UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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
1,038,537,537 shares (excludes 4,394,390 shares held by DuPont's Flexitrust
and 87,041,427 shares of treasury stock) of common stock, $0.30 par value,
were outstanding at October 31, 2000.
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 ............................... 6-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements .................................. 18-19
Results of Operations:
Financial Results ......................................... 20-22
Segment Performance ....................................... 22-25
Financial Condition ......................................... 25-27
Other Items:
Equity Forward Purchase Agreements ........................ 27
Formation of New DuPont Apparel and Textile Sciences ...... 27-28
Investment In WebMD Corporation ........................... 28
New Accounting Standards .................................. 28-29
Pioneer Intellectual Property Rights ...................... 29-30
Pioneer Stock Option Retention Grant ...................... 30
Purchased In-Process Research and Development ............. 30
Part II Other Information
Item 1. Legal Proceedings .................................... 30-32
Item 6. Exhibits and Reports on Form 8-K ..................... 32-33
Signature ....................................................... 34
Exhibit Index ................................................... 35-36
Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges ................................................. 37
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 Nine Months Ended
CONSOLIDATED INCOME STATEMENT<Fa> September 30 September 30
-------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES<Fb> ................................................... $6,445 $6,459 $21,952 $19,778
Other Income<Fc> ............................................ 420 159 986 412
------ ------ ------- -------
Total ..................................................... 6,865 6,618 22,938 20,190
------ ------ ------- -------
Cost of Goods Sold and Other Operating Charges<Fd>........... 4,135 4,110 14,019 12,310
Selling, General and Administrative Expenses ................ 710 624 2,276 1,784
Depreciation ................................................ 351 373 1,055 1,081
Amortization of Goodwill and Other Intangible Assets<Fe> .... 113 52 329 136
Research and Development Expense ............................ 442 394 1,323 1,139
Interest Expense ............................................ 205 120 616 333
Purchased In-Process Research and Development<Ff> ........... - - (11) 40
Employee Separation Costs and Write-Down of Assets<Fg> ...... 28 534 126 596
Gain on Issuance of Stock by Affiliates - Nonoperating<Fh> .. (29) - (29) -
------ ------ ------- -------
Total ..................................................... 5,955 6,207 19,704 17,419
------ ------ ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTERESTS ........................................ 910 411 3,234 2,771
Provision for Income Taxes .................................. 339 216 1,133 1,066
Minority Interests in Earnings of Consolidated Subsidiaries . 9 14 48 50
------ ------ ------- -------
INCOME FROM CONTINUING OPERATIONS<Fb> ....................... 562 181 2,053 1,655
DISCONTINUED OPERATIONS
Gain on Disposal of Discontinued Business,
Net of Income Taxes<Fi> ................................. - 7,349 - 7,455
------ ------ ------- -------
NET INCOME .................................................. $ 562 $7,530 $ 2,053 $ 9,110
====== ====== ======= =======
-------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE OF COMMON STOCK<Fj><Fk>
Continuing Operations ..................................... $ .54 $ .17 $ 1.96 $ 1.50
Discontinued Operations ................................... - 7.08 - 6.79
------ ------ ------- -------
Net Income ................................................ $ .54 $ 7.25 $ 1.96 $ 8.29
====== ====== ======= =======
DILUTED EARNINGS PER SHARE OF COMMON STOCK<Fj><Fk>
Continuing Operations ..................................... $ .53 $ .17 $ 1.94 $ 1.48
Discontinued Operations ................................... - 6.98 - 6.71
------ ------ ------- -------
Net Income ................................................ $ .53 $ 7.15 $ 1.94 $ 8.19
====== ====== ======= =======
DIVIDENDS PER SHARE OF COMMON STOCK ......................... $ .35 $ .35 $ 1.05 $ 1.05
====== ====== ======= =======
-------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
Nine Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS<Fa> September 30
------------------------------------------------------------------------------------------------
(Dollars in millions) 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY CONTINUING OPERATIONS
Net Income .......................................................... $ 2,053 $ 9,110
Adjustments to Reconcile Net Income to Cash
Provided by Continuing Operations:
Gain on Disposal of Discontinued Operations ..................... - (7,455)
Depreciation .................................................... 1,055 1,081
Amortization of Goodwill and Other Intangible Assets ............ 329 136
Purchased In-Process Research and Development ................... (11) 40
Other Noncash Charges and Credits - Net ......................... 397 564
Change in Operating Assets and Liabilities - Net ................ (679) (491)
------- -------
Cash Provided by Continuing Operations ........................ 3,144 2,985
------- -------
INVESTMENT ACTIVITIES OF CONTINUING OPERATIONS
Purchases of Property, Plant and Equipment .......................... (1,351) (1,422)
Investment in Affiliates ............................................ (75) (37)
Payments for Businesses Acquired (Net of Cash Acquired) ............. (42) (1,689)
Proceeds from Sales of Assets ....................................... 481 64
Net Decrease (Increase) in Short-Term Financial Instruments ......... 42 (437)
Miscellaneous - Net ................................................. 104 (13)
------- -------
Cash Used for Investment Activities of Continuing
Operations .................................................. (841) (3,534)
------- -------
FINANCING ACTIVITIES
Dividends Paid to Stockholders ...................................... (1,100) (1,141)
Net Decrease in Borrowings .......................................... (310) (1,453)
Acquisition of Treasury Stock ....................................... (462) (690)
Proceeds from Exercise of Stock Options ............................. 50 143
Increase in Minority Interests ...................................... - 105
------- -------
Cash Used For Financing Activities ............................ (1,822) (3,036)
------- -------
Net Cash Flow from Discontinued Operations<Fl> ........................ - 4,534
------- -------
Effect of Exchange Rate Changes on Cash ............................... (258) (78)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS ................................. $ 223 $ 871
======= =======
------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
Form 10-Q
<CAPTION>
CONSOLIDATED BALANCE SHEET<Fa> September 30 December 31
-----------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ..................................................... $ 1,689 $ 1,466
Marketable Securities ......................................................... 59 116
Accounts and Notes Receivable ................................................. 5,531 5,318
Inventories<Fm> ............................................................... 4,466 5,057
Prepaid Expenses .............................................................. 271 202
Deferred Income Taxes ......................................................... 455 494
------- -------
Total Current Assets ........................................................ 12,471 12,653
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation (September 30,
2000 - $20,448; December 31, 1999 - $20,545) .................................. 14,173 14,871
INVESTMENT IN AFFILIATES<FN> .................................................... 2,164 1,459
OTHER ASSETS .................................................................... 11,241 11,794
------- -------
TOTAL ....................................................................... $40,049 $40,777
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable .............................................................. $ 2,151 $ 2,780
Short-Term Borrowings and Capital Lease Obligations ........................... 4,488 4,941
Income Taxes .................................................................. 440 359
Other Accrued Liabilities ..................................................... 3,271 3,148
------- -------
Total Current Liabilities ................................................... 10,350 11,228
LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS .............................. 6,668 6,625
OTHER LIABILITIES ............................................................... 7,767 7,872
DEFERRED INCOME TAXES ........................................................... 1,652 1,660
------- -------
Total Liabilities ........................................................... 26,437 27,385
------- -------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ................................. 377 517
------- -------
STOCKHOLDERS' EQUITY<Fo>
Preferred Stock ............................................................... 237 237
Common Stock, $.30 par value; 1,800,000,000 shares authorized; shares issued
at September 30, 2000 - 1,129,973,354; December 31, 1999 - 1,139,514,154 .... 339 342
Additional Paid-In Capital .................................................... 7,641 7,941
Reinvested Earnings ........................................................... 12,258 11,699
Accumulated Other Comprehensive Loss .......................................... (329) (133)
Common Stock Held in Treasury at Cost (Shares: September 30, 2000 -
87,041,427; December 31, 1999 - 87,041,427) ................................. (6,727) (6,727)
Common Stock Held in Trust for Unearned Employee Compensation and Benefits
(Flexitrust), at Market (Shares: September 30, 2000 - 4,489,304;
December 31, 1999 - 7,342,245) .............................................. (184) (484)
------- -------
Total Stockholders' Equity .................................................. 13,235 12,875
------- -------
TOTAL ....................................................................... $40,049 $40,777
======= =======
-----------------------------------------------------------------------------------------------------------------
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.
