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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) September 1, 1999
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-815 51-0014090
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
1007 Market Street
Wilmington, Delaware 19898
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 774-1000
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Item 5. Other Events
------------
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
(including without limitation No. 33-53327, No. 33-61339, No. 33-60069), the
registrant hereby files the following unaudited pro forma combined financial
information, which also appears (i) in the Proxy Statement/Prospectus filed on
Schedule 14A by Pioneer Hi-Bred International, Inc. (Pioneer) on August 31, 1999
(ii) the registrant's Registration Statement on Form S-4 (No. 333-85599) filed
on August 31, 1999 and (iii) the 13E-3 Transaction Statement filed on August 31,
1999 jointly by the registrant, Pioneer and Delta Acquisition Sub, Inc., a
wholly owned subsidiary of the registrant, at Exhibit 99.17(d)(9):
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF DUPONT
(Unaudited) (dollars in millions, except per share data)
The following unaudited pro forma combined financial statements of DuPont
for the year ended December 31, 1998, the six months ended June 30, 1999 and as
of June 30, 1999 were prepared by DuPont to illustrate the estimated effects on
DuPont of:
- The disposition of Conoco Inc. ("Conoco") through the Conoco exchange
offer, the cash offer, and the transactions directly associated with
Conoco's initial public offering and separation from DuPont,
principally:
(1) The Conoco exchange offer. On August 7, 1999, DuPont acquired
147,980,872 outstanding shares of DuPont common stock from United States
persons in exchange for 436,543,573 shares of Conoco Class B common
stock owned by DuPont.
(2) The cash offer. On August 11, 1999, DuPont acquired 8,000,000
outstanding shares of DuPont common stock for $646 from holders of
DuPont stock that were not United States persons.
(3) Conoco's initial public offering. In October 1998, DuPont received the
$4,228 proceeds from Conoco's initial public offering in repayment of a
portion of Conoco's intercompany indebtedness to DuPont.
(4) Conoco debt issuances. In April 1999, Conoco completed the sale of
senior debt securities, and DuPont received from Conoco the net proceeds
of $3,970 in repayment of a portion of Conoco's intercompany
indebtedness and accrued interest owed to DuPont. In May 1999, Conoco
issued commercial paper and DuPont received $1,022 in repayment of
Conoco's remaining intercompany indebtedness to DuPont.
- The acquisition of the remaining approximately 80 percent of Pioneer
not presently owned by DuPont.
These transactions and their effect on DuPont are further described in the
notes to these unaudited pro forma combined financial statements. To the extent
these events are not reflected in the historical consolidated income statements
of DuPont, the unaudited pro forma combined income statements assume that these
transactions occurred as of the beginning of the periods presented. To the
extent these events are not reflected in the historical consolidated balance
sheet of DuPont as of June 30, 1999, the unaudited pro forma combined balance
2
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sheet assumes that these transactions occurred as of June 30, 1999.
The unaudited pro forma combined financial statements are presented in two
parts. Part 1 illustrates the estimated effects on DuPont of the Conoco exchange
offer, the cash offer, and the transactions directly associated with Conoco's
initial public offering and separation from DuPont. As noted above, these
transactions were completed on or before August 11, 1999. Part 2 illustrates the
estimated effects on DuPont of the proposed acquisition of the remaining
approximately 80 percent of Pioneer not presently owned by DuPont. This
transaction has not been completed. As such, Part 2 of the unaudited pro forma
combined financial statements use as its starting point the unaudited pro forma
balances from Part 1.
DuPont believes the assumptions used to prepare the unaudited pro forma
combined financial statements provide a reasonable basis for presenting the
significant effects directly attributable to the transactions listed above. The
unaudited pro forma combined financial statements do not purport to represent
what the results of operations or financial position of DuPont would actually
have been if these transactions had in fact occurred on such dates or to project
the results of operations or financial position of DuPont for any future period
or date. These unaudited pro forma combined financial statements should be read
in connection with, and are qualified by reference to, the historical
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" located in DuPont's 1998 Form
10-K/A and DuPont's Form 10-Q for the quarterly period ended June 30, 1999,
which DuPont has filed with the SEC.
PART 1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF DUPONT
The following unaudited pro forma consolidated financial statements of
DuPont for the year ended December 31, 1998, the six months ended June 30, 1999,
and as of June 30, 1999 were prepared by DuPont to illustrate the estimated
effects on DuPont of the Conoco exchange offer, the cash offer, and the
transactions directly associated with Conoco's initial public offering and
separation from DuPont. These transactions and their estimated effects on DuPont
are further described in the notes to these unaudited pro forma consolidated
financial statements. These transactions were completed on or before August 11,
1999. To the extent these transactions were not reflected in the historical
consolidated income statements of DuPont, the unaudited pro forma consolidated
income statements assume that these transactions occurred as of the beginning of
the periods presented. To the extent these transactions are not reflected in the
historical consolidated balance sheet of DuPont, the unaudited pro forma
consolidated balance sheet assumes that these transactions occurred as of June
30, 1999.
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PART 1
PRO FORMA CONSOLIDATED INCOME STATEMENT OF DUPONT
YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Sales................................................................... $ 24,767 $ $ 24,767
Other Income............................................................ 981 981
----------- --------- ----------
Total............................................................... 25,748 25,748
========= ========= ==========
Cost of Goods Sold and Other Operating Costs and Expenses............... 18,424 18,424
Selling, General & Administrative Expenses.............................. 2,115 2,115
Interest Expense........................................................ 520 (7)(a) 513
Purchased In-Process Research and Development and Other Charges......... 2,076 2,076
----------- --------- ----------
Total............................................................... 23,135 (7) 23,128
----------- --------- ----------
Income from Continuing Operations Before Income Taxes and Minority
Interests............................................................. 2,613 7 2,620
Provision for Income Taxes.............................................. 941 (22)(b) 919
Minority Interests in Earnings of Consolidated Subsidiaries............. 24 24
----------- --------- ----------
Income from Continuing Operations....................................... $ 1,648 $ 29 $ 1,677
========= ========= ==========
Earnings Per Share--Continuing Operations:
Basic............................................................... $ 1.45 $ 1.71
Diluted............................................................. $ 1.43 $ 1.69
Weighted Average Number of Shares Outstanding:
Basic............................................................... 1,129 973
Diluted............................................................. 1,145 988
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
4
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PART 1
PRO FORMA CONSOLIDATED INCOME STATEMENT OF DUPONT
SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Sales.................................................................. $ 13,289 $ $ 13,289
Other Income........................................................... 253 253
--------- --------
Total.............................................................. 13,542 13,542
========= ========
Cost of Goods Sold and Other Operating Costs and Expenses.............. 9,707 9,707
Selling, General & Administrative Expenses............................. 1,160 1,160
Interest Expense....................................................... 213 33(a) 246
Purchased In-Process Research and Development and Other Charges........ 102 102
--------- ------ --------
Total.............................................................. 11,182 33 11,215
--------- ------ --------
Income from Continuing Operations Before Income Taxes and Minority
Interests............................................................ 2,360 (33) 2,327
Provision for Income Taxes............................................. 850 (15)(b) 835
Minority Interests in Earnings of Consolidated Subsidiaries............ 36 36
--------- ------ --------
Income from Continuing Operations...................................... $ 1,474 $ (18) $ 1,456
========= ====== ========
Earnings Per Share--Continuing Operations:
Basic.............................................................. $ 1.30 $ 1.49
