# EIDP, Inc.: Form 10-Q for the period ended Jun 30, 2016

- Company: [EIDP, Inc.](/companies/cta-pb.md) (CIK 30554)
- Form: 10-Q
- Filed: 2016-07-26
- Accepted by EDGAR: Jul 26, 2016, 16:57 ET
- Period: 2016-06-30
- Accession: 0000030554-16-000147
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/30554/000003055416000147/dd-2016630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/30554/000003055416000147/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $7.06bn | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2016-01-01 to 2016-06-30 | $14.47bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-04-01 to 2016-06-30 | $3.99bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 6 months, 2016-01-01 to 2016-06-30 | $8.23bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2016-04-01 to 2016-06-30 | $432.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2016-01-01 to 2016-06-30 | $850.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2016-04-01 to 2016-06-30 | $1.21bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2016-01-01 to 2016-06-30 | $2.34bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | $306.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | $712.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | $1.02bn | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | $2.25bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | $1.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | $2.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | $1.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | $2.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 879,179,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2016-01-01 to 2016-06-30 | 878,214,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | −$1.50bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $507.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2016-01-01 to 2016-06-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-06-30 | $4.41bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-06-30 | $18.09bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $42.27bn | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $8.38bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-06-30 | $31.73bn | us-gaap:Liabilities |
| Current portion of debt | at 2016-06-30 | $2.29bn | us-gaap:DebtCurrent |
| Shareholders' equity | at 2016-06-30 | $10.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,162 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 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 registration statement on Form S-4 filed with the SEC in connection with the proposed merger and declared effective by the SEC on June 9, 2016 (File No. 333-209869), as last amended (the Registration Statement). While the list of factors presented here is, and the list of factors presented in the Registration Statement 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 and six months ended June 30, 2016, the company has incurred $76 million and $100 million, respectively, 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 and primarily include financial advisory, legal, accounting, consulting and other advisory fees and expenses. For full-year 2016, the company expects to incur about $445 million ($0.45 per share) of transaction costs related to the planned merger with Dow and related activities.

#### 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 connection with the restructuring actions, the company recorded a pre-tax charge to earnings of $798 million in the fourth quarter of 2015, comprised of $656 million of severance and related benefit costs, $109 million of asset related charges, and $33 million of contract termination costs. During the six months ended June 30, 2016, in connection with the restructuring actions, the company recorded a net pre-tax benefit to earnings of $88 million, comprised of a reduction of $134 million in severance and related benefit costs, offset by $37 million of asset related charges, and $9 million of contract termination costs. The reduction in severance and related benefit costs was driven by elimination of positions at a lower cost than expected. The 2016 global cost savings and restructuring plan is on track to deliver $730 million in cost reductions in 2016 versus prior year.

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 June 30, 2016:

- Net Sales were $7.1 billion, down 1 percent from the same period last year. Local price, currency and portfolio in the aggregate negatively impacted sales by 3 percent partially offset by a 2 percent volume increase.
- Agriculture sales reflected 3 percent volume growth, driven by higher corn seed and insecticide sales, partially offset by lower soybean volumes in North America. Volume growth was offset by negative impacts from currency and portfolio.
- Operating margins expanded in all reportable segments.
- Income from continuing operations after taxes increased 5 percent to $1.0 billion, principally reflecting cost savings related to the 2016 cost savings and restructuring plan.

The following is a summary of the results of continuing operations for the six months ended June 30, 2016:

- Net Sales were $14.5 billion, 3 percent below the same period last year. The sales decline was principally due to a 3 percent negative currency impact from the stronger U. S. dollar.
- Agriculture sales were 2 percent lower, reflecting a negative impact of currency, as well as portfolio changes, partially offset by higher local selling prices and higher volume. Agriculture operating earnings increased 3 percent, principally reflecting higher local selling prices and product mix, lower product costs and cost savings.
- Income from continuing operations after taxes was $2.3 billion, up 13 percent. The increase principally reflects the gain on the sale of DuPont (Shenzhen) Manufacturing Limited and cost savings related to the 2016 cost savings and restructuring plan, which more than offset the negative impact of currency.
- 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 June 30, 2016 were $7.1 billion, reflecting a 1 percent decline from the prior year. In the aggregate, lower local price, currency and portfolio negatively impacted sales by 3 percent. Volume increased 2 percent, principally reflecting increases in Agriculture, Performance Materials, and Nutrition & Health. The 1 percent negative impact from weaker currencies is principally due to the Brazilian real, Chinese Yuan and currencies in developing EMEA. The 1 percent decline in local price and product mix principally reflects lower ethylene and commodity product prices. Net sales of $2.1 billion in developing markets, which include China, India, and countries in Latin America, Eastern and Central Europe, Middle East, Africa, and Southeast Asia, increased 5 percent driven by 9 percent higher volume, partly offset by a 4 percent negative currency impact.

