UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-815
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 51-0014090
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1007 Market Street, Wilmington, Delaware 19898
(Address of Principal Executive Offices)
(302) 774-1000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
1,125,861,433 shares (excludes 14,492,721 shares held by DuPont's
Flexitrust) of common stock, $0.30 par value, were outstanding at
October 30, 1998.
1
<PAGE>
Form 10-Q
E. I. DU PONT DE NEMOURS AND COMPANY
Table of Contents
Page(s)
-------
Part I Financial Information
Item 1. Financial Statements
Consolidated Income Statement ............................... 3
Consolidated Statement of Cash Flows ........................ 4
Consolidated Balance Sheet .................................. 5
Notes to Financial Statements ............................... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Results ........................................... 10-12
Industry Segment Performance ................................ 12-13
Consolidated Industry Segment Information ................... 14-15
Financial Condition ......................................... 16-18
Other Items ................................................. 18-22
Part II Other Information
Item 1. Legal Proceedings .................................... 23-24
Item 6. Exhibits and Reports on Form 8-K ..................... 24-26
Signature ....................................................... 27
Exhibit Index ................................................... 28
Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges ................................................. 29
Exhibit 12-1 - Computation of Ratio of Earnings to
Fixed Charges - Pro Forma ..................................... 30
2
<PAGE>
<TABLE>
Form 10-Q
E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Three Months Ended Nine Months Ended
CONSOLIDATED INCOME STATEMENT<Fa><Fb> September 30 September 30
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES .............................................................. $ 6,042 $ 5,794 $18,668 $18,186
Other Income<Fc> ................................................... 136 348 625 836
------- ------- ------- -------
Total .......................................................... 6,178 6,142 19,293 19,022
------- ------- ------- -------
Cost of Goods Sold and Other Expenses .............................. 4,155 4,039 12,844 12,495
Selling, General and Administrative Expenses ....................... 519 460 1,459 1,452
Depreciation and Amortization ...................................... 368 349 1,067 1,015
Interest and Debt Expense .......................................... 160 92 416 268
Purchased In-Process Research and Development<Fd> .................. 1,441 850 1,501 850
Employee Separation Costs and Write-Down of Assets<Fe> ............. 391 340 577 340
------- ------- ------- -------
Total .......................................................... 7,034 6,130 17,864 16,420
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
MINORITY INTERESTS AND EXTRAORDINARY ITEM ........................ (856) 12 1,429 2,602
Provision for Income Tax Expenses (Credits)<Fd> .................... (290) 277 543 1,207
Minority Interests in Earnings (Loss) of Consolidated Subsidiaries . (2) 8 19 34
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM . (564) (273) 867 1,361
Income from Discontinued Operations, Net of Income Tax Provisions of:
$109, $117, $311 and $654, respectively ............................ 160 256 594 782
------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (404) (17) 1,461 2,143
Extraordinary Charge From Early Extinguishment of Debt, Net of
Income Taxes<Ff> ................................................. (201) - (201) -
------- ------- ------- -------
NET INCOME (LOSS) .................................................. $ (605) $ (17) $ 1,260 $ 2,143
======= ======= ======= =======
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK<Fg>
Continuing Operations Before Extraordinary Item ................. $ (.50) $ (.24) $ .76 $ 1.20
Discontinued Operations ......................................... .14 .22 .53 .69
Extraordinary Charge ............................................ (.18) - (.18) -
------- ------- ------- -------
Net Income (Loss) ............................................... $ (.54) $ (.02) $ 1.11 $ 1.89
======= ======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK<Fg>
Continuing Operations Before Extraordinary Item ................. $ (.50) $ (.24) $ .75 $ 1.18
Discontinued Operations ......................................... .14 .22 .52 .68
Extraordinary Charge ............................................ (.18) - (.18) -
------- ------- ------- -------
Net Income (Loss) ............................................... $ (.54) $ (.02) $ 1.09<Fh> $ 1.86
======= ======= ======= =======
DIVIDENDS PER SHARE OF COMMON STOCK $ .35 $ .315 $ 1.015 $ .915
======= ======= ======= =======
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
Nine Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS<Fa><Fb> September 30
- ---------------------------------------------------------------------------------------------
(Dollars in millions) 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net Income ...................................................... $ 1,260 $ 2,143
Adjustments to Reconcile Net Income to Cash
Provided by Continuing Operations:
Net Income from Discontinued Operations ..................... (594) (782)
Extraordinary Charge from Early Retirement of Debt .......... 275 -
Depreciation and Amortization ............................... 1,067 1,015
Purchased In-Process Research and Development ............... 1,501 850
Other Noncash Charges and Credits - Net ..................... (29) 267
Change in Operating Assets and Liabilities - Net ............ (1,113) (987)
------- -------
Cash Provided by Continuing Operations .................... 2,367 2,506
------- -------
INVESTMENT ACTIVITIES
Purchases of Property, Plant and Equipment ...................... (1,561) (1,375)
Investment in Affiliates ........................................ (55) (1,862)
Payments for Businesses Acquired (Net of Cash Acquired) ......... (3,048) (41)
Proceeds from Sales of Assets ................................... 369 504
Investments in Short-Term Financial Instruments - Net ........... (220) (458)
Miscellaneous - Net ............................................. (39) 113
------- -------
Cash Used for Investment Activities ....................... (4,554) (3,119)
------- -------
FINANCING ACTIVITIES
Dividends Paid to Stockholders .................................. (1,150) (1,042)
Net Increase in Borrowings ...................................... 4,610 3,063
Acquisition of Treasury Stock ................................... (704) (181)
Proceeds from Exercise of Stock Options ......................... 242 104
Decrease in Minority Interests .................................. (16) (54)
------- -------
Cash Provided by Financing Activities ..................... 2,982 1,890
------- -------
Net Cash Flow from Discontinued Operations ........................ (193) (762)
------- -------
Effect of Exchange Rate Changes on Cash ........................... 124 (96)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS ............................. $ 726 $ 419
======= =======
See Notes to Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
CONSOLIDATED BALANCE SHEET<Fa><Fb> September 30 December 31
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ........................................................ $ 1,730 $ 1,004
Marketable Securities ............................................................ 291 135
Accounts and Notes Receivable .................................................... 5,409 4,309
Inventories<Fi> .................................................................. 3,292 2,792
Prepaid Expenses ................................................................. 241 169
Deferred Income Taxes ............................................................ 610 691
------- -------
Total Current Assets ........................................................... 11,573 9,100
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization
(September 30, 1998 - $20,592; December 31, 1997 - $20,310) ...................... 13,730 12,601
INVESTMENT IN AFFILIATES ........................................................... 2,170 2,372
OTHER ASSETS ....................................................................... 5,455 4,210
NET ASSETS OF DISCONTINUED OPERATIONS<Fj> .......................................... 9,635 8,561
------- -------
TOTAL .......................................................................... $42,563 $36,844
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ................................................................. $ 1,620 $ 1,921
Short-Term Borrowings and Capital Lease Obligations .............................. 12,543 6,154
Income Taxes ..................................................................... 120 120
Other Accrued Liabilities ........................................................ 3,973 3,024
------- -------
Total Current Liabilities ...................................................... 18,256 11,219
LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS ................................. 4,524 5,897
OTHER LIABILITIES .................................................................. 7,732 7,444
DEFERRED INCOME TAXES .............................................................. 520 500
------- -------
Total Liabilities .............................................................. 31,032 25,060
------- -------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .................................... 385 361
------- -------
STOCKHOLDERS' EQUITY<Fk>
Preferred Stock .................................................................. 237 237
Common Stock, $.30 par value; 1,800,000,000 shares authorized; shares issued
at September 30, 1998 - 1,140,354,154; December 31, 1997 - 1,152,762,128 ....... 342 346
Additional Paid-In Capital ....................................................... 7,658 7,991
Reinvested Earnings .............................................................. 3,884 4,389
Accumulated Other Comprehensive Income (Loss) .................................... (144) (144)
Common Stock Held in Trust for Unearned Employee Compensation and Benefits
(Flexitrust), at Market (Shares: September 30, 1998 - 14,775,509;
December 31, 1997 - 23,245,747) ................................................ (831) (1,396)
------- -------
Total Stockholders' Equity ..................................................... 11,146 11,423
------- -------
TOTAL .......................................................................... $42,563 $36,844
======= =======
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
[FN]
<Fa> These statements are unaudited, but reflect all adjustments that, in
the opinion of management, are necessary to provide a fair presentation
of the financial position, results of operations and cash flows for
the dates and periods covered. All such adjustments are of a normal
recurring nature. The company's Petroleum segment is reported as
discontinued operations and is discussed in Notes (b) and (j).