Diluted............................................................ $ 1.29 $ 1.47
Weighted Average Number of Shares Outstanding:
Basic.............................................................. 1,128 972
Diluted............................................................ 1,141 985
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
PRO FORMA CONSOLIDATED BALANCE SHEET OF DUPONT
JUNE 30, 1999
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash & Cash Equivalents ......................................... $ 1,501 $ $ 1,501
Accounts & Notes Receivable ..................................... 5,446 5,446
Inventories ..................................................... 3,388 3,388
Deferred Income Taxes ........................................... 548 548
Other Current Assets ............................................ 254 254
-------- -------- --------
Total Current Assets .......................................... 11,137 11,137
Property, Plant and Equipment--Net .............................. 14,888 14,888
Investment in Affiliates ........................................ 1,988 1,988
Other Assets .................................................... 5,730 5,730
Net Assets of Discontinued Operations ........................... 3,572 (3,572)(a) --
-------- -------- --------
Total Assets .................................................... $ 37,315 $ (3,572) $ 33,743
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable ................................................ $ 1,844 $ $ 1,844
Short-Term Borrowings & Capital Lease Obligations ............... 3,536 741(b) 4,277
Income Taxes .................................................... 353 353
Other Accrued Liabilities ....................................... 3,181 3,181
-------- -------- --------
Total Current Liabilities ..................................... 8,914 741 9,655
Long-Term Borrowings & Capital Lease Obligations ................ 4,934 4,934
Other Liabilities ............................................... 7,741 7,741
Deferred Income Taxes ........................................... 512 512
-------- -------- --------
Total Liabilities ............................................. 22,101 741 22,842
Minority Interests .............................................. 474 474
Preferred Stock ................................................. 237 237
Common Stock .................................................... 342 342
Additional Paid-in Capital ...................................... 7,917 7,917
Reinvested Earnings ............................................. 7,453 7,378(a) 14,831
Accumulated Other Comprehensive Loss ............................ (523) 360(a) (163)
Common Stock Held in Trust for Unearned Employee Compensation and
Benefits, at Market ........................................... (686) (686)
Treasury Stock .................................................. -- (12,051)(c) (12,051)
-------- -------- --------
Total Stockholders' Equity .................................... 14,740 (4,313) 10,427
-------- -------- --------
Total Liabilities and Stockholders' Equity ...................... $ 37,315 $ (3,572) $ 33,743
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
5
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PART 1
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF DUPONT
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated income statements for the year ended
December 31, 1998 and for the six months ended June 30, 1999 and the unaudited
pro forma consolidated balance sheet as of June 30, 1999 have been prepared from
the historical consolidated financial statements of DuPont for the year ended
December 31, 1998 as included in DuPont's Form 10-K/A for the year ended
December 31, 1998 and for the six months ended June 30, 1999 as included in
DuPont's Form 10-Q for the quarterly period ended June 30, 1999. The historical
consolidated financial statements of DuPont as set forth in its Form 10-K/A for
the year ended December 31, 1998 and in its Form 10-Q for the period ended June
30, 1999 present Conoco's petroleum operations as discontinued operations.
The unaudited pro forma consolidated income statements give effect to the
Conoco exchange offer, the cash offer, and the transactions directly associated
with Conoco's initial public offering and separation from DuPont as described
below. These transactions and their estimated effects on DuPont are described in
the notes to these unaudited pro forma consolidated financial statements. These
transactions were completed on or before August 11, 1999. To the extent these
transactions were not reflected in the historical consolidated income statements
of DuPont, the unaudited pro forma consolidated income statements assume that
these transactions occurred as of the beginning of the periods presented. To the
extent these transactions are not reflected in the historical consolidated
balance sheet of DuPont, the unaudited pro forma consolidated balance sheet
assumes that these transactions occurred as of June 30, 1999.
The initial public offering of the Class A common stock of Conoco,
previously a wholly owned subsidiary of DuPont, commenced on October 21, 1998,
and the Class A common stock began trading on the New York Stock Exchange on
October 22, 1998. The initial public offering represented DuPont's first step in
the planned divestiture of its entire petroleum business. DuPont received the
$4,228 net proceeds from the offering in repayment of a portion of Conoco's
intercompany indebtedness to DuPont. After the initial public offering, DuPont
retained 100 percent of Conoco Class B common stock. At June 30, 1999, Conoco
Class B common stock represented approximately 70 percent of Conoco's
outstanding common stock and approximately 92 percent of the combined voting
power of all classes of voting stock of Conoco.
In April 1999, Conoco sold $4,000 in senior debt securities. Conoco used the
net proceeds of $3,970 to repay a portion of the intercompany indebtedness and
accrued interest owed to DuPont. In May 1999, Conoco issued commercial paper and
used the proceeds of $1,022 to repay its remaining intercompany indebtedness to
DuPont.
In July 1999, DuPont commenced the Conoco exchange offer to United States
persons. Under the terms of the Conoco exchange offer, DuPont offered to
exchange 2.95 shares of Conoco Class B common stock owned by DuPont for each
share of DuPont common stock up to a total of 147,980,872 shares of DuPont
common stock. At the same time, DuPont commenced a cash offer to purchase up to
8,000,000 shares of DuPont common stock from holders of DuPont common stock that
were not United States persons at a price of $80.76 per share. On August 7,
1999, DuPont completed the Conoco exchange offer and on August 11, 1999, DuPont
completed the cash offer. The 155,980,872 shares of DuPont common stock acquired
under these offers were recorded as an increase to treasury stock. Shares
acquired under the Conoco exchange offer were recorded at an amount equal to the
market value of the Conoco Class B common stock distributed in the Conoco
exchange offer and at
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<PAGE> 7
the cash price paid for shares of DuPont common stock acquired under the cash
offer. The Conoco exchange offer resulted in a net gain to DuPont equal to the
difference between the market value and the carrying value of the Conoco Class B
common stock distributed, net of direct expenses of the disposition. The gain is
included as a component of the gain on disposal of discontinued operations and
therefore not a part of the unaudited pro forma consolidated income from
continuing operations. No gain or loss was recognized from the cash offer. Upon
completion of the Conoco exchange offer, DuPont no longer had any ownership
interest in Conoco.
The unaudited pro forma adjustments described in Note 2 are based upon
currently available information and contain certain estimates and assumptions.
DuPont believes the estimates and assumptions provide a reasonable basis for
presenting the significant estimated effects on DuPont of Conoco's initial
public offering, Conoco repayments of intercompany indebtedness to DuPont, the
Conoco exchange offer, and the cash offer. DuPont believes that the unaudited
pro forma adjustments give appropriate effect to these estimates and assumptions
and are properly applied in the unaudited pro forma consolidated financial
statements.
2. PRO FORMA ADJUSTMENTS
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
(a) Interest expense for continuing operations in the historical
consolidated income statements reflected an allocation to discontinued
operations as provided under EITF Issue 87-24. The pro forma basis interest
expense results from the assumed repayment of DuPont's short-term commercial
paper borrowings with actual proceeds received from Conoco in connection with
the initial public offering and repayment of intercompany indebtedness of
DuPont. This is consistent with DuPont's actual use of proceeds received from
Conoco as a result of these transactions. Pro forma interest also reflects
assumed additional commercial paper borrowings of $646 required to purchase
DuPont common stock under the cash offer and $95 required for direct expenses of
the disposition. Pro forma interest calculations are based on historical
interest rates paid by DuPont on short-term commercial paper borrowings for the
periods presented. For the year ended December 31, 1998, average commercial
paper rates were 5.6 percent. For the six months ended June 30, 1999, average
commercial paper rates were 5.0 percent. To the extent Conoco's payments to
DuPont were in excess of commercial paper borrowings, the excess was not assumed
to benefit pro forma results.
