EIDP, Inc.: Form 10-Q for the period ended Sep 30, 2018

Cautionary Statements About Forward-Looking Statements

This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words.

On December 11, 2015, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) announced entry into an Agreement and Plan of Merger, as amended on March 31, 2017, (the “Merger Agreement”) under which the companies would combine in an all-stock merger of equals transaction (the “Merger”). Effective August 31, 2017, the Merger was completed and each of Dow and DuPont became subsidiaries of DowDuPont Inc. (“DowDuPont”).

Forward-looking statements by their nature address matters that are, to varying degrees, uncertain, including the intended separation, subject to approval of the DowDuPont Board of Directors and customary closing conditions, of DowDuPont’s agriculture, materials science and specialty products businesses in one or more tax efficient transactions on anticipated terms (the “Intended Business Separations”). Forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events which may not be realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond the control of DuPont and its parent company. Some of the important factors that could cause DuPont’s actual results to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) costs to achieve and achieving the successful integration of the respective agriculture, materials science and specialty products businesses of Dow and DuPont, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, productivity actions, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the combined operations; (ii) costs to achieve and achievement of the anticipated synergies by the combined agriculture, materials science and specialty products businesses; (iii) risks associated with the Intended Business Separations, including conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances related to the Intended Business Separations, associated cost, disruptions in the financial markets or other potential barriers; (iv) disruptions or business uncertainty, including from the Intended Business Separations, could adversely impact DuPont’s business or financial performance and its ability to retain and hire key personnel; and (v) risks to DuPont’s business, operations and results of operations from: the availability of and fluctuations in the cost of energy and raw materials; failure to develop and market new products and optimally manage product life cycles; ability, cost and impact on business operations, including the supply chain, of responding to changes in market acceptance, rules, regulations and policies and failure to respond to such changes; delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, product discontinuation, changes in the regulatory environment and litigation resulting from concerns and claims regarding the safe use of seeds with biotechnology traits and crop protection products potential impact on health and the environment, and the perceived impacts of biotechnology on health and the environment; impact of unpredictable seasonal and weather factors could impact sales and earnings from agriculture products; outcome of significant litigation, environmental matters and other commitments and contingencies; failure to appropriately manage process safety and product stewardship issues; global economic and capital market conditions, including the continued availability of capital and financing, as well as inflation, interest and currency exchange rates; changes in political conditions, including trade disputes and retaliatory actions; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, natural disasters and weather events and patterns which could result in a significant operational event for DuPont, adversely impact demand or production; ability to discover, develop and protect new technologies and to protect and enforce the DuPont’s intellectual property rights; failure to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio changes; 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. While the list of factors presented here is, 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. DuPont does not assume any obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.

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 2017 Annual Report and in the section titled "Risk Factors" (Part II, Item 1A of this Form 10-Q).

Recent Developments

DowDuPont Merger of Equals

DowDuPont Inc. ("DowDuPont") was formed on December 9, 2015 to effect an all-stock, merger of equals strategic combination between The Dow Chemical Company ("Dow") and DuPont (the "Merger Transaction"). On August 31, 2017 at 11:59 pm ET, (the "Merger Effectiveness Time") pursuant to the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 (the "Merger Agreement"), Dow and DuPont each merged with wholly owned subsidiaries of DowDuPont ("Mergers") and, as a result of the Mergers, Dow and DuPont became subsidiaries of DowDuPont (collectively, the "Merger"). Prior to the Merger, DowDuPont did not conduct any business activities other than those required for its formation and matters contemplated by the Merger Agreement. DowDuPont intends to pursue, subject to the receipt of approval by the Board of Directors of DowDuPont and customary closing conditions, the separation of the combined company's agriculture business, specialty products business and materials science business through a series of tax-efficient transactions (collectively, the "Intended Business Separations"). DowDuPont anticipates materials science separating about April 1, 2019, and expects agriculture and specialty products to separate about June 1, 2019.

On February 26, 2018, DowDuPont announced the corporate brand names that each company plans to assume once the Intended Business Separations occur. Materials science will be called Dow, agriculture will be called CortevaTM Agriscience, and specialty products will be called DuPont.

