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Divestitures and Other Transactions

9 Months Ended

Sep. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

DIVESTITURES AND OTHER TRANSACTIONS

Separation Agreements

In connection with the Distributions, DuPont, Corteva, and Dow (together, the “Parties” and each a “Party”) have entered into certain agreements to effect the Separation, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among the Parties, and provide a framework for Corteva's relationship with Dow and DuPont following the separations and Distributions (collectively, the "Separation Agreements"). The Parties entered into, among other agreements, the following agreements:

•

Separation and Distribution Agreement - Effective April 1, 2019, the Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Corteva Separation Agreement").


•	Tax Matters Agreement - The Parties entered into an agreement effective as of April 1, 2019 as amended on June 1, 2019 that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.


•	Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.

•

Intellectual Property Cross-License Agreement - Effective as of April 1, 2019 between Corteva and Dow, and effective June 1, 2019 between Corteva and DuPont entered into Intellectual Property Cross-License Agreements. The Intellectual Property Cross-License Agreements set forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, and software, and certain patents and standards, allocated to another Party pursuant to the Corteva Separation Agreement.

•

Letter Agreement - DuPont and Corteva entered into a Letter Agreement. The Letter Agreement sets forth certain additional terms and conditions related to the Separation, including certain limitations on each party’s ability to transfer certain businesses and assets to third parties without assigning certain of such party’s indemnification obligations under the Corteva Separation Agreement to the other party to the transferee of such businesses and assets or meeting certain other alternative conditions.

DuPont

Pursuant to the Separation Agreements, DuPont and Corteva indemnifies the other against certain litigation, environmental, tax, workers' compensation and other liabilities that arose prior to the Corteva Distribution. 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, the company records an indemnification asset when recovery is deemed probable. At September 30, 2019, the indemnification assets are $36 million within accounts and notes receivable - net and $57 million within other assets in the interim Condensed Consolidated Balance Sheet. At September 30, 2019, the indemnification liabilities are $15 million within accrued and other current liabilities and $71 million within other noncurrent obligations in the interim Condensed Consolidated Balance Sheet.

Dow

Pursuant to the Separation Agreements, Dow and Corteva indemnifies the other against certain litigation, environmental, tax and other liabilities that arose prior to the Corteva Distribution. 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, the company records an indemnification asset when recovery is deemed probable. At September 30, 2019, the indemnification assets are $43 million within accounts and notes receivable - net and $1 million within other assets in the interim Condensed Consolidated Balance Sheet. At September 30, 2019, the indemnification liabilities are $87 million within accrued and other current liabilities and $109 million within other noncurrent obligations in the interim Condensed Consolidated Balance Sheet.

EID ECP Divestiture

As discussed in Note 1 - Background and Basis of Presentation, on April 1, 2019, EID completed the transfer of the entities and related assets and liabilities of EID ECP to Dow.

As a result, the financial results of EID ECP are reflected as discontinued operations, as summarized below:



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2018		2019		2018
Net sales	$	386	$	362	$	1,214
Cost of goods sold	277		259		827
Research and development expense	6		4		19
Selling, general and administrative expenses	10		9		34
Amortization of intangibles	24		23		72
Restructuring and asset related charges - net	4		2		6
Integration and separation costs	35		44		88
Other income - net	1		2		12
Income from discontinued operations before income taxes	31		23		180
Provision for income taxes on discontinued operations	16		4		45
Income from discontinued operations after income taxes	$	15	$	19	$	135

The following table presents the depreciation and capital expenditures of the discontinued operations related to EID ECP:



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2018		2019		2018
Depreciation	$	34	$	28	$	101
Capital expenditures	$	17	$	16	$	59

The carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2018 and September 30, 2018 related to EID ECP consist of the following:



(In millions)	December 31, 2018		September 30, 2018
Cash and cash equivalents	$	55	$	8
Accounts and notes receivable - net	194		216
Inventories	465		454
Other current assets	12		8
Total current assets of discontinued operations	726		686
Investment in nonconsolidated affiliates	108		110
Property, plant and equipment - net	770		780
Goodwill	3,587		3,596
Other intangible assets	1,143		1,168
Deferred income taxes	13		35
Other assets	1		3
Non-current assets of discontinued operations	5,622		5,692
Total assets of discontinued operations	$	6,348	$	6,378
Short-term borrowings and finance lease obligations	2		—
Accounts payable	214		157
Accrued and other current liabilities	36		38
Total current liabilities of discontinued operations	252		195
Long-term Debt	4		—
Deferred income tax liabilities	432		499
Pension and other post employment benefits - noncurrent	6		6
Other noncurrent obligations	2		2
Non-current liabilities of discontinued operations	444		507
Total liabilities of discontinued operations	$	696	$	702

EID Specialty Products Divestiture

As discussed in Note 1 - Background and Basis of Presentation, on May 1, 2019, the company completed the transfer of the entities and related assets and liabilities of EID Specialty Products Entities to DuPont.

