<PAGE>
1997
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1007 MARKET STREET
WILMINGTON, DELAWARE 19898
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 302-774-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
(EACH CLASS IS REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.):
TITLE OF EACH CLASS
-------------------
Common Stock ($.30 par value)
Preferred Stock
(without par value-cumulative)
$4.50 Series
$3.50 Series
6% Debentures Due 2001
NO SECURITIES ARE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
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
--- ---
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT (EXCLUDES OUTSTANDING SHARES BENEFICIALLY OWNED BY DIRECTORS AND
OFFICERS; AND SHARES HELD BY DUPONT'S FLEXITRUST) AS OF MARCH 6, 1998, WAS
APPROXIMATELY $70.0 BILLION. AS OF SUCH DATE, 1,125,643,356 SHARES (EXCLUDES
21,118,772 SHARES HELD BY DUPONT'S FLEXITRUST) OF THE COMPANY'S COMMON STOCK,
$.30 PAR VALUE, WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are indicated under the applicable Item herein):
INCORPORATED BY
REFERENCE IN PART NO.
---------------------
The company's 1997 Annual Report to Stockholders ..... I, II, and IV
The company's Proxy Statement, dated March 20, 1998,
in connection with the Annual Meeting of Stockholders
to be held on April 29, 1998 ........................ III
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E. I. DU PONT DE NEMOURS AND COMPANY
----------------
The terms "DuPont" or the "company" as used herein refer to E. I. du Pont de
Nemours and Company and its consolidated subsidiaries (which are wholly owned
or majority-owned), or to E. I. du Pont de Nemours and Company, as the context
may indicate.
----------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<C> <S> <C>
PART I
Item 1. Business................................................... 3
Item 2. Properties................................................. 6
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Executive Officers of the Registrant....................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ....................................... 15
Item 6. Selected Financial Data ................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
........................................................... 15
Item 8. Financial Statements and Supplementary Data ............... 16
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure .................................. 16
PART III
Item 10. Directors and Executive Officers of the Registrant ........ 16
Item 11. Executive Compensation .................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management ................................................ 16
Item 13. Certain Relationships and Related Transactions ............ 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K .................................................. 17
Signatures........................................................... 20
</TABLE>
NOTE ON INCORPORATION BY REFERENCE
Throughout this report, various information and data are incorporated by
reference to portions of the company's 1997 Annual Report to Stockholders
(those portions are hereinafter referred to as Exhibit 13). Any reference in
this report to disclosures in Exhibit 13 shall constitute incorporation by
reference of that specific material into this Form 10-K.
2
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PART I
ITEM 1. BUSINESS
DuPont was founded in 1802 and was incorporated in Delaware in 1915. DuPont
is the largest chemical company in the world, and is organized for financial
reporting purposes into six principal industry segments--Chemicals, Fibers,
Polymers, Petroleum, Life Sciences, and Diversified Businesses. The company
conducts fully integrated petroleum operations primarily through its wholly
owned subsidiary Conoco Inc. In 1997, Conoco ranked ninth in the worldwide
production of petroleum liquids by U.S.-based companies, eleventh in the
production of natural gas, and eighth in refining runs. Conoco Inc. and other
subsidiaries and affiliates of DuPont conduct exploration, production, mining,
manufacturing or selling activities, and some are distributors of products
manufactured by the company.
The company operates globally through some 20 strategic business units.
Within the strategic business units approximately 80 businesses manufacture
and sell a wide range of products to many different markets, including the
energy, transportation, textile, construction, automotive, agricultural,
health care, packaging and electronics markets.
The company and its subsidiaries have operations in about 70 nations
worldwide and, as a result, about 48% of consolidated sales are derived from
sales outside the United States, based on the location of the customer. Total
worldwide employment at year-end 1997 was about 98,000 people.
The following information describing the businesses of the company can be
found on the indicated pages of Exhibit 13:
<TABLE>
<CAPTION>
ITEM PAGE(S)
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Discussion of Business Developments in 1997:
Letter to Shareholders.............................................. 1-3*
Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life
Sciences, Diversified................................................ 8-9**
Segment Reviews:
Business Discussions, Principal Products and Principal Markets:
Chemicals.......................................................... 17-18
Fibers............................................................. 18
Polymers........................................................... 19
Petroleum.......................................................... 19-21
Life Sciences...................................................... 21-22
Diversified Businesses............................................. 22-23
Sales, Transfers, Operating Profit, After-Tax Operating Income, and
Identifiable Assets for 1997, 1996, and 1995....................... 52-53
Geographic Information:
Sales, Transfers, After-Tax Operating Income, Identifiable Assets,
and U.S. Export Sales for 1997, 1996, and 1995..................... 51
Revenues by Product Class (See footnote 1 on page 53 of Exhibit 13)... 53
</TABLE>
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*Includes text of letter except for photograph page 2.
**Excludes photographs and related captions.
SOURCES OF SUPPLY
The company utilizes numerous firms as well as internal sources to supply a
wide range of raw materials, energy, supplies, services and equipment. To
assure availability, the company maintains multiple sources for most raw
materials, including hydrocarbon feedstocks, and for fuels. Large volume
purchases are generally procured under competitively priced supply contracts.
3
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A majority of sales in the Chemicals, Fibers, and Polymers segments'
businesses is dependent on hydrocarbon feedstocks derived from crude oil and
natural gas. Current hydrocarbon feedstock requirements are met by Conoco and
other major petroleum companies. A joint venture with OxyChem, a subsidiary of
Occidental Petroleum Corporation, manufactures and supplies a significant
portion of the company's requirements for ethylene glycol. A joint venture
with subsidiaries of RWE AG supplies a majority of the company's requirements
for coal.
The major purchased commodities, raw materials, and supplies for the
following industry segments in 1997 are listed below:
<TABLE>
<CAPTION>
DIVERSIFIED
CHEMICALS FIBERS BUSINESSES POLYMERS
- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
acetylene adipic acid ethylene glycol acetic acid
benzene ammonia gold ethane
caustic soda butadiene palladium/platinum fiberglass
chlorine cyclohexane paraxylene methanol
chloroform ethylene glycol silver methacrylates
cyclohexane isophthalic acid packaging materials nitrogen
fluorspar natural gas packaging materials
hydrofluoric acid nitrogen pigments
methanol packaging materials LIFE SCIENCES polyethylene
-------------------
oxygen/nitrogen paraxylene acetaldoxime
packaging materials polyethylene bromacil
perchloroethylene cyanamide
propylene dichlorophenol
sulfur isocyanate
titanium ores methyl mercaptan
packaging materials
</TABLE>
In the Petroleum segment, the major commodities and raw materials purchased
are the same as those produced. Approximately 56% of the crude oil processed
in the company's U.S. refineries in 1997 came from U.S. sources. During 1997,
the company's refineries outside the United States processed principally North
Sea, Russian and Middle East crude oils.
In addition, during 1997, the company consumed substantial amounts of
electricity and natural gas for energy.
The company formed an alliance with Computer Sciences Corporation (CSC) and
Andersen Consulting in June 1997. CSC operates a majority of the company's
global information systems and technology infrastructures and provides
selected applications and software services. Andersen Consulting provides
information systems solutions designed to enhance DuPont's manufacturing,
marketing, distribution and customer service for its chemicals businesses.
PATENTS AND TRADEMARKS
The company owns and is licensed under various patents, which expire from
time to time, covering many products, processes and product uses. No
individual patent is of material importance to any of the industry segments,
although taken as a whole, the rights of the company and the products made and
sold under patents and licenses are important to the company's business.
During 1997, the company was granted 313 U.S. and 1,565 non-U.S. patents.
The company also has approximately 2,000 individual trademarks and brands
for its products and services which are registered in various countries
throughout the world. Ownership rights in trademarks continue indefinitely if
the trademarks are continued in use and properly protected.
4
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SEASONALITY
In general, sales of the company's products are not substantially affected
by seasonality. However, the Life Sciences segment is impacted by seasonality
of sales of agricultural products with highest sales in the first half of the
year, particularly the second quarter. Within the Petroleum segment, the mix
of refined products, natural gas and natural gas liquids produced and sold
varies because of increased demand for gasoline in the summer months and
natural gas, heating oil and propane during the winter months.
MAJOR CUSTOMERS
The company's sales are not materially dependent on a single customer or
small group of customers. The Fibers and Polymers segments, however, have
several large customers in their respective industries that are important to
these segments' operating results.
COMPETITION
Principal competitors in the chemical industry include major chemical
companies based in the United States, Europe, Japan, China and other Asian
nations. Competitors offer a comparable range of products from agricultural,
commodity and specialty chemicals to plastics and fibers products. The company
also competes in certain product markets with smaller, more specialized firms.
Principal competitors in the petroleum industry are integrated oil companies
(including national oil companies), many of which also have substantial
petrochemical operations, and a variety of other firms including independent
oil and gas producers, pipeline companies, and large and small refiners and
marketers. In addition, the company competes with the growing petrochemical
operations in oil-producing countries.
Conoco and American Electric Power Company of Columbus, Ohio, are
negotiating the formation of two jointly held energy-venture companies to
compete in the power generating business. These planned joint ventures are
discussed on page 7.
Businesses in the Chemicals, Fibers, Polymers, Life Sciences, and
Diversified Businesses segments compete on a variety of factors such as price,
product quality or specifications, customer service and breadth of product
line, depending on the characteristics of the particular market involved. The
Petroleum segment business is highly price-competitive and competes as well on
quality and reliability of supply.
RESEARCH AND DEVELOPMENT
The company performs research and development at more than 75 sites
worldwide. In the United States, research is conducted at over 40 sites in 18
states at either dedicated research facilities or manufacturing plants. The
highest concentration of research is carried out at several large research
centers in and around Wilmington, Delaware, which supports strategic business
units in the Chemicals, Fibers, Polymers, Life Sciences, and Diversified
Businesses segments. Among these, the Experimental Station laboratories engage
in exploratory and applied research, the Chestnut Run laboratories focus on
applications research, and the Stine-Haskell Research Center conducts
agricultural product research and toxicological research on company products
to assure they are safe for manufacture and use. The company conducts research
related to petroleum operations as well as other segments of the business at
its Ponca City, Oklahoma, facility. DuPont also operates an increasing number
of research facilities at locations outside the United States in countries
such as Belgium, Canada, France, Germany, Japan, Luxembourg, Mexico, The
Netherlands, Spain, Switzerland and the United Kingdom, reflecting the
company's growing global interests.
The objectives of the company's research and development programs are to
discover new products, processes and business opportunities in relevant
fields, and to improve existing products and processes. Each strategic
business unit of the company funds research and development activities to
support its business mission. The corporate laboratories are responsible for
assuring that leading-edge science and engineering concepts are
5
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identified and diffused throughout the DuPont technical community. All R&D
activities are coordinated by senior R&D management through a corporate
technology council to ensure that technical activities are consistent with
business and corporate plans, and that the core technical competencies
underlying DuPont's current and future businesses remain healthy and continue
to provide competitive advantages.
Annual research and development expense and such expense shown "As Percent
of Sales" for the five years 1993 through 1997 are included under the heading
"General" of the Five-Year Financial Review on page 61 of Exhibit 13.
ENVIRONMENTAL MATTERS
Information relating to environmental matters is included in three areas of
Exhibit 13: (1) under "Record year for safety and environmental performance"
in Letter to Shareholders on page 3, (2) "Management's Discussion and
Analysis" on pages 28-29, and (3) Notes 1 and 27 to the Financial Statements
on pages 35-36 and 50-51.
RISKS ATTENDANT TO FOREIGN OPERATIONS
The company's petroleum exploration and production operations outside the
United States are exposed to risks due to possible actions by host governments
such as increases or variations in tax and royalty payments, participation in
the company's concessions, limited or embargoed production, mandatory
exploration or production controls, nationalization and export controls. Civil
unrest and changes in government are also potential hazards.
The profitability of the company's exploration and production operations is
similarly exposed to risks due to actions of the United States government
through tax legislation, executive order, and commercial restrictions. Actions
by both the United States and host governments have affected operations
significantly in the past and may continue to impact operations in the future.
ITEM 2. PROPERTIES
The company owns and operates manufacturing, processing, production,
refining, marketing, power-generating, and research and development facilities
worldwide. In addition, the company owns and leases petroleum properties
worldwide.
DuPont's corporate headquarters is located in Wilmington, Delaware, and the
company's petroleum businesses are headquartered in Houston, Texas. In
addition, the company operates sales offices, regional purchasing offices,
distribution centers, and various other specialized service locations.
Further information regarding properties is included in Exhibit 13 in the
Segment Reviews on pages 17-23. Information regarding research and development
facilities is incorporated by reference to Item 1, Business--Research and
Development on pages 5-6 of this report. Additional information with respect
to the company's property, plant and equipment, and leases is contained in
Notes 12 and 27 to the company's consolidated financial statements on pages 40
and 50-51 of Exhibit 13.
6
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CHEMICALS, FIBERS, POLYMERS, LIFE SCIENCES, AND DIVERSIFIED BUSINESSES
Approximately 72% of the property, plant and equipment related to operations
in the Chemicals, Fibers, Polymers, Life Sciences, and Diversified Businesses
is located in the United States and Puerto Rico. This investment is located at
some 65 sites, principally in Texas, Delaware, Virginia, North Carolina,
Tennessee, West Virginia, South Carolina, and New Jersey. The principal
locations within these states are as follows:
TEXAS DELAWARE VIRGINIA NORTH CAROLINA
- ---------------- ----------- -------------- --------------
Beaumont Edge Moor Front Royal Fayetteville
Corpus Christi Newark Hopewell Kinston
LaPorte Seaford James River Raleigh
Orange Martinsville Wilmington
Victoria Richmond
Waynesboro
WEST
TENNESSEE VIRGINIA SOUTH CAROLINA NEW JERSEY
- ---------------- ----------- -------------- --------------
Chattanooga Belle Camden Deepwater
Memphis Martinsburg Charleston Parlin
New Johnsonville Parkersburg Florence
Old Hickory
Property, plant and equipment outside the United States and Puerto Rico is
located at about 70 sites, principally in the United Kingdom, Canada, Germany,
The Netherlands, China, Singapore, Luxembourg, Spain, Mexico, Taiwan, France,
Brazil, Belgium, Japan, Argentina and Republic of Korea. Products from more
than one business are frequently produced at the same location.
The company's plants and equipment are well maintained and in good operating
condition. Sales as a percent of capacity were 88% in 1997, 88% in 1996, and
86% in 1995. These properties are directly owned by the company except for
some auxiliary facilities and miscellaneous properties, such as certain
buildings and transportation equipment, which are leased. Although no title
examination of the properties has been made for the purpose of this report,
the company knows of no material defects in title to any of these properties.
In October 1997, Conoco, DuPont's petroleum subsidiary, and American
Electric Power of Columbus, Ohio, announced plans to form two jointly held
energy-venture companies. One venture company will acquire approximately $1
billion of energy related facilities from certain DuPont industrial plants in
the United States and then lease them back to DuPont. The second venture
company will provide energy management services, including operations,
maintenance, and conservation advice. Capital needs for future energy projects
at these sites, or for other large industrial or commercial customers, will be
provided by the joint ventures. Negotiations toward formation and financial
closure of the ventures are progressing.
PETROLEUM BUSINESSES
Properties relating to exploration, production, natural gas and gas
products, refining, marketing, supply, and transportation are generally
described on pages 19-21 and 54-59 of Exhibit 13. Estimated proved reserves of
oil and gas are found on pages 56 and 57 of Exhibit 13.
7
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PETROLEUM PRODUCTION
The following tables show the company's interests in petroleum liquids
production and natural gas deliveries. Petroleum liquids production comprises
crude oil and condensate produced for the company's account plus its share of
natural gas liquids (NGL) removed from natural gas deliveries from owned
leases and NGL acquired through gas plant ownership. Natural gas deliveries
represent Conoco's share of deliveries from leases in which the company has an
ownership interest.
<TABLE>
<CAPTION>
1997 1996 1995
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(THOUSANDS OF BARRELS DAILY)
<S> <C> <C> <C>
Petroleum Liquids Production
Consolidated Companies
Crude Oil, Condensate, and Natural Gas
Liquids from Owned Reserves:
United States........................... 90 91(a) 93(a)
Europe.................................. 176 182 143
Other Regions........................... 92 88 98
--------- --------- ---------
Subtotal.............................. 358 361 334
Natural Gas Liquids from Gas Plant
Ownership:
United States........................... 66 67 65
--------- --------- ---------
Total Production--Consolidated
Operations........................... 424 428 399
Share of Equity Affiliates
Crude Oil, Condensate, and Natural Gas
Liquids from Owned Reserves.............. 16 13 12
Natural Gas Liquids from Gas Plant
Ownership................................ 13 13 13
--------- --------- ---------
Total Production--Equity Affiliates... 29 26 25
--------- --------- ---------
Total Petroleum Liquids Production.... 453 454 424
========= ========= =========
<CAPTION>
(MILLION CUBIC FEET DAILY)
<S> <C> <C> <C>
Natural Gas Deliveries
Consolidated Companies
Natural Gas Deliveries from Owned
Reserves:
United States........................... 709 738(a) 740(a)
Europe.................................. 432 416 341
Other Regions........................... 46 41 31
--------- --------- ---------
Total Deliveries--Consolidated
Operations........................... 1,187 1,195 1,112
Share of Equity Affiliates
Natural Gas Deliveries from Owned
Reserves:
United States........................... 23 24 38
--------- --------- ---------
Total Natural Gas Deliveries.......... 1,210 1,219 1,150
========= ========= =========
</TABLE>
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(a) 1996 and 1995 U.S. natural gas production was reduced approximately 10% to
convert from a wet volume to a dry volume and the associated NGL
production was increased.
8
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AVERAGE PRODUCTION COSTS AND SALES PRICES
The following table presents data as prescribed by the Securities and
Exchange Commission (SEC). Accordingly, the unit costs do not include income
taxes and exploration, development, and general overhead costs. Since these
excluded costs are material, the following data should not be interpreted as
measures of profitability or relative profitability. See Results of Operations
for Oil and Gas Producing Activities on page 54 of Exhibit 13 for a more
complete disclosure of revenues and expenses. See also the references to crude
oil and natural gas prices and volumes in Segment Review of Petroleum on pages
19-21 of Exhibit 13.
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(U.S. DOLLARS)
For the year ended December 31, 1997
Average production costs per barrel
equivalent of petroleum produced(a)......... $4.21 $4.23 $4.51 $3.40
Average sales prices of produced petroleum(b)
Per barrel of crude oil and condensate
sold....................................... 18.58 17.93 18.93 18.35
Per thousand cubic feet (MCF) of natural gas
sold....................................... 2.51 2.34 3.25 1.41
For the year ended December 31, 1996
Average production costs per barrel
equivalent of petroleum produced(a)(c)...... 3.84 4.11 4.13 2.50
Average sales prices of produced petroleum(b)
Per barrel of crude oil and condensate
sold....................................... 20.11 18.68 20.94 19.47
Per MCF of natural gas sold................. 2.21 1.90 2.92 1.24
For the year ended December 31, 1995
Average production costs per barrel
equivalent of petroleum produced(a)(c)...... 3.92 3.78 4.82 2.49
Average sales prices of produced petroleum(b)
Per barrel of crude oil and condensate
sold....................................... 16.52 15.53 16.95 16.56
Per MCF of natural gas sold................. 1.86 1.44 2.96 1.13
- --------
(a) Average production costs per barrel of equivalent liquids, with natural
gas converted to liquids at a ratio of 6 MCF of gas to one barrel of
liquid.
(b) Excludes proceeds from sales of interest in oil and gas properties.
(c) 1996 and 1995 restated to conform to 1997 presentation.
PRESENT ACTIVITIES
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF WELLS)
At December 31, 1997
Number of wells drilling*
Gross....................................... 33 15 13 5
Net......................................... 14 9 3 2
Number of productive wells**
Oil wells--gross............................ 7,761 7,173 278 310
--net.............................. 2,657 2,523 26 108
Gas wells--gross............................ 8,749 8,486 169 94
--net.............................. 4,210 4,089 33 88
- --------
* Includes wells being completed.
** Approximately 80 gross (27 net) oil wells and 757 gross (271 net) gas
wells, all in the United States, have multiple completions.
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DEVELOPED AND UNDEVELOPED PETROLEUM ACREAGE
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(THOUSANDS OF ACRES)
At December 31, 1997
Developed acreage
Gross........................................ 7,555 2,663 1,129 3,763
Net.......................................... 3,341 1,559 317 1,465
Undeveloped acreage
Gross........................................ 108,803 2,749 4,984 101,070
Net.......................................... 80,017 2,103 1,648 76,266
NET EXPLORATORY AND DEVELOPMENT WELLS DRILLED
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF NET WELLS COMPLETED)
For the year ended December 31, 1997
Exploratory--productive ...................... 7.1 3.7 1.6 1.8
--dry ............................. 18.4 11.7 4.9 1.8
Development--productive ...................... 142.6 126.9 5.4 10.3
--dry ............................. 10.2 7.2 0.0 3.0
For the year ended December 31, 1996
Exploratory--productive ...................... 42.8 1.6 2.0 39.2
--dry ............................. 20.5 10.3 4.0 6.2
Development--productive ...................... 89.9 73.1 6.1 10.7
--dry ............................. 17.3 13.5 0.3 3.5
For the year ended December 31, 1995
Exploratory--productive ...................... 34.2 12.8 1.4 20.0
--dry ............................. 38.2 22.1 4.9 11.2
Development--productive ...................... 109.5 94.3 8.0 7.2
--dry ............................. 13.7 10.7 0.0 3.0
ESTIMATES OF TOTAL PROVED RESERVES FILED WITH OTHER
FEDERAL AGENCIES COVERING THE YEAR 1997
The company is not required to file, and has not filed on a recurring basis,
estimates of its total proved net oil and gas reserves with any U.S. or non-
U.S. governmental regulatory authority or agency other than the Department of
Energy (DOE) and the SEC. The estimates furnished to the DOE have been
consistent with those furnished to the SEC. They are not necessarily directly
comparable, however, due to special DOE reporting requirements such as
requirements to report in some instances on a gross, net or total operator
basis, and requirements to report in terms of smaller units. In no instance
have the estimates for the DOE differed by more than 5% from the corresponding
estimates reflected in total reserves reported to the SEC.
NATURAL GAS AND GAS PRODUCTS
Upstream operations in the United States include consolidated interests in
25 natural gas processing plants located in Colorado, Louisiana, New Mexico,
Oklahoma and Texas. Seventeen of the plants are operated by the company. The
company's share of total natural gas liquids (NGL) production from the 25
plants averaged 65,869 barrels per day (BPD) in 1997 and 67,489 BPD in 1996.
Additional NGL production volumes of 30,098 BPD in 1997 and 19,279 BPD in 1996
are attributable to Conoco equity gas processed in third-party-operated
plants. Conoco's 50% owned equity affiliate, C&L Processors Partnership, has
six natural gas processing plants in Oklahoma and Texas, and the company's pro
rata share of NGL production was 7,331 BPD in 1997 and 7,926 BPD in 1996.
Other natural gas and gas products facilities in the United States include an
1,150-mile intrastate
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natural gas pipeline system in South Texas operated by Conoco's 100% owned
subsidiary Lobo Pipeline Company and an 800-mile intrastate natural gas
pipeline system in Louisiana operated by Conoco's 100% owned subsidiary
Louisiana Gas System, Inc., natural gas and NGL pipelines in several states,
three underground NGL storage facilities, a 19,000 BPD natural gas liquids
fractionating plant in Gallup, New Mexico, a 22.5% equity interest in a
104,000 BPD natural gas liquids fractionating plant in Mt. Belvieu, Texas,
owned by affiliated Gulf Coast Fractionators, and a 75% equity interest in the
Pocahontas Gas Partnership that gathers, treats, and markets coal bed methane
associated with coal mines in Virginia.
Outside the United States, the company's Conoco (U.K.) Limited subsidiary
operates a 50% owned gas processing facility at Theddlethorpe, England.
Phoenix Park Gas Processors, a 41% owned equity affiliate, operates a natural
gas plant at Point Lisas, Trinidad, of which Conoco's share of production was
4,798 BPD in 1997 and 4,936 BPD in 1996.
REFINING
The company currently owns and operates four refineries in the United States
located at Lake Charles, Louisiana; Ponca City, Oklahoma; Billings, Montana;
and Denver, Colorado. The company also owns and operates the Humber refinery
in England and owns a 16.33% interest in two refineries in the Czech Republic.
Conoco also owns a 40% interest in a company that is constructing a 100,000
barrel-per-day refinery near the city of Melaka, Malaysia, with completion
scheduled for 1998. Conoco also has an 18.75% interest in a refining complex
in Karlsruhe, Germany.
Capacities at year-end 1997 as well as inputs processed during 1997 are
summarized in the following table:
<TABLE>
<CAPTION>
TOTAL UNITED UNITED CZECH
WORLDWIDE STATES KINGDOM GERMANY* REPUBLIC**
--------- ------ ------- -------- ----------
(THOUSANDS OF BARRELS DAILY)
<S> <C> <C> <C> <C> <C>
At December 31, 1997
Refinery crude oil and
condensate distillation
capacity (excluding additional
feedstocks input to other
refinery units)................ 733 491 160 54 28
For the year ended December 31,
1997
Inputs processed
Crude oil and condensate....... 685 476 137 51 21
Additional feedstocks input to
other refinery units.......... 96 28 56 11 1
</TABLE>
- --------
* Represents 18.75% interest in the Karlsruhe refinery complex.
** Represents 16.33% interest in two Czech Republic refineries.
Utilization of refinery capacity depends on the market demand for petroleum
products, availability of crude oil and other feedstocks, and the economics of
converting crude oil into refined products.
MARKETING
In the United States, the company sells refined products at retail in 37
states, principally under the "Conoco" brand. In addition, the company markets
a wide range of products other than at retail in all 50 states and the
District of Columbia. Refined products are also sold in Austria, Germany and
the United Kingdom under the "Jet" and "Conoco" brands; in Belgium, France and
Luxembourg under the "Seca" brand; and in Switzerland under the "OK Coop"
brand. The "Jet" brand is used for marketing in the Czech Republic, Denmark,
Finland, Hungary, Norway, Poland, Slovakia, Spain, Sweden and Thailand. A
joint venture in Turkey markets under the "Tabas" and "Turkpetrol" brands.
11
<PAGE>
SUPPLY AND TRANSPORTATION
The company has an extensive pipeline system for crude oil and refined
products. Information concerning daily pipeline shipments is presented below:
1997 1996 1995
-------- ------- -------
(THOUSANDS OF BARRELS)
-------- ------- -------
Average Daily Pipeline Shipments
Pipeline shipments of consolidated
companies................................... 895 845 873
Equity in shipments of nonconsolidated
affiliates.................................. 367 360 358
Conoco Pipe Line Company (CPL), a wholly owned subsidiary and operator of
the company's U.S. petroleum pipeline system, transported approximately 863
thousand barrels per day of crude oil and refined products in 1997. In
addition to pipeline facilities, CPL operates, under a management contract,
three marine terminals, one coke-exporting facility, and 43 product terminals
located throughout the United States. These facilities are wholly or jointly
owned by the company. Crude oil is gathered in the Rocky Mountain, mid-
continent, and southern Louisiana areas primarily for delivery to local
refiners. Refined products pipelines are located in the Rocky Mountain and
mid-continent areas to serve regional demand centers. Other U.S.
transportation assets include numerous tank cars, barges, tank trucks, and
other motor vehicles.
Outside the United States, Conoco signed a second major agreement to supply
gas via the Interconnector pipeline from its U.K. North Sea fields to
continental Europe. The pipeline was installed in 1997 and terminals at each
end are scheduled for completion in late 1998. Conoco has a 10% ownership in
the pipeline.
The company also operates a fleet of seagoing crude oil tankers. These
vessels, principally of Liberian registry, are described as follows:
1997 1996 1995
-------- ------- -------
(THOUSANDS OF DEADWEIGHT TONS)
Controlled Seagoing Vessel Capacity Owned or
Leased........................................ 1,006 1,006 881
======== ======= =======
Number of Vessels 80,000 DWT and Above (NUMBER OF VESSELS)
Single Hull.................................. 3 3 3
Double Hull.................................. 5 5 4
-------- ------- -------
Total Vessels.............................. 8 8 7
======== ======= =======
ITEM 3. LEGAL PROCEEDINGS
In 1991, DuPont began receiving claims by growers that use of "Benlate" 50
DF fungicide had caused crop damage. Based on the belief that "Benlate" 50 DF
would be found to be a contributor to the claimed damage, DuPont began paying
crop damage claims. In 1992, however, after 18 months of extensive research,
DuPont scientists concluded that "Benlate" 50 DF was not responsible for plant
damage reports received since March 1991, and concurrent with these research
findings, DuPont stopped paying claims. To date, DuPont has been served with
more than 700 lawsuits, most by growers who allege plant damage from using
"Benlate" 50 DF fungicide. Approximately 80 lawsuits are pending against the
company; the rest having been disposed of by trial, dismissal or settlement.
The remaining docket of "Benlate" 50 DF cases includes alleged personal injury
cases, alleged crop damage cases, and cases alleging discovery abuse and
fraud. Among the remaining personal injury cases is the pending appeal of a
June 1996 verdict of $3,980,000 against DuPont. Four personal injury cases are
pending in West Virginia and three personal injury cases are pending in
Delaware. The same plaintiffs' attorney who filed these Delaware and West
Virginia cases has indicated that he intends to file additional personal
injury cases. In 1997, three putative "Benlate" 50 DF class actions alleging
crop damage and asserting fraud claims were filed: one in Florida state court
on behalf of growers of ornamental plants in Florida; another in Hawaii state
court on behalf of Hawaii growers; and a third in Alabama state court seeking
a nationwide class. All three were removed to federal court. The Florida class
action has been remanded back to state court, and motions to remand the
remaining cases back to the state court have been or are expected to be
12
<PAGE>
filed. The Alabama case received conditional class certification by the state
court prior to its removal. In another crop damage case, Kawamata/Tomono, the
Hawaii Supreme court in December 1997 affirmed the judgment and all trial
court orders in an action in which a jury had returned a verdict for the
plaintiffs in excess of $23 million. The United States Court of Appeals for
the Eleventh Circuit reversed and remanded a sanctions order by a federal
district court in Georgia which had found that DuPont had engaged in discovery
abuse during the first "Benlate" 50 DF crop case to go to trial. The Eleventh
Circuit ordered that a different judge shall preside over the matter on
remand. DuPont's petition for writ of certiorari in the United States Supreme
Court, seeking review of certain aspects of the Eleventh Circuit's decision,
has been denied and DuPont awaits further proceedings in the trial court. A
shareholder derivative action pending in the same Georgia federal district
court, alleging that DuPont's Board of Directors breached various duties in
its role in the "Benlate" 50 DF litigation, remains stayed. A securities fraud
class action filed in September 1995 by a shareholder in federal district
court in Florida against the company and the then-chairman is also still
pending. The plaintiff in this case alleges that DuPont made false and
misleading statements and omissions about "Benlate" 50 DF, with the alleged
effect of inflating the price of DuPont's stock between June 19, 1993, and
January 27, 1995. The district court has certified the case as a class action.
Discovery is proceeding. Certain plaintiffs who have previously settled with
the company have filed cases alleging fraud and other misconduct relating to
the litigation and settlement of "Benlate" 50 DF claims. One such lawsuit was
filed in federal district court in Georgia by five growers alleging fraud
(including civil racketeering claims) based generally on the assertion that,
at the time of their settlements with DuPont, these plaintiffs were unaware of
alleged discovery abuse by DuPont. The Georgia district court has granted
DuPont's motion to dismiss, holding that the release plaintiffs executed when
they originally settled barred their attempt to seek additional amounts from
DuPont. The same court also granted a similar DuPont motion with respect to
another case that had been transferred from Hawaii federal court. Plaintiffs
have appealed the granting of DuPont's motion in both these cases. Five cases
based on similar allegations were filed in Hawaii; the state court class
action mentioned above, two individual state court actions, and two actions in
Hawaii federal court. In both Hawaii federal cases, the court granted DuPont's
motions to enforce prior settlement releases. Plaintiffs may appeal. One of
the Hawaii state court individual actions has been voluntarily dismissed by
the plaintiff. Seven additional such cases have been filed in Florida
involving early settlements through DuPont's claims adjusting company. All
seven of these have been dismissed on the grounds that prelitigation
settlements barred their claims. Plaintiffs have appealed the dismissals. In a
case brought in Texas on behalf of approximately 40 pecan growers, the judge
on January 6, 1998, granted DuPont's motion for summary judgment on statute of
limitations grounds. DuPont continues to believe that "Benlate" 50 DF
fungicide did not cause the damages alleged in these cases and intends to
defend against such allegations in ongoing matters.
The company's balance sheets reflect accruals for estimated costs associated
with this matter. Adverse changes in estimates of such costs could result in
additional future charges.
On December 21, 1993, Conoco's Denver refinery received a Notice of
Violation from the Environmental Protection Agency (EPA), Region VIII, and the
Colorado Department of Health requesting a civil penalty of $169,500 in a
dispute over proper scope and scheduling of certain Resource and Conservation
and Recovery Act (RCRA) on-site investigation activities. The investigation
activities have previously been the subject of a settlement with the EPA and
the Colorado Department of Health, and the work performed has been in
compliance with such agreement in the opinion of company counsel. As such, it
is anticipated that the fine will be significantly reduced pursuant to
negotiations between the parties.
On June 30, 1994, the California Department of Toxic Substances Control
issued to DuPont's Antioch Works in Antioch, California, an Enforcement Order
alleging violations of state hazardous waste regulations. The alleged
violations center principally on the status of several tanks at the site. The
Order would require DuPont to undertake certain remedial activities around the
tanks and pay a fine of $200,000. DuPont has filed a Notice of Defense in the
matter for a hearing before the Office of Administrative Hearings of the
California Department of General Services.
The EPA filed on October 7, 1994, an administrative complaint against DuPont
proposing to assess $1.9 million in civil penalties for distributing triazine
herbicides with product labels that the EPA alleges were not in compliance
with its new Worker Protection Standards. The labels were submitted to the EPA
for approval in
13
<PAGE>
July 1993 and accepted by the EPA in November. However, in March of 1994, the
EPA notified DuPont of alleged errors in the labels. DuPont has cooperated
with the EPA in making label changes and has issued supplemental labeling for
all products that had been distributed. DuPont believes the proposed penalties
are unwarranted and is contesting the complaint and proposed civil penalty in
an EPA administrative proceeding.
On March 6, 1996, the Department of Justice filed a complaint in the United
States District Court for the District of Montana against Yellowstone Pipeline
Company (YPL) and the Conoco Pipe Line Company as a part owner and operator of
YPL. The complaint alleges discharges of oil from a YPL pipeline in January
1993 and seeks civil penalties of up to $25,000 per day for each violation or
up to $1,000 for each barrel of oil discharged. Since the duration of the
discharge is in dispute, the penalty calculation is uncertain although it is
expected to exceed $100,000. The parties are attempting to negotiate a
settlement of the matter.
On March 18, 1997, EPA Region VIII filed an Administrative Complaint and
Compliance Order in which they allege 78 violations of the RCRA by Conoco at
its refinery in Commerce City, Colorado. The agency is seeking a penalty of
$666,771. The allegations involve training, record keeping, manifest and
permitting issues. Conoco previously settled these allegations with the State
of Colorado which is authorized to administer the RCRA program on behalf of
U.S. EPA Region VIII. Conoco believes that the penalties are unwarranted and
intends to defend itself vigorously against the allegations.