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." In the first
quarter of 1998, the company adopted Statement No. 130. Statement
No. 130 has no financial impact on the company, and further explanation
is in Note (k).
In the first quarter of 1998, the company adopted Statement of
Position (SOP) 98-1 issued in March 1998 by the American Institute of
Certified Public Accountants, which requires capitalization of the
costs of computer software for internal use. Adoption of SOP 98-1 had
no material financial impact on the company.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and,
if it is, the type of hedge transaction. The company is required to
adopt Statement No. 133 effective January 1, 2000, and is currently
assessing the method to be utilized for adoption and the impact of the
adoption on the company's consolidated financial statements. Although
the company has not yet studied the new Statement in detail, it is not
expected that adoption of this Statement will have a material effect on
the company's financial condition.
<Fb> Discontinued Operations:
On September 28, 1998, the company's Board of Directors approved a plan
to divest Conoco. An initial public offering of Conoco common stock
was made on October 21, 1998. The company intends to follow this with
a tax-free split off of its remaining Conoco shares to DuPont share-
holders no later than third quarter 1999. Accordingly, for all periods
presented, the company's consolidated financial statements and notes
report its petroleum business as discontinued operations.
6
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
<Fc> Effective July 1, 1998, other income no longer reflects equity
affiliate earnings from The DuPont Merck Pharmaceutical Company
as these results are now fully consolidated (see Note (d) below).
1998 includes a $55 gain on the sale of Hydrogen Peroxide assets.
<Fd> 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 for which technological
feasibility has not yet been established, and which, if unsuccessful,
have no alternative future use in research and development activities
or otherwise.
In this regard, a charge of $1,300 was recorded in the quarter ended
September 30, 1998, associated with purchased in-process research and
development in conjunction with the purchase of Merck's interest in The
DuPont Merck Pharmaceutical Company based on preliminary allocations of
purchase price that are subject to revision upon completing independent
valuations by an outside appraisal firm and completion of purchase
accounting allocations. In addition, a charge of $141 was recorded
based on a revised estimate of the purchased in-process research and
development associated with the purchase of the polyester businesses of
Imperial Chemical Industries PLC. 1998 year to date also includes a
$60 charge for revision, based on independent appraisals, of the
purchase price allocation in conjunction with the purchase of Protein
Technologies International (PTI). This charge finalized the initial
charge of $500 taken in the fourth quarter 1997.
Third quarter and year to date 1997 include a charge of $850 taken in
conjunction with the company's acquisition of a 20% interest in Pioneer
Hi-Bred International, Inc. The purchase price allocations were
subsequently finalized and an additional charge of $53 taken in the
fourth quarter 1997.
The PTI and Pioneer charges were not tax effected because these
transactions were stock purchases rather than asset purchases.
<Fe> Third quarter 1998 charges of $391 result from implementation of
company-wide productivity improvement initiatives. This includes $202
associated with separation costs for over 2,600 employees, and $189 in
asset write-downs, principally due to shutdown and dismantlement of
excess production capacity. 1998 year to date also includes $108 of
employee separation costs within the Nylon business and $78 for the
shutdown of related manufacturing facilities.
1997 includes charges, primarily write-downs, associated with exiting
the company's global graphic arts films and offset printing plates
businesses.
7
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
<Ff> During the third quarter 1998, the company recognized an extraordinary
after-tax charge of $201 ($275 pretax, less a tax benefit of $74), as a
result of a debt call and tender offer with an aggregate principal
amount of $1,633.
<Fg> Basic earnings per share is computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of
common shares outstanding (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 period is reported net income less preferred dividends of $2.5
and $7.5 for the three- and nine-month periods, respectively. The
denominator is based on the following weighted-average number of common
shares outstanding:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
Basic Diluted Basic Diluted
------------- ------------- ------------- -------------
1998 1,130,461,535 1,130,461,535 1,129,608,903 1,147,393,778
1997 1,131,012,611 1,131,012,611 1,130,030,845 1,149,075,652
The difference between basic and diluted weighted-average common shares
outstanding results from the assumption that dilutive stock options
outstanding were exercised. For the three months ended September 1998
and 1997, diluted shares equal basic shares for the purposes of calcu-
lating diluted earnings per share due to the losses from continuing
operations in both periods.
The following number of stock options are antidilutive, and therefore
are not included in the diluted earnings per share calculation since the
exercise price is greater than the average market price:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
8,114,410 4,992,300 5,216,497 4,909,633
8
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
Compensation expense/(benefit) recognized in income for stock-based
employee compensation awards was $(37) and $1 for the three months and
$23 and $46 for the nine months ended September 30, 1998 and 1997,
respectively.
Shares held by the Flexitrust are not considered outstanding in comput-
ing the foregoing weighted-average number of common shares.
