# EIDP, Inc.: Form 10-Q for the period ended Mar 31, 2016

- Company: [EIDP, Inc.](/companies/cta-pb.md) (CIK 30554)
- Form: 10-Q
- Filed: 2016-04-26
- Accepted by EDGAR: Apr 26, 2016, 14:26 ET
- Period: 2016-03-31
- Accession: 0000030554-16-000121
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/30554/000003055416000121/dd-2016331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/30554/000003055416000121/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $7.41bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-01-01 to 2016-03-31 | $4.24bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2016-01-01 to 2016-03-31 | $418.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2016-01-01 to 2016-03-31 | $1.13bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $406.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | $1.23bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.39 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.40 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 877,251,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | −$1.84bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $357.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2016-01-01 to 2016-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-03-31 | $4.17bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-03-31 | $17.86bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $41.80bn | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $8.96bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-03-31 | $31.20bn | us-gaap:Liabilities |
| Current portion of debt | at 2016-03-31 | $1.63bn | us-gaap:DebtCurrent |
| Shareholders' equity | at 2016-03-31 | $10.39bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,142 characters.

### Cautionary Statements About Forward-Looking Statements

This report contains forward-looking statements which may be identified by their use of words like “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” “projects,” “estimates” or other words of similar meaning. All statements that address expectations or projections about the future, including statements about the company's strategy for growth, product development, regulatory approval, market position, anticipated benefits of recent acquisitions, timing of anticipated benefits from restructuring actions, outcome of contingencies, such as litigation and environmental matters, expenditures, and financial results, and timing of, as well as expected benefits, including synergies, from the proposed merger with The Dow Chemical Company (Dow) and intended post-merger separations, are forward-looking statements.

Forward-looking statements are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond the company's control. Some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements are:

- Risks related to the agreement between DuPont and Dow to effect an all-stock merger of equals, including the completion of the proposed transaction on anticipated terms and timing, the ability to fully and timely realize the expected benefits of the proposed transaction and risks related to the intended business separations contemplated to occur after the completion of the proposed transaction. Important risk factors relating to the proposed transaction and intended business separations include, but are not limited to, (i) the completion of the proposed transaction on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the ability of Dow and DuPont to integrate the business successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separations, including anticipated timing, any changes to the configuration of businesses included in the potential separation if implemented, (iii) the intended separation of the agriculture, material science and specialty products businesses of the combined company post-mergers in one or more tax efficient transactions on anticipated terms and timing, including a number of conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances, disruptions in the financial markets or other potential barriers, (iv) potential litigation relating to the proposed transaction that could be instituted against Dow, DuPont or their respective directors, (v) the risk that disruptions from the proposed transaction will harm Dow’s or DuPont’s business, including current plans and operations, (vi) the ability of Dow or DuPont to retain and hire key personnel, (vii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, (viii) uncertainty as to the long-term value of DowDuPont common stock, (ix) continued availability of capital and financing and rating agency actions, (x) legislative, regulatory and economic developments, (xi) potential business uncertainty, including changes to existing business relationships, during the pendency of the merger that could affect Dow’s and/or DuPont’s financial performance, (xii) certain restrictions during the pendency of the merger that may impact Dow’s or DuPont’s ability to pursue certain business opportunities or strategic transactions and (xiii) 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, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus included in the preliminary registration statement on Form S-4 filed with the SEC in connection with the proposed merger. While the list of factors presented here is, and the list of factors presented in the preliminary registration statement on Form S-4 are, 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 Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity;
- Volatility in energy and raw material prices;
- Failure to develop and market new products and optimally manage product life cycles;
- Outcome of significant litigation and environmental matters, including those related to divested businesses, including realization of associated indemnification assets, if any;
- Failure to appropriately manage process safety and product stewardship issues;
- Ability to obtain and maintain regulatory approval for its products especially in the Agriculture segment;
- Failure to realize all of the expected benefits from cost and productivity initiatives to the extent and as anticipated;
- Effect of changes in tax, environmental and other laws and regulations or political conditions in the United States of America (U.S.) and other countries in which the company operates;
- Conditions in the global economy and global capital markets, including economic factors such as inflation, deflation, fluctuation in currency rates, interest rates and commodity prices;
- Failure to appropriately respond to market acceptance, government rules, regulations and policies affecting products based on biotechnology;
- Impact of business disruptions, including supply disruptions, and security threats, regardless of cause, including acts of sabotage, cyber-attacks, terrorism or war, natural disasters and weather events and patterns which could affect demand as well as availability of product, particularly in the Agriculture segment;
- Ability to discover, develop and protect new technologies and enforce the company's intellectual property rights; and
- Successful integration of acquired businesses and separation of underperforming or non-strategic assets or businesses.