<Fb> SEGMENT
INFORMATION -
CONTINUING Three Months Ended Nine Months Ended
OPERATIONS<F1> September 30 September 30
--------------------------------------------------------------------------
(Dollars in millions) 2000 1999 2000 1999
--------------------------------------------------------------------------
SEGMENT SALES<F2>
----------------
Agriculture &
Nutrition .......... $ 454 $ 423 $ 1,923 $ 1,970
Nylon Enterprise ..... 1,150 1,097 3,445 3,349
Performance
Coatings &
Polymers ........... 1,572 1,592 4,941 4,398
Pharmaceuticals ...... 389 384 1,172 1,173
Pigments &
Chemicals .......... 974 912 2,972 2,727
Pioneer .............. 129 38 1,853 363
Polyester
Enterprise ......... 657 668 1,922 1,935
Specialty Fibers ..... 848 852 2,645 2,572
Specialty Polymers ... 1,124 1,057 3,366 3,103
Other ................ 108 115 380 352
------ ------ ------- -------
Total Segment
Sales ............ 7,405 7,138 24,619 21,942
Elimination of
Intersegment
Transfers .......... (165) (190) (501) (542)
Elimination of
Equity Affiliate
Sales .............. (799) (492) (2,172) (1,624)
Miscellaneous ........ 4 3 6 2
------ ------ ------- -------
SALES ................ $6,445 $6,459 $21,952 $19,778
====== ====== ======= =======
6
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
<Fb> SEGMENT
INFORMATION -
CONTINUING Three Months Ended Nine Months Ended
OPERATIONS<F1> September 30 September 30
---------------------------------------------------------------------------
(Dollars in
millions) 2000 1999 2000 1999
--------------------------------------------------------------------------
AFTER-TAX
OPERATING
INCOME (LOSS)
---------------
Agriculture &
Nutrition ..... $ 13 $ (117)<F3> $ 149 <F4> $ 127 <F3>
Nylon
Enterprise .... 74 (250)<F5> 249 (44)<F5>
Performance
Coatings &
Polymers ...... 170 155 478 <F6> 415 <F7>
Pharmaceuticals . 41 58 146 182
Pigments &
Chemicals ..... 168 <F8> 162 518 <F8> 466
Pioneer ......... (152)<F9> (26) (69)<F9> 26
Polyester
Enterprise .... 19 (23) 39 (82)<F10>
Specialty
Fibers ........ 167 189 543 538
Specialty
Polymers ...... 175 166 523 494
Other ........... 58 <F11> 21 65 <F11> 44
------ ------ ------- -------
Total Segment
ATOI ........ 733 335 2,641 2,166
Interest &
Exchange Gains
and Losses .... (122) (81) (381) (292)<F12>
Corporate
Expenses ...... (49)<F13> (73) (207)<F13> (219)
------ ------ ------- -------
INCOME FROM
CONTINUING
OPERATIONS .... $ 562 $ 181 $ 2,053 $ 1,655
====== ====== ======= =======
7
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
FOOTNOTES TO NOTE (b)
---------------------
<F1> Certain reclassifications of segment data have been made to reflect
changes in organizational structure.
<F2> Includes pro rata equity affiliate sales and intersegment transfers.
<F3> Includes total charges of $107 attributable to termination payments to
about 800 employees, shutdown of various manufacturing facilities and
the write-off of an intangible asset resulting from the loss of
exclusive product marketing rights.
<F4> Includes a charge of $62 to increase the company's reserve for "Benlate"
50 DF fungicide litigation.
<F5> Includes total charges of $337, of which $247 is attributable to an
impairment charge for the write-down of the adipic acid plant in
Singapore that continues to operate. Other costs are principally due to
the write-down of manufacturing assets in India pursuant to a sales
agreement and the liquidation of a joint venture in China.
<F6> Includes a charge of $61 related to employee separation costs for about
1,000 employees within Performance Coatings, the shutdown of related
manufacturing facilities, and other exit costs.
<F7> Includes an estimated in-process research and development charge of $40
that was recorded in conjunction with the purchase of Herberts, based on
preliminary allocations of purchase price.
<F8> Includes a charge of $17 resulting from restructuring manufacturing
operations at the Chambers Works site, offset by a gain of $16
attributable to the sale of the company's interest in a Mexican
affiliate.
<F9> Third quarter includes a charge of $42 for accrued post-employment costs
for Pioneer employees and tax adjustments related to finalization of
purchase accounting, as well as a noncash charge of $13 resulting from
the sale of acquired Pioneer inventories which, in accordance with
purchase accounting rules, were recorded at fair value on October 1,
1999. Year-to-date includes noncash charges of $366 resulting from the
sale of acquired Pioneer inventories and the $42 charge discussed above,
partly offset by a $109 gain resulting from the sale by Pioneer of
certain equity securities classified as available for sale, and a credit
of $11 to reduce the preliminary allocation of purchase price to
purchased in-process research and development.
8
<PAGE>
Form 10-Q
[FN]
NOTES TO CONSOLIDATED SEGMENT INFORMATION - CONTINUING OPERATIONS - (CONT'D)
----------------------------------------------------------------------------
<F10> Includes a charge of $40 related to employee separation costs for about
850 employees within the Polyester Enterprise.
<F11> Includes a gain of $62 resulting from the sale of stock that reduced
the company's ownership interest in DuPont Photomasks, Inc.
<F12> 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.
<F13> Includes a nonoperating gain of $19 on issuance of stock by an affili-
ate. This represents the increase in the company's equity investment
in DuPont Photomasks, Inc. that resulted from the issuance by DuPont
Photomasks, Inc. of additional shares to unrelated parties at a price in
excess of book value.
