# EIDP, Inc.: Form 10-Q for the period ended Jun 30, 2017

- Company: [EIDP, Inc.](/companies/cta-pb.md) (CIK 30554)
- Form: 10-Q
- Filed: 2017-07-25
- Accepted by EDGAR: Jul 25, 2017, 18:25 ET
- Period: 2017-06-30
- Accession: 0000030554-17-000035
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/30554/000003055417000035/dd-2017630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/30554/000003055417000035/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-04-01 to 2017-06-30 | $7.42bn | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2017-01-01 to 2017-06-30 | $15.17bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2017-04-01 to 2017-06-30 | $4.19bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 6 months, 2017-01-01 to 2017-06-30 | $8.56bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2017-04-01 to 2017-06-30 | $441.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2017-01-01 to 2017-06-30 | $857.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-04-01 to 2017-06-30 | $1.35bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2017-01-01 to 2017-06-30 | $2.61bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2017-04-01 to 2017-06-30 | $128.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2017-01-01 to 2017-06-30 | $352.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-04-01 to 2017-06-30 | $862.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2017-01-01 to 2017-06-30 | $1.98bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-04-01 to 2017-06-30 | $0.99 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2017-01-01 to 2017-06-30 | $2.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-04-01 to 2017-06-30 | $0.99 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2017-01-01 to 2017-06-30 | $2.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-04-01 to 2017-06-30 | 872,750,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2017-01-01 to 2017-06-30 | 871,920,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2017-01-01 to 2017-06-30 | −$4.05bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2017-01-01 to 2017-06-30 | $524.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-06-30 | $3.25bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-06-30 | $20.12bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-06-30 | $43.21bn | us-gaap:Assets |
| Current liabilities | at 2017-06-30 | $10.44bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-06-30 | $30.61bn | us-gaap:Liabilities |
| Current portion of debt | at 2017-06-30 | $3.47bn | us-gaap:DebtCurrent |
| Shareholders' equity | at 2017-06-30 | $12.39bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,676 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, forward-looking statements including statements about the consummation of and expected benefits, including synergies, from the planned merger with The Dow Chemical Company (Dow) (the Merger Transaction) and the proposed separation of the combined company’s (DowDuPont) agriculture business, specialty products business and material science business through a series of tax-efficient transactions (the Intended Business Separations), and the FMC Transactions, as defined below, in which, among other things, FMC will acquire the Divested Ag Business, as defined below and DuPont will acquire the Acquired H&N Business, as defined below, and the anticipated benefits thereof. These and other forward-looking statements, including the failure to consummate the Merger Transaction or FMC Transactions or to make or take any filing or other action required to consummate such transactions in a timely manner or at all, are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements.

Forward-looking statements 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. While the lists of factors presented here and in the Registration Statement (as defined in Note 2 to the interim Consolidated Financial Statements) 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 DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. 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 DowDuPont Merger, the Intended Business Separations and the FMC Transactions including, but not limited to, (i) the completion of the Merger Transaction and the FMC Transactions 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 or the Acquired H&N Business and other conditions to the completion of the Merger Transaction and the FMC Transactions, (ii) the possibility that the Merger Transaction and the FMC Transactions may not close, including because the various approvals, authorizations and declarations of non-objections from certain regulatory and governmental authorities with respect to either the Merger Transaction, including receipt of approvals by certain regulators of the respective purchasers in relation to the FMC Transactions, EAA Transaction, defined below, and the Brazil Seeds Transaction, defined below, or the FMC Transactions may not be obtained, on a timely basis or otherwise, including that these regulatory or governmental authorities may not approve of FMC as an acceptable purchaser of the Divested Ag Business in connection with the FMC Transactions or may impose conditions on the granting of the various approvals, authorizations and declarations of non-objections, including requiring the respective Dow, DuPont and FMC businesses, including the Acquired H&N Business (in the case of DuPont) and the Divested Ag Business (in the case of FMC), to divest certain assets if necessary to obtain certain regulatory approvals or otherwise limiting the ability of the combined company to integrate parts of the Dow and DuPont businesses and/or the DuPont and Health and Nutrition businesses, (iii) the ability of DuPont to integrate the Acquired H&N Business successfully and to achieve anticipated synergies, (iv) potential litigation or regulatory actions relating to the Merger Transaction or the FMC Transactions that could be instituted against DuPont or its directors, (v) the risk that disruptions from the Merger Transaction or the FMC Transactions will harm DuPont’s business, including current plans and operations, (vi) the ability of 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 Transaction or the FMC Transactions, (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 Transaction or the FMC Transactions that could affect DuPont’s financial performance, (xii) certain restrictions during the pendency of the Merger Transaction or the FMC Transactions that may impact 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 Merger Transaction

or the FMC Transactions, are more fully discussed in (1) DuPont’s most recently filed Form 10-K, 10-Q and 8-K reports, (2) DuPont’s subsequently filed Form 10-K and 10-Q reports and (3) the joint proxy statement/prospectus included in the Registration Statement filed with the SEC in connection with the Merger Transaction;

- 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 further discussion of 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 2016 Annual Report.