<Fh> Year-to-date earnings per share do not equal the sum of quarterly
earnings per share due to changes in average share calculations.
September 30 December 31
<Fi> Inventories 1998 1997
----------- ------------ -----------
Chemicals ............................... $ 337 $ 289
Fibers .................................. 892 744
Polymers ................................ 834 707
Life Sciences ........................... 804 676
Diversified Businesses .................. 425 376
------- -------
Total ................................. $ 3,292 $ 2,792
======= =======
September 30 December 31
<Fj> Net Assets of Discontinued Operations 1998 1997
------------------------------------- ------------ -----------
Current Assets .......................... $ 2,970 $ 2,775
Property, Plant and Equipment ........... 11,502 10,982
Other Assets ............................ 1,629 1,358
Current Liabilities ..................... (2,605) (2,851)
Other Liabilities ....................... (3,986) (3,856)
Cumulative Translation Adjustments ...... 125 153
------- -------
Net Assets of Discontinued Operations . $ 9,635 $ 8,561
======= =======
<Fk> For the three- and nine-month periods ended September 30, 1998 and
1997, other comprehensive income (loss) equals net income (loss).
Cumulative translation adjustments are associated with the company's
petroleum operations and are reflected in Net Assets of Discontinued
Operations.
9
<PAGE>
Form 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
--------------------------
Certain statements contained in this report on Form 10-Q
may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements made in the Results of Operations, Financial Condition
at September 30, 1998, Year 2000 and the European Monetary Union
sections of Management's Discussion and Analysis. These statements
are identified by words such as "expects," "anticipates," "plans,"
"intends," "projects," "indicates," and similar expressions. These
statements are not guarantees of future performance and involve a
number of risks, uncertainties and assumptions that could cause
actual results to differ materially, as discussed more fully
elsewhere in this report and in the company's filings with the
Securities and Exchange Commission, particularly the company's
report on Form 8-K filed on November 13, 1998.
(a) Results of Operations
(1) Financial Results:
The company reported third quarter diluted earnings per
share including discontinued operations, but before nonrecurring
charges of $.67 compared with a third quarter record of $.85 earned
in 1997. Including net nonrecurring charges of $1.21 per share,
the company reported a net loss of $.54 per share for the quarter.
Nonrecurring items included $.18 per share extraordinary charge for
early redemption of debt, $.83 per share for the write-off of
acquired in-process research and development and a $.23 per share
charge related to company-wide productivity improvement initia-
tives, partly offset by a $.03 per share gain on the sale of
assets.
On September 28, 1998, the company's Board of Directors
approved a plan to divest Conoco. An initial public offering of
Conoco common stock was made on October 21, 1998. The company
intends to follow this with a tax-free split off of its remaining
Conoco shares to DuPont shareholders no later than third quarter
1999. Accordingly, for all periods presented, the company's
consolidated financial statements and notes report its petroleum
business as discontinued operations.
Results From Continuing Operations
----------------------------------
For the third quarter 1998, income from continuing
operations before nonrecurring items was $610 million or $.53 per
share compared with $725 million or $.63 per share in 1997. After
10
<PAGE>
Form 10-Q
reflecting nonrecurring items and before the extraordinary charge,
loss from continuing operations was $(.50) per share versus $(.24)
in 1997.
Sales in the third quarter were $6.0 billion, up 7 percent,
compared with $5.7 billion in the prior year adjusted to exclude
sales from divested businesses. Sales from acquired businesses
added $695 million or 12 percent. Excluding sales from acquired
businesses, third quarter sales were 5 percent below last year.
For the nine months to-date, income from continuing opera-
tions before nonrecurring items was $2,231 million, or $1.94 per
share versus $2,359 million, or $2.05 per share, down 5 percent.
After reflecting nonrecurring items and before the extraordinary
charge, earnings per share from continuing operations was $0.75
compared to $1.18 in 1997. Year-to-date sales were $18.7 billion,
up 3 percent.
The combination of lower demand from weakening global
economies and the negative impact of a strong U.S. dollar on
selling prices resulted in a decline in third quarter 1998 from
record 1997 third quarter earnings. The company is responding
directly to these difficult business conditions by intensifying its
previously announced productivity actions, which include reduction
of employment costs, rationalization of assets and increasing
emphasis on cost-effective raw material sourcing. With the
expectation of a challenging global economy in 1999, the company
intends to maintain its emphasis on productivity while continuing
to aggressively focus its businesses.
Results From Discontinued Operations
------------------------------------
Sales in the third quarter were $5.0 billion, down
7 percent compared with $5.3 billion in the prior year. After
reflecting adjustments for discontinued operations reporting,
Conoco's third quarter 1998 after-tax operating income was
$220 million compared to a third quarter record of $295 million in
1997. Income from discontinued operations for the quarter was
$160 million or $.14 per share compared to $256 million or $.22 per
share in 1997, with the primary difference versus after-tax
operating income being the allocation of interest expense based on
net assets.
Results for the quarter were adversely affected by market
conditions that have affected the petroleum industry in general.
Conoco's worldwide net realized oil price was $12.29 per barrel,
down $5.67 or 32 percent from last year's $17.96. Worldwide
natural gas prices averaged $2.08 per thousand cubic feet for the
11
<PAGE>
Form 10-Q
quarter compared with $2.17 last year, down 4 percent. Worldwide
crude oil production was down 10 percent to 292,000 barrels per day
(bpd) primarily due to the absence of properties sold in late 1997.
Worldwide natural gas production was up 14 percent to 1,374 million
cubic feet per day, with U.S. production rising some 32 percent.
Worldwide-refined product sales were 1,081,000 bpd, down 1 percent
versus 1997.
Conoco Inc.'s third quarter results were reported on a
stand alone basis and therefore differ from results based on
discontinued operations reporting as discussed above.
