UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
1,130,311,035 shares (excludes 9,203,119 shares held by DuPont's Flexitrust)
of common stock, $0.30 par value, were outstanding at July 31, 1999.
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 ............................... 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements ................................ 12-13
Results of Operations:
Financial Results ......................................... 14-15
Segment Performance ....................................... 15-17
Financial Condition ....................................... 17-18
Other Items:
Year 2000 Readiness Disclosure ............................ 18-20
Purchased In-Process Research and Development ............. 20-23
Pioneer Merger ............................................ 23-24
Conoco Split-Off .......................................... 24
Part II Other Information
Item 1. Legal Proceedings .................................... 25
Item 5. Other Information .................................... 25-26
Item 6. Exhibits and Reports on Form 8-K ..................... 27-28
Signature ....................................................... 29
Exhibit Index ................................................... 30
Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges ................................................. 31
Exhibit 12.1 - Computation of Ratio of Earnings to
Fixed Charges - Pro Forma ..................................... 32
2
<PAGE>
<TABLE>
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Three Months Ended Six Months Ended
CONSOLIDATED INCOME STATEMENT<Fa><Fb> June 30 June 30
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES<Fc> .................................................... $6,994 $6,432 $13,289 $12,626
Other Income<Fd> ............................................. 235 192 253<Fe> 489
------ ------ ------- -------
Total .................................................... 7,229 6,624 13,542 13,115
------ ------ ------- -------
Cost of Goods Sold and Other Expenses<Fd> .................... 4,381 4,057 8,254 8,106
Selling, General and Administrative Expenses ................. 625 506 1,160 985
Depreciation and Amortization ................................ 373 367 708 699
Research and Development ..................................... 387 274 745 538
Interest Expense ............................................. 117 129 213 256
Purchased In-Process Research and Development<Ff> ............ - - 40 60
Employee Separation Costs and Write-Down of Assets<Fg> ....... 62 68 62 186
------ ------ ------- -------
Total .................................................... 5,945 5,401 11,182 10,830
------ ------ ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
AND MINORITY INTERESTS ...................................... 1,284 1,223 2,360 2,285
Provision for Income Tax Expenses ............................ 418 416 850 833
Minority Interests in Earnings of Consolidated Subsidiaries .. 20 13 36 21
------ ------ ------- -------
INCOME FROM CONTINUING OPERATIONS<Fc>......................... 846 794 1,474 1,431
DISCONTINUED OPERATIONS
Income from Operations of Discontinued Business,
Net of Income Taxes ...................................... - 165 - 434
Gain on Disposal of Discontinued Business,
Net of Income Taxes ...................................... 71 - 106 -
------ ------ ------- -------
NET INCOME ................................................... $ 917 $ 959 $ 1,580 $ 1,865
====== ====== ======= =======
BASIC EARNINGS PER SHARE OF COMMON STOCK<Fh>
Continuing Operations ...................................... $ .75 $ .70 $ 1.30 $ 1.26
Discontinued Operations .................................... .06 .15 .10 .39
------ ------ ------- -------
Net Income ................................................. $ .81 $ .85 $ 1.40 $ 1.65
====== ====== ======= =======
DILUTED EARNINGS PER SHARE OF COMMON STOCK<Fh>
Continuing Operations ...................................... $ .74 $ .69 $ 1.29 $ 1.24
Discontinued Operations .................................... .06 .14 .09 .38
------ ------ ------- -------
Net Income ................................................. $ .80 $ .83 $ 1.38 $ 1.62
====== ====== ======= =======
DIVIDENDS PER SHARE OF COMMON STOCK .......................... $ .35 $ .35 $ .70 $ .665
====== ====== ======= =======
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
Six Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS<Fa><Fb> June 30
- ---------------------------------------------------------------------------------------------
(Dollars in millions) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY CONTINUING OPERATIONS
Net Income ..................................................... $ 1,580 $ 1,865
Adjustments to Reconcile Net Income to Cash
Provided by Continuing Operations:
Net Income from Discontinued Operations .................... (106) (434)
Depreciation and Amortization .............................. 708 699
Purchased In-Process Research and Development .............. 40 60
Other Noncash Charges and Credits - Net .................... 60 (34)
Change in Operating Assets and Liabilities - Net ........... (591) (712)
------- -------
Cash Provided by Continuing Operations ................... 1,691 1,444
------- -------
INVESTMENT ACTIVITIES OF CONTINUING OPERATIONS
Purchases of Property, Plant and Equipment ..................... (981) (1,026)
Investment in Affiliates ....................................... (24) (55)
Payments for Businesses Acquired (Net of Cash Acquired) ........ (1,624) (698)
Proceeds from Sales of Assets .................................. 62 265
Investments in Short-Term Financial Instruments - Net .......... (30) (381)
Miscellaneous - Net ............................................ (7) (50)
------- -------
Cash Used for Investment Activities of Continuing
Operations ............................................. (2,604) (1,945)
------- -------
FINANCING ACTIVITIES
Dividends Paid to Stockholders ................................. (794) (754)
Net (Decrease) Increase in Borrowings .......................... (2,737) 3,970
Acquisition of Treasury Stock .................................. (44) (309)
Proceeds from Exercise of Stock Options ........................ 90 217
Increase in Minority Interests ................................. 80 -
------- -------
Cash Provided by (Used for) Financing Activities ......... (3,405) 3,124
------- -------
Net Cash Flow from Discontinued Operations ....................... 4,733 (260)
------- -------
Effect of Exchange Rate Changes on Cash .......................... (96) 3
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS ............................ $ 319(i) $ 2,366
======= =======
See Notes to Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
CONSOLIDATED BALANCE SHEET<Fa><Fb> June 30 December 31
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ........................................................ $ 1,501 $ 1,059
Marketable Securities ............................................................ 39 10
Accounts and Notes Receivable .................................................... 5,446 4,201
Inventories<Fj> .................................................................. 3,388 3,129
Prepaid Expenses ................................................................. 215 192
Deferred Income Taxes ............................................................ 548 645
------- -------
Total Current Assets ........................................................... 11,137 9,236
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization
(June 30, 1999 - $20,748; December 31, 1998 - $20,597) ........................... 14,888 14,131
INVESTMENT IN AFFILIATES ........................................................... 1,988 1,796
OTHER ASSETS ....................................................................... 5,730 4,956
NET ASSETS OF DISCONTINUED OPERATIONS<Fk> .......................................... 3,572 8,417
------- -------
TOTAL<Fc> ...................................................................... 37,315 38,536
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ................................................................. 1,844 1,929
Short-Term Borrowings and Capital Lease Obligations .............................. 3,536 6,629
Income Taxes ..................................................................... 353 130
Other Accrued Liabilities ........................................................ 3,181 2,922
------- -------
Total Current Liabilities ...................................................... 8,914 11,610
LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS ................................. 4,934 4,495
OTHER LIABILITIES .................................................................. 7,741 7,640
DEFERRED INCOME TAXES .............................................................. 512 430
------- -------
Total Liabilities .............................................................. 22,101 24,175
------- -------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .................................... 474 407
------- -------
STOCKHOLDERS' EQUITY<Fl>
Preferred Stock .................................................................. 237 237
Common Stock, $.30 par value; 1,800,000,000 shares authorized; shares issued
at June 30, 1999 - 1,139,154,154; December 31, 1998 - 1,140,354,154 ............ 342 342
Additional Paid-In Capital ....................................................... 7,917 7,854
Reinvested Earnings .............................................................. 7,453 6,705
Accumulated Other Comprehensive Loss ............................................. (523) (432)
Common Stock Held in Trust for Unearned Employee Compensation and Benefits
(Flexitrust), at Market (Shares: June 30, 1999 - 10,050,727;
December 31, 1998 - 14,167,867) ................................................ (686) (752)
------- -------
Total Stockholders' Equity ..................................................... 14,740 13,954
------- -------
TOTAL .......................................................................... $37,315 $38,536
======= =======
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 business is reported as
discontinued operations and is discussed in Notes (b) and (k).