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

|  | Three Months Ended June 30, 2016 Net Sales ($ Billions) | Percent Change vs. 2015 | Percent Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Worldwide | $7.1 | (1) | (1) | (1) | 2 | (1) |
| U.S. & Canada | 3.6 | (1) | (1) | — | 1 | (1) |
| Europe, Middle East & Africa (EMEA) | 1.4 | (4) | — | — | (3) | (1) |
| Asia Pacific | 1.6 | 3 | (2) | (2) | 6 | 1 |
| Latin America | 0.5 | (1) | (1) | (6) | 7 | (1) |

34

Net sales for the six months ended June 30, 2016 were $14.5 billion versus $15.0 billion in the prior year, a 3 percent decline, primarily due to a 3 percent negative impact from weaker currencies, particularly the Brazilian real and European Euro. Flat volume reflects increases in Nutrition & Health, Agriculture and Performance Materials offset by declines in Electronics & Communications and Protection Solutions. Net sales in developing markets were $4.2 billion, unchanged from prior year, as a negative currency impact, largely due to the weaker Brazilian real and Eastern European currencies, was offset by volume growth, principally from increased seed volume in Latin America. Sales in developing markets represent 29 percent of total company sales, increasing from 28 percent last year.

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

|  | Six Months Ended June 30, 2016 Net Sales ($ Billions) | Percent Change vs. 2015 | Percent Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Worldwide | $14.5 | (3) | — | (3) | — | — |
| U.S. & Canada | 7.2 | (2) | (1) | — | — | (1) |
| Europe, Middle East & Africa (EMEA) | 3.4 | (6) | 1 | (4) | (3) | — |
| Asia Pacific | 2.8 | (1) | (2) | (3) | 2 | 2 |
| Latin America | 1.1 | (7) | 3 | (12) | 3 | (1) |

#### Cost of Goods Sold (COGS)

COGS totaled $4.0 billion for the second quarter 2016 versus $4.1 billion in the prior year, a 3 percent decrease, as lower costs for raw materials more than offset an increase from higher volume. COGS as a percentage of net sales was 57 percent and 58 percent for the second quarter 2016 and 2015, respectively. The decrease as a percentage of net sales was due to the lower costs noted above.

COGS for the six months ended June 30, 2016 was $8.2 billion versus $8.6 billion in the prior year, a 4 percent decrease, primarily due to lower costs for raw materials and the strengthening of the U.S. dollar versus global currencies. COGS as a percentage of net sales was 57 percent and 58 percent for the six months ended 2016 and 2015, respectively. The decrease as a percentage of net sales was due to the lower costs noted above.

#### Other Operating Charges

Other operating charges were $143 million for the second quarter 2016 versus $174 million in the prior year, a decrease of $31 million, primarily due to $30 million of insurance recoveries related to Imprelis® herbicide claims. Costs related to the decision to not restart the Agriculture segment's insecticide manufacturing facility at the La Porte site were offset by lower operating costs and the absence of separation costs associated with the separation of Performance Chemicals.

For the six months ended June 30, 2016, other operating charges were $328 million versus $322 million in the prior year, an increase of $6 million, primarily due to litigation expenses partially offset by the absence of separation costs associated with the separation of Performance Chemicals. Costs related to the decision to not restart the Agriculture segment's insecticide manufacturing facility at the La Porte site and lower insurance recoveries related to Imprelis® herbicide claims were offset by a $23 million reduction in the estimated liability related to Imprelis® herbicide claims.

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

SG&A totaled $1.2 billion for the second quarter 2016 versus $1.3 billion in the prior year, a 5 percent decrease, primarily due to lower costs related to the 2016 cost savings and restructuring plan. SG&A as a percentage of net sales was 17 percent and 18 percent for the second quarter 2016 and 2015, respectively. The decrease as a percentage of net sales was due to the lower costs noted above.

