants conducted further analysis of the Commercial Creditors claims and defenses. This analysis indicated the estimated remaining liability to Commercial Creditors to be within a range of $77 million to $260 million. No single amount within the range appeared to be a better estimate than any other amount within the range. Therefore, Dow Silicones recorded the minimum liability within the range. At March 31, 2019, the liability related to Dow Silicones' potential obligation to its Commercial Creditors in the Chapter 11 Proceeding was $83 million and is included in "Accrued and other current liabilities" in the consolidated balance sheets ($82 million at December 31, 2018). The actual amount of interest that will be paid to these creditors is uncertain and will ultimately be resolved through continued proceedings in the District Court.

Indemnifications
In connection with the June 1, 2016 ownership restructure of Dow Silicones, Historical Dow is indemnified by Corning for 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability and Commercial Creditors matters described above, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnification assets were insignificant at March 31, 2019 (zero at December 31, 2018).

Summary
The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Separation of Historical DuPont's Performance Chemicals Segment
On July 1, 2015, Historical DuPont completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (the "Chemours Separation"). In connection with the Chemours Separation, Historical DuPont and The Chemours Company (“Chemours”) entered into a Separation agreement (as amended, the "Chemours Separation Agreement"). Pursuant to the Chemours Separation Agreement, Chemours indemnifies Historical DuPont against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the Chemours Separation. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, Historical DuPont records an indemnification asset when recovery is deemed probable. At March 31, 2019, the indemnification assets were $84 million included in "Accounts and notes receivable - Other" and $289 million included in "Noncurrent receivables" along with the corresponding liabilities of $84 million recorded in "Accrued and other current liabilities" and $289 million included in "Other noncurrent obligations" in the consolidated balance sheets.

PFOA Liabilities
Historical DuPont is a party to legal proceedings relating to the use of PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) by its former Performance Chemicals segment. While it is reasonably possible that Historical DuPont could incur liabilities related to PFOA, any such liabilities are not expected to be material. Pursuant to the Chemours Separation Agreement discussed above, Historical DuPont is indemnified by Chemours for the PFOA matters discussed below and has recorded a total liability of $22 million and a total indemnification asset of $22 million at March 31, 2019, primarily related to testing drinking water in and around certain Historical DuPont sites and offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the national health advisory level established from time to time by the EPA.

25



Leach Settlement and MDL Settlement
Historical DuPont has residual liabilities under its 2004 settlement of a West Virginia state court class action, Leach v. DuPont, which alleged that PFOA from Historical DuPont’s former Washington Works facility had contaminated area drinking water supplies and affected the health of area residents. The settlement class has about 80,000 members. In addition to relief that was provided to class members years ago, the settlement requires Historical DuPont to continue providing PFOA water treatment to six area water districts and private well users and to fund, through an escrow account, up to $235 million for a medical monitoring program for eligible class members. At March 31, 2019, approximately $2 million had been disbursed from the account since its establishment in 2012 and the remaining balance is approximately $1 million.

The Leach settlement permits class members to pursue personal injury claims for six health conditions (and no others) that an expert panel appointed under the settlement reported in 2012 had a “probable link” (as defined in the settlement) with PFOA: pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol. After the expert panel reported its findings, approximately 3,550 personal injury lawsuits were filed in federal and state courts in Ohio and West Virginia and consolidated in multi-district litigation in the U.S. District Court for the Southern District of Ohio (“MDL”). The MDL was settled in early 2017 for $671 million in cash, with Chemours and Historical DuPont (without indemnification from Chemours) each paying half.

Post-MDL Settlement PFOA Personal Injury Claims
The MDL settlement did not resolve claims of plaintiffs who did not have claims in the MDL or whose claims are based on diseases first diagnosed after February 11, 2017. At March 31, 2019, about 57 lawsuits were pending alleging personal injury, including kidney and testicular cancer, thyroid disease and ulcerative colitis, from exposure to PFOA through air or water, only three of which are not part of the MDL or were not otherwise filed on behalf of Leach class members.

Other PFOA Actions
Historical DuPont is a party to other PFOA lawsuits that do not involve claims for personal injury. Chemours, pursuant to the Chemours Separation Agreement, is defending and indemnifying with reservations Historical DuPont in these lawsuits.

