10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-815
 
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
51-0014090
(State or other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
974 Centre Road, Wilmington, Delaware 19805
(Address of Principal Executive Offices)
 
(302) 774-1000
(Registrant’s Telephone Number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.)  Yes  x   No  o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer x
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer o
 
Smaller reporting company o
 
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  o   No  x

The Registrant had 876,407,000 shares (excludes 87,041,000 shares of treasury stock) of common stock, $0.30 par value, outstanding at October 15, 2015.
 
 

Table of Contents

E. I. DU PONT DE NEMOURS AND COMPANY

Table of Contents
 
The terms “DuPont” or the “company” as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries, or to E. I. du Pont de Nemours and Company, as the context may indicate. 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PART I.  FINANCIAL INFORMATION
 
Item 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
E. I. du Pont de Nemours and Company
Consolidated Income Statements (Unaudited)
(Dollars in millions, except per share)
 
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Net sales
$
4,873

$
5,905

$
19,831

$
22,557

Other income, net
98

364

552

749

Total
4,971

6,269

20,383

23,306

Cost of goods sold
3,084

3,698

11,703

13,350

Other operating charges
91

201

413

609

Selling, general and administrative expenses
1,046

1,157

3,540

3,833

Research and development expense
441

486

1,415

1,491

Interest expense
82

93

260

290

Employee separation / asset related charges, net
—

—

40

244

Total
4,744

5,635

17,371

19,817

Income from continuing operations before income taxes
227

634

3,012

3,489

Provision for income taxes on continuing operations
96

303

886

921

Income from continuing operations after taxes
131

331

2,126

2,568

Income from discontinued operations after taxes
104

103

89

385

Net income
235

434

2,215

2,953

Less: Net income attributable to noncontrolling interests
—

1

9

11

Net income attributable to DuPont
$
235

$
433

$
2,206

$
2,942

Basic earnings per share of common stock:
 
 
 
 
Basic earnings per share of common stock from continuing operations
$
0.14

$
0.36

$
2.34

$
2.78

Basic earnings per share of common stock from discontinued operations
0.12

0.11

0.10

0.42

Basic earnings per share of common stock
$
0.26

$
0.47

$
2.44

$
3.20

Diluted earnings per share of common stock:
 
 
 
 
Diluted earnings per share of common stock from continuing operations
$
0.14

$
0.36

$
2.33

$
2.76

Diluted earnings per shares of common stock from discontinued operations
0.12

0.11

0.10

0.42

Diluted earnings per share of common stock
$
0.26

$
0.47

$
2.43

$
3.17

Dividends per share of common stock
$
0.38

$
0.47

$
1.34

$
1.37

 
See Notes to the Consolidated Financial Statements beginning on page 7.



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Table of Contents

E. I. du Pont de Nemours and Company
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in millions, except per share)

 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Net income
$
235

$
434

$
2,215

$
2,953

Other comprehensive income (loss), before tax:
 
 
 
 
      Cumulative translation adjustment
(125
)
(428
)
(1,405
)
(559
)
      Net revaluation and clearance of cash flow hedges to earnings:
 
 
 
 
      Additions and revaluations of derivatives designated as cash flow hedges
(22
)
(3
)
(36
)
23

      Clearance of hedge results to earnings
—

(2
)
12

29

      Net revaluation and clearance of cash flow hedges to earnings
(22
)
(5
)
(24
)
52

      Pension benefit plans:
 
 
 
 
      Net gain (loss)
634

(5
)
628

(107
)
      Prior service cost
—

(1
)
—

(1
)
      Effect of foreign exchange rates
54

—

92

—

      Reclassifications to net income:
 
 
 
 
                Amortization of prior service (benefit) cost
(3
)
1

(6
)
2

                Amortization of loss
172

151

591

450

                Curtailment gain / settlement loss
37

2

46

8

      Pension benefit plans, net
894

148

1,351

352

      Other benefit plans:
 
 
 
 
      Net loss
(73
)
(33
)
(73
)
(33
)
      Prior service benefit
—

50

—

50

      Effect of foreign exchange rates
(1
)
—

(1
)
—

      Reclassifications to net income:
 
 
 
 
                Amortization of prior service benefit
(39
)
(54
)
(143
)
(160
)
                Amortization of loss
20

15

58

43

                Curtailment gain
(274
)
—

(274
)
—

      Other benefit plans, net
(367
)
(22
)
(433
)
(100
)
Other comprehensive income (loss), before tax
380

(307
)
(511
)
(255
)
      Income tax expense related to items of other comprehensive income
(176
)
(28
)
(312
)
(92
)
Other comprehensive income (loss), net of tax
204

(335
)
(823
)
(347
)
Comprehensive income
439

99

1,392

2,606

      Less: Comprehensive income attributable to noncontrolling interests
—

1

9

11

Comprehensive income attributable to DuPont
$
439

$
98

$
1,383

$
2,595


See Notes to the Consolidated Financial Statements beginning on page 7.


4
Table of Contents

E. I. du Pont de Nemours and Company
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions, except per share) 
 
September 30,
2015
December 31,
2014
Assets
 

 

Current assets
 

 

Cash and cash equivalents
$
3,324

$
6,910

Marketable securities
406

124

Accounts and notes receivable, net
6,656

5,238

Inventories
5,888

6,787

Prepaid expenses
287

264

Deferred income taxes
485

532

Assets of discontinued operations
—

6,227

Total current assets
17,046

26,082

Property, plant and equipment, net of accumulated depreciation
   (September 30, 2015 - $14,297; December 31, 2014 - $13,765)
9,769

10,008

Goodwill
4,249

4,332

Other intangible assets
4,214

4,569

Investment in affiliates
712

762

Deferred income taxes
3,252

3,734

Other assets
1,060

1,003

Total
$
40,302

$
50,490

Liabilities and Equity
 

 

Current liabilities
 

 

Accounts payable
$
2,830

$
3,786

Short-term borrowings and capital lease obligations
1,781

1,422

Income taxes
569

534

Other accrued liabilities
3,174

5,596

Liabilities of discontinued operations
—

2,467

Total current liabilities
8,354

13,805

Long-term borrowings and capital lease obligations
8,155

9,233

Other liabilities
12,212

13,615

Deferred income taxes
359

459

Total liabilities
29,080

37,112

Commitments and contingent liabilities




Stockholders’ equity
 

 

Preferred stock
237

237

Common stock, $0.30 par value; 1,800,000,000 shares authorized;
   Issued at September 30, 2015 - 963,347,000; December 31, 2014 - 992,020,000
289

298

Additional paid-in capital
10,678

11,174

Reinvested earnings
15,441

16,894

Accumulated other comprehensive loss
(8,911
)
(8,556
)
Common stock held in treasury, at cost
(87,041,000 shares at September 30, 2015 and December 31, 2014)
(6,727
)
(6,727
)
Total DuPont stockholders’ equity
11,007

13,320

Noncontrolling interests
215

58

Total equity
11,222

13,378

Total
$
40,302

$
50,490

 
See Notes to the Consolidated Financial Statements beginning on page 7.

