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

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 Merger Transaction), subject to satisfaction of customary closing conditions, including receipt of regulatory approval. The combined company will be named DowDuPont Inc. (DowDuPont). DuPont's special meeting of stockholders was held on July 20, 2016, which resulted in a vote for adoption of the Merger Agreement and approval of related matters. See Note 2 to the interim Consolidated Financial Statements for additional information.

On August 11, 2016, DuPont and Dow confirmed that the European Commission had initiated a Phase II review of the proposed merger under the European Union Merger Regulation. Phase II generally provides the Commission with 90 working days to review the pending transaction. On September 2, 2016, DuPont and Dow mutually agreed to grant the European Commission an extension of 10 working days in connection with its Phase II review. The European Commission subsequently announced that it suspended its review pending receipt of additional information. After receiving the additional information, the European Commission resumed its review in late September 2016. As a result, the European Commission could take until early February 2017 to complete its review. DuPont and Dow continue to work constructively with regulators to address questions and obtain approval, and to prepare for closing as soon as possible after closing conditions have been met. Consummation of the Merger Transaction is contingent on satisfaction of customary closing conditions, including the receipt of regulatory approval from the U.S., European Union, China, Brazil and Canada. In the event that regulators in these key jurisdictions utilize their respective full allotted time to complete review and approval of the Merger Transaction, closing would be expected to occur in the first quarter of 2017.

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. Dow and DuPont currently anticipate that the intended business separation transactions will occur in about 18 months after the merger is consummated.

During the three and nine months ended September 30, 2016, the company has incurred $122 million and $222 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 now expects to incur about $390 million ($0.37 per share) of transaction costs related to the planned merger with Dow and related activities as the timing of when certain costs will be incurred is contingent on when the Merger Transaction closes.

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 nine months ended September 30, 2016, in connection with the restructuring actions, the company recorded a net pre-tax benefit to earnings of $71 million, comprised of a reduction of $135 million in severance and related benefit costs, offset by $53 million of asset related charges, and $11 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 September 30, 2016:

• Net Sales were $4.9 billion, 1 percent above the same period last year, as a 3 percent volume increase was partly offset by 2 percent lower local prices.
• Segment operating earnings increased in all reportable segments due to cost savings and higher volumes. Operating margins expanded in all reportable segments.
• Third quarter results included pre-tax charges of $158 million associated with intangible asset impairments and $122 million for costs in connection with the planned merger with Dow. Third quarter results in the prior year included a $147 million pre-tax benefit for insurance recoveries.
• Income from continuing operations after taxes was $13 million versus $131 million for the same period in the prior year.

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

• Net Sales were $19.4 billion, 2 percent below the same period last year principally due to a 2 percent negative currency impact from the stronger U.S. dollar. Volume increased 1 percent offsetting a 1 percent price decline.
• Segment operating earnings increased in most of the reportable segments on cost savings.
• Income from continuing operations after taxes was $2.3 billion, up 7 percent from $2.1 billion for same the period in the prior year.
• 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 September 30, 2016 were $4.9 billion, increasing 1 percent from the prior year as a 3 percent volume increase was partly offset by 2 percent lower local prices. Volume growth reflects increases in most of the reportable segments, with 6 percent increases in North America and Asia Pacific. Currency impact on sales was negligible as the stronger Brazilian real and Japanese yen offset the weaker Chinese yuan and currencies in developing EMEA. The 2 percent decline in local price and product mix principally reflects lower price for crop protection products and the pass-through of lower raw material costs. Net sales of $2.0 billion in developing markets, which include China, India, and countries in Latin America, Eastern and Central Europe, Middle East, Africa, and Southeast Asia, increased 2 percent with 2 percent higher volume.