On September 2, 1997, the U.S. Department of Justice (DOJ) filed suit
against DuPont related to an August 1995 oleum release from DuPont's plant in
Wurtland, Kentucky. DuPont previously paid a $125,000 fine and agreed to
undertake supplemental environmental projects, related to the oleum release,
valued at $460,000. In its complaint, the DOJ alleges violations under Section
112(r) of the Clean Air Act, Section 103(a) of the Comprehensive Environmental
Response, Compensation and Liability Act and Section 304(a)(1) of the
Emergency Planning and Community Right-to-Know Act. DOJ offered to settle this
action for $2,700,000. DuPont denies these alleged violations, believes that
DOJ's settlement offer is inappropriate and excessive and plans to contest
this action by DOJ.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list, as of March 6, 1998, of the company's executive
officers.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
AGE SINCE
--- ---------
<S> <C> <C>
President and Chief Executive Officer
Charles O. Holliday, Jr.(1).................................... 49 1992
Other Executive Officers:
Archie W. Dunham, Executive Vice President(1).................. 59 1985
Kurt M. Landgraf, Executive Vice President..................... 51 1996
Joseph A. Miller, Jr., Senior Vice President and Chief Technol-
ogy Officer................................................... 56 1994
Stacey J. Mobley, Senior Vice President........................ 52 1992
Gary M. Pfeiffer, Senior Vice President and Chief Financial Of-
ficer......................................................... 48 1997
Howard J. Rudge, Senior Vice President and General Counsel..... 62 1994
</TABLE>
- --------
(1) Member of the Board of Directors.
The company's executive officers are elected or appointed for the ensuing
year or for an indefinite term, and until their successors are elected or
appointed. Each officer named above has been an officer or an executive of
DuPont, its subsidiaries, or an affiliate during the past five years.
14
<PAGE>
PART II
Information with respect to the following Items can be found on the
indicated pages of Exhibit 13 if not otherwise included herein.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The company's common stock is listed on the New York Stock Exchange, Inc.
(symbol DD) and certain non-U.S. exchanges. The number of record holders of
common stock was 154,014 at December 31, 1997 and 148,755 at March 6, 1998.
PAGE(S)
-------
Quarterly Financial Data:
Dividends Per Share of Common Stock................................ 60
Market Price of Common Stock (High/Low)............................ 60
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Financial Review:
Summary of Operations.............................................. 61
Financial Position at Year End..................................... 61
Ratios............................................................. 61
General............................................................ 61
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Letter to Shareholders .............................................. 1-3*
Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life
Sciences, Diversified............................................... 8-9**
Management's Discussion and Analysis:
Analysis of Operations............................................. 16-17
Segment Reviews.................................................... 17-23
Financial Condition and Cash Flows................................. 23-26
Environmental Matters.............................................. 28-29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management's Discussion and Analysis:
Financial Instruments
Derivatives and Other Hedging Instruments......................... 26
Foreign Currency Risk............................................. 26-27
Interest Rate Risk................................................ 27
Commodity Price Risk and Trading.................................. 27
- --------
*Includes text of letter except for photograph on page 2.
**Excludes photographs and related captions.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE(S)
-------
Financial Statements:
Report of Independent Accountants................................... 30
Consolidated Income Statement for 1997, 1996 and 1995............... 31
Consolidated Balance Sheet as of December 31, 1997 and December 31,
1996............................................................... 32
Consolidated Statement of Stockholders' Equity for 1997, 1996 and
1995............................................................... 33
Consolidated Statement of Cash Flows for 1997, 1996 and 1995........ 34
Notes to Financial Statements....................................... 35-53
Supplemental Financial Information:
Supplemental Petroleum Data:
Oil and Gas Producing Activities................................... 54-59
Quarterly Financial Data and related notes for the following items for
the two years 1997 and 1996:
Sales............................................................... 60
Cost of Goods Sold and Other Expenses............................... 60
Net Income.......................................................... 60
Earnings Per Share of Common Stock.................................. 60
Dividends Per Share of Common Stock................................. 60
Market Price of Common Stock........................................ 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Information with respect to the following Items is incorporated by reference
to the pages indicated in the company's 1998 Annual Meeting Proxy Statement
dated March 20, 1998, filed in connection with the Annual Meeting of
Stockholders to be held April 29, 1998. However, information regarding
executive officers is contained in Part I of this report (page 14) pursuant to
General Instruction G of this form.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PAGE(S)
-------
Election of Directors................................................. 4-7
Compliance With the Securities Exchange Act........................... 9
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors............................................. 2-3
Compensation and Stock Option Information............................. 12-15
Retirement Benefits................................................... 16-17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Beneficial Ownership of Securities.................................... 8-9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Election of Directors................................................. 4-7
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements (See listing at Part II, Item 8 of this report
regarding financial statements, which are incorporated by reference to
Exhibit 13.)
2. Financial Statement Schedules--none required.
The following should be read in conjunction with the previously referenced
Financial Statements:
Financial Statement Schedules listed under SEC rules but not included in
this report are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto
incorporated by reference.
Condensed financial information of the parent company is omitted because
restricted net assets of consolidated subsidiaries do not exceed 25% of
consolidated net assets. Footnote disclosure of restrictions on the ability
of subsidiaries and affiliates to transfer funds is omitted because the
restricted net assets of subsidiaries combined with the company's equity in
the undistributed earnings of affiliated companies does not exceed 25% of
consolidated net assets at December 31, 1997.
Separate financial statements of affiliated companies accounted for by
the equity method are omitted because no such affiliate individually
constitutes a 20% significant subsidiary.
3. Exhibits
The following list of exhibits includes both exhibits submitted with this
Form 10-K as filed with the SEC and those incorporated by reference to other
filings:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Company's Restated Certificate of Incorporation filed May 29, 1997
(incorporated by reference to the company's filing on Form 8-K on June
13, 1997).
3.2 Company's Bylaws, as last revised September 1, 1997 (incorporated by
reference to Exhibit 3.2 of the company's Quarterly Report on Form 10-
Q for the period ended September 30, 1997).
3.3 Company's Bylaws, as last revised October 29, 1997.
3.4 Company's Bylaws, as last revised November 15, 1997.
3.5 Company's Bylaws, as last revised February 1, 1998.
4 The company agrees to provide the Commission, on request, copies of
instruments defining the rights of holders of long-term debt of the
company and its subsidiaries.
10.1* Company's Corporate Sharing Plan, as last amended August 28, 1991
(incorporated by reference to Exhibit 10.1 of the company's Annual
Report on Form 10-K for the year ended December 31, 1996).
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.
17
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.2* The DuPont Stock Accumulation and Deferred Compensation Plan for
Directors, (formerly the Deferred Compensation Plan For Directors), as
last amended effective January 1, 1996, and approved by shareholders
at the company's 1996 Annual Meeting of Shareholders (incorporated by
reference to Exhibit 10.12 of the company's Quarterly Report on Form
10-Q for the period ended March 31, 1996).
10.3* Company's Supplemental Retirement Income Plan, as last amended
effective June 4, 1996 (incorporated by reference to Exhibit 10.3 of
the company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.4* Company's Pension Restoration Plan, as last amended effective June 4,
1996 (incorporated by reference to Exhibit 10.4 of the company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.5.1* Retirement Restoration Plan I of Conoco Inc., adopted by the Board of
Directors on December 18, 1995 (incorporated by reference to Exhibit
10.6.1 of the company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.5.2* Retirement Restoration Plan II of Conoco Inc., adopted by the Board of
Directors on December 18, 1995 (incorporated by reference to Exhibit
10.6.2 of the company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.6* Company's Stock Performance Plan, as last amended effective September
28, 1994 (incorporated by reference to Exhibit 10.7 of the company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.7* Company's Variable Compensation Plan, as last amended effective April
30, 1997 (incorporated by reference to Exhibit 10.7 of the company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997).
10.8* Company's Salary Deferral & Savings Restoration Plan effective April
26, 1994 (incorporated by reference to Exhibit 10.9 of the company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.9* Company's 1995 Corporate Sharing Plan, adopted by the Board of
Directors on January 25, 1995 (incorporated by reference to Exhibit
10.10 of the company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.10* Letter Agreement and Consulting Agreement, dated as of October 9,
1995, between the company and C. S. Nicandros (incorporated by
reference to Exhibit 10.11 of the company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.11* Company's 1997 Corporate Sharing Plan, adopted by the Board of
Directors on January 29, 1997 (incorporated by reference to Exhibit
10.11 of the company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.12* Company's Retirement Income Plan for Directors, as last amended August
1995 (incorporated by reference to Exhibit 10.12 of the company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
11 Statement re calculation of earnings per share.
12 Statement re computation of the ratio of earnings to fixed charges.
13 The 1997 Letter to Shareholders; "Segment Profiles: Chemicals, Fibers,
Polymers, Petroleum, Life Sciences, Diversified"; "Management's
Discussion and Analysis"; and Financial Information Section of the
Annual Report to Shareholders for the year ended December 31, 1997,
which are furnished to the Commission for information only, and not
filed except as expressly incorporated by reference in this Report.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.
18
<PAGE>
(b) Reports on Form 8-K
Reports on Form 8-K:
(1) On October 22, 1997, a Current Report on Form 8-K was filed in
connection with Debt and/or Equity Securities that may be offered on a
delayed or continuous basis under Registration Statements on Form S-3 (No.
33-53327, No. 33-61339, and No. 33-60069). Under Item 7. "Financial
Statements and Exhibits," the Registrant's Earnings Press Release, dated
October 22, 1997, was filed.
(2) On January 28, 1998, a Current Report on Form 8-K was filed in
connection with Debt Securities that may be offered on a delayed or
continuous basis under its Registration Statements on Form S-3
(No. 33-53327, No. 33-61339, and No. 33-60069). Under Item 7, "Financial
Statements and Exhibits," the Registrant's Earnings Press Release, dated
January 28, 1998, was filed.
19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED AND IN THE CAPACITIES INDICATED, AS
OF THE 23RD DAY OF MARCH 1998.
E. I. DU PONT DE NEMOURS AND COMPANY
(Registrant)
By: G. M. PFEIFFER
---------------------------------
G. M. PFEIFFER
SENIOR VICE PRESIDENT--DUPONT
FINANCE
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED AS OF THE 23RD DAY OF MARCH 1998, BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES INDICATED:
CHAIRMAN OF THE BOARD:
J. A. Krol
---------------------
J. A. KROL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND DIRECTOR:
(PRINCIPAL EXECUTIVE OFFICER): EXECUTIVE VICE PRESIDENT AND DIRECTOR:
C. O. Holliday, Jr. A. W. Dunham
- ------------------------------------- -------------------------------------
C. O. HOLLIDAY, JR. A. W. DUNHAM
DIRECTORS:
P. N. Barnevik W. K. Reilly
- ------------------------------------- -------------------------------------
P. N. BARNEVIK W. K. REILLY
A. F. Brimmer H. R. Sharp, III
- ------------------------------------- -------------------------------------
A. F. BRIMMER H. R. SHARP, III
L. C. Duemling C. M. Vest
- ------------------------------------- -------------------------------------
L. C. DUEMLING C. M. VEST
E. B. du Pont G. Watanabe
- ------------------------------------- -------------------------------------
E. B. DU PONT G. WATANABE
C. M. Harper E. S. Woolard, Jr.
- ------------------------------------- -------------------------------------
C. M. HARPER E. S. WOOLARD, JR.
L. D. Juliber
- -------------------------------------
L. D. JULIBER
20
<PAGE>
E. I. DU PONT DE NEMOURS AND COMPANY
INDEX OF EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Company's Restated Certificate of Incorporation filed May
29, 1997 (incorporated by reference to the company's filing on
Form 8-K on June 13, 1997).
3.2 Company's Bylaws, as last revised September 1, 1997 (incorporated by
reference to Exhibit 3.2 of the company's Quarterly Report on Form
10-Q for the period ended September 30, 1997).
3.3 Company's Bylaws, as last revised October 29, 1997.
3.4 Company's Bylaws, as last revised November 15, 1997.
3.5 Company's Bylaws, as last revised February 1, 1998.
4 The company agrees to provide the Commission, on request, copies of
instruments defining the rights of holders of long-term debt of the
company and its subsidiaries.
10.1* Company's Corporate Sharing Plan, as last amended August 28, 1991
(incorporated by reference to Exhibit 10.1 of the company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.2* The DuPont Stock Accumulation and Deferred Compensation Plan for
Directors, (formerly the Deferred Compensation Plan For Directors),
as last amended effective January 1, 1996, and approved by
shareholders at the company's 1996 Annual Meeting of Shareholders
(incorporated by reference to Exhibit 10.12 of the company's
Quarterly Report on Form 10-Q for the period ended March 31, 1996).
10.3* Company's Supplemental Retirement Income Plan, as last amended
effective June 4, 1996 (incorporated by reference to Exhibit 10.3 of
the company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.4* Company's Pension Restoration Plan, as last amended effective June 4,
1996 (incorporated by reference to Exhibit 10.4 of the company's
Annual Report on Form 10-K for the year ended December 31, 1996).
- -------------
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K.
<PAGE>
Exhibit
Number Description
- ------- -----------
10.5.1* Retirement Restoration Plan I of Conoco Inc., adopted by the Board of
Directors on December 18, 1995 (incorporated by reference to Exhibit
10.6.1 of the company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.5.2* Retirement Restoration Plan II of Conoco Inc., adopted by the Board
of Directors on December 18, 1995 (incorporated by reference to
Exhibit 10.6.2 of the company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.6* Company's Stock Performance Plan, as last amended effective
September 28, 1994 (incorporated by reference to Exhibit 10.7 of the
company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.7* Company's Variable Compensation Plan, as last amended effective
April 30, 1997 (incorporated by reference to Exhibit 10.7 of the
company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
10.8* Company's Salary Deferral & Savings Restoration Plan effective
April 26, 1994 (incorporated by reference to Exhibit 10.9 of the
company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.9* Company's 1995 Corporate Sharing Plan, adopted by the Board of
Directors on January 25, 1995 (incorporated by reference to
Exhibit 10.10 of the company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
10.10* Letter Agreement and Consulting Agreement, dated as of October 9,
1995, between the company and C. S. Nicandros (incorporated by
reference to Exhibit 10.11 of the company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.11* Company's 1997 Corporate Sharing Plan, adopted by the Board of
Directors on January 29, 1997 (incorporated by reference to Exhibit
10.11 of the company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.12* Company's Retirement Income Plan for Directors, as last amended
August 1995 (incorporated by reference to Exhibit 10.12 of the
company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
11 Statement re calculation of earnings per share.
12 Statement re computation of the ratio of earnings to fixed charges.
13 The 1997 Letter to Shareholders; "Segment Profiles: Chemicals,
Fibers, Polymers, Petroleum, Life Sciences, Diversified";
"Management's Discussion and Analysis"; and Financial Information
Section of the Annual Report to Shareholders for the year ended
December 31, 1997, which are furnished to the Commission for
information only, and not filed except as expressly incorporated by
reference in this Report.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
- -------------
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K.
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
------------------------------------
Incorporated Under The Laws of Delaware
AS REVISED October 29, 1997
<PAGE>
EXHIBIT 3.3
BYLAWS
Page
----
ARTICLE I.
MEETING OF STOCKHOLDERS:
Section 1. Annual 1
Section 2. Special 1
Section 3. Notice 1
Section 4. Quorum 1
Section 5. Organization 1
Section 6. Voting 2
Section 7. Inspectors 2
ARTICLE II.
BOARD OF DIRECTORS:
Section 1. Number 2
Section 2. Term 2
Section 3. Increase of Number 2
Section 4. Resignation 2
Section 5. Vacancies 2
Section 6. Regular Meetings 2
Section 7. Special Meetings 3
Section 8. Quorum 3
Section 9. Place of Meeting, Etc. 3
Section 10. Interested Directors; Quorum 3
ARTICLE III.
COMMITTEES OF THE BOARD:
Section 1. Committees 4
Section 2. Procedure 4
Section 3. Reports to the Board 4
Section 4. Strategic Direction Committee 4
Section 5. Audit Committee 5
Section 6 Environmental Policy Committee 5
Section 7. Compensation Committee 5
Section 8. Corporate Governance Committee 5
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE 5
<PAGE>
EXHIBIT 3.3
Page
----
ARTICLE V.
OFFICERS:
Section 1. Officers 6
Section 2. Chairman of the Board 6
Section 3. President 6
Section 4. Executive Vice Presidents 6
Section 5. Vice Presidents 6
Section 6. Executive Vice President - Finance 6
Section 7. Treasurer 6
Section 8. Assistant Treasurer 7
Section 9. Controller 7
Section 10. Assistant Controller 7
Section 11. Secretary 7
Section 12. Assistant Secretary 7
Section 13. Removal 7
Section 14. Resignation 7
Section 15. Vacancies 7
ARTICLE VI.
MISCELLANEOUS:
Section 1. Indemnification of Directors or Officers 8
Section 2. Certificate for Shares 8
Section 3. Transfer of Shares 9
Section 4. Regulations 9
Section 5. Record Date of Stockholders 9
Section 6. Corporate Seal 9
ARTICLE VII.
AMENDMENTS 10
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
ARTICLE I.
MEETING OF STOCKHOLDERS
SECTION 1. Annual. Meetings of the stockholders for the purpose of
electing Directors, and transacting such other proper business as may be brought
before the meeting, shall be held annually at such date, time and place, within
or without the State of Delaware as may be designated by the Board of Directors
("Board").
SECTION 2. Special. Special meetings of the stockholders may be called
by the Board and shall be called by the Secretary at the request in writing of
the holders of record of at least twenty-five percent of the outstanding stock
of the corporation entitled to vote. Special meetings shall be held within or
without the State of Delaware, as the Board shall designate.
SECTION 3. Notice. Written notice of each meeting of stockholders,
stating the place, date and hour of the meeting, and the purpose or purposes
thereof, shall be mailed not less than ten nor more than sixty days before the
date of such meeting to each stockholder entitled to vote thereat.
SECTION 4. Quorum. Unless otherwise provided by statute, the holders of
shares of stock entitled to cast a majority of votes at a meeting, present
either in person or by proxy, shall constitute a quorum at such meeting.
Absence of a quorum of the holders of Common Stock or Preferred Stock at
any meeting or adjournment thereof, at which under the Certificate of
Incorporation the holders of Preferred Stock have the right to elect any
Directors, shall not prevent the election of Directors by the other class of
stockholders entitled to elect Directors as a class if the necessary quorum of
stockholders of such other class shall be present in person or by proxy.
SECTION 5. Organization. The Chairman of the Board or, in the Chairman's
absence, the President shall preside at meetings of stockholders. The Secretary
of the Company shall act as Secretary of all meetings of the stockholders, but
in the absence of the Secretary the presiding officer may appoint a Secretary of
the meeting. The order of business for such meetings shall be determined by the
Chairman of the Board, or, in the Chairman's absence, by the President.
1
<PAGE>
EXHIBIT 3.3
SECTION 6. Voting. Each stockholder entitled to vote at any meeting
shall be entitled to one vote, in person or by written proxy, for each share
held of record. Upon the demand of any stockholder, such stockholder shall be
entitled to vote by ballot. All elections and questions shall be decided by
plurality vote, except as otherwise required by statute.
SECTION 7. Inspectors. At each meeting of the stockholders the polls
shall be opened and closed; the proxies and ballots shall be received and be
taken in charge, and all questions touching the qualification of voters and the
validity of proxies, and the acceptance or rejection of votes shall be decided
by three Inspectors, two of whom shall have power to make a decision. Such
Inspectors shall be appointed by the Board before the meeting, or in default
thereof, by the presiding officer at the meeting, and shall be sworn to the
faithful performance of their duties. If any of the Inspectors previously
appointed shall fail to attend or refuse or be unable to serve, substitutes
shall be appointed by the presiding officer.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. Number. The business and affairs of the Company shall be
under the direction of the Board. The number of Directors, which shall not be
less than ten, shall be determined from time to time by the vote of two-thirds
of the whole Board.
SECTION 2. Term. Each Director shall hold office until the next annual
election of Directors and until the Director's successor is elected and
qualified.
SECTION 3. Increase of Number. In case of any increase in the number of
Directors between Annual Meetings of Stockholders, each additional Director
shall be elected by the vote of two-thirds of the whole Board.
SECTION 4. Resignation. A Director may resign at any time by giving
written notice to the Chairman of the Board or the Secretary. The acceptance
thereof shall not be necessary to make it effective; and such resignation shall
take effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.
SECTION 5. Vacancies. In case of any vacancy in the Board for any cause,
the remaining Directors, by vote of majority of the whole Board, may elect a
successor to hold office for the unexpired term of the Director whose place is
vacant.
SECTION 6. Regular Meetings. Regular meetings of the Board shall be held
at such times as the Board may designate. A notice of each regular meeting shall
not be required.
2
<PAGE>
EXHIBIT 3.3
SECTION 7. Special Meetings. Special meetings of the Board shall be held
whenever called by the direction of the Chairman of the Board, or of one-third
of the Directors.
The Secretary shall give notice of such special meetings by mailing the
same at least two days before the meeting, or by telegraphing the same at least
one day before the meeting to each Director; but such notice may be waived by
any Director. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting. At any meeting at which every
Director shall be present, any business may be transacted, irrespective of
notice.
SECTION 8. Quorum. One-third of the Board shall constitute a quorum. If
there be less than a quorum present at any meeting, a majority of those present
may adjourn the meeting from time to time.
Except as otherwise provided by law, the Certificate of Incorporation,
or by these Bylaws, the affirmative vote of a majority of the Directors present
at any meeting at which there is a quorum shall be necessary for the passage of
any resolution.
SECTION 9. Place of Meeting, Etc. The Directors shall hold the meetings,
and may have an office or offices in such place or places within or outside the
State of Delaware as the Board from time to time may determine.
SECTION 10. Interested Directors; Quorum
1) No contract or other transaction between the Company and one or more
of its Directors, or between the Company and any other corporation, partnership,
association, or other organization in which one or more of the Directors of the
Company is a Director or officer, or has a financial interest, shall be void or
voidable, because the Director is present at or participates in the meeting of
the Board or committee thereof which authorizes the contract or transaction, or
solely because such Director's vote is counted for such purpose, if:
(a) the material facts as to such Director's relationship or interest
and as to the contract or transaction are disclosed or are known to the Board or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum; or
(b) the material facts as to such Director's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
3
<PAGE>
EXHIBIT 3.3
(c) the contract or transaction is fair as to the Company as of the time
it is authorized, approved or ratified, by the Board, a committee thereof, or
the stockholders; and
2) Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
ARTICLE III.
COMMITTEES OF THE BOARD
SECTION 1. Committees. The Board shall by the affirmative vote of a
majority of the whole Board, elect from the Directors a Strategic Direction
Committee, an Audit Committee, an Environmental Policy Committee, a Compensation
Committee, and a Corporate Governance Committee and may, by resolution passed by
a majority of the whole Board, designate one or more additional committees, each
committee to consist of one or more Directors. The Board shall designate for
each of these committees a Chairman, and, if desired, a Vice Chairman, who shall
continue as such during the pleasure of the Board. The number of members of each
committee shall be determined from time to time by the Board.
SECTION 2. Procedure. Each Committee shall fix its own rules of
procedure and shall meet where and as provided by such rules. A majority of a
committee shall constitute a quorum. In the absence or disqualification of a
member of any committee, the members of such committee present at any meeting,
and not disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
SECTION 3. Reports To The Board. Each Committee shall keep regular
minutes of its proceedings and shall periodically report to the Board summaries
of the Committee's significant completed actions and such other matters as
requested by the Board.
SECTION 4. Strategic Direction Committee. The Strategic Direction
Committee shall review the Company's strategic direction and overall objectives
and shall have such powers and perform such duties as may be assigned to it from
time to time by the Board.
4
<PAGE>
EXHIBIT 3.3
SECTION 5. Audit Committee. The Audit Committee shall employ
independent public accountants, subject to stockholder ratification at each
annual meeting, review the adequacy of internal controls and the accounting
principles employed in financial reporting, and shall have such power and
perform such duties as may be assigned to it from time to time by the Board.
None of the Members of the Audit Committee shall be an officer or employee of
the Company or its subsidiaries.
SECTION 6. Environmental Policy Committee. The Environmental Policy
Committee shall review the Company's environmental policies and practices and
shall have such powers and perform such duties as may be assigned to it from
time to time by the Board.
SECTION 7. Compensation Committee. The Compensation Committee shall
have the power and authority vested in it by the Compensation Plans of the
Company and shall have such powers and perform such duties as may be assigned to
it from time to time by the Board. None of the members of the Compensation
Committee shall be an officer or employee of the Company or its subsidiaries.
SECTION 8. Corporate Governance Committee. The Corporate Governance
Committee shall recommend to the Board nominees for election as directors of the
Company. The Committee shall also have responsibility for reviewing and making
recommendations to the Board related to matters on corporate governance and
shall have such powers and perform such duties as may be assigned to it from
time to time by the Board. None of the members of the Corporate Governance
Committee shall be an officer or employee of the Company or its subsidiaries.
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE
The Board shall elect an Office of the Chief Executive whose members
shall include the Chairman of the Board, President and such other officers as
may be designated by the Board. The Office of the Chief Executive shall have
responsibility for the strategic direction and operations of all the businesses
of the Company and shall have such powers and perform such duties as may be
assigned to it from time to time by the Board.
All significant completed actions by the Office of the Chief Executive
shall be reported to the Board at the next succeeding Board meeting, or at its
meeting held in the month following the taking of such action.
5
<PAGE>
EXHIBIT 3.3
ARTICLE V.
OFFICERS
SECTION 1. Officers. The officers of the Company shall be a Chairman
of the Board, a President, one or more Executive Vice Presidents, an Executive
Vice President - Finance and a Secretary.
The Board and the Office of the Chief Executive, may appoint such
other officers as they deem necessary, who shall have such authority and shall
perform such duties as may be prescribed, respectively, by the Board or the
Office of the Chief Executive.
SECTION 2. Chairman of the Board. The Chairman of the Board shall be
the chief executive officer of the Company and, subject to the Board and the
Office of the Chief Executive, shall have general charge of the business and
affairs of the Company. The Chairman shall preside at all meetings of the
stockholders and of the Board. The Chairman may sign and execute all authorized
bonds, contracts or other obligations, in the name of the Company, and with the
Treasurer may sign all certificates of the shares in the capital stock of the
Company.
SECTION 3. President. The President shall have such powers and perform
such duties as may be assigned to the President by the Board or the Chairman of
the Board. In the absence or inability to act of the Chairman of the Board, the
President shall perform the duties of the Chairman of the Board.
SECTION 4. Executive Vice Presidents. Each Executive Vice President
shall have such powers and perform such duties as may be assigned to such
Executive Vice President by the Board or the Office of the Chief Executive.
SECTION 5. Vice Presidents. The Board or the Office of the Chief
Executive may appoint one or more Vice Presidents. Each Vice President shall
have such title, powers and duties as may be assigned to such Vice President by
the Board or the Office of the Chief Executive.
SECTION 6. Executive Vice President - Finance. The Executive Vice
President - Finance shall be the chief financial officer of the Company, and
shall have such powers and perform such duties as may be assigned to such
Executive Vice President -Finance by the Board or the Office of the Chief
Executive.
SECTION 7. Treasurer. The Board shall appoint a Treasurer. Under the
general direction of the Executive Vice President - Finance, the Treasurer shall
have such powers and perform such duties as may be assigned to such Treasurer by
the Board or the Office of the Chief Executive.
6
<PAGE>
EXHIBIT 3.3
SECTION 8. Assistant Treasurer. The Board or the Office of the Chief
Executive may appoint one or more Assistant Treasurers. Each Assistant Treasurer
shall have such powers and shall perform such duties as may be assigned to such
Assistant Treasurer by the Board or the Office of the Chief Executive.
SECTION 9. Controller. The Board may appoint a Controller. Under the
general direction of the Executive Vice President - Finance, the Controller
shall have such powers and perform such duties as may be assigned to such
Controller by the Board or the Office of the Chief Executive.
SECTION 10. Assistant Controller. The Board or the Office of the Chief
Executive may appoint one or more Assistant Controllers. Each Assistant
Controller shall have such powers and shall perform such duties as may be
assigned to such Assistant Controller by the Board or the Office of the Chief
Executive.
SECTION 11. Secretary. The Secretary shall keep the minutes of all the
meetings of the Board and the minutes of all the meetings of the stockholders;
the Secretary shall attend to the giving and serving of all notices of meetings
as required by law or these Bylaws; the Secretary shall affix the seal of the
Company to any instruments when so required; and the Secretary shall in general
perform all the corporate duties incident to the office of Secretary, subject to
the control of the Board or the Chairman of the Board, and such other duties as
may be assigned to the Secretary by the Board or the Chairman of the Board.
SECTION 12. Assistant Secretary. The Board or the Office of the Chief
Executive may appoint one or more Assistant Secretaries. Each Assistant
Secretary shall have such powers and shall perform such duties as may be
assigned to such Assistant Secretary by the Board or the Chairman of the Board
or the President; and such Assistant Secretary shall affix the seal of the
Company to any instruments when so required.
SECTION 13. Removal. All officers may be removed or suspended at any
time by the vote of the majority of the whole Board. All officers, agents and
employees, other than officers elected or appointed by the Board, may be
suspended or removed by the committee or by the officer appointing them.
SECTION 14. Resignation. Any officer may resign at any time by giving
written notice to the Chairman of the Board, the President or the Secretary.
Unless otherwise stated in such notice of resignation, the acceptance thereof
shall not be necessary to make it effective; and such resignation shall take
effect at the time specified therein or, in the absence of such specification,
it shall take effect upon the receipt thereof.
SECTION 15. Vacancies. A vacancy in any office shall be filled in the
same manner as provided for election or appointment to such office.
7
<PAGE>
EXHIBIT 3.3
ARTICLE VI.
MISCELLANEOUS
SECTION 1. Indemnification of Directors or Officers. Each person who
is or was a Director or officer of the Company (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Company as
of right to the full extent permitted by the General Corporation Law of Delaware
against any liability, cost or expense asserted against such Director or officer
and incurred by such Director or officer by reason of the fact that such person
is or was a Director or officer. The right to indemnification conferred by this
Section shall include the right to be paid by the Company the expenses incurred
in defending in any action, suit or proceeding in advance of its final
disposition, subject to the receipt by the Company of such undertakings as might
be required of an indemnitee by the General Corporation Law of Delaware.
In any action by an indemnitee to enforce a right to indemnification
hereunder or by the Company to recover advances made hereunder, the burden of
proving that the indemnitee is not entitled to be indemnified shall be on the
Company. In such an action, neither the failure of the Company (including its
Board, independent legal counsel or stockholders) to have made a determination
that indemnification is proper, nor a determination by the Company that
indemnification is improper, shall create a presumption that the indemnitee is
not entitled to be indemnified or, in the case of such an action brought by the
indemnitee, be a defense thereto. If successful in whole or in part in such an
action, an indemnitee shall be entitled to be paid also the expense of
prosecuting or defending same. The Company may, but shall not be obligated to,
maintain insurance at its expense, to protect itself and any such person against
any such liability, cost or expense.
SECTION 2. Certificate for Shares. The shares of the capital stock of
the Company shall be represented by certificates unless the Company provides by
appropriate action that some or all of any or all classes or series of the
Company's stock shall be uncertificated. Notwithstanding the Company's taking
such action, to the extent required by law, every holder of stock represented by
certificates and, upon request, every holder of uncertificated shares, shall be
entitled to a certificate representing the number of shares in the Company owned
by such stockholder in such form, not inconsistent with the Certificate of
Incorporation, as shall be prescribed by the Board. Certificates representing
shares of the capital stock of the Company shall be signed by the Chairman of
the Board, President or an Executive Vice President and the Treasurer, Secretary
or an Assistant Secretary. Any or all signatures on the certificate, including
those of the Transfer Agent and Registrar, may be facsimile.
8
<PAGE>
EXHIBIT 3.3
The name of the person owning the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the Company's
books.
All certificates surrendered to the Company shall be cancelled, and no
new certificates shall be issued until the former certificate for the same
number of shares of the same class shall have been surrendered and cancelled,
except that the Board may determine, from time to time, the conditions and
provisions on which new certificates may be used in substitution of any
certificates that may have been lost, stolen or destroyed.
SECTION 3. Transfer of Shares. Shares in the capital stock of the
Company shall be transferred by the record holder thereof, in person, or by any
such person's attorney upon surrender and cancellation of certificates for a
like number of shares.
SECTION 4. Regulations. The Board also may make rules and regulations
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Company.
The Board may appoint one or more transfer agents and one or more
registrars of transfers, and may require all stock certificates to bear the
signature of a transfer agent and a registrar of transfer.
SECTION 5. Record Date of Stockholders. The Board may fix in advance a
date, not exceeding sixty days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or other distribution,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any such meeting, or entitled to receive payment of any such dividend or other
distribution, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, and in such
case only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting, or to
receive any such dividend or other distribution, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Company after such record date fixed
as aforesaid.
SECTION 6. Corporate Seal. The seal of the Company shall be circular
in form, containing the words "E. I. DU PONT DE NEMOURS AND CO." and "DELAWARE"
on the circumference, surrounding the words "FOUNDED" and "SEAL," and the date
"1802."
9
<PAGE>
EXHIBIT 3.3
The seal shall be in the custody of the Secretary. A duplicate of the
seal may be kept and used by the Executive Vice President - Finance, any Vice
President - DuPont Finance, the Treasurer, or by any Assistant Secretary or
Assistant Treasurer.
ARTICLE VII.
AMENDMENTS
The Board shall have the power to adopt, amend and repeal the Bylaws
of the Company, by a vote of the majority of the whole Board, at any regular or
special meeting of the Board, provided that notice of intention to adopt, amend
or repeal the Bylaws in whole or in part shall have been given at the next
preceding meeting, or, without any such notice, by the vote of two-thirds of the
whole Board.
I hereby certify that the foregoing is a true and correct copy of the Bylaws of
E. I. du Pont de Nemours and Company.
Witness my hand and the corporate seal of the Company this
day of 199 .
- ------------ ------------------ --
----------------------------
Secretary
10
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
------------------------------------
Incorporated Under The Laws of Delaware
AS REVISED November 15, 1997
<PAGE>
EXHIBIT 3.4
BYLAWS
Page
----
ARTICLE I.
MEETING OF STOCKHOLDERS:
Section 1. Annual 1
Section 2. Special 1
Section 3. Notice 1
Section 4. Quorum 1
Section 5. Organization 1
Section 6. Voting 2
Section 7. Inspectors 2
ARTICLE II.
BOARD OF DIRECTORS:
Section 1. Number 2
Section 2. Term 2
Section 3. Increase of Number 2
Section 4. Resignation 2
Section 5. Vacancies 2
Section 6. Regular Meetings 2
Section 7. Special Meetings 3
Section 8. Quorum 3
Section 9. Place of Meeting, Etc. 3
Section 10. Interested Directors; Quorum 3
ARTICLE III.
COMMITTEES OF THE BOARD:
Section 1. Committees 4
Section 2. Procedure 4
Section 3. Reports to the Board 4
Section 4. Strategic Direction Committee 4
Section 5. Audit Committee 5
Section 6 Environmental Policy Committee 5
Section 7. Compensation Committee 5
Section 8. Corporate Governance Committee 5
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE 5
<PAGE>
EXHIBIT 3.4
Page
----
ARTICLE V.
OFFICERS:
Section 1. Officers 6
Section 2. Chairman of the Board 6
Section 3. President 6
Section 4. Executive Vice Presidents 6
Section 5. Vice Presidents 6
Section 6. Senior Vice President - Finance 6
Section 7. Treasurer 6
Section 8. Assistant Treasurer 7
Section 9. Controller 7
Section 10. Assistant Controller 7
Section 11. Secretary 7
Section 12. Assistant Secretary 7
Section 13. Removal 7
Section 14. Resignation 7
Section 15. Vacancies 7
ARTICLE VI.
MISCELLANEOUS:
Section 1. Indemnification of Directors or Officers 8
Section 2. Certificate for Shares 8
Section 3. Transfer of Shares 9
Section 4. Regulations 9
Section 5. Record Date of Stockholders 9
Section 6. Corporate Seal 9
ARTICLE VII.
AMENDMENTS 10
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
ARTICLE I.
MEETING OF STOCKHOLDERS
SECTION 1. Annual. Meetings of the stockholders for the
purpose of electing Directors, and transacting such other proper
business as may be brought before the meeting, shall be held
annually at such date, time and place, within or without the
State of Delaware as may be designated by the Board of Directors
("Board").
SECTION 2. Special. Special meetings of the stockholders
may be called by the Board and shall be called by the Secretary
at the request in writing of the holders of record of at least
twenty-five percent of the outstanding stock of the corporation
entitled to vote. Special meetings shall be held within or
without the State of Delaware, as the Board shall designate.