5
Table of Contents

E. I. du Pont de Nemours and Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
 
 
Nine Months Ended
 
September 30,
 
2015
2014
Operating activities
 
 
Net income
$
2,215

$
2,953

Adjustments to reconcile net income to cash used for operating activities:
 

 

Depreciation
856

944

Amortization of intangible assets
307

294

Net periodic pension benefit cost
445

305

Contributions to pension plans
(260
)
(231
)
Gain on sale of businesses
(48
)
(418
)
Other operating activities - net
89

272

Change in operating assets and liabilities - net
(5,449
)
(5,921
)
Cash used for operating activities
(1,845
)
(1,802
)
Investing activities
 

 

Purchases of property, plant and equipment
(1,291
)
(1,311
)
Investments in affiliates
(59
)
(37
)
Payments for businesses - net of cash acquired
(77
)
—

Proceeds from sales of businesses - net
61

727

Proceeds from sales of assets - net
18

29

Purchases of short-term financial instruments
(928
)
(853
)
Proceeds from maturities and sales of short-term financial instruments
676

431

Foreign currency exchange contract settlements
543

97

Other investing activities - net
12

197

Cash used for investing activities
(1,045
)
(720
)
Financing activities
 

 

Dividends paid to stockholders
(1,210
)
(1,268
)
Net increase in short-term (less than 90 days) borrowings
1,161

2,416

Long-term and other borrowings:
 
 
Receipts
3,630

96

Payments
(1,529
)
(1,763
)
Prepayments / repurchase of common stock
(2,353
)
(2,000
)
Proceeds from exercise of stock options
208

285

Cash transferred to Chemours at spin-off
(250
)
—

Other financing activities - net
(87
)
1

Cash used for financing activities
(430
)
(2,233
)
Effect of exchange rate changes on cash
(266
)
(204
)
Decrease in cash and cash equivalents
$
(3,586
)
$
(4,959
)
Cash and cash equivalents at beginning of period
6,910

8,941

Cash and cash equivalents at end of period
$
3,324

$
3,982

 
See Notes to the Consolidated Financial Statements beginning on page 7.


6
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)


Note 1.  Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.  Results for interim periods should not be considered indicative of results for a full year.  These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2014, collectively referred to as the “2014 Annual Report”.  The Consolidated Financial Statements include the accounts of the company and all of its subsidiaries in which a controlling interest is maintained, as well as variable interest entities (VIEs) for which DuPont is the primary beneficiary. 

Basis of Presentation
Certain reclassifications of prior year's data have been made to conform to current year's presentation. On July 1, 2015, the company completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of The Chemours Company (Chemours). In accordance with GAAP, the financial position and results of operations of the Performance Chemicals segment are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The cash flows and comprehensive income related to the Performance Chemicals segment have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all periods presented. Amounts related to the Performance Chemicals segment are consistently included or excluded from the Notes to the interim Consolidated Financial Statements based on the respective financial statement line item. See Note 2 for additional information.

The company revised accumulated other comprehensive loss at January 1, 2013 to adjust for currency translation of $97 and pension settlement charges of $54 that should have been recorded in prior years. The revision resulted in a $151 decrease in accumulated other comprehensive loss with a corresponding reduction in reinvested earnings. The currency translation was related to an adjustment to the exchange rates used by a foreign subsidiary in the translation of the financial statements to U.S. dollar (USD) in prior years. See further discussion of the pension settlement charges in Note 13. The impact of these adjustments is not material to the company’s current or previously issued financial statements.
The company’s cost structure is being impacted by the global, multi-year initiative to redesign its global organization and operating model to improve productivity and agility across all businesses and functions. Effective December 31, 2014, in order to better align to the transforming company’s organization and resulting cost structure, certain costs were reclassified from other operating charges to selling, general and administrative expenses. Prior year data have been reclassified to conform to current year presentation. Other operating charges primarily include, costs associated with the Performance Chemical separation, product claim charges and non-capitalizable costs associated with capital projects. Selling, general and administrative expense primarily includes selling and marketing expenses, commissions, functional costs, and business management expenses. Cost of goods sold primarily includes the cost of manufacture and delivery, ingredients or raw materials, direct salaries, wages and benefits and overhead.

Foreign Currency Translation
The company's worldwide operations utilize the USD or local currency as the functional currency, where applicable. The company identifies its separate and distinct foreign entities and groups the foreign entities into two categories: 1) extension of the parent (USD functional currency) and 2) self-contained (local functional currency). If a foreign entity does not clearly align with either category, factors are evaluated and a judgment is made to determine the functional currency.

For foreign entities where the USD is the functional currency, all foreign currency-denominated asset and liability amounts are re-measured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property, plant and equipment, goodwill and other intangible assets, which are re-measured at historical rates. Foreign currency income and expenses are re-measured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts re-measured at historical exchange rates. Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.

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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other comprehensive loss in equity. Assets and liabilities denominated in other than the local currency are re-measured into the local currency prior to translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated into USD at average exchange rates in effect during the period.

The company changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances indicate clearly that the functional currency has changed. As a result of the separation of its Performance Chemicals segment, coupled with the company’s ongoing redesign initiative, the functional currency at certain of the company’s foreign entities is being re-evaluated which, in some cases, has resulted in a change in the foreign entities’ functional currency.

Venezuelan Foreign Currency
Venezuela is considered a highly inflationary economy under GAAP and the USD is the functional currency for the company's subsidiaries in Venezuela. The official exchange rate continues to be set through the National Center for Foreign Commerce (CENCOEX, previously CADIVI). Based on its evaluation of the restrictions and limitations affecting the availability of specific exchange rate mechanisms, management concluded in the second quarter of 2014 that the Alternative Currency Exchange System (SICAD 2) auction process would be the most likely mechanism available. As a result, in the second quarter of 2014, the company changed from the official exchange rate to the SICAD 2 exchange rate, which resulted in a charge of $58 recorded within other income, net in the company's interim Consolidated Income Statements for the nine months ended September 30, 2014.

During the first quarter of 2015, the Venezuelan government enacted additional changes to the country’s foreign exchange systems including the introduction of the SIMADI (Foreign Exchange Marginal System) auction process. Management has concluded that the SIMADI auction process would be the most likely exchange mechanism available. As a result, effective in the first quarter of 2015, the company changed from the SICAD 2 to the SIMADI exchange rate, to re-measure its Bolivar Fuertes (VEF) denominated net monetary assets which resulted in a charge of $3 recorded within other income, net in the company's interim Consolidated Income Statements for the nine months ended September 30, 2015. The remaining net monetary assets and non-monetary assets are immaterial at September 30, 2015.

Recent Accounting Pronouncements
Accounting Pronouncements Implemented in 2015
In April 2014, the FASB issued authoritative guidance amending existing requirements for reporting discontinued operations.  Under the new guidance, discontinued operations reporting is limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. Public entities will apply the amended guidance prospectively to all disposals occurring within annual periods beginning on or after December 15, 2014 and interim periods within those years. The company adopted this standard on January 1, 2015. Due to the change in requirements for reporting discontinued operations described above, presentation and disclosures of disposal transactions after adoption may be different than under previous standards.

New Accounting Pronouncements to be Implemented
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share or its Equivalent. This guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented and early adoption is permissible. The company anticipates that this guidance will only impact disclosure and will not impact the company's financial position or results of operations.