(b) The pro forma provision for income taxes includes the tax effect of the
pro forma interest adjustment and benefit due to increased utilization of
foreign tax credits when DuPont's provision for income taxes is computed on a
standalone basis.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) The exchange of 100 percent of DuPont's holdings of Conoco Class B
common stock for 148 million shares of DuPont common stock results in an
estimated gain of $7,378, which is net of $95 in direct expenses and $360
representing the elimination from accumulated other comprehensive loss of
amounts pertaining to Conoco's operations as of June 30, 1999. The accumulated
other comprehensive loss consists of cumulative translation adjustment losses of
$281 and minimum pension liability loss of $79.
(b) Reflects assumed additional borrowings of $646 required to purchase
DuPont common stock under the cash offer and $95 to pay the direct expenses of
the disposition.
(c) The increase in treasury stock of $12,051 reflects the market value of
the 436.5 million shares of Conoco Class B common stock distributed under the
exchange offer ($11,405) and the cash paid for 8 million shares of DuPont common
stock under the cash offer ($646).
7
<PAGE> 8
PART 2
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF DUPONT
The following unaudited pro forma combined financial statements of DuPont
for the year ended December 31, 1998, the six months ended June 30, 1999, and as
of June 30, 1999 were prepared by DuPont to illustrate the estimated effects on
DuPont of the proposed acquisition of the remaining approximately 80 percent of
Pioneer not presently owned by DuPont. This transaction and its effect on DuPont
are further described in the notes to these unaudited pro forma combined
financial statements.
8
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PRO FORMA COMBINED INCOME STATEMENT OF DUPONT
YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DUPONT RECLASSIFY PRO FORMA
PRO FORMA DUPONT 80% OF ADJUSTMENTS DUPONT
CONSOLIDATED EQUITY PIONEER FOR THIS PRO FORMA
(NOTE 1) ACCOUNTING(A) HISTORICAL(B) TRANSACTION NOTES COMBINED
------------ ------------- ------------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales ............................. $24,767 $ 376 $ 1,466 $ 10 (c) $26,619
Other Income ...................... 981 7 38 8 (c) 1,034
------- ------- ------- ------- -------
Total ............................ 25,748 383 1,504 18 27,653
======= ======= ======= ======= =======
Cost of Goods Sold And Other
Operating Costs and Expenses ..... 18,424 256 764 210 (d) 19,654
Selling, General and Administrative
Expenses ......................... 2,115 118 430 10 (c) 2,673
Interest Expense .................. 513 3 13 195 (e) 724
Purchased In-Process Research and
Development and Other Charges .... 2,076 (f) 2,076
------- ------- ------- ------- -------
Total ............................ 23,128 377 1,207 415 25,127
Income From Continuing Operations
Before Income Taxes And Minority
Interests ........................ 2,620 6 297 (397) 2,526
Provision for Income Taxes ........ 919 5 98 (118) (g) 904
Minority Interests in Earnings of
Consolidated Subsidiaries ........ 24 1 2 27
------- ------- ------- ------- -------
Income From Continuing Operations . $ 1,677 $ 0 $ 197 $ (279) $ 1,595
======= ======= ======= ======= =======
Earnings Per Share-Continuing
Operations:
Basic ......................... $ 1.71 (h) $ 1.54
Diluted ....................... $ 1.69 (h) $ 1.51
Weighted Average Number of Shares
Outstanding:
Basic ......................... 973 (h) 1,033
Diluted ....................... 988 (h) 1,049
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
9
<PAGE> 10
PRO FORMA COMBINED INCOME STATEMENT OF DUPONT
SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DUPONT RECLASSIFY PRO FORMA
PRO FORMA DUPONT 80% OF ADJUSTMENTS DUPONT
CONSOLIDATED EQUITY PIONEER FOR THIS PRO FORMA
(NOTE 1) ACCOUNTING(A) HISTORICAL(B) TRANSACTION NOTES COMBINED
------------ ------------- ------------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales ............................ $13,289 $ 331 $ 1,299 $ 6 (c) $14,925
Other income ..................... 253 (59) 11 (8) (c) 197
------- ------- ------- ------- -------
Total ............................ 13,542 272 1,310 (2) 15,122
======= ======= ======= ======= =======
Cost of goods sold and other
operating costs and expenses ... 9,707 168 603 109 (d) 10,587
Selling general and administrative
expenses ....................... 1,160 76 295 2 (c) 1,533
Interest expense ................. 246 3 10 87 (e) 346
Purchased in process research and
development and other charges .. 102 (f) 102
------- ------- ------- ------- -------
Total ........................ 11,215 247 908 198 12,568
Income from continuing operations
before income taxes and minority
interests ...................... 2,327 25 402 (200) 2,554
Provision for income taxes ....... 835 25 109 (60) (g) 909
Minority interests in earnings of
consolidated subsidiaries ...... 36 2 38
------- ------- ------- ------- -------
Income from continuing operations $ 1,456 $ 0 $ 291 $ (140) $ 1,607
======= ======= ======= ======= =======
Earnings per share--continuing
operations
Basic ........................ $ 1.49 (h) $ 1.55
Diluted ...................... $ 1.47 (h) $ 1.53
Weighted average number of shares
outstanding:
Basic ........................ 972 (h) 1,032
Diluted ...................... 985 (h) 1,046
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
10
<PAGE> 11
PRO FORMA COMBINED BALANCE SHEET OF DUPONT
JUNE 30, 1999
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
80% OF
DUPONT RECLASSIFY PIONEER PRO FORMA
PRO FORMA DUPONT HISTORICAL ADJUSTMENTS DUPONT
CONSOLIDATED EQUITY NET ASSETS FOR THIS PRO FORMA
NOTE 1 ACCOUNTING(A) (B) TRANSACTION NOTES COMBINED
------------ ------------- ------------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 1,501 $ 20 $ 70 $ 2 (c) $ 1,593
Accounts and notes receivable ......... 5,446 202 793 4 (c) 6,445
Inventories ........................... 3,388 93 362 428 (d) 4,271
Deferred income taxes ................. 548 11 43 (158) (h) 444
Other current assets .................. 254 1 6 261
-------- -------- -------- -------- --------
Total current assets .................. 11,137 327 1,274 276 13,014
Property, plant and equipment-- net ... 14,888 143 508 91 (d) 15,630
Investments in affiliates ............. 1,988 (820) 1,168
Other assets .......................... 5,730 705 108 4,726 (e) 11,269
-------- -------- -------- -------- --------
Total assets .......................... $ 33,743 $ 355 $ 1,890 $ 5,093 $ 41,081
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ...................... $ 1,844 $ 31 $ 121 $ 1 (c) $ 1,997
Short-term borrowings and capital
leases obligations .................. 4,277 40 159 3,475 (f) 7,951
Income taxes .......................... 353 18 74 445
Other accrued liabilities ............. 3,181 32 123 42 (i) 3,378
-------- -------- -------- -------- --------
Total current liabilities ............. 9,655 121 477 3,518 13,771
Long-term borrowings and capital lease
obligations ......................... 4,934 41 164 5,139
Other liabilities ..................... 7,741 22 83 146 (g) 7,992
Deferred income taxes ................. 512 169 14 800 (h) 1,495
-------- -------- -------- -------- --------
Total liabilities ..................... 22,842 353 738 4,464 28,397
======== ======== ======== ======== ========
Minority interests .................... 474 2 6 482
Preferred stock ....................... 237 237
Common stock .......................... 342 8 (m) 350
Additional paid-in capital ............ 7,917 95 (j) 9,977
1,965 (m)
Reinvested earnings ................... 14,831 (2,500) (k) 12,331
Accumulated other comprehensive loss .. (163) (163)
Common stock held in trust for unearned
employee compensation and benefits,
at market ........................... (686) (686)
Treasury stock ........................ (12,051) 4,180 (l) (9,844)
(1,973) (m)
-------- -------- -------- -------- --------
Total stockholders' equity ............ 10,427 1,775 12,202
======== ======== ======== ======== ========
Total liabilities and stockholders'
equity .............................. $ 33,743 $ 355 $ 744 $ 6,239 $ 41,081
======== ======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
11
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PART 2
NOTES TO PRO FORMA COMBINED
FINANCIAL STATEMENTS OF DUPONT
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma combined income statements for the year ended
December 31, 1998 and for the six months ended June 30, 1999 and the unaudited
pro forma combined balance sheet as of June 30, 1999 have been prepared from the
historical consolidated financial statements of DuPont for the year ended
December 31, 1998, as included in DuPont's Form 10-K/A for the year ended
December 31, 1998, and for the six months ended June 30, 1999, as included in
DuPont's Form 10-Q for the quarterly period ended June 30, 1999, as adjusted for
the estimated pro forma effects of the Conoco exchange offer and the cash offer
completed on or before August 11, 1999, and the transactions directly associated
with Conoco's initial public offering and separation from DuPont, as described
and set forth in Part 1 of these unaudited pro forma combined financial
statements of DuPont. These unaudited pro forma combined financial statements
should be read in conjunction with the historical consolidated financial
statements of DuPont.