New York. Historical DuPont is a defendant in about 52 lawsuits, including a putative class action, brought by persons who live in and around Hoosick Falls, New York. These lawsuits assert claims for medical monitoring and property damage based on alleged PFOA releases from manufacturing facilities owned and operated by co-defendants in Hoosick Falls and allege that Historical DuPont and 3M supplied some of the materials used at these facilities. Historical DuPont is also one of more than ten defendants in a lawsuit brought by the Town of East Hampton, New York alleging PFOA and perfluorooctanesulfonic acid ("PFOS") contamination of the town’s well water.

New Jersey. At December 31, 2018, two lawsuits were pending, one brought by a local water utility and the second a putative class action, against Historical DuPont alleging that PFOA from Historical DuPont’s former Chambers Works facility contaminated drinking water sources. The putative class action was dismissed without prejudice by the plaintiffs.

In late March of 2019, the New Jersey State Attorney General (the “NJAG”) filed four lawsuits against Historical DuPont, Chemours, 3M and others alleging that former Historical DuPont operations at the Chambers Works, Pompton Lakes Works, Parlin and Repauno sites in New Jersey, caused damage to the State’s natural resources. Two of these lawsuits (those involving the Chambers Works and Parlin sites) allege contamination from per- and polyfluoroalkyl substances (“PFAS”). The lawsuit related to Parlin names an additional DowDuPont subsidiary. The Ridgewood Water District in New Jersey filed suit in the first quarter of 2019 against Historical DuPont alleging losses related to the investigation, remediation and monitoring of polyfluorinated surfactants (“PFS”), including PFOA, in water supplies.

Alabama. Historical DuPont is one of more than thirty defendants in a lawsuit by a local water utility alleging contamination from perfluorinated chemicals and compounds (“PFCs”), including PFOA, used by co-defendant carpet manufacturers to make their products more stain and grease resistant.

Ohio. Historical DuPont is a defendant in three lawsuits: an action by the State of Ohio based on alleged damage to natural resources, a putative nationwide class action brought on behalf of anyone who has detectable levels of perfluorinated chemicals, including PFOA, in their blood, and an action by the City of Dayton claiming losses related to the investigation, remediation and monitoring of PFAS, including PFOA, in water supplies.

Other. Dozens of cases have been filed against 3M and other defendants primarily alleging property damage from contamination in connection with the use of firefighting foams that contain PFOS. At March 31, 2019, Historical DuPont

26


was named in 4 of these cases. Historical DuPont did not make firefighting foam and has never made or supplied PFOS or products that contained PFOS.

Chemours Separation Agreement Amendment
Concurrent with the MDL Settlement, Historical DuPont and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future PFOA liabilities for a five-year period that began on July 6, 2017. During that five-year period, Chemours will annually pay the first $25 million of future PFOA liabilities and, if that amount is exceeded, Historical DuPont will pay any excess amount up to the next $25 million, with Chemours annually bearing any excess liabilities above that amount. At the end of the five-year period, this limited sharing agreement will expire, and Chemours’ indemnification obligations under the Chemours Separation Agreement will continue unchanged. As part of this amendment, Chemours also agreed that it would not contest its liability for PFOA liabilities on the basis of certain ostensible defenses it had previously raised, including defenses relating to punitive damages, and would waive any such defenses with respect to PFOA liabilities. Chemours has, however, retained defenses as to whether any particular PFOA claim is within the scope of the indemnification provisions of the Chemours Separation Agreement.

There have been no charges incurred by Historical DuPont under this arrangement through March 31, 2019.

Fayetteville Works Facility, North Carolina
Prior to the separation of Chemours, Historical DuPont introduced GenX as a polymerization processing aid and a replacement for PFOA at the Fayetteville Works facility in Bladen County, North Carolina. The facility is now owned and operated by Chemours, which continues to manufacture and use GenX. In 2017, the facility became and continues to be the subject of inquiries and government investigations relating to the alleged discharge of GenX and certain similar compounds into the air and Cape Fear River.