As a condition of the regulatory approval for the Merger Transaction, the company was required to divest certain assets related to its crop protection business and research and development ("R&D") organization (the "Divested Ag Business"). On March 31, 2017, the company entered into a definitive agreement (the "FMC Transaction Agreement") with FMC Corporation ("FMC"). Under the FMC Transaction Agreement, and effective upon the closing of the transaction on November 1, 2017, FMC acquired the Divested Ag Business and DuPont acquired certain assets relating to FMC’s Health and Nutrition segment (the "H&N Business") (collectively, the "FMC Transactions"). On November 1, 2017, the company completed the FMC Transactions through the disposition of the Divested Ag Business and the acquisition of the Acquired H&N Business. See Note 3 to the interim Consolidated Financial Statements for further information regarding the divestiture. The sale of the Divested Ag Business meets the criteria for discontinued operations and as such, earnings are included within income from discontinued operations after income taxes in the interim Consolidated Statements of Operations for all periods presented.

Agriculture Reporting Unit Goodwill and Indefinite-lived Asset Impairments

During the three months ended September 30, 2018 the company was required to perform an interim impairment test of its goodwill and indefinite-lived intangible assets for the agriculture reporting unit. As a result of the analysis performed, the company recorded pre-tax, non-cash impairment charges of $4,503 million for goodwill and $85 million for certain indefinite-lived assets during the three and nine months ended September 30, 2018. The charges were recognized in goodwill impairment charge and restructuring and asset related charges - net, respectively, in the interim Consolidated Statement of Operations.

Impact From Recently Enacted Tariffs

Certain countries where the company’s products are manufactured, distributed or sold have recently enacted or are considering imposing new tariffs on certain products. The company has analyzed the potential impacts from tariffs that took effect on July 6, 2018 and does not expect such tariffs will have a direct material impact on its results of operations in 2018 because of the company’s mitigation actions and its global asset base. The company will continue to monitor the situation and take actions, where possible, to mitigate any potential impact as events unfold. The company believes the tariffs could contribute to an expected shift to soybeans from corn in Latin America and pressure farmer margins in North America which is reflected in the revised long-term cash flow projections for the agriculture reporting unit discussed above.

Tyvek® Capacity Expansion

In June 2018, DuPont announced plans to invest more than $400 million in its safety and construction product line to increase capacity for the manufacture of Tyvek® nonwoven materials at its Luxembourg site due to growing global demand. The production expansion, which includes investment in a new building and a third operating line at the site, is scheduled to occur over the next three years, with commercial production expected to begin in 2021.

Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax (“transition tax”) on earnings of foreign subsidiaries that were previously tax deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves to a territorial system. In the fourth quarter of 2017, the company recorded a net benefit in provision for taxes on continuing operations of $2.0 billion, which consisted of a provisional net benefit of $2.7 billion due to the reduction of the U.S. federal corporate income tax rate, partially offset by a provisional charge of $715 million due to the transition tax. At September 30, 2018, the company had not yet completed its accounting for the tax effects of enactment of the Act; however, in the three and nine months ended September 30, 2018, the company recorded benefits of $99 million and $44 million, respectively, to provision for income taxes on continuing operations with respect to the remeasurement of the company's deferred tax balance. In addition, the company recorded a charge of $16 million associated with an indirect impact of The Act related to certain inventory for the nine months ended September 30, 2018. The company continues to refine its calculations as additional information and guidance becomes available.

DowDuPont Cost Synergy Program

In September and November 2017, DowDuPont and the company approved post-merger restructuring actions to achieve targeted cost synergies under the DowDuPont Cost Synergy Program (the “Synergy Program”), adopted by the DowDuPont Board of Directors. The plan is designed to integrate and optimize the organization following the Merger and in preparation for the Intended Business Separations. Based on all actions approved to date under the Synergy Program, DuPont now expects to record total pre-tax restructuring charges of $460 million to $715 million, comprised of approximately $350 million to $400 million of severance and related benefits costs; $110 million to $140 million of costs related to contract terminations; and up to $175 million of asset related charges. Substantially all of the remaining restructuring charges are expected to be incurred in 2018 and the related actions, including employee separations, associated with this plan are expected to be substantially complete by the end of 2019.

In connection with these actions, the company recorded pre-tax charges of $61 million and $252 million for the three and nine months ended September 30, 2018, respectively.

On November 1, 2018, DowDuPont announced an increase in its cost synergy commitment from $3.3 billion to $3.6 billion.

Future cash payments related to this program are anticipated to be approximately $330 million to $410 million, primarily related to the payment of severance and related benefits and contract termination costs. It is possible that additional charges and future cash payments could occur in relation to the restructuring actions. The company anticipates including savings associated with these actions within DowDuPont's cost synergy commitment of $3.6 billion associated with the Merger Transaction.

