United states securities and exchange commission
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- Bu səhifədəki naviqasiya:
- DuPont Results of Operations
- DowDuPont Pro Forma Results of Operations
- Acquisition of HN Business
- Consideration Exchanged in FMC Transactions
- HN Business Assets Acquired and Liabilities Assumed on Nov 1, 2017
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Table of Contents The significant fair value adjustments included in the preliminary allocation of purchase price are discussed below. Inventories Acquired inventory is comprised of finished goods of $4,929 million , work in process of $3,055 million and raw materials and supplies of $823 million . The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined to approximate the historical carrying value. For inventory accounted for under the FIFO method and average cost method, the preliminary fair value step-up of inventories will be recognized in "Cost of sales" as the inventory is sold. For inventory accounted for under the LIFO method, the acquired inventory becomes the LIFO base layer inventory. The pretax amount of inventory step-up recognized for the period ended December 31, 2017, was $1,538 million , of which $1,434 million was reflected in "Cost of sales" within "Income from continuing operations before income taxes" and $104 million was reflected in "Loss from discontinued operations, net of tax" in the consolidated statements of income. Property Property, plant and equipment is comprised of machinery and equipment of $7,466 million , buildings of $2,583 million , construction in progress of $980 million and land and land improvements of $912 million . The preliminary estimated fair value was primarily determined using a market approach for land and certain types of equipment, and a replacement cost approach for property, plant and equipment. The market approach for certain types of equipment represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach used for all other depreciable property, plant and equipment measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset. Goodwill The excess of the consideration for the Merger over the preliminary net fair value of assets and liabilities acquired was recorded as goodwill. The Merger resulted in the recognition of $45,105 million of goodwill, which is not deductible for tax purposes. Goodwill largely consists of expected cost synergies resulting from the Merger and the Intended Business Separations, the assembled workforce of DuPont and future technology and customers. Other Intangible Assets Other intangible assets primarily consist of acquired customer-related assets, developed technology, trademarks/tradenames and germplasm. The preliminary customer-related value was determined using the excess earnings method while the preliminary developed technology, trademarks/tradenames and germplasm values were primarily determined utilizing the relief from royalty method. Both the excess earnings and relief from royalty methods are forms of the income approach. Refer to Note 13 for further information on other intangible assets. Deferred Income Tax Assets and Liabilities The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the Merger in the jurisdictions in which legal title of the underlying asset or liability resides. Refer to Note 8 for further information related to the remeasurement of deferred income tax assets and liabilities as a result of the enactment of the U.S. Tax Cuts and Jobs Act in December 2017. The preliminary fair value of “Deferred income tax assets” includes a $172 million adjustment to derecognize certain historical net operating losses that will not be fully realized as a result of the Merger. Included in the fair value adjustment related to “Deferred income tax liabilities” is a $546 million adjustment reflecting a change in determination as to the reinvestment strategy of certain foreign operations of DuPont. Pension and Other Postretirement Liabilities DowDuPont recognized a pretax net liability of $8,413 million , representing the unfunded portion of DuPont’s defined-benefit pension and other postretirement benefit ("OPEB") plans. Dow and DuPont did not merge their pension and OPEB plans as a result of the Merger. Refer to Note 19 for further information on pension and OPEB. 98
DowDuPont utilized the carrying values net of allowances to value accounts and notes receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the Merger date. The following table provides "Net sales" and "Loss from continuing operations before income taxes" of DuPont included in the Company's results since the Merger. Included in the results from DuPont was $180 million of "Restructuring, goodwill impairment and asset related charges - net" (see Note 5 for additional information), $1,434 million that was recognized in "Cost of sales" as inventory was sold related to the fair value step-up of inventories and $314 million of "Integration and separation costs" in the consolidated statements of income.
Unaudited Supplemental Pro Forma Information The DowDuPont unaudited pro forma results presented below were prepared pursuant to the requirements of ASC 805 and give effect to the Merger as if it had been consummated on January 1, 2016. The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the Merger been completed on January 1, 2016. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved from DowDuPont. The pro forma results include adjustments for the preliminary purchase accounting impact (including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, amortization of the fair value adjustment to investment in nonconsolidated affiliates, and reduction of interest expense related to the fair value adjustment to long-term debt, along with the related tax impacts), the alignment of accounting policies, and the elimination of transactions between Dow and DuPont. Other adjustments were reflected in the pro forma results as follows:
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Table of Contents The unaudited pro forma results for all periods presented below exclude the results of operations of the DuPont Divested Ag Business, as defined in the "Acquisition of Health and Nutrition Business" section below, as this divestiture was reflected as discontinued operations. The Dow global Ethylene Acrylic Acid copolymers and ionomers business ("EAA Business"), through August 31, 2017, and a portion of Dow Agrosciences’ Brazil corn seed business ("DAS Divested Ag Business") divestitures are included in the results from continuing operations in the unaudited pro forma results presented below, for all periods presented, as these divestitures do not qualify for discontinued operations.