9
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
<Fc> Third quarter 2000 includes gains of $117 resulting from the sale of
stock that reduced the company's ownership interest in DuPont Photomasks,
Inc. and the sale of the company's interest in a Mexican affiliate.
Year-to-date 2000 also includes a $176 gain resulting from the sale by
Pioneer of certain equity securities classified as available for sale.
Year-to-date 1999 includes a $131 exchange loss on forward exchange
contracts purchased in 1998 to lock in the U.S. dollar cost of the
acquisition of Herberts.
<Fd> In accordance with purchase accounting rules applied to the acquisition
of the remaining 80 percent ownership interest in Pioneer on October 1,
1999, Pioneer inventory was increased to fair value. This inventory
step-up generates noncash charges to cost of goods sold as the inventory
on hand at the acquisition date is sold. Third quarter and year-to-date
2000 charges were $21 and $588, respectively.
Third quarter 2000 also includes a charge of $29 for accrued post-
employment costs for Pioneer employees. Year-to-date 2000 also includes
a charge of $100 to increase the company's reserve for "Benlate" 50 DF
fungicide litigation.
<Fe> 2000 includes amortization expense associated with acquisitions of
Herberts and Pioneer. Prior to October 1, 1999, the company's 20 percent
ownership in Pioneer was accounted for under the equity method and
results (including amortization expense) were reported as a component of
Other Income. 1999 includes amortization expense associated with the
Herberts acquisition beginning in the second quarter.
<Ff> Year-to-date 2000 includes a credit of $11 that was recorded based on
revisions of preliminary purchase price allocations associated with the
October 1, 1999 purchase of the remaining 80 percent ownership interest
in Pioneer. Year-to-date 1999 includes an estimated charge of $40 that
was recorded in conjunction with the purchase of Herberts, based on
preliminary allocations of purchase price.
<Fg> In third quarter 2000, a restructuring program was instituted to address
poor economic and intensely competitive market conditions for Pigments &
Chemicals. Charges resulting from this restructuring totaled $28. This
charge included $24 related to the write-down of operating facilities at
the New Jersey Chambers Works site, that were shutdown in the third
quarter 2000. The charge covers the net book value of the facilities of
$15 and estimated dismantlement and removal costs less estimated proceeds
10
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
from the sale of equipment and scrap of $9. The remaining restructuring
charge of $4 relates to employee termination payments to be settled over
time for approximately 65 employees involved in manufacturing and
technical activities. Employee terminations will begin in the fourth
quarter 2000. The effect of these actions on third quarter results was
not material.
Year-to-date 2000 also includes charges of $98 resulting from restructur-
ing activities within Performance Coatings. This Phase II restructuring
activity was instituted to continue the consolidation of business assets
and to eliminate redundancies as a result of the acquisition of Herberts
in 1999. This charge included $73 related to the termination of about
1,000 employees involved in technical, manufacturing, marketing and
administrative activities. Restructuring charges of $13 relate to the
write-down of operating facilities that were shutdown in the second
quarter in Germany and the United States and $12 relate to the cancella-
tion of contractual agreements principally associated with the global
distribution of products.
Third quarter 1999 includes charges totaling $534 which were recorded
within the Agriculture & Nutrition segment ($170) and the Nylon Enter-
prise segment ($364), the components of such charges are as follows:
Third quarter 1999 charges resulting from restructuring activities within
Agriculture & Nutrition totaled $125. This charge included $45 related
to employee termination payments for approximately 800 employees involved
in technical, manufacturing, marketing and administrative activities.
The remaining restructuring charge of $80 principally relates to the
write-down of plant and equipment associated with shutdowns of several
operating facilities.
The company also recorded a charge of $45 in Agriculture & Nutrition
related to the write-off of an intangible asset. The company had
previously established an intangible asset related to the acquisition of
exclusive rights to market a product under a long-term contract that
included the purchase of stipulated minimum quantities. An impairment
charge was recorded to write down the intangible asset to its fair value
based on the present value of cash flows.
Third quarter 1999 charges within the Nylon Enterprise included an
impairment charge of $252 for the write-down of an adipic acid plant.
The company made substantial efforts to resolve operational and technical
problems that plagued this facility. Despite these efforts, the plant
11
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
continues to operate at significantly less than its design capacity. As
a result, an impairment charge was recorded to write down the plant to
its fair value based on the present value of cash flows.
The company also announced its intent to exit selected nylon ventures in
the Asia Pacific region. In connection with the sale of a subsidiary in
India, a charge of $59 within the Nylon Enterprise was recorded to write
down assets to their estimated net realizable value pursuant to a sale
agreement. In addition, the company recorded a charge of $33 associated
with its decision to withdraw from an equity investment in China.
Within the Nylon Enterprise, the company also recorded a charge of $28
associated with restructuring activities in Europe. This included
termination payments of $15 to about 120 employees, involved principally
in manufacturing activities. Also included was $13 principally for the
shutdown in the third quarter of 1999 of a manufacturing facility.
Finally, third quarter 1999 charges within the Nylon Enterprise reflect
an $8 benefit due to a favorable adjustment of a reserve balance estab-
lished in 1998 in connection with the pending sale of a nonstrategic
business.
Year-to-date 1999 charges also includes $62 of employee separation costs
for about 850 employees within the Polyester Enterprise.
<Fh> In July 2000, DuPont Photomasks, Inc. sold about 1.4 million shares of
its common stock to unrelated parties at a price of $77 per share which
raised net cash proceeds of $104. As a result of this transaction, the
company's ownership interest in DuPont Photomasks was reduced from
approximately 38.5 percent to 35.3 percent. The pretax gain of $29
represents the increase in the company's equity investment in DuPont
Photomasks which resulted from the issuance of stock at a price in excess
of book value. The company provided for deferred income taxes resulting
from the gain.
<Fi> Gain on disposal of discontinued business reflects Conoco's operations
through August 6, 1999, and includes the gain realized by the company
from the completion of the Conoco exchange offer. For the third
quarter, this includes income from Conoco's operations of $58. The gain
on the exchange offer of $7,291 results from the difference between the
market value and the carrying value of the Conoco Class B common shares,
12
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
less direct expenses. The company did not recognize 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.
<Fj> 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 $7.5 for the three- and nine-month periods,
respectively. For diluted earnings per share, 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 Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
Basic Diluted Basic Diluted
------------- ------------- ------------- -------------
2000 1,041,269,308 1,047,777,845 1,044,708,476 1,052,825,218
1999 1,038,268,303 1,052,845,443 1,097,795,167 1,111,388,460
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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
Average Stock
Options 35,398,941 3,073,840 27,946,779 4,903,408
Compensation expense (benefit) recognized in income for stock-based
employee compensation awards was $(0.3) and $(16) for the three months
and $(29) and $14 for the nine months ended September 30, 2000, and 1999,
respectively.
13
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
Shares held by the Flexitrust and treasury stock are not considered
outstanding in computing the foregoing weighted-average number of
common shares.
<Fk> Year-to-date earnings per share do not equal the sum of quarterly
earnings per share due to changes in average share calculations.