For some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements, see the Risk Factors discussion set forth under Part I, Item 1A of the company's 2015 Annual Report.

### Recent Developments

#### DuPont Dow Merger of Equals

On December 11, 2015, DuPont and The Dow Chemical Company (Dow) announced entry into an Agreement and Plan of Merger (the Merger Agreement), under which the companies will combine in an all-stock merger of equals. The companies anticipate that the merger will close and become effective (the Effective Time), in the second half of 2016 and the combined company will be named DowDuPont. Following the consummation of the merger, DuPont and Dow intend to pursue, subject to the receipt of approval by the board of directors of DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (collectively, the Business Separations.) Dow and DuPont currently anticipate that the intended business separation transactions will be consummated as soon as practicable following the consummation of the merger, but consummation of the intended business separation transactions is not expected to exceed 18-24 months after the merger.

During the three months ended March 31, 2016 the company has incurred $24 million of costs in connection with the planned merger with Dow. These costs were recorded in selling, general and administrative expenses in the company's interim Consolidated Income Statements for the three months ended March 31, 2016, and primarily include financial advisory, legal, accounting, consulting and other advisory fees and expenses.

#### DuPont (Shenzhen) Manufacturing Limited

In March 2016, the company sold 100 percent of its ownership interest in DuPont (Shenzhen) Manufacturing Limited to the Feixiang Group. The sale of the entity resulted in a pre-tax gain of $369 million ($214 million net of tax). The gain was recorded in other income, net in the company's interim Consolidated Income Statements for the three months ended March 31, 2016 and reflected as a Corporate item.

#### La Porte Plant, La Porte, Texas

In March 2016, DuPont announced its decision to not re-start the Agriculture segment’s insecticide manufacturing facility at the La Porte site located in La Porte, Texas. The facility manufactures Lannate® and Vydate® insecticides and has been shut down since November 2014. As a result of this decision, during the three months ended March 31, 2016, a pre-tax charge of $75 million was recorded in employee separation / asset related charges, net which included $41 million of asset related charges, $18 million of contract termination costs, and $16 million of employee severance and related benefit costs. This charge is not reflected in Agriculture's segment operating earnings for the three months ended March 31, 2016.

Agriculture's segment operating earnings was negatively impacted by $40 million from the shutdown of the La Porte manufacturing facility for the three months ended March 31, 2016 as compared to the same period in prior year due to lower sales of Lannate® and Vydate® insecticides, fixed overhead costs and write-off of inventory. The DuPont Crop Protection business has identified alternative sources for the supply of methomyl, the active ingredient in Lannate® in order to meet the majority of the expected demand for this product. These new sources have either been or are in the process of being registered in the relevant markets. In addition, the business is actively pursuing the procurement of oxamyl, the active ingredient in Vydate®.

#### 2016 Global Cost Savings and Restructuring Plan

In December 2015, DuPont announced a 2016 global cost savings and restructuring plan designed to reduce $730 million in costs in 2016 compared with 2015, which represents a reduction of operating costs on a run-rate basis of about $1.0 billion by end of 2016. As part of the plan, the company committed to take structural actions across all businesses and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with them. In the first quarter 2016, in connection with the restructuring actions, the company recorded a net pre-tax charge to earnings of $2 million, comprised of $(44) million of severance and related benefit costs, $37 million of asset related charges, and $9 million of contract termination costs.