(2) Industry Segment Performance:
The following text compares third quarter 1998 results
with third quarter 1997, for each industry segment, excluding the
earnings impact of nonrecurring items described in the footnotes
to the "Consolidated Industry Segment Information - Continuing
Operations" table.
o Chemicals segment earnings were $161 million compared with
$152 million earned last year, up 6 percent, principally due
to higher earnings from white pigments. Segment sales of
$1.0 billion were 4 percent lower, reflecting a 9 percent
decline from lower sales volume and divested hydrogen peroxide
production. Segment selling prices were up 5 percent reflect-
ing higher white pigment prices.
o Fibers segment earnings were $207 million, 12 percent below
the $234 million earned in 1997. Lower earnings from "Dacron"
polyester and aramids were partly offset by better earnings
from nylon and nonwovens. "Dacron" polyester had significant
declines in volume and selling prices, largely due to
competitive pressure from Asian imports. Segment sales of
$1.8 billion were down 4 percent as selling prices averaged
3 percent lower and sales volumes 1 percent lower.
o Earnings for the Polymers segment were $208 million, 7 percent
below $224 million earned in 1997, as improved results from
fluoropolymers were offset by lower earnings in the other
businesses. Segment sales of $1.6 billion were 3 percent
lower than 1997, reflecting 2 percent lower volume and
1 percent lower selling prices.
o Life Sciences segment earnings were $48 million, down
60 percent from $121 million in 1997. Agricultural Products
earnings were substantially lower, as had been predicted, due
to three factors: (1) approximately $100 million lower sales
as a result of last year's change in inventory stocking
previously held on consignment, (2) bad debt expense for
12
<PAGE>
Form 10-Q
Brazil, Eastern Europe and Russia and (3) the company's share
of Pioneer's seasonal quarterly loss. Pharmaceuticals
earnings were also lower due to research and development and
launch costs for SustivaTM, an anti-HIV drug and a less
favorable pattern of "Coumadin" warfarin sodium sales in the
third quarter. Segment sales, including $466 million from
acquisitions, were $839 million, down 2 percent compared to
1997 sales adjusted to include pharmaceuticals on a
100 percent basis. This reflects 5 percent lower prices
partly offset by 3 percent higher volume.
o Diversified businesses earnings were $63 million, up 26 percent
from $50 million in 1997. This reflects the absence of losses
incurred last year from the now divested printing and publish-
ing business, partly offset by earnings declines in the
polyester businesses. Segment sales were $736 million, up
33 percent after adjusting third quarter 1997 to exclude sales
from divested businesses. This reflects a 41 percent increase
from the additional sales from acquired businesses, partly
offset by 8 percent lower prices.
13
<PAGE>
<TABLE>
Form 10-Q
E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
CONSOLIDATED INDUSTRY SEGMENT INFORMATION - Three Months Ended Nine Months Ended
CONTINUING OPERATIONS September 30 September 30
- ------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES
- -----
Chemicals ........................................... $ 1,026 $ 1,064 $ 3,094 $ 3,183
Fibers .............................................. 1,802 1,885 5,565 5,748
Polymers ............................................ 1,639 1,688 5,133 5,106
Life Sciences ....................................... 839 474 2,465 2,057
Diversified Businesses .............................. 736 683 2,411 2,092
------- ------- ------- -------
Total ........................................... $ 6,042 $ 5,794 $18,668 $18,186
======= ======= ======= =======
AFTER-TAX OPERATING INCOME (LOSS)<Fa><Fb>
- ---------------------------------------
Chemicals ........................................... $ 146 <Fc> $ 152 $ 475 <Fc> $ 427
Fibers .............................................. 125 234 438 702
Polymers ............................................ 181 224 642 684
Life Sciences ....................................... (813)<Fd> (657)<Fe> (475)<Fd> (274)<Fe>
Diversified Businesses .............................. (126)<Fd> (170)<Ff> 15 <Fd> (33)<Ff>
------- ------- ------- -------
ATOI from Continuing Operations ................. (487) (217) 1,095 1,506
Interest and Other Corporate Expenses, Net of Tax ... (77) (56) (228) (145)
------- ------- ------- -------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM ......................... $ (564) $ (273) $ 867 $ 1,361
======= ======= ======= =======
- -------------------------------
<FN>
<Fa> For all periods presented, the petroleum has been reflected as
discontinued operations.
<Fb> Third quarter 1998 includes a charge of $256 resulting from a company-
wide productivity improvement initiative as follows: Chemicals - $51;
Fibers - $82; Polymers - $27; Life Sciences - $16; and Diversified
Businesses - $80. 1998 year to date also includes charges of $130 within
the Fibers segment attributable to employee separation costs and the
shutdown of related manufacturing facilities.
<Fc> Includes a $36 gain on the sale of Hydrogen Peroxide assets.
</TABLE>
14
<PAGE>
Form 10-Q
[FN]
<Fd> Third quarter 1998 includes a charge of $845 in Life Sciences related to
purchased in-process research and development in conjunction with the
purchase of Merck's interest in The DuPont Merck Pharmaceutical Company
based on preliminary allocations of purchase price which are subject to
revision upon obtaining independent valuations by an outside appraisal
firm and completion of purchase accounting allocations. An additional
charge of $109 was recorded in Diversified Businesses based on a revised
estimate of the purchased in-process research and development associated
with the purchase of the polyester businesses of Imperial Chemical
Industries PLC. 1998 year to date also includes a $60 charge in Life
Sciences for revision, based on independent appraisals, of the purchase
price allocation related to purchased in-process research and development
in conjunction with the purchase of Protein Technologies International.
This charge finalized the initial charge of $500 taken in the fourth
quarter 1997.
<Fe> Includes a benefit of $72 from the company's equity interest in the sale
by DuPont Merck of its generic and multisource product lines and an
estimated charge of $850 related to the purchase of in-process research
and development made in conjunction with the company's acquisition of a
20% interest in Pioneer Hi-Bred International, Inc, based on preliminary
allocations of the purchase price. The purchase price allocations
associated with Pioneer were subsequently finalized and an additional
charge of $53 taken in the fourth quarter 1997.
<Ff> Includes a charge of $220 associated with exiting the company's global
graphics arts films and offset printing plates businesses.
15
<PAGE>
Form 10-Q
(b) Financial Condition at September 30, 1998
DuPont recorded a net cash inflow from continuing operations of
$2.4 billion for the first nine months of 1998, as compared with
$2.5 billion for the same period in 1997. 1998 income from continuing
operations before extraordinary item of $0.9 billion included noncash
charges of $1.5 billion for write-offs of in-process research and develop-
ment related to acquisitions, and $0.3 billion related to the write-down of
assets. 1997 income from continuing operations of $1.4 billion included
noncash charges of $0.9 billion for write-offs of in-process research and
development related to acquisitions and $0.3 billion related to the charges
associated with exiting the company's global graphics arts films and offset
printing plates businesses. Excluding noncash charges, income from
continuing operations in the periods were comparable. Net operating assets
and liabilities increased $1.1 billion in 1998 as compared to a $1.0 billion
increase in 1997, reflecting a typical pattern driven by seasonal working
capital builds in a number of business units. Increases in inventory were
slightly higher this year versus last year, offset by smaller increases in
trade receivables. Increased liabilities related to unrealized losses on
forward exchange contracts were more than offset by lower tax liabilities.
Seasonal increases in working capital are usually reversed by year-end.