<Fl> As part of the Conoco divestiture, the company acquired 147,980,872
shares of treasury stock (valued at $11,405) from shareholders who are
United States persons in exchange for the company's remaining interest in
Conoco. Since this was a noncash transaction, the acquisition of
treasury shares and divestiture of the company's investment in Conoco is
not reflected in the Consolidated Statement of Cash Flows.
September 30 December 31
<Fm> Inventories 2000 1999
----------- ------------ -----------
Finished Products ....................... $2,803 $3,322
Semifinished Products ................... 1,364 1,518
Raw Materials and Supplies .............. 948 823
------ ------
5,115 5,663
Less: Adjustment of Inventories to a
Last-In, First-Out (LIFO) Basis ....... 649 606
------ ------
Total ............................... $4,466 $5,057
====== ======
At October 1, 1999, Pioneer inventories were stepped up to fair value in
accordance with purchase accounting rules. At September 30, 2000, and
December 31, 1999, these inventories include the remaining balance of the
step-up of $160 and $757, respectively.
[FN] Includes the company's investment in DuPont Photomasks, Inc. which is
accounted for by the equity method beginning in the second quarter 2000.
14
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
<Fo> The following sets forth the company's Total Comprehensive Income for the
periods shown:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
2000 1999 2000 1999
-------- ------- --------- -------
Net Income ................... $562 $7,530* $2,053 $9,110*
Cumulative Translation
Adjustment ................. (24) 281 (44) 176
Unrealized Gains (Losses)
on Securities .............. 14** (7) (152)** 7
Minimum Pension Liability
Adjustment ................. - 79 - 79
---- ------ ------ ------
Total Comprehensive Income ... $552 $7,883 $1,857 $9,372
==== ====== ====== ======
----------------------
* The cumulative translation adjustments and the minimum pension
liability related to Conoco operations were recorded in net income
during the third quarter of 1999 as part of the gain on the disposal
of discontinued business.
** Primarily includes unrealized holding gain of $4 and unrealized
holding losses of $141 for the third quarter and year-to-date,
respectively, associated with the company's investment in WebMD
Corporation. The remainder relates to unrealized holding gains and
losses on other equity securities.
<Fp> During first quarter 2000, the company completed purchase accounting for
the Herberts acquisition. In connection with the purchase of Herberts,
the company has now essentially completed the initial restructuring plan
that was formulated at the time of the acquisition. Under this plan,
nearly 1,300 employees were to have been terminated as manufacturing
facilities were shut down and other business activities were reorganized.
Through September 30, 2000, nearly all of the planned terminations have
occurred and about $41 in employee separation costs have been charged
against the related liability. The total remaining reserve balances for
terminations and other exit costs are $12 at September 30, 2000.
<Fq> During third quarter 2000, the company completed purchase accounting for
the acquisition of the remaining 80 percent ownership interest in
Pioneer. The excess of the purchase price over the estimated fair value
of the identifiable assets acquired less liabilities assumed was recorded
15
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
as goodwill and is being amortized over 40 years. An increase in the
amount of purchase price ascribed to assumed liabilities in connection
with the acquisition resulted in an increase of goodwill from the
preliminary estimate of $2.6 billion to $2.9 billion.
<Fr> In third quarter 2000, there were no changes in estimates related to
reserves established for restructuring initiatives earlier this year or
in prior years. An update on these initiatives is discussed below.
2000 Activities
---------------
During second quarter 2000, the company recorded charges in Performance
Coatings and Polymers totaling $98. At September 30, 2000, about $11 of
employee termination payments had been settled and charged against the
related liability and nearly 500 employees had been terminated. The
remaining reserve balance for severance payments is approximately $62.
In addition, a reserve balance of about $10 remains at September 30,
2000, for cancellation of contractual agreements.
1999 Activities
---------------
During 1999, the company recorded restructuring charges in three segments
-- Agriculture & Nutrition, Nylon Enterprise and Polyester Enterprise.
In Agriculture & Nutrition, at September 30, 2000, approximately $37 of
employee termination payments had been settled and charged against the
related liability. Approximately 700 employees have been terminated and
another 70 employees have accepted other work assignments within the
company. Total remaining reserve balances for employee termination
payments and dismantlement and removal of facilities that were shutdown
are approximately $20 at September 30, 2000.
In the Nylon Enterprise, at September 30, 2000, approximately $4 of
employee termination payments had been settled and charged against the
related liability and approximately 40 employees had been terminated.
The remaining reserve balance is approximately $11 at September 30, 2000.
In the Polyester Enterprise, at September 30, 2000, approximately $51
related to employee separation costs had been settled and charged against
the related liability. Approximately 705 employees have been terminated
and about 65 employees have accepted other work assignments within the
company. Total remaining reserve balances are approximately $9 at
September 30, 2000.
16
<PAGE>
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)
[FN]
1998 Activities
---------------
During 1998, the company recorded charges directly related to management
decisions to implement company-wide productivity improvement initiatives.
As of September 30, 2000, about $269 in severance benefits and approxi-
mately $34 in dismantlement and removal costs have been paid and charged
against the related liability. Total remaining reserve balances are
approximately $20 at September 30, 2000, principally reflecting install-
ment payments to be made to terminated employees.
17
<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 pro-
jections about the future, including statements about the company's
strategy for growth, product development, market position, expendi-
tures and financial results 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 and in Manage-
ment's Discussion and Analysis in the company's latest Annual Report
on Form 10-K, 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 70 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 opera-
tions. 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 ability to grow earnings will be affected by
increases in the cost of raw materials, particularly
petroleum-based feedstocks, natural gas and paraxylene. The
company may not be able to fully offset the effects of higher
raw material costs through price increases or productivity
improvement.
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
such as the inability to: identify viable new products;
successfully complete clinical trials of new pharmaceuticals;
obtain relevant regulatory approvals, which may include
18
<PAGE>
Form 10-Q
approval from the U.S. Food and Drug Administration; obtain
adequate intellectual property protection; or gain market
acceptance of the new products.
o As part of its strategy for growth, the company has made and
may continue to make acquisitions and divestitures and form
strategic alliances. There can be no assurance that these
will be completed or beneficial to the company.
o To a significant degree, results in the company's Agriculture
& Nutrition and Pioneer segments reflect changes in agricul-
tural conditions, including weather and government programs.
These results also reflect the seasonality of sales of
agricultural products; highest sales in the United States
occur in the first half of the year. In addition, demand for
products produced in these segments may be affected by market
acceptance of genetically enhanced products.
o The company has undertaken and may continue to undertake pro-
ductivity initiatives, including organizational restructur-
ings and Six Sigma productivity improvement projects, 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'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 allegation,
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.
The foregoing list of important factors is not inclusive, or
necessarily presents them in order of importance.
19
<PAGE>
Form 10-Q
(a) Results of Operations
(1) Financial Results:
Including one-time items in both periods and discontinued
operations in 1999, diluted earnings per share for the third quarter
were $.53 compared to $7.15 in 1999. DuPont's earnings from continu-
ing operations, before one-time items were $.51 per share for the
third quarter versus $.59 per share earned in last year's third
quarter, and $2.26 per share for the nine months of 2000 versus $2.02
for the same period last year.