The restructuring actions associated with this charge are expected to impact approximately 10 percent of DuPont’s workforce and to be substantially complete in 2016.

#### Separation of Performance Chemicals

On July 1, 2015 (the Distribution Date), 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 (Chemours). The financial position and results of operations of the Performance Chemicals segment are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented.

### Results of Operations

#### Overview

The following is a summary of the results of continuing operations for the three months ended March 31, 2016:

- Net Sales were $7.4 billion, down 6 percent from $7.8 billion in the same period last year, principally reflecting a 4 percent negative currency impact and 2 percent lower volume. Local price and product mix gains in Agriculture and volume growth in Nutrition & Health were more than offset by declines in most of the remaining segments.
- Agriculture net sales and operating earnings reflected local pricing gains, improved mix from new products, higher corn area from a strong start to the North American corn season, offset by a negative currency impact and lower crop protection and soybean volumes.
- Growth in segment operating earnings from Nutrition & Health, Industrial Biosciences, and Protection Solutions was more than offset by declines in the remaining segments.
- Income from continuing operations after taxes was $1.2 billion versus $1.0 billion in the prior year, principally reflecting the gain on the sale of DuPont (Shenzhen) Manufacturing Limited and cost savings related to the 2016 cost savings and restructuring plan, partly offset by lower segment operating earnings.
- The 2016 cost savings and restructuring plan is on track to deliver $730 million in cost reductions in 2016 versus prior year.

#### Net Sales

Net sales for the three months ended March 31, 2016 were $7.4 billion versus $7.8 billion in the prior year, a 6 percent decline, attributable to a 4 percent negative impact from weaker currencies, particularly the Brazilian real and European Euro, and 2 percent lower volume. Lower volume principally reflects reduced demand for crop protection insecticide products and soybean seeds, competitive pressures impacting Solamet® paste, lower demand for ethylene and ethylene-based products and lower demand for Protection Solutions products. Lower volumes were partially offset by increased corn seed volumes in North America and Brazil and broad-based growth in Nutrition & Health. Net sales in developing markets declined 4 percent to $2.1 billion, reflecting a 9 percent negative currency impact, largely due to weaker currencies in Latin America and Eastern Europe, partially offset by 5 percent increase in volume and local price, primarily from Agriculture and Nutrition & Health in Europe and Asia Pacific, principally China. Developing markets include China, India and countries located in Latin America, Eastern and Central Europe, Middle East, Africa and Southeast Asia.

The tables below shows a regional breakdown of net sales based on location of customers and percentage variances from the prior year:

|  | Three Months Ended March 31, 2016 Net Sales ($ Billions) | Percent Change vs. 2015 | Percent Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Worldwide | $7.4 | (6) | — | (4) | (2) | — |
| U.S. & Canada | 3.6 | (3) | (1) | — | (1) | (1) |
| Europe, Middle East & Africa (EMEA) | 2.0 | (8) | 1 | (6) | (3) | — |
| Asia Pacific | 1.3 | (6) | (3) | (2) | (3) | 2 |
| Latin America | 0.5 | (12) | 7 | (17) | (1) | (1) |

#### Cost of Goods Sold (COGS)

COGS totaled $4.2 billion for the first quarter 2016 versus $4.5 billion in the prior year, a 6 percent decrease, principally due to the strengthening of the U.S. dollar versus global currencies, lower volume and lower costs for raw materials, energy and freight. COGS as a percentage of net sales was essentially flat year over year at about 57 percent.

#### Other Operating Charges

Other operating charges were $185 million for the first quarter 2016 versus $148 million in the prior year, a 25 percent increase, primarily due to litigation expenses and the absence of $35 million of insurance recoveries related to Imprelis® herbicide claims, partially offset by a $23 million reduction in the estimated liability related to Imprelis® herbicide claims and the absence of separation costs associated with the separation of Performance Chemicals. Additional information related to the separation is included in Note 3 to the interim Consolidated Financial Statements.

