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Business Combinations Business Combinations | 9 Months Ended
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Sep. 30, 2017
Business Acquisition [Line Items] |
Business Combinations | Business Combinations Acquisition of Granular, Inc. On August 31, 2017, the Company acquired Granular, Inc., a leading provider of software and analytics tools that helps farms improve efficiency, profitability, and sustainability. The purchase price was approximately $250 million and was primarily allocated to goodwill, developed technology and customer relationships.The fair value of the acquired assets relate to Granular, Inc. are included in the fair value measurement of DuPont’s assets and liabilities as a result of the application of push down accounting in connection with the Merger discussed below. Merger with Dow Upon completion of the Merger, (i) each share of common stock, par value $0.30 per share, of the company (the “DuPont Common Stock”) was converted into the right to receive 1.2820 fully paid and non-assessable shares of DowDuPont common stock, par value $0.01 per share, ("DowDuPont Common Stock"), in addition to cash in lieu of any fractional shares of DowDuPont Common Stock, and (ii) each share of DuPont Preferred Stock—$4.50 Series and DuPont Preferred Stock—$3.50 Series (collectively, the “DuPont Preferred Stock”) issued and outstanding immediately prior to the Merger Effectiveness Time remains issued and outstanding and was unaffected by the Mergers. As provided in the Merger Agreement, at the Merger Effectiveness Time, all options relating to shares of DuPont Common Stock that were outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options relating to shares of DowDuPont Common Stock and all restricted stock units and performance based restricted stock units relating to shares of DuPont Common Stock that were outstanding immediately prior to the effective time of the Mergers were generally automatically converted into restricted stock units relating to shares of DowDuPont Common Stock, in each case, after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the Merger Effectiveness Time. See Note 16 for further discussion. Prior to the Merger, shares of DuPont Common Stock were registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended and listed on the New York Stock Exchange (the “NYSE”). As a result of the Merger, on August 31, 2017, the company requested that the NYSE withdraw the shares of DuPont Common Stock from listing on the NYSE and filed a Form 25 with the U.S. Securities and Exchange Commission ("SEC") to report that DuPont Common Stock is no longer listed on the NYSE. DuPont continues to have Preferred Stock outstanding and it remains listed on the NYSE. DowDuPont Common Stock is listed and trades on the NYSE, ticker symbol DWDP. As a condition of the regulatory approval of the Merger, DuPont was required to divest a portion of its Crop Protection business, including certain research and development capabilities. See Note 4 for additional information. 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, specialty products and material science businesses through a series of tax-efficient transactions (collectively, the Intended Business Separations). Preliminary Allocation of Purchase Price Based on an evaluation of the provisions of ASC 805, "Business Combinations", Dow was determined to be the accounting acquirer in the Merger. DowDuPont has applied the acquisition method of accounting with respect to the assets and liabilities of DuPont, which have been measured at fair value as of the date of the Merger. In connection with the Merger and the related accounting determination, DuPont has elected to apply push-down accounting and reflect in its financial statements, the fair value of assets and liabilities. Such fair values have been reflected in the Successor Consolidated Financial Statements. DuPont's assets and liabilities were measured at estimated fair values as of the Merger Effectiveness Time, primarily using Level 3 inputs. Estimates of fair value represent management's best estimate which require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities. The total fair value of consideration transferred for the Merger was approximately $74,680 million. Total consideration is comprised of the equity value of the DowDuPont shares as of the Merger Effectiveness Time, that were issued in exchange for DuPont shares, the cash value for fractional shares, and the portion of DuPont's share awards and share options earned as of the Merger Effectiveness Time. Share awards and share options converted to DowDupont equity instruments, but not vested, were $144 million as of August 31, 2017, which will be expensed over the remaining future vesting period. The following table summarizes the fair value of consideration exchanged as a result of the Merger:
Consideration In millions (except exchange ratio) |
DuPont Common Stock outstanding as of the Merger Effectiveness Time | 868.3 |
DuPont exchange ratio | 1.2820 |
DowDuPont Common Stock issued in exchange for DuPont Common Stock | 1,113.2 |
Fair value of DowDuPont Common Stock issued 1 | $ | 74,195 |
Fair value of DowDuPont equity awards issued in exchange for outstanding DuPont equity awards 2 | 485 |
Total consideration | $ | 74,680 |
1. | Amount was determined based on the price per share of Dow Common Stock of $66.65 on August 31, 2017.
2. | Represents the fair value of replacement awards issued for DuPont's equity awards outstanding immediately before the Merger and attributable to the service periods prior to the Merger. The previous DuPont equity awards were converted into the right to receive 1.2820 shares of DowDuPont Common Stock.
The acquisition method of accounting requires, among other things, that identifiable assets acquired and liabilities assumed be recognized on the balance sheet at the fair values as of the acquisition date. In determining the fair value, DowDuPont utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgment related to future net cash flows (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data, supplemented by current and anticipated market conditions, and growth rates. The table below presents the preliminary fair value that was allocated to DuPont's assets and liabilities based upon fair values as determined by DowDuPont. The valuation process to determine the fair values is not yet complete. The company will finalize the amounts recognized as it obtains the information necessary to complete the analysis, but no later than one year from the date of the Merger. Final determination of the fair values may result in further adjustments to the values presented in the following table.