The unaudited pro forma combined income statements in this Part 2 of the
unaudited pro forma combined financial statements of DuPont are intended to
demonstrate the estimated effect of events directly attributable to the proposed
acquisition by DuPont of the remaining approximately 80 percent of Pioneer not
presently owned by DuPont as if the transaction had occurred at the beginning of
the periods presented. Estimated effects of events that are directly
attributable to the transaction but that are of a non-recurring nature are
excluded from the unaudited pro forma combined income statements. The unaudited
pro forma combined balance sheet in this Part 2 of the unaudited pro forma
combined financial statements is intended to demonstrate the estimated effects
of events directly attributable to the proposed acquisition, including the
estimated effects of events that are of a non-recurring nature, as if the
transaction had occurred on June 30, 1999.
Prior to the proposed acquisition, DuPont owned approximately 20 percent of
the outstanding common stock of Pioneer. In addition, DuPont owned 50 percent of
Optimum Quality Grains LLC ("Optimum"), a joint venture with Pioneer. DuPont
accounted for these ownership interests using the equity method of accounting.
After the proposed transaction, both Pioneer and Optimum will be wholly owned
and consolidated by DuPont. Accordingly, the unaudited pro forma combined
financial statements include entries to reclassify DuPont's equity accounting to
a consolidated presentation and to eliminate transactions among DuPont, Pioneer,
and Optimum. In conjunction with its existing approximate 20 percent ownership
of Pioneer, DuPont expects to record a non-recurring charge, estimated at $50,
at the date of acquisition. The components of this charge are described in (k)
of Note 2.
DuPont will account for the proposed acquisition using the purchase method.
The estimated purchase price for the proposed acquisition is $7,731, consisting
of:
- $3,425 representing cash payments for the purchase, at $40 per share, of
45 percent of the outstanding shares of Pioneer not presently owned by
DuPont;
- $4,180 representing 59.7 million shares of DuPont stock, with an assumed
market value of $70 per share, to be issued in exchange for 55 percent of
the outstanding shares of Pioneer not presently owned by DuPont; the
actual number of DuPont shares to be issued and the value of those shares
have not yet been determined; under the terms of the merger agreement,
Pioneer shareholders that receive DuPont stock will receive a fraction of
a share of DuPont stock equal to the ratio of forty dollars to the average
trading price of DuPont common stock over the ten trading
12
<PAGE> 13
day period ending three trading days prior to the date of the special
meeting of Pioneer shareholders to vote on the merger;
- $76 representing 80 percent of the estimated fair value of options to
purchase DuPont common stock that are expected to be issued upon
consummation of the proposed acquisition in exchange for the outstanding
vested options to purchase Pioneer common stock under Pioneer's employee
stock option plan; and
- $50 representing DuPont's estimated direct costs of acquisition.
Under the purchase method of accounting, the identifiable assets acquired
and liabilities assumed are assigned a portion of the purchase price, normally
equal to their estimated fair values at the date of acquisition. Any excess of
the purchase price over the sum of the amounts assigned to identifiable assets
acquired, less liabilities assumed, is recorded as goodwill. Because DuPont
already owns approximately 20 percent of Pioneer, the historical Pioneer
information reflects and the unaudited pro forma adjustments in the unaudited
pro forma combined balance sheet as of June 30, 1999 only relate to the
remaining approximately 80 percent of Pioneer that DuPont is proposing to
acquire.
For these unaudited pro forma combined financial statements, the allocation
of purchase price is as follows:
<TABLE>
<S> <C>
Current Assets..................................................... $ 1,542
Property, Plant and Equipment...................................... 596
Other Assets....................................................... 2,221
In-Process Research and Development................................ 2,450
Goodwill........................................................... 2,621
Current Liabilities................................................ (499)
Non-Current Liabilities............................................ (1,194)
Minority Interest.................................................. (6)
---------
Net Assets Acquired................................................ $ 7,731
=========
</TABLE>
These amounts differ from the sum of the columns titled "80% of Pioneer
Historical Net Assets" and "Pro Forma Adjustments For This Transaction" in the
unaudited pro forma combined balance sheet of DuPont as of June 30, 1999 as a
result of:
- Pioneer's 50% interest in Optimum;
- debt assumed to be issued by DuPont to purchase Pioneer shares for cash
and to pay estimated direct costs of the acquisition;
- DuPont common stock assumed to be issued in exchange for Pioneer common
stock;
- DuPont stock options to be issued in exchange for Pioneer stock options;
and
- accruals for 20% of certain Pioneer costs and expenses
as described in Note 2 below.
The allocation of purchase price included in the unaudited pro forma
combined balance sheet as of June 30, 1999 and as discussed in Note 2 is based
on estimates and assumptions that DuPont believes are reasonable and factually
supportable based on the information that was available at the time these
unaudited pro forma combined financial statements were prepared. These unaudited
pro forma adjustments are preliminary and based on management's best estimates
of the value of the tangible and intangible assets acquired and liabilities
assumed. Once the acquisition is consummated, DuPont will commence a process of
identification and valuation of all assets acquired and liabilities assumed. The
actual allocation of purchase price:
13
<PAGE> 14
- will be made as of the date of acquisition and will reflect the estimated
fair value of all assets and liabilities that are identified as of that
date;
- may also reflect information that was not available at the time these
unaudited pro forma combined financial statements were prepared; and
- likely may differ from the amounts included in these unaudited pro forma
combined financial statements.