#### Selling, General and Administrative Expenses (SG&A)

SG&A totaled $1.1 billion for the first quarter 2016 versus $1.2 billion in the prior year, an 8 percent decrease, primarily due to lower costs related to the 2016 cost savings and restructuring plan and the strengthening of the U.S. dollar versus global currencies, partially offset by $24 million of transaction costs associated with the planned merger with the Dow and related activities. SG&A was approximately 15 percent and 16 percent of net sales for the first quarter 2016 and 2015, respectively. The decrease as a percentage of net sales was due to the lower costs noted above.

#### Research and Development Expense (R&D)

R&D totaled $418 million for the first quarter 2016 versus and $479 million in the prior year, a 13 percent decrease, primarily due to lower costs related to the 2016 cost savings and restructuring plan and the strengthening of the U.S. dollar versus global currencies. R&D was approximately 6 percent of net sales for the first quarter 2016 and 2015, respectively.

#### Other Income, Net

Other income, net, totaled $372 million for the first quarter 2016, an increase of $173 million compared to $199 million in the prior year primarily due to a gain of $369 million associated with the sale of DuPont (Shenzhen) Manufacturing Limited entity, partially offset by an increase in net pre-tax exchange losses of $200 million. The increase in pre-tax net exchange losses was driven by losses on foreign currency exchange contracts. See Notes 5 and 13 to the interim Consolidated Financial Statements for further discussion of the company's policy of hedging the foreign currency-denominated monetary assets and liabilities.

Additional information related to the company's other income, net, is included in Note 5 to the interim Consolidated Financial Statements.

#### Interest Expense

Interest expense totaled $92 million in the first quarter 2016, compared to $84 million in 2015, an increase of 10 percent, primarily due to lower capitalized interest related to construction projects, partially offset by lower borrowings.

#### Employee Separation / Asset Related Charges, Net

For the three months ended March 31, 2016, employee separation / asset related charges, net were $77 million, compared to $38 million in 2015. First quarter 2016 included a $75 million charge related to the decision not to re-start the insecticide manufacturing facility at the La Porte site located in La Porte, Texas and a $2 million net restructuring charge associated with the 2016 global cost savings and restructuring program. First quarter 2015 included a $38 million charge related to cost investment impairments.

See Note 4 to the interim Consolidated Financial Statements for additional information.

#### Provision for Income Taxes on Continuing Operations

The company's effective tax rate for the first quarter 2016 was 24.8 percent as compared to 34.2 percent in 2015. The lower effective tax rate is primarily driven by the impact of the company’s exchange gains / (losses) recognized on the re-measurement of the net monetary asset positions which are often not taxable / (tax deductible) in their local jurisdictions, as well as the absence of the 2015 tax impact associated with the Ukraine hryvnia re-measurement, partially offset by the tax consequences of the gain on the sale of an entity and unfavorable geographic mix of earnings.

See Notes 3 and 5 to the interim Consolidated Financial Statements for additional information.

#### Outlook

The company has revised its full-year 2016 outlook from previous expectations included within the 2015 Annual Report to include the following:

- Since December 2015, the U.S. dollar has weakened against most other currencies; as a result the company expects currency to be less of a headwind for full-year 2016 than previously anticipated.
- In Agriculture, higher-than-anticipated corn planted area is expected to partially offset the impact of Pioneer’s transition to an agency-based route-to-market approach in the southern U.S., which will shift some sales from 2016 to the first quarter of 2017. Seasonal timing benefits realized through the first quarter 2016 from a stronger-than-anticipated start in Agriculture are expected to be offset in the second quarter.
- For full-year 2016, the company expects to incur about $420 million ($0.40 per share) of transactions costs related to the planned merger with Dow and related activities.
- Workforce reductions in the first quarter 2016 related to the 2016 global cost savings and restructuring plan triggered curtailments and related re-measurements of the U.S. pension and other-post-retirement employee benefit plans. As a result, the company has reduced the expected decrease in 2016 long-term employee benefits expense from continuing operations as compared to 2015 to $120 million from $230 million at December 31, 2015. See further information included in Note 14 to the interim Consolidated Financial Statements. The company expects future workforce reductions associated with this plan during the year to trigger additional settlements and curtailments, the impacts of which cannot be reasonably estimated at this time.