SECTION 3. Notice. Written notice of each meeting of
stockholders, stating the place, date and hour of the meeting,
and the purpose or purposes thereof, shall be mailed not less
than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
SECTION 4. Quorum. Unless otherwise provided by statute,
the holders of shares of stock entitled to cast a majority of
votes at a meeting, present either in person or by proxy, shall
constitute a quorum at such meeting.
Absence of a quorum of the holders of Common Stock or
Preferred Stock at any meeting or adjournment thereof, at which
under the Certificate of Incorporation the holders of Preferred
Stock have the right to elect any Directors, shall not prevent
the election of Directors by the other class of stockholders
entitled to elect Directors as a class if the necessary quorum
of stockholders of such other class shall be present in person
or by proxy.
SECTION 5. Organization. The Chairman of the Board or,
in the Chairman's absence, the President shall preside at
meetings of stockholders. The Secretary of the Company shall act
as Secretary of all meetings of the stockholders, but in the
absence of the Secretary the presiding officer may appoint a
Secretary of the meeting. The order of business for such
meetings shall be determined by the Chairman of the Board, or,
in the Chairman's absence, by the President.
1
<PAGE>
EXHIBIT 3.4
SECTION 6. Voting. Each stockholder entitled to vote at
any meeting shall be entitled to one vote, in person or by written
proxy, for each share held of record. Upon the demand of any
stockholder, such stockholder shall be entitled to vote by ballot.
All elections and questions shall be decided by plurality vote,
except as otherwise required by statute.
SECTION 7. Inspectors. At each meeting of the
stockholders the polls shall be opened and closed; the proxies
and ballots shall be received and be taken in charge, and all
questions touching the qualification of voters and the validity
of proxies, and the acceptance or rejection of votes shall be
decided by three Inspectors, two of whom shall have power to make
a decision. Such Inspectors shall be appointed by the Board
before the meeting, or in default thereof, by the presiding
officer at the meeting, and shall be sworn to the faithful
performance of their duties. If any of the Inspectors previously
appointed shall fail to attend or refuse or be unable to serve,
substitutes shall be appointed by the presiding officer.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. Number. The business and affairs of the
Company shall be under the direction of the Board. The number of
Directors, which shall not be less than ten, shall be determined
from time to time by the vote of two-thirds of the whole Board.
SECTION 2. Term. Each Director shall hold office until
the next annual election of Directors and until the Director's
successor is elected and qualified.
SECTION 3. Increase of Number. In case of any increase
in the number of Directors between Annual Meetings of
Stockholders, each additional Director shall be elected by the
vote of two-thirds of the whole Board.
SECTION 4. Resignation. A Director may resign at any
time by giving written notice to the Chairman of the Board or the
Secretary. The acceptance thereof shall not be necessary to make
it effective; and such resignation shall take effect at the time
specified therein or, in the absence of such specification, it
shall take effect upon the receipt thereof.
SECTION 5. Vacancies. In case of any vacancy in the
Board for any cause, the remaining Directors, by vote of majority
of the whole Board, may elect a successor to hold office for the
unexpired term of the Director whose place is vacant.
SECTION 6. Regular Meetings. Regular meetings of the
Board shall be held at such times as the Board may designate. A
notice of each regular meeting shall not be required.
2
<PAGE>
EXHIBIT 3.4
SECTION 7. Special Meetings. Special meetings of the
Board shall be held whenever called by the direction of the
Chairman of the Board, or of one-third of the Directors.
The Secretary shall give notice of such special
meetings by mailing the same at least two days before the
meeting, or by telegraphing the same at least one day before the
meeting to each Director; but such notice may be waived by any
Director. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting. At any
meeting at which every Director shall be present, any business
may be transacted, irrespective of notice.
SECTION 8. Quorum. One-third of the Board shall
constitute a quorum. If there be less than a quorum present at
any meeting, a majority of those present may adjourn the meeting
from time to time.
Except as otherwise provided by law, the Certificate of
Incorporation, or by these Bylaws, the affirmative vote of a
majority of the Directors present at any meeting at which there
is a quorum shall be necessary for the passage of any resolution.
SECTION 9. Place of Meeting, Etc. The Directors shall
hold the meetings, and may have an office or offices in such
place or places within or outside the State of Delaware as the
Board from time to time may determine.
SECTION 10. Interested Directors; Quorum
1) No contract or other transaction between the Company and
one or more of its Directors, or between the Company and any
other corporation, partnership, association, or other
organization in which one or more of the Directors of the Company
is a Director or officer, or has a financial interest, shall be
void or voidable, because the Director is present at or
participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because
such Director's vote is counted for such purpose, if:
(a) the material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the
Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors
be less than a quorum; or
(b) the material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by vote of the stockholders; or
3
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EXHIBIT 3.4
(c) the contract or transaction is fair as to the Company
as of the time it is authorized, approved or ratified, by the
Board, a committee thereof, or the stockholders; and
2) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board or
of a committee which authorizes the contract or transaction.
ARTICLE III.
COMMITTEES OF THE BOARD
SECTION 1. Committees. The Board shall by the
affirmative vote of a majority of the whole Board, elect from the
Directors a Strategic Direction Committee, an Audit Committee, an
Environmental Policy Committee, a Compensation Committee, and a
Corporate Governance Committee and may, by resolution passed by a
majority of the whole Board, designate one or more additional
committees, each committee to consist of one or more Directors.
The Board shall designate for each of these committees a Chairman,
and, if desired, a Vice Chairman, who shall continue as such
during the pleasure of the Board. The number of members of each
committee shall be determined from time to time by the Board.
SECTION 2. Procedure. Each Committee shall fix its own
rules of procedure and shall meet where and as provided by such
rules. A majority of a committee shall constitute a quorum. In
the absence or disqualification of a member of any committee, the
members of such committee present at any meeting, and not
disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or
disqualified member.
SECTION 3. Reports To The Board. Each Committee shall
keep regular minutes of its proceedings and shall periodically
report to the Board summaries of the Committee's significant
completed actions and such other matters as requested by the
Board.
SECTION 4. Strategic Direction Committee. The Strategic
Direction Committee shall review the Company's strategic
direction and overall objectives and shall have such powers and
perform such duties as may be assigned to it from time to time by
the Board.
4
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EXHIBIT 3.4
SECTION 5. Audit Committee. The Audit Committee shall
employ independent public accountants, subject to stockholder
ratification at each annual meeting, review the adequacy of
internal controls and the accounting principles employed in
financial reporting, and shall have such power and perform such
duties as may be assigned to it from time to time by the Board.
None of the Members of the Audit Committee shall be an officer or
employee of the Company or its subsidiaries.
SECTION 6. Environmental Policy Committee. The
Environmental Policy Committee shall review the Company's
environmental policies and practices and shall have such powers
and perform such duties as may be assigned to it from time to
time by the Board.
SECTION 7. Compensation Committee. The Compensation
Committee shall have the power and authority vested in it by the
Compensation Plans of the Company and shall have such powers and
perform such duties as may be assigned to it from time to time by
the Board. None of the members of the Compensation Committee shall
be an officer or employee of the Company or its subsidiaries.
SECTION 8. Corporate Governance Committee. The
Corporate Governance Committee shall recommend to the Board
nominees for election as directors of the Company. The Committee
shall also have responsibility for reviewing and making
recommendations to the Board related to matters on corporate
governance and shall have such powers and perform such duties as
may be assigned to it from time to time by the Board. None of the
members of the Corporate Governance Committee shall be an officer
or employee of the Company or its subsidiaries.
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE
The Board shall elect an Office of the Chief Executive
whose members shall include the Chairman of the Board, President
and such other officers as may be designated by the Board. The
Office of the Chief Executive shall have responsibility for the
strategic direction and operations of all the businesses of the
Company and shall have such powers and perform such duties as may
be assigned to it from time to time by the Board.
All significant completed actions by the Office of the
Chief Executive shall be reported to the Board at the next
succeeding Board meeting, or at its meeting held in the month
following the taking of such action.
5
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EXHIBIT 3.4
ARTICLE V.
OFFICERS
SECTION 1. Officers. The officers of the Company shall
be a Chairman of the Board, a President, one or more Executive
Vice Presidents, a Senior Vice President - Finance and a
Secretary.
The Board and the Office of the Chief Executive, may
appoint such other officers as they deem necessary, who shall have
such authority and shall perform such duties as may be prescribed,
respectively, by the Board or the Office of the Chief Executive.
SECTION 2. Chairman of the Board. The Chairman of the
Board shall be the chief executive officer of the Company and,
subject to the Board and the Office of the Chief Executive, shall
have general charge of the business and affairs of the Company.
The Chairman shall preside at all meetings of the stockholders and
of the Board. The Chairman may sign and execute all authorized
bonds, contracts or other obligations, in the name of the Company,
and with the Treasurer may sign all certificates of the shares in
the capital stock of the Company.
SECTION 3. President. The President shall have such
powers and perform such other duties as may be assigned to the
President by the Board or the Chairman of the Board. In the
absence or inability to act of the Chairman of the Board, the
President shall perform the duties of the Chairman of the Board.
SECTION 4. Executive Vice Presidents. Each Executive
Vice President shall have such powers and perform such duties as
may be assigned to such Executive Vice President by the Board or
the Office of the Chief Executive.
SECTION 5. Vice Presidents. The Board or the Office of
the Chief Executive may appoint one or more Vice Presidents. Each
Vice President shall have such title, powers and duties as may be
assigned to such Vice President by the Board or the Office of the
Chief Executive.
SECTION 6. Senior Vice President - Finance. The Senior
Vice President - Finance shall be the chief financial officer of
the Company, and shall have such powers and perform such duties as
may be assigned to such Senior Vice President - Finance by the
Board or the Office of the Chief Executive.
SECTION 7. Treasurer. The Board shall appoint a
Treasurer. Under the general direction of the Senior Vice
President - Finance, the Treasurer shall have such powers and
perform such duties as may be assigned to such Treasurer by the
Board or the Office of the Chief Executive.
6
<PAGE>
EXHIBIT 3.4
SECTION 8. Assistant Treasurer. The Board or the Office
of the Chief Executive may appoint one or more Assistant
Treasurers. Each Assistant Treasurer shall have such powers and
shall perform such duties as may be assigned to such Assistant
Treasurer by the Board or the Office of the Chief Executive.
SECTION 9. Controller. The Board may appoint a
Controller. Under the general direction of the Senior Vice
President - Finance, the Controller shall have such powers and
perform such duties as may be assigned to such Controller by the
Board or the Office of the Chief Executive.
SECTION 10. Assistant Controller. The Board or the
Office of the Chief Executive may appoint one or more Assistant
Controllers. Each Assistant Controller shall have such powers and
shall perform such duties as may be assigned to such Assistant
Controller by the Board or the Office of the Chief Executive.
SECTION 11. Secretary. The Secretary shall keep the
minutes of all the meetings of the Board and the minutes of all
the meetings of the stockholders; the Secretary shall attend to
the giving and serving of all notices of meetings as required by
law or these Bylaws; the Secretary shall affix the seal of the
Company to any instruments when so required; and the Secretary
shall in general perform all the corporate duties incident to the
office of Secretary, subject to the control of the Board or the
Chairman of the Board, and such other duties as may be assigned
to the Secretary by the Board or the Chairman of the Board.
SECTION 12. Assistant Secretary. The Board or the
Office of the Chief Executive may appoint one or more Assistant
Secretaries. Each Assistant Secretary shall have such powers and
shall perform such duties as may be assigned to such Assistant
Secretary by the Board or the Chairman of the Board or the
President; and such Assistant Secretary shall affix the seal of
the Company to any instruments when so required.
SECTION 13. Removal. All officers may be removed or
suspended at any time by the vote of the majority of the whole
Board. All officers, agents and employees, other than officers
elected or appointed by the Board, may be suspended or removed by
the committee or by the officer appointing them.
SECTION 14. Resignation. Any officer may resign at any
time by giving written notice to the Chairman of the Board, the
President or the Secretary. Unless otherwise stated in such
notice of resignation, the acceptance thereof shall not be
necessary to make it effective; and such resignation shall take
effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.
SECTION 15. Vacancies. A vacancy in any office shall be
filled in the same manner as provided for election or appointment
to such office.
7
<PAGE>
EXHIBIT 3.4
ARTICLE VI.
MISCELLANEOUS
SECTION 1. Indemnification of Directors or Officers.
Each person who is or was a Director or officer of the Company
(including the heirs, executors, administrators or estate of such
person) shall be indemnified by the Company as of right to the
full extent permitted by the General Corporation Law of Delaware
against any liability, cost or expense asserted against such
Director or officer and incurred by such Director or officer by
reason of the fact that such person is or was a Director or
officer. The right to indemnification conferred by this Section
shall include the right to be paid by the Company the expenses
incurred in defending in any action, suit or proceeding in
advance of its final disposition, subject to the receipt by the
Company of such undertakings as might be required of an
indemnitee by the General Corporation Law of Delaware.
In any action by an indemnitee to enforce a right to
indemnification hereunder or by the Company to recover advances
made hereunder, the burden of proving that the indemnitee is not
entitled to be indemnified shall be on the Company. In such an
action, neither the failure of the Company (including its Board,
independent legal counsel or stockholders) to have made a
determination that indemnification is proper, nor a determination
by the Company that indemnification is improper, shall create a
presumption that the indemnitee is not entitled to be indemnified
or, in the case of such an action brought by the indemnitee, be a
defense thereto. If successful in whole or in part in such an
action, an indemnitee shall be entitled to be paid also the
expense of prosecuting or defending same. The Company may, but
shall not be obligated to, maintain insurance at its expense, to
protect itself and any such person against any such liability,
cost or expense.
SECTION 2. Certificate for Shares. The shares of the
capital stock of the Company shall be represented by certificates
unless the Company provides by appropriate action that some or all
of any or all classes or series of the Company's stock shall be
uncertificated. Notwithstanding the Company's taking such action,
to the extent required by law, every holder of stock represented
by certificates and, upon request, every holder of uncertificated
shares, shall be entitled to a certificate representing the number
of shares in the Company owned by such stockholder in such form,
not inconsistent with the Certificate of Incorporation, as shall
be prescribed by the Board. Certificates representing shares of
the capital stock of the Company shall be signed by the Chairman
of the Board, President or an Executive Vice President and the
Treasurer, Secretary or an Assistant Secretary. Any or all
signatures on the certificate, including those of the Transfer
Agent and Registrar, may be facsimile.
8
<PAGE>
EXHIBIT 3.4
The name of the person owning the shares represented
thereby, with the number of such shares and the date of issue,
shall be entered on the Company's books.
All certificates surrendered to the Company shall be
cancelled, and no new certificates shall be issued until the
former certificate for the same number of shares of the same
class shall have been surrendered and cancelled, except that the
Board may determine, from time to time, the conditions and
provisions on which new certificates may be used in substitution
of any certificates that may have been lost, stolen or destroyed.
SECTION 3. Transfer of Shares. Shares in the capital
stock of the Company shall be transferred by the record holder
thereof, in person, or by any such person's attorney upon
surrender and cancellation of certificates for a like number of
shares.
SECTION 4. Regulations. The Board also may make rules
and regulations concerning the issue, transfer and registration
of certificates for shares of the capital stock of the Company.
The Board may appoint one or more transfer agents and
one or more registrars of transfers, and may require all stock
certificates to bear the signature of a transfer agent and a
registrar of transfer.
SECTION 5. Record Date of Stockholders. The Board may
fix in advance a date, not exceeding sixty days preceding the
date of any meeting of stockholders, or the date for the payment
of any dividend or other distribution, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date
for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting, or entitled to receive payment
of any such dividend or other distribution, or to any such
allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, and in such
case only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to
vote at, such meeting, or to receive any such dividend or other
distribution, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Company after such
record date fixed as aforesaid.
SECTION 6. Corporate Seal. The seal of the Company
shall be circular in form, containing the words "E. I. DU PONT DE
NEMOURS AND CO." and "DELAWARE" on the circumference, surrounding
the words "FOUNDED" and "SEAL," and the date "1802."
9
<PAGE>
EXHIBIT 3.4
The seal shall be in the custody of the Secretary. A
duplicate of the seal may be kept and used by the Senior Vice
President - Finance, any Vice President - DuPont Finance, the
Treasurer, or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VII.
AMENDMENTS
The Board shall have the power to adopt, amend and
repeal the Bylaws of the Company, by a vote of the majority of
the whole Board, at any regular or special meeting of the Board,
provided that notice of intention to adopt, amend or repeal the
Bylaws in whole or in part shall have been given at the next
preceding meeting, or, without any such notice, by the vote of
two-thirds of the whole Board.
I hereby certify that the foregoing is a true and correct copy of
the Bylaws of E. I. du Pont de Nemours and Company.
Witness my hand and the corporate seal of the Company this
day of 199 .
- ------------ ------------------ --
----------------------------
Secretary
10
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
------------------------------------
Incorporated Under The Laws of Delaware
AS REVISED February 1, 1998
<PAGE>
EXHIBIT 3.5
BYLAWS
Page
----
ARTICLE I.
MEETING OF STOCKHOLDERS:
Section 1. Annual 1
Section 2. Special 1
Section 3. Notice 1
Section 4. Quorum 1
Section 5. Organization 1
Section 6. Voting 2
Section 7. Inspectors 2
ARTICLE II.
BOARD OF DIRECTORS:
Section 1. Number 2
Section 2. Term 2
Section 3. Increase of Number 2
Section 4. Resignation 2
Section 5. Vacancies 2
Section 6. Regular Meetings 2
Section 7. Special Meetings 3
Section 8. Quorum 3
Section 9. Place of Meeting, Etc. 3
Section 10. Interested Directors; Quorum 3
ARTICLE III.
COMMITTEES OF THE BOARD:
Section 1. Committees 4
Section 2. Procedure 4
Section 3. Reports to the Board 4
Section 4. Strategic Direction Committee 4
Section 5. Audit Committee 5
Section 6 Environmental Policy Committee 5
Section 7. Compensation Committee 5
Section 8. Corporate Governance Committee 5
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE 5
<PAGE>
EXHIBIT 3.5
Page
----
ARTICLE V.
OFFICERS:
Section 1. Officers 6
Section 2. Chairman of the Board 6
Section 3. President 6
Section 4. Executive Vice Presidents 6
Section 5. Vice Presidents 6
Section 6. Senior Vice President - Finance 6
Section 7. Treasurer 6
Section 8. Assistant Treasurer 7
Section 9. Controller 7
Section 10. Assistant Controller 7
Section 11. Secretary 7
Section 12. Assistant Secretary 7
Section 13. Removal 7
Section 14. Resignation 7
Section 15. Vacancies 7
ARTICLE VI.
MISCELLANEOUS:
Section 1. Indemnification of Directors or Officers 8
Section 2. Certificate for Shares 8
Section 3. Transfer of Shares 9
Section 4. Regulations 9
Section 5. Record Date of Stockholders 9
Section 6. Corporate Seal 9
ARTICLE VII.
AMENDMENTS 10
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
E. I. DU PONT DE NEMOURS AND COMPANY
ARTICLE I.
MEETING OF STOCKHOLDERS
SECTION 1. Annual. Meetings of the stockholders for the
purpose of electing Directors, and transacting such other proper
business as may be brought before the meeting, shall be held
annually at such date, time and place, within or without the
State of Delaware as may be designated by the Board of Directors
("Board").
SECTION 2. Special. Special meetings of the stockholders
may be called by the Board and shall be called by the Secretary
at the request in writing of the holders of record of at least
twenty-five percent of the outstanding stock of the corporation
entitled to vote. Special meetings shall be held within or
without the State of Delaware, as the Board shall designate.
SECTION 3. Notice. Written notice of each meeting of
stockholders, stating the place, date and hour of the meeting,
and the purpose or purposes thereof, shall be mailed not less
than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
SECTION 4. Quorum. Unless otherwise provided by statute,
the holders of shares of stock entitled to cast a majority of
votes at a meeting, present either in person or by proxy, shall
constitute a quorum at such meeting.
Absence of a quorum of the holders of Common Stock or
Preferred Stock at any meeting or adjournment thereof, at which
under the Certificate of Incorporation the holders of Preferred
Stock have the right to elect any Directors, shall not prevent
the election of Directors by the other class of stockholders
entitled to elect Directors as a class if the necessary quorum
of stockholders of such other class shall be present in person
or by proxy.
SECTION 5. Organization. The Chairman of the Board or,
in the Chairman's absence, the President shall preside at
meetings of stockholders. The Secretary of the Company shall act
as Secretary of all meetings of the stockholders, but in the
absence of the Secretary the presiding officer may appoint a
Secretary of the meeting. The order of business for such
meetings shall be determined by the Chairman of the Board, or,
in the Chairman's absence, by the President.
1
<PAGE>
EXHIBIT 3.5
SECTION 6. Voting. Each stockholder entitled to vote at
any meeting shall be entitled to one vote, in person or by written
proxy, for each share held of record. Upon the demand of any
stockholder, such stockholder shall be entitled to vote by ballot.
All elections and questions shall be decided by plurality vote,
except as otherwise required by statute.
SECTION 7. Inspectors. At each meeting of the
stockholders the polls shall be opened and closed; the proxies
and ballots shall be received and be taken in charge, and all
questions touching the qualification of voters and the validity
of proxies, and the acceptance or rejection of votes shall be
decided by three Inspectors, two of whom shall have power to make
a decision. Such Inspectors shall be appointed by the Board
before the meeting, or in default thereof, by the presiding
officer at the meeting, and shall be sworn to the faithful
performance of their duties. If any of the Inspectors previously
appointed shall fail to attend or refuse or be unable to serve,
substitutes shall be appointed by the presiding officer.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. Number. The business and affairs of the
Company shall be under the direction of the Board. The number of
Directors, which shall not be less than ten, shall be determined
from time to time by the vote of two-thirds of the whole Board.
SECTION 2. Term. Each Director shall hold office until
the next annual election of Directors and until the Director's
successor is elected and qualified.
SECTION 3. Increase of Number. In case of any increase
in the number of Directors between Annual Meetings of
Stockholders, each additional Director shall be elected by the
vote of two-thirds of the whole Board.
SECTION 4. Resignation. A Director may resign at any
time by giving written notice to the Chairman of the Board or the
Secretary. The acceptance thereof shall not be necessary to make
it effective; and such resignation shall take effect at the time
specified therein or, in the absence of such specification, it
shall take effect upon the receipt thereof.
SECTION 5. Vacancies. In case of any vacancy in the
Board for any cause, the remaining Directors, by vote of majority
of the whole Board, may elect a successor to hold office for the
unexpired term of the Director whose place is vacant.
SECTION 6. Regular Meetings. Regular meetings of the
Board shall be held at such times as the Board may designate. A
notice of each regular meeting shall not be required.
2
<PAGE>
EXHIBIT 3.5
SECTION 7. Special Meetings. Special meetings of the
Board shall be held whenever called by the direction of the
Chairman of the Board, or of one-third of the Directors.
The Secretary shall give notice of such special
meetings by mailing the same at least two days before the
meeting, or by telegraphing the same at least one day before the
meeting to each Director; but such notice may be waived by any
Director. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting. At any
meeting at which every Director shall be present, any business
may be transacted, irrespective of notice.
SECTION 8. Quorum. One-third of the Board shall
constitute a quorum. If there be less than a quorum present at
any meeting, a majority of those present may adjourn the meeting
from time to time.
Except as otherwise provided by law, the Certificate of
Incorporation, or by these Bylaws, the affirmative vote of a
majority of the Directors present at any meeting at which there
is a quorum shall be necessary for the passage of any resolution.
SECTION 9. Place of Meeting, Etc. The Directors shall
hold the meetings, and may have an office or offices in such
place or places within or outside the State of Delaware as the
Board from time to time may determine.
SECTION 10. Interested Directors; Quorum
1) No contract or other transaction between the Company and
one or more of its Directors, or between the Company and any
other corporation, partnership, association, or other
organization in which one or more of the Directors of the Company
is a Director or officer, or has a financial interest, shall be
void or voidable, because the Director is present at or
participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because
such Director's vote is counted for such purpose, if:
(a) the material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the
Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors
be less than a quorum; or
(b) the material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by vote of the stockholders; or
3
<PAGE>
EXHIBIT 3.5
(c) the contract or transaction is fair as to the Company
as of the time it is authorized, approved or ratified, by the
Board, a committee thereof, or the stockholders; and
2) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board or
of a committee which authorizes the contract or transaction.
ARTICLE III.
COMMITTEES OF THE BOARD
SECTION 1. Committees. The Board shall by the
affirmative vote of a majority of the whole Board, elect from the
Directors a Strategic Direction Committee, an Audit Committee, an
Environmental Policy Committee, a Compensation Committee, and a
Corporate Governance Committee and may, by resolution passed by a
majority of the whole Board, designate one or more additional
committees, each committee to consist of one or more Directors.
The Board shall designate for each of these committees a Chairman,
and, if desired, a Vice Chairman, who shall continue as such
during the pleasure of the Board. The number of members of each
committee shall be determined from time to time by the Board.
SECTION 2. Procedure. Each Committee shall fix its own
rules of procedure and shall meet where and as provided by such
rules. A majority of a committee shall constitute a quorum. In
the absence or disqualification of a member of any committee, the
members of such committee present at any meeting, and not
disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or
disqualified member.
SECTION 3. Reports To The Board. Each Committee shall
keep regular minutes of its proceedings and shall periodically
report to the Board summaries of the Committee's significant
completed actions and such other matters as requested by the
Board.
SECTION 4. Strategic Direction Committee. The Strategic
Direction Committee shall review the Company's strategic
direction and overall objectives and shall have such powers and
perform such duties as may be assigned to it from time to time by
the Board.
4
<PAGE>
EXHIBIT 3.5
SECTION 5. Audit Committee. The Audit Committee shall
employ independent public accountants, subject to stockholder
ratification at each annual meeting, review the adequacy of
internal controls and the accounting principles employed in
financial reporting, and shall have such power and perform such
duties as may be assigned to it from time to time by the Board.
None of the Members of the Audit Committee shall be an officer or
employee of the Company or its subsidiaries.
SECTION 6. Environmental Policy Committee. The
Environmental Policy Committee shall review the Company's
environmental policies and practices and shall have such powers
and perform such duties as may be assigned to it from time to
time by the Board.
SECTION 7. Compensation Committee. The Compensation
Committee shall have the power and authority vested in it by the
Compensation Plans of the Company and shall have such powers and
perform such duties as may be assigned to it from time to time by
the Board. None of the members of the Compensation Committee shall
be an officer or employee of the Company or its subsidiaries.
SECTION 8. Corporate Governance Committee. The
Corporate Governance Committee shall recommend to the Board
nominees for election as directors of the Company. The Committee
shall also have responsibility for reviewing and making
recommendations to the Board related to matters on corporate
governance and shall have such powers and perform such duties as
may be assigned to it from time to time by the Board. None of the
members of the Corporate Governance Committee shall be an officer
or employee of the Company or its subsidiaries.
ARTICLE IV.
OFFICE OF THE CHIEF EXECUTIVE
The Board shall elect an Office of the Chief Executive
whose members shall include the President and such other officers
as may be designated by the Board. The Office of the Chief
Executive shall have responsibility for the strategic direction
and operations of all the businesses of the Company and shall have
such powers and perform such duties as may be assigned to it from
time to time by the Board.
All significant completed actions by the Office of the
Chief Executive shall be reported to the Board at the next
succeeding Board meeting, or at its meeting held in the month
following the taking of such action.
5
<PAGE>
EXHIBIT 3.5
ARTICLE V.
OFFICERS
SECTION 1. Officers. The officers of the Company shall
be a Chairman of the Board, a President, one or more Executive
Vice Presidents, a Senior Vice President - Finance and a
Secretary.
The Board and the Office of the Chief Executive, may
appoint such other officers as they deem necessary, who shall have
such authority and shall perform such duties as may be prescribed,
respectively, by the Board or the Office of the Chief Executive.
SECTION 2. Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the stockholders and of the
Board. The Chairman may sign and execute all authorized bonds,
contracts or other obligations, in the name of the Company, and
with the Treasurer may sign all certificates of the shares in the
capital stock of the Company.
SECTION 3. President. The President shall be the chief
executive officer of the Company and, subject to the Board and the
Office of the Chief Executive, shall have general charge of the
business and affairs of the Company and perform such other duties
as may be assigned to the President by the Board or the Chairman
of the Board. In the absence or inability to act of the Chairman
of the Board, the President shall perform the duties of the
Chairman of the Board.
SECTION 4. Executive Vice Presidents. Each Executive
Vice President shall have such powers and perform such duties as
may be assigned to such Executive Vice President by the Board or
the Office of the Chief Executive.
SECTION 5. Vice Presidents. The Board or the Office of
the Chief Executive may appoint one or more Vice Presidents. Each
Vice President shall have such title, powers and duties as may be
assigned to such Vice President by the Board or the Office of the
Chief Executive.
SECTION 6. Senior Vice President - Finance. The Senior
Vice President - Finance shall be the chief financial officer of
the Company, and shall have such powers and perform such duties as
may be assigned to such Senior Vice President - Finance by the
Board or the Office of the Chief Executive.
SECTION 7. Treasurer. The Board shall appoint a
Treasurer. Under the general direction of the Senior Vice
President - Finance, the Treasurer shall have such powers and
perform such duties as may be assigned to such Treasurer by the
Board or the Office of the Chief Executive.
6
<PAGE>
EXHIBIT 3.5
SECTION 8. Assistant Treasurer. The Board or the Office
of the Chief Executive may appoint one or more Assistant
Treasurers. Each Assistant Treasurer shall have such powers and
shall perform such duties as may be assigned to such Assistant
Treasurer by the Board or the Office of the Chief Executive.
SECTION 9. Controller. The Board may appoint a
Controller. Under the general direction of the Senior Vice
President - Finance, the Controller shall have such powers and
perform such duties as may be assigned to such Controller by the
Board or the Office of the Chief Executive.
SECTION 10. Assistant Controller. The Board or the
Office of the Chief Executive may appoint one or more Assistant
Controllers. Each Assistant Controller shall have such powers and
shall perform such duties as may be assigned to such Assistant
Controller by the Board or the Office of the Chief Executive.
SECTION 11. Secretary. The Secretary shall keep the
minutes of all the meetings of the Board and the minutes of all
the meetings of the stockholders; the Secretary shall attend to
the giving and serving of all notices of meetings as required by
law or these Bylaws; the Secretary shall affix the seal of the
Company to any instruments when so required; and the Secretary
shall in general perform all the corporate duties incident to the
office of Secretary, subject to the control of the Board or the
Chairman of the Board, and such other duties as may be assigned
to the Secretary by the Board or the Chairman of the Board.
SECTION 12. Assistant Secretary. The Board or the
Office of the Chief Executive may appoint one or more Assistant
Secretaries. Each Assistant Secretary shall have such powers and
shall perform such duties as may be assigned to such Assistant
Secretary by the Board or the Chairman of the Board or the
President; and such Assistant Secretary shall affix the seal of
the Company to any instruments when so required.
SECTION 13. Removal. All officers may be removed or
suspended at any time by the vote of the majority of the whole
Board. All officers, agents and employees, other than officers
elected or appointed by the Board, may be suspended or removed by
the committee or by the officer appointing them.
SECTION 14. Resignation. Any officer may resign at any
time by giving written notice to the Chairman of the Board, the
President or the Secretary. Unless otherwise stated in such
notice of resignation, the acceptance thereof shall not be
necessary to make it effective; and such resignation shall take
effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.
SECTION 15. Vacancies. A vacancy in any office shall be
filled in the same manner as provided for election or appointment
to such office.
7
<PAGE>
EXHIBIT 3.5
ARTICLE VI.
MISCELLANEOUS
SECTION 1. Indemnification of Directors or Officers.
Each person who is or was a Director or officer of the Company
(including the heirs, executors, administrators or estate of such
person) shall be indemnified by the Company as of right to the
full extent permitted by the General Corporation Law of Delaware
against any liability, cost or expense asserted against such
Director or officer and incurred by such Director or officer by
reason of the fact that such person is or was a Director or
officer. The right to indemnification conferred by this Section
shall include the right to be paid by the Company the expenses
incurred in defending in any action, suit or proceeding in
advance of its final disposition, subject to the receipt by the
Company of such undertakings as might be required of an
indemnitee by the General Corporation Law of Delaware.
In any action by an indemnitee to enforce a right to
indemnification hereunder or by the Company to recover advances
made hereunder, the burden of proving that the indemnitee is not
entitled to be indemnified shall be on the Company. In such an
action, neither the failure of the Company (including its Board,
independent legal counsel or stockholders) to have made a
determination that indemnification is proper, nor a determination
by the Company that indemnification is improper, shall create a
presumption that the indemnitee is not entitled to be indemnified
or, in the case of such an action brought by the indemnitee, be a
defense thereto. If successful in whole or in part in such an
action, an indemnitee shall be entitled to be paid also the
expense of prosecuting or defending same. The Company may, but
shall not be obligated to, maintain insurance at its expense, to
protect itself and any such person against any such liability,
cost or expense.
SECTION 2. Certificate for Shares. The shares of the
capital stock of the Company shall be represented by certificates
unless the Company provides by appropriate action that some or all
of any or all classes or series of the Company's stock shall be
uncertificated. Notwithstanding the Company's taking such action,
to the extent required by law, every holder of stock represented
by certificates and, upon request, every holder of uncertificated
shares, shall be entitled to a certificate representing the number
of shares in the Company owned by such stockholder in such form,
not inconsistent with the Certificate of Incorporation, as shall
be prescribed by the Board. Certificates representing shares of
the capital stock of the Company shall be signed by the Chairman
of the Board, President or an Executive Vice President and the
Treasurer, Secretary or an Assistant Secretary. Any or all
signatures on the certificate, including those of the Transfer
Agent and Registrar, may be facsimile.
8
<PAGE>
EXHIBIT 3.5
The name of the person owning the shares represented
thereby, with the number of such shares and the date of issue,
shall be entered on the Company's books.
All certificates surrendered to the Company shall be
cancelled, and no new certificates shall be issued until the
former certificate for the same number of shares of the same
class shall have been surrendered and cancelled, except that the
Board may determine, from time to time, the conditions and
provisions on which new certificates may be used in substitution
of any certificates that may have been lost, stolen or destroyed.
SECTION 3. Transfer of Shares. Shares in the capital
stock of the Company shall be transferred by the record holder
thereof, in person, or by any such person's attorney upon
surrender and cancellation of certificates for a like number of
shares.
SECTION 4. Regulations. The Board also may make rules
and regulations concerning the issue, transfer and registration
of certificates for shares of the capital stock of the Company.
The Board may appoint one or more transfer agents and
one or more registrars of transfers, and may require all stock
certificates to bear the signature of a transfer agent and a
registrar of transfer.
SECTION 5. Record Date of Stockholders. The Board may
fix in advance a date, not exceeding sixty days preceding the
date of any meeting of stockholders, or the date for the payment
of any dividend or other distribution, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date
for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting, or entitled to receive payment
of any such dividend or other distribution, or to any such
allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, and in such
case only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to
vote at, such meeting, or to receive any such dividend or other
distribution, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Company after such
record date fixed as aforesaid.
SECTION 6. Corporate Seal. The seal of the Company
shall be circular in form, containing the words "E. I. DU PONT DE
NEMOURS AND CO." and "DELAWARE" on the circumference, surrounding
the words "FOUNDED" and "SEAL," and the date "1802."
9
<PAGE>
EXHIBIT 3.5
The seal shall be in the custody of the Secretary. A
duplicate of the seal may be kept and used by the Senior Vice
President - Finance, any Vice President - DuPont Finance, the
Treasurer, or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VII.
AMENDMENTS
The Board shall have the power to adopt, amend and
repeal the Bylaws of the Company, by a vote of the majority of
the whole Board, at any regular or special meeting of the Board,
provided that notice of intention to adopt, amend or repeal the
Bylaws in whole or in part shall have been given at the next
preceding meeting, or, without any such notice, by the vote of
two-thirds of the whole Board.
I hereby certify that the foregoing is a true and correct copy of
the Bylaws of E. I. du Pont de Nemours and Company.
