Edgar Filing: DUPONT E I DE NEMOURS & CO

Document

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 June 30, 2016



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 874,325,000 shares (excludes 87,041,000 shares of treasury stock) of common stock, $0.30 par value, outstanding at July 15, 2016.

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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
Part I	Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Income Statements		3
	Consolidated Statements of Comprehensive Income		4
	Condensed Consolidated Balance Sheets		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to the Consolidated Financial Statements
	Note 1.	Summary of Significant Accounting Policies	7
	Note 2.	Proposed Merger with Dow Chemical	8
	Note 3.	Divestitures and Other Transactions	9
	Note 4.	Employee Separation / Asset Related Charges, Net	11
	Note 5.	Other Income, Net	13
	Note 6.	Income Taxes	14
	Note 7.	Earnings Per Share of Common Stock	14
	Note 8.	Inventories	15
	Note 9.	Other Intangible Assets	15
	Note 10.	Short-Term and Long-Term Borrowings	16
	Note 11.	Commitments and Contingent Liabilities	16
	Note 12.	Stockholders’ Equity	20
	Note 13.	Financial Instruments	24
	Note 14.	Long-Term Employee Benefits	28
	Note 15.	Segment Information	29

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Cautionary Statements About Forward-Looking Statements		31
	Recent Developments		33
	Results of Operations		34
	Recent Accounting Pronouncements		37
	Segment Reviews		38
	Liquidity & Capital Resources		41
	Contractual Obligations		43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 4.	Controls and Procedures		44

Part II	Other Information

Item 1.	Legal Proceedings		45
Item 1A.	Risk Factors		45
Item 6.	Exhibits		46
Signature			47
Exhibit Index			48

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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						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net sales	$	7,061		$	7,121		$	14,466		$	14,958
Cost of goods sold	3,990			4,103			8,232			8,619
Other operating charges	143			174			328			322
Selling, general and administrative expenses	1,211			1,274			2,339			2,494
Research and development expense	432			495			850			974
Other income, net	(51		)	(255		)	(423		)	(454		)
Interest expense	93			94			185			178
Employee separation / asset related charges, net	(90		)	2			(13		)	40
Income from continuing operations before income taxes	1,333			1,234			2,968			2,785
Provision for income taxes on continuing operations	306			260			712			790
Income from continuing operations after income taxes	1,027			974			2,256			1,995
Loss from discontinued operations after income taxes	(3		)	(29		)	—			(15		)
Net income	1,024			945			2,256			1,980
Less: Net income attributable to noncontrolling interests	4			5			10			9
Net income attributable to DuPont	$	1,020		$	940		$	2,246		$	1,971
Basic earnings (loss) per share of common stock:
Basic earnings per share of common stock from continuing operations	$	1.17		$	1.07		$	2.56		$	2.19
Basic loss per share of common stock from discontinued operations	—			(0.03		)	—			(0.02		)
Basic earnings per share of common stock	$	1.16		$	1.04		$	2.56		$	2.17
Diluted earnings (loss) per share of common stock:
Diluted earnings per share of common stock from continuing operations	$	1.16		$	1.06		$	2.55		$	2.17
Diluted loss per share of common stock from discontinued operations	—			(0.03		)	—			(0.02		)
Diluted earnings per share of common stock	$	1.16		$	1.03		$	2.55		$	2.15
Dividends per share of common stock	$	0.38		$	0.49		$	0.76		$	0.96

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

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E. I. du Pont de Nemours and Company

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in millions, except per share)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income	$	1,024		$	945		$	2,256		$	1,980
Other comprehensive (loss) income, before tax:
Cumulative translation adjustment	(97		)	197			73			(992		)
Net revaluation and clearance of cash flow hedges to earnings:
Additions and revaluations of derivatives designated as cash flow hedges	21			8			37			(14		)
Clearance of hedge results to earnings	7			5			18			12
Net revaluation and clearance of cash flow hedges to earnings	28			13			55			(2		)
Pension benefit plans:
Net loss	(1,281		)	(2		)	(2,472		)	(6		)
Effect of foreign exchange rates	31			(62		)	32			38
Reclassifications to net income:
Amortization of prior service benefit	(1		)	(1		)	(3		)	(3		)
Amortization of loss	204			210			376			419
Curtailment / settlement loss, net	54			4			104			9
Pension benefit plans, net	(993		)	149			(1,963		)	457
Other benefit plans:
Net loss	(141		)	—			(265		)	—
Reclassifications to net income:
Amortization of prior service benefit	(36		)	(52		)	(75		)	(104		)
Amortization of loss	18			19			35			38
Curtailment gain, net	(3		)	—			(33		)	—
Other benefit plans, net	(162		)	(33		)	(338		)	(66		)
Net unrealized gain on securities	14			—			6			—
Other comprehensive (loss) income, before tax	(1,210		)	326			(2,167		)	(603		)
Income tax benefit (expense) related to items of other comprehensive loss	404			(50		)	806			(136		)
Other comprehensive (loss) income, net of tax	(806		)	276			(1,361		)	(739		)
Comprehensive income	218			1,221			895			1,241
Less: Comprehensive income attributable to noncontrolling interests	4			5			10			9
Comprehensive income attributable to DuPont	$	214		$	1,216		$	885		$	1,232

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

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E. I. du Pont de Nemours and Company

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in millions, except per share)