See additional information regarding 2016 outlook under "Segment Reviews" beginning on page 34.

### Recent Accounting Pronouncements

See Note 1 to the interim Consolidated Financial Statements for a description of recent accounting pronouncements.

### Segment Reviews

Summarized below are comments on individual segment net sales and operating earnings for the three month period ended March 31, 2016 compared with the same period in 2015. Segment operating earnings is defined as income (loss) from continuing operations before income taxes excluding significant pre-tax benefits (charges), non-operating pension and other postretirement employee benefit costs, exchange gains (losses), corporate expenses and interest. Non-operating pension and other postretirement employee benefit costs includes all of the components of net periodic benefit costs from continuing operations with the exception of the service cost component. Reclassifications of prior year data have been made to conform to current year classifications. See Note 15 to the interim Consolidated Financial Statements for details related to significant pre-tax benefits (charges) excluded from segment operating earnings. All references to prices are based on local price unless otherwise specified.

A reconciliation of segment operating earnings to income from continuing operations before income taxes for the three month periods ended March 31, 2016 and 2015 is included in Note 15 to the interim Consolidated Financial Statements.

DuPont Sustainable Solutions, previously within the company's Safety & Protection segment (now Protection Solutions) was comprised of two business units: clean technologies and consulting solutions. Effective January 1, 2016, the clean technologies business unit became part of the Industrial Biosciences segment with the focus on working with customers to improve the performance, productivity and sustainability of their products and processes. The company is exploring a range of options to maximize the growth of the consulting solutions business unit which effective January 1, 2016, is reported within Other.

The following table summarizes first quarter 2016 segment net sales and related variances versus prior year:

|  | Three Months Ended March 31, 2016 Segment Net Sales ($ Billions) | Percent Change vs. 2015 | Percentage Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Agriculture | $3.8 | (4) | 2 | (5) | (1) | — |
| Electronics & Communications | 0.5 | (13) | (3) | (1) | (9) | — |
| Industrial Biosciences | 0.4 | 1 | 2 | (3) | 1 | 1 |
| Nutrition & Health | 0.8 | (1) | — | (4) | 3 | — |
| Performance Materials | 1.2 | (10) | (5) | (2) | (3) | — |
| Protection Solutions | 0.7 | (8) | (1) | (2) | (5) | — |

**Agriculture -** First quarter 2016 segment net sales of $3,786 million decreased $151 million, or 4 percent, primarily due to the negative impact of currency and lower volumes, partially offset with higher local price from pricing actions to mitigate currency impacts in Europe and Brazil and improved mix from new products in North America corn seed. Lower insecticide and soybean seed volumes were partially offset by increased corn seed volumes in North America due to higher expected acreage, higher corn seed volume in Brazil from the Safrinha season and increased demand for sunflower seed in Europe. Operating earnings of $1,101 million decreased $37 million, or 3 percent, primarily due to an $83 million negative currency impact, lower volumes and about a $40 million negative impact from the shutdown of the La Porte manufacturing facility due to lost sales, fixed overhead costs and inventory write-offs, partially offset by local price and product mix gains and cost savings.

***Outlook*** Full year 2016 segment net sales are expected to be down low-single digits percent as local price and product mix gains are more than offset by the negative impact of currency. Higher corn seed volumes are expected to be offset by lower insecticide and soybean seed volumes. Full year operating earnings are expected to be up mid-single digits percent as cost savings and local price and product mix gains more than offset the negative impact of currency.