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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

In February 2015, the FASB issued ASU No. 2015-02 Consolidation (Topic 810), Amendments to the Consolidation Analysis. The amendments under the new guidance modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and eliminate the presumption that a general partner should consolidate a limited partnership. The ASU is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity also may apply the amendments retrospectively. The company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (IFRS). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved a deferral of the ASU effective date from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. The company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 2. Divestitures and Other Transactions
Performance Chemicals
On July 1, 2015 (the Distribution Date), DuPont completed the separation of its Performance Chemicals segment through the spin-off of all of the issued and outstanding stock of Chemours (the Separation). To effect the spin-off, DuPont distributed to its stockholders one share of Chemours common stock, par value $0.01 per share, for every five shares of DuPont common stock, par value $0.30 per share, (the Distribution) outstanding as of 5:00 p.m. June 23, 2015, the record date for the Distribution. In lieu of fractional shares of Chemours, stockholders of DuPont received cash, which generally was taxable. In connection with the  Separation, the company and Chemours entered into a Separation Agreement and a Tax Matters Agreement, discussed below, and certain ancillary agreements, including an employee matters agreement, agreements related to transition and site services,  and intellectual property cross licensing arrangements. In addition, the companies have entered into certain supply agreements.
Separation Agreement    
The company and Chemours entered into a Separation Agreement that sets forth, among other things, the agreements between the company and Chemours regarding the principal transactions necessary to effect the Separation and also sets forth ancillary agreements that govern certain aspects of the company’s relationship with Chemours after the separation. Among other matters, the Separation Agreement and the ancillary agreements provide for the allocation between DuPont and Chemours of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the completion of the Separation.

Pursuant to the Separation Agreement, Chemours indemnifies DuPont against certain litigation, environmental, workers' compensation and other liabilities that arose prior to the distribution. The term of this indemnification is indefinite and includes defense costs and expenses, as well as monetary and non-monetary settlements and judgments. At September 30, 2015, the indemnified assets are $100 within accounts and notes receivable, net and $400 within other assets offset by the corresponding liabilities of $100 within other accrued liabilities and $400 within other liabilities.

Tax Matters Agreement
The company and Chemours entered into a Tax Matters Agreement that governs the parties’ 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. In general, under the agreement, the company is responsible for any U.S. federal, state and local taxes (and any related interest, penalties or audit adjustments) reportable on a consolidated, combined or unitary return that includes the company or any of its subsidiaries (and Chemours and/or any of its subsidiaries) for any periods or portions thereof ending on or prior to the date of the Separation and Chemours is responsible for any U.S. federal, state, local and foreign taxes (and any related interest, penalties or audit adjustments) that are imposed on Chemours and/or any of its subsidiaries for all tax periods, whether before or after the date of the distribution. Neither party’s obligations under the agreement are limited in amount or subject to any cap. Additionally, Chemours generally agrees to indemnify DuPont and its affiliates against any and all tax-related liabilities incurred by them relating to the distribution and certain other aspects of the separation to the extent caused by an acquisition of Chemours’ stock or assets or by certain other action undertaken by Chemours.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

The results of operations of the Performance Chemicals segment are presented as discontinued operations as summarized below:
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Net sales
$
—

$
1,606

$
2,810

$
4,788

Other income, net
—

(7
)
27

33

Total
—

1,599

2,837

4,821

Cost of goods sold
—

1,183

2,215

3,530

Other operating charges
59

122

369

300

Selling, general and administrative expenses
(277
)
114

(87
)
347

Research and development expense
—

28

40

86

Interest expense
—

—

32

—

Employee separation / asset related charges, net
—

—

59

19

Total
(218
)
1,447

2,628

4,282

Income from discontinued operations before taxes
218

152

209

539

Provision for income taxes
108

49

114

154

Income from discontinued operations after taxes
$
110

$
103

$
95

$
385


As a result of the separation, the company recorded an other long-term employee benefit plan curtailment gain of $274 and re-measured the associated plans as of July 1, 2015. The company also recorded a pension curtailment gain of $7 and re-measured the principal U.S. pension plan as of July 1, 2015. See Note 13 for further discussion.
During the three and nine months ended September 30, 2015 and the three and nine months ended September 30, 2014, the company incurred $68 and $289, and $61 and $112 of costs, respectively, in connection with the transaction primarily related to professional fees associated with preparation of regulatory filings and separation activities within finance, tax, legal, and information system functions. Income from discontinued operations during the three and nine months ended September 30, 2015, and the three and nine months ended September 30, 2014, includes $59 and $243, and $51 and $95 of these costs, respectively. Income from continuing operations during the three and nine months ended September 30, 2015, and the three and nine months ended September 30, 2014, includes $9 and $26, and $10 and $17 of these costs, respectively, recorded in other operating charges in the company's interim Consolidated Income Statements. Income from continuing operations during the nine months ended September 30, 2015 also included $20 of transaction costs incurred for a premium associated with the early retirement of DuPont debt. The company exchanged notes received from Chemours in May 2015 (as part of a dividend payment) for DuPont debt that it then retired. These costs were reported in interest expense in the company's interim Consolidated Income Statements.
Income from discontinued operations during the nine months ended September 30, 2015, included a restructuring charge of $59, consisting of severance and related benefit costs associated with the Performance Chemicals segment to achieve fixed cost and operational productivity improvements for Chemours post-spin.

11
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

The carrying amount of the major classes of assets and liabilities classified as assets and liabilities of discontinued operations at December 31, 2014 related to Performance Chemicals consisted of the following:
 
December 31,
2014
Accounts and notes receivable, net
$
887

Inventories
1,054

Prepaid expenses
15

Deferred income taxes - current
53

Property, plant and equipment, net of accumulated depreciation
3,378

Goodwill
197

Other intangible assets
11

Investment in affiliates
124

Deferred income taxes - noncurrent
42

Other assets - noncurrent
466

   Total assets of discontinued operations
$
6,227

Accounts payable
1,036

Income taxes
9

Other accrued liabilities
373

Other liabilities - noncurrent
616

Deferred income taxes - noncurrent
433

    Total liabilities of discontinued operations
$
2,467


In connection with the spin-off, the company received a dividend from Chemours in May 2015 of $3,923 comprised of a cash distribution of $3,416 and a distribution in-kind of $507 of 7% senior unsecured notes due 2025 (Chemours Notes Received). Chemours financed the dividend payment through issuance of approximately $4,000 of debt, including the Chemours' Notes Received (Chemours' Debt). Net assets of $415 were transferred to Chemours on July 1, 2015, including the $4,000 of Chemours' Debt. In addition, approximately $468 of accumulated other comprehensive loss, net of income taxes, primarily related to pension and other long-term employee benefit plans, as well as cumulative translation adjustment was transferred to Chemours. This resulted in a $883 reduction to reinvested earnings. Cash, working capital and other accounts will be reconciled with Chemours and the net amount due to DuPont will be settled pursuant to the Separation Agreement.
The following table presents depreciation, amortization and purchases of property, plant and equipment of the discontinued operations related to Performance Chemicals:
 
Nine Months Ended
 
September 30,
 
2015
2014
Depreciation
$
126

$
186

Amortization of intangible assets
2

2

Purchases of property, plant and equipment
235

350


Glass Laminating Solutions/Vinyls
In June 2014, the company sold Glass Laminating Solutions/Vinyls (GLS/Vinyls), a part of the Performance Materials segment, to Kuraray Co. Ltd. The sale resulted in a pre-tax gain of $391 ($273 net of tax). The gain was recorded in other income, net in the company's interim Consolidated Income Statements for the nine months ended September 30, 2014.


12
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 3. Employee Separation / Asset Related Charges, Net
2014 Restructuring Program
At September 30, 2015, total liabilities related to the 2014 restructuring program were $139. A complete discussion of restructuring initiatives is included in the company's 2014 Annual Report in Note 3, "Employee Separation / Asset Related Charges, Net."