<Fb> Discontinued Operations:
On September 28, 1998, the company announced that the Board of
Directors had approved a plan to divest the company's 100 percent-owned
petroleum business (Conoco Inc.). On October 21, 1998, the company's
interest in Conoco was reduced to 69.5 percent following an initial
public offering of Conoco Class A Common Stock. In July 1999, the
company announced the terms of the tax-free split-off to complete the
divestiture by exchanging the remaining Conoco shares held by the
company. On August 9, 1999, the company announced the successful
completion of its exchange offer of Conoco Class B Common Stock for
DuPont common stock. The company has not recognized a deferred tax
liability for the difference between the book basis and tax basis of
its investment in Conoco's common stock because this basis difference
will not be subject to tax. The company's consolidated financial
statements and notes report its petroleum business as discontinued
operations. Prior periods have been restated. Results reported
separately by Conoco are reported on a stand-alone basis and may differ
from results based on discontinued operations reporting. In addition,
beginning October 22, 1998, the company's results from discontinued
operations reflect minority interests of 30.5 percent.
Discussion of the exchange offer is on page 24.
6
<PAGE>
<TABLE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
<CAPTION>
<FN>
<Fc> CONSOLIDATED SEGMENT INFORMATION - Three Months Ended Six Months Ended
CONTINUING OPERATIONS<F1> June 30 June 30
------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEGMENT SALES<F2>
-------------
Agriculture & Nutrition .......................... $1,092 $1,231 $ 1,872 $ 2,001
Nylon Enterprise ................................. 1,149 1,162 2,252 2,335
Performance Coatings & Polymers .................. 1,656 1,190 2,806 2,338
Pharmaceuticals<F3> .............................. 380 193 789 410
Pigments & Chemicals ............................. 949 939 1,815 1,859
Polyester Enterprise ............................. 667 759 1,291 1,493
Specialty Fibers ................................. 857 828 1,720 1,679
Specialty Polymers ............................... 1,072 1,055 2,074 2,089
Other ............................................ 107 109 209 282
------ ------ ------- -------
Total Segment Sales ............................ 7,929 7,466 14,828 14,486
Elimination of Intersegment Transfers ............ (234) (182) (407) (386)
Elimination of Equity Affiliate Sales ............ (701) (852) (1,132) (1,474)
------ ------ ------- -------
SALES .......................................... $6,994 $6,432 $13,289 $12,626
====== ====== ======= =======
AFTER-TAX OPERATING INCOME (LOSS)
---------------------------------
Agriculture & Nutrition .......................... $ 206 $ 236 $ 297 $ 265<F4>
Nylon Enterprise ................................. 104 85<F5> 206 90<F5>
Performance Coatings & Polymers .................. 160 128 260<F6> 250
Pharmaceuticals .................................. 49 25 124 75
Pigments & Chemicals ............................. 158 137 304 294
Polyester Enterprise ............................. (53)<F7> 1 (59)<F7> 5
Specialty Fibers ................................. 168 161 349 349
Specialty Polymers ............................... 164 162 328 320
Other ............................................ 12 (5) 22 40
------ ------ ------- -------
Total Segment ATOI ............................. 968 930 1,831 1,688
Interest & Exchange Gains and Losses ............. (48) (82) (211)<F8> (152)
Corporate Expenses ............................... (74) (54) (146) (105)
------ ------ ------- -------
INCOME FROM CONTINUING OPERATIONS .............. $ 846 $ 794 $ 1,474 $ 1,431
====== ====== ======= =======
<CAPTION>
June 30 December 31
SIGNIFICANT CHANGE IN SEGMENT ASSETS 1999 1998
--------- -----------
<S> <C> <C>
Performance Coatings & Polymers .................. $4,205<F9> $2,214
====== ======
</TABLE>
7
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
Footnotes to Note (c)
- ---------------------
<F1> Certain reclassifications of segment data have been made, consistent with
internal reporting, to reflect changes in organizational structure.
<F2> Includes pro rata equity affiliate sales and intersegment transfers.
<F3> The increase in sales reflects the current 100 percent ownership of the
pharmaceuticals business versus 50 percent in 1998. In addition,
effective first quarter 1999, revenues from contract manufacturing are
reclassified from Other Income to Sales, and prior periods have been
restated. These revenues are $21 and $48 for second quarter and
year-to-date 1999, respectively, versus $20 and $35 for the comparable
periods of 1998.
<F4> Includes a charge of $60 for revision, based on finalization of the
purchase price allocation in conjunction with the purchase of Protein
Technologies International, related to the value assigned to research and
development in progress at the time of purchase for which technological
feasibility has not yet been established and no alternative future use is
anticipated.
<F5> Includes charges of $45 for the quarter and $130 for the year-to-date
related to rationalization of global Nylon operations, primarily shutdown
of certain manufacturing facilities and employee separation costs.
<F6> Includes an estimated charge of $40 based on preliminary purchase price
allocations in conjunction with the purchase of Herberts, the automotive
coatings business of Hoechst AG, related to the value assigned to
research and development in progress at the time of purchase for which
technological feasibility has not yet been established and no alternative
future use is anticipated.
<F7> Includes a charge of $40 related to employee separation costs for about
850 employees within the Polyester Enterprise.