As discussed below, Pioneer's business is highly seasonal. As a result, the
fair value of inventories can vary substantially depending on when the merger is
completed. In addition, the fair value of assets such as licensed technology,
completed technology, and in-process research and development, all of which were
valued based on discounted cash flows, may change due to the passage of time and
its effect on the present value of these cash flow streams. In addition, the
financial projections used to value these assets, especially near-term
projections, may change as facts and circumstances change. Government programs,
weather, and commodity prices are some of the factors that can impact the
near-term outlook for Pioneer. While these variables, in the aggregate, are not
expected to materially impact the overall value of Pioneer, they may have a
material effect on the actual purchase price allocation to individual assets and
the subsequent amortization expense related to those assets.
The estimated fair values of assets acquired in a purchase business
combination are amortized over the estimated useful lives of the assets. The
unaudited pro forma adjustments shown in the unaudited pro forma combined income
statements and as discussed in Note 2 reflect the estimated effects of this
amortization and are based on the allocation of purchase price as discussed
above. Because DuPont already owns approximately 20 percent of Pioneer, the
historical Pioneer information in the unaudited pro forma combined income
statements relate to the remaining approximately 80 percent of Pioneer that
DuPont is proposing to acquire.
The unaudited pro forma adjustments shown in the unaudited pro forma
combined income statements also include the estimated interest expense DuPont
would have incurred on the borrowings assumed to have been used to fund the cash
portion of the purchase price and direct costs of the acquisition. Unaudited pro
forma combined basic weighted average shares outstanding reflects the effect of
the issuance of 59.7 million shares of DuPont common stock to acquire 55 percent
of the outstanding shares of Pioneer common stock. Unaudited pro forma combined
diluted weighted average shares outstanding reflects the issuance of these 59.7
million shares and the approximately 2.4 million DuPont stock options to be
issued in exchange for vested Pioneer stock options. As noted above, the
unaudited pro forma adjustments shown in the unaudited pro forma combined income
statements exclude the estimated effects of non-recurring items including
purchased in-process research and development, the effect of recording
inventories at fair value, and the $50 charge noted above.
The unaudited pro forma adjustments shown in the unaudited pro forma
combined income statements are based on estimates and assumptions that DuPont
believes are reasonable and factually supportable based on the information that
was available at the time these unaudited pro forma combined financial
statements were prepared. As discussed above, it is likely that the actual
allocation of purchase price may differ from the amounts included in these
unaudited pro forma combined financial statements. As such, it is also likely
that the actual amortization of fair values may differ from the amounts included
in these unaudited pro forma combined financial statements. The actual interest
expense incurred by DuPont to finance the cash portions of the purchase price
will depend on the amounts borrowed and interest rates in effect at the time the
proposed acquisition is consummated and thus may vary from the amounts shown in
the unaudited pro forma combined income statements. Similarly, the actual number
of shares of DuPont common stock issued to effect the acquisition will be
determined based on the average trading price of DuPont common stock over the
ten day trading period ending three trading days before the date of the special
meeting of Pioneer shareholders.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the proposed
acquisition occurred on the dates assumed, nor is this information necessarily
indicative of actual future operating results or financial position that will
result after the proposed transaction is consummated. Specifically, the
unaudited pro forma combined financial statements do not include future benefits
or synergies that are expected to result from the acquisition. In addition, the
unaudited pro forma combined provision for income taxes may not represent the
amounts that would have resulted had DuPont and Pioneer filed consolidated
income tax returns during the periods presented.
Material transactions among DuPont, Pioneer and Optimum during the periods
presented have been eliminated. There are no material differences between the
accounting policies of DuPont and Pioneer.
14
<PAGE> 15
2. PRO FORMA ADJUSTMENTS
UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
(a) DuPont accounts for its approximate 20 percent interest in Pioneer and
its 50 percent interest in Optimum using the equity method. Under the equity
method, DuPont's share of the earnings of Pioneer and Optimum are reported as a
single line item, Equity in Earnings of Affiliates, included in Other Income.
After the proposed acquisition by DuPont of the remaining approximately 80
percent of Pioneer, both Pioneer and Optimum will be wholly owned by DuPont.
These entries reclassify DuPont's Equity in Earnings of Affiliates to reflect
the consolidated accounting for Pioneer and Optimum that will occur after the
proposed acquisition. The entries include amortization of the differences
between fair value and historical cost arising from DuPont's acquisition of
approximately 20 percent of Pioneer in 1997.
(b) DuPont's fiscal year ends December 31. Pioneer's fiscal year ends August
31. Because the two fiscal years end more than 93 days apart, it is necessary to
adjust Pioneer's historical consolidated income statement to an annual basis
that is within 93 days of DuPont's fiscal year-end. For the year ending December
31, 1998, this was accomplished by subtracting Pioneer's reported loss for the
three month period September 1 to November 30, 1997 from the income reported by
Pioneer for its fiscal year ended August 31, 1998 and adding Pioneer's reported
loss for the three month period September 1 to November 30, 1998 as shown below.
Pioneer results have been reclassified to conform to DuPont's reporting.
15
<PAGE> 16
<TABLE>
<CAPTION>
SUBTRACT: ADD: EQUALS: 80% OF
PIONEER INCOME PIONEER INCOME PIONEER INCOME PIONEER INCOME PIONEER INCOME
FOR FISCAL FOR THE 3 MONTHS FOR THE 3 MONTHS FOR THE 12 MONTHS FOR THE 12 MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1998 NOVEMBER 30, 1997 NOVEMBER 30, 1998 NOVEMBER 30, 1998 NOVEMBER 30, 1998
--------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Sales ............. $1,835 $ 79 $ 76 $1,832 $1,466
Other Income ...... 61 13 48 38
------ ------ ------ ------ ------
Total ....... 1,896 92 76 1,880 1,504
====== ====== ====== ====== ======
Cost of Goods Sold
and Other
Operating Costs
and Expenses ..... 944 85 96 955 764
Selling, General,
and Administrative
Expense .......... 532 83 89 538 430
Interest Expense .. 13 2 5 16 13
------ ------ ------ ------ ------
Total ....... 1,489 170 190 1,509 1,207
Income (Loss)
Before Income
Taxes and Minority
Interests ........ 407 (78) (114) 371 297
Provision for
Income Taxes ..... 134 (27) (39) 122 98
Minority Interests
in Earnings of
Consolidated
Subsidiaries ..... 3 3 2
------ ------ ------ ------ ------
Net Income
(Loss) .... $ 270 $ (51) $ (75) $ 246 $ 197
====== ====== ====== ====== ======
</TABLE>
16
<PAGE> 17
Similarly, Pioneer's historical consolidated income statement for the nine
month period September 1, 1998 to May 31, 1999 was adjusted for use in the
unaudited pro forma combined income statement for the six month period ended
June 30, 1999 as follows:
<TABLE>
<CAPTION>
SUBTRACT: EQUALS: 80% OF
PIONEER INCOME PIONEER INCOME PIONEER INCOME PIONEER INCOME
FOR THE 9 MONTHS FOR THE 3 MONTHS FOR THE 6 MONTHS FOR THE 6 MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 NOVEMBER 30, 1998 MAY 31, 1999 MAY 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales ................................ $1,700 $ 76 $1,624 $1,299
Other Income ......................... 14 14 11
------ ------ ------ ------
Total .......................... 1,714 76 1,638 1,310
====== ====== ====== ======
Cost of Goods Sold and Other Operating
Costs and Expenses .................. 849 96 753 603
Selling, General, and Administrative
Expense ............................. 458 89 369 295
Interest Expense ..................... 18 5 13 10
------ ------ ------ ------
Total .......................... 1,325 190 1,135 908
Income (Loss) Before Income Taxes and
Minority Interests .................. 389 (114) 503 402
Provision for Income Taxes ........... 98 (39) 137 109
Minority Interests in Earnings of
Consolidated Subsidiaries ........... 2 2 2
------ ------ ------ ------
Net Income (Loss) .............. $ 289 $ (75) $ 364 $ 291
====== ====== ====== ======
</TABLE>
Since the proposed acquisition is for the remaining approximately 80 percent
of Pioneer not presently owned by DuPont, only 80 percent of Pioneer's income
for these two periods is included as an adjustment in the unaudited pro forma
combined income statements.