Account balances and activity related to the 2014 restructuring program are summarized below:
 
Employee Separation Costs
Other Non-Personnel Charges 1
Total
Balance at December 31, 2014
$
264

$
4

$
268

Payments
(117
)
(1
)
(118
)
Net translation adjustment
(9
)
—

(9
)
  Other adjustments
(2
)
—

(2
)
Balance as of September 30, 2015
$
136

$
3

$
139


1 
Other non-personnel charges consist of contractual obligation costs.

During the nine months ended September 30, 2015, the company recorded adjustments to the estimated costs associated with the 2014 restructuring program in employee separation / asset related charges, net in the company's interim Consolidated Income Statements. This was primarily due to the identification of additional projects in certain segments, offset by lower than estimated individual severance costs and workforce reductions achieved through non-severance programs. The adjustments impacted segment results for the nine months ended September 30, 2015 as follows: Agriculture - $(4), Electronics & Communications - $11, Industrial Biosciences - $(1), Nutrition & Health - $(4), Performance Materials - $(2), Safety & Protection $1, and Other - $(3).

During the nine months ended September 30, 2014, a pre-tax charge of $244 was recorded in employee separation / asset related charges, net in the company's interim Consolidated Income Statements. The charge consisted of $150 employee separation costs, $3 of other non-personnel charges and $91 of asset shut down costs. The charge impacted segment results for year-to-date 2014 as follows: Agriculture - $47, Electronics & Communications - $68, Industrial Biosciences - $2, Nutrition & Health - $8, Performance Materials - $29 Safety & Protection - $31, Other - $2, as well as Corporate expenses - $57.

Cost Basis Investment Impairment
During the first quarter 2015, a $38 pre-tax impairment charge was recorded in employee separation / asset related charges, net within the Other segment. The majority relates to a cost basis investment in which the assessment resulted from the venture's revised operating plan reflecting underperformance of its European wheat based ethanol facility and deteriorating European ethanol market conditions. One of the primary investors communicated that they would not fund the revised operating plan of the investee. As a result, the carrying value of DuPont's 6 percent cost basis investment in this venture exceeds its fair value by $37, such that an impairment charge was recorded.


13
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 4.  Other Income, Net 
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Royalty income
$
27

$
34

$
91

$
99

Interest income
33

33

98

103

Equity in earnings of affiliates, net
1

1

19

8

Net gain on sales of businesses and other assets
43

27

74

428

Net exchange (losses) gains1
(36
)
250

54

44

Miscellaneous income and expenses, net 2
30

19

216

67

Other income, net
$
98

$
364

$
552

$
749

 

1 
The company routinely uses foreign currency exchange contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The net pre-tax exchange gains (losses) are recorded in other income, net and the related tax impact is recorded in provision for income taxes on the company's interim Consolidated Income Statements. Refer to Note 5 for discussion of the tax impacts related to this program. The $54 net exchange gain for the nine months ended September 30, 2015, includes a net $(35) pre-tax exchange loss associated with the devaluation of the Ukrainian hryvnia. The $44 net exchange gain for the nine months ended September 30, 2014, includes $(58), $(46) and $(14) exchange losses, associated with the devaluation of the Venezuela bolivar, Ukrainian hryvnia, and Argentinian peso, respectively.

2  
Miscellaneous income and expenses, net, includes interest items, certain insurance recoveries and litigation settlements and other items.

Note 5.  Income Taxes 
In the third quarter 2015, the company recorded a tax provision on continuing operations of $96, including $4 of tax benefit associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations and gains or losses on foreign currency contracts. The company recorded pre-tax exchange losses in the third quarter 2015, including the re-measurement of the net monetary asset positions as well as the impacts of hedging, of $36. The third quarter 2015 tax provision also included a $17 tax benefit associated with a foreign tax court decision.

Year to date 2015, the company recorded a tax provision on continuing operations of $886, including $176 of tax expense primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations and gains or losses on foreign currency contracts. The company recorded pre-tax exchange gains year-to-date 2015, including the re-measurement of the net monetary asset positions as well as the impacts of hedging, of $54.

In the third quarter 2014, the company recorded a tax provision on continuing operations of $303, including $258 of tax expense, primarily associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations and gains or losses on foreign currency contracts. The company recorded pre-tax exchange gains in the third quarter 2014, including the re-measurement of the net monetary asset positions as well as the impacts of hedging, of $250.

Year to date 2014, the company recorded a tax provision on continuing operations of $921, including $233 of tax expense, primarily associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations and gain or losses on foreign currency contracts. The company recorded pre-tax exchange gains year-to-date 2014, including the re-measurement of the net monetary asset positions as well as the impacts of hedging, of $44.

Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. It is reasonably possible that net reductions to the company’s global unrecognized tax benefits could be in the range of $225 to $250 within the next twelve months with the majority due to the settlement of uncertain tax positions with various tax authorities.


14
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 6.  Earnings Per Share of Common Stock 
Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Numerator:
 
 
 
 
Income from continuing operations after income taxes attributable to DuPont
$
131

$
330

$
2,117

$
2,558

Preferred dividends
(2
)
(2
)
(7
)
(7
)
Income from continuing operations after income taxes available to DuPont common stockholders
$
129

$
328

$
2,110

$
2,551

 
 
 
 
 
Income from discontinued operations after income taxes available to DuPont common stockholders
$
104

$
103

$
89

$
384

 
 
 
 
 
Net income available to common stockholders
$
233

$
431

$
2,199

$
2,935

 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average number of common shares outstanding - Basic
887,275,000

910,764,000

899,883,000

917,589,000

Dilutive effect of the company’s employee compensation plans
4,011,000

6,997,000

5,639,000

7,057,000

Weighted-average number of common shares outstanding - Diluted
891,286,000

917,761,000

905,522,000

924,646,000


The following average number of stock options were antidilutive, and therefore not included in the dilutive earnings per share calculations:
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Average number of stock options
8,510,000

7,000

4,622,000

4,000


The change in the average number of stock options that were antidilutive in the three and nine months ended September 30, 2015 compared to the same period last year was due to changes in the company's average stock price.

Note 7. Inventories 
 
September 30,
2015
December 31,
2014
Finished products
$
3,260

$
4,011

Semi-finished products
2,083

2,277

Raw materials, stores and supplies
749

739

 
6,092

7,027

Adjustment of inventories to a last-in, first-out (LIFO) basis
(204
)
(240
)
Total
$
5,888

$
6,787



15
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 8.  Other Intangible Assets 
The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows: 
 
September 30, 2015
December 31, 2014
 
Gross
Accumulated
Amortization
Net
Gross
Accumulated
Amortization
Net
Intangible assets subject to amortization (Definite-lived):
 

 

 

 

 

 

Customer lists
$
1,639

$
(514
)
$
1,125

$
1,699

$
(465
)
$
1,234

Patents
457

(211
)
246

474

(184
)
290

Purchased and licensed technology
1,131

(604
)
527

1,783

(1,069
)
714

Trademarks
26

(13
)
13

26

(12
)
14

Other 1
186

(72
)
114

202

(84
)
118

 
3,439

(1,414
)
2,025

4,184

(1,814
)
2,370

 
 
 
 
 
 
 
Intangible assets not subject to amortization (Indefinite-lived):
 

 

 

 

 

 

In-process research and development
77

—

77

29

—

29

Microbial cell factories
306

—

306

306

—

306

Pioneer germplasm
1,050

—

1,050

1,064

—

1,064

Trademarks/tradenames
756

—

756

800

—

800

 
2,189

—

2,189

2,199

—

2,199

Total
$
5,628

$
(1,414
)
$
4,214

$
6,383

$
(1,814
)
$
4,569


1  
Primarily consists of sales and grower networks, marketing and manufacturing alliances and noncompetition agreements.       