	June 30, 2016			December 31, 2015
Assets
Current assets
Cash and cash equivalents	$	4,411		$	5,300
Marketable securities	742			906
Accounts and notes receivable, net	7,656			4,643
Inventories	4,756			6,140
Prepaid expenses	526			398
Total current assets	18,091			17,387
Property, plant and equipment, net of accumulated depreciation (June 30, 2016 - $14,699; December 31, 2015 - $14,346)	9,624			9,784
Goodwill	4,245			4,248
Other intangible assets	3,967			4,144
Investment in affiliates	695			688
Deferred income taxes	4,474			3,799
Other assets	1,170			1,116
Total	$	42,266		$	41,166
Liabilities and Equity
Current liabilities
Accounts payable	$	2,244		$	3,398
Short-term borrowings and capital lease obligations	2,295			1,165
Income taxes	164			173
Other accrued liabilities	3,675			5,580
Total current liabilities	8,378			10,316
Long-term borrowings and capital lease obligations	8,119			7,642
Other liabilities	14,818			12,591
Deferred income taxes	410			417
Total liabilities	31,725			30,966
Commitments and contingent liabilities
Stockholders’ equity
Preferred stock	237			237
Common stock, $0.30 par value; 1,800,000,000 shares authorized; Issued at June 30, 2016 - 961,258,000; December 31, 2015 - 958,388,000	288			288
Additional paid-in capital	11,212			11,081
Reinvested earnings	16,084			14,510
Accumulated other comprehensive loss	(10,757		)	(9,396		)
Common stock held in treasury, at cost (87,041,000 shares at June 30, 2016 and December 31, 2015)	(6,727		)	(6,727		)
Total DuPont stockholders’ equity	10,337			9,993
Noncontrolling interests	204			207
Total equity	10,541			10,200
Total	$	42,266		$	41,166

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

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E. I. du Pont de Nemours and Company

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in millions)



	Six Months Ended
	June 30,
	2016			2015
Operating activities
Net income	$	2,256		$	1,980
Adjustments to reconcile net income to cash used for operating activities:
Depreciation	473			615
Amortization of intangible assets	226			257
Net periodic pension benefit cost	320			294
Contributions to pension plans	(237		)	(204		)
Gain on sale of businesses and other assets	(385		)	(22		)
Other operating activities - net	378			59
Change in operating assets and liabilities - net	(4,534		)	(5,024		)
Cash used for operating activities	(1,503		)	(2,045		)
Investing activities
Purchases of property, plant and equipment	(507		)	(938		)
Investments in affiliates	(2		)	(50		)
Payments for businesses - net of cash acquired	—			(77		)
Proceeds from sale of businesses and other assets - net	212			48
Purchases of short-term financial instruments	(509		)	(589		)
Proceeds from maturities and sales of short-term financial instruments	683			167
Foreign currency exchange contract settlements	(280		)	443
Other investing activities - net	(15		)	13
Cash used for investing activities	(418		)	(983		)
Financing activities
Dividends paid to stockholders	(669		)	(875		)
Net increase (decrease) in short-term (less than 90 days) borrowings	1,670			(1		)
Long-term and other borrowings:
Receipts	717			3,629
Payments	(755		)	(1,518		)
Repurchase of common stock	—			(353		)
Proceeds from exercise of stock options	88			201
Other financing activities - net	(14		)	(81		)
Cash provided by financing activities	1,037			1,002
Effect of exchange rate changes on cash	(5		)	(138		)
Decrease in cash and cash equivalents	$	(889	)	$	(2,164	)
Cash and cash equivalents at beginning of period	5,300			6,910
Cash and cash equivalents at end of period	$	4,411		$	4,746

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

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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, 2015, collectively referred to as the “2015 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 3 for additional information.

Recent Accounting Pronouncements

Accounting Pronouncements Implemented in 2016

In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The amendments under the new guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments in this ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The company adopted this guidance effective January 1, 2016 on a retrospective basis. As a result of the adoption, $368 and $37 of deferred tax assets and liabilities, respectively, were reclassified from current to noncurrent assets and liabilities, respectively, as of December 31, 2015.

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 adopted this guidance effective January 1, 2016. The guidance will only impact disclosure and will not impact the company's financial position or results of operations.

New Accounting Pronouncements to be Implemented

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The ASU was issued as part of the FASB Simplification Initiative and involves several aspects of accounting for shared-based payment transactions, including the income tax consequences, forefeitures and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The company is currently evaluating the impact this guidance will have on the Consolidated Financial Statements and related disclosures.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under the new guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short- term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, requiring application at the beginning of the earliest comparative period presented. 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. 2014-09, Revenue from Contracts with Customers (Topic 606), which was further updated in March, April, and May 2016. The new guidance 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.

Note 2. Proposed Merger with Dow Chemical

On December 11, 2015, DuPont and The Dow Chemical Company (Dow) announced entry into an Agreement and Plan of Merger (the Merger Agreement), under which the companies will combine in an all-stock merger of equals. The combined company will be named DowDuPont. Following the consummation of the merger, DuPont and Dow intend to pursue, subject to the receipt of approval by the board of directors of DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through a series of tax-efficient transactions (collectively, the Business Separations.)

Additional information about the Merger Agreement is set forth in the company’s Current Report on Form 8-K filed with the SEC on December 11, 2015 and the company’s 2015 Annual Report filed with the SEC on February 4, 2016.