Witness my hand and the corporate seal of the Company this
day of 199 .
- ------------ ------------------ --
----------------------------
Secretary
10
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
E. I. DU PONT DE NEMOURS AND COMPANY
CALCULATION OF EARNINGS PER SHARE
(RESTATED FOR TWO-FOR-ONE STOCK SPLIT EFFECTIVE MAY 15, 1997)
-------------------------------------------------------------
(Dollars in millions, except per share)
Years Ended December 31
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income less dividends on
preferred stock ................ $2,395 $3,626 $3,283 $2,717 $545
============= ============= ============= ============= =============
Average number of common shares
(excludes treasury stock and
the shares held by DuPont
Flexitrust) - Basic ............ 1,130,755,483 1,121,350,592 1,170,214,952 1,359,999,832 1,353,244,230
Shares assumed to be issued due
to stock options ............... 19,047,967 18,472,163 13,193,507 11,201,887 9,912,033
------------- ------------- ------------- ------------- -------------
Adjusted average number of common
shares and share equivalents
- Diluted ...................... 1,149,803,450 1,139,822,755 1,183,408,459 1,371,201,719 1,363,156,263
============= ============= ============= ============= =============
Earnings per share:
- Diluted ...................... $ 2.08 $ 3.18 $ 2.77 $ 1.98 $.41
============= ============= ============= ============= =============
- Basic ........................ $ 2.12 $ 3.23 $ 2.81 $ 2.00 $.41
============= ============= ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
E. I. DU PONT DE NEMOURS AND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Income ........................................... $2,405 $3,636 $3,293 $2,727 $ 566(a)
Provision for Income Taxes ........................... 2,275 2,345 2,097 1,655 392
Minority Interests in Earnings of Consolidated
Subsidiaries ....................................... 67 59 30 18 5
Adjustment for Companies Accounted for
by the Equity Method ............................... 982(b) 81 41 18 41
Capitalized Interest ................................. (169) (144) (170) (143) (194)
Amortization of Capitalized Interest ................. 138(c) 191(c) 154 154 144
------ ------ ------ ------ ------
5,698 6,168 5,445 4,429 954
------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense .......................... 662 729 758 559 594
Adjustment for Companies Accounted for by
the Equity Method - Interest and Debt Expense .... 97 70 71 55 42
Capitalized Interest ............................... 169 144 170 143 194
Rental Expense Representative of Interest Factor ... 127 118 113 118 143
------ ------ ------ ------ ------
1,055 1,061 1,112 875 973
------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ...................................... $6,753 $7,229 $6,557 $5,304 $1,927
====== ====== ====== ====== ======
Number of Times Fixed Charges Are Earned ............. 6.4 6.8 5.9 6.1 2.0
====== ====== ====== ====== ======
- -------------------------------
(a) Income Before Extraordinary Item and Transition Effect of Accounting Changes.
(b) Includes write-off of Purchased In-Process Research and Development associated
with acquisition of a 20% interest in Pioneer Hi-Bred International, Inc.
(c) Includes write-off of capitalized interest associated with divested businesses.
</TABLE>
<PAGE>
EXHIBIT 13
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
In 1997, DuPont achieved a 30 percent total shareholder return. We posted our
fourth consecutive year of record earnings, excluding nonrecurring items. And we
announced $7 billion in acquisitions that will further strengthen our position
in the chemicals, energy and specialties markets, while opening tremendous new
potential for our life sciences businesses.
Net income for the year before nonrecurring items was $4.1 billion, or basic
earnings per share of $3.61, compared with $3.7 billion, or $3.32 per share in
1996. Overall, we achieved excellent financial performance. Despite a 7 percent
negative impact on earnings from currency fluctuations, and 8 percent lower
crude oil prices, earnings per share grew 9 percent. Reported net income for the
year was $2.4 billion, or basic earnings per share of $2.12, compared with $3.6
billion, or $3.23 per share in 1996.
Certain business areas stand out from the rest in terms of earnings
contribution. Higher volumes and, in some cases, improved pricing led to
increases in specialty fibers -- Lycra(R) spandex, Tyvek(R) and Sontara(R)
nonwovens and Kevlar(R) and Nomex(R) fibers. Photopolymers and electronic
materials -- one of our high growth businesses -- was also a strong performer.
Automotive products and Dacron(R) polyester both had an excellent year. In the
energy sector, downstream petroleum (a business targeted in 1997 for major
improvement) showed the greatest gain, while upstream achieved its highest-ever
earnings.
A clear sense of direction
DuPont is a chemical, materials and energy company that derives its
competitive advantage from technological strengths in chemistry and chemical
engineering, biotechnology, and geology. Our chemicals and specialties
businesses are world class with strong core technology platforms, leading market
and cost positions, value-added products, global presence and financial
strength. The DuPont superbrand is among the most recognized in the world, and
our many brand franchises offer unparalleled opportunity for our businesses in
established and developing markets.
After years of streamlining our businesses and restructuring both our
portfolio and the way we work, DuPont is less susceptible to the impact of
chemical and petroleum industry cycles. Even in the present uncertain times we
remain committed to delivering record performance. Our target of 15 percent
total annual return to shareholders over time remains unchanged.
Strategies translated into actions
We have restructured our chemicals and specialties portfolio to focus on
those businesses where we can be number one or a strong number two globally,
based on clear technological advantages that provide profitable growth. During
1997, we took bold steps in acquiring several businesses from ICI. These
acquisitions will propel our polyester business by providing a very strong
ingredients position based on world class technology and by substantially
strengthening our polyester films and resins businesses. The pending purchase of
ICI's considerable titanium dioxide assets will allow us to lead the world in
white pigments and accelerate our growth in both Europe and Asia.
In energy, Conoco is well along its path to doubling its value by 2003. In
Venezuela, we established and completed financing on a joint venture that will
give us access to major oil reserves for many years. In addition, the
acquisition of natural gas fields in the Lobo Trend of South Texas represents a
potential 70 percent increase in Conoco's U.S. gas reserves when fully
developed. Conoco's worldwide proven reserves were up 38 percent, the largest
single-year increase in Conoco's history, and a fourfold increase over
production. By 1999, we expect a 15 percent increase in Conoco's production from
these and earlier strategic initiatives.
Among our most exciting future prospects is the growth we anticipate in our
life sciences businesses. We are one of the world's industrial leaders in
biotechnology and expect life sciences to account for at least 30 percent of
earnings by 2002. About
1
<PAGE>
one-third of our annual research and development expenditure is focused on these
businesses. In 1997, we strengthened our position in the feed, food and
industrial materials markets through an alliance with seed company Pioneer Hi-
Bred International and through the purchase of Protein Technologies
International from Ralston Purina. These actions will clearly strengthen our
position as one of the top suppliers of crop protection and enhanced food and
feed products worldwide.
Synergy between our life sciences and materials businesses
We believe that the application of biotechnology will redefine our company
in the coming decades. While currently applied largely in the pharmaceuticals,
food and feed businesses, biotechnology also has enormous potential in our
traditional materials businesses. We expect that we will eventually produce
chemicals and specialty products from plants and microorganisms instead of
petrochemicals. By maintaining world class efforts in biotechnology and applying
them to both the life sciences and traditional chemical businesses, DuPont is
uniquely positioned to capture the full potential of biotechnology long term for
our shareholders.
Portfolio adjustments and productivity improvements -- a way of life
As we aggressively expanded the most promising parts of our portfolio, we
divested several units that we believed could not achieve the necessary global
competitiveness to meet profitable growth goals. During the past five years, we
divested, placed into joint ventures, or made an initial public offering of
businesses representing more than $4 billion of revenue. This includes the
divestitures announced in 1997, among them the sale of parts of the printing and
publishing unit, which was targeted in last year's annual report. Where
appropriate, we will continue to make changes to achieve greater value from our
portfolio.
Our productivity improvement over the last five years has been substantial
and
2
<PAGE>
- ----------------------------------------------------------------------
necessary to achieve globally competitive businesses. The focus today is on
cost reduction and asset productivity as well as revenue growth. The next step
change in productivity will come this year from further streamlining the
administrative work in our company and from cost and capital effectiveness by
accelerating efforts to improve yield and uptime.
Record year for safety and environmental performance
One of the most remarkable accomplishments during a year of considerable
challenge and change occurred in safety and environmental performance. The
people of our company achieved their best year ever in overall safety and
environmental performance.
Employee injuries and illnesses were down 27 percent globally over 1996
figures and down 60 percent since the early 1990s. Conoco was down more than 70
percent since the early 1990s. Among our contractors, there was a 45 percent
reduction over the past three years. This improvement builds on our own record
levels of performance, with DuPont nearly 30 times better than the U.S. industry
average.
Total releases to air, land and water and underground injection wells as
recorded in the most recent data submitted to the U.S. Environmental Protection
Agency are down 20 percent over the prior year and nearly 80 percent lower than
our 1987 base year. These achievements in safety and the environment are
something that each employee has a direct impact on every day, and we
congratulate them and thank them for their commitment and resulting success. Our
goal remains zero for all accidents and environmental incidents.
1998 -- Opportunities outweigh challenges
The challenges of 1998 are already apparent in light of lower petroleum
prices, the Asian economic turmoil, and the earnings dilution we face from our
rapid pace of acquisitions. But given the cost reductions, restructuring and
portfolio realignment of the past years, our prospects are vastly improved
regardless of economic conditions. In fact, opportunities for us this year
outweigh the challenges. Among the positive signs for the current year in the
chemicals and specialties businesses:
. The economies of the United States and Europe are projected to remain strong.
These regions account for 80 percent of our sales, and we believe that volume
growth is attainable in 1998.
. Pricing in local currency for chemicals and specialties products increased in
the fourth quarter of 1997, versus the fourth quarter of 1996. Currency should
be less of a factor in 1998.
. The lower prices for petroleum and natural gas mean lower raw material costs
for our chemicals businesses.
21st century team in place
In late 1997 we put in place the senior management that will lead DuPont
into the 21st century. Many of the business leaders are from the new generation
of executives with global experience. These men and women have a strong external
focus, are veterans of global competition and have specific and challenging
objectives. We are relying on the outstanding abilities and commitment to
success of all of DuPont's people in discovery, manufacturing, marketing and
customer service. We greatly appreciate their creativity and enthusiasm which
keeps us on a winning path in a very dynamic, challenging global market.
In spite of competitive pressures and changing business environments in many
regions of the world, we see enough opportunities to deliver another record year
in 1998. The task before us is to maintain solid fundamental business
performance as we create the innovations to deliver the results that our
shareholders expect from their company.
/s/ John A. Krol /s/ Charles O. Holliday, Jr.
John A. Krol Charles O. Holliday, Jr.
Chairman of the Board President and Chief Executive Officer
February 27, 1998
3
<PAGE>
CHEMICALS
The Chemicals segment includes a wide range of commodity and specialty products
such as titanium dioxide, fluorochemicals and polymer intermediates used in the
paper, plastics, chemical processing, refrigeration, textile and environmental
management industries. Principal products include Ti-Pure(R) titanium dioxide
white pigments, Suva(R) refrigerants, Formacel(R) blowing agents, Vertrel(R)
cleaning agents, Dymel(R) aerosol propellants and fire extinguishants.
FIBERS
A diversified mix of specialty fibers is produced to serve end uses ranging from
protective apparel, active sportswear and packaging to high-strength composites
in aerospace. High-volume fibers are produced for apparel and home fabrics,
carpeting and industrial applications. Some principal products include Lycra(R)
brand spandex, Stainmaster(R) and Antron(R) nylon carpet fibers, Cordura(R) and
Tactel(R) nylon yarns, and polyester fibers for fabrics and filling including
Dacron(R), Micromattique(R), Thermax(R) and CoolMax(R). Nonwoven products
include Tyvek(R) spunbonded olefin, Typar(R) spunbonded polypropylene and
Sontara(R) spunlaced products. Advanced fibers are Kevlar(R) brand fiber,
Nomex(R) brand fiber and paper, and Teflon(R) brand fluoropolymer fiber.
POLYMERS
The Polymers segment includes engineering polymers, fluoropolymers, ethylene
polymers, finishes and performance films for industries such as packaging,
construction, chemical processing, electrical, paper, textiles and
transportation; the automotive businesses, which are engaged in manufacturing
and marketing more than 100 DuPont product lines used by the automotive
industry; and DuPont Dow Elastomers, a 50 percent-owned joint venture. Principal
products of Polymers include Teflon(R) and Tefzel(R) fluoropolymers,
SilverStone(R) non-stick finishes, Tedlar(R) polyvinyl fluoride film, Zytel(R)
nylon resins, Hytrel(R) polyester elastomer, Crastin(R) polyester resins,
Delrin(R) acetal resins, Tynex(R) nylon filaments, Centari(R) and Imron(R)
automotive finishes, Butacite(R) safety glass interlayer and Corian(R) surfaces.
8
<PAGE>
PETROLEUM
Petroleum operations are carried out by Conoco. The "upstream" part of the
business finds, develops and produces crude oil and natural gas, and processes
natural gas to recover higher-value liquids. The "downstream" part of the
business includes the refining of crude oil and other feedstocks into petroleum
products, trading in crude oil and products, and distribution and marketing of
high-quality fuels, motor oils and other products, including industrial
lubricants, petroleum coke and intermediates for use in making petrochemicals.
Brands include Conoco(R), Seca(R) and Jet(R) gasolines and motor oils,
Hydroclear/TM/ lubricants, and LiquidPower/TM/ flow improver. Conoco also has a
growing presence in the power generation business.
LIFE SCIENCES
Life Sciences consists of Agricultural Products, with a focus on crop protection
chemicals and an increasing role in biotechnology and food; and Pharmaceuticals,
which includes DuPont's 50 percent interest in The DuPont Merck Pharmaceutical
Co. Principal agricultural products include Optimum(R) modified corn and
soybeans, the herbicides Basis(R) Gold(R) and Accent(R) for corn, Classic(R),
Canopy(R) and Synchrony(R) for soybeans, Glean(R) and Ally(R) for cereals,
Londax(R) for rice, Staple(R) for cotton, and a range of fungicides and
insecticides. Pharmaceutical products include Coumadin(R) anticoagulant,
Cozaar(R) antihypertensive, Sinemet(R) antiparkinsons, Symmetrel(R) antiviral
and antiparkinsons, Cardiolite(R) cardiac imaging agents, and Neurolite(R)
brain-imaging agents.
DIVERSIFIED
Diversified Businesses include polyester intermediates, resins and films,
photopolymer and electronic materials, and CONSOL, a coal operation owned 50
percent by DuPont. Principal products include Cronar(R) and Mylar(R) polyester
films, Kapton(R) polyimide film, Teflon(R) fluoropolymer film, Crystar(R) and
Melinar(R) polyester resins, Melinex(R) polyester film, Petretec/SM/ polyester
regeneration technology, Riston(R) photoresists, Birox(R) microcircuit
materials, Pyralux(R) flexible laminates, Cyrel(R) flexographic printing plates,
Cromalin(R) color proofing systems, photomask imaging products, and Fodel(R)
photoimageable compositions for flat panel displays.
9
<PAGE>
Management's Discussion and Analysis
This review and discussion of financial performance should be read in
conjunction with the letter to stockholders (pages 1-3), segment profiles
(pages 8-9) and consolidated financial statements (pages 31-53).
Analysis of Operations
SALES
Sales in 1997 were a record $45.1 billion, up 3 percent from 1996. Petroleum
segment sales were $21.0 billion compared to $20.2 billion in 1996, up 4
percent. This reflects higher U.S. downstream margins and volumes, increased
natural gas volumes outside the United States, and higher U.S. natural gas
prices. Worldwide crude oil prices averaged 8 percent lower, while natural gas
prices were up 10 percent. Sales for the combined chemicals and specialties
segments (Chemicals, Fibers, Polymers, Life Sciences and Diversified Businesses)
were $24.1 billion, up 2 percent. Sales outside of the United States comprised
46 percent of total worldwide chemicals and specialties sales in 1997 versus 47
percent in the prior year. After adjusting for the divestiture of certain
Medical Products businesses, as well as the formation of the DuPont Dow
elastomers joint venture, sales were up 4 percent. This is due to 7 percent
higher volume partly offset by 3 percent lower selling prices. Excluding the
effect of currency fluctuation, worldwide selling prices were about flat versus
1996. U.S. prices were down less than 1 percent for the year, but were up 1
percent when comparing the fourth quarter 1997 to fourth quarter 1996. Outside
the United States, prices for the year averaged 7 percent below 1996, and were
down 5 percent comparing the fourth quarter of 1997 to the fourth quarter of
1996. In the fourth quarter comparison, worldwide prices, excluding the adverse
effect of currency fluctuation, were up 2 percent. U.S. sales volume was up 5
percent, while outside the United States volume was up 10 percent. The latter
reflects strength in Europe, South America and Mexico. Growth in Asia for the
year averaged 7 percent, but had fallen to 1 percent below 1996 levels in the
fourth quarter. Europe's annual volume growth of 11 percent was largely offset
by lower selling prices due to the effect of currency fluctuation.
Sales in 1996 were a record $43.8 billion, up 4 percent from 1995. Petroleum
segment sales were $20.2 billion, compared to $17.7 billion in 1995, up 14
percent. This reflects higher worldwide prices for crude oil and natural gas and
increased crude oil production and natural gas deliveries. Crude oil and natural
gas average prices were higher than those in 1995 by 21 percent and 19 percent,
respectively. Sales for the combined chemicals and specialties segments were
$23.6 billion, 4 percent lower than in 1995. This reflects a reduction in sales
resulting from the divestiture of certain Medical Products businesses and
formation of the DuPont Dow elastomers joint venture. After adjusting for these
changes in business composition, sales were 2 percent higher than 1995,
reflecting 3 percent higher sales volume, partly offset by 1 percent lower
average selling prices. U.S. selling prices were flat, while prices outside the
United States averaged 3 percent lower, mostly attributable to a stronger U.S.
dollar. U.S. sales volume was up 3 percent. Volume outside the United States was
up 4 percent. Sales in Mexico and South America combined were up 13 percent,
reflecting a recovery from the 1995 devaluation in the Mexican peso and the
continuing growth in South America. Sales volume growth in Asia was 9 percent
but was substantially offset by 7 percent lower prices. European sales were down
1 percent, as slightly higher volume was more than offset by lower selling
prices.
EARNINGS
Net income in 1997 was $2,405 million versus $3,636 million in 1996. The decline
in net income principally reflects net nonrecurring charges of $1,682 million
taken in 1997 as compared to $101 million in net charges for 1996. The 1997
nonrecurring charges include $1,466 million for purchased in-process research
and development associated with acquisitions made during the year. Excluding
nonrecurring charges from both years, net income was a record $4,087 million
compared to $3,737 million in 1996, up 9 percent. About one-half of this
increase is due to 19 percent higher petroleum segment earnings which reflect
higher natural gas prices, increased volumes and higher refined product margins.
The remainder is due to 5 percent higher chemicals and specialties earnings. The
latter reflects 7 percent higher sales volumes, partly offset by lower selling
prices and the absence of $186 million after-tax from the favorable allocation
of DuPont Merck pharmaceutical venture operating income in 1996. Lower selling
prices were principally the result of the adverse currency impact of the
stronger U.S. dollar.
Basic earnings per share were $2.12 ($2.08 diluted) versus $3.23 ($3.18 diluted)
in 1996. Excluding nonrecurring items from both years, 1997 basic earnings per
share were a record $3.61 ($3.55 diluted), up 9 percent from $3.32 ($3.27
diluted) in 1996. Earnings growth on a per share basis tracked net income growth
as average shares outstanding for 1997 were up less than 1 percent from 1996.
Net income in 1996 was a record $3,636 million versus $3,293 million in 1995, up
10 percent. This principally reflects a 39 percent
DUPONT
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Management's Discussion and Analysis
improvement in after-tax operating income for the Petroleum segment and lower
after-tax interest expense. Upstream petroleum had record earnings, primarily
resulting from higher oil and gas prices. In addition, Life Sciences earnings
increased 15 percent. In 1996, net nonrecurring charges were $101 million versus
$114 million in 1995. Excluding these charges, earnings were $3,737 million, up
$330 million from 1995.
Basic earnings per share were $3.23 ($3.18 diluted) in 1996 versus $2.81 ($2.77
diluted) in 1995. Excluding nonrecurring items from both years, 1996 basic
earnings per share were $3.32 ($3.27 diluted), up 14 percent from $2.91 ($2.87
diluted) in 1995. One-half of this improvement was from higher Petroleum segment
earnings with the balance attributable to higher results from the DuPont Merck
pharmaceutical venture largely due to a more favorable allocation of operating
income to DuPont, benefit from lower average shares outstanding and lower
interest expense. Petroleum benefited from higher oil and gas prices and higher
volumes. Earnings from the chemicals and specialties segments were up 1 percent
as gains from higher sales volume were offset by lower selling prices and by
reduction in earnings resulting from businesses that were divested or are now
operated through a joint venture arrangement.
TAXES ($ in millions)
- --------------------------------------------------------------
1997 1996 1995
---------------------------
Income tax expense $2,275 $2,345 $2,097
Effective income tax rate (EITR) 48.6% 39.2% 38.9%
==============================================================
The 1997 EITR of nearly 49 percent is significantly higher than the 1996 and
1995 EITR of 39 percent and is due to purchased in-process research and
development charges for the Pioneer and Protein Technologies transactions which
reduced earnings but had no tax effect. The 1996 EITR of 39 percent was
essentially equal to 1995, reflecting insignificant changes in the effective tax
rates for both chemicals and specialties and petroleum compared to 1995.
The company paid total taxes of $8.3 billion in 1997, compared to $8.4 billion
in 1996 and $8.3 billion in 1995. 1997 total tax payments were slightly lower
than in 1996 due principally to lower petroleum excise taxes, partly offset by
higher income taxes. 1996 total tax payments were slightly higher than in 1995
due principally to higher income taxes and higher U.S. petroleum excise taxes,
partly offset by lower petroleum excise taxes outside the United States.
Segment Reviews
CHEMICALS
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 4.3 1997 600
------------------------------ ------------------------------
1996 4.1 1996 563
------------------------------ ------------------------------
1995 4.2 1995 651
------------------------------ ------------------------------
Chemicals segment businesses are: White Pigment and Mineral Products, which
includes titanium dioxide products; Specialty Chemicals, which produces a range
of chemical intermediates; and Fluorochemicals, which produces refrigerants.
In White Pigment and Mineral Products, major developments during 1997 included
announcement of the intention to buy ICI's titanium dioxide business, excluding
North American assets and business, subject to government approval.
Specialty Chemicals exited several businesses that were not integral to future
growth, including DuPont's 50 percent share of the Niachlor caustic chlorine
joint venture, which was sold to the Olin Corporation, DuPont's partner in the
venture. Plans were also announced to sell the global hydrogen peroxide
business.
Fluorochemicals commercialized FE-36 fire extinguishants and Vertel(R) HFC-4310
cleaning agents.
1997 versus 1996 Sales of $4.3 billion were up 3 percent reflecting 7 percent
higher volume. The average annual price level was 4 percent lower, but the
fourth quarter average was 2 percent above prior year reflecting improved
titanium dioxide prices. After-tax operating income (ATOI) was $600 million,
versus $563 million in 1996. Excluding 1996 nonrecurring charges, ATOI was up 3
percent as higher earnings from specialty chemicals were partly offset by lower
earnings from titanium dioxide.
1996 versus 1995 Sales of $4.1 billion were 1 percent lower, reflecting 4
percent higher sales volume more than offset by 5 percent lower prices. ATOI was
$563 million, down 14 percent from $651 million in 1995. Excluding nonrecurring
items from both years, earnings were $584 million, down 9 percent from the $641
million earned in 1995, principally reflecting lower earnings from titanium
dioxide resulting from significantly lower selling prices. Partly offsetting
this were higher earnings from chemical intermediates. Segment results were also
negatively affected by investment write-offs in the fourth quarter.
DUPONT
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Management's Discussion and Analysis
Perspective In White Pigment and Mineral Products, the ICI acquisition would, if
approved, give DuPont a long-sought titanium dioxide manufacturing presence in
Europe and additional capability in Asia and Africa, which should contribute
significantly to future growth. Growth in demand and a continuing focus on
productivity improvements should help Specialty Chemicals maintain profitable
growth. Fluorochemicals' results will continue to be affected by overcapacity
for HFC-134a.
FIBERS
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 7.7 1997 980
------------------------------ ------------------------------
1996 7.2 1996 802
------------------------------ ------------------------------
1995 7.2 1995 805
------------------------------ ------------------------------
The Fibers group of businesses consists of Nylon, Lycra(R), Dacron(R), Nonwovens
and Advanced Fibers Systems.
Nylon had another good year with strong results across the portfolio, continued
focus on cost reduction globally, and progress in upgrading and consolidating
fiber facilities, primarily in North America and Europe. New facilities were
started up in Singapore (nylon intermediates), China and India (tire cord fibers
and fabrics), Taiwan and Mexico (apparel fibers), and Japan (carpet and apparel
fibers). An alliance was formed with P. T. Branta Mulia, a major producer of
tire cord fibers and fabrics, to manufacture and market nylon tire cord in Asia
Pacific, with DuPont acquiring a 19.8 percent equity interest in Branta Mulia.
The nylon tire cord fabric business of Akzo Nobel in Brazil was acquired.
Demand for Lycra(R) brand spandex products remained high and supply was tight
during the year. The business completed a significant expansion at Waynesboro,
Virginia, and a new facility in China. Expansions were also announced for
existing sites in Maydown in the United Kingdom and in Singapore. The strategy
continues to be growth through increased use in established segments such as
hosiery and intimate apparel, development of new markets such as shoes and
ready-to-wear clothing, and geographic expansion in developing markets.
Dacron(R) had an excellent year, benefiting from a strong position in filament
and differentiated products, cost control efforts and favorable ingredient
prices. Work continued on building capacity at Suzhou, China, in a joint venture
to supply the Chinese polyester market. The strategy continues to be to maintain
market leadership in the polyester filament industry, branded and specialty
products, and in niche and retail markets outside North America.
Nonwovens' strong growth was led by the Tyvek(R) business, which posted gains in
all major segments. In response to customer demand, Nonwovens is enhancing
manufacturing capability for Tyvek(R) spunbonded olefin in Richmond, Virginia,
and introducing new technology for Sontara(R) spunlaced products at a new plant
in Asturias, Spain. A new product, Xavan(TM) spunbonded polypropylene, was
introduced, bringing the business into new markets in industrial packaging,
furniture and bedding.
Advanced Fibers Systems continued to build on its Kevlar(R), Nomex(R) and
Teflon(R) brands of fiber, paper and pressboard in developing new products, new
applications and new regional markets. Kevlar(R) brand fiber is being introduced
for concrete strengthening in earthquake-prone areas of Asia, Nomex(R) brand
paper in honeycomb form is being used in a new generation of heating and cooling
systems to improve air quality, and Teflon(R) brand fiber has found a new
application in low-friction socks.
1997 versus 1996 Sales of $7.7 billion were up 7 percent reflecting 9 percent
higher sales volume partly offset by 2 percent lower selling prices. After-tax
operating income (ATOI) was $980 million versus $802 million in 1996. Excluding
1996 nonrecurring charges, ATOI increased 18 percent reflecting earnings growth
across all business units, principally from Lycra(R) brand spandex and nylon.
1996 versus 1995 Sales of $7.2 billion were flat as average selling prices and
sales volumes were essentially unchanged versus 1995. ATOI was $802 million,
essentially even with the $805 million earned in 1995. Excluding nonrecurring
items, earnings were $834 million, 8 percent above the $774 million earned in
1995, principally attributable to improved results for Lycra(R) brand spandex,
nonwovens and Dacron(R) polyester.
Perspective A five-year program of modernization and consolidation of
manufacturing facilities, which began in 1997, should enhance Nylon's
competitive position. Innovation and brand image should aid growth for Lycra(R)
in new market segments and developing markets. Dacron(R) is in a strong position
based on polyester intermediates and filament, branded and specialty products.
Nonwovens and Advanced Fibers Systems are adding capacity in response to demand
in new and traditional markets.
DUPONT
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Management's Discussion and Analysis
POLYMERS
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 6.8 1997 924
------------------------------ ------------------------------
1996 6.7 1996 909
------------------------------ ------------------------------
1995 7.0 1995 829
------------------------------ ------------------------------
The businesses in the Polymers segment are: Packaging and Industrial Polymers,
Automotive, Corian(R), Engineering Polymers, Fluoropolymers and DuPont Dow
Elastomers L.L.C., a 50-50 global joint venture.
Packaging and Industrial Polymers sales continued strong in all major product
lines. Demand was driven by evolving needs in the packaging industry, increasing
product performance requirements in the various other industries served, and
growing purchasing power and lifestyle changes in emerging economies in Asia,
Mexico and South America. Plans were announced to expand polyvinyl alcohol
capacity by 20 percent.
Automotive achieved increases in sales and earnings, with strong growth outside
the United States. The automotive finishes businesses continued to do well, as
did Butacite(R) polyvinyl butyral safety glass interlayer in North America and
Europe. The business concluded the acquisition of Carrs Paints, Ltd. of the
United Kingdom.
Corian(R) continued to expand sales and launched its first product variant, an
antibacterial solid surface material that offers extra protection for home and
commercial environments. The business also introduced 16 new colors.
Engineering Polymers experienced growth in all regions. Capacity expansion
startups to support global growth included a Zytel(R) nylon resin plant in
Richmond, Virginia, Delrin(R) polyacetal resins at Dordrecht, The Netherlands,
Tynex(R) toothbrush filament at Shenzen, China, Crastin(R) polyester resins at
Uentrop, Germany, and Vespel(R) polyimide products at Circleville, Ohio.
Fluoropolymers continued construction and is near completion of a major
expansion program at plants in West Virginia, The Netherlands and Japan, in
response to rising demand for its products. Products include Teflon(R) and
Tefzel(R) resins, Teflon(R) and SilverStone(R) non-stick finishes, Tedlar(R)
polyvinyl fluoride film and Nafion(R) perfluorinated membranes.
DuPont Dow Elastomers completed its first full calendar year of operations and
began commercial production of Nordel(R) IP hydrocarbon rubber, made via Dow's
proprietary Insite(TM) process and catalyst technology. The new facility is at
Plaquemine, Louisiana, and has capacity of 200 million pounds a year. Nordel(R)
is used in the manufacture of a range of products including automotive hoses and
gaskets.
1997 versus 1996 Sales were $6.8 billion versus $6.7 billion in 1996. After
adjusting to exclude prior year elastomers sales now part of the DuPont Dow
elastomers joint venture, sales were up 5 percent. This is attributable to 7
percent higher volume partly offset by 2 percent lower selling prices. After-tax
operating income (ATOI) was $924 million versus $909 million in 1996. After
excluding nonrecurring items from 1996 results, ATOI was up 8 percent. This
principally reflects higher earnings from Packaging and Industrial Polymers and
Automotive Products.
1996 versus 1995 Sales of $6.7 billion were 4 percent above 1995, after
adjusting for the reduction in sales resulting from formation of the DuPont Dow
elastomers joint venture. This reflects 4 percent higher volume and flat selling
prices. ATOI was $909 million, up 10 percent from $829 million in 1995.
Excluding nonrecurring items from both years, earnings were $854 million, down 1
percent from $864 million in 1995. Increased earnings from automotive products,
engineering polymers, and Corian(R) surfaces were offset by a reduction in
elastomers earnings due to formation of the DuPont Dow elastomers joint venture.
Perspective Demand for most products in the Polymers segment should continue to
be robust but this outlook is tempered by the possibility of further economic
slowdown in Asia during 1998. Long term, demand in the emerging economies and
emphasis on high-performance materials for vehicles and various industrial uses
are positive factors.
PETROLEUM
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 21.0 1997 1,068
------------------------------ ------------------------------
1996 20.2 1996 860
------------------------------ ------------------------------
1995 17.7 1995 619
------------------------------ ------------------------------
Petroleum operations include exploration and production, and refining, trading,
transportation and marketing, carried out by Conoco.
In the United States, a $929 million acquisition of natural gas properties and
transportation assets in the Lobo Trend of South Texas significantly expanded
the company's North American
DUPONT
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Management's Discussion and Analysis
natural gas business. Deepwater holdings in the Gulf of Mexico were also
increased and a second advanced drillship was ordered to evaluate the acreage,
while development of the large, partner-operated Ursa field in the Gulf of
Mexico was on schedule for first production in 1999.
A continuing exploration program in the Triangle Zone of western Canada added to
natural gas reserves in the region.
Excel Paralubes, Conoco's joint venture with Pennzoil, brought a $500 million
hydrocracker onstream at the Lake Charles, Louisiana, site and Conoco introduced
Hydroclear(TM) lubricants blended from the pure base oils produced by the
hydrocracker. The two companies formed another joint venture, Penreco, to
further use the hydrocracked base oils in the production and sales of premium
white oils, petrolatum and solvents.
In the U.K. sector of the North Sea, the Britannia gas field is scheduled to
come onstream in the second half of 1998 following installation of the platform
last summer. This giant field, in which Conoco holds a 42 percent interest, is
expected to be an important contributor to earnings for many years. Conoco
continued to apply its expertise in economically developing smaller North Sea
fields such as the MacCulloch field. MacCulloch was brought onstream using a
converted oil tanker as a floating production, storage and offtake system
(FPSO). Full production from the similarly sized Banff field will begin in 1998
also using an FPSO, following successful tests. The Boulton gas field will also
begin production, through a remotely controlled platform installed in 1997.
Conoco increased to more than 20 percent its interest in the large Clair oil
field west of the Shetland Islands; shortly before year-end, the U.K. government
awarded Conoco and its partners two additional highly prospective exploration
blocks in the area.
In Norway, production from the Heidrun field increased as the use of Conoco's
LiquidPower(TM) flow improver raised the capacity of the field's export
pipeline. A methanol plant, using natural gas from Heidrun as feedstock, was
commissioned.
As part of its strategy to develop an integrated natural gas business across
Europe, Conoco signed a second major agreement to supply gas via the
Interconnector pipeline from its U.K. North Sea fields to continental Europe.
The pipeline was installed in 1997 and terminals at each end are scheduled for
completion in late 1998.
Conoco and its partners in the Karlsruhe, Germany, refinery merged operations
with the adjacent Esso refinery to significantly improve operating capability.
Conoco continued to expand its marketing operations in Central Europe, opening
31 additional gasoline outlets in the region with 25 more planned in 1998.
In South America, work began on the Petrozuata project, a 50 percent-owned $2.4
billion joint venture with state oil company Petroleos de Venezuela S.A., to
extract 1.6 billion barrels of extra-heavy crude oil from the Orinoco oil belt.
Project financing of $1.45 billion was also arranged. Initial production of
30,000 barrels per day is expected by the end of 1998. Conoco will drill
exploratory wells in 1998 on light oil tracts in eastern and western Venezuela
and three highly promising tracts in Colombia.
In Asia Pacific, the company reached agreement in principle to supply large
volumes of gas to Singapore from Block B offshore Indonesia and made a promising
discovery in Irian Jaya. Additional exploration acreage was obtained in several
countries, including Taiwan, where drilling is under way. A new joint venture
refinery in Melaka, Malaysia, is scheduled for startup by mid-1998.
In other developments, letters of intent were signed with American Electric
Power Company, one of the largest investor-owned utilities in the United States,
to create two joint venture companies to acquire and lease the assets of
industrial and large commercial businesses and to manage power facilities.
1997 versus 1996 Sales for the year were $21.0 billion, up 4 percent from last
year's $20.2 billion, as higher downstream prices and volumes, increased
international natural gas volumes and stronger domestic natural gas prices more
than compensated for lower crude oil prices.
After-tax operating income (ATOI) was $1,068 million versus $860 million in
1996. Excluding nonrecurring items, earnings were a record $1,074 million, up
$173 million or 19 percent from 1996. Nonrecurring items in 1997 include a $55
million dollar write-down of an office building held for sale in Europe and a
$112 million impairment of certain international nonrevenue producing
properties. Largely offsetting these losses was a $161 million gain from the
sale of North Sea producing and exploration properties.