### Recent Developments

#### DuPont Dow Merger of Equals

On December 11, 2015, DuPont and Dow announced entry into an Agreement and Plan of Merger, as amended on March 31, 2017 (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). Following the consummation of the Merger Transaction, 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 Intended Business Separations).

On March 27, 2017, DuPont and Dow announced that the European Commission (EC) granted conditional regulatory clearance in Europe for the Merger Transaction conditional on DuPont and Dow fulfilling certain commitments. Dow is required to divest its global Ethylene Acrylic Acid copolymers and ionomers business and has entered into a definitive agreement with SK Global Chemical Co., LTD, (the EAA Transaction) subject to the closing of the Merger Transaction in addition to customary closing conditions, including regulatory approval.

DuPont is required to sell certain assets related to its Crop Protection business and research and development (R&D) organization, specifically the company’s Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, including Rynaxypyr®, Cyazypyr® and Indoxacarb, as well as the Crop Protection R&D pipeline and organization, excluding seed treatment, nematicides, and late-stage R&D programs. The company will continue to develop and bring to market its late-stage Crop Protection R&D programs and retain the personnel needed to support the Crop Protection marketed products and R&D programs not required to be divested per the EC’s conditional approval.

On March 31, 2017, DuPont entered into a definitive agreement (the FMC Transaction Agreement) with FMC Corporation (FMC). Under the FMC Transaction Agreement, FMC will acquire the Crop Protection business and R&D assets that DuPont is required to divest in order to obtain EC approval of the Merger Transaction as described above, (the Divested Ag Business), and DuPont has agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products, (the Acquired H&N Business) (collectively, the FMC Transactions). Additionally, FMC will pay DuPont $1.2 billion in cash, subject to certain adjustments as set forth in the FMC Transaction Agreement, which reflects the difference in value between the Divested Ag Business and the Acquired H&N Business. DuPont will retain accounts receivable and accounts payable associated with the Divested Ag Business, with an expected net value of $425 million at closing. The assets associated with the Divested Ag Business generated revenues in 2016 of about $1.4 billion. The FMC Health and Nutrition business being acquired, which includes texturants as food ingredients and pharmaceutical excipients, generated approximately $700 million in revenues in 2016.

The divestiture will satisfy DuPont’s commitments to the EC in connection with its conditional regulatory clearance of the merger with Dow. The FMC Transaction is expected to close in the fourth quarter of 2017, subject to the closing of the Merger Transaction, in addition to customary closing conditions, including regulatory approval of the FMC Transactions.

In the second quarter 2017, Dow and DuPont obtained conditional approval for the Merger Transaction from the antitrust regulatory authorities in the United States, Brazil, Canada, and China, among others. The conditional approval was granted based on the companies fulfilling their commitments to the EC and, in the case of Brazil and China, certain local remedies. The local remedies in Brazil include the divestiture of a select portion of Dow’s corn seed business in Brazil for which Dow has entered a definitive agreement with CITIC Henan Agriculture Industrial Investment Fund, subject to the closing of the Merger Transaction in addition to customary closing conditions, including regulatory approval, (the Brazil Seeds Transaction). In China, DuPont and Dow have made commitments related to the supply and distribution in China of certain herbicide and insecticide ingredients and formulations for rice crops for five years after the closing of the Merger Transaction.

To accommodate the transaction with FMC, DuPont and Dow have amended the Merger Agreement to extend the “Outside Date” to August 31, 2017, and the companies anticipate closing of the merger to occur no sooner than August 1, 2017, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals. The companies still expect the Intended Business Separations, subject to DowDuPont Board approval, to occur within 18 months after closing the Merger Transaction. About $3 billion in aggregate cost synergies are currently expected to be realized on a run-rate basis by the combined businesses within 24 months after consummation of the Merger Transaction, with approximately $1.6 billion from the material science business; approximately $1 billion from the agriculture business; and approximately $0.4 billion from the specialty products business.

See Note 2 to the interim Consolidated Financial Statements for additional information.