In connection with the proposed transaction, DowDuPont Inc. filed with the U.S. Securities and Exchange Commission (SEC), and on June 9, 2016, the SEC declared effective, a registration statement on Form S-4 (File No. 333-209869) (as amended, the Registration Statement). The Registration Statement constitutes a prospectus of DowDuPont and a joint proxy statement of Dow and DuPont. The joint proxy statement relates to the separate special meetings of the companies’ respective common stock shareholders of record as of the close of business on June 2, 2016, to adopt the Merger Agreement and related matters. DuPont's special meeting of stockholders was held on July 20, 2016, which resulted in a vote for adoption of the Merger Agreement and approval of related matters. The companies anticipate that the merger will close and become effective, in the second half of 2016, subject to regulatory approvals and customary closing conditions.

During the three and six months ended June 30, 2016, the company incurred $76 and $100, respectively, of costs in connection with the planned merger with Dow. These costs were recorded in selling, general and administrative expenses in the company's interim Consolidated Income Statements and primarily include financial advisory, legal, accounting, consulting and other advisory fees and expenses.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 3. Divestitures and Other Transactions

DuPont (Shenzhen) Manufacturing Limited

In March 2016, the company sold 100 percent of its ownership interest in DuPont (Shenzhen) Manufacturing Limited to the Feixiang Group. The sale of the entity, which held certain buildings and other assets, resulted in a pre-tax gain of $369 ($214 net of tax). The gain was recorded in other income, net in the company's interim Consolidated Income Statements for the six months ended June 30, 2016 and reflected as a Corporate item.

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, discussed below, and a Tax Matters Agreement 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. In the first quarter 2016, the company prepaid $190 for certain goods and services expected to be delivered by Chemours over twelve to fifteen months. As of June 30, 2016, the balance of the prepayment was $132 recorded within prepaid expenses on the Condensed Consolidated Balance Sheet.

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 June 30, 2016, the indemnified assets are $87 within accounts and notes receivable, net and $399 within other assets offset by the corresponding liabilities of $87 within other accrued liabilities and $399 within other liabilities.

The results of operations of the Performance Chemicals segment are presented as discontinued operations as summarized below:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net sales	$	—		$	1,474		$	—		$	2,809
Cost of goods sold	—			1,177			—			2,214
Other operating charges	13			175			20			310
Selling, general and administrative expenses	—			97			—			189
Research and development expense	—			20			—			40
Other income, net	—			(28		)	—			(27		)
Interest expense	—			33			—			33
Employee separation / asset related charges, net	—			59			—			59
Loss from discontinued operations before income taxes	(13		)	(59		)	(20		)	(9		)
(Benefit) provision for income taxes	(5		)	(30		)	(8		)	6
Loss from discontinued operations after income taxes	$	(8	)	$	(29	)	$	(12	)	$	(15	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

During the three and six months ended June 30, 2016, and the three and six months ended June 30, 2015, the company incurred $13 and $20, and $119 and $200 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. Loss from discontinued operations during the three and six months ended June 30, 2016, and the three and six months ended June 30, 2015, includes $13 and $20, and $114 and $183 of these costs, respectively. Income from continuing operations during the three and six months ended June 30, 2015, includes $5 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 three months ended June 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.

The following table presents depreciation, amortization and purchases of property, plant and equipment of the discontinued operations related to Performance Chemicals:



	Six Months Ended
	June 30,
	2015
Depreciation	$	126
Amortization of intangible assets	1
Purchases of property, plant and equipment	235

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 4. Employee Separation / Asset Related Charges, Net

La Porte Plant, La Porte, Texas

In March 2016, DuPont announced its decision to not re-start the Agriculture segment’s insecticide manufacturing facility at the La Porte site located in La Porte, Texas. The facility manufactures Lannate^® and Vydate^® insecticides and has been shut down since November 2014. As a result of this decision, during the six months ended June 30, 2016, a pre-tax charge of $75 was recorded in employee separation / asset related charges, net which included $41 of asset related charges, $18 of contract termination costs, and $16 of employee severance and related benefit costs.

2016 Global Cost Savings and Restructuring Plan

At June 30, 2016, total liabilities related to the program were $278. A complete discussion of restructuring initiatives is included in the company's 2015 Annual Report in Note 4, "Employee Separation / Asset Related Charges, Net."

Account balances and activity for the restructuring program are summarized below:



	Severance and Related Benefit Costs			Asset Related Charges			Other Non-Personnel Charges¹			Total
Balance at December 31, 2015	$	648		$	—		$	32		$	680
Payments	(256		)	—			(24		)	(280		)
Net translation adjustment	3			—			—			3
Other adjustments	(134		)	37			9			(88		)
Asset write-offs	—			(37		)	—			(37		)
Balance as of June 30, 2016	$	261		$	—		$	17		$	278


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

During the three and six months ended June 30, 2016, a net benefit of $(90) and $(88) was recorded associated with the 2016 global cost savings and restructuring plan in employee separation / asset related charges, net in the company's interim Consolidated Income Statements. This was primarily due to a reduction in severance and related benefit costs partially offset by the identification of additional projects in certain segments. The reduction in severance and related benefit costs was driven by the elimination of positions at a lower cost than expected as a result of redeployments and attrition as well as lower than estimated individual severance costs.

The net (benefit) charge related to the segments for the three and six months ended June 30, 2016 as follows:



	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2016			2016
Agriculture	$	(5	)	$	16
Electronics & Communications	(8		)	(15		)
Industrial Biosciences	(3		)	(4		)
Nutrition & Health	(12		)	(13		)
Performance Materials	(9		)	(5		)
Protection Solutions	(7		)	(10		)
Other	—			3
Corporate expenses	(46		)	(60		)
	$	(90	)	$	(88	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

2014 Restructuring Program

At June 30, 2016, total liabilities related to the program were $40. A complete discussion of restructuring initiatives is included in the company's 2015 Annual Report in Note 4, "Employee Separation / Asset Related Charges, Net."