In August 2017, the U.S. Attorney’s Office for the Eastern District of North Carolina served Historical DuPont with a grand jury subpoena for testimony and documents related to these discharges. Historical DuPont was served with additional subpoenas relating to the same issue and in the second quarter of 2018, received a subpoena expanding the scope to any PFCs discharged from the Fayetteville Works facility into the Cape Fear River. It is possible that these ongoing inquiries and investigations, including the grand jury subpoena, could result in penalties or sanctions, or that additional litigation will be instituted against Chemours, Historical DuPont, or both.

At March 31, 2019, several actions are pending in federal court against Chemours and Historical DuPont. One of these actions is a consolidated putative class action that asserts claims for medical monitoring and property damage on behalf of putative classes of property owners and residents in areas near or who draw drinking water from the Cape Fear River. Another action is a consolidated action brought by various North Carolina water authorities, including the Cape Fear Public Utility Authority and Brunswick County, that seek actual and punitive damages as well as injunctive relief. In addition, an action is pending in North Carolina state court on behalf of about 100 plaintiffs who own wells and property near the Fayetteville Works facility. The plaintiffs seek damages for nuisance allegedly caused by releases of certain PFCs from the site.

While it is reasonably possible that Historical DuPont could incur liabilities related to the actions described above, any such liabilities are not expected to be material.

Historical DuPont has an indemnification claim against Chemours with respect to current and future inquiries and claims, including lawsuits, related to the foregoing. At March 31, 2019, Chemours, with reservations, is defending and indemnifying Historical DuPont in the pending civil actions.

Other Litigation Matters
In addition to the specific matters described above, Historical Dow and Historical DuPont are parties to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, governmental regulation, contract and commercial litigation, and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. Historical Dow and Historical DuPont have active risk management programs consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.


27


Gain Contingency - Historical Dow v. Nova Chemicals Corporation Patent Infringement Matter
On December 9, 2010, Historical Dow filed suit in the Federal Court in Ontario, Canada ("Federal Court") alleging that Nova Chemicals Corporation ("Nova") was infringing Historical Dow's Canadian polyethylene patent 2,106,705. Nova counterclaimed on the grounds of invalidity and non-infringement. On June 29, 2017, the Federal Court issued a Confidential Supplemental Judgment, concluding that Nova must pay $645 million Canadian dollars (equivalent to $495 million U.S. dollars) to Historical Dow, plus pre- and post-judgment interest, for which Historical Dow received payment of $501 million from Nova on July 6, 2017. Although Nova is appealing portions of the damages judgment, certain portions of it are indisputable and will be owed to Historical Dow regardless of the outcome of any further appeals by Nova. At March 31, 2019, Historical Dow had $341 million ($341 million at December 31, 2018) included in "Other noncurrent obligations" in the consolidated balance sheets related to the disputed portion of the damages judgment. Historical Dow is confident of its chances of defending the entire judgment on appeal, particularly the trial court's determinations on important factual issues, which will be accorded deferential review on appeal. See Note 16 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.

Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. At March 31, 2019, the Company had accrued obligations of $1,197 million for probable environmental remediation and restoration costs, including $213 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s current estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2018, the Company had accrued obligations of $1,201 million for probable environmental remediation and restoration costs, including $210 million for the remediation of Superfund sites.

Pursuant to the Chemours Separation Agreement, Historical DuPont is indemnified by Chemours for certain environmental matters, included in the liability of $1,197 million, that have an estimated liability of $185 million at March 31, 2019, and a potential exposure that ranges up to approximately $355 million above the current accrual. As such, Historical DuPont has recorded an indemnification asset of $185 million corresponding to its accrual balance related to these matters at March 31, 2019, including $35 million related to Superfund sites.

Guarantees
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for each type of guarantee:

 
Guarantees
Mar 31, 2019
Dec 31, 2018
 
In millions
Final Expiration
Maximum Future Payments
Recorded Liability
Final Expiration
Maximum Future Payments
Recorded Liability
 
 
Historical Dow guarantees
2023
$
4,514

$
15

2023
$
4,523

$
25

 
Historical DuPont guarantees
2022
239


2022
255


 
Total guarantees
 
$
4,753

$
15

 
$
4,778

$
25


Guarantees
Historical Dow and Historical DuPont (the "Subsidiaries") have entered into guarantee agreements arising in the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Subsidiaries undertake an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Subsidiaries to make payments to the beneficiary of the guarantee. The majority of these guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to less than four years, and trade financing transactions in Latin America, which typically expire within one year of inception. The Subsidiaries current expectation is that future payment or performance related to the non-performance of others is considered remote.