#### Settlement of PFOA MDL

As previously reported, approximately 3,550 lawsuits have been filed in various federal and state courts in Ohio and West Virginia alleging personal injury from exposure to perfluorooctanoic acid and its salts, including the ammonium salt (PFOA), in drinking water as a result of the historical manufacture or use of PFOA at the Washington Works plant outside Parkersburg, West Virginia. That plant is now owned and/or operated by The Chemours Company (Chemours). These personal injury lawsuits were consolidated in multi-district litigation in the United States District Court for the Southern District of Ohio (the MDL). In February 2017, DuPont and plaintiffs’ counsel agreed to a settlement in principle of the MDL; the parties executed the definitive settlement agreements in March 2017. The total settlement amount is $670.7 million in cash, half of which will be paid by Chemours and half paid by DuPont. In exchange for that payment, DuPont and Chemours will receive a complete release of all claims by the settling plaintiffs. The settlement was entered into solely by way of compromise and is not in any way an admission of liability or fault by DuPont or Chemours. The company recorded a charge of $335 million ($214 million net of tax) to income (loss) from discontinued operations after taxes in the company's interim Consolidated Income Statement for the six months ended June 30, 2017 for the remainder of the settlement not subject to indemnification by Chemours. See Note 11 to the interim Consolidated Financial Statements for additional information.

#### 2017 Restructuring Program

In the first quarter 2017, DuPont committed to take actions to improve plant productivity and better position its businesses for productivity and growth before and after the anticipated closing of the Merger Transaction. In connection with these actions, the company incurred pre-tax charges of $312 million, comprised of $279 million of asset-related charges and $33 million in severance and related benefit costs (the 2017 restructuring program) during the six months ended June 30, 2017. The charges, recognized in employee separation / asset related charges, net, in the company's interim Consolidated Income Statement, primarily relate to the second quarter closure of the Protection Solutions segment's Cooper River manufacturing site located near Charleston, South Carolina. The actions associated with this program are expected to be substantially complete by the end of 2017. The company anticipates including savings associated with these actions against the targeted $3 billion of cost synergies associated with the Merger Transaction.

### Results of Operations

#### Overview

The following is a summary of the results of continuing operations for the three months ended June 30, 2017:

- Net sales were $7.4 billion, 5 percent above the same period last year, reflecting a 6 percent volume increase partially offset by a 1 percent decline in local price. Volume grew in all reportable segments, led by Agriculture, Electronics & Communications, and Protection Solutions.
- Segment operating earnings increased in all reportable segments driven by higher volumes. Segment operating margins expanded in most reportable segments.
- Second quarter results include pre-tax charges of $376 million, comprised of $216 million of costs in connection with the planned merger with Dow and related activities, and $160 million of restructuring charges.
- Income from continuing operations after taxes was $0.9 billion versus $1.0 billion for the same period in the prior year.

The following is a summary of the results of continuing operations for the six months ended June 30, 2017:

- Net sales were $15.2 billion, 5 percent above the same period last year due to volume growth. Volume grew in most reportable segments led by Agriculture, Performance Materials, and Electronics & Communications.
- Segment operating earnings increased in all reportable segments driven by higher volumes.
- Agriculture sales increased 5 percent on a 5 percent benefit from volume and a 1 percent benefit from local price, partially offset by a 1 percent negative impact from portfolio. Agriculture operating earnings increased 12 percent on growth in volume and local price.
- Year-to-date results include pre-tax charges of $698 million, comprised of $386 million of costs in connection with the planned merger with Dow and related activities and $312 million of restructuring charges, partially offset by a $162 million pre-tax gain from the sale of the global food safety diagnostics business. Year-to-date results in the prior year included a pre-tax gain of $369 million from the sale of the DuPont (Shenzhen) Manufacturing Limited entity partially offset by $100 million in pre-tax costs in connection with the planned merger with Dow and related activities.
- Income from continuing operations after taxes was $2.2 billion versus $2.3 billion for the same period in the prior year.

#### Net Sales

Net sales for the three months ended June 30, 2017 were $7.4 billion, up 5 percent versus $7.1 billion in the prior year reflecting 6 percent higher volume, partly offset by 1 percent lower local prices. Sales grew 6 percent in the U.S. and Canada driven by increased Agriculture volume, and increased 10 percent in Asia Pacific, primarily driven by volume growth in Electronics & Communications, Agriculture, Performance Materials, and Industrial Biosciences. Volume increased 3 percent in EMEA, led by Protection Solutions and Performance Materials. Net sales in developing markets, which include China, India, and countries in Southeast Asia, Latin America, Eastern and Central Europe, Middle East, and Africa, were $2.1 billion, up 4 percent, driven by higher volume. Volume largely reflects strong growth in Electronics & Communications, Agriculture and Industrial Biosciences in developing Asia Pacific. Sales in developing markets represent 29 percent of total sales, unchanged from prior year.