(c) Pioneer accounts for its 50 percent interest in the Optimum joint
venture with DuPont using the equity method. After the proposed acquisition of
the remaining approximately 80 percent of Pioneer, Optimum will be wholly owned
by DuPont. These adjustments reclassify Pioneer's Equity in Earnings of
Affiliates to reflect the consolidated accounting for Optimum that will occur
after the proposed acquisition. The entries for the six months ended June 30,
1999 also include the elimination of a $12 pre-tax gain ($7 after tax) on the
licensing of technology from DuPont to Pioneer.
(d) DuPont will account for the proposed acquisition of the remaining
approximately 80 percent of Pioneer using the purchase method of accounting.
Under the purchase method, the assets acquired and liabilities assumed by DuPont
will be recorded at their estimated fair values and the excess of purchase price
over the estimated fair value of net assets acquired will be recorded as
goodwill. This adjustment reflects the estimated additional depreciation and
amortization and other items that will result from the application of purchase
accounting as follows:
17
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
ITEM
Plant and Equipment ....................... $ 6 $ 3.0
Germplasm ................................. 17 8.5
Trademarks and Tradenames ................. 3 1.5
Work Force, Sales and Grower Networks ..... 7 3.5
Licensed Technology ....................... 53 26.5
Completed Technology ...................... 60 30.0
Goodwill .................................. 66 33.0
Unfavorable Purchase Contract ............. (10) (5.0)
50% of Optimum ............................ 8 8.0
----- --------
Total Adjustment .......................... $ 210 $ 109.0
===== ========
</TABLE>
Pioneer's business is highly seasonal. Substantially all seed sales in the
Northern Hemisphere are made during the period February 1 through May 31.
Inventory levels are also seasonal, with peak inventory levels occurring near
the beginning of the Northern Hemisphere selling season. Inventories are at
their lowest levels during the period July 1 through August 31. Pioneer accounts
for inventory using the first-in, first-out (FIFO) method and DuPont intends to
continue this accounting method for Pioneer inventories. Under purchase
accounting, inventories of Pioneer at the date of acquisition will be recorded
at their estimated fair value which is higher than Pioneer's historical cost.
Under the FIFO method, a non-recurring charge equal to the excess of fair value
over Pioneer's historical cost of inventory will be recorded in cost of goods
sold for the first inventory turn, which will primarily impact the year
immediately following the acquisition. This charge, which has been excluded from
the unaudited pro forma combined income statements due to its non-recurring
nature, is estimated to range from $400 to $800.
(e) This adjustment reflects the increased interest expense DuPont would
have incurred on the estimated borrowings required to finance the cash portion
of the proposed Pioneer acquisition and direct acquisition costs. Unaudited pro
forma interest calculations are based on historical interest rates paid by
DuPont on short-term commercial paper borrowings for the periods presented. For
the year ended December 31, 1998, average commercial paper rates were 5.6
percent. For the six months ended June 30, 1999, average commercial paper rates
were 5.0 percent.
(f) In accordance with SFAS 2, as interpreted by FASB Interpretation No. 4,
the estimated fair value of in-process research and development acquired in a
business combination accounted for using the purchase method must be charged to
expense in the period in which the business combination is consummated. The
unaudited pro forma combined income statements exclude the charge DuPont expects
to record in the period the proposed acquisition is consummated related to the
acquisition of in-process research and development due to the non-recurring
nature of this charge. As discussed below, DuPont estimates that a non-recurring
charge of $2,450 would have been recorded for the acquisition of in-process
research and development had the acquisition been consummated on June 30, 1999.
(g) Because DuPont will acquire the stock of Pioneer, amortization of the
excess of the estimated fair value of assets acquired and liabilities assumed
over Pioneer's historical cost will not be deductible for Federal or State
income taxes. However, in accordance with SFAS 109, deferred taxes are recorded
in purchase accounting on the difference between the assigned values for
financial reporting purposes and the tax basis of assets acquired, excluding
purchased in-process research and development and goodwill, and liabilities
assumed, excluding liabilities for expenses that are non-deductible, for stock
acquisitions accounted for using the purchase method. This pro forma adjustment
reflects the deferred tax benefit of $52 for the year ended December 31, 1998
and $26 for the six months ended June 30,
18
<PAGE> 19
1999 related to the increased depreciation and amortization expenses and other
items arising from purchase accounting adjustments, excluding the amortization
of goodwill, and a tax benefit of $66 for the year ended December 31, 1998 and
$29 for the six months ended June 30, 1999 related to the estimated increase in
interest expense described in (e) above.
(h) The DuPont unaudited pro forma combined earnings per share have been
calculated assuming a DuPont stock price of $70.00 per share at the date of
acquisition. The actual number of DuPont shares to be issued and the value of
those shares have not yet been determined. The following table sets forth the
effect on earnings per share for a range of values for DuPont stock:
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED EARNINGS PER
SHARE
-------------------------------------------------
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 1998 30, 1999
DUPONT STOCK --------------------- ---------------------
PRICE PER SHARE BASIC DILUTED BASIC DILUTED
- --------------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
$ 60.00 $ 1.52 $ 1.50 $1.54 $1.52
$ 65.00 $ 1.53 $ 1.50 $1.55 $1.52
$ 70.00 $ 1.54 $ 1.51 $1.55 $1.53
$ 75.00 $ 1.54 $ 1.52 $1.56 $1.54
$ 80.00 $ 1.55 $ 1.52 $1.56 $1.54
</TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) DuPont accounts for its approximate 20 percent interest in Pioneer and
its 50 percent interest in Optimum using the equity method. Under the equity
method, DuPont's share of the net assets of Pioneer and Optimum are reported as
a single line item, Investments in Affiliates. After the proposed acquisition by
DuPont of the remaining approximately 80 percent of Pioneer, both Pioneer and
Optimum will be wholly owned by DuPont. These adjustments reclassify DuPont's
Investments in Affiliates to reflect the consolidated accounting for Pioneer and
Optimum that will occur after the proposed acquisition. The adjustments include
unamortized balances arising from differences between fair value and historical
cost of Pioneer's assets and liabilities at the date of DuPont's 1997
acquisition of approximately 20 percent of Pioneer.
(b) Represents 80 percent of the assets and liabilities of Pioneer at May
31, 1999.