The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $50 and $305 for the three and nine months ended September 30, 2015, respectively, and $48 and $292 for the three and nine months ended September 30, 2014, respectively. The estimated aggregate pre-tax amortization expense from continuing operations for the remainder of 2015 and each of the next five years is approximately $51, $352, $217, $218, $205 and $188, respectively.
                                                                                                            


16
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 9.  Long-Term Borrowings
In connection with the spin-off, as previously discussed in Note 2, the company received a dividend from Chemours in May 2015 of $3,923 comprised of a cash distribution of $3,416 and a distribution in-kind of $507 of 7% senior unsecured notes due 2025.

In the second quarter of 2015, DuPont exchanged the Chemours Notes Received for $488 of company debt due in 2016 as follows: $152 of 1.95% notes, $277 of 2.75% notes, and $59 of 5.25% notes. The company paid a premium of $20, recorded in interest expense in the company's interim Consolidated Income Statements for the nine months ended September 30, 2015, in connection with the early retirement of the $488 of 2016 notes. This debt for debt exchange was considered an extinguishment.

Note 10.  Commitments and Contingent Liabilities 
Guarantees 
Indemnifications
In connection with acquisitions and divestitures as of September 30, 2015, the company has indemnified respective parties against certain liabilities that may arise in connection with these transactions and business activities prior to the completion of the transaction. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. In addition, the company indemnifies its duly elected or appointed directors and officers to the fullest extent permitted by Delaware law, against liabilities incurred as a result of their activities for the company, such as adverse judgments relating to litigation matters. If the indemnified party were to incur a liability or have a liability increase as a result of a successful claim, pursuant to the terms of the indemnification, the company would be required to reimburse the indemnified party. The maximum amount of potential future payments is generally unlimited.

Obligations for Equity Affiliates & Others 
The company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, customers and suppliers. In connection with the separation, the company has directly guaranteed Chemours' purchase obligations under an agreement with a third party supplier. At September 30, 2015 and December 31, 2014, the company had directly guaranteed $375 and $513, respectively, of such obligations. These amounts represent the maximum potential amount of future (undiscounted) payments that the company could be required to make under the guarantees. The company would be required to perform on these guarantees in the event of default by the guaranteed party.

The company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.

In certain cases, the company has recourse to assets held as collateral, as well as personal guarantees from customers and suppliers. Assuming liquidation, these assets are estimated to cover 41 percent of the $146 of guaranteed obligations of customers and suppliers. Set forth below are the company's guaranteed obligations at September 30, 2015:
 
Short-Term
Long-Term
Total
Obligations for customers and suppliers1:
 

 

 

Bank borrowings (terms up to 6 years)
$
129

$
16

$
145

Leases on equipment and facilities (terms up to 3 years)
—

1

1

Obligations for equity affiliates2:
 

 

 

Bank borrowings (terms up to 1 year)
178

—

178

Obligations for Chemours3:
 
 
 
Chemours' purchase obligations (term up to 2 years)
40

11

51

Total
$
347

$
28

$
375


1 
Existing guarantees for customers and suppliers, as part of contractual agreements.
2   
Existing guarantees for equity affiliates' liquidity needs in normal operations.
3 
Guarantee for Chemours' raw material purchase obligations under agreement with third party supplier.

Imprelis® 
The company has received claims and lawsuits alleging that the use of Imprelis® herbicide caused damage to certain trees. Sales of Imprelis® were suspended in August 2011 and the product was last applied during the 2011 spring application season. The lawsuits seeking class action status were consolidated in multidistrict litigation in federal court in Philadelphia, Pennsylvania. In February 2014, the court entered the final order dismissing these lawsuits as a result of the class action settlement.

17
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)


As part of the settlement, DuPont paid about $7 in plaintiffs' attorney fees and expenses. DuPont also provided a warranty, which expired on May 31, 2015, against new damage, if any, caused by the use of Imprelis® on class members' properties. In the third quarter 2014, the company settled the majority of claims from class members that opted out of the class action settlement. About 30 opt-out actions are pending at September 30, 2015, a decrease of 10 from December 31, 2014.

DuPont recorded income of $150 and $185 for insurance recoveries, within other operating charges in the interim Consolidated Income Statements, for the three and nine months ended September 30, 2015, respectively. At September 30, 2015, DuPont had an accrual balance of $198 related to these claims which it continues to review as these claims are resolved.

Insurance recoveries are recognized when collection of payment is considered probable. The remaining coverage under the insurance program is $50 for costs and expenses. DuPont has submitted requests for payment related to its remaining coverage.

Litigation
The company is subject to various legal proceedings arising out of the normal course of its business including product liability, intellectual property, commercial, environmental and antitrust lawsuits. It is not possible to predict the outcome of these various proceedings. Although considerable uncertainty exists, management does not anticipate that the ultimate disposition of these matters will have a material adverse effect on the company's results of operations, consolidated financial position or liquidity.  However, the ultimate liabilities could be material to results of operations in the period recognized.  

PFOA 
DuPont used PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt), as a processing aid to manufacture some fluoropolymer resins at various sites around the world including its Washington Works plant in West Virginia. At September 30, 2015, DuPont has an accrual balance of $14 related to the PFOA matters discussed below. Pursuant to the Separation Agreement discussed in Note 2, the company is indemnified by Chemours for the PFOA matters discussed below. As a result, the company has recorded an indemnification asset of $14 corresponding to the accrual balance as of September 30, 2015.

The accrual includes charges related to DuPont's obligations under agreements with the U.S. Environmental Protection Agency and voluntary commitments to the New Jersey Department of Environmental Protection.  These obligations and voluntary commitments include surveying, sampling and testing drinking water in and around certain company sites and offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the national Provisional Health Advisory.

Drinking Water Actions
In August 2001, a class action, captioned Leach v DuPont, was filed in West Virginia state court alleging that residents living near the Washington Works facility had suffered, or may suffer, deleterious health effects from exposure to PFOA in drinking water.

DuPont and attorneys for the class reached a settlement in 2004 that binds about 80,000 residents. In 2005, DuPont paid the plaintiffs’ attorneys’ fees and expenses of $23 and made a payment of $70, which class counsel designated to fund a community health project.  The company funded a series of health studies which were completed in October 2012 by an independent science panel of experts (the C8 Science Panel). The studies were conducted in communities exposed to PFOA to evaluate available scientific evidence on whether any probable link exists, as defined in the settlement agreement, between exposure to PFOA and human disease.

The C8 Science Panel found probable links, as defined in the settlement agreement, between exposure to PFOA and pregnancy-induced hypertension, including preeclampsia; kidney cancer; testicular cancer; thyroid disease; ulcerative colitis; and diagnosed high cholesterol.

In May 2013, a panel of three independent medical doctors released its initial recommendations for screening and diagnostic testing of eligible class members. In September 2014, the medical panel recommended follow-up screening and diagnostic testing three years after initial testing, based on individual results. The medical panel has not communicated its anticipated schedule for completion of its protocol. The company is obligated to fund up to $235 for a medical monitoring program for eligible class members and, in addition, administrative costs associated with the program, including class counsel fees.  In January 2012, the company put $1 in an escrow account to fund medical monitoring as required by the settlement agreement.  The court appointed Director of Medical Monitoring has established the program to implement the medical panel's recommendations and the registration process, as well as eligibility screening, is ongoing. Diagnostic screening and testing has begun and associated payments to service providers are being disbursed from the escrow account.

18
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)


In addition, under the settlement agreement, the company must continue to provide water treatment designed to reduce the level of PFOA in water to six area water districts, including the Little Hocking Water Association (LHWA), and private well users.