Account balances and activity related to the program are summarized below:



	Severance and Related Benefit Costs			Other Non-Personnel Charges ¹		Total
Balance at December 31, 2015	$	76		$	2	$	78
Payments	(38		)	—		(38		)
Balance as of June 30, 2016	$	38		$	2	$	40


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

During the three months ended June 30, 2015, a $2 net adjustment to the estimated costs associated with the 2014 restructuring program was recorded 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 related to the segments for the three months ended June 30, 2015 as follows: Agriculture - $4, Electronics & Communications - $(11), Industrial Biosciences - $1, Nutrition & Health - $4, Performance Materials - $2, Protection Solutions - $(1), and Other - $3.

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 related 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. As a result, the carrying value of DuPont's 6 percent cost basis investment in this venture exceeded its fair value by $37, such that an impairment charge was recorded.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 5. Other Income, Net



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016			2015		2016			2015
Royalty income	$	24		$	30	$	81		$	64
Interest income	27			40		43			65
Equity in earnings of affiliates, net	28			14		38			18
Net gain on sales of businesses and other assets¹	11			26		384			31
Net exchange (losses) gains²	(15		)	11		(136		)	90
Miscellaneous income and expenses, net³	(24		)	134		13			186
Other income, net	$	51		$	255	$	423		$	454


^1.	Includes a pre-tax gain of $369 ($214 net of tax) for the six months ended June 30, 2016 related to the sale of DuPont (Shenzhen) Manufacturing Limited. See Note 3 for additional information.


^2.	The $90 net exchange gain for the six months ended June 30, 2015, includes a net $(32) pre-tax exchange loss associated with the devaluation of the Ukrainian hryvnia.


^3.	Miscellaneous income and expenses, net, includes interest items, certain insurance recoveries and gains related to litigation settlements and other items.

The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations for the three and six months ended June 30, 2016 and 2015. 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 hedging program gains (losses) are largely taxable (tax deductible) in the U.S., whereas the offsetting exchange gains (losses) on the re-measurement of certain net monetary asset positions are not taxable (tax deductible) in their local jurisdictions. 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 continuing operations in the interim Consolidated Income Statements.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Subsidiary Monetary Position Gain (Loss)
Pre-tax exchange gain (loss)¹	$	146		$	29		$	179		$	(171	)
Local tax (expenses) benefits	(60		)	25			(47		)	(84		)
Net after-tax impact from subsidiary exchange gain (loss)	86			54			132			(255		)

Hedging Program Gain (Loss)
Pre-tax exchange (loss) gain	(161		)	(18		)	(315		)	261
Tax benefits (expenses)	58			6			113			(94		)
Net after-tax impact from hedging program exchange (loss) gain	(103		)	(12		)	(202		)	167

Total Exchange Gain (Loss)
Pre-tax exchange (loss) gain	(15		)	11			(136		)	90
Tax (expenses) benefits	(2		)	31			66			(178		)
Net after-tax exchange (loss) gain	$	(17	)	$	42		$	(70	)	$	(88	)


^1.	Excludes equity affiliates.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 6. Income Taxes

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 $100 to $120 within the next twelve months with the majority due to the settlement of uncertain tax positions with various tax authorities.

Note 7. 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						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Numerator:
Income from continuing operations after income taxes attributable to DuPont	$	1,023		$	969		$	2,246		$	1,986
Preferred dividends	(3		)	(3		)	(5		)	(5		)
Income from continuing operations after income taxes available to DuPont common stockholders	$	1,020		$	966		$	2,241		$	1,981

Loss from discontinued operations after income taxes available to DuPont common stockholders	$	(3	)	$	(29	)	$	—		$	(15	)

Net income available to common stockholders	$	1,017		$	937		$	2,241		$	1,966

Denominator:
Weighted-average number of common shares outstanding - Basic	875,013,000			905,761,000			874,269,000			906,296,000
Dilutive effect of the company’s employee compensation plans	4,166,000			5,920,000			3,945,000			6,452,000
Weighted-average number of common shares outstanding - Diluted	879,179,000			911,681,000			878,214,000			912,748,000

The following average number of stock options were antidilutive, and therefore not included in the dilutive earnings per share calculations:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Average number of stock options	4,994,000	5,357,000	5,049,000	2,678,000

The change in the average number of stock options that were antidilutive in the three and six months ended June 30, 2016 compared to the same period last year was due to changes in the company's average stock price.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 8. Inventories



	June 30, 2016			December 31, 2015
Finished products	$	2,774		$	3,779
Semi-finished products	1,478			1,780
Raw materials, stores and supplies	701			783
	4,953			6,342
Adjustment of inventories to a last-in, first-out (LIFO) basis	(197		)	(202		)
Total	$	4,756		$	6,140

Note 9. Other Intangible Assets

The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:



	June 30, 2016							December 31, 2015
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived):
Customer lists	$	1,619	$	(561	)	$	1,058	$	1,621	$	(529	)	$	1,092
Patents	501		(244		)	257		454		(220		)	234
Purchased and licensed technology	1,167		(804		)	363		1,173		(649		)	524
Trademarks	26		(14		)	12		26		(13		)	13
Other ¹	179		(78		)	101		180		(72		)	108
	3,492		(1,701		)	1,791		3,454		(1,483		)	1,971

