XML 24 R13.htm IDEA: XBRL DOCUMENT

Divestitures and Other Transactions

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

DIVESTITURES AND OTHER TRANSACTIONS

Separation Agreements

In connection with the Distributions, DuPont, Corteva, and Dow (together, the “Parties” and each a “Party”) have entered into certain agreements to effect the separation, provide for the allocation of DowDuPont’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) among the Parties, and provide a framework for Corteva's relationship with Dow and DuPont following the separations and Distributions (collectively, the "Separation Agreements"). The Parties entered into, among other agreements, the following agreements:

•

Separation and Distribution Agreement - Effective April 1, 2019, the Parties entered into an agreement that sets forth, among other things, the agreements among the Parties regarding the principal transactions necessary to effect the Distributions. It also sets forth other agreements that govern certain aspects of the Parties’ ongoing relationships after the completion of the Distributions (the "Corteva Separation Agreement").


•	Tax Matters Agreement - The Parties entered into an agreement effective as of April 1, 2019 as amended on June 1, 2019 that governs their respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.


•	Employee Matters Agreement - The Parties entered into an agreement that identifies employees and employee-related liabilities (and attributable assets) to be allocated (either retained, transferred and accepted, or assigned and assumed, as applicable) to the Parties as part of the Distributions and describes when and how the relevant transfers and assignments will occur.

•

Intellectual Property Cross-License Agreement - Effective as of April 1, 2019 Corteva and Dow, and effective June 1, 2019 Corteva and DuPont entered into Intellectual Property Cross-License Agreements. The Intellectual Property Cross-License Agreements set forth the terms and conditions under which the applicable Parties may use in their respective businesses, following each of the Distributions, certain know-how (including trade secrets), copyrights, and software, and certain patents and standards, allocated to another Party pursuant to the Corteva Separation and Distribution Agreement.

•

Letter Agreement - DuPont and Corteva entered into a Letter Agreement. The Letter Agreement sets forth certain additional terms and conditions related to the Separation, including certain limitations on each party’s ability to transfer certain businesses and assets to third parties without assigning certain of such party’s indemnification obligations under the Corteva Separation Agreement to the other party to the transferee of such businesses and assets or meeting certain other alternative conditions.

DuPont

Pursuant to the Separation Agreements, DuPont and Corteva indemnifies the other against certain litigation, environmental, tax, workers' compensation and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At June 30, 2019, the indemnification assets are $68 million within accounts and notes receivable - net and $58 million within other assets in the interim Condensed Consolidated Balance Sheet. At June 30, 2019, the indemnification liabilities are $18 million within accrued and other current liabilities and $71 million within other noncurrent obligations in the interim Condensed Consolidated Balance Sheet.

Dow

Pursuant to the Separation Agreements, Dow and Corteva indemnifies the other against certain litigation, environmental, tax and other liabilities that arose prior to the Corteva Distribution. The term of this indemnification is generally indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. In connection with the recognition of liabilities related to these matters, the company records an indemnification asset when recovery is deemed probable. At June 30, 2019, the indemnification assets are $41 million within accounts and notes receivable - net and $27 million within other assets in the interim Condensed Consolidated Balance Sheet. At June 30, 2019, the indemnification liabilities are $70 million within accrued and other current liabilities and $109 million within other noncurrent obligations in the interim Condensed Consolidated Balance Sheet.

EID ECP Divestiture

As discussed in Note 1 - Background and Basis of Presentation, on April 1, 2019, EID completed the transfer of the entities and related assets and liabilities of EID ECP to Dow.

As a result, the financial results of EID ECP are reflected as discontinued operations, as summarized below:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2019		2018			2019		2018
Net sales	$	—	$	413		$	362	$	828
Cost of goods sold	—		284			259		550
Research and development expense	—		6			4		13
Selling, general and administrative expenses	—		10			9		24
Amortization of intangibles	—		24			23		48
Restructuring and asset related charges - net	—		(2		)	2		2
Integration and separation costs	—		31			44		53
Other income - net	—		9			2		11
Income from discontinued operations before income taxes	—		69			23		149
Provision for income taxes on discontinued operations	—		13			4		29
Income from discontinued operations after income taxes	$	—	$	56		$	19	$	120

The following table presents the depreciation and capital expenditures of the discontinued operations related to EID ECP:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2019		2018		2019		2018
Depreciation	$	—	$	34	$	28	$	67
Capital expenditures	$	—	$	19	$	16	$	42

The carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2018 and June 30, 2018 related to ECP consist of the following:



(In millions)	December 31, 2018		June 30, 2018
Cash and cash equivalents	$	55	$	—
Accounts and notes receivable - net	194		218
Inventories	465		424
Other current assets	12		7
Total current assets of discontinued operations	726		649
Investment in nonconsolidated affiliates	108		108
Property, plant and equipment - net	770		793
Goodwill	3,587		3,597
Other intangible assets	1,143		1,193
Deferred income taxes	13		50
Other assets	1		3
Non-current assets of discontinued operations	5,622		5,744
Total assets of discontinued operations	$	6,348	$	6,393
Short-term borrowings and finance lease obligations	2		—
Accounts payable	214		168
Income tax payable	—		1
Accrued and other current liabilities	36		41
Total current liabilities of discontinued operations	252		210
Long-term Debt	4		—
Other noncurrent obligations	2		5
Deferred income tax liabilities	432		520
Pension and other post employment benefits - noncurrent	6		5
Non-current liabilities of discontinued operations	444		530
Total liabilities of discontinued operations	$	696	$	740

EID Specialty Products Divestiture

As discussed in Note 1 - Background and Basis of Presentation, on May 1, 2019, the company completed the transfer of the entities and related assets and liabilities of EID Specialty Products Entities to DuPont.