Class members may pursue personal injury claims against DuPont only for those human diseases for which the C8 Science Panel determined a probable link exists. At September 30, 2015 and June 30, 2015, there were approximately 3,500 lawsuits pending in various federal and state courts in Ohio and West Virginia. In accordance with a stipulation reached in the third quarter 2014 and other court procedures, these lawsuits have been or will be served and consolidated in multi-district litigation in Ohio federal court (MDL). Based on information currently available to the company the majority of the lawsuits allege personal injury claims associated with high cholesterol and thyroid disease from exposure to PFOA in drinking water.  At September 30, 2015, 37 of the pending lawsuits allege wrongful death. In 2014, six plaintiffs from the MDL were selected for individual trial. On October 7, 2015, in the first individual trial involving a plaintiff who alleged that exposure to C8 had caused the plaintiff's kidney cancer, the jury awarded $1.6 in compensatory damages. DuPont expects to appeal the decision. The second trial is scheduled to begin in March 2016. DuPont denies the allegations in these lawsuits and is defending itself vigorously.

Additional Actions
An Ohio action brought by the LHWA is ongoing. In addition to general claims of PFOA contamination of drinking water, the action claims “imminent and substantial endangerment to health and or the environment” under the Resource Conservation and Recovery Act (RCRA). In the second quarter 2014, DuPont filed a motion for summary judgment and LHWA moved for partial summary judgment. In the first quarter of 2015, the court granted in part and denied in part both parties’ motions. As a result, the litigation process is continuing with respect to certain of the plaintiffs’ claims and trial has been set for January 2016.

PFOA Summary
While it is probable that the company will incur liabilities related to funding the medical monitoring program, such liabilities cannot be reasonably estimated due to uncertainties surrounding the level of participation by eligible class members and the scope of testing. DuPont believes that it is reasonably possible that it could incur additional liabilities related to the other PFOA matters discussed above; however, a range of such liabilities, if any, cannot be reasonably estimated at this time, due to the uniqueness of the individual MDL plaintiff's claims and the company's defenses to those claims both as to potential liability and damages on an individual claims basis, among other factors. As noted above, the company is indemnified by Chemours for these PFOA matters.

Environmental 
The company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the company or other parties. The company accrues for environmental remediation activities consistent with the policy as described in the company's 2014 Annual Report in Note 1, “Summary of Significant Accounting Policies.” Much of this liability results from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as Superfund), Resource Conservation and Recovery Act (RCRA) and similar state and global laws. These laws require the company to undertake certain investigative, remediation and restoration activities at sites where the company conducts or once conducted operations or at sites where company-generated waste was disposed. The accrual also includes estimated costs related to a number of sites identified by the company for which it is probable that environmental remediation will be required, but which are not currently the subject of enforcement activities.

Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, as well as the presence or absence of potentially responsible parties. At September 30, 2015, the Condensed Consolidated Balance Sheet included a liability of $505, relating to these matters and, in management's opinion, is appropriate based on existing facts and circumstances. The average time frame over which the accrued or presently unrecognized amounts may be paid, based on past history, is estimated to be 15-20 years. Considerable uncertainty exists with respect to these costs and, under adverse changes in circumstances, the potential liability may range up to $1,100 above the amount accrued as of September 30, 2015. Pursuant to the Separation Agreement discussed in Note 2, the company is indemnified by Chemours for certain environmental matters, included in the liability of $505, that have an estimated liability of $299 as of September 30, 2015 and a potential exposure that ranges up to approximately $630 above the amount accrued. As such, the company has recorded an indemnification asset of $299 corresponding to the company’s accrual balance related to these matters at September 30, 2015.



19
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 11.  Stockholders’ Equity 
Share Repurchase Program
2015 Share Buyback Plan
In the first quarter 2015, DuPont announced its intention to buy back shares of about $4,000 using the distribution proceeds received from Chemours. In connection with the completion of the spin-off of Chemours, the Board of Directors authorized the use of the distribution proceeds to buy back shares of the company's common stock as follows: $2,000 to be purchased and retired by December 31, 2015 with the remainder to be purchased and retired by December 31, 2016. In August 2015, the company entered into an accelerated share repurchase (ASR) agreement. Under the terms of the August 2015 ASR agreement, the company paid $2,000 to the financial institution and received and retired an initial delivery of 28.8 million shares, which represent 80 percent of the $2,000 notional amount of the agreement. The purchase price per share and final number of shares retired will be determined using the volume-weighted price of the company's stock over the term of the ASR agreement. The August 2015 ASR will be completed in the fourth quarter 2015.

2014 Share Buyback Plan
In January 2014, the company's Board of Directors authorized a $5,000 share buyback plan that replaced the 2011 plan. During the nine months ended September 30, 2015, the company purchased and retired 4.6 million shares in the open market for a total cost of $353, which offset the dilution from employee compensation plans in the first and second quarter of 2015. As of September 30, 2015, the company has purchased 34.7 million shares at a total cost of $2,353 under the plan. There is no required completion date for the remaining stock purchases.

Noncontrolling Interest
In September 2015, the company obtained a controlling interest in a joint venture included in the Performance Materials segment. Accordingly, the company consolidated the entity at September 30, 2015 and recorded the fair value of the noncontrolling interest in the amount of $157 in the Condensed Consolidated Balance Sheet.


20
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Other Comprehensive Income (Loss)
A summary of the changes in other comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014 is provided as follows:
 
Three Months Ended
Three Months Ended
Affected Line Item in Consolidated Income Statements
 
September 30, 2015
September 30, 2014
 
Pre-Tax
Tax
After-Tax
Pre-Tax
Tax
After-Tax
 
Cumulative translation adjustment
$
(125
)
$
—

$
(125
)
$
(428
)
$
—

$
(428
)
 
Net revaluation and clearance of cash flow hedges to earnings:
 
 
 
 
 
 
 
Additions and revaluations of derivatives designated as cash flow hedges
(22
)
9

(13
)
(3
)
2

(1
)
See (1) below
Clearance of hedge results to earnings:
 
 
 
 
 
 
 
Foreign currency contracts
—

—

—

(2
)
1

(1
)
Net sales
Net revaluation and clearance of cash flow hedges to earnings
(22
)
9

(13
)
(5
)
3

(2
)
 
Pension benefit plans:
 
 
 
 
 
 
 
Net gain (loss)(3)
634

(228
)
406

(5
)
1

(4
)
See (1) below
Prior service cost
—

—

—

(1
)
—

(1
)
See (1) below
Effect of foreign exchange rates
54

(16
)
38

—

—

—

See (1) below
Reclassifications to net income:
 
 
 
 
 
 
 
Amortization of prior service (benefit) cost
(3
)
1

(2
)
1

—

1

See (2) below
Amortization of loss
172

(61
)
111

151

(52
)
99

See (2) below
Curtailment gain
(7
)
3

(4
)
—

—

—

See (2) below
Settlement loss
44

(16
)
28

2

(1
)
1

See (2) below
Pension benefit plans, net
894

(317
)
577

148

(52
)
96

 
Other benefit plans:
 
 
 
 
 
 
 
Net loss(3)
(73
)
27

(46
)
(33
)
10

(23
)
See (1) below
Prior service benefit
—

—

—

50

(1
)
49

See (1) below
Effect of foreign exchange rates
(1
)
1

—

—

—

—

See (1) below
Reclassifications to net income:
 
 
 
 
 
 
 
Amortization of prior service benefit
(39
)
13

(26
)
(54
)
18

(36
)
See (2) below
Amortization of loss
20

(7
)
13

15

(6
)
9

See (2) below
Curtailment gain
(274
)
98

(176
)
—

—

—

See (2) below
Other benefit plans, net
(367
)
132

(235
)
(22
)
21

(1
)
 