Excluding nonrecurring items, Conoco's upstream operations had record ATOI of
$775 million, up 10 percent from last year. U.S. upstream ATOI totaled $404
million, up 40 percent from $288
DUPONT
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<PAGE>
Management's Discussion and Analysis
million in 1996 due to higher gas prices and gains from asset sales which more
than offset lower crude oil prices. U.S. natural gas prices were up 23 percent
to $2.34 per thousand cubic feet and gas deliveries outside the United States
increased 5 percent. The company's net realized crude oil price averaged $18.58
per barrel, 8 percent lower than the previous year. Outside the United States,
ATOI was $371 million, down 11 percent from last year due to lower crude oil
prices, partly offset by increased oil and gas volumes.
Downstream ATOI, excluding nonrecurring items, was $299 million, up 53 percent
from the $195 million earned last year. In the United States, downstream earned
$170 million versus $107 million in the prior year, an increase of 59 percent.
The improvement is attributable to very strong refinery margins, reduced
operating costs and higher refined product sales. Outside the United States,
downstream earned $129 million, up 47 percent, primarily due to higher European
margins and increased refinery production. Worldwide refined product sales were
1,048,000 barrels per day (bpd), up 5 percent versus 1996, due to higher
refinery production from the new Lake Charles, Louisiana, hydrocracker and the
Humber refinery's new vacuum unit in the United Kingdom. Worldwide crude oil and
condensate production averaged 337,000 bpd for the year, up slightly versus
1996.
1996 versus 1995 Sales for 1996 were $20.2 billion, up 14 percent from 1995. The
increase resulted from higher crude oil and natural gas prices and higher
volumes outside the United States. Earnings of $860 million were up 39 percent
from $619 million in 1995. Excluding nonrecurring items from both years, 1996
earnings were $901 million versus $664 million in 1995, a 36 percent increase.
Upstream earnings of $632 million were up 43 percent from $443 million in 1995.
Excluding nonrecurring charges, earnings of $706 million were up 46 percent from
$482 million in 1995. Higher crude oil and natural gas prices and improved
volumes outside the United States, partly offset by increased exploration costs,
contributed to the improvement.
Downstream earnings of $228 million in 1996 were up 30 percent from $176 million
in 1995. Excluding nonrecurring items, earnings of $195 million were up 7
percent from $182 million in 1995 due to gradually improving margins, despite
higher crude oil prices and one-time startup costs for new units in refining.
Perspective The major investments that Conoco has made in the past few years
will result in an increase in the company's oil and gas production and in its
output of refined products in 1998, mitigating the effects of weaker prices. The
significant improvement by Conoco's downstream operations in 1997 combines with
its already competitive position in upstream to provide the balance and strength
for long-term profitable growth.
LIFE SCIENCES
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 2.5 1997 (786)
------------------------------ ------------------------------
1996 2.5 1996 679
------------------------------ ------------------------------
1995 2.3 1995 588
------------------------------ ------------------------------
Life Sciences consists of Agricultural Products and Pharmaceuticals.
Agricultural Products made three important moves during the year in executing
its strategy of developing a leading position in biotechnology businesses while
building on its strong position in traditional crop protection products: (a)
formed a research alliance plus a separate joint venture company, Optimum
Quality Grains, L.L.C., with Pioneer Hi-Bred International, to speed the
discovery, development and delivery of new crops for farmers and livestock
producers, and acquired a 20 percent interest in Pioneer; (b) purchased Protein
Technologies International, a global supplier of soy proteins, from Ralston
Purina; and (c) signed a letter of intent to form a joint venture with Griffin
Corporation to produce and market standard crop protectants worldwide.
The DuPont Merck Pharmaceutical Company joint venture delivered another strong
performance in 1997 with continued growth in sales and earnings, led by the
anticoagulant Coumadin(R), which achieved record sales in 1997. Strong
performance by other products, including Sinemet(R) and Sinemet(R) CR for
Parkinson's disease, and by Cardiolite(R) heart imaging agent, also fueled
earnings growth. In 1997, DuPont Merck's antiretroviral agent Sustiva(R) entered
phase three development. Sustiva(R) is a new investigational nonnucleoside
reverse transcriptase inhibitor used in combination therapy for HIV. DuPont
Merck is preparing for marketing approval for Sustiva(R) in the United States,
Canada and Europe in 1998. Two nuclear oncology products were launched in 1997:
Miraluma(R) breast imaging agent and Quadramet(R) for treating bone pain.
Revia(R), for the treatment of alcoholism, was launched in France. The generics
and multisource product lines were sold.
1997 versus 1996 Segment sales of $2.5 billion were up 2 percent reflecting 6
percent higher volume, partly offset by 4 percent
DUPONT
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<PAGE>
Management's Discussion and Analysis
lower prices. After-tax operating income (ATOI) was a loss of $786 million
versus earnings of $679 million reported in 1996. The loss resulted from $1.4
billion in net nonrecurring charges taken during the year, principally for the
write-off of acquired in-process research and development costs associated with
purchases of Protein Technologies International and a 20 percent interest in
Pioneer Hi-Bred International. Excluding nonrecurring items, ATOI was $607
million versus $789 million in 1996. 1996 included $186 million after-tax from a
favorable allocation of operating income to DuPont from the DuPont Merck joint
venture. Excluding this benefit from 1996 and nonrecurring charges from both
years, ATOI was essentially unchanged, $607 million versus $603 million, as
costs associated with recent agricultural acquisitions and the shutdown of
triazines were offset by higher pharmaceutical results.
1996 versus 1995 Segment sales of $2.5 billion were up 6 percent reflecting 9
percent higher volume partly offset by 3 percent lower prices. ATOI was $679
million, up 15 percent from $588 million. Excluding nonrecurring items from both
years, ATOI was $789 million, up 21 percent from $651 million in 1995. This
reflects earnings improvement from both pharmaceuticals and agricultural
products. The increase in pharmaceuticals earnings was largely due to a more
favorable allocation of operating income to DuPont from the DuPont Merck joint
venture totaling $186 million in 1996, compared to $111 million in 1995.
Perspective Agricultural Products is poised for a new phase of growth as a
result of its acquisitions and alliances in biotechnology and traditional
products. The Pharmaceuticals business is developing well as pipeline
therapeutics enter commercialization. Additionally, Cozaar(R), launched in 1995
for hypertension, continues strong growth worldwide.
DIVERSIFIED BUSINESSES
SALES ($ in Billions) ATOI ($ in Millions)
------------------------------ ------------------------------
1997 2.8 1997 (8)
------------------------------ ------------------------------
1996 3.1 1996 205
------------------------------ ------------------------------
1995 3.7 1995 252
------------------------------ ------------------------------
The Diversified group of businesses consists of Polyester Films, Polyester
Resins and Intermediates, Photopolymer and Electronic Materials, Printing and
Publishing and CONSOL, a coal operation 50 percent owned by DuPont.
Films was divided into Polyester Resins and Intermediates and Polyester Films as
the business acquired ICI's global polyester resins and intermediates businesses
in December 1997 and ICI's global polyester films business in February 1998.
During 1997 the product viability of NG-3 (next generation) polyester
polymerization technology was demonstrated. This technology, when coupled with
the acquired ICI technology, will provide the lowest-cost, highest-productivity
polyester value chain, providing a 40 percent investment advantage. Other
initiatives under start-up or completing construction include terephthalic acid
capacity in Taiwan, polyester film capacity in Luxembourg and the United
Kingdom, and capacity for Kapton(R) polyimide film in the United States and
Japan.
Photopolymer and Electronic Materials continued its growth strategy with
formation of a global joint venture in high-performance liquid polyimide
materials for semiconductor applications. The 50-50 joint venture, Hitachi
DuPont MicroSystems L.L.C., combines the Hitachi Chemical Co. Ltd. and DuPont
polyimide coating businesses, including research and development, manufacturing,
sales and technical service. Polyimides are used in the fabrication of
semiconductor chips and related components. Also, a majority-owned venture was
formed in Taiwan to market dry film resists for the printed circuit board
industry. The business introduced Fodel(R) photoimageable compositions, which
are used in the emerging flat panel display market, and the Cyrel(R) digital
imager.
Printing and Publishing proceeded with business associated with exiting the
electronic imaging joint venture with Fujifilm and prepared for the sale of the
global graphic arts films and offset printing plates businesses to the
Agfa-Gevaert Group.
CONSOL Energy Inc., a coal operations joint venture owned 50 percent by DuPont,
had another record year of earnings and continued to make productivity gains.
Medical Products' last remaining business, NEN Life Sciences Products, was sold.
1997 versus 1996 Sales were $2.8 billion compared to $3.1 billion in 1996. After
adjusting for the divestiture of certain Medical Products businesses, sales were
2 percent lower. This reflects 6 percent higher volume which was more than
offset by 8 percent lower selling prices. Prices were down largely due to lower
prices for films, graphic arts, and printed circuit products. After-tax
operating income (ATOI) was a loss of $8 million versus
DUPONT
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<PAGE>
Management's Discussion and Analysis
earnings of $205 million in 1996. The current year includes nonrecurring charges
for writedown of the global graphic arts films and offset printing plates
business assets held for sale and other related costs as well as a charge for
purchased in-process research and development in connection with the purchase of
ICI's global polyester intermediates and resins businesses. Excluding
nonrecurring items from both years, ATOI was $275 million, versus $157 million
in 1996, up 75 percent. This reflects lower operating losses from the Printing
and Publishing businesses pending sale and the Medical Products businesses now
divested. Higher earnings were realized from Photopolymers and Electronic
Materials and CONSOL.
1996 versus 1995 Segment sales were $3.1 billion, up 2 percent, after adjusting
for the divested Medical Products businesses. This reflects flat selling prices
and 2 percent higher sales volume. ATOI was $205 million, down 19 percent from
$252 million in 1995. Excluding nonrecurring items from both years, earnings
were $157 million, down 41 percent. This is principally due to the absence of
earnings from Medical Products businesses that were divested in 1996, and lower
Printing and Publishing earnings. Partly offsetting were higher earnings from
electronic materials and coal.
Perspective Growth prospects for Polyester Resins and Intermediates, Polyester
Films and Photopolymer and Electronic Materials are good, tempered near term by
problems in Asian economies. CONSOL should benefit from growth in the U.S.
domestic utility market and continued productivity gains.
Financial Condition and Cash Flows
FINANCIAL CONDITION
During 1997, DuPont made four strategic acquisitions to strengthen both the
company's position in the chemicals, energy and specialties markets, as well as
for future opportunities in the life sciences businesses. In May, Conoco spent
$0.9 billion to purchase the Lobo Trend natural gas properties in South Texas.
In September, the company purchased a 20 percent interest in Pioneer Hi-Bred
International for $1.7 billion. In December, ICI's global polyester
intermediates and resins businesses were acquired for $1.2 billion and the
company acquired the Protein Technologies International (PTI) business from
Ralston Purina for 22.5 million shares of DuPont stock valued at $1.3 billion.
In each of the ICI and PTI transactions, the company assumed $0.2 billion of
debt of the respective companies. (See Note 23, "Investment Activities," to the
financial statements.) Following the PTI acquisition, the company spent $1.4
billion to repurchase 22.5 million shares to offset dilution resulting from the
shares issued to Ralston. (See Note 21, "Stockholders' Equity," to the financial
statements.) As a result of these actions, borrowings at year-end 1997 of $12.0
billion were $3.1 billion higher than the $8.9 billion at the end of 1996. With
this increase in debt, the ratio of cash provided by operations to debt
decreased from 71 percent at the end of 1996 to 58 percent at the end of
1997.The company expects that this ratio will improve gradually over the next
few years.
In August, following the announcement of the four major acquisitions, Moody's
Investors Service (Moody's) confirmed their rating of the company's senior
unsecured long-term debt at Aa3. Standard & Poor's (S&P) also affirmed its
rating on senior debt of AA-. However, both Moody's and S&P cautioned that the
higher level of debt has weakened the company's debt protection measures and
further deterioration could result in a ratings downgrade. The company's
commercial paper rating remains at Prime-1 by Moody's and A-1+ by S&P.
Borrowings at year-end 1996 of $8.9 billion were $2.8 billion below the $11.7
billion at the end of 1995. This reduction was accomplished through a
combination of internally generated funds and $1.3 billion of asset sales,
including proceeds from sales of essentially all of the Medical Products
businesses and certain petroleum properties, plus proceeds from the formation of
the elastomers joint venture with Dow.
CASH PROVIDED BY OPERATIONS
Cash provided by operations totaled $7.0 billion in 1997; this was $0.6 billion
higher than the $6.4 billion in 1996. This increase is principally the result of
$0.7 billion higher net income in 1997 after adjusting for noncash charges and
credits. Two transactions in December also contributed to this year's higher
inflow as follows: (a) Conoco received $303 million from a contract for future
sales of natural gas to Centrica, a U.K. company which holds gas contracts for
the British government; and (b) $250 million was transferred from the company's
pension trust in the United States to pay the company's portion of certain
retiree health care costs as permitted under federal law. These higher inflows
were partially offset by higher inventory levels. The $1.5 billion adjustment
for "Purchased In-Process Research and Development" eliminates the noncash
charge to earnings
DUPONT
23
<PAGE>
Management's Discussion and Analysis
associated with the purchase of a 20 percent interest in Pioneer, the
acquisition of Protein Technologies International from Ralston and the purchase
of ICI's polyester intermediates and resins businesses. (See Note 5, "Purchased
In-Process Research and Development," to the financial statements.) "Other
Noncash Charges and Credits -- Net" of $437 million includes a $340 million
adjustment to eliminate the noncash charge taken in the third quarter to write
down certain Printing and Publishing assets to be sold. It also includes $167
million to eliminate the noncash charges for impairment of nonrevenue producing
properties and an office building held for sale. (See Note 6, "Write-down of
Assets and Other Related Costs," to the financial statements.)
In 1996, cash provided by operations totaled $6.4 billion; this was $0.4 billion
below the $6.8 billion inflow in 1995. This reduction is primarily due to higher
working capital investment in support of increased business activity in the
latter part of 1996 and tax payments related to gains on divestitures and the
joint venture formation.
CAPITAL INVESTMENTS
Total capital investments, including investments in affiliates and acquisitions,
were $8.3 billion. This is an increase of $4.5 billion from 1996. As discussed
under "Financial Condition" above, $3.9 billion of the 1997 expenditures were
for three strategic acquisitions. Excluding these items, 1997 expenditures of
$4.4 billion were up $0.6 billion, or 16 percent, from $3.8 billion spent last
year. The 1996 expenditures were up $0.3 billion, or 9 percent, from $3.5
billion in 1995.
In the Petroleum segment, capital investments were $3.0 billion and included
$0.9 billion to purchase the Lobo natural gas properties in South Texas.
Excluding the South Texas natural gas properties purchase, expenditures were
$2.1 billion versus $2.0 billion in 1996 and upstream capital expenditures were
$1.5 billion, up 15 percent from the $1.3 billion spent in 1996. The most
significant upstream expenditures in 1997 included development of the newly
acquired Lobo gas properties and continued development of the Britannia gas
field in the U.K. North Sea and the Ursa deepwater oil field in the Gulf of
Mexico. Downstream capital expenditures of $0.6 billion were down 14 percent
from the $0.7 billion spent in 1996. Downstream spending included continuing
construction of the Melaka refinery in Malaysia and expansion of refining and
marketing operations in central and eastern Europe.
For the chemicals and specialties businesses, capital investments totaled $5.3
billion in 1997. Excluding the $3.0 billion spent for the Pioneer and ICI
acquisitions, capital investments were $2.3 billion, which is $0.5 billion above
the $1.8 billion for 1996. The program to modernize, consolidate and renew the
cost competitiveness of the Nylon business continued in 1997 with expenditures
made in the United States, Europe and Asia to upgrade both nylon manufacturing
facilities and nylon intermediates. Other expenditures this past year were to
expand capacity and build market positions in Europe and Asia for key
businesses, including Lycra(R) brand spandex, crop protection agents, Dacron(R)
polyester, Terathane(R), Mylar(R) thin films, Sontara(R) nonwoven and Softec(TM)
polyester. In the United States, expenditures increased capacity for Hytrel(R)
and Vespel(R) resins, Lycra(R), Fortress(R) insecticide, Vamac(R) elastomers and
terephthalic acid. Also, significant expenditures were made for environmental
projects.
In 1998, the company currently expects that capital investments will be about
$6.0 billion. This includes $1.6 billion to complete the acquisition of ICI's
polyester films and tioxide businesses. Excluding these strategic acquisitions,
capital spending is expected to total $4.4 billion, or about the same as in
1997. Petroleum expenditures are expected to be about $2.1 billion and include
equity contributions for the Petrozuata extra-heavy oil development in
Venezuela, continuing development of the Lobo gas properties, expansion of
refining and marketing in central and eastern Europe, and completion of the
Britannia gas development in the U.K. North Sea and the Melaka refinery in
Malaysia. Chemicals and specialties expenditures are expected to be $2.3 billion
and include funding for a number of growth-oriented projects to expand
manufacturing capacity globally, especially for businesses such as Lycra(R)
utilizing a new generation of technology, engineering polymers and crop
protection chemicals. Renewal and modernization of nylon manufacturing and
intermediates capacity in the United States, Europe and Asia will continue. The
budget also provides funds for the newly acquired polyester resins,
intermediates and films, tioxide and life sciences businesses.
PROCEEDS FROM SALES OF ASSETS
Proceeds from asset sales were $1,123 million in 1997. Half of this total came
from sales of various petroleum properties which totaled $565 million in 1997 as
compared with $275 million the
24
DUPONT
<PAGE>
Management's Discussion and Analysis
previous year. Proceeds from sales of chemicals and specialties assets and
businesses amounted to $558 million in 1997. The most significant proceeds came
from: (a) collection of the note received from the sale of the Diagnostic
Imaging business last year; (b) the sale of NEN Life Sciences Products which
concluded the divestiture of the company's Medical Products businesses; and (c)
the sale by DuPont Merck of its generic and multisource product lines. (See Note
23, "Investment Activities," to the financial statements.)
In 1996, proceeds were $1,271 million, principally from the sale of two Medical
Products businesses (Diagnostic Imaging and In-Vitro Diagnostics), the formation
of the elastomers joint venture with Dow and sales of various petroleum
properties.
OTHER INVESTMENT ACTIVITIES
"Miscellaneous - Net" Investment Activities of $555 million included $450
million from the liquidation of financial investments by Danube Insurance
Limited, the company's self-insurance subsidiary. These funds from excess
insurance reserves were used for operating and investment purposes.
DIVIDENDS
Dividends per share of common stock were $1.23 in 1997, $1.115 in 1996 and
$1.015 in 1995. The quarterly dividend was increased from $.285 to $.315 in the
second quarter of 1997 and from $.26 to $.285 in the second quarter of 1996. The
company's objective is to pay dividends that are 15 to 25 percent of cash
provided by operations. For 1997 and 1996, dividends paid in relation to cash
provided by operations were 20 percent, as compared with 18 percent in 1995.
FINANCING ACTIVITIES
In accordance with the company's announced intent to offset dilution resulting
from DuPont stock issued under compensation plans and the acquisition of the PTI
business, the company spent $1,747 million in 1997 to purchase shares of DuPont
common stock. Immediately after purchase, these shares were retired. The total
includes $1,420 million spent in December to buy back 22.5 million shares,
equivalent to the shares issued to acquire the PTI business. The remaining $327
million was for the purchase of 5.8 million shares to offset dilution from
compensation plans.
In July 1996, the company paid $504 million to repurchase warrants from Seagram.
The warrants were issued to Seagram as part of the 1995 transaction to redeem
312 million shares of the company's common stock. Also, in 1996, the company
received $297 million from the formation of a partnership in which Vanguard
Energy Investors L.P. owns a 33 percent interest.
WORKING CAPITAL INVESTMENT
At the end of 1997, the company's investment in working capital (excluding cash
and cash equivalents, marketable securities, and short-term borrowings and
capital lease obligations) was $2.8 billion, an increase of $0.1 billion from
the $2.7 billion in 1996. This increase is principally due to the acquisition of
the Protein Technologies International business and ICI's polyester
intermediates and resins businesses in December. Current assets increased by
$0.9 billion due to the two acquisitions, higher miscellaneous receivables for
gains on foreign exchange contracts and higher inventories in support of
increased business levels partially offset by collection of the note receivable
from The Sterling Group, Inc. Current liabilities increased $0.8 billion
principally due to higher accrued liabilities for losses on foreign exchange
contracts and the two acquisitions.
In 1996, working capital investment decreased $0.2 billion from the $2.9 billion
in 1995. Accounts and notes receivable increased $281 million, primarily due to
the $175 million note received from The Sterling Group, Inc., in connection with
the sale of the Diagnostic Imaging business, but this increase was more than
offset by a $503 million increase in current liabilities principally due to
increased business activity at the end of 1996 as compared with 1995 as well as
higher crude oil prices.
The ratio of current assets to current liabilities, including cash and cash
equivalents, marketable securities, short-term borrowings and capital lease
obligations, at year-end 1997 was 0.8:1 as compared with 1.0:1 in 1996 and 0.9:1
in 1995. The lower ratio in 1997 is due to a $2.2 billion increase in short-term
borrowings from 1996, resulting from commercial paper borrowings.
YEAR 2000
Historically, certain computer programs have been written using two digits
rather than four digits to define the applicable year, which could result in
computers recognizing a date using "00" as the year 1900 rather than the year
2000. This could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000" problem or issue.
DUPONT 25
<PAGE>
Management's Discussion and Analysis
The company is conducting a global assessment of its key internal computer
systems and software and will take steps necessary to ensure that its
information technology infrastructure will be Year 2000-capable. The company has
established a "Year 2000 Project Office" to lead and coordinate all of its
global Year 2000 activities. This office is accountable to provide the necessary
leadership, tools and knowledge required by all operating units to become Year
2000-capable. The company is also working with Computer Sciences Corporation and
Andersen Consulting, who operate the majority of the company's global
information systems and technology infrastructure, so that the services they
provide will be Year 2000-capable. At this time, the company cannot reasonably
estimate the potential impact on its financial position and operations if key
suppliers, customers and other constituents (e.g., government) do not become
Year 2000-capable on a timely basis.
Out-of-pocket costs incurred to become Year 2000-capable are currently estimated
to be about $200 million and are not expected to have a material adverse effect
on the company's financial condition, operations or liquidity. The company will
devote all necessary resources to make its key systems Year 2000-capable on a
timely basis.
Financial Instruments
DERIVATIVES AND OTHER HEDGING INSTRUMENTS
Under procedures and controls established by the company's Financial Risk
Management Framework, the company enters into contractual arrangements
(derivatives) in the ordinary course of business to hedge its exposure to
foreign currency, interest rate and commodity price risks. The counterparties to
these contractual arrangements are major financial institutions.
Although the company is exposed to credit loss in the event of nonperformance by
these counterparties, this exposure is managed through credit approvals, limits
and monitoring procedures and, to the extent possible, by restricting the period
over which unpaid balances are allowed to accumulate. The company does not
anticipate nonperformance by counterparties to these contracts, and no material
loss would be expected from any such nonperformance.
FOREIGN CURRENCY RISK
The company routinely uses forward exchange contracts to hedge 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.
In addition, from time to time, the company will enter into forward exchange
contracts to establish with certainty the U.S. dollar amount of future firm
commitments denominated in a foreign currency. Decisions regarding whether or
not to hedge a given commitment are made on a case-by-case basis taking into
consideration the amount and duration of the exposure, market volatility and
economic trends. Forward exchange contracts are also used to manage near-term
foreign currency cash requirements and to place foreign currency deposits and
marketable securities investments into currencies offering favorable returns.
Principal currency exposures and related hedge positions at December 31, 1997,
were as follows (dollars in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Open Contracts To
Buy/(Sell) Currency Net
Monetary Monetary Net Monetary -------------------- After-Tax
Currency Assets Liabilities Exposure Pretax After-Tax Exposure
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
British Pound $2,052 $1,042 $1,010 $(1,623) $(1,006) $ 4
Canadian Dollar $ 341 $ 180 $ 161 $ (264) $ (164) $ (3)
German Mark $ 565 $1,027 $ (462) $ 749 $ 461 $ (1)
Norwegian Krone $ 408 $ - $ 408 $ (661) $ (410) $ (2)
French Franc $1,375 $1,009 $ 366 $ (587) $ (364) $ 2
Italian Lira $ 445 $ 212 $ 233 $ (377) $ (234) $ (1)
=====================================================================================================
</TABLE>
26 DUPONT
<PAGE>
Management's Discussion and Analysis
The fair value of forward exchange contracts outstanding as of December 31,
1997, was $(3) million. Given the company's balanced foreign exchange position
shown above, a ten percent adverse change in foreign exchange rates upon which
these contracts are based would result in exchange losses from these contracts
that, net of tax, would, in all material respects, be fully offset by exchange
gains on the underlying net monetary exposures for which the contracts are
designated as hedges.
INTEREST RATE RISK
The company uses a combination of financial instruments, including interest rate
swaps, interest and principal currency swaps and structured medium-term
financings, as part of its program to manage the fixed and floating interest
rate mix of the total debt portfolio and related overall cost of borrowing.
Interest rate swaps involve the exchange of fixed for floating rate interest
payments to effectively convert fixed rate debt into floating rate debt based on
LIBOR or commercial paper rates. Interest rate swaps also involve the exchange
of floating for fixed rate interest payments to effectively convert floating
rate debt into fixed rate debt. Interest rate swaps allow the company to
maintain a target range of floating rate debt.
Under interest and principal currency swaps, the company receives predetermined
foreign currency-denominated payments corresponding, both as to timing and
amount, to the fixed or floating interest rate and fixed principal amounts to be
paid by the company under concurrently issued foreign currency-denominated
bonds. In return, the company pays U.S. dollar interest and a fixed U.S. dollar
principal amount to the counterparty thereby effectively converting the foreign
currency-denominated bonds into U.S. dollar-denominated obligations for both
interest and principal. Interest and principal currency swaps allow the company
to be fully hedged against fluctuations in currency exchange rates and foreign
interest rates and to achieve U.S. dollar fixed or floating interest rate
payments below the market interest rate, at the date of issuance, for borrowings
of comparable maturity.
Structured medium-term financings consist of a structured medium-term note and a
concurrently executed structured medium-term swap which, for any and all
calculations of the note's interest and/or principal payments over the term of
the note, provide a fully hedged transaction such that the note is effectively
converted to a U.S. dollar-denominated fixed or floating interest rate payment.
Structured medium-term swaps allow the company to be fully hedged against
fluctuations in exchange rates and interest rates and to achieve U.S. dollar
fixed or floating interest rate payments below the market interest rate, at the
date of issuance, for borrowings of comparable maturity.
The fair value of interest rate derivatives outstanding as of December 31, 1997,
was not material. A one percentage point adverse change in the interest rates
upon which these contracts are based would not cause these instruments to have a
material impact on future earnings.
COMMODITY PRICE RISK AND TRADING
The company enters into exchange-traded and over-the-counter derivative
commodity instruments to hedge its exposure to price fluctuations on anticipated
crude oil, refined products and natural gas transactions and certain raw
material purchases.
Commodity trading in petroleum futures contracts is a natural extension of cash
market trading and is used to physically acquire a portion of refining crude
supply requirements. The commodity futures market has underlying principles of
increased liquidity and longer trading periods than the cash market and is one
method of reducing exposure to the price risk inherent in the petroleum
business. Typically, trading is conducted to manage price risk around near-term
supply requirements.
Occasionally, as market views and conditions allow, longer-term positions will
be taken to manage price risk for the company's equity production (crude and
natural gas) or net supply requirements. The company's use of derivative
commodity instruments reduces the effects of price volatility, thereby
protecting against adverse price movements, while limiting, somewhat, the
benefits of favorable price movements.
On a limited basis, the company also purchases and sells petroleum- and other
energy-based futures contracts for trading purposes. After-tax gain/loss from
such trading has not been material.
The fair value of derivative commodity instruments outstanding as of December
31, 1997, was not material. A ten percent adverse change in the commodity prices
upon which these contracts are based would not cause these instruments to have a
material impact on future earnings.
Additional details on these and other financial instruments are set forth in
Note 26 to the financial statements.
DUPONT 27
<PAGE>
Management's Discussion and Analysis
Environmental Matters
DuPont operates manufacturing facilities, petroleum refineries, natural gas
processing plants and product-handling and distribution facilities around the
world. These facilities are significantly affected by a broad array of
environmental laws and regulations. Company policy requires that all operations
fully meet or exceed legal and regulatory requirements. DuPont facilities
worldwide are run in accordance with the highest standards of safe operation,
even where those standards exceed the requirements of local law. DuPont has also
implemented voluntary programs to reduce air emissions, curtail the generation
of hazardous waste, decrease the volume of wastewater discharges and improve the
efficiency of energy use. The costs of complying with complex environmental laws
and regulations, as well as internal voluntary programs, are significant and
will continue to be so for the foreseeable future. These costs may increase in
the future, but are not expected to have a material impact on the company's
competitive or financial position.
In 1997 DuPont spent about $330 million for environmental capital projects
either required by law or necessary to meet the company's internal waste
elimination and pollution prevention goals. The company currently estimates
expenditures for environmental-related capital projects will total $300 million
in 1998. Significant capital expenditures may be required over the next decade
for treatment, storage and disposal facilities for solid and hazardous waste and
for compliance with the Clean Air Act (CAA) and its 1990 Amendments. Until all
new CAA regulatory requirements are known, considerable uncertainty will remain
regarding future estimates of capital expenditures. Total CAA capital costs over
the next two years are currently estimated to range from $20 million to $200
million.
Estimated pretax environmental expenses charged to current operations totaled
about $700 million, before insurance recoveries, in 1997 as compared to about
$800 million in both 1996 and 1995. These expenses include the remediation
accruals discussed below, operating, maintenance and depreciation costs for
solid waste, air and water pollution control facilities and the costs of
environmental research activities. The largest of these expenses resulted from
the operation of wastewater treatment facilities and solid waste management
facilities, each of which accounted for about $170 million. About 72 percent of
total annual expenses resulted from the operations of the company's Chemicals,
Fibers, Polymers, Life Sciences and Diversified Businesses segments in the
United States.
REMEDIATION ACCRUALS
DuPont accrues for remediation activities when it is probable that a liability
has been incurred and reasonable estimates of the liability can be made. These
accrued liabilities exclude claims against third parties and are not discounted.
Much of this liability results from the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA, often referred to as Superfund), the
Resource Conservation and Recovery Act (RCRA) and similar state laws that
require the company to undertake certain investigative and remedial activities
at sites where the company conducts or once conducted operations or at sites
where company-generated waste was disposed. The accrual also includes a number
of sites identified by the company that may require environmental remediation,
but which are not currently the subject of CERCLA, RCRA or state enforcement
activities. Over the next one to two decades the company may incur significant
costs under both CERCLA and RCRA. Considerable uncertainty exists with respect
to these costs and under adverse changes in circumstances, potential liability
may exceed amounts accrued as of December 31, 1997.
Remediation activities vary substantially in duration and cost from site to site
depending on the mix of unique site characteristics, evolving remediation
technologies, diverse regulatory agencies and enforcement policies and the
presence or absence of potentially liable third parties. Therefore, it is
difficult to develop reasonable estimates of future site remediation costs. At
December 31, 1997, the company's balance sheet included an accrued liability of
$561 million as compared to $586 million and $602 million at year-end 1996 and
1995, respectively. Approximately 78 percent of the company's environmental
reserve at December 31, 1997 was attributable to RCRA and similar remediation
liabilities and 22 percent to CERCLA liabilities. During 1997, remediation
accruals of $54 million, offset by $55 million in insurance proceeds, resulted
in a credit to income of $1 million, compared to credits of $9 million and $79
million in 1996 and 1995, respectively, also resulting from insurance
recoveries.
REMEDIATION EXPENDITURES
RCRA extensively regulates the treatment, storage and disposal of hazardous
waste and requires a permit to conduct such activities. The law requires that
permitted facilities undertake an
28 DUPONT
<PAGE>
Management's Discussion and Analysis
assessment of environmental conditions at the facility. If conditions warrant,
the company may be required to remediate contamination caused by prior
operations. As contrasted by CERCLA, the RCRA corrective action program results
in the cost of corrective action activities being typically borne solely by the
company. The company anticipates that significant ongoing expenditures for RCRA
remediation activities may be required over the next two decades, although
annual expenditures for the near term are not expected to vary significantly
from the range of such expenditures over the past few years. Longer term,
expenditures are subject to considerable uncertainty and may fluctuate
significantly. The company's expenditures associated with RCRA and similar
remediation activities were approximately $62 million in 1997, $79 million in
1996 and $94 million in 1995.
The company from time to time receives requests for information or notices of
potential liability from the Environmental Protection Agency (EPA) and state
environmental agencies alleging that the company is a "potentially responsible
party" (PRP) under CERCLA or an equivalent state statute. The company has also
on occasion been made a party to cost recovery litigation by those agencies or
by private parties. These requests, notices and lawsuits assert potential
liability for remediation costs at various sites that typically are not company
owned but allegedly contain wastes attributable to the company's past
operations. As of December 31, 1997, the company had been notified of potential
liability under CERCLA or state law at about 347 sites around the United States,
with active remediation under way at 175 of those sites. In addition, the
company has resolved its liability at 96 sites, either by completing remedial
actions with other PRPs or by participating in "de minimis buyouts" with other
PRPs whose waste, like the company's, represented only a small fraction of the
total waste present at a site. The company received notice of potential
liability at 12 new sites during 1997 compared with 7 similar notices in 1996
and 16 in 1995. The company's expenditures associated with CERCLA and similar
state remediation activities were approximately $18 million in 1997, $28 million
in 1996 and $25 million in 1995.
For most Superfund sites, the company's potential liability will be
significantly less than the total site remediation costs because the percentage
of waste attributable to the company versus that attributable to all other PRPs
is relatively low. Other PRPs at sites where the company is a party typically
have the financial strength to meet their obligations and, where they do not, or
where PRPs cannot be located, the company's own share of liability has not
materially increased. There are relatively few sites where the company is a
major participant, and neither the cost to the company of remediation at those
sites, nor at all CERCLA sites in the aggregate, is expected to have a material
impact on the competitive or financial position of the company.
Total expenditures for previously accrued remediation activities under CERCLA,
RCRA and similar state laws were $80 million in 1997, $107 million in 1996 and
$119 million in 1995. Although future remediation expenditures in excess of
current reserves is possible, the effect on future financial results is not
subject to reasonable estimation because of the considerable uncertainty
regarding the cost and timing of expenditures.
DUPONT 29
<PAGE>
Responsibilities for Financial Reporting
Management is responsible for the consolidated financial statements and the
other financial information contained in this Annual Report. The financial
statements have been prepared in accordance with generally accepted accounting
principles considered by management to present fairly the company's financial
position, results of operations and cash flows. The financial statements include
some amounts that are based on management's best estimates and judgments.
The company's system of internal controls is designed to provide reasonable
assurance as to the protection of assets against loss from unauthorized use or
disposition, and the reliability of financial records for preparing financial
statements and maintaining accountability for assets. The company's business
ethics policy is the cornerstone of our internal control system. This policy
sets forth management's commitment to conduct business worldwide with the
highest ethical standards and in conformity with applicable laws. The business
ethics policy also requires that the documents supporting all transactions
clearly describe their true nature and that all transactions be properly
reported and classified in the financial records. The system is monitored by an
extensive program of internal audit, and management believes that the system of
internal controls at December 31, 1997, meets the objectives noted above.
The financial statements have been audited by the company's independent
accountants, Price Waterhouse LLP. The purpose of their audit is to
independently affirm the fairness of management's reporting of financial
position, results of operations and cash flows. To express the opinion set forth
in their report, they study and evaluate the internal controls to the extent
they deem necessary. Their report is shown on this page. The adequacy of the
company's internal controls and the accounting principles employed in financial
reporting are under the general oversight of the Audit Committee of the Board of
Directors. This committee also has responsibility for employing the independent
accountants, subject to stockholder ratification. No member of this committee
may be an officer or employee of the company or any subsidiary or affiliated
company. The independent accountants and the internal auditors have direct
access to the Audit Committee, and they meet with the committee from time to
time, with and without management present, to discuss accounting, auditing and
financial reporting matters.