As a result, the financial results of the EID Specialty Products Entities are reflected as discontinued operations, as summarized below:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2019			2018		2019			2018
Net sales	$	1,214		$	4,071	$	5,030		$	8,010
Cost of goods sold	817			2,719		3,352			5,386
Research and development expense	51			160		204			317
Selling, general and administrative expenses	172			407		573			818
Amortization of intangibles	66			207		267			415
Restructuring and asset related charges - net	72			44		115			84
Integration and separation costs	89			67		253			123
Goodwill impairment	1,102			—		1,102			—
Other (expense) income - net	(82		)	68		38			135
(Loss) Income from discontinued operations before income taxes	(1,237		)	535		(798		)	1,002
Provision for income taxes on discontinued operations	6			268		104			443
(Loss) Income from discontinued operations after income taxes	$	(1,243	)	$	267	$	(902	)	$	559

EID Specialty Products Impairment

As a result of the Merger and related acquisition method of accounting, Historical EID’s assets and liabilities were measured at fair value resulting in increases to the company’s goodwill and other intangible assets. The fair value valuation increased the risk that any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the company’s reporting units and assets, and therefore could result in an impairment.

As a result of the Internal Reorganization, in the second quarter of 2019, EID assessed the recoverability of the goodwill within the electronics and communications, protection solutions, nutrition and health, transportation and advanced polymers, packaging and specialty plastics, industrial biosciences, and clean technologies reporting units, and the overall carrying value of the net assets in the disposal group that was distributed to DowDuPont on May 1, 2019. As a result of this analysis, the company determined that the fair value of certain reporting units related to the EID specialty products businesses were below carrying value resulting in pre-tax, non-cash goodwill impairment charges totaling $1,102 million reflected in loss from discontinued operations after income taxes. Revised financial projections reflect unfavorable market conditions, driven by slowed demand in the biomaterials business unit, coupled with challenging conditions in U.S. bioethanol markets. These revised financial projections resulted in a reduction in the long-term forecasts of sales and profitability as compared to prior projections.

The company’s analyses above using discounted cash flow models (a form of the income approach) utilized Level 3 unobservable inputs. The company’s significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. The company also used a form of the market approach (utilizes Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, the company believes the current assumptions and estimates utilized are both reasonable and appropriate.

In addition, the company performed an impairment analysis related to the equity method investments held by the EID specialty products businesses, as of May 1, 2019. The company applied the net asset value method under the cost approach to determine the fair value of the equity method investments in the EID specialty products businesses. Based on updated projections, the company determined the fair value of an equity method investment was below the carrying value and had no expectation the fair value would recover in the short-term due to the current economic environment. As a result, management concluded the impairment was other-than-temporary and recorded an impairment charge of $63 million, reflected in loss from discontinued operations after income taxes. Additionally, this impairment is reflected within restructuring and asset related charges - net in the three and six months ended June 30, 2019, within the table above.

The following table presents the depreciation and capital expenditures of the discontinued operations related to the EID Specialty Products Entities:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2019		2018		2019		2018
Depreciation	$	65	$	215	$	281	$	428
Capital expenditures	$	58	$	169	$	481	$	413

The carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2018 and June 30, 2018 related to the EID Specialty Products Entities consist of the following:



(In millions)	December 31, 2018		June 30, 2018
Cash and cash equivalents	$	2,199	$	1,799
Marketable securities	29		325
Accounts and notes receivable - net	2,441		2,605
Inventories	3,452		3,376
Other current assets	242		268
Total current assets of discontinued operations	8,363		8,373
Investment in nonconsolidated affiliates	1,185		1,216
Property, plant and equipment - net	8,138		7,930
Goodwill	28,250		28,645
Other intangible assets	13,037		13,546
Deferred income taxes	122		251
Other assets	191		240
Non-current assets of discontinued operations	50,923		51,828
Total assets of discontinued operations	$	59,286	$	60,201
Short-term borrowings and finance lease obligations	15		4
Accounts payable	1,983		1,766
Income taxes payable	33		33
Accrued and other current liabilities	884		754
Total current liabilities of discontinued operations	2,915		2,557
Long-term Debt	29		12
Other noncurrent obligations	262		290
Deferred income tax liabilities	3,624		3,945
Pension and other post employment benefits - noncurrent	1,125		1,043
Non-current liabilities of discontinued operations	5,040		5,290
Total liabilities of discontinued operations	$	7,955	$	7,847

Integration and Separation Costs

Integration and separation costs have been significant. These costs have primarily 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 and the Business Separations. These costs are recorded within integration and separation costs within the interim Consolidated Statements of Operations.



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2019		2018		2019		2018
Integration and separation costs	$	330	$	249	$	542	$	444

Merger Remedy - Divested EID Ag Business

A complete discussion of the Divested Ag Business is included in Note 4 - "Divestitures and Other Transactions," within Exhibit 99.2 of Amendment 2 to the Form 10. For the six months ended June 30, 2018, the company recorded a loss from discontinued operations before income taxes related to the Divested Ag Business of $10 million ($5 million after tax). For the three and six months ended June 2019, the company recorded income from discontinued operations after incomes taxes of $80 million, respectively, related to changes in accruals for certain prior year tax positions.

Other Discontinued Operations Activity

For the three and six months ended June 2019, the company recorded income from discontinued operations after income taxes of $86 million, respectively, related to the adjustment of certain unrecognized tax benefits for positions taken on items from prior years from previously divested businesses.