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, 2017 Net Sales ($ Billions) | Percent Change vs. 2016 | Percent Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Worldwide | $7.4 | 5 | (1) | — | 6 | — |
| U.S. & Canada | 3.8 | 6 | — | — | 6 | — |
| Europe, Middle East & Africa (EMEA) | 1.4 | 1 | — | (2) | 3 | — |
| Asia Pacific | 1.7 | 10 | (1) | — | 11 | — |
| Latin America | 0.5 | (3) | (4) | 2 | (1) | — |

Net sales for the six months ended June 30, 2017 were $15.2 billion versus $14.5 billion in the prior year, a 5 percent increase, reflecting 5 percent higher volume. Sales volume in the U.S. and Canada increased 3 percent driven by increased volume in Agriculture. A volume increase of 13 percent in Asia Pacific was principally driven by Electronics & Communications, Performance Materials, Agriculture and Industrial Biosciences. Volume increased 6 percent in EMEA, with increased seed sales in Eastern Europe, and higher sales in the Performance Materials and Protection Solutions segments. Net sales in developing markets were $4.6 billion, up 10 percent, driven by higher volume. Volume largely reflects strong growth in Agriculture in developing EMEA and Asia Pacific, and Electronics & Communications and Performance Materials in developing Asia Pacific. Sales in developing markets represent 30 percent of total sales versus 29 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, 2017 Net Sales ($ Billions) | Percent Change vs. 2016 | Percent Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Worldwide | $15.2 | 5 | — | — | 5 | — |
| U.S. & Canada | 7.4 | 3 | — | — | 3 | — |
| Europe, Middle East & Africa (EMEA) | 3.5 | 3 | 1 | (3) | 6 | (1) |
| Asia Pacific | 3.2 | 11 | (1) | — | 13 | (1) |
| Latin America | 1.1 | 6 | 1 | 7 | (2) | — |

34

#### Cost of Goods Sold (COGS)

COGS for the second quarter 2017 increased 5 percent to $4.2 billion from $4.0 billion in the prior year. For the six months ended June 30, 2017, COGS increased 4 percent to $8.6 billion versus $8.2 billion in the prior year. The increase in both periods versus prior year is primarily related to higher sales volume. COGS as a percentage of sales decreased to 56 percent for the three and six months ended June 30, 2017 from 57 percent for the three and six months ended June 30, 2016 primarily due to favorable mix.

#### Other Operating Charges

Other operating charges were $176 million for the second quarter of 2017 versus $143 million in the prior year, an increase of $33 million, primarily due to the absence of $30 million of insurance recoveries related to Imprelis® herbicide claims in 2016.

For the six months ended June 30, 2017, other operating charges were $380 million versus $328 million in the prior year, an increase of $52 million, principally due to the absence of $30 million of insurance recoveries and a $23 million reduction in the estimated liability related to the Imprelis® herbicide claims in 2016.

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

SG&A expenses were $1.3 billion for the second quarter of 2017 versus $1.2 billion in the prior year, with the increase primarily driven by costs in connection with the planned merger with Dow and related activities. During the three months ended June 30, 2017 and 2016, the company incurred $216 million and $76 million, respectively, of transaction costs in connection with the planned merger with Dow and the Intended Business Separations, including costs relating to integration and separation planning. SG&A was approximately 18 percent and 17 percent of net sales for the three months ended June 30, 2017 and 2016.

SG&A expenses for the six months ended June 30, 2017 were $2.6 billion versus $2.3 billion in the prior year, primarily due to increase in costs associated with the planned merger with Dow and related activities and increases in commission expense, partially offset by cost savings. During the six months ended June 30, 2017 and 2016, the company incurred $386 million and $100 million, respectively of transaction costs in connection with the planned merger with Dow and related activities. SG&A was approximately 17 percent and 16 percent of net sales for the six months ended June 30, 2017 and 2016.

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

R&D expense totaled $441 million and $432 million for the second quarter 2017 and 2016, respectively. Year-to-date R&D expense totaled $857 million and $850 million for the six months ended June 30, 2017 and 2016, respectively. The increase in both periods primarily related to increased spend in the Agriculture segment. R&D was approximately 6 percent of net sales for the three and six months ended June 30, 2017 and 2016, respectively.

#### Other (Loss) Income, Net

Other (loss) income, net totaled $(21) million for the second quarter of 2017 compared to $51 million in the prior year, a decrease of $72 million, primarily due to an increase in net exchange losses. This was partially offset by the absence of prior year losses related to available-for-sale securities and increased licensing income.