28


Historical Dow has entered into guarantee agreements ("Guarantees") related to project financing for Sadara Chemical Company ("Sadara"), a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately $12.5 billion. Sadara had $11.7 billion of Total Project Financing outstanding at March 31, 2019 ($11.7 billion at December 31, 2018). Historical Dow's guarantee of the Total Project Financing is in proportion to Historical Dow's 35 percent ownership interest in Sadara, or up to approximately $4.2 billion when the project financing is fully drawn. Sadara successfully completed an extensive operational testing program in December 2018, however, the Guarantees will be released upon the satisfactory fulfillment of certain project completion conditions, which is expected by the middle of 2019, and must occur no later than December 2020.


NOTE 15 - LEASES
The Company has operating and finance leases for sales and administrative offices, power plants, production facilities, warehouses and tanks for product storage, airplanes, railcars, motor vehicles, certain machinery and equipment, and information technology assets. The Company’s leases have remaining lease terms of 1 year to 50 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability. The Company's lease agreements do not contain any material restrictive covenants.

The components of lease cost for operating and finance leases for the three months ended March 31, 2019 were as follows:

Lease Cost
Three Months Ended Mar 31, 2019
(In millions)
Operating lease cost
$
201

Finance lease cost
 
Amortization of right-of-use assets
$
41

Interest on lease liabilities
7

Total finance lease cost
$
48

Short-term lease cost
$
60

Variable lease cost
89

Sublease income
(9
)
Total lease cost
$
389


New leases entered into during the three months ended March 31, 2019 were not considered material. Supplemental cash flow information related to leases was as follows:

Other Lease Information
Three Months Ended Mar 31, 2019
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
210

Operating cash flows from finance leases
$
7

Financing cash flows from finance leases
$
23



29


The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2019:

Lease Position
Mar 31, 2019
(In millions)
Operating Leases
 

Operating lease right-of-use assets 1
$
3,287

Current operating lease liabilities 2
$
690

Noncurrent operating lease liabilities 3
2,620

Total operating lease liabilities
$
3,310

 
 
Finance Leases
 

Property
$
589

Accumulated depreciation
(181
)
Net Property
$
408

Long-term debt due within one year
63

Long-Term Debt
432

Total finance lease liabilities
$
495

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

DowDuPont utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.

Lease Term and Discount Rate
Mar 31, 2019
Weighted-average remaining lease term (years)
 
Operating leases
7.98

Finance leases
15.54

Weighted-average discount rate
 
Operating leases
3.97
%
Finance leases
6.25
%

The following table provides the maturities of lease liabilities at March 31, 2019:

Maturity of Lease Liabilities at Mar 31, 2019
Operating Leases
Finance Leases
(In millions)
2019
$
621

$
74

2020
686

78

2021
553

73

2022
450

71

2023
346

80

2024 and thereafter
1,286

315

Total future undiscounted lease payments
$
3,942

$
691

Less: Interest
632

196

Present value of lease liabilities
$
3,310

$
495


At March 31, 2019, the Company had additional leases of approximately $45 million, primarily for buildings and equipment, which had not yet commenced. These leases are expected to commence later in 2019, with lease terms of 10 years.


30


Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:

Minimum Lease Commitments at Dec 31, 2018
(In millions)
2019
$
654

2020
497

2021
418

2022
363

2023
297

2024 and thereafter
1,063

Total
$
3,292


Certain of the Company's leases include residual value guarantees. These residual value guarantees are based on a percentage of lessor's asset acquisition price. The portion of residual value guarantees that are probable of payment are included in the related lease liability on the consolidated balance sheet other than certain finance leases that include the maximum residual value guarantee amount in the measurement of the related liability given the election to use the package of practical expedients at the date of adoption. The following table provides a summary of the final expiration, maximum future payment and recorded liability reflected in the consolidated balance sheets for residual value guarantees.