Results From Continuing Operations
----------------------------------
Third quarter 2000 consolidated sales of $6.4 billion were
flat versus third quarter 1999. Segment sales and transfers, which
include a pro rata share of affiliates' sales, were $7.4 billion, up
4 percent from $7.1 billion last year. This increase is the result
of 2 percent higher volume, 3 percent higher local prices and
1 percent added from the Pioneer acquisition, partly offset by
currency effect from the strong U.S. dollar which reduced worldwide
sales by 2 percent. Regional segment sales and related variances are
summarized below:
% Change Due To
----------------------------------
3Q 00 % Change Local Currency Portfolio
Segment Sales $B vs. 3Q 99 Price Effect Volume Changes
-------------- ----- --------- ----- -------- ------ ---------
Worldwide 7.4 4 3 (2) 2 1
U.S. 3.7 0 3 0 (2) (1)
Europe 1.7 0 4 (11) 7 0
Asia Pacific 1.2 20 2 3 8 7
Canada,
Mexico,
S. America 0.8 11 3 0 1 7
o U.S. sales volume dropped 2 percent reflecting lower sales of
TiO2, automotive finishes, and apparel fibers.
o Asia Pacific sales increased 20 percent reflecting 5 percent
higher U.S. dollar (USD) prices, higher volume and increased
polyester sales resulting from joint venture growth in the
region.
o European sales reflect 7 percent volume growth essentially
offset by lower USD prices resulting from the impact of
weaker European currencies.
20
<PAGE>
Form 10-Q
o Portfolio changes reflect increased ownership of Pioneer
(which increased third quarter sales in South America) and
restructuring the Polyester Enterprise through formation of
joint ventures (which increased sales in Asia Pacific and
decreased sales in the United States).
Including one-time items, third quarter income from continu-
ing operations was $562 million versus $181 million last year,
resulting in earnings per share of $.53 compared to $.17 last year.
Third quarter income from continuing operations before one-time
items was $537 million, compared to $625 million in third quarter of
1999, down $88 million or 14 percent. Higher sales volume and higher
local selling prices were more than offset by the negative impact of
higher raw material costs, a stronger U.S. dollar, and higher Pioneer
seasonal operating losses due to increased ownership. One-time items
are detailed in notes to the financial statements and are summarized
below:
$MM Pretax $MM After-Tax ($ Per Share)
------------- ------------- -------------
3Q 00 3Q 99 3Q 00 3Q 99 3Q 00 3Q 99
----- ----- ----- ----- ----- -----
Purchase Accounting/
Post Employment
Costs - Pioneer (50) (55) (.06)
Sale of Interest in
Quimica Fluor
Affiliate -
Pigments &
Chemicals 23 16 .02
Chambers Works
Restructuring -
Pigments &
Chemicals (28) (17) (.02)
Restructuring -
Agriculture &
Nutrition (170) (107) (.10)
Restructuring -
Nylon (364) (337) (.32)
Sale of Stock -
DuPont
Photomasks, Inc. 123 81 .08
--- --- -- --- --- ---
Total 68 (534) 25 (444) .02 (.42)
=== === == === === ===
21
<PAGE>
Form 10-Q
Six Sigma Productivity Initiatives
----------------------------------
Six Sigma implementation continues to gain momentum. At the
end of the third quarter there were over 1,000 trained Black Belts
and 2,800 active projects. The potential annualized pretax benefit
from active projects at the end of the third quarter was
$500 million. The actual annualized pretax benefit of completed
projects at the end of the third quarter was $260 million. At the
end of the second quarter these annualized pretax benefits were about
$450 million and $110 million, respectively.
Corporate Outlook
-----------------
Throughout the year, DuPont performed remarkably well in
largely offsetting the impacts of significantly higher oil and gas
prices on raw material costs and energy, and it kept the focus on
raising prices, improving productivity, increasing volume and
positioning the businesses for improved performance. In light of
slowing global economies, DuPont is cautious about the prospects for
top-line growth in the fourth quarter. In addition, the company
expects significantly lower fourth quarter results from the
Pharmaceuticals Segment as it phases out sales promotion programs.
Given these circumstances, it appears that the best underlying
earnings DuPont can reasonably expect to achieve for 2000 is $2.85
per share, the low end of the previously announced range. Should
macroeconomic and currency factors turn more negative, the additional
downward pressure on earnings will be very difficult to offset.
Nevertheless, even given a more negative environment, the company
expects meaningful growth in full year underlying earnings per share.
(2) Segment Performance:
The following text compares third quarter 2000 results with
third quarter 1999, for sales and earnings of each segment, excluding
the earnings impact of one-time items described in the footnotes to
the "Segment Information - Continuing Operations" table at Note (b)
on pages 6-7. Segment results include intersegment transfers and a
pro rata ownership share of the sales and earnings of equity affili-
ates. Segment after-tax operating income before one-time items was
$727 million in the third quarter, down 7 percent. Total segment
sales were $7.4 billion compared to $7.1 billion last year.
o Performance Coatings & Polymers - Segment earnings increased
10 percent, principally reflecting improvement in Performance
Coatings in Europe. Phase II of the Herberts integration
remains on schedule. Engineering Polymers earnings were
lower as increased volumes were more than offset by the
negative impact of the weak euro and higher ingredient costs.
Elastomers earnings were flat versus last year.
22
<PAGE>
Form 10-Q
o Specialty Fibers - Segment earnings were 12 percent lower as
increased earnings from "Kevlar" fiber and "Nomex" fiber and
paper were more than offset by lower "Lycra" elastane
earnings. On a weighted average basis, elastane USD pricing
("Lycra" and unbranded) for the Lycra strategic business unit
(SBU) declined versus prior year. Worldwide volumes were
flat as volume growth in Asia and Europe was offset by weaker
volumes in the United States. The Lycra SBU's "Terathane"
polyether glycol earnings were reduced by higher natural gas
prices.
o Specialty Polymers - Segment sales and earnings increased 6
and 5 percent, respectively, as continued sales and earnings
growth from DuPont iTechnologies, Fluoropolymers, and
"Corian" solid surfaces were partially offset by lower
results from Packaging and Industrial Polymers (P&IP). P&IP
showed flat sales and substantially reduced earnings, pri-
marily resulting from the stronger dollar and significantly
higher ethane prices. The remainder of the segment delivered
double digit sales and earnings growth.
o Pigments & Chemicals - Segment earnings increased 4 percent
on 7 percent higher sales. Earnings improvements in White
Pigment and Mineral Products reflect price and volume
increases partly offset by higher chlorine and energy costs.