For the six months ended June 30, 2017, other (loss) income, net, was $285 million compared to $423 million in the prior year, a decrease of $138 million, primarily due to the change in net gains on sales of business and other assets period over period and an increase in net exchange losses. This was partially offset by the reversal of accrued interest related to unrecognized tax benefits in 2017, absence of prior year losses related to available-for-sale securities and increased licensing income. The six months ended June 30, 2017 included a pre-tax gain of $162 million associated with the sale of the global food safety diagnostic business. The six months ended June 30, 2016 included a pre-tax gain of $369 million associated with the sale of DuPont (Shenzhen) Manufacturing Limited entity.

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

#### Interest Expense

Interest expense totaled $99 million in the second quarter 2017 as compared to $93 million in the prior year. The $6 million increase was due primarily to higher debt balances.

For the six months ended June 30, 2017, interest expense was $183 million versus $185 million in the prior year. The $2 million decrease was due primarily to lower interest on long-term debt prior to the May 2017 Debt Offering, partially offset by higher interest on commercial paper.

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

Employee separation / asset related charges, net totaled $160 million for the second quarter 2017 versus a $90 million benefit in the prior year. The charges in the second quarter 2017 relate to the closure of the Protection Solutions segment's Cooper River manufacturing site located near Charleston, South Carolina as part of the 2017 restructuring program. The benefit in the second quarter 2016 relates to a reduction in severance and related benefit costs in the 2016 global cost savings and restructuring plan 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.

Employee separation / asset related charges, net totaled $312 million for the six months ended 2017 versus a $13 million benefit in the prior year. The $312 million charge relates to the 2017 restructuring program. The six months ended June 30, 2016 included an $88 million benefit primarily driven by a reduction in severance and related benefit costs in the 2016 global cost savings and restructuring plan, offset by a $75 million charge in the first quarter related to the decision not to restart the insecticide manufacturing facility at the La Porte site located in La Porte, Texas.

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 2017 was 13.0 percent as compared to 23.0 percent in 2016. The lower effective tax rate is primarily driven by certain net exchange gains recognized on the re-measurement of the net monetary asset positions which were not taxable in their local jurisdictions, increased tax benefits on employee separation / asset related charges, as well as the impact of costs associated with the planned merger with Dow and related activities. These impacts were partially offset by a tax charge of $29 million related to the elimination of a tax benefit recorded in 2016 due to a second quarter 2017 U.S. discretionary pension contribution.

The company's effective tax rate for the six months ended June 30, 2017 was 13.8 percent as compared to 24.0 percent in 2016. The lower effective tax rate is primarily driven by certain net exchange gains recognized on the re-measurement of the net monetary asset positions which were not taxable in their local jurisdictions. Other factors contributing to the lower effective tax rate include the absence of unfavorable tax consequences of a gain on the sale of an entity in the first quarter 2016, tax benefits related to a reduction in the company's unrecognized tax benefits due to the closure of various tax statutes of limitations, increased tax benefits on employee separation / asset related charges, as well as the impact of costs associated with the planned merger with Dow and related activities. These impacts were partially offset by the unfavorable tax consequences of non-deductible goodwill associated with the gain on the sale of the company's global food safety diagnostic business in the first quarter 2017.

See Notes 5 and 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 six months ended June 30, 2017 compared with the same period in 2016. 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 post employment employee benefit costs, exchange gains (losses), corporate expenses and interest. Non-operating pension and other post employment 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 income from continuing operations before income taxes for the three and six months ended June 30, 2017 and 2016 is included in Note 15 to the interim Consolidated Financial Statements.

The following table summarizes second quarter and year-to-date 2017 segment net sales and related variances versus prior year:

|  | Three Months Ended June 30, 2017 Segment Net Sales ($ Billions) | Percent Change vs. 2016 | Percentage Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Agriculture | $3.4 | 7 | (1) | — | 8 | — |
| Electronics & Communications | 0.5 | 11 | (1) | (1) | 13 | — |
| Industrial Biosciences | 0.4 | 11 | 3 | (1) | 9 | — |
| Nutrition & Health | 0.8 | (2) | (1) | (1) | 1 | (1) |
| Performance Materials | 1.4 | 3 | 2 | (1) | 2 | — |
| Protection Solutions | 0.8 | 2 | (2) | (1) | 5 | — |

|  | Six Months Ended June 30, 2017 Segment Net Sales ($ Billions) | Percent Change vs. 2016 | Percentage Change Due to: Local Price and Product Mix | Currency | Volume | Portfolio and Other |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Agriculture | $7.4 | 5 | 1 | — | 5 | (1) |
| Electronics & Communications | 1.1 | 12 | (1) | (1) | 14 | — |
| Industrial Biosciences | 0.8 | 8 | 2 | (1) | 7 | — |
| Nutrition & Health | 1.6 | (2) | — | (1) | — | (1) |
| Performance Materials | 2.7 | 6 | 1 | (1) | 6 | — |
| Protection Solutions | 1.5 | 2 | (2) | (1) | 5 | — |