Lease Guarantees
Mar 31, 2019
Dec 31, 2018
(In millions)
Final Expiration
Maximum Future Payments
Recorded Liability
Final Expiration
Maximum Future Payments
Recorded Liability
Residual value guarantees
2028
$
931

$

2028
$
889

$
130




31


NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the activity related to each component of accumulated other comprehensive loss ("AOCL") for the three months ended March 31, 2019 and 2018:

Accumulated Other Comprehensive Loss
Unrealized Gains (Losses) on Investments
Cumulative Translation Adj
Pension and Other Postretire Benefits
Derivative Instruments
Total Accum Other Comp Loss
In millions
Balance at Jan 1, 2018
$
17

$
(1,935
)
$
(6,923
)
$
(111
)
$
(8,952
)
Other comprehensive income (loss) before reclassifications
(26
)
1,333

4

(4
)
1,307

Amounts reclassified from accumulated other comprehensive income
1


126

21

148

Net other comprehensive income (loss)
$
(25
)
$
1,333

$
130

$
17

$
1,455

Balance at Mar 31, 2018
$
(8
)
$
(602
)
$
(6,793
)
$
(94
)
$
(7,497
)
 
 
 
 
 
 
Balance at Jan 1, 2019
$
(51
)
$
(3,785
)
$
(8,476
)
$
(82
)
$
(12,394
)
Other comprehensive income (loss) before reclassifications
68

(79
)
(7
)
(65
)
(83
)
Amounts reclassified from accumulated other comprehensive income (loss)
(1
)
(18
)
142

(10
)
113

Net other comprehensive income (loss)
$
67

$
(97
)
$
135

$
(75
)
$
30

Balance at Mar 31, 2019
$
16

$
(3,882
)
$
(8,341
)
$
(157
)
$
(12,364
)

The tax effects on the net activity related to each component of other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 were as follows:

Tax Benefit (Expense) 1
Three Months Ended
In millions
Mar 31, 2019
Mar 31, 2018
Unrealized (losses) gains on investments
$
(18
)
$
6

Cumulative translation adjustments
(1
)
5

Pension and other postretirement benefit plans
(32
)
(30
)
Derivative instruments
24

(1
)
Tax expense from income taxes related to other comprehensive income items
$
(27
)
$
(20
)
1.
Prior period amounts were updated to conform with the current year presentation.
    

32


A summary of the reclassifications out of AOCL for the three months ended March 31, 2019 and 2018 is provided as follows:

Reclassifications Out of Accumulated Other Comprehensive Loss
Three Months Ended
Consolidated Statements of Income Classification
Mar 31, 2019
Mar 31, 2018
In millions
Unrealized (gains) losses on investments
$
(1
)
$
2

See (1) below
Tax benefit

(1
)
See (2) below
After tax
$
(1
)
$
1

 
Cumulative translation adjustments
$
(18
)
$

See (3) below
Pension and other postretirement benefit plans
$
167

$
154

See (4) below
Tax benefit
(25
)
(28
)
See (2) below
After tax
$
142

$
126

 
Derivative Instruments
$
(11
)
$
26

See (5) below
Tax expense (benefit)
1

(5
)
See (2) below
After tax
$
(10
)
$
21

 
Total reclassifications for the period, after tax
$
113

$
148

 
1.
"Net sales" and "Sundry income (expense) - net."
2.
"Provision for income taxes on continuing operations."
3.
"Sundry income (expense) - net."
4.
These AOCL components are included in the computation of net periodic benefit cost of the Company's defined benefit pension and other postretirement benefit plans. See Note 18 for additional information.
5.
"Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."


NOTE 17 - NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income.

The following table summarizes the activity for equity attributable to noncontrolling interests for the three months ended March 31, 2019 and 2018:

Noncontrolling Interests
Three Months Ended
In millions
Mar 31,
2019
Mar 31,
2018
Balance at beginning of period
$
1,608

$
1,597

Net income attributable to noncontrolling interests
51

44

Distributions to noncontrolling interests
(11
)
(27
)
Noncontrolling interests from Merger 1

56

Cumulative translation adjustments
7

(6
)