<F8> Includes an exchange loss of $81 on forward exchange contracts purchased
in 1998 to lock in the U.S. dollar cost of the acquisition of Herberts.
The purchase price for Herberts was negotiated in German marks.
<F9> The change is primarily the result of the purchase of Herberts. The
preliminary purchase price allocation to assets acquired and liabilities
assumed is discussed on pages 20 to 22.
8
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
<Fd> Amortization of intangible assets is principally reported in Cost of
Goods Sold and Other Expenses. Amortization for companies accounted for
under the equity method is reported in Other Income. Total amortization
of intangible assets was $61 and $107 for the second quarter and
year-to-date 1999, respectively. Amounts for comparable periods of 1998
were $23 and $58, respectively.
<Fe> Includes an exchange loss of $131 on forward exchange contracts purchased
in 1998 to lock in the U.S. dollar cost of the acquisition of Herberts,
the automotive coatings business of Hoechst AG. The purchase price for
Herberts was negotiated in German marks.
<Ff> 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 in progress at the time of
purchase for which technological feasibility has not yet been established
and no alternative future use is anticipated. Year-to-date 1999
represents an estimated charge that was recorded in the first quarter in
conjunction with the purchase of Herberts based on preliminary alloca-
tions of purchase price that are subject to revision upon completion of
valuations and purchase accounting allocations. Year-to-date 1998
represents a charge for revision, based on finalization of the purchase
price allocation in conjunction with the purchase of Protein Technologies
International.
<Fg> Second quarter 1999 charges of $62 result from employee separation costs
for about 850 employees within the Polyester Enterprise. Second quarter
1998 charges of $68 result from employee separation costs for about 950
people within the Nylon Enterprise. Year-to-date 1998 charges also
include $40 of employee separation costs within the Nylon Enterprise
related to the termination of about 550 employees and $78 for the
shutdown of related manufacturing facilities.
9
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
<Fh> 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 numerator for both
income from continuing operations and net income is reduced by preferred
dividends of $2.5 and $5.0 for the three- and six-month periods,
respectively. For diluted earnings per share, the numerator is adjusted
to recognize reduced share of earnings assuming options in subsidiary
company stock are exercised if the effect of this adjustment is dilutive.
The denominator is based on the following weighted-average number of
common shares and includes the additional common shares that would have
been outstanding if potentially dilutive common shares had been issued:
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
Basic Diluted Basic Diluted
------------- ------------- ------------- -------------
1999 1,129,006,814 1,144,189,906 1,128,051,977 1,141,147,812
1998 1,129,926,272 1,151,784,525 1,129,175,175 1,148,733,824
The difference between basic and diluted weighted-average common shares
outstanding results from the assumption that dilutive stock options
outstanding were exercised.
The following average 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 Six Months Ended
June 30 June 30
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Average Stock Options 3,060,038 2,536,563 5,818,219 3,767,540
Compensation expense recognized in income for stock-based employee com-
pensation awards was $23 and $26 for the three months and $30 and $60 for
the six months ended June 30, 1999 and 1998, respectively.
Shares held by the Flexitrust are not considered outstanding in comput-
ing the foregoing weighted-average number of common shares.
<Fi> Includes the change in cash and cash equivalents classified in the
Consolidated Balance Sheet within "Net Assets of Discontinued
Operations."
10
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
June 30 December 31
<Fj> Inventories 1999 1998
----------- ------- -----------
Finished Products ......................... $2,408 $2,209
Semifinished Products ..................... 840 836
Raw Materials and Supplies ................ 813 749
------ ------
4,061 3,794
Less: Adjustment of Inventories to a
Last-In, First-Out (LIFO) Basis ......... 673 665
------ ------
Total ................................. $3,388 $3,129
====== ======
June 30 December 31
<Fk> Net Assets of Discontinued Operations 1999 1998
------------------------------------- -------- -----------
Cash and Cash Equivalents ................. $ 252 $ 375
Other Current Assets ...................... 2,831 2,864
Property, Plant and Equipment - Net ....... 11,221 11,438
Other Assets .............................. 2,131 2,011
Current Liabilities ....................... (3,277) (2,473)
Other Liabilities ......................... (7,885) (4,115)
Minority Interests ........................ (1,701) (1,683)
------- -------
Net Assets of Discontinued Operations ... $ 3,572 $ 8,417
======= =======
The reduction in net assets reflects outside financing obtained by Conoco
in the second quarter 1999 to repay intercompany debt to DuPont.
<Fl> The following sets forth the company's total comprehensive income for the
periods shown:
Three Months Ended Six Months Ended
June 30 June 30
------------------ -------------------
1999 1998 1999 1998
----- ----- ------- -------
Net Income ........... $917 $959 $1,580 $1,865
Other Comprehensive
Income (Loss),
Net of Tax ......... 3 (7) (91) (27)
---- ---- ------ ------
Total Comprehensive
Income ............. $920 $952 $1,489 $1,838
==== ==== ====== ======
The components of other comprehensive income are unrealized holding gains
on available-for-sale securities, cumulative translation adjustments, and
minimum pension liability.
11
<PAGE>
Form 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
--------------------------
This report contains forward-looking statements which may be
identified by their use of words like "plans," "expects," "will,"
"anticipates," "intends," "projects," "estimates" or other words of
similar meaning. All statements that address expectations or
projections about the future, including statements about the
company's strategy for growth, product development, market
position, expenditures, financial results and the company's efforts
to remediate Year 2000 issues, are forward-looking statements.
Forward-looking statements are based on certain assumptions
and expectations of future events. The company cannot guarantee that
these assumptions and expectations are accurate or will be realized.
In addition to the factors discussed in this report, the following
are some of the important factors that could cause the company's
actual results to differ materially from those projected in any such
forward-looking statements:
o The company operates in approximately 65 countries world-
wide and derives about half of its revenues from sales
outside the United States. Changes in the laws or policies
of other governmental and quasi-governmental activities in
the countries in which the company operates could affect
its business in the country and the company's results of
operations. In addition, economic factors (including
inflation and fluctuations in interest rates and foreign
currency exchange rates) and competitive factors (such as
greater price competition or a decline in U.S. or European
industry sales from slowing economic growth) in those
countries could affect the company's revenues, expenses and
results.
o The company's growth objectives are largely dependent on its
ability to renew its pipeline of new products and to bring
those products to market. This ability may be adversely
affected by difficulties or delays in product development
including, but not limited to, the inability to identify
viable new products; successfully complete clinical trials of
new pharmaceuticals; obtain relevant regulatory approvals,
which may include approval from the U.S. Food and Drug
Administration; the ability to obtain adequate intellectual
property protection; or gain market acceptance of the new
products.