1998 year-to-date capital expenditures for purchases of plant,
property and equipment, investments in equity affiliates, and payments for
businesses acquired were $4.7 billion. This is an increase of $1.4 billion
over 1997, and is due to higher spending in 1998 for acquisitions. 1998
acquisitions include $0.7 billion for acquisition of ICI's polyester films
business and $2.6 billion (including $0.3 billion of cash acquired) for
acquisition of Merck's 50 percent interest in The DuPont Merck
Pharmaceutical Company. September year-to-date 1997 capital expenditures
included $1.7 billion for purchase of a 20 percent interest in Pioneer
Hi-Bred International. Following the acquisition of Merck's 50 percent
interest in The DuPont Merck Pharmaceutical Company, DuPont now owns
100 percent of the business, which was renamed DuPont Pharmaceuticals.
DuPont booked a $1.3 billion pretax charge in third quarter 1998 to
write-off the estimated portion of the purchase price attributable to
research and development in process at the time of acquisition for which
technological feasibility has not yet been established and no alternate
future use is anticipated.
Proceeds from sale of assets in the first nine months of 1998
totaled $369 million, and included the sale of certain hydrogen peroxide
properties for $236 million, and proceeds related to the sale of the
company's graphics arts films and offset printing plates businesses totaling
$86 million. In November of 1998, DuPont sold substantially all of its
interest in Consol Energy Inc., a 50/50 coal operations joint venture with
Rheinbraun AG, a subsidiary of RWE AG of Germany, to Consol Energy Inc.
16
<PAGE>
Form 10-Q
In May 1998, DuPont announced its intent to divest its Conoco
energy business. On July 29, 1998, Conoco Inc. filed a registration
statement with the Securities and Exchange Commission as the first key step
in the divestiture plan. On October 21, 1998, Conoco sold, in an initial
public offering, 191,456,427 shares of Conoco Class A common stock at $23.00
per share. Net proceeds of the offering, $4.2 billion, were used by Conoco
to repay outstanding indebtedness to DuPont.
There are 191,456,427 shares of Conoco Class A common stock out-
standing, all of which is publicly held, and 436,543,573 shares of Conoco
Class B common stock outstanding, all of which is indirectly owned by
DuPont. DuPont indirectly owns approximately 70 percent of Conoco common
stock, which represents approximately 92 percent of the combined voting
rights of all classes of common stock. DuPont intends to offer its remain-
ing Conoco shares to DuPont shareholders in exchange for DuPont shares in a
tax free split off expected to be completed by the third quarter 1999.
Year-to-date Conoco net cash flow results are presented as net cash flow
from discontinued operations.
Conoco Inc. and DuPont gave certain current employees of Conoco
Inc. the option, subject to specific country tax and legal requirements, to
participate in a program involving the cancellation of all or part of their
options to purchase DuPont common stock or appreciation rights ("SARs") with
respect to DuPont common stock and the issuance by Conoco upon such
cancellation of comparable options to acquire its Class A Common Stock or
SARs with respect to Class A Common Stock. This program is deemed a change
in the terms of certain awards granted to Conoco employees. As a result,
Conoco Inc. will incur a noncash charge to compensation expense in the
fourth quarter 1998 of $183 million after-tax. Such charge was based on the
market price of DuPont common stock at October 21, 1998 and the number of
outstanding Conoco employee options to purchase DuPont common stock.
Year-to-date, the company has spent about $769 million to purchase
and retire 12,814,162 shares of DuPont common stock. These purchases were
part of the program initiated in 1997 to purchase and retire up to
20 million shares of DuPont common stock to offset dilution from shares
issued under compensation programs. Of the 12.8 million shares, 6 million
were purchased and retired in a private placement transaction. Under the
terms of this private placement agreement, the transaction was settled on
September 1, 1998, resulting in the issuance of 333,862 shares valued at
$19.6 million. In addition, 72,326 shares valued at $4.4 million were
issued as final settlement related to the 1997 acquisitions, principally
Protein Technologies International. Not related to the buyback program
previously mentioned, the company received $65 million as a final settlement
payment associated with 16 million shares repurchased in a private placement
transaction in December 1997.
17
<PAGE>
Form 10-Q
In September, the company recorded a $201 million after tax
extraordinary charge related to early retirement of debt. Total debt,
including capital lease obligations, at September 30, 1998, was
$17.1 billion versus $12.1 billion at year-end 1997. The $5.0 billion
increase in total debt reflects primarily the issuance of commercial paper.
These funds were used primarily to finance the $1.1 billion increase in
operating assets and liabilities, the ICI and DuPont Merck acquisitions
totaling $3.3 billion. In addition, $1.8 billion of commercial paper was
used to finance the retirement of $1.6 billion of long-term debt.
Certain Statistics - Continuing Operations
------------------------------------------
At 9/30/98 At 12/31/97
---------- -----------
Cash Flow to Total Debt
(previous 12 months cash
provided by operations to
total debt) .................. 26.9% 39.2%
Current Ratio (current assets
to current liabilities) ...... 0.6:1 0.8:1
Earnings to Fixed Charges ...... 2.6 5.1
Earnings to Fixed Charges -
Pro Forma*.................... 3.3 7.4
------------------
*Pro Forma statistics exclude interest and debt expense
which has been allocated to discontinued operations.
The Cash Flow to Total Debt ratio was down in third quarter 1998
versus year-end primarily due to the $5.0 billion increase in total debt in
the first nine months. The company expects this ratio to improve as a
result of the Conoco divestiture. Days' sales outstanding averaged 58 days
in the third quarter, an increase of six days from second quarter 1998, and
up six days from the third quarter of 1997.
(c) Other Items
Year 2000
---------
The Year 2000 Problem concerns potential exposures related to the
automated generation of financial and business misinformation resulting from
the application of computer programs written using six (e.g., 12-31-99)
versus eight (e.g., 12-31-1999) digits to define the applicable date. This
could result in, among other things, computer systems recognizing "00" as
the year 1900 rather than the year 2000.
18
<PAGE>
Form 10-Q
The company has identified which of its internal systems will
require remediation to provide for the company's continuing business
operations after January 1, 2000. The company is addressing the Year 2000
Problem in these systems, and has begun an analysis of the Year 2000
readiness of key third parties. Computer Sciences Corporation and Andersen
Consulting, who operate the majority of the company's global information
systems and technology infrastructure, are assisting in these activities.
The inventory and assessment phases have been completed, although
assessment phase updates continue to be made based on the availability of
new information. The company has begun the remediation phase of its plan in
which systems that are not Year 2000-capable are repaired, replaced or
retired, and remediated systems are tested and returned to active use.