SG&A for the six months ended June 30, 2016 was $2.3 billion versus $2.5 billion in the prior year, a 6 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. SG&A as a percentage of net sales was 16 percent and 17 percent for the six months ended 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 $432 million and $495 million for the second quarter 2016 and 2015, respectively. Year-to-date R&D totaled $850 million and $974 million for the six months ended June 30, 2016 and 2015, respectively. The decrease in both periods was 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 and 7 percent of net sales for the second quarter and year-to-date 2016 and 2015, respectively. The decrease as a percentage of net sales in both periods was due to the lower costs noted above.

#### Other Income, Net

Other income, net, totaled $51 million for the second quarter 2016 compared to $255 million in the prior year, a decrease of $204 million, primarily due to the absence of a prior year gain of $112 million for settlement of a legal claim related to the Protection Solutions segment, lower sales of assets, and an increase in net pre-tax exchange losses.

For the six months ended June 30, 2016, other income, net, was $423 million compared to $454 million in the prior year, a decrease of $31 million. A gain of $369 million associated with the sale of DuPont (Shenzhen) Manufacturing Limited entity was partially offset by an increase in net pre-tax exchange losses of $226 million and the absence of a prior year gain for settlement of a legal claim. 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.

#### Interest Expense

Interest expense totaled $93 million and $94 million in the second quarter 2016 and 2015, respectively, reflecting the absence of a $20 million premium paid on the early retirement of DuPont debt in 2015, partially offset by lower capitalized interest related to construction projects.

For the six months ended June 30, 2016, interest expense was $185 million versus $178 million in the prior year, reflecting lower capitalized interest related to construction projects, partially offset by the absence of a $20 million premium paid on the early retirement of DuPont debt in 2015.

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

During the three months ended June 30, 2016 a net benefit of $90 million was recorded associated with the 2016 global cost savings and restructuring plan. This was due to a reduction in severance and related benefit costs that was driven by the elimination of positions at a lower cost than expected as a result of redeployments and attrition as well as lower than estimated individual severance costs. The three months ended June 30, 2015 included a $2 million net restructuring charge related to the 2014 restructuring plan.

The six months ended June 30, 2016 included a net benefit of $88 million primarily driven by a reduction in severance and related benefit costs in the 2016 global cost savings and restructuring plan. This was offset by a $75 million charge in the first quarter related to the decision not to re-start the insecticide manufacturing facility at the La Porte site located in La Porte, Texas. The six months ended June 30, 2015 included a $38 million charge related to cost investment impairments and a $2 million net restructuring charge related to the 2014 restructuring plan.

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 second quarter 2016 was 23.0 percent as compared to 21.1 percent in 2015. The higher effective tax rate is primarily driven by the impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not tax deductible in their local jurisdictions, the absence of a 2015 tax valuation allowance reversal, as well as geographic mix of earnings. These impacts were partially offset by a change in accrual for prior year tax positions, as well as the absence of a 2015 state tax rate charge related to the Performance Chemicals separation.

The company's effective tax rate for the six months ended June 30, 2016 was 24.0 percent as compared to 28.4 percent in 2015. The lower effective tax rate is primarily driven by the impact of the certain net exchange gains recognized on the re-measurement of the net monetary asset positions which were not taxable in their local jurisdictions, partially offset by the tax consequences of the gain on the sale of an entity in the first quarter 2016.

See Note 5 to the interim Consolidated Financial Statements for additional information.

### 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 and six month period ended June 30, 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 and six month periods ended June 30, 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 second quarter and year-to-date 2016 segment net sales and related variances versus prior year:

|  | Three Months Ended June 30, 2016 Segment Net Sales ($ Billions) | Percent Change vs. 2015 | Percentage Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Agriculture | $3.2 | — | — | (2) | 3 | (1) |
| Electronics & Communications | 0.5 | (6) | (2) | — | (4) | — |
| Industrial Biosciences | 0.4 | (1) | — | (1) | — | — |
| Nutrition & Health | 0.8 | 1 | (1) | (1) | 3 | — |
| Performance Materials | 1.3 | — | (4) | — | 4 | — |
| Protection Solutions | 0.8 | (2) | — | — | (2) | — |

|  | Six Months Ended June 30, 2016 Segment Net Sales ($ Billions) | Percent Change vs. 2015 | Percentage Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Agriculture | $7.0 | (2) | 2 | (4) | 1 | (1) |
| Electronics & Communications | 0.9 | (9) | (2) | (1) | (6) | — |
| Industrial Biosciences | 0.7 | — | 1 | (2) | 1 | — |
| Nutrition & Health | 1.6 | — | — | (3) | 3 | — |
| Performance Materials | 2.6 | (5) | (5) | (1) | 1 | — |
| Protection Solutions | 1.5 | (5) | (1) | (1) | (3) | — |