12
<PAGE>
Form 10-Q
o As part of its strategy for growth, the company has made and
may continue to make acquisitions, divestitures and
alliances. There can be no assurance that these will be
completed or beneficial to the company.
o The company has undertaken and may continue to undertake pro-
ductivity initiatives, including organizational restructur-
ings, to improve performance and generate cost savings.
There can be no assurance that these will be completed or
beneficial to the company. Also there can be no assurance
that any estimated cost savings from such activities will be
realized.
o The company has articulated and updated in its periodic
reports filed with the Securities and Exchange Commission on
Forms 10-Q and 10-K its timetable and assessment of costs to
become Year 2000-capable. The failure of the company or
third parties with which it conducts business to become Year
2000-capable could have a material adverse affect on the
company's financial condition, results of operation and
liquidity.
o The company's facilities are subject to a broad array of
environmental laws and regulations. The costs of complying
with complex environmental laws and regulations as well as
internal voluntary programs, are significant and will con-
tinue to be so for the foreseeable future. The company's
accruals for such costs and liabilities may not be adequate
since the estimates on which the accruals are based depend
on a number of factors including the nature of the allega-
tion, the complexity of the site, the nature of the remedy,
the outcome of discussions with regulatory agencies and
other potentially responsible parties (PRPs) at multi-party
sites, and the number and financial viability of other
PRPs.
o The company's results of operations could be affected by
significant litigation adverse to the company including
product liability claims, patent infringement claims and
antitrust claims.
o The profitability of the company's petroleum business (Conoco
Inc.), currently reported as discontinued operations, will be
affected by the prices for crude oil, natural gas and refined
products. These prices are subject to wide fluctuations in
response to changes in global and regional supply over which
the company has no control, including political developments
and the ability of the Organization of Petroleum Exporting
Countries and other producing nations to set and maintain
production levels and prices.
The foregoing list of important factors does not include all
such factors nor necessarily presents them in order of importance.
13
<PAGE>
Form 10-Q
(a) Results of Operations
(1) Financial Results:
DuPont's second quarter 1999 diluted earnings per share from
continuing operations before nonrecurring items of $.78 were up
7 percent from second quarter earnings of $.73 last year. Includ-
ing discontinued operations and nonrecurring items, diluted earnings
per share were $.80 compared to $.83 in 1998.
Results From Continuing Operations
----------------------------------
Sales in the quarter were $7.0 billion, up 9 percent from
$6.4 billion in the second quarter of 1998, with acquisitions adding
13 percent to top-line growth. Excluding acquisitions, worldwide
volumes declined about 1 percent, while prices were down 3 percent.
Adverse currency effect from a stronger dollar was less than
1 percent.
The Asia Pacific region turned in a strong performance with a
sales increase of 16 percent on 20 percent volume growth, reflecting
gains in nearly all business units. European sales were up
20 percent, with volumes up 24 percent. Excluding the Herberts
acquisition, volumes were down 2 percent, while prices, reflecting
a stronger dollar, declined 4 percent.
U.S. volumes were down 3 percent compared to last year's
second quarter. Excluding the adverse volume impact resulting from
weakness in the crop protection products business, U.S. volume was
up 1 percent. Prices were down 3 percent, adversely affected by
significantly lower polyester fiber prices.
Excluding nonrecurring items, income from continuing opera-
tions for the second quarter 1999 was $886 million, compared to
$839 million in 1998. Nonrecurring charges totaling $40 million
and $45 million were taken in 1999 and 1998, respectively. The
current quarter's nonrecurring item relates to employee separation
costs for Polyester Enterprise staffing reductions as described in
the notes to the financial statements. Second quarter 1998 non-
recurring charges were for employee separation costs recorded in
connection with rationalization of the global Nylon Enterprise.
Results From Discontinued Operations
------------------------------------
The company is in the process of completing the divestiture
of Conoco Inc. with a tax-free split off by exchanging its remaining
Conoco shares (69.5 percent) for DuPont shares during the third
quarter 1999. DuPont's consolidated financial statements and notes
report its petroleum business as discontinued operations. Prior
14
<PAGE>
Form 10-Q
periods have been restated. Results reported separately by Conoco
are reported on a stand-alone basis and may differ from results based
on discontinued operations. In addition, beginning October 22, 1998,
the company's results from discontinued operations reflect minority
interest of 30.5 percent. Further discussion of the exchange offer
is on page 24.
Income from discontinued operations was $71 million compared
to $165 million in last year's second quarter, down 57 percent
principally reflecting lower natural gas prices and lower downstream
margins, partly offset by higher oil prices. These factors, combined
with the reduction of the company's ownership to 69.5 percent,
resulted in a significant earnings decline.
(2) Segment Performance:
The following text compares second quarter 1999 results with
second quarter 1998, for sales and earnings of each segment,
excluding the earnings impact of nonrecurring items described in
the footnotes to the "Consolidated Segment Information - Continuing
Operations" table at Note (c) on pages 7 and 8. Segment results
include intersegment transfers and a pro rata ownership share of the
sales and earnings of equity affiliates. Total segment underlying
after-tax operating income was $1,008 million compared to
$975 million last year. Total segment sales were $7.9 billion,
compared to $7.5 billion last year.
o Agriculture & Nutrition segment earnings were down
13 percent, principally reflecting weakness in the U.S. crop
protection business for corn and soybeans, partly offset by
better results for Nutrition & Health. Segment sales declined
11 percent reflecting a significant volume decrease in the
United States and eastern European crop protection products
markets.
o Nylon Enterprise segment earnings were down 20 percent
reflecting lower sales as higher volumes were more than
offset by lower prices. Apparel and industrial markets
continue to show weakness, while residential flooring
remains strong in North America.
o Performance Coatings & Polymers segment earnings were up
25 percent reflecting higher earnings across all business
units. Sales were up 39 percent reflecting the addition
of the Herberts acquisition and an average of 5 percent
higher sales volume in the remaining businesses.
15
<PAGE>
Form 10-Q
o Pharmaceuticals segment earnings were up 96 percent,
primarily due to earnings improvements from "Sustiva"
(efavirenz) and "Cozaar" (antihypertensive drug) as well as
the current 100 percent ownership, increased from 50 percent.