Note on Financial Presentation

For purposes of DowDuPont's financial statement presentation, Dow was determined to be the accounting acquirer in the Merger and DuPont's assets and liabilities are reflected at fair value as of the Merger Effectiveness Time. In connection with the Merger and the related accounting determination, the company has elected to apply push-down accounting and reflect in its financial statements, the fair value of its assets and liabilities. DuPont's Consolidated Financial Statements for periods following the close of the Merger are labeled “Successor” and reflect DowDuPont’s basis in the fair values of the assets and liabilities of DuPont. All periods prior to the closing of the Merger reflect the historical accounting basis in DuPont's assets and liabilities and are labeled “Predecessor.” The interim Consolidated Financial Statements and Footnotes include a black line division between the columns titled "Predecessor" and "Successor" to signify that the amounts shown for the periods prior to and following the Merger are not comparable. In addition, the company has elected to make certain changes in presentation to harmonize its accounting and reporting with that of DowDuPont in the Successor period. See Note 1, "Summary of Significant Accounting Policies" in the company's 2017 Annual Report for further discussion of these changes and Note 3 to the interim Consolidated Financial Statements for additional information on the Merger.

Selected Financial Data

In millions, except per share amounts

In millions, except per share amounts

48

Results of Operations

Net Sales

Net sales were $5.3 billion for the three months ended September 30, 2018 compared with $1.7 billion for the period September 1 through September 30, 2017 and $3.0 billion for the period July 1 through August 31, 2017, respectively. The increase was primarily driven by volume growth in Latin America and Asia Pacific, particularly for crop protection products in those regions. Sales also increased on local pricing gains in Latin America and Asia Pacific.

Net sales were $20.5 billion for the nine months ended September 30, 2018 compared with $1.7 billion for the period September 1 through September 30, 2017 and $17.3 billion for the period January 1 through August 31, 2017, respectively. The change was primarily driven by sales increases in EMEA and Asia Pacific of 16 percent and 11 percent, respectively, driven by currency benefits in EMEA and volume growth in Asia Pacific, as well as increases in local price across all regions.

In the interim Consolidated Statements of Operations, royalty income is included within net sales in the Successor periods and is included in sundry income (expense) - net in the Predecessor periods. Royalty income does not have a significant impact on any period presented.

Cost of Goods Sold ("COGS")

COGS was $3.7 billion for the three months ended September 30, 2018 compared with $1.5 billion for the period September 1 through September 30, 2017 and $1.9 billion for the period July 1 through August 31, 2017, respectively. Amortization of the inventory step-up was $109 million for the three months ended September 30, 2018 compared with one month amortization of the inventory step-up of $360 million for the period September 1 through September 30, 2017. Additional changes in COGS were primarily due to the elimination of the other operating charges financial statement line item in the Successor periods, higher depreciation related to the fair value step-up of property, plant and equipment, and higher sales volume.

COGS as a percentage of net sales was 70 percent, 88 percent and 65 percent for the three months ended September 30, 2018, the period September 1 through September 30, 2017 and the period July 1 through August 31, 2017, respectively. The amortization of the inventory step-up was 2 percent of net sales for the three months ended September 30, 2018 and 21 percent of net sales for the period September 1 through September 30, 2017. This remaining change in COGS as a percentage of net sales for the three months ended September 30, 2018 was due to the items discussed above.

COGS was $14.2 billion for the nine months ended September 30, 2018 compared with $1.5 billion for the period September 1 through September 30, 2017 and $10.1 billion for the period January 1 through August 31, 2017, respectively. The change was primarily driven by the amortization of the inventory step-up of $1.5 billion for the nine months ended September 30, 2018 compared with $360 million for the period September 1 through September 30, 2017. COGS also increased due to the elimination of the other operating charges financial statement line item in the Successor periods and higher depreciation related to the fair value step-up of property, plant and equipment.

COGS as a percentage of net sales was 69 percent, 88 percent and 58 percent for the nine months ended September 30, 2018, the period September 1 through September 30, 2017 and the period January 1 through August 31, 2017, respectively. The amortization of the inventory step-up was 7 percent of net sales for the nine months ended September 30, 2018 and 21 percent of net sales for the period September 1 through September 30, 2017. The remaining change in COGS as a percentage of net sales for the nine months ended September 30, 2018 is due to the items discussed above.

See Note 3 to the interim Consolidated Financial Statements for additional information regarding the Merger, including the valuation of inventory.

Other Operating Charges

Other operating charges were $136 million and $504 million for the periods July 1 through August 31, 2017 and January 1 through August 31, 2017, respectively. In the Successor periods, other operating charges are included primarily in COGS, as well as selling, general and administrative expenses and amortization of intangibles.