**Agriculture -** Second quarter 2017 segment net sales of $3,446 million increased $228 million, or 7 percent, on volume growth, partially offset by declines in local price. Volume growth was due to increased insecticide and fungicide sales, a benefit from the southern U.S. route-to-market change, and higher soybean sales in North America driven by increased soybean area. Reductions in local price were due to price declines in crop protection due to competitive pressure in Latin America and Asia. Operating earnings of $963 million increased $98 million, or 11 percent, on volume growth, partially offset by declines in local price and increased product costs, primarily driven by higher soybean royalties.

Year-to-date segment net sales of $7,374 million increased $370 million, or 5 percent, on growth in volume and local price, partially offset by portfolio changes. Volume growth was driven by a change in the timing of seed deliveries, including the southern U.S. route-to-market change, increased insecticide and fungicide sales, higher soybean sales in North America, and increased sunflower and corn sales in Europe. The change in timing of seed deliveries benefited year-to-date segment net sales by approximately $200 million. These increases were partially offset by lower North America corn seed volumes impacted by an expected decrease in corn area. Pricing growth was realized by double-digit increases in Brazil driven by the continued expansion of Pioneer® brand hybrids with Leptra® insect protection and increases in sunflower seed pricing in Europe, partially offset by price declines in crop protection due to competitive pressure in Latin America and Asia. Operating earnings of $2,199 million increased $233 million, or 12 percent, on growth in volume and local price.

**Electronics & Communications -** Second quarter 2017 segment net sales of $546 million increased $52 million, or 11 percent, as volume growth more than offset a decline in local price, and a negative impact from currency. Volume growth was due to increased demand in consumer electronics and semiconductor markets, as well as stronger photovoltaic material sales. Operating earnings of $116 million increased $23 million, or 25 percent, as volume growth more than offset declines in local price.

Year-to-date segment net sales of $1,056 million increased $110 million, or 12 percent, on volume growth, partially offset by a decline in local price and a negative impact from currency. Volume growth was due to increased demand in consumer electronics and semiconductor markets, as well as stronger photovoltaic material sales. Operating earnings of $205 million increased $53 million, or 35 percent, primarily on volume growth and the absence of a $16 million prior year litigation expense, partially offset by lower local price. Operating earnings included a gain on the sale of a business offset by costs associated with a legal matter.

**Industrial Biosciences -** Second quarter 2017 segment net sales $395 million increased $40 million, or 11 percent, as growth in volume and local price was partially offset by a negative impact from currency. Broad-based volume growth was driven by increased demand for biomaterials in apparel and carpeting, bioactives in the grain processing market, and clean technologies. Growth in local price was due to biomaterials in carpeting. Operating earnings of $76 million increased $14 million, or 23 percent, on volume growth and mix enrichment, partially offset by higher costs.

Year-to-date segment net sales of $763 million, increased $56 million, or 8 percent, as volume growth and local price gains were partially offset by a negative impact from currency. Volume growth was driven by increased demand for biomaterials in apparel and carpeting and, bioactives in the grain processing market. Local price gains were due to biomaterials in carpeting. Operating earnings of $151 million increased $26 million, or 21 percent, on volume growth and mix enrichment, partially offset by higher costs.

**Nutrition & Health -** Second quarter 2017 segment net sales of $818 million decreased $17 million, or 2 percent, as portfolio changes, lower local price and a negative impact from currency, were partially offset by volume growth. The negative impact from portfolio changes was due to the absence of sales related to the global food safety diagnostic business sold in February 2017. Increased demand in probiotics was partially offset by declines in protein solutions and systems and texturants. Operating earnings of $135 million increased $5 million, or 4 percent, on volume growth.

Year-to-date segment net sales of $1,607 million decreased $29 million, or 2 percent on portfolio changes and the negative impact from currency. Volume growth in probiotics was offset by declines in systems and texturants and protein solutions. The unfavorable portfolio impact was due to the absence of sales related to the global food safety diagnostic business sold in February 2017. Operating earnings of $256 million increased $22 million, or 9 percent, on plant productivity, mix enrichment and cost savings, partially offset by portfolio changes.