Intangible assets not subject to amortization (Indefinite-lived):
In-process research and development	71		—			71		72		—			72
Microbial cell factories	306		—			306		306		—			306
Pioneer germplasm	1,048		—			1,048		1,048		—			1,048
Trademarks/tradenames	751		—			751		747		—			747
	2,176		—			2,176		2,173		—			2,173
Total	$	5,668	$	(1,701	)	$	3,967	$	5,627	$	(1,483	)	$	4,144


^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 $104 and $226 for the three and six months ended June 30, 2016, and $117 and $256 for the three and six months ended June 30, 2015, respectively. The estimated aggregate pre-tax amortization expense from continuing operations for the remainder of 2016 and each of the next five years is approximately $104, $207, $208, $213, $200 and $147, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 10. Short-Term and Long-Term Borrowings

Repurchase Facility

In February 2016, the company entered into a committed receivable repurchase agreement of up to $1,000 (the Repurchase Facility). The Repurchase Facility is structured to account for the seasonality of the agricultural business and expires on November 30, 2016. Under the Repurchase Facility, the company may sell a portfolio of available and eligible outstanding customer notes receivables within the Agriculture segment to participating institutions and simultaneously must agree to repurchase such notes receivable at a future date. The Repurchase Facility is considered a secured borrowing with the customer notes receivables utilized as collateral. The amount of collateral required equals 105% of the outstanding borrowing amounts. Borrowings under the Repurchase Facility have an interest rate of the London interbank offered rate (LIBOR) plus 0.75%.

As of June 30, 2016, $1,050 of notes receivable, recorded in accounts and notes receivable, net, were pledged as collateral against outstanding borrowings under the Repurchase Facility of $1,000, recorded in short-term borrowings and capital lease obligations.

Term Loan Facility

In March 2016, the company entered into a credit agreement that provides for a three-year, senior unsecured term loan facility in the aggregate principal amount of $4,500 (the Term Loan Facility). DuPont may make up to seven term loan borrowings within one year of the closing date and amounts repaid or prepaid are not available for subsequent borrowings. The Term Loan Facility matures in March 2019 at which time all outstanding borrowings, including accrued but unpaid interest, become immediately due and payable.

Under the Term Loan Facility, DuPont can borrow funds at LIBOR plus a spread from 0.75% to 1.25% (LIBOR Loan Rate) depending on DuPont's long term credit rating. As of June 30, 2016, the company had borrowed $500 at the LIBOR Loan Rate and had unused commitments of $4,000 under the Term Loan Facility.

DuPont has the option of obtaining a same day loan under the Term Loan Facility at an interest rate based on the higher of a) the LIBOR Loan Rate, b) the federal funds effective rate plus 0.5% plus a margin from 0.00% to 0.25% depending on DuPont's long term credit rating (Margin) or c) the prime rate plus Margin.

Note 11. Commitments and Contingent Liabilities

Guarantees

Indemnifications

In connection with acquisitions and divestitures as of June 30, 2016, 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 June 30, 2016 and December 31, 2015, the company had directly guaranteed $311 and $337, 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 23 percent of the $97 of guaranteed obligations of customers and suppliers.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Set forth below are the company's guaranteed obligations at June 30, 2016:



	Short-Term		Long-Term		Total
Obligations for customers and suppliers¹:
Bank borrowings (terms up to 6 years)	$	69	$	28	$	97
Obligations for equity affiliates²:
Bank borrowings (terms up to 1 year)	181		—		181
Obligations for Chemours³:
Chemours' purchase obligations (final expiration - 2018)	22		11		33
Total	$	272	$	39	$	311


^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.

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.

Since 2006, DuPont has undertaken obligations under agreements with the U.S. Environmental Protection Agency (EPA) and voluntary commitments to the New Jersey Department of Environmental Protection (NJDEP). 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 health advisory level, even if provisional, as established from time to time by EPA. A provisional health advisory level was set in 2009 at 0.4 parts per billion (ppb) for PFOA in drinking water considering episodic exposure. In May 2016, EPA announced a health advisory level of 0.07 ppb for PFOA in drinking water considering lifetime versus episodic exposure.

At June 30, 2016 DuPont had an accrual balance of $19 related to the PFOA matters discussed in this Note. The company recorded an additional $5 during the three months ended June 30, 2016 primarily for the impact of the new health advisory level on the company's obligations to EPA which have expanded the testing and water supply commitments previously established. Pursuant to the Separation Agreement discussed in Note 3, the company is indemnified by Chemours for PFOA matters. As a result, the company has recorded an indemnification asset of $19 corresponding to the accrual balance as of June 30, 2016.

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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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 established and put $1 into an escrow account to fund medical monitoring as required by the settlement agreement. Under the settlement agreement, the balance in the escrow amount must be at least $0.5; as a result, transfers of additional funds may be required periodically. 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; at June 30, 2016, less than $1 has been disbursed. 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.

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 June 30, 2016 and December 31, 2015, there were approximately 3,500 lawsuits pending in various federal and state courts in Ohio and West Virginia. These lawsuits are consolidated in multi-district litigation in Ohio federal court (MDL). DuPont, through Chemours, denies the allegations in these lawsuits and is defending itself vigorously. As a result of plaintiffs' corrected pleadings and further discovery, in the first quarter 2016, the company revised downward to 30 the estimated number of the pending lawsuits that allege wrongful death.