Continued strong TiO2 volume growth outside the United States
was partly offset by declining U.S. volumes. A modest
earnings improvement in DuPont Chemical Solutions was driven
by higher prices. Fluorochemicals results were essentially
flat as earnings were adversely affected by higher natural
gas and methanol prices.
o Polyester Enterprise - Segment earnings were $19 million
versus a loss of $23 million last year, a $42 million
turnaround. This principally reflects a substantial
reduction in fixed costs achieved through productivity
measures and restructuring. While markets generally continue
to be weak, the business has been able to partly offset
higher raw material costs with higher selling prices,
specifically in resins, intermediates, and filaments.
o Nylon Enterprise - Segment revenue increased 5 percent based
on 3 percent higher prices and 2 percent higher volumes.
However, a significant run-up in feedstock costs more than
offset top-line growth, resulting in a 15 percent earnings
decline for the segment. Demand continues to be strong for
industrial nylon, but is softening in certain apparel
segments, primarily in Europe, and to a lesser extent, in the
23
<PAGE>
Form 10-Q
United States. In addition, there has been some softening in
U.S. demand in the residential segment of the flooring
systems business.
o Agriculture & Nutrition - Segment earnings were $13 million
versus a loss of $10 million in the third quarter of last
year. The earnings improvement reflects 7 percent higher
revenue and lower costs as the result of last year's
restructuring in Crop Protection Products. Crop Protection
Products worldwide volume increased with significant growth
from new products in North America specialty markets and a
strong growing season in South America. Partly offsetting
these improvements in the segment were increased raw
material costs and higher advertising costs for the
Nutrition and Health strategic business unit.
o Pioneer - Segment earnings were a loss of $97 million versus
a loss of $26 million in 1999. This reflects full ownership
versus 20 percent ownership last year and the normal seasonal
operating losses. With more than 90 percent of the sales for
the year now complete, Pioneer projects 2000 corn and soybean
revenue to increase 6 percent and 12 percent, respectively,
versus 1999 on a comparable basis.
o Pharmaceuticals - Segment sales were essentially flat versus
third quarter 1999 as higher sales of SustivaTM efavirenz and
"Cardiolite" cardiac imaging agent were offset by lower sales
of "Coumadin" anticoagulant and "Sinemet Brand". Earnings
declined to $41 million compared to $58 million last year,
principally due to planned higher selling and research and
development expenses.
Major product sales are shown below:
($ in millions) 3Q 2000 3Q 1999 YR 1999
------------------------ ------- ------- -------
"Coumadin" 80 124 464
SustivaTM 99 50 211
"Sinemet Brand" 34 58 331
"Cardiolite"/MiralumaTM 77 51 210
Market share continued to grow for SustivaTM in all countries
where it is approved for sale. In September, total prescrip-
tions for SustivaTM surpassed "Viracept"*, the most widely
---------------------
* "Viracept" is a registered trademark of Agouron
Pharmaceuticals, Inc., a Pfizer company.
24
<PAGE>
Form 10-Q
prescribed protease inhibitor in the United States.
"Coumadin" warfarin sodium share was stable at 67 percent,
with total warfarin prescription growth up 6 percent versus
the third quarter last year. "Coumadin" sales declined
versus last year as a result of a strong promotional program
in the third quarter of 1999. "Cardiolite" sales benefited
from a 16 percent increase in demand, while "Sinemet Brand"
sales declined due to increased generic competition.
Over the past three years DuPont Pharmaceuticals has imple-
mented various promotional sales programs. These programs
were put in place to ensure a fully adequate supply of
product in the marketplace and, in the case of "Sinemet
Brand", to fully capitalize on the period in which we were
actively promoting the product. These promotional programs
were successful and market conditions have stabilized. As a
result, these programs are no longer required nor financially
justified and, accordingly, the company decided to phase them
out. The impact of this action is expected to reduce pharma-
ceuticals sales by approximately $100 million per quarter
until mid-2001. ATOI is expected to be substantially lower
in the fourth quarter 2000 than in the current quarter.
(b) Financial Condition
Nine Months Ended
September 30
-------------------
Selected Cash Flow Information 2000 1999
------------------------------ -------- --------
($ in millions)
Cash Provided by Continuing Operations ..... $ 3,144 $ 2,985
Purchases of Property, Plant and
Equipment and Investment in Affiliates ... (1,426) (1,459)
Payments for Businesses Acquired ........... (42) (1,689)
Proceeds from Sales of Assets .............. 481 64
Dividends Paid to Stockholders ............. (1,100) (1,141)
Acquisition of Treasury Stock .............. (462) (690)
Cash provided by continuing operations was $3.1 billion for the first
nine months of 2000, as compared with $3.0 billion for the same period in
1999. Net income plus noncash charges included in net income was higher this
year as compared to last year primarily reflecting contributions from the
Herberts and Pioneer acquisitions. In addition, the company reduced its
operating assets by $500 million as a result of cash proceeds from the
securitization of accounts receivable. These sources of cash were partly
offset by higher increases in working capital, primarily due to the inclusion
of Pioneer in DuPont's 2000 consolidated financial statements. Strong 2000
25
<PAGE>
Form 10-Q
results by Pioneer contributed to higher trade receivables which were only
partially offset by reductions in Pioneer inventory and other net working
capital items.
Year-to-date capital investments for purchases of property, plant, and
equipment and investments in affiliates were approximately $1.4 billion in
2000, the same as in 1999. The current spending level reflects management's
intention to limit capital spending to about $2 billion for the year. Pay-
ments for businesses acquired in the first nine months of 2000 totaled only
$42 million as compared to $1.7 billion spent in 1999, which primarily
reflects the acquisition of Herberts in February 1999.
Proceeds from the sale of assets in the first nine months of 2000
totaled $481 million primarily reflecting the sale of available-for-sale
equity securities held by Pioneer and the sale of a portion of the company's
ownership interest in DuPont Photomasks, Inc. Proceeds from the sale of
assets last year totaled $64 million, and included the sale of several small
operating assets as well as office real estate assets.
The per share dividend paid to stockholders in third quarter 2000 was
$.35 per share. This rate has been in effect since second quarter 1998. The
lower gross dollar dividends paid in the first nine months of 2000 as compared
to 1999 reflects lower shares outstanding this year primarily due to the third
quarter 1999 Conoco divestiture.
In each of 1997 and 1998, DuPont's Board of Directors approved pro-
grams to purchase and retire up to 20 million shares of DuPont common stock to
offset dilution from shares issued under compensation programs. In the first
half of 2000, the company spent $250 million to purchase and retire 5,000,000
shares of DuPont common stock. Comparable purchases in the first half of 1999
totaled $44 million to purchase and retire 840,000 shares. As a result,
DuPont has completed its authorized purchase of 20 million shares under the
1997 program and has purchased about 4 million shares under its 1998 program.
On July 26, 2000, the company's Board of Directors approved an increase in the
amount of shares to be purchased under the 1998 program from about 16 million
shares to the total number of shares of DuPont common stock which can be
purchased for $2.5 billion. The remaining purchases are not limited to those
needed to offset dilution from shares issued under compensation programs.