**Performance Materials -** Second quarter 2017 segment net sales of $1,381 million increased $46 million, or 3 percent, as increases in local price and volume were partially offset by a negative impact from currency. Higher local price for polymers was driven by price increases to mitigate higher raw material costs. Increased demand for polymers in automotive markets and increased demand for high-performance parts in semi-conductor and aerospace markets drove increased volumes, partially offset by lower ethylene sales due to the planned turnaround of the ethylene cracker in the second quarter. Operating earnings of $329 million increased $4 million, or 1 percent, as increases in volume and local price, and the absence of costs associated with a contractual claim, were largely offset by higher raw material costs.

Year-to-date segment net sales of $2,749 million increased $165 million, or 6 percent, as growth in volume and local price was partially offset by a negative impact from currency. Increased demand for polymers in automotive markets and increased demand for high-performance parts in semi-conductor and aerospace markets drove increased volumes, partially offset by lower ethylene sales due to the planned turnaround of the ethylene cracker in the second quarter. Operating earnings of $684 million increased $86 million, or 14 percent, driven by volume growth, cost savings, and the absence of costs associated with a contractual claim, partially offset by higher raw material costs.

**Protection Solutions -** Second quarter 2017 segment net sales of $801 million increased $15 million, or 2 percent, as volume growth was partially offset by lower local price, unfavorable mix and the negative impact from currency. Broad-based volume growth was led by improved demand for Tyvek® protective material in medical packaging and protective apparel and Nomex® thermal-resistant fiber in oil and gas markets. Volume growth was partially offset by unfavorable mix in Nomex® and Kevlar®, and lower local price in surfaces due to competitive pressure. Operating earnings of $191 million increased $3 million, or 2 percent, as volume growth more than offset unfavorable mix, lower local price and higher raw material costs.

Year-to-date segment net sales of $1,548 million increased $33 million, or 2 percent, as volume growth was partially offset by unfavorable mix and the negative impact from currency. Broad-based volume growth was driven by increased demand for Nomex® in oil and gas markets, Kevlar® for composite structures, Tyvek® in medical packaging and protective apparel, and surfaces. Volume growth was partially offset by the impacts of unfavorable mix in Tyvek® and Nomex®, and lower local price in Kevlar® and surfaces due to competitive pressure. Operating earnings of $368 million increased $4 million, or 1 percent, as volume growth was partially offset by unfavorable mix, lower local price, and higher raw material costs.

### Liquidity & Capital Resources

Information related to the company's liquidity and capital resources can be found in the company's 2016 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, 2017.

*(Dollars in millions)*

|  | June 30, 2017 | December 31, 2016 |
| --- | ---: | ---: |
| Cash, cash equivalents and marketable securities | $6,228 | $5,967 |
| Total debt | 13,559 | 8,536 |

The company's cash, cash equivalents and marketable securities at June 30, 2017 and December 31, 2016 are $6.2 billion and $6.0 billion, respectively.

Total debt as of June 30, 2017 was $13.6 billion, a $5.0 billion increase from December 31, 2016. This increase was due primarily to the May 2017 Debt Offering as well as increased borrowings from commercial paper and the Repurchase Facility used primarily to fund seasonal working capital requirements.

In May 2017, the company completed an underwritten public offering of $1.25 billion of the company's 2.20 percent Notes due 2020 and $750 million of the company's Floating Rate Notes due 2020 (the May 2017 Debt Offering). The proceeds of this offering were used to make a discretionary pension contribution to the company's principal U.S. pension plan, as discussed below. The company will be required to redeem all of the Notes associated with the May 2017 Debt Offering at a redemption price equal to 100 percent of the aggregate principal amount plus any accrued and unpaid interest upon the announcement of the record date for the separation of either the agriculture or specialty products business, or the entry into an agreement to sell all or substantially all of the assets of either business to a third party.

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 (as amended from time to time, the Term Loan Facility). In the first quarter of 2017, the Term Loan Facility was amended to extend the date on which the commitment to lend terminates. As a result, DuPont may make up to seven term loan borrowings through July 27, 2018; amounts repaid or prepaid are not available for subsequent borrowings. 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, 2017, the company had borrowed $500 million and had unused commitments of $4.0 billion under the Term Loan Facility. DuPont may elect to borrow under the Term Loan Facility to meet its short-term liquidity needs.

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, 2017, the company was in compliance with this financial covenant.