Research and Development Expense

R&D expense was $367 million for the three months ended September 30, 2018, $120 million for the period September 1 through September 30, 2017 and $267 million for the period July 1 through August 31, 2017, respectively. R&D as a percentage of net sales was 7 percent for the three months ended September 30, 2018, 7 percent for the period September 1 through September 30, 2017 and 9 percent for the period July 1 through August 31, 2017, respectively. The change was primarily driven by lower performance-based compensation.

R&D expense was $1.1 billion for the nine months ended September 30, 2018, $120 million for the period September 1 through September 30, 2017 and $1.0 billion for the period January 1 through August 31, 2017, respectively. R&D as a percentage of net sales was 6 percent for the nine months ended September 30, 2018, 7 percent for the period September 1 through September 30, 2017 and 6 percent for the period January 1 through August 31, 2017, respectively.

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

SG&A expenses were $823 million for the three months ended September 30, 2018, $276 million for the period September 1 through September 30, 2017 and $776 million for the period July 1 through August 31, 2017, respectively. In the Successor periods, integration and separation costs and amortization of intangibles are presented as line items on the interim Consolidated Statements of Operations. During the period July 1 through August 31, 2017, the company incurred $210 million of transaction costs in connection with the Merger and the Intended Business Separations. The remaining change was primarily driven by lower performance-based compensation.

SG&A as a percentage of net sales was 16 percent for the three months ended September 30, 2018, 16 percent for the period September 1 through September 30, 2017 and 26 percent for the period July 1 through August 31, 2017, respectively. Transaction costs were 7 percent of net sales for the period July 1 through August 31, 2017. The remaining change as a percentage of sales is due to the item discussed above.

SG&A expenses were $3.0 billion for the nine months ended September 30, 2018, $276 million for the period September 1 through September 30, 2017 and $3.2 billion for the period January 1 through August 31, 2017, respectively. For the period January 1 through August 31, 2017, the company incurred $581 million of transaction costs in connection with the Merger and the Intended Business Separations. The remaining change was primarily driven by higher selling costs as a result of increased net sales, largely offset by lower performance-based compensation.

SG&A as a percentage of net sales was 14 percent for the nine months ended September 30, 2018, 16 percent for the period September 1 through September 30, 2017 and 19 percent for the period January 1 through August 31, 2017, respectively. Transaction costs were 3 percent of net sales for the period January 1 through August 31, 2017.

Amortization of Intangibles

Intangible asset amortization was $307 million and $955 million for the three and nine months ended September 30, 2018, respectively, and $89 million for the period September 1 through September 30, 2017. In the Predecessor periods, amortization of intangibles was included within SG&A; other operating charges; R&D; and COGS. See Note 3 to the interim Consolidated Financial Statements for further information regarding the Merger, including the valuation of intangible assets.

Restructuring and Asset Related Charges - Net

Restructuring and asset related charges - net were $182 million for the three months ended September 30, 2018, $40 million for the period September 1 through September 30, 2017 and $11 million for the period July 1 through August 31, 2017, respectively. The activity in the third quarter 2018 was primarily related to an $85 million impairment charge related to certain in-process research and development (“IPR&D") assets, a $41 million impairment charge related to the company's investment in nonconsolidated affiliates in China and a $61 million charge related to the Synergy Program. The charges for the period July 1 through August 31, 2017 and for the period September 1 through September 30, 2017 were primarily severance and related benefit costs related to the 2016 global cost savings and restructuring plan and the Synergy program, respectively.

Restructuring and asset related charges - net were $370 million for the nine months ended September 30, 2018, $40 million for the period September 1 through September 30, 2017 and $323 million for the period January 1 through August 31, 2017, respectively. The activity for the nine months ended September 30, 2018 was primarily related to the impairment charges described above as well as a $252 million charge related to the Synergy Program. The charge for the period January 1 through August 31, 2017 was comprised of $279 million of asset related charges and $44 million in severance and related benefit costs. The asset related charges primarily relate to the second quarter closure of the Cooper River manufacturing site located near Charleston, South Carolina as part of the 2017 restructuring program. The charge for the period September 1 through September 30, 2017 was primarily severance and related benefit costs as part of the Synergy Program.

See Notes 6 and 12 to the interim Consolidated Financial Statements for additional information.

Integration and Separation Costs

Integration and separation costs were $344 million and $926 million for the three and nine months ended September 30, 2018, respectively, and $71 million for the period September 1 through September 30, 2017. In the Predecessor periods, integration and separation costs were included within SG&A. See Note 1 to the interim Consolidated Financial Statements for further discussion of the changes in presentation.