Based on current project reporting data, approximately 70 percent
of the company's affected systems are now Year 2000-capable, and the
remaining systems are expected to be completed on the following schedule:
Systems Time Frame
------- -----------------------------
Mainframe Corporate Data Centers .......... April 1999
Mid Range Computers ....................... October 1998 - October 1999
Telecommunications ........................ November 1998 - March 1999
Electronic Mail ........................... November 1999
Corporate (e.g., Payroll) ................. June 1999
Business (e.g., Inventory Processing) ..... December 1998 - 4th Qtr. 1999
Manufacturing ............................. 4th Qtr. 1998 - 4th Qtr. 1999
Embedded Chip Equipment ................... 4th Qtr. 1998 - 4th Qtr. 1999
The company has initiated its Business Partner 2000 Program to
determine the Year 2000 readiness of its key customers and suppliers. A
survey was provided to key suppliers, and of the 30 percent which responded,
the company assessed approximately 40 percent as having a high risk of not
becoming Year 2000-capable on a timely basis. In addition, the company is
conducting an assessment of its key customers, focusing on their Year 2000
capability as it affects customer ordering procedures, and delivery of and
payment for company products. To date, the company has received responses
from 27 percent of those customers surveyed and anticipates completing this
assessment by December 1998. Based on these surveys and assessments, the
company is continuing to promote the efforts of its key suppliers and
customers to become Year 2000-capable. In addition, the company is develop-
ing its own contingency plans to address potential impacts of key supplier
and customer nonreadiness.
The company's plant and business operations are highly dependent on
a continuous supply of key services from raw material suppliers and utility
providers. If the Year 2000 Problem causes suppliers and utility providers
to fail to deliver such essential materials and services, multiple disrup-
tions in the company's plant operations, computer infrastructure or
19
<PAGE>
Form 10-Q
telecommunications systems could result. Because of the inherent uncer-
tainties in the Year 2000 Problem, including understanding the Year 2000
readiness of these key third parties, it is not possible to quantify the
potential impact at this time. However, failure of key suppliers, utility
providers, customers or the company to properly and timely address the Year
2000 Problem could have a material adverse effect on the company's financial
condition, results of operations or liquidity. Furthermore, there can be no
guarantee that any contingency plans developed by the company will prevent
such failures from having a material adverse effect.
The company currently expects total out-of-pocket costs to become Year
2000-capable to be in the range of $300 to $400 million. As of
September 30, 1998, the company spent an estimated $140 million on
implementing its plan. The company does not specifically track all costs
associated with employees working on Year 2000 projects, but has included an
estimate of these internal costs in the above estimated to-date expendi-
tures. The company does not include the costs of systems projects which
will address the Year 2000 problem, but, which were initiated to accomplish
other (non-Year 2000) objectives. The company will fund Year 2000 expendi-
tures from company cash flow from operations and expects that total
remediation costs, including the reallocation of internal resources, will
not have a material adverse effect on the company's financial condition,
results of operations or liquidity.
The foregoing timetable and assessment of costs to become Year
2000-capable reflect management's best estimates. These estimates are based
upon many assumptions, including assumptions about the cost, availability
and ability of resources to identify, locate, remediate and modify affected
systems, as well as the assessment of Year 2000 readiness of key third
parties. Based upon its activities to date, the company does not believe
that these factors will cause results to differ significantly from those
estimated. However, the company cannot reasonably estimate the potential
impact on its financial condition or results of operations if key third
parties, including suppliers, customers and governments, do not become Year
2000-capable on a timely basis.
European Monetary Union
-----------------------
On May 2, 1998, the final decision was made to form the European
Monetary Union (EMU) with eleven out of the fifteen member countries of the
European Union and to introduce a common currency, the euro, on January 1,
1999.
On January 1, 1999, the eleven participating countries will be
fixing the irrevocable currency exchange rates between their national
currencies and the euro. At that time, the euro will begin to trade on
worldwide currency exchanges and will be used in business transactions.
During the transition period, January 1, 1999 - January 1, 2002, both the
20
<PAGE>
Form 10-Q
euro and national currencies will coexist. The national currencies will
remain legal tender until at least January 1, 2002, but not later than
July 1, 2002. In January 2002, euro notes and coins will be introduced and
become legal tender while national currencies will start to be withdrawn
from circulation by latest July 1, 2002.
The company has recognized the introduction of the euro as a
significant opportunity and has organized itself to be ready to handle
transactions with its business partners in euro as of January 1, 1999. The
company will do business in euro by preference within all EMU countries.
The company has been preparing for the introduction of the euro,
principally through the efforts of a multi-function Euro Implementation
Team. The team has been working to identify, review and implement projects
to ensure compliance of all transactional business and financial systems.
The team also continues to address other conversion issues such as legal and
tax implications of the euro, impacts on payroll systems, and potential
risks from third parties.
The company anticipates that its transactional business and
accounting systems will be ready for the introduction of the euro on
January 1, 1999. Further, the company does not expect the euro conversion
to have a material adverse impact on its financial condition or results of
operations.
New Director
------------
Sanford I. Weill, chairman and CEO of Travelers Group, was elected
a member of DuPont's board of directors effective August 1, 1998.
Concurrent with Mr. Weill's election, the number of DuPont directors
increased from 13 to 14. Mr. Weill, 65, assumed his present post in 1986,
with the public offering of Commercial Credit Company, a predecessor company
to Travelers. Following several major acquisitions, the company adopted the
name Primerica Corporation in 1988 and Travelers in 1993. Prior to that,
from 1983 to 1985, Weill was president of American Express Company, which in
1981 acquired the firm he co-founded in 1960, Carter, Berlind & Weill, which
became Shearson Lehman Brothers. He was chairman and CEO of Shearson until
1984. Weill is active on the boards of numerous educational, community and
other philanthropic organizations, serving as chairman of the board of
trustees of Carnegie Hall and chairman of the board of overseers of the Joan
and Sanford I. Weill Medical College and Graduate School of Medical Sciences
of Cornell University. He is a member of the board of directors of AT&T and
a member of The Business Council and The Business Roundtable.
21
<PAGE>
Form 10-Q
Acquisition
-----------
In October 1998, DuPont agreed to acquire Herberts, the coatings
company of Hoechst AG, for DM 3.13 billion ($1.9 billion, at current
exchange rates). The acquisition, pending government approvals, would
create the world's third largest coatings company and the leading automotive
coatings supplier with combined sales of $3.7 billion. DuPont Automotive
has nine manufacturing facilities, six of which are in North America, three
in Europe, and joint ventures in South America and the Asia/Pacific region.
Herberts operates 37 manufacturing facilities, 30 of which are located in
Europe, three in North America, one in South America and three in Asia with
a number of minority interest joint ventures in the Asia/Pacific region.
Combined, DuPont Automotive and Herberts would employ 14,000 people based on
current information.