In January 2017, in line with seasonal agricultural working capital requirements, the company entered into a committed receivable repurchase agreement of up to $1.3 billion (the Repurchase Facility) that expires on November 30, 2017. 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 $7.8 billion in unused credit lines, a decrease of $0.1 billion from $7.9 billion as of December 31, 2016. These unused credit lines provide support to meet the company's short-term liquidity needs and for general corporate purposes which may include funding of discretionary and non-discretionary contributions to certain benefit plans, severance plans in the event of a change in control, repayment and refinancing of debt, working capital, capital expenditures and repurchases and redemptions of securities.

The company previously anticipated making contributions of approximately $230 million to its principal U.S. pension plan in 2017. During the six months ended June 30, 2017, the company made total contributions of $2.9 billion to its principal U.S pension plan, an increase of approximately $2.7 billion reflecting discretionary contributions. The discretionary contribution was funded through the May 2017 Debt Offering, as discussed above; short-term borrowings, including commercial paper issuance; and cash.

#### Summary of Cash Flows

Cash used for operating activities was $4.1 billion for the six months ended June 30, 2017 compared to $1.5 billion during the same period in 2016. The $2.6 billion increase was due primarily to higher pension contributions, as discussed above.

Cash used for investing activities was $1.9 billion for the six months ended June 30, 2017 compared to $0.4 billion during the same period in 2016. The $1.5 billion increase was due primarily to increased net purchases of marketable securities, partially offset by lower net payments from foreign currency contracts.

Cash provided by financing activities was $4.5 billion for the six months ended June 30, 2017, compared to $1.0 billion during the same period last year. The $3.5 billion increase was due primarily to the May 2017 Debt Offering and increased short-term borrowings in commercial paper for seasonal working capital requirements.

Dividend payments to shareholders during the six months ended June 30, 2017 totaled $0.7 billion. In April and July of 2017, the Board of Directors declared second and third quarter common stock dividends of $0.38 per share. The company has paid quarterly consecutive dividends since the company's first dividend in the fourth quarter 1904.

#### Guarantees and Off-Balance Sheet Arrangements

For detailed information related to Guarantees, Indemnifications, and Obligations for Equity Affiliates and Others, see the company's 2016 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, 2016 can be found in the company's 2016 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements. The company's contractual obligations at June 30, 2017 have increased approximately $2 billion versus prior year end. The increase is driven by the May 2017 Debt Offering. See Note 10 to the interim Consolidated Financial Statements for further discussion of the company's debt offering.

## Market risk

As filed, 311 characters.

See Note 13 to the interim Consolidated Financial Statements. See also Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, of the company's 2016 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, 2017, 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, 2017 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

## Risk factors

As filed, 2,395 characters.

The following risk factor presented in the company's risk factors discussed in Part I, Item 1A, Risk Factors, in the company's 2016 Annual Report is updated solely to reflect Amendment No. 1 to the Merger Agreement which, among other things, extends the Merger Agreement to August 31, 2017.

**The Merger Agreement may be terminated in accordance with its terms and the Mergers may not be completed.**

The completion of the Mergers is subject to the satisfaction or waiver of a number of conditions. Those conditions include: (i) the receipt of certain domestic and foreign regulatory approvals under competition laws, including receipt of approvals by certain regulators of the respective purchasers in relation to the FMC Transactions, EAA Transaction and the Brazil Seeds Transaction; (ii) the absence of certain governmental restraints or prohibitions preventing completion of the DuPont Merger or the Dow Merger; (iii) the approval of the shares of DowDuPont Common Stock to be issued to DuPont stockholders and Dow stockholders for listing on the NYSE; (iv) the reasonable determination by DuPont and Dow that neither the DuPont Merger nor the Dow Merger will constitute an acquisition of a 50 percent or greater interest in Dow or DuPont, under Section 355(e) of the Code; (v) the truth and correctness of the representations and warranties made by both parties (generally subject to certain “materiality” and “material adverse effect” qualifiers); (vi) the performance by DuPont and Dow of their respective obligations under the Merger Agreement in all material respects; and (vii) the receipt by both parties of legal opinions from their respective tax counsels with respect to the tax-free nature of each of the Mergers.

These conditions to the closing may not be fulfilled and, accordingly, the Mergers may not be completed. In addition, if the Mergers are not completed by August 31, 2017, either DuPont or Dow may choose not to proceed with the Mergers, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Mergers. In addition, DuPont or Dow may elect to terminate the Merger Agreement in certain other circumstances. If the Merger Agreement is terminated, Dow and DuPont may incur substantial fees in connection with termination of the Merger Agreement and will not recognize the anticipated benefits of the Mergers.

Filed Jul 25, 2017.
Source: SEC EDGAR, the filing index for accession 0000030554-17-000035. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.