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

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Net sales for the nine months ended September 30, 2016 were $19.4 billion, 2 percent below $19.8 billion in the prior year, reflecting 1 percent higher volume more than offset by 1 percent lower prices and a 2 percent negative currency impact. Currency impact primarily reflects the weaker Brazilian real, Euro and Chinese yuan. Volume primarily reflects growth in the Asia Pacific region and for Industrial Biosciences, Performance Materials, Nutrition & Health, and Agriculture. The 1 percent decline in local price and product mix principally reflects the pass-through of lower raw material costs and lower prices for ethylene. Net sales in developing markets of $6.2 billion increased 1 percent from prior year, as a negative currency impact, largely due to the weaker Brazilian real and weaker currencies in developing EMEA, were offset by volume growth, principally from increased sales in developing Asia and higher seed volume in Latin America. Sales in developing markets represent 32 percent of total company sales, increasing from 31 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:

Cost of Goods Sold (COGS)

COGS totaled $3.1 billion for the third quarter 2016, flat versus the prior year. Lower costs for raw materials offset an increase from higher volume. COGS as a percentage of sales was 63 percent, unchanged from the prior year.

COGS for the nine months ended September 30, 2016 was $11.3 billion versus $11.7 billion in the prior year, a 3 percent decrease, principally due to lower raw material costs and the strengthening of the U.S. dollar versus global currencies. COGS as a percentage of sales was 58 percent versus 59 percent in the prior year, the improvement primarily due to lower costs noted above.

Other Operating Charges

Other operating charges of $176 million for the third quarter 2016 increased from $91 million in the prior year, primarily due to the absence of $147 million in Imprelis® herbicide insurance recoveries received in the prior year period offset by lower environmental costs, lower costs related to the 2016 cost savings and restructuring plan and the absence of separation costs associated with the separation of Performance Chemicals.

For the nine months ended September 30, 2016, other operating charges were $504 million versus $413 million in the prior year, an increase of $91 million reflecting lower Imprelis® herbicide insurance recoveries, partly offset by a reduction in the estimated liability related to Imprelis® herbicide claims and the absence of separation costs associated with the separation of Performance Chemicals.

Selling, General and Administrative Expenses (SG&A)

SG&A for the third quarter 2016 decreased $30 million or 3 percent to $1,016 million versus the prior year. Lower costs related to the 2016 cost savings and restructuring plan were largely offset by $122 million of costs associated with the planned merger with Dow. SG&A was approximately 21 percent of net sales for the third quarter 2016 and 2015.

SG&A for the nine months ended September 30, 2016 was $3,355 million versus $3,540 million in the prior year. The decrease 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, partially offset by $222 million of costs associated with the planned merger with Dow. SG&A was approximately 17 percent and 18 percent of net sales for the nine months ended September 30, 2016 and 2015, respectively. The decrease as a percentage of net sales was primarily driven by a decrease in cost.

Research and Development Expense (R&D)

R&D totaled $410 million and $441 million for the third quarter 2016 and 2015, respectively. Year-to-date R&D totaled $1,260 million and $1,415 million for the nine months ended September 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 strengthening of the U.S. dollar versus global currencies. R&D was approximately 8 percent and 9 percent of net sales for the third quarter 2016 and 2015, respectively. R&D was approximately 7 percent of net sales for the nine months ended September 30, 2016 and 2015.

Other (Loss) Income, Net

Other (loss) income, net, totaled $(16) million for the third quarter 2016 compared to $98 million in the prior year, a decrease of $114 million due to the absence of gains on sales of businesses and other assets and an increase in net pre-tax exchange losses.

For the nine months ended September 30, 2016, other (loss) income, net, was $407 million compared to $552 million in the prior year, a decrease of $145 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 $266 million and the absence of a prior year gain for settlement of a legal claim. The increase in net pre-tax 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 $82 million in the third quarter 2016 and 2015, respectively, an increase of $11 million, primarily due to higher borrowings and lower capitalized interest related to construction projects.

For the nine months ended September 30, 2016, interest expense was $278 million versus $260 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

Employee separation / asset related charges, net totaled $172 million during the third quarter 2016, due to a $158 million impairment charge related to indefinite-lived intangible trade names within the Industrial Biosciences segment and a $14 million charge associated with the 2016 global cost savings and restructuring plan. The impairment charge was the result of realignment of brand marketing strategies and a determination to phase out the use of certain acquired trade names.

For the nine months ended September 30, 2016, employee separation / asset related charges, net was $159 million versus $40 million in the prior year, due to a $158 million impairment charge related to indefinite-lived intangible tradenames and a $1 million net charge associated with the 2016 global cost savings and restructuring plan. A net benefit of $74 million was primarily driven by a reduction in severance and related benefit costs in the 2016 global cost savings and restructuring plan. The reduction in severance and related benefit costs 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. 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 nine months ended September 30, 2015 included a $38 million charge related to cost investment impairments and a $2 million net restructuring charge related to the 2014 restructuring program.