As a result, the financial results of the EID Specialty Products Entities are reflected as discontinued operations, as summarized below:



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2018		2019			2018
Net sales	$	3,912	$	5,030		$	11,922
Cost of goods sold	2,599		3,352			7,985
Research and development expense	150		204			467
Selling, general and administrative expenses	381		573			1,199
Amortization of intangibles	201		267			616
Restructuring and asset related charges - net	9		115			93
Integration and separation costs	80		253			203
Goodwill impairment	—		1,102			—
Other income - net	27		38			162
Income (loss) from discontinued operations before income taxes	519		(798		)	1,521
Provision for income taxes on discontinued operations	8		82			451
Income (loss) from discontinued operations after income taxes	$	511	$	(880	)	$	1,070

For the three months ended September 30, 2019, the company recorded income from discontinued operations after income taxes of $22 million related to the adjustment of certain prior year tax positions.

EID Specialty Products Impairment

As a result of the Merger and related acquisition method of accounting, Historical EID’s assets and liabilities were measured at fair value resulting in increases to the company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the company’s reporting units and assets, and therefore could result in an impairment.

As a result of the Internal Reorganization, in the second quarter of 2019, EID assessed the recoverability of the goodwill within the electronics and communications, protection solutions, nutrition and health, transportation and advanced polymers, packaging and specialty plastics, industrial biosciences, and clean technologies reporting units, and the overall carrying value of the net assets in the disposal group that was distributed to DowDuPont on May 1, 2019. As a result of this analysis, the company determined that the fair value of certain reporting units related to the EID Specialty Products Entities were below carrying value resulting in pre-tax, non-cash goodwill impairment charges totaling $1,102 million reflected in loss from discontinued operations after income taxes in the nine months ended September 30, 2019. Revised financial projections reflected unfavorable market conditions, driven by slowed demand in the biomaterials business unit, coupled with challenging conditions in U.S. bioethanol markets. These revised financial projections resulted in a reduction in the long-term forecasts of sales and profitability as compared to prior projections.

The company’s analyses above using discounted cash flow models (a form of the income approach) utilized Level 3 unobservable inputs. The company’s significant assumptions in these analyses included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company’s estimates of future cash flows were based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. The company also used a form of the market approach (utilizes Level 3 unobservable inputs), which was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, the company believes the assumptions and estimates utilized were both reasonable and appropriate.

In addition, the company performed an impairment analysis related to the equity method investments held by the EID Specialty Products Entities, as of May 1, 2019. The company applied the net asset value method under the cost approach to determine the fair value of the equity method investments in the EID Specialty Products Entities. Based on updated projections, the company determined the fair value of an equity method investment was below the carrying value and had no expectation the fair value would recover in the short-term due to the current economic environment. As a result, management concluded the impairment was other-than-temporary (utilizing Level 3 unobservable inputs) and recorded an impairment charge of $63 million, reflected in loss from discontinued operations after income taxes. Additionally, this impairment is reflected within restructuring and asset related charges - net in the nine months ended September 30, 2019, within the table above.

The following table presents the depreciation and capital expenditures of the discontinued operations related to the EID Specialty Products Entities:



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2018		2019		2018
Depreciation	$	208	$	281	$	636
Capital expenditures	$	214	$	481	$	627



(In millions)	December 31, 2018		September 30, 2018
Cash and cash equivalents	$	2,199	$	1,957
Marketable securities	29		122
Accounts and notes receivable - net	2,441		2,597
Inventories	3,452		3,433
Other current assets	242		260
Total current assets of discontinued operations	8,363		8,369
Investment in nonconsolidated affiliates	1,185		1,220
Property, plant and equipment - net	8,138		7,966
Goodwill	28,250		28,532
Other intangible assets	13,037		13,330
Deferred income taxes	122		190
Other assets	191		255
Non-current assets of discontinued operations	50,923		51,493
Total assets of discontinued operations	$	59,286	$	59,862
Short-term borrowings and finance lease obligations	15		4
Accounts payable	1,983		1,837
Income taxes payable	33		31
Accrued and other current liabilities	884		821
Total current liabilities of discontinued operations	2,915		2,693
Long-term Debt	29		11
Deferred income tax liabilities	3,624		3,729
Pension and other post employment benefits - noncurrent	1,125		1,013
Other noncurrent obligations	262		272
Non-current liabilities of discontinued operations	5,040		5,025
Total liabilities of discontinued operations	$	7,955	$	7,718

Integration and Separation Costs

Integration and separation costs have 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 Business Separations and the integration of EID’s Pioneer and Crop Protection businesses with DAS. These costs are recorded within integration and separation costs in the Consolidated Statements of Operations.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2019		2018		2019		2018
Integration and separation costs	$	152	$	253	$	694	$	697

Merger Remedy - Divested EID Ag Business

A complete discussion of the Divested Ag Business is included in Note 4 - "Divestitures and Other Transactions," within Exhibit 99.2 of Amendment 2 to the Form 10. For the nine months ended September 30, 2018, the company recorded a loss from discontinued operations before income taxes related to the Divested Ag Business of $10 million ($5 million after tax). For the nine months ended September 30, 2019, the company recorded income from discontinued operations after income taxes of $80 million related to changes in accruals for certain prior year tax positions.

Other Discontinued Operations Activity

For the nine months ended September 30, 2019, the company recorded income from discontinued operations after income taxes of $86 million related to the adjustment of certain unrecognized tax benefits for positions taken on items from prior years from previously divested businesses.