Goodwill Impairment Charge

For the three and nine months ended September 30, 2018, the company recorded a pre-tax, non-cash impairment charge of $4,503 million in relation to an interim goodwill impairment test for its agriculture reporting unit. See Note 12 to the interim Consolidated Financial Statements for additional information regarding the company’s goodwill impairment charge.

Sundry Income (Expense) - Net

Sundry income (expense) - net was income of $52 million for the three months ended September 30, 2018, income of $121 million for the period September 1 through September 30, 2017 and expense of $183 million for the period July 1 through August 31, 2017, respectively. The three months ended September 30, 2018 includes a non-operating pension and other post employment benefit credit of $91 million, interest income of $13 million offset by a net exchange loss of $77 million. The periods September 1 through September 30, 2017 and July 1 through August 31, 2017 include net exchange gains (losses) of $77 million and $(195) million, respectively, and a non-operating pension and other post employment benefit credit (cost) of $34 million and $(70) million, respectively. The losses for the period July 1 through August 31, 2017 were offset by interest income of $26 million and royalty income of $11 million.

Sundry income (expense) - net was income of $293 million for the nine months ended September 30, 2018, income of $121 million for the period September 1 through September 30, 2017 and expense of $113 million for the period January 1 through August 31, 2017, respectively. The nine months ended September 30, 2018 includes a non-operating pension and other post employment benefit credit of $278 million, interest income of $71 million offset by a net exchange loss of $186 million. The periods September 1 through September 30, 2017 and January 1 through August 31, 2017 include net exchange gains (losses) of $77 million and $(394) million, respectively, and a non-operating pension and other post employment benefit credit (cost) of $34 million and $(278) million, respectively. The losses for the period January 1 through August 31, 2017 were offset by interest income of $83 million, royalty income of $84 million and a pre-tax gain of $162 million associated with the sale of the global food safety diagnostic business.

The non-operating pension and other post employment benefit credits for the three and nine months ended September 30, 2018 and for the period September 1 through September 30, 2017 were a result of the absence of the amortization of net losses from accumulated other comprehensive loss.

See Note 8 to the interim Consolidated Financial Statements for additional information.

Interest Expense

Interest expense was $82 million for the three months ended September 30, 2018, $27 million for the period September 1 through September 30, 2017 and $71 million for the period July 1 through August 31, 2017, respectively. Interest expense was $248 million for the nine months ended September 30, 2018, $27 million for the period September 1 through September 30, 2017 and $254 million for the period January 1 through August 31, 2017, respectively. The changes for the three and nine months ended September 30, 2018 were primarily driven by debt amortization as a result of reflecting the company’s debt at fair value upon the effective date of the Merger, partially offset by higher average debt balances.

Provision for Income Taxes on Continuing Operations

The company’s provision for income taxes on continuing operations was $12 million for the third quarter 2018 on pre-tax loss from continuing operations of $4,948 million, resulting in an effective tax rate of (0.2) percent. Unfavorable effective tax rate impacts were attributable to the non-tax-deductible impairment charge for the agriculture reporting unit and corresponding $75 million tax charge associated with a valuation allowance recorded against the net deferred tax asset position of a legal entity in Brazil, costs associated with the Merger with Dow (including a $61 million net tax cost on repatriation activities to facilitate the Intended Business Separations), a tax charge of $26 million related to an internal entity restructuring associated with the Intended Business Separations, and the tax impact of certain net exchange losses recognized on the re-measurement of the net monetary asset positions which were not deductible in their local jurisdictions. The effective tax rate was favorably impacted by the reduction of the U.S. federal corporate income tax rate from 35 percent to 21 percent as well as the impacts related to the non-tax-deductible amortization of the fair value step-up in DuPont’s inventories as a result of the Merger. A third quarter 2018 U.S. discretionary pension contribution deducted on a 2017 tax return resulted in a tax benefit of $114 million associated with the reversal of a portion of the U.S. federal deferred tax remeasurement associated with The Act, offset partially by a tax charge of $27 million related to the reduction of a tax benefit recorded in 2017.

For the period from September 1 through September 30, 2017, the company’s effective tax of 7.7 percent on pre-tax loss from continuing operations of $298 million was impacted by geographic mix of earnings, the tax impact associated with amortization of the inventory-step up, as well as tax benefits on costs associated with the Merger with Dow and restructuring and asset related charges. Those impacts were partially offset by certain net exchange losses recognized on the remeasurement of the net monetary asset positions which were not tax deductible in their local jurisdictions.

