On October 12, 2018, E. I. du Pont de Nemours and Company (the “company” or “DuPont”) concluded that non-cash impairment charges are required under generally accepted accounting principles of the United States, in the quarter ended September 30, 2018 of about $4.6 billion for goodwill and other assets associated with its agriculture reporting unit. No portion of the impairment charges relates to future cash expenditures.

The company tests goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that the fair value may be below its carrying value. Under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended, The Dow Chemical Company (“Dow”) and the company each merged with wholly owned subsidiaries of DowDuPont Inc. on August 31, 2017, and, as a result became subsidiaries of DowDuPont Inc. (collectively, the "Merger"). For purposes of DowDuPont Inc.’s financial statement presentation, Dow was determined to be the accounting acquirer in the Merger, and the company’s assets and liabilities were measured at fair value as of the date of the Merger. In connection with the merger and the related accounting determination, DuPont elected to apply push-down accounting and reflect in its financial statements the fair value of its assets and liabilities. Therefore, the company’s reporting units became more susceptible to impairment for any decline in fair value since the Merger.

During the third quarter of 2018, and in connection with strategic business reviews, the company assembled updated cash flow projections. The revised cash flow projections of the agriculture reporting unit reflect the anticipated impacts of events and circumstances that have developed during 2018, resulting in a reduction in the long-term forecasts of sales and profitability as compared to prior forecasts. The reduction in cash flow projections was principally driven by lower growth in sales and margins in North America and Latin America and unfavorable currency impacts related to the Brazilian real. The lower growth expectation is driven by reduced planted area, an expected unfavorable shift to soybeans from corn in Latin America, and delays in expected product registrations. In addition, decreases in commodity prices and higher than anticipated industry grain inventories are expected to impact farmers’ income and buying choices resulting in shifts to lower technologies and pricing pressure.

The company considered the combination of these events and circumstances in 2018, and the resulting reduction in its cash flow projections for the agriculture reporting unit, to be a triggering event that required the company to perform an impairment analysis of the agriculture reporting unit's goodwill and indefinite-lived intangible assets as of September 30, 2018. In reviewing the indefinite-lived intangible assets, the company also determined that the fair value of certain in-process research and development (“IPR&D”) assets had declined as a result of delays in timing of commercialization and increases to expected research and development costs. As a result of the analysis performed, as of September 30, 2018, the company expects to record after-tax, non-cash impairment charges of about $4.5 billion for goodwill and $0.1 billion for certain indefinite-lived assets associated with its agriculture reporting unit.

During the quarter ended September 30, 2018, the company expects to record a tax provision charge of approximately $75 million for a valuation allowance against the net deferred tax asset position of a Brazilian legal entity and an after-tax charge of about $40 million for an “other-than-temporary” impairment of certain non-consolidated affiliates in China, respectively. These charges are primarily due to the impact of the 2018 events and circumstances discussed above.

DowDuPont, the chemicals group formed in a $130bn merger last year, has announced a $4.6billion (bn) non-cash write-down and warned it had been forced to reduce its long-term forecasts of revenues and profitability in its agriculture division, which it plans to spin off as a separate company next year.
In regulatory filings after the market closed on Thursday, the company said it planned to write off about $4.5bn in goodwill and $100million in other assets from its balance sheet, reflecting a recognition it was over-optimistic about the outlook at the time that the merger of Dow Chemical with DuPont closed in August last year.
It put part of the blame on pressures on farmers’ incomes caused by falling commodity prices and high grain inventories, which it said would result in “shifts to lower technologies and pricing pressure”.
The division includes a seeds business, which supplies crops including corn and soya beans, and a crop protection business making chemicals including herbicides and insecticides.
DowDuPont shares, which dropped 1.7 per cent during the trading day on Thursday, were down a further 2.1 per cent at $57.33 after hours.
Laurence Alexander, an analyst at Jefferies who has a “buy” rating on the company’s shares, described the write-down in a note as “mostly if not entirely a mark-to-market of known conditions in the seed and crop-protection chemical markets”.
DowDuPont said the goodwill on its balance sheet had been built up by the accounting treatment of the deal that created the company, which meant that its reporting units “became more susceptible to impairment for any decline in fair value since the merger”.
Cash flow projections drawn up during strategic business reviews in the third quarter of this year concluded that “events and circumstances that have developed during 2018” would mean that longterm revenues and profits would be lower than had been believed at the time of the merger, the company said.
In particular, it blamed lower growth in sales and margins in North America and Latin America, linked to a reduction in planted area, an expected unfavourable shift to soya beans from corn in Latin America, delays in expected product registrations and unfavourable currency impacts related to the Brazilian real, as well as the pressure on farm incomes.
DowDuPont described those circumstances as “a triggering event” that required it to perform an impairment analysis of the goodwill and intangible assets in the agriculture division.

Shortly after the 2017 business merger, Dow- DuPont announced a write-down if its assets including goodwill of $4.6 billion. Read more about it here How do you think this write-down might impact share price and investor decisions? What are the implications for the assessment of fair values at acquisition?