DuPont anticipates completing this program within two years and for it to be
largely funded through the monetization of nonstrategic assets. Under the
increased July 2000 authorization, in third quarter 2000, the company spent
$212 million to purchase and retire 4,540,800 shares. In third quarter 1999,
the company spent $646 million to purchase 8 million shares in connection with
the August 1999 Conoco split-off.
Debt, including capital lease obligations, net of cash and cash
equivalents and marketable securities at September 30, 2000, was $9.4 billion,
as compared to $10.0 billion at year-end 1999. Management's intent is to
further reduce net debt from the current level during the fourth quarter of
the year to increase the company's financial flexibility.
26
<PAGE>
Form 10-Q
Management believes that the company's ability to generate cash from
operations and its capacity to issue short-term and long-term debt will be
adequate to meet anticipated future cash requirements to fund working capital,
capital spending, dividend payments and other cash needs in the foreseeable
future.
Certain Statistics - Continuing Operations
------------------------------------------
At 9/30/00 At 12/31/99
---------- -----------
Current Ratio (current assets
to current liabilities) ...... 1.2:1 1.1:1
Earnings to Fixed Charges ...... 5.3 2.9
Pioneer's days' sales outstanding reflects significant programs in the
segment to provide farmers with extended harvest terms, which increase days'
sales outstanding; or with discounts for cash sales, which decrease days sales
outstanding. Days' sales outstanding excluding Pioneer averaged 56 days in
the third quarter, a decrease of one day from fourth quarter 1999, and equal
to third quarter 1999. Including Pioneer, days' sales outstanding averaged
65 days in third quarter 2000, as compared to 59 days in second quarter 2000,
and 67 days in fourth quarter 1999. Third and fourth quarter days sales
outstanding including Pioneer reflects lower seasonal sales for Pioneer in the
second half of the year, as well as the impact of extended terms.
(c) Other Items
EQUITY FORWARD PURCHASE AGREEMENTS
----------------------------------
In connection with its $2.5 billion stock repurchase plan, the com-
pany has entered into privately negotiated equity forward purchase agreements
with a financial institution. As of September 30, 2000, the company has the
right to purchase up to approximately 6.2 million shares of DuPont common
stock from the financial institution in 2001 at a weighted average price of
about $42 per share. The company, at its election, can require the obliga-
tions under these agreements to be satisfied by delivery of shares on a net
basis.
FORMATION OF NEW DUPONT APPAREL AND TEXTILE SCIENCES
----------------------------------------------------
On October 30, 2000, DuPont announced the merger of its apparel, home
textiles and related businesses to form a new market-focused global organiza-
tion called DuPont Apparel and Textile Sciences. The new group aligns the
marketing of DuPont's "Lycra" elastane, Nylon textile and "Dacron" branded
specialties and fiberfill into a single unit, effective January 1, 2001. The
new unit will capitalize on DuPont's global brand franchise, technical
expertise, operational scale and market knowledge to provide a better, simpler
more competitive offering.
27
<PAGE>
Form 10-Q
DuPont Apparel and Textile Sciences will provide a world-class,
integrated market platform that will allow better linkage between the market
and DuPont technologies. The new unit will operate globally with a single
face to the market, recognizing and responding to regional market require-
ments. The combined organization will have revenues of approximately
$3 billion.
INVESTMENT IN WebMD CORPORATION
-------------------------------
Last year, the company realized a one-time after-tax gain of
$208 million associated with the merger of WebMD, Inc. and Healtheon
Corporation. The company currently owns common stock in WebMD Corporation
(WebMD) and warrants entitling it to purchase WebMD common stock. As of
September 30, 2000, the company reflected a cumulative unrealized after-tax
loss on this investment of $168 million as a component of Accumulated Other
Comprehensive Income. The company continues to believe the decline in the
market value of this investment to be temporary. In the future, if the
decline is deemed to be other than temporary, a one-time charge to earnings
will be recorded.
NEW ACCOUNTING STANDARDS
------------------------
Accounting For Derivatives
--------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, SFAS No. 138
was issued which includes several amendments to SFAS No. 133. The new
standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. DuPont will adopt SFAS No. 133, including the amendments
in SFAS No. 138, on January 1, 2001. The new standard requires that all
derivative instruments be reported on the balance sheet at their fair values.
For derivative instruments designated as fair value hedges, changes in the
fair value of the derivative instrument will generally be offset on the income
statement by changes in the fair value of the hedged item. For derivative
instruments designated as cash flow hedges, the effective portion of any hedge
is reported in other comprehensive income until it is cleared to earnings
during the same period in which the hedged item affects earnings. The
ineffective portion of all hedges will be recognized in current earnings each
period. Changes in the fair value of derivative instruments that are not
designated as a hedge will be recorded each period in current earnings.
Using market valuations for derivatives held as of September 30,
2000, as a guide, the company estimates that on January 1, 2001, it will
record a net-of-tax cumulative-effect-type adjustment to net income which is
expected to be a loss of approximately $140 million, or $.13 per share. The
primary component of this loss is related to the company's position in stock
warrants, principally WebMD Corporation, which are currently accounted for as
available-for-sale securities for which changes in fair value are currently
28
<PAGE>
Form 10-Q
reflected in other comprehensive income. Upon adoption, these stock warrants
will be considered derivative instruments with all subsequent changes in fair
value recorded in earnings. A risk management strategy, which will not
qualify for hedge accounting under SFAS No. 133 (hedging the foreign currency
risk associated with net monetary assets), will continue. Changes in the fair
value of these instruments will be recorded in current earnings, which will
generally be offset by the revaluation of the associated foreign currency
denominated net monetary assets.
Based on market valuations for derivatives held as of September 30,
2000, the company estimates that on January 1, 2001, it will record a
net-of-tax cumulative-effect-type adjustment to accumulated other comprehen-
sive income to recognize at fair value all derivative instruments that will be
designated as cash flow hedging instruments. The amount of this adjustment is
not expected to be material.
Any changes in the composition of DuPont's derivative instrument
portfolio or changes in the market values of these instruments between now and
the end of 2000 could have an impact on the cumulative-effect-type adjustments
to net income and accumulated other comprehensive income.
At this time, DuPont plans no significant change in its risk manage-
ment strategies due to the adoption of SFAS No. 133.
Accounting For Transfers of Assets
----------------------------------
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabili-
ties." The company is required to adopt SFAS No. 140 for the second quarter
2001 financial statements for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The company is
required to adopt the Statement's disclosure and collateral requirements for
the 2000 annual report. Adoption of SFAS No. 140 is not expected to have any
financial impact on the company.