For the periods from July 1 through August 31, 2017 and January 1 through August 31, 2017, the company’s effective tax rates were 33.8 percent and 8.3 percent on pre-tax (loss) income from continuing operations of $(390) million and $1,791 million, respectively. For the period from January 1 through August 31, 2017, the company’s effective tax rate was favorably impacted by geographic mix of earnings, certain net exchange gains recognized on the remeasurement of the net monetary asset positions which were not taxable in their local jurisdictions, net favorable tax consequences of the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, tax benefits related to a reduction in the company’s unrecognized tax benefits due to the closure of various tax statutes of limitations, as well as tax benefits on costs associated with the Merger with Dow and restructuring and asset related charges. Those tax benefits 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 diagnostics business in the first quarter 2017.

The company’s provision for income taxes on continuing operations was $180 million for the nine months ended September 30, 2018 on pre-tax loss from continuing operations of $4,482 million, resulting in an effective tax rate of (4.0) percent. The non-tax-deductible impairment charge for the agriculture reporting unit and corresponding $75 million tax charge associated with a valuation allowance recorded against the net deferred tax asset position of a legal entity in Brazil, and an incremental net provisional charge of $70 million associated with the enactment of The Act had unfavorable consequences on the effective tax rate. The effective tax rate was also unfavorably impacted by non-tax-deductible amortization of the fair value step-up in DuPont’s inventories as a result of the Merger, costs associated with the Merger with Dow (including a $61 million net tax cost on repatriation activities to facilitate the Intended Business Separations), and a tax charge of $26 million related to an internal entity restructuring associated with the Intended Business Separations. These impacts were partially offset by favorable impacts associated with the reduction of the U.S. federal corporate income tax rate from 35 percent to 21 percent. Additionally, a third quarter 2018 U.S. discretionary pension contribution deducted on a 2017 tax return resulted in a tax benefit of $114 million associated with the reversal of a portion of the U.S. federal deferred tax remeasurement associated with The Act, offset partially by a tax charge of $27 million related to the reduction of a tax benefit recorded in 2017.

Recent Accounting Pronouncements

See Note 2 to the interim Consolidated Financial Statements for a description of recent accounting pronouncements.

Liquidity & Capital Resources

Information related to the company's liquidity and capital resources can be found in the company's 2017 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, 2018.

(Dollars in millions)

The company's cash, cash equivalents and marketable securities at September 30, 2018 and December 31, 2017 are $3.8 billion and $8.2 billion, respectively. The decrease of $4.4 billion was primarily due to funding the company’s seasonal working capital needs, the discretionary pension contribution, and distributions to DowDuPont.

Total debt at September 30, 2018 and December 31, 2017 was $14.6 billion and $13.1 billion, respectively. The increase was due primarily to increased borrowings from commercial paper and the Repurchase Facility, and the new Term Loan Facility borrowing partially offset by the maturity of debt. The increase in debt was used primarily to fund seasonal working capital requirements.

The company believes its ability to generate cash from operations and access to capital markets will be adequate to meet anticipated cash requirements to fund its working capital, capital spending, debt maturities as well as distributions and other intercompany transfers to DowDuPont which relies on distributions from DuPont and Dow to fund payment of its costs and expenses. DuPont’s current strong financial position, liquidity and credit ratings continue to provide access as needed to the capital markets. The company's liquidity needs can be met through a variety of sources, including cash provided by operating activities, cash and cash equivalents, marketable securities, commercial paper, syndicated credit lines, bilateral credit lines, long-term debt markets, bank financing, committed receivable repurchase facilities and asset sales.

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 from this offering were used to make a discretionary pension contribution to the company's principal U.S. pension plan.

The company's indenture covenants include customary limitations on liens, sale and leaseback transactions, and mergers and consolidations affecting manufacturing plants, mineral producing properties or research facilities located in the U.S. and the consolidated subsidiaries owning such plants, properties and facilities subject to certain limitations. The outstanding long-term debt also contains customary default provisions. In addition, 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 may be amended, from time to time, the "Term Loan Facility") under which DuPont may make up to seven term loan borrowings 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 funding a portion of DowDuPont's costs and expenses. The Term Loan Facility was amended in 2018 to extend the maturity date to June 2020, at which time all outstanding borrowings, including accrued but unpaid interest, become immediately due and payable, and to extend the date on which the commitment to lend terminates to June 2019. At September 30, 2018, the company had made four term loan borrowings in an aggregate principal amount of $2.0 billion and had unused commitments of $2.5 billion under the Term Loan Facility. In addition, in 2018 the company amended its $3.0 billion revolving credit facility to extend the maturity date to June 2020.