**Electronics & Communications -** First quarter 2016 segment net sales of $452 million decreased $65 million, or 13 percent, primarily due to competitive pressures impacting Solamet® paste, lower demand for products for the consumer electronics market, lower pricing from the pass-through of lower metals prices and the negative impact of currency, partially offset by volume growth for Tedlar® film for photovoltaics. Operating earnings of $59 million decreased $20 million, or 25 percent, as lower sales and a $16 million litigation expense were partially offset by cost savings.

***Outlook*** Full year 2016 segment net sales are expected to be down low-single digits percent with second half growth in photovoltaics and consumer electronics which will mostly offset first half declines. Full year operating earnings are expected to be up low-teens percent due to second half sales improvement and cost savings.

**Industrial Biosciences -** First quarter 2016 segment net sales of $352 million increased $2 million, or 1 percent, primarily due to higher pricing and volume from new product introductions in bioactives and increased demand for biomaterials, mostly offset by the negative impact of currency and lower demand for clean technologies offerings. Operating earnings of $63 million increased $9 million, or 17 percent, reflecting the absence of cost from the write-off of a prior year acquisition related indemnification asset in clean technologies and improved mix from new products, partially offset by a negative impact from currency.

***Outlook*** Full year 2016 segment net sales are expected to be about flat. Volume improvement, pricing, the impact of new product introductions in bioactives, including increased market penetration in animal nutrition and home and personal care, and the portfolio impact from the fourth quarter 2015 acquisition of enzyme and technology assets from Dyadic International Inc. are expected to be offset by lower demand for clean technology offerings and the negative impact of currency. Full year 2016 operating earnings are expected to be up by the low-teens percent, primarily due mix enrichment and cost savings.

**Nutrition & Health -** First quarter 2016 segment net sales of $801 million decreased $12 million, or 1 percent, primarily due to the negative impact of currency, partially offset by broad-based volume growth led by probiotics, cultures, ingredient systems, texturants and specialty proteins. Operating earnings of $104 million increased $18 million, or 21 percent, as volume growth and cost savings more than offset a negative currency impact.

***Outlook*** Full year 2016 segment net sales are expected to be about flat with continued strength in probiotics and cultures, offset by the negative impact of currency. Full year 2016 operating earnings are expected to be up in the low-twenty percent range, as mix enrichment and cost savings more than offset the negative impact of currency.

**Performance Materials -** First quarter 2016 segment net sales of $1,249 million decreased $132 million, or 10 percent, primarily due lower local price, lower volume and a negative impact from currency. Lower price was driven by lower ethylene prices and competitive pressure in commodity product lines. Lower volumes in ethylene and ethylene-based products were partially offset by increased demand in Asia Pacific automotive markets, primarily in China. Operating earnings of $273 million decreased $44 million, or 14 percent, primarily due to lower sales and a $19 million negative impact from currency, partially offset by lower costs.

***Outlook*** Full year 2016 segment net sales are expected to be about flat and full year 2016 operating earnings are expected to be down in the mid-single digits percent range, as volume growth is anticipated to be more than offset by lower local price and the negative impact of currency. Full year 2015 operating earnings included $49 million of benefits from a joint venture, the sale of a business and realization of tax benefits associated with a manufacturing site.

**Protection Solutions -** First quarter 2016 segment net sales of $729 million decreased $61 million, or 8 percent, primarily due to lower volume, the negative impact of currency, and lower local price. Volume declines in Nomex® thermal-resistant fiber, Kevlar® high-strength material and Tyvek® protective material were driven by weakness in the oil and gas industry, delays in military spending, and lower industrial market demand. Operating earnings of $176 million increased $9 million, or 5 percent, on lower costs and improved plant utilization at the Chambers Works facility, partially offset by lower sales and a $6 million negative currency impact.