Fair Value of DuPont Assets and Liabilities as of the Merger Effectiveness Time |
(In millions)
Fair Value of Assets |
Cash and cash equivalents | $ | 4,005 |
Marketable securities | 2,849 |
Accounts and notes receivable - net | 7,851 |
Inventories | 8,886 |
Other current assets | 360 |
Investment in nonconsolidated affiliates | 1,685 |
Assets held for sale - current | 3,184 |
Property, plant and equipment - net | 12,122 |
Goodwill 1 | 45,501 |
Other intangible assets 1 | 27,844 |
Deferred income tax assets | 487 |
Other assets | 2,076 |
Total Assets | $ | 116,850 |
Fair Value of Liabilities |
Short-term borrowings and capital lease obligations | $ | 5,319 |
Accounts payable | 3,283 |
Income taxes payable | 140 |
Accrued and other current liabilities | 3,517 |
Liabilities held for sale - current | 104 |
Long-term debt | 9,878 |
Deferred income tax liabilities | 9,408 |
Pension and other post employment benefits - noncurrent 2 | 8,092 |
Other noncurrent obligations | 2,028 |
Total Liabilities | $ | 41,769 |
Noncontrolling interests | 162 |
Preferred stock | 239 |
Fair Value of Net Assets (Consideration for the Merger) | $ | 74,680 |
1. | See Note 11 for additional information.
2. | Includes pension and other post employment benefits as well as long-term disability obligations.
The significant fair value adjustments included in the preliminary allocation of purchase price are discussed below. Inventories Inventory is primarily comprised of finished products of $5,115 million, semi-finished products of $3,066 million and raw materials of $705 million. Fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. Fair value of work-in-process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials was determined to approximate the historical carrying value. For inventory accounted for under the first-in, first-out method and average cost method, the preliminary fair value step-up of inventory will be recognized in costs of goods sold as the inventory is sold. The pre-tax amount recognized for the period September 1 through September 30, 2017, was $429 million, of which $360 million is reflected in costs of goods sold within loss from continuing operations before income taxes and $69 million is reflected in loss from discontinued operations after income taxes in the Consolidated Statements of Operations. For inventory accounted for under the last-in, first-out ("LIFO") method, the preliminary fair value of inventory becomes the LIFO base layer inventory. Property, Plant & Equipment Property, plant and equipment is comprised of land and land improvements of $967 million, buildings of $2,615 million, machinery and equipment of $7,540 million and construction in progress of $1,000 million. The preliminary estimated fair value of property and equipment was primarily determined using a market approach for land and certain types of equipment, and a replacement cost approach for property and equipment. The market approach for certain types of equipment represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach used for all other depreciable property and equipment measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset. Goodwill The excess of the consideration for the Merger over the preliminary net fair value of assets and liabilities was recorded as goodwill. The Merger resulted in the recognition of $45,501 million of goodwill, which is not deductible for tax purposes. Goodwill largely consists of expected cost synergies resulting from the Merger and the Intended Business Separations, the assembled workforce of DuPont and future technology and customers. Cost synergies will be achieved through a combination of workforce consolidations and savings from actions such as procurement synergies, harmonizing energy contracts at large sites, optimizing warehouse and logistics footprints, implementing materials and maintenance best practices and leveraging existing research and development knowledge management systems. Other Intangible Assets Other intangible assets primarily consist of customer-related, developed technology, trademarks and trade names and germplasm. The preliminary customer-related value was determined using the excess earnings method while the preliminary developed technology, trademarks and trade names and germplasm values were primarily determined utilizing the relief from royalty method. Both the excess earnings and relief from royalty methods are forms of the income approach. Refer to Note 11 for further information on other intangible assets. Income Taxes The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets and liabilities and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates in the jurisdictions in which legal title of the underlying asset or liability resides. The preliminary fair value of “Deferred income tax assets” includes a $172 million adjustment to establish a valuation allowance for certain historical net operating losses that will not be fully realized as a result of the Merger. Included in the fair value adjustment related to “Deferred income tax liabilities” is a $546 million adjustment reflecting a change in determination as to the reinvestment strategy of certain foreign operations of the company. Integration and Separation Costs Integration and separation costs have been and are expected to be significant. These costs to date primarily have consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger. These costs are recorded within Integration and separation costs in the Successor period and the costs are recorded within selling, general and administrative expenses in the Predecessor periods within the Consolidated Statements of Operations.
| Successor | Predecessor
(In millions) | For the Period September 1 - September 30, 2017 | For the Period July 1 - August 31, 2017 | Three Months Ended September 30, 2016 | For the Period Jan. 1 - August 31, 2017 | Nine Months Ended September 30, 2016
Integration and separation costs | $ | 71 |  |  |  |  |
Selling, general and administrative expenses |  | $ | 210 |  | $ | 122 |  | $ | 581 |  | $ | 222 |

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