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 third quarter 2016 was 123.2 percent on a pre-tax (loss) from continuing operations of $(56) million as compared to 42.3 percent on pre-tax income from continuing operations of $227 million in 2015. The higher effective tax rate is primarily driven by the impact of costs associated with the planned merger with Dow and related activities, in addition to the impact of the impairment of indefinite lived intangible assets within the Industrial Biosciences segment. These impacts were partially offset by favorable geographic mix of earnings as well as 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.

The company's effective tax rate for the nine months ended September 30, 2016 was 22.1 percent on pre-tax income from continuing operations of $2.9 billion as compared to 29.4 percent on pre-tax income from continuing operations of $3.0 billion in 2015. The lower effective tax rate is primarily driven by the impact of the certain net exchange gains recognized on the remeasurement 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 6 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 nine month period ended September 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. 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 (loss) income from continuing operations before income taxes for the three and nine month periods ended September 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. Reclassifications of prior year data have been made to conform to current year classifications.

The following table summarizes third quarter and year-to-date 2016 segment net sales and related variances versus prior year:

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**Agriculture -**Third quarter 2016 segment net sales of $1,119 million increased $26 million, or 2 percent, primarily due to higher volumes and a benefit from currency, partially offset by lower local price and portfolio changes. Increased seed volumes were partially offset by lower fungicide and insecticide volumes. Increased seed prices were more than offset by lower crop protection prices. Seed sales were up 10 percent and crop protection sales were down 4 percent. A seasonal operating loss of $189 million improved $21 million, or 10 percent, as cost savings, higher volumes and a $28 million benefit from currency were partially offset by lower local price and higher product costs. Prior year operating earnings included $27 million for gains on the sales of assets and $21 million benefit related to an adjustment for prior periods’ cost of golds sold.

Year-to-date segment net sales of $8,123 million decreased $125 million, or 2 percent, primarily due to the negative impact of currency as well as an impact of portfolio changes, partially offset by higher volumes and local price. Increased corn seed volumes in Latin America and North America due to higher acreage, were partially offset by lower insecticide volumes due to continued low pest pressure and higher inventories, and soybean seed and fungicide volumes. Increases in local prices were driven by improved mix from new seed products and pricing actions to offset currency for crop protection products. Operating earnings of $1,777 million increased $77 million, or 5 percent, primarily due to cost savings and higher local price and product mix, partially offset by a $91 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 - Third quarter 2016 segment net sales of $493 million decreased $39 million, or 7 percent, primarily due to lower demand, driven by declines in Tedlar® film for photovoltaics, and continued weakness in the consumer electronics market, as well as lower local price. Operating earnings of $108 million increased $4 million, or 4 percent, as cost savings more than offset lower sales.

Year-to-date segment net sales of $1,439 million decreased $138 million, or 9 percent, due to lower demand for products for the consumer electronics market, competitive pressures impacting Solamet® paste, and volume declines in Tedlar® film for photovoltaics. Operating earnings of $260 million decreased $12 million, or 4 percent, as lower sales and a $16 million litigation expense were partially offset by cost savings.

Industrial Biosciences - Third quarter 2016 segment net sales of $392 million increased $18 million, or 5 percent, due to increased demand in bioactives and biomaterials, primarily from growth in home and personal care and the apparel market, and the impact of portfolio changes, partially offset by a negative impact of currency. Operating earnings of $78 million increased $17 million, or 28 percent, primarily due to higher sales and cost savings.

Year-to-date segment net sales of $1,099 million increased $18 million, or 2 percent, as increased demand in bioactives and biomaterials was partially offset by lower volumes in clean technologies and the negative impact of currency. Operating earnings of $203 million increased $38 million, or 23 percent, as cost savings, higher sales and the absence of cost from the write-off of a prior year acquisition related indemnification asset in clean technologies were partially offset by the negative impact of currency.

Nutrition & Health - Third quarter 2016 segment net sales of $823 million increased $13 million, or 2 percent, due to broad-based volume growth led by probiotics, cultures and ingredient systems, partially offset by lower local price and the negative impact of currency. Operating earnings of $135 million increased $33 million, or 32 percent, on cost savings, volume growth, and lower product costs.