Partly offsetting these improvements were higher research and
development costs and expected lower sales of "Coumadin"
(anticoagulant).
o Pigments and Chemicals segment earnings were up
15 percent, reflecting increased earnings for white
pigments and fluorochemicals. Fluorochemicals benefited
from increased sales of CFC alternative products, and
white pigments from growing volumes in Asia Pacific and
lower raw material costs.
o Polyester Enterprise segment posted a loss of $13 million
versus earnings of $1 million last year. Sales were down
12 percent reflecting both excess capacity and intense
competitive pressures in the industry.
o Specialty Fibers segment sales and earnings each increased
4 percent, reflecting better results for "Lycra" spandex
and nonwovens. "Lycra" volumes remain strong but average
prices were adversely affected due to a combination of
competitive pricing and currency weakness in Europe and
South America.
o Specialty Polymers segment earnings were essentially flat
as earnings improvements in Photopolymers and Electronic
Materials and DuPont "Corian" were offset by declines for
Packaging and Industrial Polymers and Fluoropolymers.
o The Other segment earnings were $12 million versus a loss
of $5 million last year. This principally reflects the
absence of staff employee separation costs incurred last
year, and a benefit from internal service billings to
businesses exceeding actual costs for staff services,
consistent with internal segment reporting. This billing
difference will be eliminated by year end.
In July, the company announced plans to streamline opera-
tions, consolidate manufacturing and implement workforce reductions
to improve performance in the Crop Protection Products and
Performance Coatings businesses. The Crop Protection Products
restructuring will result in a nonrecurring charge against third
quarter earnings. The Performance Coatings restructuring, which
largely relates to exiting certain activities of the Herberts'
business, will be reflected in the determination of the fair value of
16
<PAGE>
Form 10-Q
net assets acquired, and therefore, will not result in a material
charge to 1999 earnings. Estimated annual pretax savings of
approximately $200 million and $100 million, respectively, are
expected to result from these initiatives.
(b) Financial Condition at June 30, 1999
Cash provided by continuing operations was $1.7 billion for the first
half of 1999, as compared with $1.4 billion for the same period in 1998.
Income from continuing operations of $1.5 billion in 1999 was in line with the
prior year. Noncash charges for depreciation and amortization and for the
write-off of purchased in-process research and development were also compar-
able year to year. Other noncash charges and credits - net were higher in
1999 primarily reflecting the absence of the timing difference between
affiliate income and dividends for DuPont Merck Pharmaceuticals. Net operat-
ing assets increased $591 million in 1999 and $712 in 1998, reflecting a
typical pattern of seasonal working capital builds in a number of businesses.
Seasonal increases in working capital are usually reversed by year end.
Year-to-date capital investments for purchases of property, plant,
and equipment and investments in affiliates were $1.0 billion, as compared to
$1.1 billion spent in 1998. Payments for businesses acquired in 1999 totaled
$1.6 billion and primarily reflect the acquisition of Herberts, the automotive
coatings business of Hoechst AG. This acquisition also included the
assumption of $0.2 billion in Herberts' debt. First half 1998 payments for
businesses acquired include $0.7 billion for acquisition of ICI's polyester
films business.
Proceeds from the sale of assets in the first half of 1999 totaled
$62 million, none of which were individually significant. Proceeds from the
sale of assets in the first half of 1998 totaled $265 million, and included
the sale of certain hydrogen peroxide properties for $160 million, and the
sale of the Printing and Publishing business totaling $86 million.
Year-to-date 1999 the company spent $44 million to purchase and
retire 840,000 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 compensa-
tion programs. In first half 1998, the company spent $374 million to
purchase and retire 6 million shares, and not related to the shares buyback
program, the company received $65 million as a final settlement payment
associated with 16 million shares repurchased in a private placement trans-
action in December 1997.
Increase in minority interests in 1999 includes $79 million for sale
of an approximate 14 percent interest in the DuPont Photomasks, Inc. business,
further reducing DuPont's ownership to approximately 55 percent.
17
<PAGE>
Form 10-Q
Total debt, including capital lease obligations, at June 30, 1999,
was $8.5 billion, as compared to $11.1 billion at year-end 1998. The decrease
primarily reflects the retirement of commercial paper. During the second
quarter, Conoco paid off all outstanding intercompany debt to DuPont.
Conoco's debt to DuPont totaled $4.6 billion at year-end 1998. The proceeds
from Conoco, together with cash provided by continuing operations, were used
to finance the $2.6 billion spent on investment activities, pay dividends, and
reduce borrowings.
Certain Statistics - Continuing Operations
------------------------------------------
At 6/30/99 At 12/31/98
---------- -----------
Cash Flow to Total Debt
(previous 12 months cash
provided by operations to
total debt) .................. 52% 37%
Current Ratio (current assets
to current liabilities) ...... 1.2:1 0.8:1
Earnings to Fixed Charges ...... 5.9 3.3
Earnings to Fixed Charges -
Pro Forma*.................... 8.3 4.5
------------------
*Pro Forma statistics reflect the ratio of earnings to fixed
charges on a continuing operations basis, excluding interest
and debt expense which has been allocated to or incurred by
discontinued operations.
The Cash Flow to Total Debt ratio increased as of June 1999 versus
year-end 1998 primarily due to the decrease in total debt. Days' sales
outstanding averaged 55 days in the second quarter, a decrease of 4 days from
first quarter 1999, and an increase of 3 days from the second quarter of 1998.
(c) Other Items
Year 2000 Readiness Disclosure
------------------------------
This update on the status of the company's program to become Year
2000-capable should be read in conjunction with the Year 2000 Readiness
Disclosure in the company's 1998 annual report on Form 10-K. The inventory,
assessment, remediation, testing and return to production phases of the
company's Year 2000 Project have been substantially completed across all
18
<PAGE>
Form 10-Q
businesses. Except for those acquired by the company during its acquisition
of Herberts, the company's critical and significant systems are expected to be
remediated on the following schedule:
Status As Of
Systems Time Frame 6/30/99
------- ------------ ------------
Telecommunications ....................... 11/98 - 3/99 Completed*
Mainframe Corporate Data Centers ......... 4/99 Completed*
Mid-Range Computers ...................... 10/98 - 6/99 Completed*
Corporate
(e.g., Payroll and Electronic Mail) .... 1/99 - 6/99 Completed*
Business
(e.g., Inventory Processing) ........... 12/98 - 4Q99 94%**
Manufacturing, Process Control and
Equipment .............................. 4Q98 - 4Q99 Completed*
- -----------------------
*"Completed" means that the remediation phase is substantially completed
for systems in the indicated category. Continuous monitoring is
necessary, and therefore, further remediation may be required because of
system updates.
**The percent represents the percent of systems which have been remediated
in the indicated category as measured by the businesses and functional
units.
Since Herberts' Year 2000 Program is configured differently from the
company's, Herberts' systems are not included in the foregoing remediation
timetable. Herberts has identified all of its critical and significant
systems which require remediation to be Year 2000-capable. Herberts expects
to complete the remediation of all of these systems by the end of October
1999.