The Term Loan Facility and the 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 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, 2018, the company was in compliance with this financial covenant.

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

In February 2018, in line with seasonal agricultural working capital requirements, the company entered into a committed receivable repurchase agreement of up to $1.3 billion (the "2018 Repurchase Facility") which expires in December 2018. From time to time, the company and the banks modify the monthly commitment amounts to better align with working capital requirements. Under the 2018 Repurchase Facility, the company may sell a portfolio of available and eligible outstanding customer notes receivables within the agriculture product line to participating institutions and simultaneously agree to repurchase at a future date. See further discussion of this facility in Note 13 to the interim Consolidated Financial Statements.

The company has access to approximately $6.1 billion in committed and uncommitted unused credit lines compared to $6.7 billion as of December 31, 2017. 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 payments, repayment and refinancing of debt, working capital, capital expenditures, repurchases and redemptions of securities, and funding a portion of DowDuPont's costs and expenses.

The company's cash, cash equivalents and marketable securities at September 30, 2018 and December 31, 2017 are $3.8 billion and $8.2 billion, respectively, of which $3.5 billion at September 30, 2018 and $7.9 billion at December 31, 2017 was held by subsidiaries in foreign countries, including United States territories. The company is currently evaluating the impact of The Act on its permanent reinvestment assertion. The Act requires companies to pay a one-time transition tax on earnings of foreign subsidiaries, a majority of which were previously considered permanently reinvested by the company (see Note 9 to the interim Consolidated Financial Statements for further details of The Act). A tax liability has been accrued for the estimated U.S. federal tax on all unrepatriated earnings as of December 31, 2017 in accordance with The Act. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. The company has the ability to repatriate additional funds to the US, which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S. state income taxes and the impact of foreign currency movements. During 2018, the company has and expects to continue repatriating certain funds from its foreign subsidiaries that are not needed to finance local operations or separation activities. During the three and nine months ended September 30, 2018, the company has recorded tax expense of $61 million associated with these repatriation activities.

During the period January 1 through August 31, 2017, the company made contributions of $2.9 billion to its principal U.S. pension plan funded through a debt offering in May of 2017; short-term borrowings, including commercial paper issuance; and cash. The company made a discretionary contribution of $1.1 billion in the third quarter of 2018 to its principal U.S. pension plan, primarily through cash balances. The decision to make the discretionary contribution took into account tax deductible limits as well as capital structure considerations.

Summary of Cash Flows

Cash used for operating activities was $2.6 billion for the nine months ended September 30, 2018 compared to $0.3 billion for the period September 1 through September 30, 2017 and $3.9 billion for the period January 1 through August 31, 2017. The decrease was due to higher pension contributions in 2017.

Cash used for investing activities was $0.2 billion for the nine months ended September 30, 2018 compared to $0.9 billion provided by investing activities for the period September 1 through September 30, 2017 and $2.4 billion used for investing activities for the period January 1 through August 31, 2017. The change was due primarily to decreased purchases of marketable securities.

Cash used for financing activities was $0.9 billion for the nine months ended September 30, 2018 compared to $0.2 billion provided by financing activities for the period September 1 through September 30, 2017 and $5.6 billion provided by financing activities for the period January 1 through August 31, 2017. The change was due primarily to higher borrowings in 2017 related to pension contributions and increased distributions to DowDuPont to support 2018 share repurchases.

As of the consummation of the Merger, shares of DuPont common stock held publicly were redeemed and DuPont's common stock is owned solely by its parent company, DowDuPont. DuPont's preferred stock remains issued and outstanding, and DuPont continues to be responsible for dividends on its preferred stock; however, the obligation is not material to the company's liquidity. Dividend payments to shareholders of DuPont preferred stock totaled $7.0 million in the nine months ended September 30, 2018.

DowDuPont relies on distributions and other intercompany transfers from DuPont and Dow to fund payment of its costs and expenses. In November 2017, DowDuPont's Board of Directors authorized an initial $4 billion share repurchase program to buy back shares of DowDuPont common stock. The $4 billion share repurchase program was completed in the third quarter of 2018. In February, April and June 2018, the Board declared first, second and third quarter dividends per share of DowDuPont common stock payable on March 15, 2018, June 15, 2018 and September 14, 2018, respectively. For the nine months ended September 30, 2018, DuPont declared and paid distributions to DowDuPont of about $2.5 billion, primarily to fund a portion of DowDuPont's first, second and third quarter share repurchases and dividend payments.