/s/ Charles O. Holliday, Jr. /s/ Gary M. Pfeiffer
Charles O. Holliday, Jr. Gary M. Pfeiffer
President Senior Vice President
and Chief Executive Officer and Chief Financial Officer
February 13, 1998
Report of Independent Accountants
To the Stockholders and the Board of Directors of
E. I. du Pont de Nemours and Company
In our opinion, the consolidated financial statements appearing on pages 31-53
of this Annual Report present fairly, in all material respects, the financial
position of E. I. du Pont de Nemours and Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 13, 1998
30 DUPONT
<PAGE>
Financial Statements
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Consolidated Income Statement
(Dollars in millions, except per share)
- -----------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Sales* $45,079 $43,810 $42,163
Other Income (Note 2) 1,574 1,340 1,059
----------------------------------------
Total 46,653 45,150 43,222
----------------------------------------
Cost of Goods Sold and Other Operating Charges 26,377 25,144 23,363
Selling, General and Administrative Expenses 2,711 2,856 2,995
Depreciation, Depletion and Amortization 2,385 2,621 2,722
Exploration Expenses, Including Dry Hole Costs and Impairment
of Unproved Properties 457 404 331
Research and Development Expense 1,116 1,032 1,067
Interest and Debt Expense (Note 3) 642 713 758
Taxes Other Than on Income* (Note 4) 6,300 6,399 6,596
Purchased In-Process Research and Development (Note 5) 1,478 -- --
Write-down of Assets and Other Related Costs (Note 6) 507 -- --
----------------------------------------
Total 41,973 39,169 37,832
----------------------------------------
Earnings Before Income Taxes 4,680 5,981 5,390
Provision for Income Taxes (Note 7) 2,275 2,345 2,097
----------------------------------------
Net Income $ 2,405 $ 3,636 $ 3,293
===========================================================================================================
Earnings Per Share of Common Stock (Note 8)
Basic $ 2.12 $ 3.23 $ 2.81
Diluted $ 2.08 $ 3.18 $ 2.77
===========================================================================================================
</TABLE>
* Includes petroleum excise taxes of $5,349, $5,461 and $5,655 in 1997, 1996 and
1995, respectively.
See pages 35-53 for Notes to Financial Statements.
DUPONT 31
<PAGE>
Financial Statements
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Consolidated Balance Sheet
(Dollars in millions, except per share)
- ----------------------------------------------------------------------------------------------------------------
December 31 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents (Note 9) $ 1,004 $ 1,066
Marketable Securities (Note 9) 142 253
Accounts and Notes Receivable (Note 10) 5,740 5,193
Inventories (Note 11) 4,070 3,706
Prepaid Expenses 397 297
Deferred Income Taxes (Note 7) 521 588
-----------------------------
Total Current Assets 11,874 11,103
-----------------------------
Property, Plant and Equipment (Note 12) 54,284 50,549
Less: Accumulated Depreciation, Depletion and Amortization 30,701 29,336
-----------------------------
23,583 21,213
-----------------------------
Investment in Affiliates (Note 13) 3,477 2,278
Other Assets (Notes 7 and 14) 4,008 3,276
-----------------------------
Total $ 42,942 $ 37,870
================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable (Note 15) $ 3,007 $ 2,757
Short-Term Borrowings and Capital Lease Obligations (Note 16) 6,154 3,910
Income Taxes (Note 7) 593 526
Other Accrued Liabilities (Note 17) 4,316 3,794
-----------------------------
Total Current Liabilities 14,070 10,987
Long-Term Borrowings and Capital Lease Obligations (Note 18) 5,929 5,087
Other Liabilities (Note 19) 8,919 8,450
Deferred Income Taxes (Note 7) 2,084 2,133
-----------------------------
Total Liabilities 31,002 26,657
-----------------------------
Minority Interests (Note 20) 670 620
-----------------------------
Stockholders' Equity (next page)
Preferred Stock, without par value - cumulative; 23,000,000 shares authorized;
issued at December 31:
$4.50 Series--1,672,594 shares (callable at $120) 167 167
$3.50 Series--700,000 shares (callable at $102) 70 70
Common Stock, $.30 par value; 1,800,000,000 shares authorized;
Issued at December 31, 1997--1,152,762,128; 1996--1,158,085,450 346 347
Additional Paid-In Capital 7,991 6,676
Reinvested Earnings 4,389 4,931
Cumulative Translation Adjustments (153) (23)
Minimum Pension Liability Adjustments (144) (116)
Common Stock Held in Trust for Unearned Employee
Compensation and Benefits (Flexitrust), at Market
(Shares: December 31, 1997--23,245,747; 1996--30,991,590) (1,396) (1,459)
-----------------------------
Total Stockholders' Equity 11,270 10,593
-----------------------------
Total $ 42,942 $ 37,870
================================================================================================================
</TABLE>
See pages 35-53 for Notes to Financial Statements.
32 DUPONT
<PAGE>
Financial Statements
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders' Equity (Notes 21 and 22)
(Dollars in millions, except per share)
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock $ 237 $ 237 $ 237
----------------------------------------------------------------------------------
Common Stock
Balance January 1 1,158,085,450 347 1,470,085,448 441 1,362,009,888 408
Issuance of Shares in Connection with:
Businesses Acquired 23,009,778 7 -- -- -- --
Public and Private Offerings -- -- 2 -- 54,678,750 16
Establishment of Flexitrust -- -- -- -- 48,000,000 14
Compensation Plans -- -- -- -- 5,396,810 3
Retirement of Treasury Stock (28,333,100) (8) (312,000,000) (94) -- --
----------------------------------------------------------------------------------
Balance December 31 1,152,762,128 346 1,158,085,450 347 1,470,085,448 441
----------------------------------------------------------------------------------
Additional Paid-In Capital
Balance January 1 6,676 8,689 4,771
Changes due to:
Businesses Acquired 1,317 -- --
Public and Private Offerings -- -- 1,731
Common Stock Held by Flexitrust 356 458 1,662
Shares Issued by Flexitrust (299) (289) (19)
Issuance (Repurchase) of Warrants -- (504) 439
Compensation Plans 134 70 105
Retirement of Treasury Stock (193) (1,748) --
----------------------------------------------------------------------------------
Balance December 31 7,991 6,676 8,689
----------------------------------------------------------------------------------
Reinvested Earnings
Balance January 1 4,931 9,503 7,406
Net Income 2,405 3,636 3,293
Preferred Dividends (10) (10) (10)
Common Dividends (1997-$1.23; 1996-$1.115;
1995-$1.015) (1,391) (1,251) (1,186)
Retirement of Treasury Stock (1,546) (6,947) --
----------------------------------------------------------------------------------
Balance December 31 4,389 4,931 9,503
----------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance January 1 (23) -- --
Adjustments during Year (130) (23) --
----------------------------------------------------------------------------------
Balance December 31 (153) (23) --
----------------------------------------------------------------------------------
Minimum Pension Liability Adjustments
Balance January 1 (116) (113) (79)
Adjustments during Year (28) (3) (34)
----------------------------------------------------------------------------------
Balance December 31 (144) (116) (113)
----------------------------------------------------------------------------------
Less: Common Stock Held in Flexitrust
Balance January 1 30,991,590 1,459 47,092,352 1,645 -- --
Establishment of Flexitrust -- -- -- -- 48,000,000 1,626
Shares Issued (7,745,843) (419) (16,100,762) (644) (907,648) (31)
Adjustments to Market Value -- 356 -- 458 -- 50
----------------------------------------------------------------------------------
Balance December 31 23,245,747 1,396 30,991,590 1,459 47,092,352 1,645
----------------------------------------------------------------------------------
Less: Common Stock Held in Treasury, at Cost
Balance January 1 -- -- 312,000,000 8,789 -- --
Acquisition (Retirement) -- -- (312,000,000) (8,789) 312,000,000 8,789
----------------------------------------------------------------------------------
Balance December 31 -- -- -- -- 312,000,000 8,789
----------------------------------------------------------------------------------
Total Stockholders' Equity $11,270 $10,593 $8,323
===================================================================================================================================
</TABLE>
See pages 35-53 for Notes to Financial Statements.
DUPONT 33
<PAGE>
Financial Statements
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(Dollars in millions)
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year $ 1,066 $ 1,408 $ 856
-----------------------------------------
Cash Provided by Operations
Net Income 2,405 3,636 3,293
Adjustments to Reconcile Net Income to Cash Provided by Operations:
Depreciation, Depletion and Amortization 2,385 2,621 2,722
Dry Hole Costs and Impairment of Unproved Properties 169 137 121
Purchased In-Process Research and Development 1,478 -- --
Other Noncash Charges and Credits--Net 437 (244) (67)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable (650) (359) 151
Inventories and Other Operating Assets (390) (253) 21
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities 857 531 (8)
Accrued Interest and Income Taxes (Notes 3 and 7) 293 319 528
-----------------------------------------
Cash Provided by Operations 6,984 6,388 6,761
-----------------------------------------
Investment Activities (Note 23)
Purchases of Property, Plant and Equipment (4,768) (3,303) (3,240)
Investments in Affiliates (2,283) (413) (249)
Payments for Businesses (Net of Cash Acquired) (1,238) (75) (5)
Proceeds from Sales of Assets 1,123 1,271 337
Net Decrease (Increase) in Short-Term Financial Instruments 115 (197) 500
Miscellaneous--Net 555 57 (56)
-----------------------------------------
Cash Used for Investment Activities (6,496) (2,660) (2,713)
-----------------------------------------
Financing Activities
Dividends Paid to Stockholders (1,401) (1,261) (1,196)
Net Increase (Decrease) in Short-Term Borrowings 1,737 (954) 2,172
Long-Term and Other Borrowings:
Receipts 6,462 3,194 7,640
Payments (5,562) (5,171) (5,642)
Acquisition of Treasury Stock (Note 21) (1,747) -- (8,350)
Repurchase of Warrants (Note 21) -- (504) --
Net Proceeds from Issuance of Common Stock
through Public and Private Offerings (Note 21) -- -- 1,747
Proceeds from Exercise of Stock Options 116 315 58
Increase (Decrease) in Minority Interests (Note 20) (56) 363 --
-----------------------------------------
Cash Used for Financing Activities (451) (4,018) (3,571)
-----------------------------------------
Effect of Exchange Rate Changes on Cash (99) (52) 75
-----------------------------------------
Cash and Cash Equivalents at End of Year $ 1,004 $ 1,066 $ 1,408
-----------------------------------------
Increase (Decrease) in Cash and Cash Equivalents $ (62) $ (342) $ 552
===================================================================================================================
</TABLE>
See pages 35-53 for Notes to Financial Statements.
34 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
1. Summary of Significant Accounting Policies
DuPont observes the generally accepted accounting principles described below.
These, together with the other notes that follow, are an integral part of the
consolidated financial statements.
Basis of Consolidation
The accounts of wholly owned and majority-owned subsidiaries are included in the
consolidated financial statements. Investments in affiliates owned 20 percent or
more and corporate joint ventures are accounted for under the equity method.
Investments in noncorporate joint ventures of petroleum operations are
consolidated on a pro rata basis. Other securities and investments, excluding
marketable securities, are generally carried at cost.
Inventories
Substantially all inventories are valued at cost as determined by the last-in,
first-out (LIFO) method; in the aggregate, such valuations are not in excess of
market. Elements of cost in inventories include raw materials, direct labor and
manufacturing overhead. Stores and supplies are valued at cost or market,
whichever is lower; cost is generally determined by the average cost method.
Property, Plant and Equipment
Property, plant and equipment (PP&E) is carried at cost and, except for
petroleum PP&E, PP&E placed in service prior to 1995 is depreciated under the
sum-of-the-years' digits method and other substantially similar methods. PP&E
placed in service after 1994 is depreciated using the straight-line method. This
change in accounting was made to reflect management's belief that the
productivity of such PP&E will not appreciably diminish in the early years of
its useful life, and it will not be subject to significant additional
maintenance in the later years of its useful life. In these circumstances,
straight-line depreciation is preferable in that it provides a better matching
of costs with revenues. Additionally, the change to the straight-line method
conforms to predominant industry practice. The effect of this change on net
income is dependent on the level of future capital spending; it did not have a
material effect in 1995. Depreciation rates are based on estimated useful lives
ranging from 3 to 25 years. Generally, for PP&E acquired prior to 1991, the
gross carrying value of assets surrendered, retired, sold or otherwise disposed
of is charged to accumulated depreciation and any salvage or other recovery
therefrom is credited to accumulated depreciation. For disposals of PP&E
acquired after 1990, the gross carrying value and related accumulated
depreciation are removed from the accounts and included in determining gain or
loss on such disposals.
Petroleum PP&E, other than "Oil and Gas Properties" described below, is
depreciated on the straight-line method at various rates calculated to
extinguish carrying values over estimated useful lives. When petroleum PP&E is
surrendered, retired, sold or otherwise disposed of, the nature of the assets
involved determines if a gain or loss is recognized, or if the gross carrying
value is charged to accumulated depreciation, depletion and amortization, and
any salvage or other recovery therefrom is credited to accumulated depreciation,
depletion and amortization.
Maintenance and repairs are charged to operations; replacements and betterments
are capitalized.
Oil and Gas Properties
The company's exploration and production activities are accounted for under the
successful-efforts method. Costs of acquiring unproved properties are
capitalized, and impairment of those properties, which are individually
insignificant, is provided for by amortizing the cost thereof based on past
experience and the estimated holding period. Geological, geophysical and delay
rental costs are expensed as incurred. Costs of exploratory dry holes are
expensed as the wells are determined to be dry. Costs of productive properties,
production and support equipment and development costs are capitalized and
amortized on a unit-of-production basis.
Intangible Assets
Identifiable intangible assets such as purchased patents and trademarks are
amortized using the straight-line method over their estimated useful lives.
Goodwill is amortized over periods up to 40 years using the straight-line
method. The company continually evaluates the reasonableness of its amortization
of intangibles. In addition, if it becomes probable that expected future
undiscounted cash flows associated with intangible assets are less than their
carrying value, the assets are written down to their fair value.
Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded in operating expenses when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. Accrued liabilities are exclusive of claims against
third parties and are not discounted.
DUPONT 35
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
Costs related to environmental remediation are charged to expense. Other
environmental costs are also charged to expense unless they increase the value
of the property and/or mitigate or prevent contamination from future operations,
in which event they are capitalized.
Income Taxes
The provision for income taxes has been determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
Provision has been made for income taxes on unremitted earnings of subsidiaries
and affiliates, except for subsidiaries in which earnings are deemed to be
permanently invested. Investment tax credits or grants are accounted for in the
period earned (the flow-through method).
Foreign Currency Translation
Through December 31, 1995, the company had determined that the U.S. dollar was
the "functional currency" of its worldwide operations. For subsidiaries where
the U.S. dollar is the functional currency, all foreign currency asset and
liability amounts are remeasured into U.S. dollars at end-of-period exchange
rates, except for inventories, prepaid expenses and property, plant and
equipment, which are remeasured at historical rates. Foreign currency income and
expenses are remeasured at average exchange rates in effect during the year,
except for expenses related to balance sheet amounts remeasured at historical
exchange rates. Exchange gains and losses arising from remeasurement of foreign
currency-denominated monetary assets and liabilities are included in income in
the period in which they occur.
Effective January 1, 1996, management determined that the local currency should
be designated as the functional currency for the company's integrated European
petroleum operations to properly reflect changed circumstances in the primary
economic environment in which these subsidiaries operate. For subsidiaries whose
functional currency is local currency, assets and liabilities denominated in
local currency are translated into U.S. dollars at end-of-period exchange rates,
and resultant translation adjustments are reported as a separate component of
stockholders' equity. Assets and liabilities denominated in other than the local
currency are remeasured into the local currency prior to translation into U.S.
dollars, and the resultant exchange gains or losses, net of their related tax
effects, are included in income in the period in which they occur. Income and
expenses are translated into U.S. dollars at average exchange rates in effect
during the period.
Exchange gains and losses, net of their related tax effects, are not material in
amount.
Hedging and Trading Activities
The company routinely uses forward exchange contracts to hedge its net exposure,
by currency, related to monetary assets and liabilities denominated in
currencies other than the functional currency of the reporting unit. Exchange
gains and losses associated with these contracts are included in income in the
period in which they occur.
The company selectively enters into forward exchange contracts and similar
agreements to effectively convert firm foreign currency commitments to
functional currency-denominated transactions. Gains and losses on these firm
commitment hedges are deferred and included in the functional currency
measurement of the related foreign currency-denominated transactions.
The company enters into interest rate swap agreements as part of its program to
manage the fixed and floating interest rate mix of its total debt portfolio and
related overall cost of borrowing. The differential to be paid or received is
accrued as interest rates change and is recognized in income over the life of
the agreements.
The company enters into commodity futures contracts to hedge its exposure to
price fluctuations on anticipated crude oil, refined products and natural gas
transactions and certain raw material purchases. Gains and losses on these hedge
contracts are deferred and included in the measurement of the related
transaction. On a limited basis, the company also purchases and sells petroleum-
and other energy-based futures contracts for trading purposes. Changes in the
market values of these trading contracts are reflected in income in the period
the change occurs.
36 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
In the event that a derivative designated as a hedge of a firm commitment or
anticipated transaction is terminated prior to the maturation of the hedged
transaction, gains or losses realized at termination are deferred and included
in the measurement of the hedged transaction. If a hedged transaction matures,
or is sold, extinguished or terminated prior to the maturity of a derivative
designated as a hedge of such transaction, gains or losses associated with the
derivative through the date the transaction matured are included in the
measurement of the hedged transaction and the derivative is reclassified as for
trading purposes. Derivatives designated as a hedge of an anticipated
transaction are reclassified as for trading purposes if the anticipated
transaction is no longer likely to occur.
In the Consolidated Statement of Cash Flows, the company reports the cash flows
resulting from its hedging activities in the same category as the related item
that is being hedged.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior years' data have been made to conform to 1997
classifications.
2. Other Income
- --------------------------------------------------------------------------------
1997 1996 1995
-------------------------------
Royalty income $ 66 $ 74 $ 70
Interest income, net of miscellaneous
interest expense 225 211 178
Equity in earnings of affiliates
(see Note 13) 682/1/ 669 545
Sales of assets 382/2/ 279 102
Pipeline tariff revenue 115 81 71
Miscellaneous income and
expenses--net 104 26 93
-------------------------------
$1,574 $1,340 $1,059
================================================================================
1 Includes a benefit of $115 from the gain on the sale by DuPont Merck of its
generic and multisource product lines.
2 Includes a benefit of $239 from the gain on the sale of certain North Sea
petroleum producing and exploration properties.
3. Interest and Debt Expense
- --------------------------------------------------------------------------------
1997 1996 1995
-------------------------------
Interest and debt cost incurred $811 $857 $928
Less: Interest and debt cost capitalized 169 144 170
-------------------------------
$642 $713 $758
================================================================================
Interest paid (net of amounts capitalized) was $577 in 1997, $755 in 1996, and
$688 in 1995.
4. Taxes Other Than on Income
- --------------------------------------------------------------------------------
1997 1996 1995
-------------------------------
Petroleum excise taxes
(also included in Sales):
U.S $1,201 $1,145 $1,060
Non-U.S 4,148 4,316 4,595
Payroll taxes 417 439 433
Property taxes 207 205 214
Import duties 189 168 166
Production and other taxes 138 126 128
-------------------------------
$6,300 $6,399 $6,596
================================================================================
5. Purchased In-Process Research and Development
Purchased in-process research and development represents the value assigned in a
purchase business combination to research and development projects of the
acquired business that were commenced but not yet completed at the date of
acquisition and which, if unsuccessful, have no alternative future use in
research and development activities or otherwise. In accordance with Statement
of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs," as interpreted by FASB Interpretation No. 4, amounts
assigned to purchased in-process research and development meeting the above
criteria must be charged to expense at the date of consummation of the purchase
business combination. In this regard, a charge of $903 was recorded in
conjunction with the purchase of a 20 percent interest in Pioneer Hi-Bred
International, Inc. based on an independent appraisal. In addition, charges of
$500 and $75 were recorded in conjunction with the purchase of Protein
Technologies International and the polyester intermediates and resins businesses
of Imperial Chemical Industries PLC, respectively, based on preliminary
allocations of purchase price which are subject to revision upon completion of
purchase accounting allocations and/or obtaining independent valuations by an
outside appraisal firm. See Note 23.
DUPONT 37
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
6. Write-down of Assets and Other Related Costs
During 1997 DuPont and the Agfa-Gevaert Group (Agfa) signed an agreement under
which Agfa will acquire DuPont's global graphic arts films and offset printing
plates businesses. Agfa will purchase manufacturing facilities in Germany and
the United Kingdom and provide employment to most of the 2,200 DuPont employees
working in these businesses. A decision was made to dispose of these businesses,
which are a component of DuPont's Diversified Businesses segment, after it
became apparent that the company would not be a leader in this industry.
The transaction is expected to close during the first quarter of 1998. In
connection with the pending sale, DuPont recorded a charge of $340 against third
quarter 1997 earnings to write down assets being sold to their estimated net
realizable value and to provide for other expenses associated with exiting these
businesses. The 1997 loss from operations from these businesses was not
material.
Also in 1997, the Petroleum segment recorded impairment provisions of $167 for
nonrevenue producing properties and an office building held for sale.
7. Provision for Income Taxes
- --------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------
Current tax expense:
U.S. federal $ 901 $ 869 $ 617
U.S. state and local 51 40 36
Non-U.S 1,324 1,248 1,077
------------------------------------------
Total 2,276 2,157 1,730
------------------------------------------
Deferred tax expense:
U.S. federal 116 135 379
U.S. state and local 8 4 22
Non-U.S (125) 49 (25)
------------------------------------------
Total (1) 188 376
------------------------------------------
Other/1/ -- -- (9)
------------------------------------------
Provision for Income Taxes 2,275 2,345 2,097
Stockholders' Equity
Stock Compensation/2/ (96) (69) (30)
Minimum Pension Liability/3/ (18) (1) (21)
------------------------------------------
Total Provision $2,161 $2,275 $2,046
================================================================================
1 Represents exchange (gains) losses associated with the company's hedged
non-U.S. tax liabilities. These amounts offset the tax effect arising from
related hedging activities.
2 Represents tax benefit of certain stock compensation amounts that are
deductible for income tax purposes but do not affect net income.
3 Represents deferred tax charge for minimum pension liability recorded in
stockholders' equity.
Total income taxes paid worldwide were $2,048 in 1997, $1,984 in 1996, and
$1,649 in 1995.
Deferred income taxes result from temporary differences between the financial
and tax bases of the company's assets and liabilities. The tax effects of
temporary differences and tax loss/tax credit carryforwards included in the
deferred income tax provision are as follows:
- --------------------------------------------------------------------------------
1997 1996 1995
------------------------------------
Depreciation $ 18 $ 68 $ 152
Accrued employee benefits 31 99 62
Other accrued expenses 16 (91) 118
Intangible drilling costs 27 (15) (23)
Inventories (29) (52) (71)
Unrealized exchange gains (losses) (6) 5 (1)
Investment in subsidiaries and affiliates (38) (19) --
Other temporary differences 64 107 40
Tax loss/tax credit carryforwards (112) 210 18
Valuation allowance change--net 28 (124) 81
------------------------------------
$ (1) $ 188 $ 376
================================================================================
The significant components of deferred tax assets and liabilities at December
31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1997 1996
---------------------------------------------------
Deferred Tax Asset Liability Asset Liability
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $ -- $3,214 $ 3 $3,220
Accrued employee benefits 3,067 968 2,926 811
Other accrued expenses 761 25 773 24
Intangible drilling costs -- 278 -- 251
Inventories 331 317 267 285
Unrealized exchange gains 5 19 7 37
Tax loss/tax credit
carryforwards 287 -- 236 --
Investment in subsidiaries
and affiliates 61 93 60 129
Other 470 1,145 447 1,061
---------------------------------------------------
Total $4,982 $6,059 $4,719 $5,818
------- ---------
Less: Valuation
allowance 326 298
------- -------
Net $4,656 $4,421
====================================================================================
</TABLE>
38 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
Current deferred tax liabilities (included in the Consolidated Balance Sheet
caption "Income Taxes") were $67 and $48 at December 31, 1997 and 1996,
respectively. In addition, deferred tax assets of $227 and $196 were included in
Other Assets at December 31, 1997 and 1996, respectively (see Note 14).
An analysis of the company's effective income tax rate follows:
- --------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
Higher effective tax rate on non-U.S
operations (principally Petroleum) 6.7 6.7 6.8
Lower effective tax rate on export sales (1.3) (0.8) (1.0)
Alternative fuels credit (1.4) (1.1) (1.1)
In-Process R&D* 10.8 -- --
Other--net (1.2) (0.6) (0.8)
-----------------------------------
Effective income tax rate 48.6% 39.2% 38.9%
================================================================================
* Charges associated with the Pioneer and PTI transactions were not tax
effected because these purchases were stock acquisitions rather than asset
purchases. See Note 5.
Earnings before income taxes shown below are based on the location of the
corporate unit to which such earnings are attributable. However, since such
earnings are often subject to taxation in more than one country, the income tax
provision shown above as U.S. or non-U.S. does not correspond to the earnings
set forth below.
- --------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------
United States (including exports) $2,241 $3,633 $3,066
Other regions 2,439 2,348 2,324
-----------------------------------
$4,680 $5,981 $5,390
================================================================================
At December 31, 1997, unremitted earnings of non-U.S. subsidiaries totaling
$7,007 were deemed to be permanently invested. No deferred tax liability has
been recognized with regard to the remittance of such earnings. It is not
practicable to estimate the income tax liability that might be incurred if such
earnings were remitted to the United States.
Under the tax laws of various jurisdictions in which the company operates,
deductions or credits that cannot be fully utilized for tax purposes during the
current year may be carried forward, subject to statutory limitations, to reduce
taxable income or taxes payable in a future year. At December 31, 1997, the tax
effect of such carryforwards approximated $287. Of this amount, $267 has no
expiration date, $17 expires in 1998 and $3 expires after 1998 but before 2002.
8. Earnings Per Share of Common Stock
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
became effective in the fourth quarter of 1997 and requires two presentations of
earnings per share - "basic" and "diluted." Basic earnings per share is computed
by dividing income available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for the period. The
computation of diluted earnings per share is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
The numerator in calculating both basic and diluted earnings per share for each
year is reported net income less preferred dividends of $10. The denominator is
based on the following weighted-average number of common shares:
- --------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------
Basic 1,130,755,483 1,121,350,592 1,170,214,952
Diluted 1,149,803,450 1,139,822,755 1,183,408,459
================================================================================
The difference between basic and diluted weighted-average common shares results
from the assumption that dilutive stock options outstanding were exercised.
The following stock options and warrants are not included in the diluted
earnings per share calculation since in each case the exercise price is greater
than the average market price:
- --------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------
Stock options 4,992,300 - 512,000
Warrants - - 312,000,000
================================================================================
Shares held by the Flexitrust are not considered in computing the weighted-
average number of common shares. See Notes 21 and 22.
9. Cash and Cash Equivalents and Marketable Securities
Cash equivalents represent investments with maturities of three months or less
from time of purchase. They are carried at cost plus accrued interest, which
approximates fair value because of the short maturity of these instruments. Cash
and cash equivalents are used in part to support a portion of the company's
commercial paper program.
Marketable securities represent investments in fixed and floating rate financial
instruments classified as available-for-sale securities and reported at fair
value.
DUPONT 39
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
10. Accounts and Notes Receivable
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Trade--net of allowances of $66 in 1997
and 1996 $4,366 $4,216
Miscellaneous 1,374 977
--------------------
$5,740 $5,193
================================================================================
Accounts and notes receivable are carried at amounts that approximate fair value
and include $94 for 1997 and $137 for 1996 from equity affiliates.
See Note 29 for a description of business segment markets and associated
concentrations of credit risk.
11. Inventories
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Chemicals $ 289 $ 281
Fibers 744 692
Polymers 707 620
Petroleum 1,278 1,270
Life Sciences 676 561
Diversified Businesses 376 282
------------------------
$4,070 $3,706
================================================================================
The excess of replacement or current cost over stated value of inventories for
which cost has been determined under the LIFO method approximated $552 and $785
at December 31, 1997 and 1996, respectively. In the aggregate, the market value
of the company's vertically integrated petroleum and petroleum-based chemical
products exceeds cost. Inventories valued at LIFO comprised 84 percent and 88
percent of consolidated inventories before LIFO adjustment at December 31, 1997
and 1996, respectively.
12. Property, Plant and Equipment
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Chemicals $ 6,387 $ 6,074
Fibers 12,805 12,325
Polymers 7,034 6,813
Petroleum 21,326 20,070
Life Sciences 2,412 1,871
Diversified Businesses 4,320 3,396
------------------------
$54,284 $50,549
================================================================================
Property, plant and equipment includes gross assets acquired under capital
leases of $212 and $209 at December 31, 1997 and 1996, respectively; related
amounts included in accumulated depreciation, depletion and amortization were
$108 and $99 at December 31, 1997 and 1996, respectively.
13. Summarized Financial Information for Affiliated Companies
Summarized combined financial information for affiliated companies for which
DuPont uses the equity method of accounting (see Note 1, "Basis of
Consolidation") is shown below on a 100 percent basis. The most significant of
these affiliates are CONSOL Energy Inc., DuPont Dow Elastomers L.L.C., The
DuPont Merck Pharmaceutical Company and Pioneer Hi-Bred International, Inc.;
DuPont has a 50 percent equity ownership in each of these companies with the
exception of Pioneer, in which the ownership is 20 percent. Dividends received
from equity affiliates were $734 in 1997, $860 in 1996 and $671 in 1995.
- --------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------
Results of operations 1997 1996 1995
- --------------------------------------------------------------------------------
Sales/1/ $14,257 $13,374 $10,447
Earnings before income taxes 1,719 1,108 1,084
Net Income 1,369 822 828
DuPont's equity in earnings of affiliates
(see Note 2) 682/2/ 669/3/ 545/3/
================================================================================
1 Includes sales to DuPont of $1,064 in 1997, $804 in 1996, and $802 in 1995.
2 Includes a benefit of $115 from the gain on the sale by DuPont Merck of its
generic and multisource product lines.
3 Reflects a more favorable allocation of DuPont Merck operating income to
recognize the performance of assets originally contributed to the venture by
DuPont.
- --------------------------------------------------------------------------------
Financial position at December 31 1997 1996
- --------------------------------------------------------------------------------
Current assets $ 6,944 $ 4,715
Noncurrent assets 13,774 10,936
--------------------------
Total assets $20,718 $15,651
--------------------------
Short-term borrowings* $ 968 $ 830
Other current liabilities 3,433 2,630
Long-term borrowings* 5,199 3,802
Other long-term liabilities 3,502 3,250
--------------------------
Total liabilities $13,102 $10,512
--------------------------
DuPont's investment in affiliates
(includes advances) $ 3,477 $ 2,278
================================================================================
* DuPont's pro rata interest in total borrowings was $2,153 in 1997 and $1,565
in 1996 of which $1,372 in 1997 and $789 in 1996 was guaranteed by the
company. These amounts are included in the guarantees disclosed in Note 27.
40 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
14. Other Assets
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Prepaid pension cost (see Note 25) $1,673 $1,760
Intangible assets 1,285* 221
Other securities and investments 185 586
Deferred income taxes (see Note 7) 227 196
Miscellaneous 638 513
-------------------------
$4,008 $3,276
================================================================================
* Includes $1,025 based on preliminary allocations of purchase price for
businesses purchased from Ralston Purina and ICI. See Note 23.
Other securities and investments includes $97 and $478 at December 31, 1997 and
1996, respectively, representing marketable securities classified as available
for sale and reported at fair value. The remainder represents numerous small
investments in securities for which there are no quoted market prices and for
which it is not practicable to determine fair value. Such securities are
reported at cost.
15. Accounts Payable
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Trade $2,043 $1,926
Payables to banks 273 264
Compensation awards 267 231
Miscellaneous 424 336
----------------------------
$3,007 $2,757
================================================================================
Payables to banks represents checks issued on certain disbursement accounts but
not presented to the banks for payment. The reported amounts approximate fair
value because of the short maturity of these obligations.
16. Short-Term Borrowings and Capital Lease Obligations
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Commercial paper $2,576 $1,663
Private placement commercial paper 2,896 1,318
Bank borrowings:
U.S. dollars -- 61
Other currencies 197 136
Medium-term notes payable within one year 128 372
Long-term borrowings payable within one year 300 300
Industrial development bonds payable on demand 51 51
Capital lease obligations 6 9
-----------------------
$6,154 $3,910
================================================================================
The estimated fair value of the company's short-term borrowings, including
interest rate financial instruments, 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, was $6,200 and $3,900 at December 31, 1997 and 1996,
respectively. The increase in estimated fair value in 1997 was primarily due to
higher short-term borrowing levels.
Unused short-term bank credit lines were approximately $6,200 and $4,500 at
December 31, 1997 and 1996, respectively. These lines support short-term
industrial development bonds, a portion of the company's commercial paper
program and other borrowings.
The weighted-average interest rate on short-term borrowings outstanding at
December 31, 1997 and 1996, was 5.9 percent and 6.0 percent, respectively.
17. Other Accrued Liabilities
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Payroll and other employee-related costs $ 682 $ 688
Taxes other than on income 444 395
Accrued postretirement benefits cost
(see Note 24) 341 356
Miscellaneous 2,849 2,355
-----------------------
$4,316 $3,794
================================================================================
DUPONT 41
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
18. Long-Term Borrowings and Capital Lease Obligations
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
U.S. dollar:
Industrial development bonds due 2007-2026 $ 333 $ 334
Medium-term notes due 1998-2005/1/ 437 516
8.50% notes due 1998 -- 301
7.50% notes due 1999 301 302
9.15% notes due 2000/2/ 303 304
6.00% debentures due 2001 ($660 face value,
13.95% yield to maturity) 505 475
6.50% notes due 2002 498 --
6.75% notes due 2002 299 299
8.00% notes due 2002 252 253
8.50% notes due 2003/2/ 300 300
8.13% notes due 2004 331 330
8.25% notes due 2006 282 282
6.75% notes due 2007 499 --
8.25% debentures due 2022 372 372
7.95% debentures due 2023 299 299
7.50% debentures due 2033 247 247
6.25% Swiss franc notes due 2000/3/ 103 103
Other loans (various currencies)
due 1998-2008 475 266
Capital lease obligations 93 104
---------------------
$5,929 $5,087
================================================================================
1 Average interest rates at December 31, 1997 and 1996, were 7.1 percent and
7.0 percent, respectively.
2 The company entered into an interest rate swaption agreement for each of
these notes as part of the program to manage the fixed and floating interest
rate mix of total borrowings. Each agreement gives the swaption counterparty
the one-time option to put the company into an interest rate swap with a
notional amount of $300, whereby the company would, over the remaining term
of the notes, receive fixed rate payments essentially equivalent to the fixed
interest rate of the underlying notes, and pay the counterparty a floating
rate of interest essentially equivalent to the rate the company pays on its
commercial paper. If exercised, the swaptions would effectively convert the
notes to a floating rate obligation over the remaining maturity of the notes.
The premium received from the counterparties for these swaptions is being
amortized to income, using the effective interest method, over the remaining
maturity of the notes. The interest rate swaption agreement for the 9.15
percent notes due 2000 expired on April 15, 1997, without being exercised.
The fair value and carrying value of these swaptions at December 31, 1997 and
1996, were not material.
3 Represents notes denominated as 150 million Swiss francs with a 6.25
percent Swiss franc fixed interest rate. Concurrent with the issuance of
these notes, the company entered into an interest and principal currency
swap that effectively established a $103 fixed principal amount with a 6.9
percent U.S. dollar fixed interest rate.
Average interest rates on industrial development bonds and on other loans
(various currencies) were 6.1 percent and 7.0 percent at December 31, 1997, and
6.1 percent and 6.9 percent at December 31, 1996.
Maturities of long-term borrowings, together with sinking fund requirements for
years ending after December 31, 1998, are $445, $523, $783 and $1,199 for the
years 1999, 2000, 2001 and 2002, respectively.