22
<PAGE>
Form 10-Q
PART II. OTHER INFORMATION
Item 1. 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
65 crop lawsuits are still pending against the company, as are approximately
70 additional "Benlate" 50 DF cases based on alleged personal injury,
alleged securities violations, alleged discovery abuse and fraud, and
alleged damage to shrimp farming operations. The approximately twenty-eight
shrimp cases, filed in Florida, allege that "Benlate" 50 DF runoff from
Ecuadoran banana plantations hurt production at commercial shrimp farms.
Plaintiffs have separately sued DuPont and other chemical manufacturers.
Among the remaining personal injury cases is the pending appeal of a June
1996 verdict of $3,980,000 against DuPont. Also pending are four personal
injury cases in West Virginia. Three similar cases brought in Delaware have
been dismissed but may be refiled in West Virginia or elsewhere. The same
plaintiff's attorney who filed the 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, and all have now
been remanded to state court. The Alabama case has received conditional
class certification by the state court. 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. DuPont
recently settled this lawsuit; terms are confidential. 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. On November 4, 1998, a different district court judge, presiding
on remand, referred the matter to the United States Attorney's Office for
investigation and prosecution in a possible criminal contempt proceeding.
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
23
<PAGE>
Form 10-Q
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 9, 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 settle-
ment 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 releases plaintiffs executed when they
originally settled barred their attempt to seek additional amounts from
DuPont. The court also granted a similar DuPont motion with respect to
another case that had been transferred from Hawaii federal court. Plain-
tiffs have appealed the granting of DuPont's motions in both of these cases.
Five cases based on similar allegations were filed in Hawaii; the state
court class action case 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. One of
the Hawaii state court cases has been voluntarily dismissed by the plain-
tiff. Seven additional such cases, filed in Florida, have been dismissed on
the grounds that prelitigation settlements barred their claims. Plaintiffs
have appealed the dismissals. 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 these estimated costs could
result in additional future charges.
On April 3, 1998, the Environmental Protection Agency Region III
(EPA) filed an Administrative Complaint against the DuPont Belle plant,
located in West Virginia, in which it alleges violations of the Resource
Conservation Recovery Act (RCRA) Boiler and Industrial Furnace (BIF)
regulations. The allegations are that DuPont failed to record feed rates
while burning hazardous waste, inspect the boiler, and operate the boiler
within established feed rate limits. EPA has proposed a civil penalty of
$263,800. DuPont denies the allegations, believes the penalty is excessive,
and is involved in discussions to settle the matter via alternative dispute
resolution with an EPA Administrative Law Judge.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit index filed with this Form 10-Q is on page 28.
24
<PAGE>
Form 10-Q
(b) Reports on Form 8-K
1. On July 9, 1998, 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 5. "Other
Events," the Registrant filed a press release announcing
a second quarter earnings shortfall.
2. On July 22, 1998, 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 July 22, 1998, was filed.
3. On August 13, 1998, 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 5. "Other
Events," the Registrant filed a press release: "DuPont
CEO Affirms Strategy for Investment Audience, Cites
Challenging Third Quarter."
4. On September 28, 1998, 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 5. "Other
Events," the Registrant filed a press release: "DuPont
to Fully Divest Conoco in 1999; IPO Planned by End of
1998."
5. On October 19, 1998, 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 From S-3 (No. 33-53327,
No. 33-61339 and No. 33-60069). Under Item 5. "Other
Events," the Registrant filed a press release announcing
an amendment to the registration statement covering the
planned initial public offering of Conoco Inc. stock.
6. On October 21, 1998, 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,
25
<PAGE>
Form 10-Q
No. 33-61339 and No. 33-60069). Under Item 7. "Financial
Statements and Exhibits," the Registrant's Earnings Press
Release dated October 21, 1998, was filed.
7. On October 22, 1998, 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 5. "Other
Events," the Registrant filed a press release: "Conoco
IPO Priced at $23 Per Share."
8. On November 13, 1998, a Current Report on Form 8-K was
filed Under Item 5 "Other Events." The company filed its
Cautionary Statements.
26
<PAGE>
Form 10-Q
SIGNATURE
Pursuant to the requirements 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.
E. I. DU PONT DE NEMOURS AND COMPANY
(Registrant)
Date: November 13, 1998
-----------------------------------------
By /s/ G. M. Pfeiffer
-----------------------------------------
G. M. Pfeiffer
Senior Vice President - DuPont Finance
(As Duly Authorized Officer and Principal
Financial and Accounting Officer)
27
<PAGE>
Form 10-Q
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
12 Computation of Ratio of Earnings to Fixed Charges.
12-1 Computation of Ratio of Earnings to Fixed Charges -
Pro Forma.
27* Financial Data Schedule - quarter ended September 30, 1998.
27.1* Restated Financial Data Schedule - year ended December 31,
1997.
27.2* Restated Financial Data Schedule - quarter ended
September 30, 1997.
- --------------
*Filed electronically only.
28
<PAGE>
<TABLE>
Form 10-Q
Exhibit 12
E. I. DU PONT DE NEMOURS AND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Years Ended December 31
Nine Months Ended -------------------------------------------------
September 30, 1998 1997 1996 1995 1994 1993
------------------ --------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations Before
Extraordinary Item ............................ $ 867 $1,432 $2,931 $2,858 $2,205 $ (84)
Provision for Income Taxes ...................... 543 1,354 1,416 1,432 1,164 1
Minority Interests in Earnings of Consolidated
Subsidiaries .................................. 19 43 40 29 15 6
Adjustment for Companies Accounted for
by the Equity Method .......................... 24 970<Fa> 81 45 21 48
Capitalized Interest ............................ (91) (80) (70) (76) (83) (145)
Amortization of Capitalized Interest ............ 53<Fb> 82<Fb> 127<Fb> 81 77 83
------ ------ ------ ------ ------ ------
1,415 3,801 4,525 4,369 3,399 (91)
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense - Continuing
Operations .................................. 416 389 409 449 343 327
Interest and Debt Expense - Discontinued
Operations .................................. 211 252 304 308 216 266
Adjustment for Companies Accounted for by the
Equity Method - Interest and Debt Expense ... 36 39 38 46 41 37
Capitalized Interest - Continuing Operations .. 91 80 70 76 83 145
Capitalized interest - Discontinued
Operations .................................. 75 90 73 95 59 49
Rental Expense Representative of Interest
Factor ...................................... 62 83 80 80 83 97
------ ------ ------ ------ ------ ------
891 933 974 1,054 825 921
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................. $2,306 $4,734 $5,499 $5,423 $4,224 $ 830
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned ........ 2.6 5.1 5.6 5.2 5.1 - <Fc>
====== ====== ====== ====== ====== ======
<FN>
<Fa> Includes write-off of Purchased In-Process Research and Development
associated with acquisition of 20% interest in Pioneer Hi-Bred
International, Inc.