Year-to-date segment net sales of $2,459 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 and lower local price. Operating earnings of $369 million increased $81 million, or 28 percent, as cost savings and volume growth were partially offset by a negative impact of currency.

Performance Materials - Third quarter 2016 segment net sales of $1,334 million increased $32 million, or 2 percent, as increased demand for polymers in Asia Pacific automotive markets, primarily in China, were partially offset by lower prices driven by pricing pressure for raw materials pass-through. Operating earnings of $371 million increased $54 million, or 17 percent, as cost savings, increased volumes and lower product costs more than offset the absence of a $16 million net benefit from a joint venture and a $14 million negative impact from currency.

Year-to-date segment net sales of $3,918 million decreased $103 million, or 3 percent, due to lower local price driven by pricing pressure for raw materials pass-through and the negative impact from currency, partially offset by increased demand for polymers in automotive markets. Operating earnings of $969 million increased $34 million, or 4 percent, as cost savings and increased demand more than offset a $49 million negative impact from currency.

Protection Solutions - Third quarter 2016 segment net sales of $722 million were flat with prior year, as increased volumes driven by increased demand in Tyvek® protective materials and Corian® and Zodiaq® solid surfaces, primarily in North America, were offset by lower volume in Nomex® thermal-resistant fiber and Kevlar® high-strength material driven by weakness in the oil and gas industry and in military spending, as well as unfavorable mix. Operating earnings of $162 million increased $16 million, or 11 percent, driven by cost savings and increased volumes, partially offset by a negative currency impact.

Year-to-date segment net sales of $2,237 million decreased $82 million, or 4 percent, due to lower volume, the negative impact of currency, and unfavorable mix. 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, military, and industrial market demand. Operating earnings of $526 million increased $32 million, or 6 percent, as cost savings and lower raw materials costs were partially offset by lower sales and a 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 nine months ended September 30, 2016.

(Dollars in millions)

The company's cash, cash equivalents and marketable securities at September 30, 2016 and December 31, 2015 are $5.5 billion and $6.2 billion, respectively. The $0.7 billion decrease was primarily due to share repurchases, dividend payments, purchases of property, plant and equipment and the company's seasonal working capital needs primarily funded with increased short term borrowings.

Total debt as of September 30, 2016 was $11.4 billion, a $2.5 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. The increase in total debt from December 31, 2015 is primarily due to normal seasonal working capital requirements.

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 September 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 September 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 $1.1 billion for the nine months ended September 30, 2016 compared to $1.8 billion during the same period in 2015. The decrease in cash used for operations was primarily due to lower working capital and lower tax payments, partially offset by increased employer pension contributions.

Cash used for investing activities was $1.1 billion for the nine months ended September 30, 2016 essentially flat compared to the same period last year. Reduced purchases of property, plant and equipment and businesses, proceeds received from the sale of an entity and the sale of securities was offset by foreign currency contract settlements in 2016 versus cash received for settlements in 2015. About half of the reduction in purchases of property, plant and equipment is due to the absence of Chemours in 2016.

Cash provided by financing activities was $1.3 billion for the nine months ended September 30, 2016, compared to $0.4 billion cash used during the same period last year. The $1.7 billion increase in cash provided by financing activities was primarily due to reduced common stock repurchases and lower dividends, partially offset by lower borrowings and lower proceeds from the exercise of stock options.

Dividends paid to shareholders during the nine months ended September 30, 2016 totaled $1 billion. In October 2016, the Board of Directors declared a fourth quarter common stock dividend of $0.38 per share. 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 nine months ended September 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 through third 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. As a result of the planned merger with Dow, the company’s opportunity to repurchase shares was restricted until after the July 20, 2016 shareholder vote on the merger, and therefore there were no share repurchases under this plan in the first or second quarter 2016. During the third quarter 2016, the company was able to enter the market and purchased 6 million shares at a total cost of $416 million. During the fourth quarter of 2016, the company will evaluate the opportunities to enter the market and plans to make additional repurchases; however, the company will not complete the remainder of the $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.

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.

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 September 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 September 30, 2016 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

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.