In 2014, six plaintiffs from the MDL were selected for individual trial. One of these six cases was voluntarily withdrawn by plaintiffs. In the first case tried to verdict, captioned Bartlett v. DuPont, in October 2015, the jury awarded $1.6 in compensatory damages and no punitive damages. The plaintiff alleged that exposure to PFOA in drinking water had caused kidney cancer. DuPont is appealing the decision. The second matter selected for trial, Wolf v. DuPont, involved allegations that exposure to PFOA in drinking water caused ulcerative colitis; prior to trial, a confidential settlement for an immaterial amount was reached in the first quarter 2016 and has been substantially completed. Two cases alleging that exposure to PFOA in drinking water caused kidney cancer were settled in the second quarter 2016, for amounts immaterial individually and in the aggregate.

In the second case to be tried to a verdict, Freeman v. DuPont, the plaintiff alleged that exposure to PFOA in drinking water caused testicular cancer. In July 2016, the jury awarded $5.1 in compensatory damages plus $0.5 in punitive damages and attorneys’ fees. The company will appeal the decision.

As a result, four of the six cases have been resolved and the two that were tried to a verdict have been or will be appealed. In January 2016, the court determined that 40 cases in which plaintiffs assert cancer claims, would be scheduled for trial through 2017. Plaintiffs’ attorneys are responsible for identifying the 40 individual cases to be tried. In July 2016, the court scheduled the first case for trial in November 2016 and the second for trial in January 2017. In both of these cases, plaintiffs allege that exposure to PFOA in drinking water caused testicular cancer and high cholesterol. The court scheduled a third trial for May 2017 for which plaintiffs’ attorneys have not yet identified the individual case.

An approximate breakdown of the about 3,500 lawsuits still pending in the MDL is shown below.



Alleged Injury	Number of Claims
Kidney cancer	200
Testicular cancer	70
Ulcerative colitis	300
Preeclampsia	200
Thyroid disease	1,430
High cholesterol	1,340

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

This type of litigation could take place over many years and interim results do not predict the final outcome of cases. While DuPont believes it is probable that it could incur liabilities related to the lawsuits still pending in the MDL beyond the settlements discussed above, a range of such liabilities cannot be reasonably estimated at this time. Given the wide range of outcomes associated with the six initial cases in the MDL as discussed above, including two cases that have been or will be appealed, the company does not believe activity to date provides a reasonable basis to derive a range of loss for the remaining lawsuits still pending in the MDL in total or by category of claim. The possible range of loss is unpredictable and involves significant uncertainty due to the uniqueness of the remaining, individual 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.

The court has ordered the parties to participate in nonbinding mediation regarding global resolution of the MDL. On July 13, 2016, the court entered an order scheduling initial meetings for the mediation on July 27 and 28, 2016.

Additional Actions

In the first quarter 2016, a confidential settlement was reached in the Ohio action brought by the LHWA claiming, “imminent and substantial endangerment to health and or the environment” under the Resource Conservation and Recovery Act (RCRA) in addition to general claims of PFOA contamination of drinking water. The cost of the settlement was paid by Chemours.

Under the Separation Agreement, all liabilities associated with the PFOA matters discussed above, including liabilities related to judgments, including punitive damages, or settlements associated with the MDL, are subject to indemnification by Chemours.

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 2015 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), 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 June 30, 2016, the Condensed Consolidated Balance Sheet included a liability of $499, 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 $1,012 above the amount accrued as of June 30, 2016. Pursuant to the Separation Agreement discussed in Note 3, the company is indemnified by Chemours for certain environmental matters, included in the liability of $499, that have an estimated liability of $287 as of June 30, 2016, and a potential exposure that ranges up to approximately $607 above the amount accrued. As such, the company has recorded an indemnification asset of $287 corresponding to the company’s accrual balance related to these matters at June 30, 2016.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 12. 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, which was completed during 2015, with the remainder to be purchased and retired by December 31, 2016. There were no share repurchases under this plan in the first and second quarter 2016. As a result of the planned merger with Dow, the company’s opportunity to repurchase shares was restricted until after the shareholder vote on the merger. The shareholder vote occurred on July 20, 2016. During the remainder of the year, the company will evaluate the opportunities to enter the market and plans to make repurchases; however, it is unlikely that the company will complete all of the remaining $2,000 stock buyback by year-end. As of June 30, 2016, in aggregate, the company has paid $2,000 and received and retired 35 million shares.

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 three and six months ended June 30, 2015, the company purchased and retired 1 million and 4.6 million shares, respectively, 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. There were no share repurchases under this plan in the first and second quarter 2016. As of June 30, 2016, in aggregate, 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Other Comprehensive (Loss) Income

A summary of the changes in other comprehensive (loss) income for the three and six months ended June 30, 2016 and 2015 is provided as follows:



	Three Months Ended									Three Months Ended									Affected Line Item in Consolidated Income Statements
	June 30, 2016									June 30, 2015
	Pre-Tax			Tax			After-Tax			Pre-Tax			Tax			After-Tax
Cumulative translation adjustment⁽¹⁾	$	(97	)	$	—		$	(97	)	$	197		$	—		$	197
Net revaluation and clearance of cash flow hedges to earnings:
Additions and revaluations of derivatives designated as cash flow hedges	21			(8		)	13			8			(3		)	5			See (2) below
Clearance of hedge results to earnings:
Foreign currency contracts	—			—			—			(2		)	1			(1		)	Net sales
Commodity contracts	7			(3		)	4			7			(3		)	4			Cost of goods sold
Net revaluation and clearance of cash flow hedges to earnings	28			(11		)	17			13			(5		)	8
Pension benefit plans:
Net loss	(1,281		)	455			(826		)	(2		)	1			(1		)	See (2) below
Effect of foreign exchange rates	31			(7		)	24			(62		)	18			(44		)	See (2) below
Reclassifications to net income:
Amortization of prior service benefit	(1		)	—			(1		)	(1		)	—			(1		)	See (3) below
Amortization of loss	204			(72		)	132			210			(75		)	135			See (3) below
Curtailment loss, net	17			(5		)	12			—			—			—			See (3) below
Settlement loss	37			(14		)	23			4			(1		)	3			See (3) below
Pension benefit plans, net	(993		)	357			(636		)	149			(57		)	92
Other benefit plans:
Net loss	(141		)	50			(91		)	—			—			—			See (2) below
Reclassifications to net income:
Amortization of prior service benefit	(36		)	12			(24		)	(52		)	18			(34		)	See (3) below
Amortization of loss	18			(5		)	13			19			(6		)	13			See (3) below
Curtailment gain, net	(3		)	1			(2		)	—			—			—			See (3) below
Other benefit plans, net	(162		)	58			(104		)	(33		)	12			(21		)
Net unrealized gain on securities:
Unrealized gain on securities arising during the period	2			—			2			—			—			—			See (4) below
Reclassification of loss realized in net income	12			—			12			—			—			—			Other income, net
Net unrealized gain on securities	14			—			14			—			—			—
Other comprehensive (loss) income	$	(1,210	)	$	404		$	(806	)	$	326		$	(50	)	$	276

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)



	Six Months Ended									Six Months Ended									Affected Line Item in Consolidated Income Statements
	June 30, 2016									June 30, 2015
	Pre-Tax			Tax			After-Tax			Pre-Tax			Tax			After-Tax
Cumulative translation adjustment⁽¹⁾	$	73		$	—		$	73		$	(992	)	$	—		$	(992	)
Net revaluation and clearance of cash flow hedges to earnings:
Additions and revaluations of derivatives designated as cash flow hedges	37			(14		)	23			(14		)	3			(11		)	See (2) below
Clearance of hedge results to earnings:
Foreign currency contracts	—			—			—			(10		)	4			(6		)	Net sales
Commodity contracts	18			(7		)	11			22			(9		)	13			Cost of goods sold
Net revaluation and clearance of cash flow hedges to earnings	55			(21		)	34			(2		)	(2		)	(4		)
Pension benefit plans:
Net loss	(2,472		)	883			(1,589		)	(6		)	2			(4		)	See (2) below
Effect of foreign exchange rates	32			(7		)	25			38			(9		)	29			See (2) below
Reclassifications to net income:
Amortization of prior service benefit	(3		)	1			(2		)	(3		)	1			(2		)	See (3) below
Amortization of loss	376			(132		)	244			419			(149		)	270			See (3) below
Curtailment loss, net	66			(22		)	44			—			—			—			See (3) below
Settlement loss	38			(15		)	23			9			(3		)	6			See (3) below
Pension benefit plans, net	(1,963		)	708			(1,255		)	457			(158		)	299
Other benefit plans:
Net loss	(265		)	95			(170		)	—			—			—			See (2) below
Reclassifications to net income:
Amortization of prior service benefit	(75		)	25			(50		)	(104		)	37			(67		)	See (3) below
Amortization of loss	35			(12		)	23			38			(13		)	25			See (3) below
Curtailment gain, net	(33		)	11			(22		)	—			—			—			See (3) below
Other benefit plans, net	(338		)	119			(219		)	(66		)	24			(42		)
Net unrealized gain on securities:
Unrealized loss on securities arising during the period	(7		)	—			(7		)	—			—			—			See (4) below
Reclassification of loss realized in net income	13			—			13			—			—			—			Other income, net
Net unrealized gain on securities	6			—			6			—			—			—
Other comprehensive loss	$	(2,167	)	$	806		$	(1,361	)	$	(603	)	$	(136	)	$	(739	)

^1.

The currency translation loss for the three months ended June 30, 2016 is primarily driven by the strengthening of the U.S. dollar (USD) against the European Euro (EUR), partially offset by further weakening of the USD against the Brazilian real (BRL). The currency translation gain for the three months ended June 30, 2015 was driven by the weakening of the USD against both the EUR and BRL. The currency translation gain for the six months ended June 30, 2016 is primarily driven by modest weakening of the USD against the EUR and BRL as compared to the currency translation loss for the six months ended June 30, 2015 which was driven by the USD strengthening against the EUR and BRL.


^2.	These amounts represent changes in accumulated other comprehensive loss excluding changes due to reclassifying amounts to the interim Consolidated Income Statements. See Notes 13 and 14 for additional information.


^3.	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 14 for additional information.


^4.	The unrealized gain (loss) on securities during the three and six months ended June 30, 2016 is due to the re-measurement of USD denominated marketable securities held by certain foreign entities at June 30, 2016 with a corresponding offset to cumulative translation adjustment.