The estimated fair value of the company's long-term borrowings, including
interest rate financial instruments, 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 was $6,500 and $5,700 at December 31, 1997 and 1996,
respectively.
19. Other Liabilities
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Accrued postretirement benefits cost (see Note 24) $5,867 $5,847
Reserves for employee-related costs 1,102 1,159
Miscellaneous 1,950 1,444
---------------------
$8,919 $8,450
================================================================================
20. Minority Interests
In 1996 certain petroleum subsidiaries contributed assets with an aggregate fair
value of $613 to Conoco Oil & Gas Associates L.P. (COGA) for a general
partnership interest of 67 percent. The remaining 33 percent was purchased by
Vanguard Energy Investors L.P. (Vanguard) as a limited partner. The net result
of this transaction was to increase minority interests by $297.
Vanguard is entitled to a cumulative annual priority return on its investment
and participation in residual earnings at rates established in the partnership
agreement. The priority return rate, currently 6.52 percent, is negotiated every
four years. Vanguard's share of COGA's earnings was $22 or 18 percent in 1997
and $18 or 17 percent in 1996.
21. Stockholders' Equity
The company's common stock was split two-for-one effective May 15, 1997; all per
share data and common stock information have been restated to reflect this
split.
42 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
In January 1997 the company approved plans to purchase and retire up to 20
million shares of common stock to offset dilution resulting from shares issued
under its compensation programs. During the year, 5,833,100 shares were
repurchased for $327 and retired under this program. In February 1998 the
company purchased 6 million shares for $374 in a private placement transaction.
The purchase price is subject to adjustment under the terms of the private
placement agreement. In 1997, 509,778 shares were issued for 100 percent of the
capital stock of Pfister Hybrid Corn Company. Also in 1997, 22.5 million shares
were issued for 100 percent of the capital stock of Protein Technologies
International (PTI). Immediately subsequent to the PTI transaction, 22.5 million
shares were repurchased for $1,420 ($63.13 a share) in two private placement
transactions. The purchase price for one transaction for 16 million shares is
subject to adjustment under terms of the private placement agreement. The
remaining 6.5 million shares were purchased from the DuPont Pension Trust Fund
for $410.
Additional paid-in capital (compensation plans) includes $38 at December 31,
1997, related to amounts accrued for variable options.
In April 1995 the company redeemed 312 million shares of its common stock from
Seagram for $8,775 ($28.13 per share), including warrants valued at $439. In
addition, related costs of $14 were incurred. In July 1996 DuPont repurchased
the warrants for $504. Coincident with the repurchase, the company retired 312
million shares of common stock held as treasury stock.
In the second quarter of 1995, the company sold through public and private
offerings 54,678,750 shares of newly issued common stock for $1,747, including
15,578,750 shares that were sold to the DuPont Pension Trust Fund for $500
($32.10 a share). The company also established a Flexitrust that will effect the
sale or distribution of common stock to satisfy existing employee compensation
and benefit programs. In May 1995 DuPont issued 48 million shares of common
stock to the Flexitrust in return for a $1,612 promissory note and $14 in cash.
22. Compensation Plans
From time to time, the Board of Directors has approved the adoption of a
worldwide Corporate Sharing Program. Under these programs, essentially all
employees received a one-time grant to acquire shares of DuPont common stock at
the fair market value at the date of grant. Option terms are "fixed" and
generally are exercisable one year after date of grant and expire 10 years from
date of grant. There are no additional shares that may be subject to option
under existing programs.
Stock option awards under the DuPont Stock Performance Plan may be granted to
key employees of the company and may be "fixed" and/or "variable." The purchase
price of shares subject to option is the fair value of the company's stock at
the date of grant. In January 1997 a reload feature was added to the Stock
Performance Plan to accelerate stock ownership by more effectively using stock
options. Through February 13, 1999, optionees are eligible for reload options
upon the exercise of stock options with the condition that shares received from
the exercise are held for at least five years. A reload option is granted at the
fair market value on the date of grant and has a term equal to the remaining
term of the original option. The maximum number of reload options granted is
limited to the number of shares subject to option in the original option times
the original option price divided by the option price of the reload option.
Generally, fixed options are fully exercisable from one to three years after
date of grant and expire 10 years from date of grant. Beginning in 1998, shares
otherwise receivable from the exercise of nonqualified options can be deferred
as stock units for a designated future delivery.
During 1997 variable stock option grants were made to certain senior management.
These options are subject to forfeiture if, within five years from the date of
grant, the market price of DuPont common stock does not achieve a price of $75
per share for 50 percent of the options and $90 per share for the remaining 50
percent. At December 31, 1997, none of the outstanding variable options were
exercisable.
The maximum number of shares that may be subject to option for any consecutive
five-year period is 72 million shares. Subject to this limit, additional shares
that may have been made subject to options for the years 1997, 1996 and 1995
were 56,842,462, 59,078,926 and 56,770,460, respectively.
Awards for 1997 under the DuPont Stock Performance Plan (granted to key
employees in 1998) consisted of 5,377,304 fixed options to acquire DuPont common
stock at the fair market value ($59.50 per share) on the date of grant. These
options vest over a three-year period and, except for the last six months of the
ten-year option term, are exercisable when the market price of DuPont common
stock exceeds the option grant price by 20 percent.
DUPONT 43
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
The following table summarizes activity for fixed and variable options for the
last three years:
- ------------------------------------------------------------------------------
Fixed Variable
------------------------------------------------------
Number Weighted- Number Weighted-
of Average of Average
Shares Price Shares Price
------------------------------------------------------
January 1, 1995 42,729,694 $20.02 -- --
Granted 26,521,722 $28.39 -- --
Exercised 7,117,248 $18.03 -- --
Forfeited 594,990 $22.76 -- --
- ------------------------------------------------------------------------------
December 31, 1995 61,539,178 $23.83 -- --
Granted 5,674,188 $39.41 -- --
Exercised 17,754,052 $23.56 -- --
Forfeited 93,186 $25.96 -- --
- ------------------------------------------------------------------------------
December 31, 1996 49,366,128 $25.73 -- --
Granted 22,937,612 $52.82 4,926,900 $52.66
Exercised 9,719,982 $24.47 -- --
Forfeited 1,373,884 $47.85 95,600 $52.50
- ------------------------------------------------------------------------------
December 31, 1997 61,209,874 $35.58 4,831,300 $52.66
===============================================================================
Fixed options exercisable at the end of the last three years and the weighted-
average fair value of fixed options granted are as follows:
- --------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------
Options exercisable at year-end:
Number of shares 40,037,649 43,742,702 35,419,276
Weighted-average price $26.50 $23.97 $20.47
Weighted-average fair value of
options granted during the year $12.91 $8.95 $5.94
================================================================================
The weighted-average fair value of variable options granted during 1997 was
$13.08.
The fair value of options is calculated using the Black-Scholes option pricing
model. Assumptions used were as follows:
- --------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------
Fixed Variable Fixed Fixed
--------------------------------------------------------
Dividend yield 2.2% 2.2% 2.6% 3.4%
Volatility 18.8% 18.6% 21.0% 20.6%
Risk-free
interest rate 6.4% 6.4% 5.4% 7.6%
Expected life
(years) 5.6 5.7 6.0 4.5
================================================================================
The following table summarizes information concerning currently outstanding and
exercisable fixed options. For total variable options outstanding at December
31, 1997, the weighted-average remaining contractual life was 9.1 years.
- --------------------------------------------------------------------------------
Exercise Exercise Exercise Exercise
Price Price Price Price
$13.17- $22.63- $35.00- $52.66-
December 31, 1997 $19.63 $33.88 $52.50 $64.75
- --------------------------------------------------------------------------------
Options outstanding 11,036,697 23,521,320 24,517,251 2,134,606
Weighted-avg. remaining
contractual life (years) 2.7 6.3 8.9 9.0
Weighted-avg. price $18.51 $26.81 $49.92 $55.90
Options exercisable 11,036,697 23,521,320 4,824,875 654,757
Weighted-avg. price $18.51 $26.81 $39.38 $55.27
================================================================================
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for fixed
options. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," was issued in 1995. The company has elected not
to adopt the optional recognition provisions of SFAS No. 123. The table below
sets forth pro forma information as if the company had adopted these recognition
provisions.
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Reduction of:
Net Income $199 $ 34 $100
Earnings per share
Basic $.18 $.03 $.09
Diluted $.17 $.03 $.08
================================================================================
Compensation expense recognized in income for stock-based employee compensation
awards was $65, $22 and $16 for 1997, 1996 and 1995, respectively.
Awards under the Variable Compensation Plan may be granted in stock and/or cash
to employees who have contributed most in a general way to the company's
success, consideration being given to ability to succeed to more important
managerial responsibility. Such awards were $268 for 1997, $233 for 1996 and
$240 for 1995. Amounts credited to the Variable Compensation Fund are dependent
on company earnings and are subject to maximum limits as defined by the plan.
The amounts credited to the fund were $265 in 1997, $230 in 1996 and $240 in
1995. In accordance with the terms of the Variable Compensation Plan and similar
plans of subsidiaries, 1,668,211 shares of common stock are awaiting delivery
from awards for 1997 and prior years.
44 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
23. Investment Activities
Purchases of property, plant and equipment in 1997 includes $929 for natural gas
properties in South Texas.
Investment in affiliates in 1997 includes $1,711 for the September 1997 purchase
of a 20 percent interest in Pioneer Hi-Bred International. Pioneer develops,
produces and markets hybrids of corn and varieties of soybeans. For accounting
purposes, the acquisition has been treated as a purchase. Of the $1,711 purchase
price, $903 was allocated to purchased in-process research and development and
the remainder was allocated based on fair values to assets and liabilities of
Pioneer, principally intangible assets, for purposes of determining equity in
earnings.
Protein Technologies International was purchased on December 1, 1997. PTI is a
global supplier of soy proteins and applied technology to the food and paper
processing industries. 22,500,000 shares of DuPont common stock were issued in
this transaction with a fair value of $1,297. In addition, related costs of $4
were incurred. For accounting purposes, the acquisition has been treated as a
purchase. Based on preliminary estimates that are subject to revision, the
purchase price has been allocated as follows: cash $47; other current assets
$158; noncurrent assets $897; in-process research and development $500; and
liabilities assumed $301, including $188 of debt.
The company purchased ICI's global polyester intermediates and resins businesses
on December 31, 1997, for a cash payment of $1,240. As part of the transaction,
the company acquired a 70 percent interest in an ICI subsidiary that had
approximately $225 in long-term borrowings at December 31, 1997. For accounting
purposes, the acquisition has been treated as a purchase. Based on preliminary
estimates that are subject to revision, the purchase price has been allocated as
follows: current assets $116; non-current assets $1,444; in-process research and
development $75; and liabilities assumed $395, including $251 of debt.
The operating results of Pioneer, PTI, and the polyester intermediates and
resins businesses of ICI have been included in consolidated results from their
respective dates of acquisition. Excluding the effect of the $1,478 charge
associated with purchased in-process research and development, unaudited pro
forma results, assuming these acquisitions had all taken place on January 1,
1996, indicate that net income and earnings per share in 1996 and 1997 would be
reduced approximately 4 percent from amounts reported for these periods,
principally reflecting additional interest expense that would have been incurred
if borrowings used to finance these acquisitions had been outstanding from the
beginning of each year at the interest rates that would have been applicable to
borrowings during these periods.
Note 5 provides information on purchased in-process research and development in
connection with the Pioneer, PTI and ICI purchases.
In February 1998, DuPont acquired ICI's global polyester films business for
$650. The acquisition, accounted for under the purchase method, consisted of
film manufacturing facilities located in the United Kingdom, United States,
Japan and The Netherlands, and related technology and inventories. The results
of this business will be reported in the Diversified Businesses segment. The
unaudited pro forma effect on net income and earnings per share for 1996 and
1997 is not material.
Proceeds from sales of assets in 1997 principally include: (a) $175 from
collection of a note from The Sterling Group, Inc. received in connection with
their purchase of the Diagnostic Imaging business in 1996; (b) $125 from DuPont
Merck for sale of its generic and multisource product lines; and (c) $62 from
the sale of the NEN Life Sciences Products to Genstar Capital LLC. Sales of
other chemicals and specialties businesses and assets total $196, and proceeds
from sales of various petroleum properties were $565, including $272 from the
sale of certain North Sea properties.
Proceeds from sales of assets in 1996 principally include $570 from the sales of
Medical Products businesses, $390 from the formation of the elastomers joint
venture, and $275 from the sales of various petroleum properties. Assets sold in
connection with these sales amounted to $1,163, of which $644 was for property,
plant and equipment, with the remainder being primarily working capital. In 1995
there were no individually material items included in sales of assets.
Payments for businesses acquired in 1996 principally relate to the purchase of
commercial floorcovering distribution and installation companies.
45
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
24. Other Postretirement Benefits
The parent company and certain subsidiaries provide medical, dental and life
insurance benefits to pensioners and survivors. The associated plans are
unfunded, and approved claims are paid from company funds. Under the terms of
these plans, the company reserves the right to change, modify or discontinue the
plans.
Other postretirement benefits cost includes the following components:
- --------------------------------------------------------------------------------
Health Life
1997 Care Insurance Total
---------------------------------
Service cost--benefits allocated
to current period $ 50 $ 11 $ 61
Interest cost on accumulated
postretirement benefit obligation 280 73 353
Amortization of net gains and prior
service credit (91) (1) (92)
---------------------------------
Other postretirement benefits cost $ 239 $ 83 $ 322
=================================
1996
Service cost--benefits allocated
to current period $ 51 $ 17 $ 68
Interest cost on accumulated
postretirement benefit obligation 259 74 333
Amortization of net gains and prior
service credit (102) (1) (103)
---------------------------------
Other postretirement benefits cost $ 208 $ 90 $ 298
=================================
1995
Service cost--benefits allocated
to current period $ 39 $ 13 $ 52
Interest cost on accumulated
postretirement benefit obligation 274 78 352
Amortization of net gains and prior
service credit (133) (1) (134)
---------------------------------
Other postretirement benefits cost $ 180 $ 90 $ 270
================================================================================
The higher health care costs in 1997 and 1996 versus 1995 were due to the
discount rate and health care trends used to determine the accumulated
postretirement benefit obligation. In 1996 the company recorded a curtailment
gain of $115 related to business divestitures, joint venture activity and other
business restructurings.
The following provides a reconciliation of the accumulated postretirement
benefit obligation to the liabilities reflected in the balance sheet at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Health Life
1997 Care Insurance Total
----------------------------------------
Accumulated postretirement benefit obligation for:
<S> <C> <C> <C>
Current pensioners and survivors $(2,623) $ (747) $(3,370)
Fully eligible employees (188) -- (188)
Other employees (1,014) (319) (1,333)
----------------------------------------
(3,825) (1,066) (4,891)
Unrecognized net loss (gain) (706) 96 (610)
Unrecognized prior service credit (707) -- (707)
----------------------------------------
Accrued postretirement benefits cost $(5,238) $ (970) $(6,208)
========================================
Amount included in Other
Accrued Liabilities (see Note 17) $ 341
--------
Amount included in Other Liabilities
(see Note 19) $ 5,867
--------
1996
Accumulated postretirement benefit obligation for:
Current pensioners and survivors $(2,661) $ (676) $(3,337)
Fully eligible employees (195) -- (195)
Other employees (908) (287) (1,195)
----------------------------------------
(3,764) (963) (4,727)
Unrecognized net loss (gain) (714) 13 (701)
Unrecognized prior service credit (775) -- (775)
----------------------------------------
Accrued postretirement benefits cost $(5,253) $ (950) $(6,203)
========================================
Amount included in Other
Accrued Liabilities (see Note 17) $ 356
--------
Amount included in Other Liabilities
(see Note 19) $ 5,847
==================================================================================================
</TABLE>
The health care accumulated postretirement benefit obligation was determined at
December 31, 1997 and 1996, using a health care escalation rate of 8 percent
decreasing to 5 percent over 8 years. The assumed long-term rate of compensation
increase used for life insurance was 5 percent. The discount rate was 7 percent
at December 31, 1997, and 7.75 percent at December 31, 1996. A one-percentage-
point increase in the health care cost escalation rate would have increased the
accumulated postretirement benefit obligation by $405 at December 31, 1997, and
the 1997 other postretirement benefit cost would have increased by $42.
46
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
25. Pensions
The company has noncontributory defined benefit plans covering substantially all
U.S. employees. The benefits for these plans are based primarily on years of
service and employees' pay near retirement. The company's funding policy is
consistent with the funding requirements of federal law and regulations.
Pension coverage for employees of the company's non-U.S. consolidated
subsidiaries is provided, to the extent deemed appropriate, through separate
plans. Obligations under such plans are systematically provided for by
depositing funds with trustees, under insurance policies or by book reserves.
Net pension cost (credit) for defined benefit plans includes the following
components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits
earned during the period $ 388 $ 382 $ 292
Interest cost on projected
benefit obligation 1,211 1,173 1,140
Return on assets:
Actual (gain) $(3,391) $(2,477) $(3,417)
Deferred gain (loss) 1,876 (1,515) 1,017 (1,460) 2,082 (1,335)
------- ------- -------
Amortization of net gains
and prior service cost (58) (72) (108)
------- ------- -------
Net pension cost (credit) $ 26 $ 23 $ (11)
=====================================================================================================
</TABLE>
The change in the annual pension cost (credit) was primarily due to the discount
rate used to determine the present value of future benefits and the return on
pension trust assets. In 1996, the company recorded a curtailment loss of $88
related to business divestitures, joint venture activity and other business
restructurings.
The funded status of these plans was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Fully Funded Partially Funded
------------------------------------------------------------------------------------
December 31 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $(13,817) $(12,584) $(1,487) $(1,152)
-------- -------- ------- -------
Accumulated benefit obligation $(14,283) $(13,073) $(1,537) $(1,207)
-------- -------- ------- -------
Projected benefit obligation $(16,601) $(15,085) $(1,935) $(1,597)
Plan assets at fair value 19,355 17,654 538 379
-------- -------- ------- -------
Plan assets in excess of (less than)
projected benefit obligation 2,754 2,569 (1,397) (1,218)
Unrecognized net (gain) loss* (1,698) (1,493) 551 388
Unrecognized prior service cost 617 684 153 145
Additional minimum liability - - (403) (329)
-------- -------- ------- -------
Accrued pension asset (liability) $1,673 $1,760 $(1,096) $(1,014)
===============================================================================================================================
</TABLE>
* Includes the unamortized balance of $(835) and $(1,000) for fully funded plans
and $3 and $14 for partially funded plans at December 31, 1997 and 1996,
respectively, of unrecognized net (gain) loss at January 1, 1985, the initial
application date of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions."
47
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
For U.S. plans, the projected benefit obligation was determined using a discount
rate of 7 percent at December 31, 1997, and 7.75 percent at December 31, 1996,
and an assumed long-term rate of compensation increase of 5 percent. The assumed
long-term rate of return on plan assets is 9 percent. Plan assets consist
principally of common stocks, including 9,715,087 shares of DuPont at December
31, 1997, and U.S. government obligations. For non-U.S. plans, no one of which
was material, similar economic assumptions were used.
In the United States, federal law permits employers to transfer some of the
excess funds from an overfunded pension plan to pay a company's portion of
certain retiree health care costs. Accordingly, on December 31, 1997, $250 was
transferred with respect to eligible 1997 costs. This action had no impact on
earnings.
26. Derivatives and Other Hedging Instruments
The company enters into contractual arrangements (derivatives) in the ordinary
course of business to hedge its exposure to currency, interest rate and
commodity price risks. The company has established an overlying Financial Risk
Management Framework for risk management and derivative activities. The
framework sets forth senior management's financial risk management philosophy
and objectives through a Corporate Financial Risk Management Policy. In
addition, it establishes oversight committees and risk management guidelines
that authorize the use of specific derivative instruments and further
establishes procedures for control and valuation, counterparty credit approval,
and routine monitoring and reporting. The counterparties to these contractual
arrangements are major financial institutions. The company is exposed to credit
loss in the event of nonperformance by these counterparties. The company manages
this exposure to credit loss through the aforementioned credit approvals, limits
and monitoring procedures and, to the extent possible, by restricting the period
over which unpaid balances are allowed to accumulate. The company does not
anticipate nonperformance by counterparties to these contracts, and no material
loss would be expected from such nonperformance. Market and counterparty credit
risks associated with these instruments are regularly reported to management.
The company's accounting policies with respect to these financial instrument
transactions are set forth in Note 1.
Currency Risk
The company routinely uses forward exchange contracts to hedge its net
exposures, by currency, related to monetary assets and liabilities of its
operations that are denominated in currencies other than the designated
functional currency. 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.
In addition, the company from time to time will enter into forward exchange
contracts to establish with certainty the functional currency amount of future
firm commitments denominated in another currency. Decisions regarding whether or
not to hedge a given commitment are made on a case-by-case basis, taking into
consideration the amount and duration of the exposure, market volatility and
economic trends. At December 31, 1997, the company had 11 open forward exchange
contracts designated as hedges of firm foreign currency commitments. Deferred
losses associated with these contracts were not material. Forward exchange
contracts are also used to manage near-term foreign currency cash requirements
and to place foreign currency deposits and marketable securities investments
into currencies offering favorable returns. Net cash inflow (outflow) from
settlement of forward exchange contracts was $146, $(192) and $195 for the years
1997, 1996 and 1995, respectively.
Interest Rate Risk
The company uses a combination of financial instruments, including interest rate
swaps, interest and principal currency swaps and structured medium-term
financings, as part of its program to manage the fixed and floating interest
rate mix of the total debt portfolio and related overall cost of borrowing.
Interest rate swaps involve the exchange of fixed for floating rate interest
payments that are fully integrated with underlying fixed-rate bonds or notes to
effectively convert fixed rate debt into floating rate debt based on LIBOR or
commercial paper rates. Interest rate swaps also involve the exchange of
floating for fixed rate interest payments that are fully integrated with
commercial paper or other floating rate borrowings to effectively convert
floating rate debt into fixed rate debt. Both types of interest rate swaps are
denominated in U.S. dollars. Interest rate swaps allow the company to maintain a
target range of floating rate debt.
Under interest and principal currency swaps, the company receives predetermined
foreign currency-denominated payments
48
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
corresponding, both as to timing and amount, to the fixed or floating interest
rate and fixed principal amount to be paid by the company under concurrently
issued foreign currency-denominated bonds. In return, the company pays a U.S.
dollar-denominated fixed or floating interest rate and a U.S. dollar-denominated
fixed principal amount to the counterparty, thereby effectively converting the
foreign currency-denominated bonds into U.S. dollar-denominated obligations for
both interest and principal. Interest and principal currency swaps allow the
company to be fully hedged against fluctuations in currency exchange rates and
foreign interest rates and to achieve U.S. dollar fixed or floating interest
rate payments below the market interest rate, at the date of issuance, for
borrowings of comparable maturity.
An interest and principal currency swap was outstanding at December 31, 1997 and
1996, that effectively converted a 150 million Swiss franc borrowing with a 6.25
percent Swiss franc fixed interest rate and a maturity of 2000 to a U.S. dollar
fixed principal amount of $103 with a 6.9 percent U.S. dollar fixed interest
rate. The fair value of this swap at December 31, 1997 and 1996, was not
material.
Structured medium-term financings consist of: (a) a structured medium-term note
with interest and/or principal payments (denominated in either U.S. dollars or
foreign currencies) determined using a specified calculation incorporating
changes in currency exchange rates or other financial indexes; and (b) a
concurrently executed structured medium-term swap that, for any and all
calculations of the note's interest and/or principal payments over the term of
the note, provides a fully hedged transaction such that the note is effectively
converted to a U.S. dollar-denominated fixed or floating interest rate with a
U.S. dollar-denominated fixed principal amount. Structured medium-term swaps
allow the company to be fully hedged against fluctuations in exchange rates and
interest rates and to achieve U.S. dollar fixed or floating interest rate
payments below the market interest rate, at the date of issuance, for borrowings
of comparable maturity.
The face amount of structured medium-term financings outstanding was $50 and
$135 at December 31, 1997 and 1996, respectively. The weighted-average interest
rate and weighted-average maturity was 5.6 percent and 5.8 percent, and 7.8
years and 3.8 years, at December 31, 1997 and 1996, respectively. The fair value
of the structured medium-term swap associated with these financings at December
31, 1997 and 1996, was not material.
It is the company's policy that foreign currency bonds and structured
medium-term notes will not be issued unless a hedge of the market risks inherent
in such borrowings is executed simultaneously with a management-approved, highly
creditworthy counterparty to provide a fully hedged transaction.
Interest rate financial instruments did not have a material effect on the
company's overall cost of borrowing at December 31, 1997 and 1996.
See also Notes 16 and 18 for additional descriptions of interest rate financial
instruments.
Summary of Outstanding Derivative Financial Instruments
Set forth below is a summary of the notional amounts, estimated fair values and
carrying amounts of outstanding financial instruments at December 31, 1997 and
1996.
Notional amounts represent the face amount of the contractual arrangements and
are not a measure of market or credit exposure. Estimated fair value of forward
exchange contracts is based on market prices for contracts of comparable time to
maturity. Carrying amounts represent the receivable (payable) recorded in the
Consolidated Balance Sheet. See also Notes 9, 10, 14, 15, 16 and 18 for fair
values and carrying amounts of other financial instruments.
Notional Amount, Estimated Fair Value and Carrying Amount
of Outstanding Derivative Financial Instruments
- ------------------------------------------------------------------------------
Notional Estimated Carrying
Type of Instrument Amount Fair Value Amount
- ------------------------------------------------------------------------------
Forward Exchange Contracts
December 31, 1997 $ 8,621 $ (3) $ 16
1996 7,597 (30) (52)
==============================================================================
Estimated fair values shown above only represent the value of the hedge
component of these transactions, and thus are not indicative of the fair value
of the company's overall hedged position. The estimated fair value of the
company's total debt portfolio, 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, was $12,700 and $9,600 at December 31, 1997 and 1996,
respectively. The increase in fair value in 1997 was primarily due to higher
borrowing levels.
49
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
Commodity Price Risk
The company enters into exchange-traded and over-the-counter derivative
commodity instruments to hedge its exposure to price fluctuations on anticipated
crude oil, refined products and natural gas transactions and certain raw
material purchases.
Commodity trading in petroleum futures contracts is a natural extension of cash
market trading and is used to physically acquire a portion of refining crude
supply requirements. The commodity futures market has underlying principles of
increased liquidity and longer trading periods than the cash market and is one
method of reducing exposure to the price risk inherent in the petroleum
business. Typically, trading is conducted to manage price risk around near-term
supply requirements.
Occasionally, as market views and conditions allow, longer-term positions will
be taken to manage price risk for the company's equity production (crude and
natural gas) or net supply requirements. These positions may not exceed
anticipated equity production or net supply requirements for the hedge period.
The company's use of derivative commodity instruments reduces the effects of
price volatility, thereby protecting against adverse price movements, while
limiting, somewhat, the benefits of favorable price movements.
On a limited basis, the company also purchases and sells petroleum- and other
energy-based futures contracts for trading purposes. After-tax gain/loss from
such trading has not been material. The fair value of outstanding derivative
commodity instruments at December 31, 1997 and 1996, was not material.
27. Commitments and Contingent Liabilities
The company uses various leased facilities and equipment in its operations.
Future minimum lease payments under noncancelable operating leases are $361,
$304, $225, $185 and $161 for the years 1998, 1999, 2000, 2001 and 2002,
respectively, and $884 for subsequent years, and are not reduced by
noncancelable minimum sublease rentals due in the future in the amount of $141.
Rental expense under operating leases was $382 in 1997, $354 in 1996 and $339 in
1995.
In June 1997, DuPont formed alliances with Computer Sciences Corporation (CSC)
and Andersen Consulting. CSC operates a majority of DuPont's global information
systems and technology infrastructure and provides selected applications and
software services. Andersen Consulting provides information systems solutions
designed to enhance DuPont's manufacturing, marketing, distribution and customer
service for its chemicals businesses. The total dollar value of the contracts is
in excess of $4,000 over 10 years. Minimum payments due under the contracts are:
$336, $275, $221, $182 and $174 for the years 1998, 1999, 2000, 2001 and 2002,
respectively, and a total of $711 thereafter.
The company has various purchase commitments for materials, supplies and items
of permanent investment incident to the ordinary conduct of business. In the
aggregate, such commitments are not at prices in excess of current market. In
addition, at December 31, 1997, the company had an obligation to purchase
natural gas at prices that were in excess of year-end 1997 market prices. No
material annual loss is expected from this long-term commitment.
The company is subject to various lawsuits and claims with respect to such
matters as product liabilities, governmental regulations and other actions
arising out of the normal course of business. While the effect on future
financial results is not subject to reasonable estimation because considerable
uncertainty exists, in the opinion of company counsel, the ultimate liabilities
resulting from such lawsuits and claims will not materially affect the
consolidated financial position of the company.
During 1991 the company initiated a stop-sale and recall of Benlate(R) 50 DF
fungicide. About 80 of the more than 700 cases filed against the company in
connection with the recall remain, the rest having been disposed of by trial,
dismissal or settlement. In the fourth quarter of 1995, DuPont and the other
major defendants in litigation concerning allegedly defective plumbing systems
made with polybutylene pipe and acetal fittings settled two of several national
class actions. The company's liability in the settled actions is limited to 10
percent of the cost of repairing plumbing systems up to a total company payout
of $120. The related liability for each of these matters included in the
Consolidated Balance Sheet is not reduced by the amounts of any expected
insurance recoveries. Adverse changes in estimates for such costs could result
in additional future charges.
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
has accrued for certain environmental
50
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
remediation activities consistent with the policy set forth in Note 1. At
December 31, 1997, such accrual amounted to $561 and, in management's opinion,
was appropriate based on existing facts and circumstances. Under adverse changes
in circumstances, potential liability may exceed amounts accrued. In the event
that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the consolidated financial position of the company.
The company has indirectly guaranteed various debt obligations under agreements
with certain affiliated and other companies to provide specified minimum
revenues from shipments or purchases of products. At December 31, 1997, these
indirect guarantees totaled $29, and the company had directly guaranteed $1,756
of the obligations of certain affiliated companies and others. No material loss
is anticipated by reason of such agreements and guarantees.
<TABLE>
<CAPTION>
28. Geographic Information
- ---------------------------------------------------------------------------------------------------
United Other
States Europe Regions Consolidated
--------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales to Unaffiliated Customers/1/ $24,648 $15,389 $5,042 $45,079
Transfers Between Geographic Areas/2/ 3,108 625 832 -
--------------------------------------------
Total $27,756 $16,014 $5,874 $45,079
============================================
After-Tax Operating Income $ 1,346 $ 1,306 $ 126 $ 2,778
Identifiable Assets at December 31 $20,015 $11,346 $5,242 $36,603
--------------------------------------------
1996
Sales to Unaffiliated Customers/1/ $22,969 $16,045 $4,796 $43,810
Transfers Between Geographic Areas/2/ 2,699 753 671 -
--------------------------------------------
Total $25,668 $16,798 $5,467 $43,810
============================================
After-Tax Operating Income $ 2,688 $ 1,144 $ 186 $ 4,018
Identifiable Assets at December 31 $17,230 $10,973 $4,462 $32,665
--------------------------------------------
1995
Sales to Unaffiliated Customers/1/ $21,534 $15,859 $4,770 $42,163
Transfers Between Geographic Areas/2/ 2,406 755 605 -
--------------------------------------------
Total $23,940 $16,614 $5,375 $42,163
============================================
After-Tax Operating Income $ 2,414 $ 1,161 $ 169 $ 3,744
Identifiable Assets at December 31 $17,387 $10,879 $4,149 $32,415
===================================================================================================
</TABLE>
1 Sales outside the United States of products manufactured in and exported from
the United States totaled $4,005 in 1997, $3,826 in 1996 and $4,289 in 1995.
2 Products are transferred between geographic areas on a basis intended to
reflect as nearly as practicable the "market value" of the products.
51
DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
29. Industry Segment Information
The company has six principal segments that manufacture and sell a wide range of
products to many different markets, including energy, transportation, textile,
construction, automotive, electronics, printing, health care, packaging and
agricultural products. The company sells its products worldwide, however, about
52 percent and 34 percent of sales are made in the United States and Europe,
respectively. Major products by segment include: Chemicals (specialty chemicals,
white pigment and mineral products, fluorochemicals and nylon intermediates);
Fibers (textile, industrial and carpet nylon, Dacron(R) polyester, Lycra(R)
brand spandex, nonwovens and aramids); Polymers (automotive finishes,
elastomers, fluoropolymers, Corian(R) surfaces, packaging and industrial
polymers, and engineering polymers); Petroleum (crude oil, natural gas and
refined products), Life Sciences (agricultural products and pharmaceuticals),
and Diversified Businesses (photopolymers and electronic materials, printing
industry products, polyester films, intermediates and resins, and coal). The
company's sales are not materially dependent on a single customer or small group
of customers. The Fibers and Polymers segments, however, have several large
customers in their respective industries that are important to these segments'
operating results.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Life Diversified
Chemicals Fibers Polymers Petroleum Sciences Businesses Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Sales to Unaffiliated Customers/1/ $4,267 $7,680 $6,830 $20,990/2/ $2,518 $2,794 $ 45,079
Transfers Between Segments 215 23 225 420 -- 42 --
--------------------------------------------------------------------------------
Total $4,482 $7,703 $7,055 $21,410 $2,518 $2,836 $ 45,079
--------------------------------------------------------------------------------
Operating Profit $ 864 $1,494 $1,319 $ 1,928 $ (123) $ (128) $ 5,354
Provision for Income Taxes (313) (541) (511) (899) (118) 33 (2,349)
Equity in Earnings of Affiliates 49 27 116 39 (545) 87 (227)
--------------------------------------------------------------------------------
After-Tax Operating Income/3/ $ 600 $ 980 $ 924 $ 1,068 $ (786) $ (8) $ 2,778/4/
--------------------------------------------------------------------------------
Identifiable Assets at December 31 $3,684 $7,118 $4,854 $13,822 $3,380 $3,745 $ 36,603/5/
--------------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 310 $ 555 $ 313 $ 1,070 $ 86 $ 157 $ 2,491/6/
Capital Expenditures $ 429 $ 782 $ 570 $ 2,771 $ 119 $ 229 $ 4,900/7/
==========================================================================================================================
1996
Sales to Unaffiliated Customers/1/ $4,141 $7,204 $6,699 $20,166/2/ $2,472 $3,128 $ 43,810
Transfers Between Segments 190 22 213 413 -- 52 --
--------------------------------------------------------------------------------
Total $4,331 $7,226 $6,912 $20,579 $2,472 $3,180 $ 43,810
--------------------------------------------------------------------------------
Operating Profit $ 808 $1,247 $1,306 $ 1,818 $ 436 $ 257 $ 5,872
Provision for Income Taxes (301) (455) (489) (933) (254) (90) (2,522)
Equity in Earnings of Affiliates 56 10 92 (25) 497 38 668
--------------------------------------------------------------------------------
After-Tax Operating Income/8/ $ 563 $ 802 $ 909 $ 860 $ 679 $ 205 $ 4,018/4/
--------------------------------------------------------------------------------
Identifiable Assets at December 31 $3,723 $6,805 $4,535 $13,018 $2,033 $2,551 $ 32,665/5/
--------------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 330 $ 609 $ 350 $ 1,128 $ 83 $ 219 $ 2,719/6/
Capital Expenditures $ 338 $ 611 $ 446 $ 1,616 $ 93 $ 213 $ 3,317/7/
==========================================================================================================================
1995
Sales to Unaffiliated Customers/1/ $4,181 $7,215 $7,037 $17,660/2/ $2,322 $3,748 $ 42,163
Transfers Between Segments 248 31 208 298 -- 46 --
--------------------------------------------------------------------------------
Total $4,429 $7,246 $7,245 $17,958 $2,322 $3,794 $ 42,163
--------------------------------------------------------------------------------
Operating Profit $ 947 $1,199 $1,244 $ 1,257 $ 468 $ 283 $ 5,398
Provision for Income Taxes (360) (435) (465) (660) (202) (82) (2,204)
Equity in Earnings of Affiliates 64 41 50 22 322 51 550
--------------------------------------------------------------------------------
After-Tax Operating Income/9/ $ 651 $ 805 $ 829 $ 619 $ 588 $ 252 $ 3,744/4/
--------------------------------------------------------------------------------
Identifiable Assets at December 31 $3,643 $6,305 $4,678 $12,634 $1,935 $3,220 $ 32,415/5/
--------------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 352 $ 626 $ 362 $ 1,111 $ 91 $ 281 $ 2,823/6/
Capital Expenditures $ 417 $ 593 $ 399 $ 1,714 $ 73 $ 198 $ 3,394/7/
==========================================================================================================================
</TABLE>
52 DUPONT
<PAGE>
Notes to Financial Statements
(Dollars in millions, except per share)
1 Sales of refined petroleum products of $15,115 in 1997, $15,169 in 1996 and
$13,938 in 1995 exceeded 10 percent of consolidated sales.