38

**Agriculture -** Second quarter 2016 segment net sales of $3,218 million were flat with prior year, with higher volumes offset by the negative impact of currency and portfolio changes. Seed sales declined 1 percent and crop protection sales increased 3 percent. Higher corn seed and insecticide volumes were partially offset by lower soybean volume in North America. Operating earnings of $865 million increased $93 million, or 12 percent, primarily due to lower product costs, higher volumes and cost savings, partially offset by a $36 million negative impact from currency.

Year-to-date segment net sales of $7,004 million decreased $151 million, or 2 percent, primarily due to the negative impact of currency as well as an impact of portfolio changes, partially offset with higher local price and volume. Increased corn seed volumes in Brazil from the Safrinha season, and in North America due to higher acreage, and increased demand for sunflower seed in Europe were partially offset by lower insecticide volume due to the impact of insect protected soybean varieties, weather conditions and higher inventories, and lower soybean seed volumes. An improved mix from new corn hybrids resulted in higher net corn price globally, led by North America. Operating earnings of $1,966 million increased $56 million, or 3 percent, primarily due higher local price and product mix, lower product costs and cost savings, partially offset with a $119 million negative impact from currency and the negative impact from the shutdown of the La Porte manufacturing facility due to lost sales, fixed overhead costs and inventory write-offs.

**Electronics & Communications -** Second quarter 2016 segment net sales of $494 million decreased $34 million, or 6 percent, primarily due to lower demand for products for the consumer electronics market and lower metals pricing. Operating earnings of $93 million increased $4 million, or 4 percent, as cost savings and lower product costs were partially offset by lower sales.

Year-to-date segment net sales of $946 million decreased $99 million, or 9 percent, due to lower demand for products for the consumer electronics market, competitive pressures impacting Solamet® paste, and lower metals pricing, partially offset by volume growth for Tedlar® film photovoltaics. Operating earnings of $152 million decreased $16 million, or 10 percent, as lower sales and a $16 million litigation expense were partially offset by cost savings and lower product costs.

**Industrial Biosciences -** Second quarter 2016 segment net sales of $355 million decreased $2 million, or 1 percent, primarily due to lower volumes in clean technologies offerings and a negative impact of currency, partially offset by increased demand in bioactives, primarily in home and personal care and new product introductions. In biomaterials, higher volume was partially offset by lower price. Operating earnings of $62 million increased $12 million, or 24 percent, primarily due to cost savings partially offset by a negative impact from currency.

Year-to-date segment net sales of $707 million were flat with prior year, as lower volumes in clean technologies offerings and the negative impact of currency were offset by higher pricing and volume in bioactives. In biomaterials, higher volume was partially offset by lower price. Year-to-date operating earnings of $125 million increased $21 million, or 20 percent, primarily due to cost savings, the absence of cost from the write-off of a prior year acquisition related indemnification asset in clean technologies and improved mix from new product launches partially offset by a negative impact from currency.

**Nutrition & Health -** Second quarter 2016 segment net sales of $835 million increased $9 million, or 1 percent, primarily due to broad-based volume growth led by probiotics and specialty proteins, partially offset by the negative impact of currency and lower local price. Operating earnings of $130 million increased $30 million, or 30 percent, as cost savings and volume growth more than offset a negative currency impact.

Year-to-date segment net sales of $1,636 million remained about flat from prior year, due to broad-based volume growth led by probiotics, specialty proteins and ingredient systems, offset by the negative impact of currency. Operating earnings of $234 million increased $48 million, or 26 percent, as cost savings and volume growth were partially offset by a negative impact of currency.