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 (Loss) Gain on Securities			Total
2016
Balance January 1, 2016	$	(2,333	)	$	(24	)	$	(7,043	)	$	22		$	(18	)	$	(9,396	)
Other comprehensive income (loss) before reclassifications	73			23			(1,564		)	(170		)	(7		)	(1,645		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			11			309			(49		)	13			284
Balance June 30, 2016	$	(2,260	)	$	10		$	(8,298	)	$	(197	)	$	(12	)	$	(10,757	)



	Cumulative Translation Adjustment			Net Revaluation and Clearance of Cash Flow Hedges to Earnings			Pension Benefit Plans			Other Benefit Plans			Unrealized (Loss) Gain on Securities		Total
2015
Balance January 1, 2015	$	(919	)	$	(6	)	$	(7,895	)	$	262		$	2	$	(8,556	)
Other comprehensive income (loss) before reclassifications	(992		)	(11		)	25			—			—		(978		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			7			274			(42		)	—		239
Balance June 30, 2015	$	(1,911	)	$	(10	)	$	(7,596	)	$	220		$	2	$	(9,295	)

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 13. Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The company's cash, cash equivalents and marketable securities as of June 30, 2016 and December 31, 2015 are comprised of the following:



	June 30, 2016						December 31, 2015
	Cash and Cash Equivalents		Marketable Securities		Total Estimated Fair Value		Cash and Cash Equivalents		Marketable Securities		Total Estimated Fair Value
Cash	$	1,658	$	—	$	1,658	$	1,938	$	—	$	1,938

Level 1:
Money market funds	374		—		374		550		—		550
U.S. Treasury securities¹	—		323		323		—		788		788

Level 2:
Certificate of deposit / time deposits²	2,379		419		2,798		2,812		118		2,930

Total cash, cash equivalents and marketable securities	$	4,411	$	742			$	5,300	$	906


^1.	Available-for-sale securities are reported at estimated fair value with unrealized gains and losses reported as component of accumulated other comprehensive loss. Proceeds from the sale of available-for-sale securities were $205 and $465 in the three and six months ended June 30, 2016, respectively.


^2.	Held-to-maturity investments are reported at amortized cost.

The estimated fair value of the company's cash equivalents, which approximates carrying value as of June 30, 2016 and December 31, 2015, was determined using level 1 and level 2 inputs within the fair value hierarchy. Level 1 measurements were based on observed net asset values and level 2 measurements were based on current interest rates for similar investments with comparable credit risk and time to maturity.

The estimated fair value of the held-to-maturity securities, which approximates carrying value as of June 30, 2016 and December 31, 2015, was determined using level 2 inputs within the fair value hierarchy, as described below. Level 2 measurements were based on current interest rates for similar investments with comparable credit risk and time to maturity. The carrying value approximates fair value due to the short-term nature of the investments.

The estimated fair value of the available-for-sale securities as of June 30, 2016 and December 31, 2015 was determined using level 1 inputs within the fair value hierarchy. Level 1 measurements were based on quoted market prices in active markets for identical assets and liabilities. The available-for-sale securities as of June 30, 2016 and December 31, 2015 are held by certain foreign subsidiaries in which the USD is not the functional currency. The fluctuations in foreign exchange are recorded in accumulated other comprehensive loss. These fluctuations are subsequently reclassified from accumulated other comprehensive loss to earnings in the period in which the available-for-sale securities are sold and the gains and losses on these securities offset a portion of the foreign exchange fluctuations in earnings for the company.

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 2015 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 $11,170 and $9,050 as of June 30, 2016 and December 31, 2015, respectively.

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.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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 non derivatives 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:



	June 30, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign currency contracts	$	—	$	10
Commodity contracts	33		356
Derivatives not designated as hedging instruments:
Foreign currency contracts	8,796		8,065
Commodity contracts	36		70

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 foreign currency exchange contracts, including 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 foreign currency exchange contracts to offset a portion of the company's exposure to certain foreign currency-denominated transactions such as capital expenditures.

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.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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 six months ended June 30, 2016 and 2015:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Beginning balance	$	(7	)	$	(18	)	$	(24	)	$	(6	)
Additions and revaluations of derivatives designated as cash flow hedges	13			5			23			(11		)
Clearance of hedge results to earnings	4			3			11			7
Ending balance	$	10		$	(10	)	$	10		$	(10	)

At June 30, 2016, an after-tax net gain 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 foreign currency exchange contracts, including 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, including forward exchange and options 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.

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 2015 Annual Report in Note 1, “Summary of Significant Accounting Policies.”



		Fair Value Using Level 2 Inputs
	Balance Sheet Location	June 30, 2016		December 31, 2015
Asset derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accounts and notes receivable, net	$	101	$	74
Total asset derivatives¹		$	101	$	74
Cash collateral	Other accrued liabilities	$	4	$	7

Liability derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other accrued liabilities	$	158	$	80
Commodity contracts	Other accrued liabilities	1		4
Total liability derivatives¹		$	159	$	84


^1.	The company's derivative assets and liabilities subject to enforceable master netting arrangements totaled $85 at June 30, 2016 and $35 at December 31, 2015.

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 June 30,	2016		2015		2016			2015			Income Statement Classification
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign currency contracts	$	—	$	1	$	—		$	2		Net sales
Commodity contracts	21		7		(7		)	(7		)	Cost of goods sold
	21		8		(7		)	(5		)
Derivatives not designated as hedging instruments:
Foreign currency contracts	—		—		(161		)	(18		)	Other income, net³
Foreign currency contracts	—		—		(11		)	(3		)	Net sales
Foreign currency contracts	—		—		—			11			Loss from discontinued operations after income taxes
Commodity contracts	—		—		(10		)	3			Cost of goods sold
	—		—