The company is continuing its Business Partner 2000 Program with key
suppliers and major customers. As of the end of the second quarter, the
company assessed 7 percent of its key suppliers and 29 percent of its major
customers as at a high risk of not becoming Year 2000-capable on a timely
basis.
While the company expects minimal disruptions as a result of the Year
2000 Problem, the company's individual businesses have completed over 1,900
contingency plans to address potential interruptions in internal systems which
may be caused by the Year 2000 Problem as well as in the supply chain due to
the failure of key suppliers and major customers to become Year 2000-capable
19
<page<
Form 10-Q
on a timely basis. The company is testing selected contingency plans under
various Year 2000 scenarios to verify the execution process for the plans, to
make sure that the required communications links are in place and to assure
integration of the plans within and across all of the businesses.
The company expects total expenditures to become Year 2000 capable to
be in the range of $350 million to $400 million including Herberts. The
company has shifted more of the work required to address the Year 2000 Problem
from contractors to internal resources and, consequently, now expects that
approximately 25 percent of total expenditures will reflect internal costs.
As of June 30, 1999, the company had spent an estimated $250 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 costs in the amount of internal costs included in the range
above. The company does not include the costs of systems projects which will
address the Year 2000 Problem but were initiated to accomplish other (non-Year
2000) objectives. The company will fund Year 2000 expenditures from company
cash flow from operations and expects that total remediation costs and 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 and classify systems properly; properly
identifying them as needing remediation; locating, remediating and modifying
affected systems; and making various assessments of Year 2000 readiness of key
third parties. Based upon its activities to date, the company does not
believe that these factors will cause its current cost and timetable projec-
tions to differ significantly from those estimated. However, the company
cannot reasonably estimate the potential impact on its financial condition,
results of operations or liquidity if critical third parties, including
suppliers, customers and governments, do not become Year 2000-capable on a
timely basis.
Purchased In-Process Research and Development
---------------------------------------------
Performance Coatings
--------------------
In February 1999, the company purchased the global Herberts coatings
business from Hoechst AG for $1,599 million cash and acquisition related
costs of $15 million. The preliminary allocation of purchase price to the
20
<PAGE>
Form 10-Q
identifiable assets acquired and liabilities assumed, based on their estimated
fair values, which was recorded in the first quarter of 1999, is as follows
(dollars in millions):
Current Assets ................................. $ 744
Property, Plant and Equipment .................. 605
Completed Technology ........................... 65
In-Process Research and Development ............ 40
Other Assets ................................... 96
Liabilities .................................... (681)
-----
Total Identifiable Assets Less Liabilities ... $ 869
The $745 million excess of purchase price over the fair value of the
identifiable assets less liabilities was recorded as goodwill which is being
amortized over 20 years.
The company continues to obtain data to support the purchase price
allocation, principally in respect of the cost of exiting certain activities
of the Herberts business, and valuation of tangible and intangible assets. In
addition, adjustments to the purchase price continue to be negotiated with
Hoechst AG. Finalization of purchase accounting is not expected to have a
material impact on 1999 reported earnings.
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. At the date
of the acquisition, Herberts had 29 research and development projects meeting
the criteria for purchased in-process research and development. These
projects were of two principal types (dollars in millions):
Number of Preliminary
Project Type Projects Fair Value
------------ --------- -----------
New Product Development ........ 25 $31
New Manufacturing Processes .... 4 $ 9
The fair values of these projects are based on estimates prepared by
management utilizing procedures that DuPont has adopted for other business
acquisitions. These procedures utilize explicit assumptions about the range
of possible estimated cash flows and their respective probabilities to
21
<PAGE>
Form 10-Q
determine the expected cash flow for each project. Under this approach,
projected cash flows are adjusted for risks prior to being discounted to
present value. Risks so addressed include completion risk, competitive risk,
and timing risk.
A Probability of Technical and Commercial Success factor is used to
adjust for the risk that a project may not be successfully completed. It is
based on scientific judgment regarding the results achieved to date, the com-
plexity of successfully completing the project, and the business' historical
experience with similar types of research and development projects. Histor-
ical experience is also used to probability adjust projected future revenues
for the effects of competition and other events that could cause variations in
the amount and timing of future cash flows. Other than reflecting the future
benefits associated with planned cost reduction initiatives, the project cash
flows do not anticipate any material changes from historical pricing, margins
and expense levels.
New Product Development projects have as their goal the discovery and
development of new formulations and/or significant modifications of product
formulations. Management estimates the Probability of Technical and
Commercial Success for these projects ranges from 20 percent to 85 percent.
These projects are expected to be completed in the period 1999 to 2004.
The New Manufacturing Processes projects have as their goal the design
and development of new manufacturing processes. Management estimates the
Probability of Technical and Commercial Success for these projects ranges from
25 percent to 70 percent. These projects are expected to be completed in the
period 1999 to 2005.
Successful completion of a project is deemed to occur when the new
product or process has been defined and technological feasibility has been
objectively demonstrated. Given the unique nature of these projects, they do
not have alternative future use. However, if none of these projects were
successfully completed, there would not be a material impact on the future
operations of the company. The risk-adjusted cost to complete these 29
projects is estimated to total $24 million over the period 1999 to 2006.
Cash flows were discounted to present value using a discount rate
aligned with the estimated weighted average cost of capital for this business.
This was deemed by management to be appropriate given the extensive historical
knowledge and experience regarding these types of research and development
projects and this line of business.
22
<PAGE>
Form 10-Q
Prior Acquisitions
------------------
The following summarizes significant developments with respect to
in-process research and development acquired in 1997 and 1998:
DuPont Pharmaceuticals
----------------------
"Sustiva" (efavirenz) received full marketing authorization from the
European Commission on June 1, 1999, and "Innohep" (tinzaparin) was submitted
for FDA approval on June 30, 1999. The timing of these events was consistent
with expectations at the date of acquisition.
Polyester Films, Resins, Intermediates and Fibers
-------------------------------------------------
As previously announced, the company intends to form joint ventures
with Sabanci of Turkey for polyester intermediates, resins and fibers in
Greater Europe and with Teijin for films globally. In-process research and
development projects acquired from ICI that are still in process at the date
these ventures are formed will be contributed to the ventures and will no
longer be controlled by DuPont. Failure to complete these projects would not
be expected to materially alter the expected investment return to the company,
or the results of operations or financial condition of the company.