Other comprehensive income (loss)
$
380

$
(176
)
$
204

$
(307
)
$
(28
)
$
(335
)
 

21
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

 
Nine Months Ended
Nine Months Ended
Affected Line Item in Consolidated Income Statements
 
September 30, 2015
September 30, 2014
 
Pre-Tax
Tax
After-Tax
Pre-Tax
Tax
After-Tax
 
Cumulative translation adjustment(4)
$
(1,405
)
$
—

$
(1,405
)
$
(559
)
$
—

$
(559
)
 
Net revaluation and clearance of cash flow hedges to earnings:
 
 
 
 
 
 
 
Additions and revaluations of derivatives designated as cash flow hedges
(36
)
12

(24
)
23

(8
)
15

See (1) below
Clearance of hedge results to earnings:
 
 
 
 
 
 
 
Foreign currency contracts
(10
)
4

(6
)
—

—

—

Net sales
Commodity contracts
22

(9
)
13

29

(11
)
18

Cost of goods sold
Net revaluation and clearance of cash flow hedges to earnings
(24
)
7

(17
)
52

(19
)
33

 
Pension benefit plans:
 
 
 
 
 
 
 
Net gain (loss)(3)
628

(226
)
402

(107
)
34

(73
)
See (1) below
Prior service cost
—

—

—

(1
)
—

(1
)
See (1) below
Effect of foreign exchange rates
92

(25
)
67

—

—

—

See (1) below
Reclassifications to net income:
 
 
 
 
 
 
 
Amortization of prior service (benefit) cost
(6
)
2

(4
)
2

—

2

See (2) below
Amortization of loss
591

(210
)
381

450

(155
)
295

See (2) below
Curtailment (gain) loss
(7
)
3

(4
)
4

(1
)
3

See (2) below
Settlement loss
53

(19
)
34

4

(1
)
3

See (2) below
Pension benefit plans, net
1,351

(475
)
876

352

(123
)
229

 
Other benefit plans:
 
 
 
 
 
 
 
Net loss(3)
(73
)
27

(46
)
(33
)
10

(23
)
See (1) below
Prior service benefit
—

—

—

50

(1
)
49

See (1) below
Effect of foreign exchange rates
(1
)
1

—

—

—

—

See (1) below
Reclassifications to net income:
 
 
 
 
 
 
 
Amortization of prior service benefit
(143
)
50

(93
)
(160
)
56

(104
)
See (2) below
Amortization of loss
58

(20
)
38

43

(15
)
28

See (2) below
Curtailment gain
(274
)
98

(176
)
—

—

—

See (2) below
Other benefit plans, net
(433
)
156

(277
)
(100
)
50

(50
)
 
Other comprehensive loss
$
(511
)
$
(312
)
$
(823
)
$
(255
)
$
(92
)
$
(347
)
 

1 
These amounts represent changes in accumulated other comprehensive loss excluding changes due to reclassifying amounts to the interim Consolidated Income Statements.
2 
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost of the company's pension and other long-term employee benefit plans. See Note 13 for additional information.
3 
See Note 13 for discussion of the re-measurement of the principal U.S. pension plan and other long-term employee benefit plans as a result of the Performance Chemicals separation.
4 
The increase in currency translation adjustment losses over prior year for the nine months ended September 30, 2015 is driven by the strengthening USD against primarily the Euro and Brazilian real.  The change in both periods is also due to changes in certain foreign entity's functional currency as described in Note 1.


22
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

The changes and after-tax balances of components comprising accumulated other comprehensive loss are summarized below:
 
Cumulative Translation Adjustment
Net Revaluation and Clearance of Cash Flow Hedges to Earnings
Pension Benefit Plans
Other Benefit Plans
Unrealized Gain on Securities
Total
2015
 

 

 

 

 

 

Balance January 1, 2015
$
(919
)
$
(6
)
$
(7,895
)
$
262

$
2

$
(8,556
)
Other comprehensive (loss) income before reclassifications
(1,405
)
(24
)
469

(46
)
—

(1,006
)
Amounts reclassified from accumulated other comprehensive loss
—

7

407

(231
)
—

183

Spin-off of Chemours
191

—

278

—

(1
)
468

Balance September 30, 2015
$
(2,133
)
$
(23
)
$
(6,741
)
$
(15
)
$
1

$
(8,911
)

 
Cumulative Translation Adjustment
Net Revaluation and Clearance of Cash Flow Hedges to Earnings
Pension Benefit Plans
Other Benefit Plans
Unrealized Gain on Securities
Total
2014
 

 

 

 

 

 

Balance January 1, 2014
$
(43
)
$
(48
)
$
(5,695
)
$
494

$
2

$
(5,290
)
Other comprehensive (loss) income before reclassifications
(559
)
15

(74
)
26

—

(592
)
Amounts reclassified from accumulated other comprehensive loss
—

18

302

(76
)
—

244

Balance September 30, 2014
$
(602
)
$
(15
)
$
(5,467
)
$
444

$
2

$
(5,638
)

Note 12. Financial Instruments
Cash Equivalents
The fair value of cash equivalents approximates its stated value.  The estimated fair value of the company's cash equivalents was determined using level 1 and level 2 inputs within the fair value hierarchy, as described in the company's 2014 Annual Report in Note 1, “Summary of Significant Accounting Policies.”  Level 1 measurements are based on observable net asset values and level 2 measurements are based on current interest rates for similar investments with comparable credit risk and time to maturity.  The company held $0 and $1,436 of money market funds (level 1 measurements) as of September 30, 2015 and December 31, 2014, respectively.  The company held $1,680 and $3,293 of other cash equivalents (level 2 measurements) as of September 30, 2015 and December 31, 2014, respectively.     

Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months at time of purchase. Investments classified as held-to-maturity are recorded at amortized cost. The carrying value approximates fair value due to the short-term nature of the investment. Investments classified as available-for-sale are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive loss. The company held $381 and $124 of held-to-maturity and $25 and $0 of available-for-sale securities as of September 30, 2015 and December 31, 2014, respectively.

Debt
The estimated fair value of the company's total debt, including interest rate financial instruments, was determined using level 2 inputs within the fair value hierarchy, as described in the company's 2014 Annual Report in Note 1, “Summary of Significant Accounting Policies.” Based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, the fair value of the company's debt was approximately $10,430 and $11,394 as of September 30, 2015 and December 31, 2014, respectively.


23
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks. The company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.
 
Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. The company has not designated any nonderivatives as hedging instruments.

The company's financial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The company's derivative assets and liabilities are reported on a gross basis in the Condensed Consolidated Balance Sheets. The company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.

The notional amounts of the company's derivative instruments were as follows:
 
September 30, 2015
December 31, 2014
Derivatives designated as hedging instruments:
 
 
Interest rate swaps
$
—

$
1,000

Foreign currency contracts
10

434

Commodity contracts
78

388

Derivatives not designated as hedging instruments:
 
 
Foreign currency contracts
7,819

10,586

Commodity contracts
15

166


Foreign Currency Risk
The company's objective in managing exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign currency rate changes. Accordingly, the company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency-denominated assets, liabilities, commitments and cash flows.

The company routinely uses forward exchange and option contracts to offset its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. The company also uses foreign currency exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of the related foreign currency-denominated revenues. The objective of the hedge program is to reduce earnings and cash flow volatility related to changes in foreign currency exchange rates.

Commodity Price Risk
Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as corn, soybeans and soybean meal. The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with agricultural commodity exposures.

Cash Flow Hedges
Foreign Currency Contracts
The company uses foreign currency exchange instruments such as forwards and options to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of the related foreign currency-denominated revenues. In addition, the company occasionally uses forward exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated transactions such as capital expenditures.