**Performance Materials -** Second quarter 2016 segment net sales of $1,335 million remained about flat from prior year as increased demand for polymers in Asia Pacific automotive markets, primarily China and North America, and increased ethylene volumes due to prior year unplanned outage were offset by lower prices driven by pricing pressure for raw materials pass-through and lower average ethylene spot prices. Operating earnings of $325 million increased $24 million, or 8 percent. Cost savings and increased volumes were partially offset by a $16 million negative impact from currency, as well as costs associated with a contractual claim.

Year-to-date segment net sales of $2,584 million decreased $135 million, or 5 percent, primarily due to lower local price and a negative impact from currency, partially offset by volume growth. Increased demand for polymers in automotive markets and increased volumes for ethylene due to prior year unplanned outage were offset by lower volumes in commodity product lines. Operating earnings of $598 million decreased $20 million, or 3 percent, as cost savings were more than offset by a $35 million negative impact from currency, as well as costs associated with a contractual claim.

**Protection Solutions -** Second quarter 2016 segment net sales of $786 million decreased $20 million, or 2 percent, primarily due to volume declines in Nomex® thermal-resistant fiber and Kevlar® high-strength material driven by weakness in the oil and gas industry and delays in military spending. Operating earnings of $188 million increased $7 million, or 4 percent, primarily due to lower product costs and cost savings, partially offset by lower sales and a $4 million negative impact from currency.

Year-to-date segment net sales of $ 1,515 million decreased $81 million, or 5 percent, primarily due to lower volume, the negative impact of currency, and unfavorable mix. Volume declines in Nomex® thermal-resistant fiber, Tyvek® protective material, and Kevlar® high-strength material were driven by weakness in the oil and gas industry, delays in military spending, and lower industrial market demand. Operating earnings of $364 million increased $16 million, or 5 percent, primarily due to lower product costs and cost savings, partially offset by lower sales and a $10 million negative impact from currency.

### 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 six months ended June 30, 2016.

*(Dollars in millions)*

|  | June 30, 2016 | December 31, 2015 |
| --- | ---: | ---: |
| Cash, cash equivalents and marketable securities | $5,153 | $6,206 |
| Total debt | 10,414 | 8,807 |

The company's cash, cash equivalents and marketable securities at June 30, 2016 and December 31, 2015 are $5.2 billion and $6.2 billion, respectively. The $1 billion decrease was primarily due to cash used to fund seasonal working capital needs.

Total debt as of June 30, 2016 was $10.4 billion, a $1.6 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, partially offset by repayments for 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 June 30, 2016, the company had borrowed $0.5 billion and had unused commitments of $4 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 June 30, 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 $7.9 billion in unused credit lines, an increase of $3 billion from $4.9 billion as of December 31, 2015 due to the Term Loan 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 $1.5 billion for the six months ended June 30, 2016 compared to $2.0 billion during the same period in 2015. The $0.5 billion decrease in cash used for operations was primarily due to lower working capital, lower tax payments, and the positive currency impact that offsets cash used by foreign currency exchange contract settlements that is included in investing activities. These impacts were partially offset by a prepayment to Chemours in first quarter of 2016. See Note 3 for further information regarding the prepayment.

Cash used for investing activities was $0.4 billion for the six months ended June 30, 2016 compared to $1.0 billion during the same period last year. The $0.6 billion decrease in cash used for investing activities 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 payments made for foreign currency contract settlements in 2016 versus cash received for settlements in 2015.

Cash provided by financing activities was $1.0 billion for the six months ended June 30, 2016, essentially unchanged compared with the six months ended June 30, 2015. Lower dividends and the absence of common stock repurchases in 2016 were offset by lower borrowings and lower proceeds from the exercise of stock options.

Dividends paid to shareholders during the six months ended June 30, 2016 totaled $0.7 billion. 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 six months ended June 30, 2015, the company purchased and retired 4.6 million shares in the open market for a total cost of $353 million, which offset the dilution from employee compensation plans in the first and second quarter of 2015. There were no share repurchases under this plan in the first and second 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 or second quarter 2016. As a result of the planned merger with Dow, the company’s opportunity to repurchase shares was restricted until after the shareholder vote on the merger. The shareholder vote occurred on July 20, 2016. During the remainder of 2016, the company will evaluate the opportunities to enter the market and plans to make repurchases; however, it is unlikely that the company will complete all of the remaining $2 billion stock buyback by year-end 2016.

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, 1,392 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 June 30, 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 June 30, 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 Jul 26, 2016.
Source: SEC EDGAR, the filing index for accession 0000030554-16-000147. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.