Pioneer Hi-Bred International
-----------------------------
Since the company's 1997 purchase of an approximate 20 percent
interest in Pioneer Hi-Bred International, the Pioneer projects that con-
stituted acquired in-process research and development at the date of acquisi-
tion have reached varying levels of development. Significant changes since
1997 include the successful commercialization of first generation European
corn borer resistant corn hybrids, as well as successful commercialization of
record numbers of new high performance hybrids of corn and varieties of
soybeans. Significant progress has been made in connection with the develop-
ment of new corn hybrids containing improved agronomic traits. The develop-
ment of premium value seed products containing multiple quality traits is
progressing slower than previously anticipated. In addition, weak commodity
prices have contributed to increased uncertainty over the size of the market
for quality trait products and the value of that market. If these development
and market conditions persist, the future value of these projects to the
company could be adversely affected.
Pioneer Merger
--------------
In March, DuPont and Pioneer Hi-Bred International, Inc. executed a
definitive agreement for a stock and cash merger that will result in the
company's complete ownership of Pioneer. The company currently has a
20 percent equity interest in Pioneer. Under the terms of the agreement,
Pioneer shareholders will receive $40.00 per share, with 45 percent of the
shares to be exchanged for cash and 55 percent of the shares receiving
23
<PAGE>
Form 10-Q
DuPont common stock. The total equity value of the transaction is estimated
to be approximately $7.7 billion for the 80 percent of Pioneer not currently
owned by DuPont. Pioneer shareholders will have certain rights to elect
which form of consideration they will receive. The merger is expected to
close later this year subject to approval of Pioneer's shareholders.
The merger has received nonobjection from the relevant antitrust
regulatory authorities. Pioneer's preliminary proxy was filed on July 2,
1999, and is currently under review by the Securities and Exchange Commission.
Conoco Split-Off
----------------
On September 28, 1998, the company announced that the Board of
Directors had approved a plan to divest the company's 100 percent-owned
petroleum business (Conoco Inc.). On October 21, 1998, the company's
interest in Conoco was reduced to 69.5 percent following an initial
public offering of Conoco Class A Common Stock. In connection with the
separation from DuPont, Conoco and DuPont entered into a tax sharing agree-
ment. Several matters under the tax sharing agreement are currently in
dispute between Conoco and DuPont. DuPont's obligations to Conoco arising out
of the most significant of these matters could range from zero to up to
approximately $160 million, depending on the outcome of the dispute. DuPont
believes that any settlement of the dispute will not be material to its
financial position or to the anticipated gain on disposal of discontinued
business.
On July 9, 1999, DuPont set the exchange ratio for the offer to its
shareholders to exchange one share of DuPont common stock for 2.95 shares of
the Conoco Class B Common Stock currently held by DuPont up to a maximum of
148 million shares of DuPont common stock. The exchange offer was available
only to DuPont shareholders who are United States persons, as defined in the
Offering Circular-Prospectus, and the exchange offer commenced on July 12, and
it expired at 12:00 midnight, New York City time, on August 6, 1999.
On August 9, 1999, DuPont announced that it has accepted approxi-
mately 148 million shares of DuPont common stock in exchange for approximately
436.5 million shares of Conoco Class B Common Stock. Based on preliminary
results, which indicate the offer is oversubscribed, DuPont anticipates that
approximately 41 percent of the DuPont shares tendered will be accepted for
exchange. The estimated 41 percent proration factor is subject to change. It
is expected that DuPont will have approximately 982 million shares of common
stock outstanding after completion of the exchange.
Also on July 14, 1999, DuPont commenced an offer to its shareholders
who are non-United States persons to sell some or all of their shares to
DuPont for $80.76 for each share of DuPont common stock up to a maximum of
8 million shares of DuPont common stock. Only non-United States persons as
defined in the Offer to Purchase are eligible to participate in the cash
offer. The cash offer expires at 12:00 midnight, New York City time, on
August 10, 1999, unless extended.
24
<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 760 lawsuits, most by growers who
allege plant damage from using "Benlate" 50 DF fungicide. Approximately 61
crop lawsuits are still pending against the company, as are approximately 40
additional "Benlate" 50 DF cases based on alleged personal injury and based on
alleged damage to shrimp farming operations. In addition, 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 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. A shareholder derivative action filed in Georgia federal
district court, alleging that DuPont's Board of Directors breached various
duties in connection with the "Benlate" 50 DF litigation, also remains
pending. A motion to dismiss the complaint has recently been filed. Certain
plaintiffs who previously settled with the company have filed cases alleging
fraud and other misconduct relating to the litigation and settlement of
"Benlate" 50 DF claims. Approximately 41 such cases are pending. These cases
are in various stages of proceedings in trial and appellate courts in Florida,
Hawaii, and Delaware. 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.
Item 5. OTHER INFORMATION
Changes in DuPont's Board of Directors
- --------------------------------------
Goran Lindahl, president and CEO of ABB, was elected a member of
DuPont's Board of Directors effective July 28, 1999. Lindahl, 54, assumed his
present position in 1997. He is a member of the boards of directors of ABB
Ltd. and LM Ericsson AB. Goran Lindahl joined Asea in 1971 in Ludvika,
Sweden, and has held senior level managerial assignments in engineering,
25
<PAGE>
Form 10-Q
research and development, manufacturing and sales and marketing. He was named
president of Asea Transmission in 1985 and executive vice president of ASEA AB
a year later. After the 1988 merger of Asea and BBC Brown Boveri to create
ABB, Lindahl became executive vice president and a member of the group
executive committee. ABB is a globalized technology and engineering company
serving customers in power transmission and distribution; automation; oil, gas
and petrochemicals; industrial products and contracting; and in financial
services. Power generation customers are served by a joint venture ABB ALSTOM
POWER. The ABB Group employs about 160,000 people in more than 100 countries.
Separately, Goro Watanabe retired from DuPont's Board of Directors on
June 30, 1999.
DuPont Realigns Senior Leadership Responsibilities;
Sets Pioneer Hi-Bred International Inc., Post-Merger Executive Roles
- --------------------------------------------------------------------
On July 30, 1999, the company announced that two senior executives
will realign responsibilities to better focus on major priorities related to
the company's evolving pharmaceuticals, agriculture and nutrition strategy.
The company also outlined senior executive roles for certain officers of
Pioneer Hi-Bred International, Inc., pending completion of the merger which is
subject to approval by the shareholders of Pioneer.
Kurt M. Landgraf, executive vice president and chief operating
officer, will focus primarily on leading and implementing the company's
pharmaceuticals strategy. DuPont announced in March that it planned to
actively seek strategic alliances with other strong partners in the
pharmaceutical industry to bring DuPont Pharmaceuticals to the critical mass
necessary to ensure long-term success.