On October 11, 2018, DowDuPont declared a dividend of $0.38 per share, payable on December 14, 2018, to its shareholders of record on November 30, 2018. DuPont’s amount of this shareholder dividend has not yet been determined. The company expects to declare and pay a dividend to DowDuPont in December 2018.

On November 1, 2018, DowDuPont announced a new $3 billion share buyback program, which expires on March 31, 2019 - commensurate with the expected timing of the materials science spin-off.

Guarantees and Off-Balance Sheet Arrangements

For detailed information related to Guarantees, Indemnifications, and Obligations for Equity Affiliates and Others, see the company's 2017 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off- Balance Sheet Arrangements, and Note 14 to the interim Consolidated Financial Statements.

Critical Accounting Estimates

The company's significant accounting policies are more fully described in Note 1 in the company's 2017 Annual Report. Management believes that the application of these policies on a consistent basis enables the company to provide the users of the financial statements with useful and reliable information about the company's operating results and financial condition.

Valuation of Assets and Impairment Considerations

The company’s assets and liabilities were measured at fair value as of the date of the Merger, and as a result, any declines in projected cash flows could have a material, negative impact on the fair value of the company's reporting units and assets and therefore result in an impairment. Goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. As previously disclosed in the Form 10-Q for the quarter ended June 30, 2018, the company commenced strategic business reviews during the third quarter 2018 and assembled updated cash flow projections. The revised cash flow projections of the agriculture reporting unit assessed and quantified the impacts of developing market conditions, events and circumstances previously discussed by DowDuPont that have evolved throughout 2018, resulting in a reduction in the forecasts of sales and profitability as compared to prior forecasts. The reduction in cash flow projections was principally driven by lower growth in sales and margins in North America and Latin America and unfavorable currency impacts related to the Brazilian real. The lower growth is driven by reduced planted area, an expected unfavorable shift to soybeans from corn in Latin America, and delays in expected product registrations. In addition, decrease in commodity prices and higher than anticipated industry grain inventories are expected to impact farmers’ income and buying choices resulting in shifts to lower technologies and pricing pressure.

The company considered the combination of these factors and the resulting reduction in its forecasted projections for the agriculture reporting unit and determined it was more likely than not that the fair value of the agriculture reporting unit was less than the carrying value, thus requiring the performance of an updated goodwill and intangible asset impairment analysis for the agriculture reporting unit as of September 30, 2018. In performing the interim impairment analysis, the company determined the appropriate measure of fair value was a form of the income approach using a discounted cash flow model. The result of the impairment test indicated that the fair value of the agriculture reporting unit was lower than the carrying value, resulting in a $4.5 billion pre-tax (and after-tax) goodwill impairment charge. The key assumption driving the change in fair value was the lower financial projections. The company also performed an impairment test on indefinite-lived intangibles and determined that the fair value of certain IPR&D assets had declined as a result of delays in timing of commercialization and increases to expected research and development costs. This resulted in a pre-tax impairment charge of $85 million ($66 million after-tax). The assumptions and estimates used in determining the fair values of this reporting unit and its indefinite-lived intangibles contain uncertainties, and any changes to these assumptions and estimates could have a negative impact and result in a future impairment. For further information see Notes 6, 12 and 18 the interim Consolidated Financial Statements.

With the exception of the agriculture reporting unit, there were no other indicators for the company’s other reporting units that would suggest that it is more likely than not that the fair value is less than its carrying value at September 30, 2018. Due to the carrying value and fair value of these reporting units being equal at the date of the Merger resulting in little, if any, margin of fair value in excess of carrying value, the company believes these reporting units are at risk to have impairment charges in future periods. The dynamic economic environments in which the company's diversified product lines operate, and key economic and product line assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors, circumstances and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.

The company’s goodwill and indefinite-lived intangibles by reporting unit at September 30, 2018 is shown below (in millions):

For further detailed information related to valuation of assets and impairment considerations, see the company’s 2017 Annual Report, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates.

Contractual Obligations

Information related to the company's contractual obligations at December 31, 2017 can be found in the company's 2017 Annual Report, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements. With the exception of the item below, there have been no material changes in the company's contractual obligations since December 31, 2017.

(Dollars in millions)

The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q (as modified by a grant of no-action relief dated February 12, 2018) and is therefore filing this form with the reduced disclosure format and has omitted the information called for by this Item pursuant to General Instruction H(2)(c) of Form 10-Q.

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, 2018, 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, 2018 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 2017 Annual Report.