***Outlook*** Full year 2016 segment net sales are expected to be about flat as volume growth is anticipated to offset price and the negative impact of currency. Full year 2016 operating earnings are expected to be up by the high single digits percent, primarily due to lower costs.

### Liquidity & Capital Resources

Information related to the company's liquidity and capital resources can be found in the company's 2015 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources. Discussion below provides the updates to this information for the three months ended March 31, 2016.

*(Dollars in millions)*

|  | March 31, 2016 | December 31, 2015 |
| --- | ---: | ---: |
| Cash, cash equivalents and marketable securities | $4,789 | $6,206 |
| Total debt | 9,751 | 8,807 |

The company's cash, cash equivalents and marketable securities at March 31, 2016 and December 31, 2015 are $4.8 billion and $6.2 billion, respectively. The $1.4 billion decrease was primarily due to seasonal working capital requirements.

Total debt as of March 31, 2016 was $9.8 billion, a $1.0 billion increase from $8.8 billion as of December 31, 2015, due primarily to borrowings under the Term Loan Facility and the Repurchase Facility, discussed below, as well as increased commercial paper borrowings, net of debt maturities.

In March 2016, the company 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 (the Term Loan Facility). DuPont may make up to seven term loan borrowings within one year of the closing date and amounts repaid or prepaid are not available for subsequent borrowings. The proceeds from the borrowings under the Term Loan Facility will be used for the company's general corporate purposes including debt repayment, working capital and share repurchases. The Term Loan Facility matures in March 2019 at which time all outstanding borrowings, including accrued but unpaid interest, become immediately due and payable. As of March 31, 2016, the company had borrowed $500 million and had unused commitments of $4.0 billion under the Term Loan Facility.

In addition, in March 2016, the company amended the existing revolving credit facility to reduce the aggregate principal amount of commitments from $4 billion to $3 billion consistent with lower expected commercial paper borrowings.

The Term Loan Facility and the amended revolving credit facility contain customary representations and warranties, affirmative and negative covenants, and events of default that are typical for companies with similar credit ratings and generally consistent with those applicable to DuPont’s long-term public debt. The Term Loan Facility and the amended revolving credit facility contain a financial covenant requiring that the ratio of Total Indebtedness to Total Capitalization for DuPont and its consolidated subsidiaries not exceed 0.6667. At March 31, 2016, the company was in compliance with this financial covenant.

The Term Loan Facility and the amended revolving credit facility impose additional affirmative and negative covenants on DuPont and its subsidiaries after the closing of the proposed merger with Dow, subject to certain limitations, including to:

- not sell, lease or otherwise convey to DowDuPont, its shareholders or its non-DuPont subsidiaries, any assets or properties of DuPont or its subsidiaries unless the aggregate amount of revenues attributable to all such assets and properties so conveyed after the merger does not exceed 30% of the consolidated revenues of DuPont and its subsidiaries as of December 31, 2015; and
- not guarantee any indebtedness or other obligations of DowDuPont, Dow or their respective subsidiaries (other than of DuPont and its subsidiaries).

The Term Loan Facility and the amended revolving credit facility will terminate, and the loans and other amounts thereunder will become due and payable, upon the sale, transfer, lease or other disposition of all or substantially all of the assets of the Agriculture line of business to DowDuPont, its shareholders or any of its non-DuPont subsidiaries.

In February 2016, in line with seasonal agricultural working capital requirements, the company entered into a committed receivable repurchase agreement of up to $1 billion (the Repurchase Facility) that expires on November 30, 2016. Under the Repurchase Facility, the company 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. See further discussion of this facility in Note 10 to the interim Consolidated Financial Statements.

The company has access to approximately $8.6 billion in unused credit lines, an increase of $3.7 billion from $4.9 billion as of December 31, 2015 due to the Term Loan Facility and Repurchase Facility discussed above, partially offset by the amended revolving credit facility discussed above. These unused credit lines provide support to meet short-term liquidity needs and general corporate purposes including letters of credit.