<Fb> Includes write-off of capitalized interest associated with divested
businesses.
<Fc> Because of a pretax loss for the year 1993, profit was not sufficient to
cover fixed charges. The coverage deficiency was $91 million.
</TABLE>
29
<PAGE>
<TABLE>
Form 10-Q
Exhibit 12-1
E. I. DU PONT DE NEMOURS AND COMPANY
PRO FORMA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Ratio of earnings to fixed charges on a continuing
operations basis reflecting interest allocations to
Conoco Inc., which is reported as discontinued operations.
<CAPTION>
Years Ended December 31
Nine Months Ended ------------------------------------------------
September 30, 1998 1997 1996 1995 1994 1993
------------------ --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations Before
Extraordinary Item ............................ $ 867 $1,432 $2,931 $2,858 $2,205 $ (84)
Provision for Income Taxes ...................... 543 1,354 1,416 1,432 1,164 1
Minority Interests in Earnings of Consolidated
Subsidiaries .................................. 19 43 40 29 15 6
Adjustment for Companies Accounted for
by the Equity Method .......................... 24 970<Fa> 81 45 21 48
Capitalized Interest ............................ (91) (80) (70) (76) (83) (145)
Amortization of Capitalized Interest ............ 53<Fb> 82<Fb> 127<Fb> 81 77 83
------ ------ ------ ------ ------ -----
1,415 3,801 4,525 4,369 3,399 (91)
------ ------ ------ ------ ------ -----
Fixed Charges:
Interest and Debt Expense<Fc> ................. 416 389 409 449 343 327
Adjustment for Companies Accounted for by the
Equity Method - Interest and Debt Expense ... 36 39 38 46 41 37
Capitalized Interest .......................... 91 80 70 76 83 145
Rental Expense Representative of Interest
Factor ...................................... 62 83 80 80 83 97
------ ------ ------ ------ ------ -----
605 591 597 651 550 606
------ ------ ------ ------ ------ -----
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................. $2,020 $4,392 $5,122 $5,020 $3,949 $ 515
====== ====== ====== ====== ====== =====
Number of Times Fixed Charges are Earned<Fc> .... 3.3 7.4 8.6 7.7 7.2 - <Fd>
====== ====== ====== ====== ====== =====
- -----------------------------
<FN>
<Fa> Includes write-off of Purchased In-Process Research and Development
associated with acquisition of 20% interest in Pioneer Hi-Bred
International, Inc.
<Fb> Includes write-off of capitalized interest associated with divested
businesses.
<Fc> Excludes interest and debt expense which has been allocated to
discontinued operations.
<Fd> Because of a pretax loss for the year 1993, profit was not sufficient
to cover fixed charges. The coverage deficiency was $91 million.
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
Form 10-Q For The Quarterly Period Ended September 30, 1998, And Is
Qualified In Its Entirety By Reference To Such Financial Statements
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,730
<SECURITIES> 291
<RECEIVABLES> 5,409<F1>
<ALLOWANCES> 97
<INVENTORY> 3,292
<CURRENT-ASSETS> 11,573
<PP&E> 34,322
<DEPRECIATION> 20,592
<TOTAL-ASSETS> 42,563
<CURRENT-LIABILITIES> 18,256
<BONDS> 4,524
0
237
<COMMON> 342
<OTHER-SE> 10,567
<TOTAL-LIABILITY-AND-EQUITY> 42,563
<SALES> 18,668
<TOTAL-REVENUES> 19,293
<CGS> 12,844<F2>
<TOTAL-COSTS> 17,448<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 1,429
<INCOME-TAX> 543
<INCOME-CONTINUING> 867
<DISCONTINUED> 594
<EXTRAORDINARY> (201)
<CHANGES> 0
<NET-INCOME> 1,260
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.09
<FN>
<F1>Includes Other Accounts In Addition To Notes and Accounts
Receivable-Trade.
<F2>Includes Other Expenses.
<F3>Cost of Goods Sold and Other Expenses; Depreciation and
Amortization; Selling, General and Administrative Expenses;
Purchased In-Process Research and Development; and Employee
Separation Costs and Writedown of Assets.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
The Annual Financial Statements For The Year 1997 Of E. I. du Pont
de Nemours and Company And Consolidated Subsidiaries. The Schedule
Is Qualified In Its Entirety By Reference To Such Financial Statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,004
<SECURITIES> 135
<RECEIVABLES> 4,309<F1>
<ALLOWANCES> 66
<INVENTORY> 2,792
<CURRENT-ASSETS> 9,100
<PP&E> 32,911
<DEPRECIATION> 20,310
<TOTAL-ASSETS> 36,844
<CURRENT-LIABILITIES> 11,219
<BONDS> 5,897
0
237
<COMMON> 346
<OTHER-SE> 10,840
<TOTAL-LIABILITY-AND-EQUITY> 36,844
<SALES> 24,089
<TOTAL-REVENUES> 25,094
<CGS> 14,888<F2>
<TOTAL-COSTS> 21,876<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 389
<INCOME-PRETAX> 2,829
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 1,432
<DISCONTINUED> 973
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,405
<EPS-PRIMARY> 2.12
<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 and Amortization;
Research and Development Expense; Taxes Other Than On Income;
Purchased In-Process Research and Development; and Writedown of
Assets and Other Related Costs.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
The Interim Financial Statements For The Quarterly Period Ended
September 30, 1997, Of E. I. du Pont de Nemours and Company And
Consolidated Subsidiaries. The Schedule Is Qualified In Its Entirety
By Reference To Such Financial Statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,485
<SECURITIES> 708
<RECEIVABLES> 4,373<F1>
<ALLOWANCES> 60
<INVENTORY> 2,657
<CURRENT-ASSETS> 10,132
<PP&E> 30,463
<DEPRECIATION> 19,559
<TOTAL-ASSETS> 36,786
<CURRENT-LIABILITIES> 11,052
<BONDS> 5,754
0
237
<COMMON> 347
<OTHER-SE> 11,138
<TOTAL-LIABILITY-AND-EQUITY> 36,786
<SALES> 18,186
<TOTAL-REVENUES> 19,022
<CGS> 12,495<F2>
<TOTAL-COSTS> 16,152<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> 2,602
<INCOME-TAX> 1,207
<INCOME-CONTINUING> 1,361
<DISCONTINUED> 782
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,143
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.86
<FN>
<F1>Includes Other Accounts In Addition To Notes And Accounts
Receivable-Trade.
<F2>Includes Other Expenses.
<F3>Cost of Goods Sold and Other Expenses; Depreciation and
Amortization; Selling, General and Administrative Expenses;
Purchase In-Process Research and Development; Employee
Separation Cost and Writedown of Assets.
</FN>
</TABLE>