2 Excludes crude oil and refined product exchanges and trading transactions
totaling $4,249 in 1997, $3,549 in 1996 and $2,299 in 1995.
3 Includes the following (charges):
Petroleum/a/ $ (6)
Life Sciences/b/ (1,393)
Diversified Businesses/c/ (283)
------
$(1,682)
================================================================================
a Includes charges of $112 for impairment of nonrevenue producing properties
and $55 for a write-down of an office building held for sale, substantially
offset by a $161 gain on the sale of certain North Sea properties.
b Includes charges of $1,403 for acquired in-process research and development
relating to the Pioneer transaction ($903) and PTI transaction ($500) and
$62 associated with the Benlate(R) 50 DF fungicide recall, partly offset by
a $72 gain on the sale by DuPont Merck of its generic and multisource
product lines.
c Includes charges of $220 associated with the planned divestiture of certain
printing and publishing businesses and $63 for acquired in-process research
and development relating to the ICI polyester intermediates and resins
transaction.
4 The following reconciles After-Tax Operating Income to Net Income:
- --------------------------------------------------------------------------------
1997 1996 1995
----------------------------
After-Tax Operating Income $2,778 $4,018 $3,744
Interest and Other Corporate
Expenses Net of Tax* (373) (382) (451)
----------------------------
Net Income $2,405 $3,636 $3,293
================================================================================
*Includes interest and debt expense and other corporate expenses such as
exchange gains and losses (including the company's share of equity
affiliates' exchange gains and losses).
5 The following reconciles Identifiable Assets to Total Assets:
- --------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------
Identifiable Assets at December 31 $36,603 $32,665 $32,415
Investment in Affiliates 3,477 2,278 1,846
Corporate Assets 2,862 2,927 2,938
--------------------------------------
Total Assets at December 31 $42,942 $37,870 $37,199
================================================================================
6 Includes depreciation on research and development facilities and impairment
of unproved properties; excludes write-down of assets discussed in Note 6.
7 Excludes investments in affiliates and payments for businesses acquired. See
Note 23 for discussion of 1997 strategic acquisitions in the Life Sciences
and Diversified Businesses segments.
8 Includes the following (charges) benefits:
Chemicals/a/ $ (21)
Fibers/a/ (32)
Polymers/b/ 55
Petroleum/c/ (41)
Life Sciences/d/ (110)
Diversified Businesses/e/ 48
------
$(101)
================================================================================
a Charges associated principally with employee separation costs in the United
States.
b Benefit associated with formation of the DuPont Dow elastomers joint
venture.
c Includes charges of $63 for write-down of investment in a European natural
gas marketing joint venture and $22, principally, for employee separation
costs in the United States partly offset by a net benefit of $44 related to
environmental insurance recoveries.
d Charge associated with the Benlate(R) 50 DF fungicide recall.
e Includes gains of $41 from the sale of certain medical products businesses
and $33 related to sale of stock received in connection with the previously
sold connector systems business, and a charge of $26, principally employee
separation costs outside the United States, associated with the printing and
publishing business.
9 Includes the following (charges) benefits/a/:
- --------------------------------------------------------------------------------
Chemicals $ 10
Fibers 31
Polymers/b/ (35)
Petroleum/c/ (45)
Life Sciences/d/ (63)
Diversified Businesses/e/ (12)
-------
$(114)
================================================================================
a Includes a benefit of $69 principally from adjustments in estimates
associated with the third quarter 1993 restructuring charge. The $69 is
reflected in Chemicals ($10), Fibers ($31), Polymers ($3), and Diversified
Businesses ($25).
b Includes a charge of $38 for costs to settle certain plumbing systems
litigation.
c Charge for write-down of certain North American and European assets.
d Charge associated with the Benlate(R) 50 DF fungicide recall.
e Includes a charge of $24 for printing and publishing operations,
principally for employee separation costs in Europe, and a litigation
provision of $13 related to a previously sold business.
See segment discussions on pages 8-9 and 17-23 for a description of each
industry segment. Products are transferred between segments on a basis intended
to reflect as nearly as practicable the "market value" of the products.
DUPONT 53
<PAGE>
Supplemental Petroleum Data
(Dollars in millions)
Oil and Gas Producing Activities
"Supplemental Petroleum Data" disclosures are presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69, "Disclosures
About Oil and Gas Producing Activities." Accordingly, volumes of reserves and
production exclude royalty interests of others, and royalty payments are
reflected as reductions in revenues.
<TABLE>
<CAPTION>
Results of Operations for Oil and Gas Producing Activities
- -----------------------------------------------------------------------------------------------------------------------
Total Worldwide United States
----------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Companies
Revenues:
Sales to unaffiliated customers $ 2,603 $ 2,479 $ 1,863 $ 787 $ 621 $ 443
Transfers to other company operations 849 927 862 272 363 386
Exploration, including dry hole costs (412) (374) (275) (101) (131) (80)
Production (854) (755) (727) (320) (297) (287)
Depreciation, depletion, amortization and
valuation provisions (872) (800) (727) (279) (302) (290)
Other /2/ 321 69 82 106 48 48
Income taxes (847) (912) (626) (109) (47) (24)
----------------------------------------------------------------------
Total consolidated companies 788 634 452 356 255 196
----------------------------------------------------------------------
Equity Affiliates
Results of operations of equity affiliates 34 36 12 11 11 --
----------------------------------------------------------------------
Total $ 822 $ 670 $ 464 $ 367 $ 266 $ 196
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
Europe Other Regions
-----------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------------------
Consolidated Companies
Revenues:
Sales to unaffiliated customers $ 1,181 $ 1,204 $ 817 $ 635 $ 654 $ 603
Transfers to other company operations 577 566 477 -- (2) (1)
Exploration, including dry hole costs (131) (156) (134) (180) (87) (61)
Production (409) (372) (347) (125) (86) (93)
Depreciation, depletion, amortization and
valuation provisions (419) (443) (362) (174)/1/ (55) (75)
Other /2/ 215 (1) 31 -- 22 3
Income taxes (393) (436) (242) (345) (429) (360)
-----------------------------------------------------------------------
Total consolidated companies 621 362 240 (189) 17 16
-----------------------------------------------------------------------
Equity Affiliates
Results of operations of equity affiliates 29 25 12 (6) -- --
-----------------------------------------------------------------------
Total $ 650 $ 387 $ 252 $ (195) $ 17 $ 16
=======================================================================================================================
</TABLE>
1 Includes a charge of $112 for impairment of nonrevenue producing properties.
2 Includes gain (loss) on disposal of fixed assets and other miscellaneous
revenues and expenses.
54 DUPONT
<PAGE>
Supplemental Petroleum Data
(Dollars in millions)
<TABLE>
<CAPTION>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities/1/
- -----------------------------------------------------------------------------------------------------------------------
Total Worldwide United States
----------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Companies
Property acquisitions:
Proved/2/ $ 152 $ 21 $ 96 $ 148 $ 14 $ 95
Unproved 831 42 58 723/3/ 41 29
Exploration 450 445 358 107 144 128
Development 921 828 745 289 203 242
----------------------------------------------------------------------
Total consolidated companies 2,354 1,336 1,257 1,267 402 494
----------------------------------------------------------------------
Equity Affiliates
Development 269 22 29 18 8 19
----------------------------------------------------------------------
Total equity affiliates 269 22 29 18 8 19
----------------------------------------------------------------------
Total $ 2,623 $ 1,358 $ 1,286 $ 1,285 $ 410 $ 513
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
Europe Other Regions
-----------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------------------
Consolidated Companies
Property acquisitions:
Proved/2/ $ - $ - $ - $ 4 $ 7 $ 1
Unproved 95 - 1 13 1 28
Exploration 135 169 159 208 132 71
Development 568 543 463 64 82 40
-----------------------------------------------------------------------
Total consolidated companies 798 712 623 289 222 140
-----------------------------------------------------------------------
Equity Affiliates
Development 2 14 10 249/4/ - -
-----------------------------------------------------------------------
Total equity affiliates 2 14 10 249 - -
-----------------------------------------------------------------------
Total $ 800 $ 726 $ 633 $ 538 $ 222 $ 140
=======================================================================================================================
</TABLE>
1 These data comprise all costs incurred in the activities shown, whether
capitalized or charged to expense at the time they were incurred.
2 Excludes properties acquired through property exchanges.
3 Includes acquisition costs associated with gas reserves acquired in the South
Texas Lobo Trend.
4 Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
<TABLE>
<CAPTION>
Capitalized Costs Relating to Oil and Gas Producing Activities
- ------------------------------------------------------------------------------------------------------------
Total Worldwide United States
-----------------------------------------------------------
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Companies
Gross costs:
Proved properties $12,420 $11,914 $11,023 $ 4,676 $ 4,255 $ 4,440
Unproved properties 1,491 913 883 774/1/ 262 251
Accumulated depreciation, depletion,
amortization and valuation allowances:
Proved properties 6,940 6,729 6,290 2,836 2,739 2,822
Unproved properties 261 157 156 71 77 76
-----------------------------------------------------------
Total net costs of consolidated companies 6,710 5,941 5,460 2,543 1,701 1,793
-----------------------------------------------------------
Equity Affiliates
Net costs of equity affiliates:
Proved properties 464 217 223 68 55 60
-----------------------------------------------------------
Total $ 7,174 $ 6,158 $ 5,683 $ 2,611 $ 1,756 $ 1,853
============================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Europe Other Regions
-----------------------------------------------------------
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------
Consolidated Companies
Gross costs:
Proved properties $ 6,276 $ 6,268 $ 5,220 $ 1,468 $ 1,391 $ 1,363
Unproved properties 432 444 439 285 207 193
Accumulated depreciation, depletion,
amortization and valuation allowances:
Proved properties 3,001 2,947 2,425 1,103 1,043 1,043
Unproved properties 7 7 7 183 73 73
-----------------------------------------------------------
Total net costs of consolidated companies 3,700 3,758 3,227 467 482 440
-----------------------------------------------------------
Equity Affiliates
Net costs of equity affiliates:
Proved properties 147 162 163 249/2/ - -
-----------------------------------------------------------
Total $ 3,847 $ 3,920 $ 3,390 $ 716 $ 482 $ 440
============================================================================================================
</TABLE>
1 Includes costs associated with gas reserves acquired in the South Texas Lobo
Trend.
2 Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
DUPONT 55
<PAGE>
Supplemental Petroleum Data
(In millions of barrels)
Estimated Proved Reserves of Oil/1/
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Worldwide United States
----------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and Undeveloped
Reserves of Consolidated Companies
Beginning of year 926 933 953 299 294 336
Revisions and other changes 54 55 (1) 3 11 (8)
Extensions and discoveries 62 75 122 12 31 25
Improved recovery 3 4 4 3 4 1
Purchase of reserves/3/ 5 (1) 5 4 (1) 3
Sale of reserves/4/ (27) (12) (33) (11) (10) (33)
Production (130) (128) (117) (33) (30) (30)
----------------------------------------------------------------
End of year/5/ 893 926 933 277 299 294
----------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year 47 44 35 -- -- --
Revisions and other changes 10 8 5 -- -- --
Extensions and discoveries 680 -- 8 -- -- --
Production (6) (5) (4) -- -- --
----------------------------------------------------------------
End of year 731 47 44 -- -- --
----------------------------------------------------------------
Total 1,624 973 977 277 299 294
================================================================
Proved Developed Reserves
of Consolidated Companies
Beginning of year 630 684 706 258 265 324
End of year 600 630 684 242 258 265
=======================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Europe Other Regions/2/
----------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and Undeveloped
Reserves of Consolidated Companies
Beginning of year 413 408 394 214 231 223
Revisions and other changes 43 36 (9) 8 8 16
Extensions and discoveries 44 35 72 6 9 25
Improved recovery -- -- 3 -- -- --
Purchase of reserves/3/ 1 -- -- -- -- 2
Sale of reserves/4/ (16) -- -- -- (2) --
Production (64) (66) (52) (33) (32) (35)
----------------------------------------------------------------
End of year/5/ 421 413 408 195 214 231
----------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year 47 44 35 -- -- --
Revisions and other changes 10 8 5 -- -- --
Extensions and discoveries -- -- 8 680/6/ -- --
Production (6) (5) (4) -- -- --
----------------------------------------------------------------
End of year 51 47 44 680 -- --
----------------------------------------------------------------
Total 472 460 452 875 214 231
================================================================
Proved Developed Reserves
of Consolidated Companies
Beginning of year 185 217 171 187 202 211
End of year 174 185 217 184 187 202
=======================================================================================================
</TABLE>
/1/ Oil reserves comprise crude oil and condensate and natural gas liquids
expected to be removed for the company's account from its natural gas
deliveries.
/2/ Excludes reserve data applicable to Conoco's petroleum assets in Libya.
Although negotiations with the Libyan government's national oil company
continue, Conoco has not resumed its participation in Libyan operations.
/3/ Includes reserves acquired through property exchanges.
/4/ Includes reserves disposed of through property exchanges.
/5/ Includes reserves of 87 and 89 at year-end 1997 and 1996, respectively,
attributable to Conoco Oil & Gas Associates L.P. in which there is a
minority interest with an approximate 18 percent and 17 percent revenue
share at year-end 1997 and 1996, respectively. See Note 20.
/6/ Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
56 DUPONT
<PAGE>
Supplemental Petroleum Data
(In billion cubic feet)
<TABLE>
<CAPTION>
Estimated Proved Reserves of Gas
- --------------------------------------------------------------------------------------------------------------
Total Worldwide United States
----------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and Undeveloped
Reserves of Consolidated Companies
Beginning of year 5,063 4,709 4,330 1,822 1,891 1,749
Revisions and other changes 134 41 292 -- 79 95
Extensions and discoveries 518 780 400 453 176 225
Improved recovery 1 -- 1 1 -- 1
Purchase of reserves/1/ 270 41 167 264/2/ 3 167
Sale of reserves/3/ (62) (71) (78) (46) (57) (78)
Production (433) (437) (403) (259) (270)/4/ (268)/4/
----------------------------------------------------------------------
End of year/5/ 5,491 5,063 4,709 2,235 1,822 1,891
----------------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year 613 627 830 613 627 830
Revisions and other changes (5) 1 -- (5) 1 --
Extensions and discoveries 74 -- -- 74 -- --
Purchase of reserves -- -- -- -- -- --
Sale of reserves -- -- (189) -- -- (189)
Production (8) (15) (14) (8) (15) (14)
----------------------------------------------------------------------
End of year 674 613 627 674 613 627
----------------------------------------------------------------------
Total 6,165 5,676 5,336 2,909 2,435 2,518
======================================================================
Proved Developed Reserves of
Consolidated Companies
Beginning of year 2,843 2,933 2,496 1,672 1,733 1,687
End of year 3,061 2,843 2,933 1,801 1,672 1,733
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Europe Other Regions
----------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and Undeveloped
Reserves of Consolidated Companies
Beginning of year 3,068 2,649 2,431 173 169 150
Revisions and other changes 97 (39) 195 37 1 2
Extensions and discoveries 59 574 147 6 30 28
Improved recovery -- -- -- -- -- --
Purchase of reserves/1/ -- 36 -- 6 2 --
Sale of reserves/3/ (7) -- -- (9) (14) --
Production (157) (152) (124) (17) (15) (11)
----------------------------------------------------------------
End of year/5/ 3,060 3,068 2,649 196 173 169
----------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year -- -- -- -- -- --
Revisions and other changes -- -- -- -- -- --
Extensions and discoveries -- -- -- -- -- --
Purchase of reserves -- -- -- -- -- --
Sale of reserves -- -- -- -- -- --
Production -- -- -- -- -- --
----------------------------------------------------------------
End of year -- -- -- -- -- --
----------------------------------------------------------------
Total 3,060 3,068 2,649 196 173 169
================================================================
Proved Developed Reserves of
Consolidated Companies
Beginning of year 1,041 1,071 683 130 129 126
End of year 1,091 1,041 1,071 169 130 129
============================================================================================================
</TABLE>
1 Includes reserves acquired through property exchanges.
2 Includes reserves acquired in the South Texas Lobo Trend.
3 Includes reserves disposed of through property exchanges.
4 Restated to exclude natural gas liquids which are included in estimated
proved reserves of oil reported on previous page.
5 Includes reserves of 115 and 104 at year-end 1997 and 1996, respectively,
attributable to Conoco Oil & Gas Associates L.P. in which there is a minority
interest with an approximate 18 percent and 17 percent revenue share at year-
end 1997 and 1996, respectively. See Note 20.
DUPONT 57
<PAGE>
Supplemental Petroleum Data
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The information on the following page has been prepared in accordance with
Statement of Financial Accounting Standards No. 69, which requires the
standardized measure of discounted future net cash flows to be based on year-end
sales prices, costs and statutory income tax rates and a 10 percent annual
discount rate. Specifically, the per-barrel oil sales prices used to calculate
the December 31, 1997, data averaged $15.34 for the United States, $16.11 for
Europe and $14.92 for Other Regions, and the gas prices per thousand cubic feet
averaged approximately $2.07 for the United States, $2.75 for Europe and $1.52
for Other Regions. Because prices used in the calculation are as of December 31,
the standardized measure could vary significantly from year to year based on
market conditions at that specific date.
The projections should not be viewed as realistic estimates of future cash flows
nor should the "standardized measure" be interpreted as representing current
value to the company. Material revisions to estimates of proved reserves may
occur in the future, development and production of the reserves may not occur in
the periods assumed, actual prices realized are expected to vary significantly
from those used and actual costs may also vary. The company's investment and
operating decisions are not based on the information presented on the following
page, but on a wide range of reserve estimates that includes probable as well as
proved reserves, and on different price and cost assumptions from those
reflected in this information.
Beyond the above considerations, the "standardized measure" is also not directly
comparable with asset balances appearing elsewhere in the financial statements
because any such comparison would require reconciling adjustments, including
reduction of the asset balances for related deferred income taxes.
58 DUPONT
<PAGE>
Supplemental Petroleum Data
(Dollars in millions)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Worldwide United States
----------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Companies
Future cash flows:
Revenues $ 26,666 $ 34,366 $ 26,766 $ 8,355 $ 10,044 $ 7,631
Production costs (9,251) (10,406) (9,152) (2,997) (3,085) (3,038)
Development costs (1,586) (1,669) (1,583) (446) (283) (218)
Income tax expense (6,822) (10,364) (7,404) (1,175) (2,041) (1,169)
----------------------------------------------------------------------------
Future net cash flows 9,007 11,927 8,627 3,737 4,635 3,206
Discounted to present value at a
10% annual rate (3,384) (4,638) (3,469) (1,552) (2,088) (1,456)
----------------------------------------------------------------------------
Total* 5,623 7,289 5,158 2,185 2,547 1,750
----------------------------------------------------------------------------
Equity Affiliates
Future cash flows:
Revenues 9,255 2,786 1,952 1,628 1,783 1,198
Production costs (2,860) (801) (827) (487) (446) (456)
Development costs (1,437) (306) (380) (311) (283) (348)
Income tax expense (1,228) (668) (274) (299) (365) (116)
----------------------------------------------------------------------------
Future net cash flows 3,730 1,011 471 531 689 278
Discounted to present value at a
10% annual rate (3,087) (654) (305) (427) (533) (234)
----------------------------------------------------------------------------
Total 643 357 166 104 156 44
----------------------------------------------------------------------------
Total $ 6,266 $ 7,646 $ 5,324 $ 2,289 $ 2,703 $ 1,794
================================================================================================================
<CAPTION>
Europe Other Regions
----------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Companies
Future cash flows:
Revenues $ 15,119 $ 19,364 $ 14,995 $ 3,192 $ 4,958 $ 4,140
Production costs (5,387) (6,378) (5,154) (867) (943) (960)
Development costs (1,094) (1,294) (1,234) (46) (92) (131)
Income tax expense (3,921) (5,179) (3,758) (1,726) (3,144) (2,477)
----------------------------------------------------------------------------
Future net cash flows 4,717 6,513 4,849 553 779 572
Discounted to present value at a
10% annual rate (1,679) (2,317) (1,813) (153) (233) (200)
----------------------------------------------------------------------------
Total* 3,038 4,196 3,036 400 546 372
----------------------------------------------------------------------------
Equity Affiliates
Future cash flows:
Revenues 651 1,003 754 6,976 - -
Production costs (315) (355) (371) (2,058) - -
Development costs (30) (23) (32) (1,096) - -
Income tax expense (170) (303) (158) (759) - -
----------------------------------------------------------------------------
Future net cash flows 136 322 193 3,063 - -
Discounted to present value at a
10% annual rate (44) (121) (71) (2,616) - -
----------------------------------------------------------------------------
Total 92 201 122 447 - -
----------------------------------------------------------------------------
Total $ 3,130 $ 4,397 $ 3,158 $ 847 $ 546 $ 372
================================================================================================================
</TABLE>
* Includes $372 and $686 at year-end 1997 and 1996, respectively, attributable
to Conoco Oil & Gas Associates L.P. in which there is a minority interest with
an approximate 18 percent and 17 percent revenue share at year-end 1997 and
1996, respectively. See Note 20.
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated Companies Equity Affiliates
-----------------------------------------------------------
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $ 7,289 $ 5,158 $ 4,275 $ 357 $ 166 $ 211
Sales and transfers of oil and gas produced, net of production costs (2,583) (2,647) (1,998) (61) (83) (46)
Development costs incurred during the period 921 828 745 224 22 30
Net changes in prices and in development and production costs (4,974) 2,525 675 (1,287) 128 135
Extensions, discoveries and improved recovery, less related costs 818 1,630 1,219 1,190 - -
Revisions of previous quantity estimates 439 553 375 39 83 68
Purchases (sales) of reserves in place--net 36 (54) (62) - - (34)
Accretion of discount 1,312 931 753 63 26 15
Net change in income taxes 2,285 (1,676) (897) 20 (182) (155)
Other 80 41 73 98 197 (58)
-----------------------------------------------------------
Balance at December 31 $ 5,623 $ 7,289 $ 5,158 $ 643 $ 357 $ 166
===================================================================================================================================
</TABLE>
59
<PAGE>
Quarterly Financial Data
(Dollars in millions, except per share)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Quarter Ended March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales $11,211 $11,402 $11,136 $11,330
Cost of Goods Sold and Other Expenses/1/ 9,602 9,732 11,015 10,982
Net Income 1,020 1,140 (17)/4/ 262/5/
Earnings Per Share of Common Stock/2/
Basic .90 1.01 (.02) .23
Diluted/3/ .89 .99 (.02) .23
Dividends Per Share of Common Stock/2/ .285 .315 .315 .315
Market Price of Common Stock/2,//6/
High 57 5/8 62 7/8 69 3/4 64 15/16
Low 46 3/8 49 3/4 60 11/16 50 3/16
- -----------------------------------------------------------------------------------------------------------------
1996
Sales $10,769 $11,148 $10,486 $11,407
Cost of Goods Sold and Other Expenses/1/ 9,457 9,673 9,131 10,195
Net Income 879/7/ 1,001/8/ 898/9/ 858
Earnings Per Share of Common Stock/2/
Basic/3/ .79 .89 .80 .76
Diluted/3/ .77 .88 .79 .75
Dividends Per Share of Common Stock/2/ .26 .285 .285 .285
Market Price of Common Stock/2,//6/
High 42 3/16 42 7/16 44 15/16 49 11/16
Low 34 13/16 38 3/8 36 7/16 43 7/8
==================================================================================================================
</TABLE>
1 Excludes interest and debt expense and provision for income taxes.
2 Restated to reflect two-for-one split of common stock effective May 15,
1997.
3 Earnings per share for the year does not equal to the sum of quarterly
earnings per share due to changes in average share calculations.
4 Includes a net charge of $998 ($.88 per share - basic) reflecting: a charge
of $850 associated with acquired in-process research and development for the
Pioneer transaction; a charge of $220 associated with the planned
divestiture of certain printing and publishing businesses; and a gain of $72
from the sale by DuPont Merck of its generic and multisource product lines.
5 Includes a net charge of $684 ($.61 per share - basic) reflecting: a charge
of $616 associated with acquired in-process research and development
relating to the PTI transaction ($500), the Pioneer transaction ($53), and
the ICI polyester intermediates and resins transaction ($63); a charge of
$62 associated with the Benlate(R) 50 DF fungicide recall; a charge of $112
associated with the impairment of nonrevenue producing petroleum properties;
a charge of $55 associated with the write-down of an office building held
for sale; and a gain of $161 associated with the sale of certain North Sea
petroleum producing and exploration properties.
6 As reported on the New York Stock Exchange, Inc. Composite Transactions
Tape.
7 Includes a net charge of $20 ($.02 per share - basic) reflecting: a charge
of $53 principally for employee separation costs; and a benefit of $33 for
sale of stock received in connection with a previously sold business.
8 Includes a net charge of $34 ($.03 per share - basic) reflecting: a charge
of $63 for write-down of investment in a European natural gas marketing
joint venture; a charge of $48 principally for employee separation costs; a
charge of $63 associated with Benlate(R) 50 DF fungicide recall; a gain of
$55 associated with the formation of the DuPont Dow elastomers joint
venture; a benefit of $44 related to environmental insurance recoveries; and
a gain of $41 from the sale of certain medical products businesses.
9 Includes a charge of $47 ($.04 per share - basic) associated with
Benlate(R) 50 DF fungicide recall.
Consolidated Geographic Data
(Dollars in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Capital Total Assets Average
Expenditures December 31 Employment
---------------------------------------------------------
1997 1996 1997 1996 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 7,029 $1,723 $23,819 $19,508 63,653 67,119
Europe 1,644 1,418 12,459 12,039 19,136 19,796
Other Regions 1,535 589 6,664 6,323 15,110 14,556
---------------------------------------------------------
Total $10,208 $3,730 $42,942 $37,870 97,899 101,471
===================================================================================================
</TABLE>
Capital expenditures, total assets and average employment are assigned to
geographic areas, generally based on physical location.
60 DUPONT
<PAGE>
Five-Year Financial Review/1/
(Dollars in millions, except per share)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Sales $45,079 $43,810 $42,163 $39,333 $37,098
Earnings Before Income Taxes $ 4,680 $ 5,981 $ 5,390 $ 4,382 $ 958
Provision for Income Taxes $ 2,275 $ 2,345 $ 2,097 $ 1,655 $ 392
Net Income $ 2,405 $ 3,636 $ 3,293 $ 2,727 $ 566/2/
Earnings Per Share of Common Stock/3/
Basic $ 2.12 $ 3.23 $ 2.81 $ 2.00 $ .41
Diluted $ 2.08 $ 3.18 $ 2.77 $ 1.98 $ .41
-----------------------------------------------------------------------
Financial Position at Year End
Working Capital $(2,196) $ 116 $ (1,776) $ 3,543 $ 1,460
Total Assets $42,942 $37,870 $ 37,199 $36,813 $36,958
Borrowings and Capital Lease
Obligations:
Short Term $ 6,154 $ 3,910 $ 6,157 $ 1,292 $ 2,796
Long Term $ 5,929 $ 5,087 $ 5,678 $ 6,376 $ 6,531
Stockholders' Equity $11,270 $10,593 $ 8,323 $12,743 $11,135
-----------------------------------------------------------------------
Ratios
Dividends as Percent of Cash Provided
by Operations 20% 20% 18% 22% 22%
Cash Provided by Operations as Percent
of Total Debt 58% 71% 57% 74% 58%
Total Debt as Percent of Total
Capitalization 50% 45% 58% 37% 45%
Return on Average Investors' Capital 12.3% 20.0% 18.0% 14.6% 4.0%
Net Income As Percent of Average
Stockholders' Equity 21.3% 38.2% 32.9% 22.8% 4.8%
-----------------------------------------------------------------------
General
For the Year:
Capital Expenditures $10,208/4/ $ 3,730 $ 3,643 $ 3,241 $ 3,725
Depreciation, Depletion and
Amortization $ 2,385 $ 2,621 $ 2,722 $ 2,976 $ 2,833
Research and Development Expense $ 1,116 $ 1,032 $ 1,067 $ 1,047 $ 1,132
As Percent of Sales for:
Chemicals and Specialties
Businesses 4.5% 4.2% 4.2% 4.5% 5.1%
Petroleum 0.2% 0.2% 0.2% 0.3% 0.3%
Average Number of Shares (millions)/3/
Basic 1,131 1,121 1,170 1,360 1,353
Diluted 1,150 1,140 1,183 1,371 1,363
Dividends Per Common Share/3/ $ 1.23 $ 1.115 $ 1.015 $ .91 $ .88
Common Stock Prices:/3/
High $ 69 3/4 $ 49 11/16 $ 36 1/2 $ 31 3/16 $ 26 15/16
Low $ 46 3/8 $ 34 13/16 $ 26 5/16 $ 24 1/8 $ 22 1/4
Year-End Close $ 60 1/16 $ 47 1/16 $ 34 15/16 $ 28 1/16 $ 24 1/8
At Year End:
Employees (thousands) 98 97 105 107 114
Common Stockholders of Record
(thousands) 154 158 166 172 181
Book Value Per Common Share/3/ $ 9.77 $ 9.19 $ 7.28 $ 9.18 $ 8.04
================================================================================================================
</TABLE>
1 See Management's Discussion and Analysis, Consolidated Financial Statements
and Quarterly Financial Data for information relating to significant items
affecting the results of operations and financial position.
2 Before effect on income of extraordinary item.
3 Restated to reflect two-for-one split of common stock effective May 15,
1997.
4 Includes strategic acquisitions discussed in Note 23.
DUPONT 61
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name Organized Under Laws of
- --------------------------------------------------- -----------------------
Conoco Asia Ltd. .................................. Bermuda
Conoco Canada Limited ............................. Canada
Conoco Developments Limited ....................... England
Conoco Inc. ....................................... Delaware
Conoco Indonesia Inc. ............................. Delaware
Conoco International, Inc. ........................ Delaware
Conoco Investments Norge A/S ...................... Norway
Conoco Limited .................................... England
Conoco Mineraloel GmbH ............................ Germany
Conoco Norway Inc. ................................ Delaware
Conoco Petroleum Limited .......................... England
Conoco Petroleum Norge AS ......................... Norway
Conoco Pipe Line Company .......................... Delaware
Conoco Specialty Products Inc. .................... Delaware
Conoco Timan-Pechora Ltd. ......................... Bermuda
Conoco (U.K.) Limited ............................. England
Consol Energy Inc. (50% owned) .................... Delaware
Continental Oil Company of Libya .................. Delaware
Danube Insurance Ltd. ............................. Bermuda
Douglas Oil Company of California ................. California
Dubai Petroleum Company ........................... Delaware
DuPont Agrichemicals Caribe, Inc. ................. Delaware
DuPont Argentina S.A. ............................. Argentina
DuPont Asia Pacific, Ltd. ......................... Delaware
DuPont (Australia) Limited ........................ Australia
DuPont Canada Inc. (76.2% owned) .................. Canada
DuPont Chemical and Energy Operations, Inc. ....... Delaware
DuPont Coordination Center N.V. ................... Belgium
DuPont Conoco Nordic A.B. ......................... Sweden
DuPont Delaware, Inc. ............................. Delaware
DuPont Diagnostics, Inc. .......................... Delaware
DuPont de Colombia, S.A. .......................... Colombia
DuPont de Nemours (Belgium) N.V. .................. Belgium
DuPont de Nemours (Deutschland) GmbH .............. Germany
DuPont de Nemours (Flandre), S.A. ................. France
DuPont de Nemours (France) S.A. ................... France
DuPont de Nemours International S.A. .............. Switzerland
DuPont de Nemours Italiana S.p.A. ................. Italy
DuPont de Nemours (Luxembourg) S.A. ............... Luxembourg
DuPont de Nemours (Nederland) B.V. ................ The Netherlands
DuPont do Brasil S.A. ............................. Brazil
DuPont Dow Elastomers, L.L.C. (50% owned) ......... Delaware
DuPont Electronic Materials, Inc. ................. Delaware
DuPont Energy Company ............................. Delaware
<PAGE>
Name Organized Under Laws of
- --------------------------------------------------- -----------------------
DuPont Engineering Products, S.A. ................. Luxembourg
DuPont Feedstocks Company ......................... Delaware
DuPont Foreign Sales Corporation .................. Virgin Islands
DuPont Iberica, S.A. .............................. Spain
DuPont Kabushiki Kaisha ........................... Delaware
DuPont (Korea) Inc. ............................... Republic of Korea
DuPont Merck Pharmaceutical Company (Delaware
Partnership) (50% owned) ........................ Delaware
DuPont Merck Pharma (Puerto Rico Partnership)
(50% owned) ..................................... Puerto Rico
DuPont (New Zealand) Ltd. ......................... New Zealand
DuPont Photomasks, Inc. (69.24% owned) ............. Texas
DuPont Protein Technologies International, Inc. ... Delaware
DuPont, S.A. de C.V. .............................. Mexico
DuPont (Singapore) Pte. Ltd. ...................... Singapore
DuPont (Singapore) Fibres Pte. Ltd. (90% owned) ... Singapore
DuPont Taiwan Ltd. ................................ Taiwan
DuPont (Thailand) Co. Ltd. ........................ Thailand
DuPont Treasury Ltd. .............................. England
DuPont (U.K.) Limited ............................. England
Kayo Oil Company .................................. Delaware
Holding DP, S.A. de C.V. .......................... Mexico
Lobo Pipeline Company ............................. Delaware
Norske Conoco A/S ................................. Norway
Petrozuata C.A. (50% Owned) ....................... Venezuela
Societe Europeene Des Carburants .................. Belgium
World Wide Transport, Inc. ........................ Liberia
Subsidiaries not listed would not, if considered in the aggregate as a
single subsidiary, constitute a significant subsidiary.
2
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069) and Form S-8 (No. 2-74004, No. 33-43918,
No. 33-51817, No. 33-51821, No. 33-60037, and No. 33-61703) of E. I. du Pont
de Nemours and Company of our report dated February 13, 1998, appearing on
page 30 of the Annual Report to Stockholders which is incorporated in this
Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT FILED AS PART OF
THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,004
<SECURITIES> 142
<RECEIVABLES> 5,740<F1>
<ALLOWANCES> 66
<INVENTORY> 4,070
<CURRENT-ASSETS> 11,874
<PP&E> 54,284
<DEPRECIATION> 30,701
<TOTAL-ASSETS> 42,942
<CURRENT-LIABILITIES> 14,070
<BONDS> 5,929
0
237
<COMMON> 346
<OTHER-SE> 10,687
<TOTAL-LIABILITY-AND-EQUITY> 42,942
<SALES> 45,079
<TOTAL-REVENUES> 46,653
<CGS> 26,377<F2>
<TOTAL-COSTS> 41,331<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> 4,680
<INCOME-TAX> 2,275
<INCOME-CONTINUING> 2,405
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<NET-INCOME> 2,405
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<EPS-DILUTED> 2.08
<FN>
<F1>Includes Other Accounts In Addition To Notes And Accounts Receivable -
Trade.
<F2>Includes Other Operating Charges.
<F3>Cost of Goods Sold and Other Operating Charges; Selling, General and
Administrative Expenses; Depreciation, Depletion and Amortization;
Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved
Properties; Research and Development Expense; Taxes Other Than On Income;
Purchased In-Process Research and Development; and Write-down of Assets and
Other Related Costs.
<F4>Basic Earnings Per Share.
</FN>
</TABLE>