24
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Commodity Contracts
The company enters into over-the-counter and exchange-traded derivative commodity instruments, including options, futures and swaps, to hedge the commodity price risk associated with agriculture commodity exposures.

While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two-year period. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is not probable of occurring. The following table summarizes the after-tax effect of cash flow hedges on accumulated other comprehensive loss for the three and nine months ended September 30, 2015 and 2014:
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014
2015
2014
Beginning balance
$
(10
)
$
(13
)
$
(6
)
$
(48
)
Additions and revaluations of derivatives designated as cash flow hedges
(13
)
(1
)
(24
)
15

Clearance of hedge results to earnings
—

(1
)
7

18

Ending balance
$
(23
)
$
(15
)
$
(23
)
$
(15
)

At September 30, 2015, an after-tax net loss of $9 is expected to be reclassified from accumulated other comprehensive loss into earnings over the next 12 months.

Derivatives not Designated in Hedging Relationships
Foreign Currency Contracts
The company routinely uses forward exchange and options contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the use of hedge accounting; however, the required revaluation of the forward contracts and the associated foreign currency-denominated monetary assets and liabilities intends to achieve a minimal earnings impact, after taxes. The company also uses foreign currency exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of the related foreign currency-denominated revenues.

Commodity Contracts
The company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as corn, soybeans and soybean meal.


25
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Fair Values of Derivative Instruments
The table below presents the fair values of the company's derivative assets and liabilities within the fair value hierarchy, as described in the company's 2014 Annual Report in Note 1, “Summary of Significant Accounting Policies.”
 
 
Fair Value Using Level 2 Inputs
 
Balance Sheet Location
September 30, 2015
December 31, 2014
Asset derivatives:
 
 
 
Derivatives designated as hedging instruments:
 
 
 
Interest rate swaps1
Accounts and notes receivable, net
$
—

$
1

Foreign currency contracts
Accounts and notes receivable, net
—

10

 
 
—

11

Derivatives not designated as hedging instruments:
 
 

 
Foreign currency contracts2
Accounts and notes receivable, net
132

254

 
 




Total asset derivatives3
 
$
132

$
265

Cash collateral1,2
Other accrued liabilities
$
20

$
47

 
 
 
 
Liability derivatives:
 
 

 
Derivatives designated as hedging instruments:
 
 

 

Foreign currency contracts
Other accrued liabilities
$
—

$
10

 
 
 
 
Derivatives not designated as hedging instruments:
 
 

 

Foreign currency contracts
Other accrued liabilities
63

62

Commodity contracts
Other accrued liabilities
1

1

 
 
64

63

Total liability derivatives3
 
$
64

$
73


1 
Cash collateral held as of September 30, 2015 and December 31, 2014 represents $0 and $6, respectively, related to interest rate swap derivatives designated as hedging instruments.
2 
Cash collateral held as of September 30, 2015 and December 31, 2014 represents $20 and $41, respectively, related to foreign currency derivatives not designated as hedging instruments.
3 
The company's derivative assets and liabilities subject to enforceable master netting arrangements totaled $51 at September 30, 2015 and $67 at December 31, 2014.




26
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Effect of Derivative Instruments
 
Amount of Gain (Loss)
Recognized in OCI1
(Effective Portion)
Amount of Gain (Loss)
Recognized in Income2
 
Three Months Ended September 30,
2015
2014
2015
2014
Income Statement Classification
Derivatives designated as hedging instruments:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Interest rate swaps
$
—

$
—

$
—

$
(7
)
Interest expense
Cash flow hedges:
 
 
 
 
 
Foreign currency contracts
—

20

—

2

Net sales
Commodity contracts
(22
)
(23
)
—

—

Cost of goods sold
 
(22
)
(3
)
—

(5
)
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Foreign currency contracts
—

—

174

403

Other income, net3
Commodity contracts
—

—

(2
)
4

Cost of goods sold
 
—

—

172

407

 
Total derivatives
$
(22
)
$
(3
)
$
172

$
402

 

 
Amount of Gain (Loss)
Recognized in OCI1
(Effective Portion)
Amount of Gain (Loss)
Recognized in Income2
 
Nine Months Ended September 30,
2015
2014
2015
2014
Income Statement Classification
Derivatives designated as hedging instruments:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Interest rate swaps
$
—

$
—

$
(1
)
$
(20
)
Interest expense
Cash flow hedges:
 
 
 
 
 
Foreign currency contracts
(1
)
19

10

—

Net sales
Commodity contracts
(35
)
4

(22
)
(29
)
Cost of goods sold
 
(36
)
23

(13
)
(49
)
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Foreign currency contracts
—

—

435

287

Other income, net3
Foreign currency contracts
—

—

(3
)
—

Net sales
Commodity contracts
—

—

3

(21
)
Cost of goods sold
 
—

—

435

266

 
Total derivatives
$
(36
)
$
23

$
422

$
217

 


1  
OCI is defined as other comprehensive income (loss).
2  
For cash flow hedges, this represents the effective portion of the gain (loss) reclassified from accumulated OCI into income during the period. For the three and nine months ended September 30, 2015 and 2014, there was no material ineffectiveness with regard to the company's cash flow hedges.
3  
Gain (loss) recognized in other income, net, was partially offset by the related gain (loss) on the foreign currency-denominated monetary assets and liabilities of the company's operations, which were $(210) and $(153) for the three months ended September 30, 2015 and 2014, respectively, and $(381) and $(243) for the nine months ended September 30, 2015 and 2014, respectively. See Note 4 for additional information.


27
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 13. Long-Term Employee Benefits 
In connection with the completed separation of its Performance Chemicals segment on July 1, 2015 (See Note 2), the company entered into an Employee Matters Agreement with Chemours which provides that employees of Chemours no longer participate in benefit plans sponsored or maintained by the company as of the separation date. Upon separation, the company pension and other long-term employee benefit plans transferred assets and obligations to the Chemours plans resulting in a net decrease in the underfunded status of the sponsored pension and other long-term employee benefit plans of $21. Additionally, as a result of the transfer of unrecognized losses to Chemours, deferred income tax liabilities and accumulated other comprehensive loss, net of tax, decreased $88 and $278, respectively.

Pension Plans
As a result of the separation, the company recorded a pension curtailment gain of $7 and re-measured the principal U.S. pension plan as of July 1, 2015. In connection with the re-measurement, the company updated the discount rate assumed at December 31, 2014, from 4.10 percent to 4.50 percent. The re-measurement decreased the underfunded status of the pension plan by $634 with a corresponding reduction to net loss within other comprehensive income (loss) for the three and nine months ended September 30, 2015.

In determining the U.S. pension plan 2015 net periodic benefit costs, the company updated the expected return on plan assets assumption from 8.75 percent to 8.50 percent.

The company recorded a charge of $32 ($21 after-tax) during the three and nine months ended September 30, 2015, which related to settlements that occurred in prior periods. In addition, accumulated other comprehensive loss at January 1, 2013 has been revised to adjust for $54, after-tax, for settlement charges that should have been recorded in previous periods with a corresponding reduction in reinvested earnings. The settlement charges were related to the company’s Pension Restoration Plan which provides for lump sum benefit payments to certain eligible retirees. The company recognizes pension settlements when lump sum payments exceed the sum of service and interest cost components of net periodic pension cost of the plan for the year. The impact of these adjustments is not material to the company’s current or previously issued financial statements.
The following sets forth the components of the company’s net periodic benefit cost for pensions:  
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2015
2014