Integration and Separation Costs "Integration and separation costs" have been and are expected to be significant. The Company incurred "Integration and separation costs," reflected in "Income from continuing operations before income taxes" in the consolidated statements of income, of $1,101 million and $349 million for the years ended December 31, 2017 and 2016, respectively. These costs to date primarily consisted of financial advisory, information technology, legal, accounting, consulting, and other professional advisory fees associated with the preparation and execution of activities related to the Merger, post-merger integration and separation, and the ownership restructure of Dow Corning. While the Company assumed that a certain level of expenses would be incurred, there are many factors that could affect the total amount or the timing of these expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate. Acquisition of H&N Business On March 31, 2017, DuPont entered into a definitive agreement (the "FMC Transaction Agreement") with FMC Corporation ("FMC") for FMC to acquire the assets related to DuPont's crop protection business and research and development ("R&D") organization (the "Divested Ag Business") that DuPont was required to divest in order to obtain European Commission ("EC") approval of the Merger Transaction. In addition, under the FMC Transaction Agreement, DuPont agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products (the "H&N Business") (the sale of the Divested Ag Business and acquisition of the H&N Business referred to collectively as the "FMC Transactions"). See Note 4 for further discussion of the Divested Ag Business. On November 1, 2017, DuPont completed the FMC Transactions through the acquisition of the H&N Business and the divestiture of the Divested Ag Business. The acquisition will be integrated into Nutrition & Biosciences to enhance the Company’s position as a leading provider of sustainable, bio-based food ingredients and allow for expanded capabilities in the pharma excipients space. DuPont accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. The following table summarizes the fair value of consideration exchanged as a result of the FMC Transactions:
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Table of Contents The table below presents the preliminary fair value that was allocated to the assets acquired and liabilities assumed. The purchase accounting and purchase price allocation for the H&N Business are substantially complete. However, the Company continues to refine the preliminary valuation of certain acquired assets, such as inventories, other intangible assets, deferred income taxes and property, which could impact the amount of residual goodwill recorded. The Company will finalize the amounts recognized as it obtains the information necessary to complete the analysis, but no later than one year from the date of the acquisition. Final determination of the fair values may result in further adjustments to the values presented in the following table:
The significant fair value adjustments included in the preliminary allocation of purchase price are discussed below. Inventories Acquired inventory is comprised of finished goods of $153 million , work in process of $85 million , raw materials and supplies of $76 million . Fair value of inventory was calculated using a net realizable value approach for finished goods and work in process and a replacement cost approach for raw materials and supplies. For inventory accounted for under the FIFO method and average cost method, the preliminary fair value step-up of inventory will be recognized in "Costs of sales" as the inventory is sold. The preliminary fair value step-up of inventory of $100 million will b e recognized in "Cost of sales" as the inventory is sold. The pretax amount recognized for the period November 1 through December 31, 2017, was $35 million , which was reflected in "Cost of sales" in the consolidated statements of income. Property Property, plant and equipment is comprised of machinery and equipment of $363 million , buildings of $63 million , land and land improvements of $39 million , construction in progress of $31 million and other property of $9 million . The preliminary estimated fair values were determined using a combination of a market approach and replacement cost approach. Goodwill The excess of the consideration for the H&N Business over the preliminary net fair value of assets acquired and liabilities assumed resulted in the recognition of $718 million of goodwill, of which $208 million is tax-deductible. Goodwill is attributable to the H&N Business’s workforce and expected cost synergies in procurement, production and market access. Other Intangible Assets Other intangible assets includes acquired customer-related intangible assets of $268 million , developed technology of $130 million and trademarks/tradenames of $37 million . The preliminary customer-related fair value was determined using the excess earnings method while the preliminary developed technology and trademarks/tradenames fair values were primarily determined utilizing the relief from royalty method. DowDuPont evaluated the disclosure requirements under ASC 805 and determined the H&N Business was not considered a material business combination for purposes of disclosing the revenue and earnings of the H&N Business since the date of acquisition or supplemental pro forma information. 101
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