(c) Pioneer accounts for its 50 percent interest in Optimum using the equity
method. After the proposed acquisition by DuPont of the remaining approximately
80 percent of Pioneer, Optimum will be wholly owned by DuPont. These adjustments
reclassify Pioneer's Investment in Affiliates to reflect the consolidated
accounting for Optimum that will occur after the proposed acquisition.
(d) DuPont will account for the proposed acquisition of the remaining
approximately 80 percent of Pioneer using the purchase method of accounting.
Under the purchase method, the assets acquired and liabilities assumed by DuPont
will be recorded at their estimated fair values and the excess of purchase price
over the estimated fair value of net assets acquired will be recorded as
goodwill. These adjustments reflect the estimated excess of fair value over
historical cost for the 80 percent of inventory and property, plant and
equipment to be acquired by DuPont under the proposed acquisition. As discussed
in note (d) to the Unaudited Pro Forma Combined Income Statement above, the
excess of fair value over historical cost of inventory can vary significantly
due to the seasonal nature of Pioneer's business. The inventory adjustment
includes $2 and the property, plant and equipment adjustments includes $3
related to the reclassification of Optimum described in (c) above.
(e) DuPont will account for the proposed acquisition of the remaining
approximately 80 percent of Pioneer using the purchase method of accounting.
Under the purchase method, the assets acquired
19
<PAGE> 20
and liabilities assumed by DuPont will be recorded at their estimated fair
values. This adjustment includes 80 percent of the estimated excess of fair
value over historical cost for the following items:
<TABLE>
<CAPTION>
80% ESTIMATED ANNUAL
ITEM AMOUNT USEFUL LIFE AMORTIZATION
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Germplasm.................................... $ 675 40 Years $ 17
Trademarks and Tradenames.................... 134 40 Years 3
Work Force, Sales And Grower Networks........ 104 15 Years 7
Licensed Technology.......................... 598 10-15 Years 53
Completed Technology......................... 602 10 Years 60
Other........................................ 12 15 Years --
</TABLE>
The excess of purchase price over the estimated fair value of net assets
acquired will be recorded as goodwill. This adjustment also includes goodwill of
$2,621, an adjustment of $(12) to eliminate Pioneer's investment in technology
licensed from DuPont, and $(8) related to the reclassification of Optimum
described in (c) above.
DuPont has stated its intention to maintain Pioneer as a separate
subsidiary, operating under the Pioneer brand name. DuPont has determined that
the estimated useful life of Pioneer trademarks and tradenames is likely to
exceed forty years.
Germplasm represents the pool of crop genetics owned and controlled by
Pioneer. It would not be feasible to fully explore each of the unique genetic
combinations that can be developed from this resource within a forty-year
timeframe.
Pioneer has stated its belief that the foundation of its strength remains
the Pioneer germplasm base, the broadest and deepest supply of superior crop
genetics in the world. DuPont concurs with this belief. DuPont also believes
that its ability to realize the future benefits associated with goodwill arising
from this transaction is directly linked to this key asset of Pioneer. As such,
the estimated useful life assigned to goodwill is 40 years, the same as the
estimated useful life assigned to germplasm. Annual amortization of goodwill is
$66.
(f) Represents the estimated borrowings DuPont will incur to fund the cash
portion of the acquisition ($3,425) and the estimated direct expenses ($50)
associated with the acquisition.
(g) This adjustment includes:
- $54, representing 80 percent of the estimated increase in liabilities
for unfunded post-retirement benefits that will result from recording
these liabilities at fair value;
- $61, representing the estimated liability for enhanced severance
benefits, including gross-up, payable upon expiration of the management
retention agreements;
- $30, representing the non-current portion of 80 percent of the
estimated fair value of the liability associated with the excess of
cost over market payable under a take-or-pay unfavorable purchase
contract; and
- $1, related to the reclassification of Optimum described in (c) above.
Under the terms of Pioneer's severance plans, employees, other than those
covered by the management retention agreements, may also receive enhanced
severance benefits under those plans during the three-year period immediately
following consummation of the proposed acquisition. The potential liability
under these plans ranges from $0, if no employees were to receive these benefits
during the three-year period, to approximately $200, if all employees were to
receive these benefits. Insufficient information exists as of the date these
unaudited pro forma combined financial statements were prepared to make a
factually based estimate of the probable future liability, if any, under these
plans. As such, no pro forma adjustment has been made for these plans.
20
<PAGE> 21
(h) Because DuPont will acquire the stock of Pioneer, amortization of the
excess of the estimated fair value of assets acquired and liabilities assumed
over Pioneer's historical cost will not be deductible for Federal or State
income taxes. However, in accordance with SFAS 109, deferred taxes are recorded
in purchase accounting on the difference between assigned values for financial
reporting purposes and the tax basis of assets acquired, excluding purchased
in-process research and development and goodwill, and liabilities assumed,
excluding liabilities for expenses that are non-deductible, for stock
acquisitions accounted for using the purchase method. These pro forma
adjustments represent the recording of deferred taxes on the portion of the
basis difference represented by the excess of fair value over historical cost of
the 80 percent of Pioneer to be acquired in the proposed acquisition. Current
deferred income taxes relate to current assets and liabilities (inventories and
other accrued liabilities). Non-current deferred income taxes relate to
non-current assets and liabilities.
(i) This adjustment includes:
- $19, representing the accrual of 20 percent of restricted stock
compensation expense and other Pioneer costs and expenses included in
the $50 non-recurring charge described in (k) below;
- $12, representing the accrual of 80 percent of the estimated gross-up
payments associated with the accelerated vesting of restricted stock;
- $10, representing the current portion of the fair value of the
unfavorable contract liability described in (g); and
- $1, related to the reclassification of Optimum described in (c) above.
(j) Under the terms of the merger agreement, DuPont has offered holders of
options granted under Pioneer's employee stock option plan the right to choose
to receive, for each Pioneer share covered by the option, an option to buy a
fraction of a share of DuPont common stock worth forty dollars at the same
exercise price as the Pioneer option they hold as of the merger date.
Alternatively, Pioneer option holders may elect to receive in cash the spread
between forty dollars and the option exercise price, subject to a limit on the
cash paid to redeem the Pioneer options. This $95 pro forma adjustment
represents the estimated fair value of the options to buy DuPont stock that
would be issued if all holders of Pioneer options elect to receive options to
buy DuPont common stock. Under purchase accounting, $76, representing 80 percent
of the fair value of the options to buy DuPont stock, represents a portion of
the purchase price to be allocated to the assets acquired and liabilities
assumed. The remaining 20 percent, $19, represents compensation expense as
determined under APB 25 and is included in the estimated $50 non-recurring
charge described in (k) below expected to be recorded in conjunction with the
proposed acquisition.
(k) Includes $2,450, representing the estimated fair value of 80 percent of
the in-process research and development of Pioneer.
Purchased in-process research and development represents the value assigned
in a business combination accounted for under the purchase method to research
and development projects of the acquired business that were commenced, but not
yet completed, at the date of acquisition and which, if unsuccessful, have no
alternative future use in research and development activities or otherwise. In
accordance with Statement of Financial Accounting Standards No. 2, "Accounting
for Research and Development Costs," as interpreted by FASB Interpretation No.
4, amounts assigned to purchased in process research and development meeting the
above criteria must be charged to expense at the date of consummation of the
purchase business combination.