Richard R. Goodmanson, executive vice president and chief operating
officer, will assume responsibility for the business and research units in the
Agriculture and Nutrition business segment currently reporting to Landgraf.
He also will have overall responsibility for the integration of Pioneer into
DuPont. Goodmanson will retain responsibility for the Asia Pacific region and
for businesses in the Specialty Fibers and Performance Coatings and Polymers
segments.
Following the expected closing of the merger with Pioneer, the
company plans to appoint Charles S. Johnson, currently chairman, president and
chief executive officer of Pioneer, to the position of DuPont executive vice
president and member of the Office of the Chief Executive, reporting to the
company's chairman and CEO.
Succeeding Johnson as president and chief executive officer of
Pioneer would be Jerry L. Chicoine, currently Pioneer's executive vice
president and chief operating officer. He would report to Goodmanson.
26
<PAGE>
Form 10-Q
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit index filed with this Form 10-Q is on page 30.
(b) Reports on Form 8-K
1. On April 16, 1999, 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 Consolidated Industry Segment
Information (Quarterly) of Continuing Operations for the
years ending December 31, 1998 and 1997.
2. On April 27, 1999, 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
April 27, 1999, was filed.
3. On June 14, 1999, 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 entitled,
"DuPont Announces Polyester Restructurings."
4. On July 2, 1999, 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 entitled,
"DuPont to Restructure Crop Protection Business."
5. On July 12, 1999, 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 three press releases
entitled, "DuPont Sets Ratio for Exchange Offer for
27
<PAGE>
Form 10-Q
Conoco Inc. Class B Common Stock," "SEC Declares
Registration Statement for Exchange Offer Effective," and
"DuPont Commences Exchange Offer for Conoco Inc. Class B
Common Stock."
6. On July 14, 1999, 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 entitled, "DuPont
Commences Cash Offer for DuPont Common Stock."
7. On July 28, 1999, 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
July 28, 1999, was filed.
8. On August 2, 1999, 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 entitled,
"DuPont Realigns Senior Leadership Responsibilities; Sets
Pioneer Hi-Bred International Inc., Post-Merger Executive
Roles," dated July 30, 1999.
9. On August 9, 1999, 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 entitled,
"DuPont Exchange Offer for Conoco Inc. Class B Common Stock
Successful."
28
<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: August 10, 1999
-----------------------------------------
By /s/ G. M. Pfeiffer
-----------------------------------------
G. M. Pfeiffer
Senior Vice President - DuPont Finance
(As Duly Authorized Officer and Principal
Financial and Accounting Officer)
29
<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 June 30, 1999.
- --------------
*Filed electronically only.
30
<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
Six Months Ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995 1994
---------------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations Before
Extraordinary Item .............................. $1,474 $1,648 $1,432 $2,931 $2,858 $2,205
Provision for Income Taxes ........................ 850 941 1,354 1,416 1,432 1,164
Minority Interests in Earnings of Consolidated
Subsidiaries .................................... 36 24 43 40 29 15
Adjustment for Companies Accounted for
by the Equity Method ............................ (85) (39) 936<Fa> 82 126 (33)
Capitalized Interest .............................. (59) (120) (80) (70) (76) (83)
Amortization of Capitalized Interest .............. 35<Fb> 65<Fb> 82<Fb> 127<Fb> 81 77
------ ------ ------ ------ ------ ------
2,251 2,519 3,767 4,526 4,450 3,345
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense - Continuing
Operations .................................... 213 520 389 409 449 343
Interest and Debt Expense - Discontinued
Operations .................................... 153 304 252 304 308 216
Capitalized Interest - Continuing Operations .... 59 120 80 70 76 83
Capitalized Interest - Discontinued
Operations .................................... 3 78 90 73 95 59
Rental Expense Representative of Interest
Factor ........................................ 36 71 83 80 80 83
------ ------ ------ ------ ------ ------
464 1,093 894 936 1,008 784
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................... $2,715 $3,612 $4,661 $5,462 $5,458 $4,129
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned .......... 5.9 3.3 5.2 5.8 5.4 5.3
====== ====== ====== ====== ====== ======
<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.
</TABLE>
31
<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 excluding interest allocated to or incurred by
Conoco Inc., which is reported as discontinued operations.
<CAPTION>
Years Ended December 31
Six Months Ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995 1994
---------------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations Before
Extraordinary Item .............................. $1,474 $1,648 $1,432 $2,931 $2,858 $2,205
Provision for Income Taxes ........................ 850 941 1,354 1,416 1,432 1,164
Minority Interests in Earnings of Consolidated
Subsidiaries .................................... 36 24 43 40 29 15
Adjustment for Companies Accounted for
by the Equity Method ............................ (85) (39) 936<Fa> 82 126 (33)
Capitalized Interest .............................. (59) (120) (80) (70) (76) (83)
Amortization of Capitalized Interest .............. 35<Fb> 65<Fb> 82<Fb> 127<Fb> 81 77
------ ------ ------ ------ ------ ------
2,251 2,519 3,767 4,526 4,450 3,345
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense<Fc> ................... 213 520 389 409 449 343
Capitalized Interest ............................ 59 120 80 70 76 83
Rental Expense Representative of Interest
Factor ........................................ 36 71 83 80 80 83
------ ------ ------ ------ ------ ------
308 711 552 559 605 509
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................. $2,559 $3,230 $4,319 $5,085 $5,055 $3,854
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned<Fc> .... 8.3 4.5 7.8 9.1 8.4 7.6
====== ====== ====== ====== ====== ======
<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
or incurred by discontinued operations.
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
Form 10-Q For The Quarterly Period Ended June 30, 1999, And Is
Qualified In Its Entirety By Reference To Such Financial Statements
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,501
<SECURITIES> 39
<RECEIVABLES> 5,446<F1>
<ALLOWANCES> 0
<INVENTORY> 3,388
<CURRENT-ASSETS> 11,137
<PP&E> 35,636
<DEPRECIATION> 20,748
<TOTAL-ASSETS> 37,315
<CURRENT-LIABILITIES> 8,914
<BONDS> 4,934
0
237
<COMMON> 342
<OTHER-SE> 14,161
<TOTAL-LIABILITY-AND-EQUITY> 37,315
<SALES> 13,289
<TOTAL-REVENUES> 13,542
<CGS> 8,254<F2>
<TOTAL-COSTS> 10,969<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> 2,360
<INCOME-TAX> 850
<INCOME-CONTINUING> 1,474
<DISCONTINUED> 106
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,580
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.38
<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;
Research and Development; Selling, General and Administrative Expenses;
Purchased In-Process Research and Development; and Employee Separation
Costs and Write-Down of Assets.
</FN>
</TABLE>