#### Summary of Cash Flows

Cash used for operating activities was $1.8 billion for the three months ended March 31, 2016 compared to $2.1 billion during the same period in 2015. The $0.3 billion decrease in cash used for operations was due primarily to lower working capital requirements and the positive currency impact that offsets cash used by foreign currency exchange contract settlements that is included in investing activities. The positive currency impacts were partially offset by the prepayment to Chemours.

Cash provided by investing activities was $27 million for the three months ended March 31, 2016 compared to $140 million of cash used during the same period last year. The change was primarily the result of proceeds received from the sale of an entity, the sale of marketable securities and reduced purchases of property, plant and equipment. The reduction in purchases of property, plant and equipment was primarily due to the absence of Chemours in 2016. This was partially offset by the decrease in cash received from foreign currency contract settlements.

Cash provided by financing activities was $0.7 billion for the three months ended March 31, 2016 compared to $0.9 billion of cash used during the same period last year. The change was primarily due to increased borrowings and lower common stock repurchases.

Dividends paid to shareholders during the three months ended March 31, 2016 totaled $0.3 billion. In January 2016, the Board of Directors declared a first quarter dividend of $0.38 per share. In April 2016, the Board of Directors declared a second quarter dividend of $0.38 per share. With the first and second quarter 2016 dividends, the company has paid quarterly consecutive dividends since the company’s first dividend in the fourth quarter 1904.

In January 2014, the company's Board of Directors authorized a $5 billion share buyback plan that replaced the 2011 plan. During the three months ended March 31, 2015, the company purchased and retired 3.6 million shares in the open market for a total cost of $282 million, which offset the dilution from employee compensation plans in the first quarter of 2015. There were no share repurchases under this plan in the first quarter 2016. There is no required completion date for the remaining stock purchases.

In the first quarter 2015, DuPont announced its intention to buy back shares of about $4 billion using the distribution proceeds received from Chemours. In connection with the completion of the spin-off of Chemours, the Board of Directors authorized the use of the distribution proceeds to buy back shares of the company's common stock as follows: $2 billion to be purchased and retired by December 31, 2015, which was completed during 2015, with the remainder to be purchased and retired by December 31, 2016. There were no share repurchases under this plan in the first quarter 2016. DuPont's objective continues to be to complete the remaining $2 billion stock buyback by year end 2016. As a result of the planned merger with Dow, the company will not repurchase shares until after the shareholder vote on the merger. After the vote the company will evaluate the opportunities to enter the market and plans to make repurchases.

See Note 12 to the interim Consolidated Financial Statements for additional information.

#### Guarantees and Off-Balance Sheet Arrangements

For detailed information related to Guarantees, Indemnifications, and Obligations for Equity Affiliates and Others, see the company's 2015 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off- Balance Sheet Arrangements, and Note 11 to the interim Consolidated Financial Statements.

### Contractual Obligations

Information related to the company's contractual obligations at December 31, 2015 can be found in the company's 2015 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements.

## Market risk

As filed, 337 characters.

See Note 13, “Financial Instruments”, to the interim Consolidated Financial Statements. See also Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, of the company's 2015 Annual Report for information on the company's utilization of financial instruments and an analysis of the sensitivity of these instruments.

## Controls and procedures

As filed, 1,394 characters.

a) Evaluation of Disclosure Controls and Procedures

The company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the company's reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of March 31, 2016, the company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), together with management, conducted an evaluation of the effectiveness of the company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures are effective.

b) Changes in Internal Control over Financial Reporting

There has been no change in the company's internal control over financial reporting that occurred during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

## Risk factors

As filed, 146 characters.

There have been no material changes in the company's risk factors discussed in Part I, Item 1A, Risk Factors, in the company's 2015 Annual Report.

Filed Apr 26, 2016.
Source: SEC EDGAR, the filing index for accession 0000030554-16-000121. Last ingested by Listed: Nov 11, 2026, 01:51 ET. No prices; not investment advice.