21
<PAGE> 22
The valuation methodology used by DuPont to estimate the fair value of the
in-process research and development of Pioneer is as follows:
Cash Flows from Successful Completion
Less: Cash Flows to Complete
Less: Return on Assets Employed
- -------------------------------------------------------------
Equals: Adjusted Cash Flows
Times: Probability of Technical and Commercial Success
- -------------------------------------------------------------
Equals: Risk Adjusted Cash Flows
Times: Present Value Factor
- -------------------------------------------------------------
Equals: Estimated Fair Value
Cash Flows from Successful Completion represents the estimated future
revenues forecast to be earned over the life of the product less the costs and
expenses required to generate those revenues, assuming successful completion of
the in-process project. For purposes of this valuation, Cash Flows from
Successful Completion were derived using financial projections and assumptions
provided by Pioneer to DuPont. Cash Flows to Complete represents the estimated
future research and development costs required to complete the project, assuming
the project is ultimately successful. Significant assumptions include the work
required to successfully complete the project and the date of completion. Return
on Assets employed represents an allocation of the estimated future profits from
the project, assuming it was successfully completed, to existing assets,
including identifiable intangible assets, thereby ensuring that all appropriate
future cash flows are attributed to existing assets for purposes of determining
their fair value.
Probability of Technical and Commercial Success represents management's
assessment of all risks associated with completing a given project. Results
achieved to-date, the complexity of the work required to complete the project,
and historical experience with similar types of research and development
projects are among the factors considered by management in making this
assessment.
For purposes of this valuation, risk adjusted cash flows were discounted to
present value using discounts ranging from 12.5 percent to 15 percent. These
discount rates include adjustments intended to compensate for the risks of
projection and market uncertainty.
Pioneer's research and development efforts consist of new product
development for its traditional businesses and trait and technology development.
Of the $2,450 estimated fair value of purchased in-process research and
development included in these unaudited pro forma combined financial statements,
$1,200 represents the estimated fair value of research and development projects
related to new product development for traditional businesses and $1,250
represents the estimated fair value of research and development projects related
to trait and technology development.
New product development for traditional businesses consists of Pioneer's
seed research done through classical plant breeding techniques. Its principal
objectives are to develop new hybrids of corn and varieties of soybeans. Each
year, Pioneer maize researchers evaluate about 1,000,000 new experimental
hybrids. These hybrids enter into a four to five year testing cycle during which
the hybrids are tested in a range of soil types, stresses, and climate
conditions. As the results of these tests become
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known, fewer and fewer hybrids are designated as candidates for further testing.
The Pioneer research and development procedures classify these projects based on
their stage of completion as follows:
<TABLE>
<CAPTION>
PROBABILITY OF
APPROXIMATE NUMBER TECHNICAL AND
STAGE OF COMPLETION OF HYBRIDS COMMERCIAL SUCCESS
- ------------------- ------------------ ------------------
<S> <C> <C>
First Cross........................... 1,000,000 0.01%
Second Generation..................... 210,000 0.02%
R1-R2................................. 10,000 0.50%
R3.................................... 250 20.00%
R4.................................... 160 30.00%
R5.................................... 50 95.00%
</TABLE>
Each hybrid at each stage of completion is genetically unique. The
probability of technical and commercial success in this table is the probability
that an individual hybrid at a particular stage of completion will ultimately
become a commercial product. These probabilities were developed based on
Pioneer's extensive historical experience in developing new hybrids of corn.
While stage of completion is indicative of how long it will take to develop
hybrids in that stage, results can vary, with some hybrids taking less time and
others taking longer. Based on these probabilities, it is projected that Pioneer
will introduce approximately fifty new hybrids of corn each year for the next
seven years. After this seven year period, new hybrids will principally result
from projects that have not begun. These future projects are not included in the
valuation of in-process research and development. The in-process research and
development projects in the table above represent approximately 75% of the
estimated fair value of research and development projects related to new product
development for traditional businesses.
Each year, Pioneer's soybean researchers test approximately 500,000 new
experimental lines of soybeans. These experimental lines of soybeans undergo a
testing and selection process similar to the one described above for corn.
Soybean projects are classified as to stage of completion using the same
classification system shown above. Probabilities of technical and commercial
success were estimated for each stage of completion based on Pioneer's extensive
historical experience. Soybean in-process research and development projects
represent approximately 13% of the estimated fair value of research and
development projects related to new product development for traditional
businesses. In-process research and development projects for alfalfa, sorghum,
wheat, sunflowers, canola and microbial products make up the remaining
approximately 12% of the estimated fair value of research and development
projects related to new product development for traditional businesses.
Research and development projects related to trait and technology
development have as their objective the use of biotechnology techniques to
genetically improve insect, disease and herbicide resistance in crops and
develop products that increase the value of commodity grains by modifying their
protein, oil and carbohydrate components. Five in-process projects as of the
February 28, 1999 valuation date had progressed sufficiently to meet the
criteria used by DuPont to identify projects qualifying as purchased in-process
research and development. Key criteria in this identification process include
the ability to reasonably estimate the future benefits if the project is
successful, the cost to complete the project, the probable completion date, and
the project's probability of technical and commercial success. The probability
of technical and commercial success for these five projects ranged from 65% to
85%. Approximately 55% of the fair value of research and development projects
related to trait and technology development is represented by a project to
develop resistance to a broad spectrum of lepidopteran insects, including
European corn borer. This project is expected to be completed in 2002.
Approximately 35% of the fair value of research and development projects related
to trait and
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technology development relates to two projects, corn rootworm and molds and
mycotoxins. The corn rootworm project is expected to be completed in 2002 and
the molds and mycotoxins project is expected to be completed in 2004.
The fair value of in-process research and development at the actual date of
acquisition is likely to differ from the above estimate. Some research and
development projects may be completed, some may be cancelled, and some new
projects may be commenced. In addition, the probability of technical and
commercial success, especially for trait and technology projects, may increase
or decline as additional work on the projects is completed. Generally, a $100
increase/decrease in the estimated fair value of in-process research and
development will result in a $100 decrease/increase in the amount assigned to
goodwill. A $100 decrease/increase in the amount assigned to goodwill will
result in a $2.5 decrease/ increase in amortization expense and a $2.5
increase/decrease in income from continuing operations.
This adjustment also includes $50, representing the estimated non-recurring
charge DuPont expects to record in conjunction with the proposed acquisition, as
follows:
- $19, representing compensation expense to be recorded in accordance with
APB 25 in conjunction with the issuance of DuPont options as described in
(j) above;
- $22, representing DuPont's 20 percent share of Pioneer compensation
expense for accelerated vesting of restricted stock and accruals for
change of control benefits for executive officers; and
- $9, representing DuPont's 20 percent share of Pioneer's estimated
out-of-pocket costs and expenses associated with the proposed transaction.
(l) Represents 59.7 million shares of DuPont common stock at $70 per
share to be issued in exchange for Pioneer shares under the stock portion of the
merger agreement.
(m) Represents the issuance of 28.2 million shares of DuPont common stock
at $70 per share to a wholly owned subsidiary of DuPont to effect the transfer
of the 49,333,758 shares of Pioneer stock held by the subsidiary to Delta
Acquisition Sub, another wholly owned subsidiary of Dupont.
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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 hereunto duly authorized.
E. I. DU PONT DE NEMOURS AND COMPANY
(Registrant)
/s/ D. B. Smith
---------------------------
D. B. Smith
Assistant Controller
September 1, 1999
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