PIONEER INTELLECTUAL PROPERTY RIGHTS
------------------------------------
Patents, particularly those relating to biotechnology, are becoming
increasingly important to Pioneer and the rest of the seed industry. Pioneer,
as well as others in the industry, have applied for and been granted a sub-
stantial number of patents in this area. No single patent owned by Pioneer is
vitally important to its business. However, competitive patents relating to
genetically engineered insect and herbicide resistant crops may affect
Pioneer's ability to compete in the future. If existing and future biotech-
nology patents are upheld, it is uncertain if the holders of these patents
will allow the technology to be licensed to others in the industry. If
licenses are granted, it is uncertain whether they will be based on com-
mercially reasonable terms. Pioneer will review carefully all requests for
licenses to its technology and will grant access when it is commercially
29
<PAGE>
Form 10-Q
prudent to do so. Pioneer is involved in several lawsuits, both as plaintiff
and defendant, concerning intellectual property rights related primarily to
corn and soybean products. On August 24, 2000, the company announced that
Pioneer will immediately appeal a jury verdict finding in favor of Monsanto
concerning a licensing agreement between the companies for insect resistant
corn. No damages were awarded to Monsanto and Pioneer will continue to offer
seeds with the Bt corn borer resistance trait. The payment of any future
royalties to Monsanto by Pioneer has not been determined. On October 1, 1999,
the company acquired the approximately 80 percent of Pioneer not previously
owned by the company for $7,691 million. An intangible asset has been
recorded to recognize the value of this licensing agreement with Monsanto.
Should the ultimate outcome of this lawsuit be adverse to the company, the
value of this intangible asset may become impaired, resulting in a one-time
noncash charge to earnings. Management does not anticipate that the ultimate
outcome of the litigation will have a material adverse effect on the company's
consolidated financial position or liquidity, although it could be material to
the results of operations of the Pioneer segment in the period recognized.
PIONEER STOCK OPTION RETENTION GRANT
------------------------------------
During fourth quarter 2000, the company made a special stock option
grant to certain Pioneer management personnel. The objectives of this special
grant were to retain talent within the Pioneer organization and to provide an
incentive for Pioneer leadership to contribute to and benefit from future
growth of the company. As a result of this one-time retention grant,
approximately 8.3 million options were awarded to certain Pioneer employees on
October 19, 2000, under the DuPont Stock Performance Plan.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
---------------------------------------------
No significant changes occurred during the third quarter 2000 with
respect to in-process research and development projects related to the
company's acquisitions in prior years.
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, after 18 months of extensive
research, DuPont scientists concluded that "Benlate" 50 DF was not responsible
for plant damage reports received since March 1991. Concurrent with these
research findings, DuPont stopped paying claims. DuPont since has been served
with several hundred lawsuits most of which were disposed of by trial, dis-
missal or settlement. Approximately 144 cases are pending. Most of these
30
<PAGE>
Form 10-Q
lawsuits were filed by growers who allege plant damage from using "Benlate"
50 DF although some include claims for alleged damage to shrimping operations
and a smaller number of cases include claims for alleged personal injuries.
Also, many of these cases include general allegations of fraud and misconduct.
In addition, a securities fraud class action was filed in September 1995 by a
shareholder in federal district court in Florida against the company and the
then-Chairman. This action 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. 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 42 such cases are pending. These cases
are in various stages of proceedings in trial and appellate courts in Florida
and Hawaii. In April 2000, a jury in Texas state court awarded compensatory
damages and fees of approximately $9 million, prejudgment interest, and
punitive or exemplary damages of approximately $60 million to three pecan
growers who claimed that "Benlate" 50 DF had damaged their pecan trees. The
trial court has recently granted DuPont a new trial in the case eradicating
the verdict and judgment.
On June 21, 2000, a jury in Texas state court awarded compensatory
damages of $10.3 million, prejudgment interest, and punitive damages of
$90 million to two growers who claimed "Benlate" 50 WP failed to protect their
melons and cantaloupe crops. Due to limitations on punitive damages in Texas,
the total award will be reduced to approximately $35 million. DuPont plans to
appeal.
DuPont continues to believe that "Benlate" 50 DF did not cause the
damages alleged in these cases and denies the allegations of fraud and
misconduct. DuPont intends to defend itself in ongoing matters and in any
additional cases that may be filed or reopened. The ultimate liabilities from
"Benlate" 50 DF lawsuits and the "Benlate" 50 WP lawsuit discussed above may
be significant to the company's results of operations, particularly in the
Crop Protection business in the period recognized, but management does not
anticipate that they will have a material adverse effect on the company's
consolidated financial position or liquidity.
The company's consolidated balance sheet reflects reserves for
estimated costs associated with this matter. Adverse changes in estimates for
such costs could result in additional future charges.
On October 7, 1994, the Environmental Protection Agency (EPA) filed
an administrative complaint against DuPont and proposed a $1.9 million civil
penalty for distributing triazine herbicides with product labels that the EPA
alleged were not in compliance with the Agency's Worker Protection Standards.
Although these labels had been submitted to the EPA for approval in July 1993
and approved by the Agency in November 1993, the EPA notified DuPont in March
31
<PAGE>
Form 10-Q
of 1994 it had found errors in the labels. DuPont cooperated with the EPA and
in April 1994 issued the EPA approved supplemental labeling to correct the
alleged errors. In response to the October 7, 1994, administrative complaint,
DuPont has maintained that its products and labeling comply with EPA regula-
tions, including the Worker Protection Standards. On April 30, 1998, an EPA
administrative law judge issued an initial determination affirming the
proposed penalties. This determination was reversed by the EPA Board of
Environmental Appeals on September 8, 1999, and the matter remanded for a new
hearing. In September 2000, the EPA and DuPont entered into a consent decree
to settle the complaint, pursuant to which DuPont agreed to pay a civil
penalty of $190,000, without admitting or denying the factual allegations or
the EPA findings of fact as set forth in its 1994 administrative complaint.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit index filed with this Form 10-Q is on pages
35 and 36.
(b) Reports on Form 8-K
1. On July 26, 2000, 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,
No. 33-60069, and No. 333-86363). Under Item 7, "Financial
Statements and Exhibits," the Registrant's Earnings Press
Release, dated July 26, 2000, was filed.
2. On July 26, 2000, 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,
No. 33-60069, and No. 333-86363). Under Item 5, "Other
Events," the Registrant filed a press release, dated
July 26, 2000, entitled "DuPont Expands Share Buyback
Program."
3. On September 7, 2000, 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, No. 33-60069, and No. 333-86363). Under
Item 5, "Other Events," the Registrant filed a press
release, dated September 7, 2000, entitled "DuPont Revises
2000 Earnings Per Share Growth to 10-14 Percent: Cites
Energy Costs and Currency."
32
<PAGE>
Form 10-Q
4. On October 25, 2000, 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,
No. 33-60069, and No. 333-86363). Under Item 5, "Other
Events," the Registrant's Earnings Press Release, dated
October 25, 2000, was filed.
33
<PAGE>
Form 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
E. I. DU PONT DE NEMOURS AND COMPANY
(Registrant)
Date: November 7, 2000
-----------------------------------------
By /s/ Gary M. Pfeiffer
-----------------------------------------
Gary M. Pfeiffer
Senior Vice President - DuPont Finance
(As Duly Authorized Officer and Principal
Financial and Accounting Officer)
34
<PAGE>
Form 10-Q
EXHIBIT INDEX
Exhibit
Number Description
------- ------------------------------------------------------------
10.1* Company's Corporate Sharing Plan, as last amended August 28,
1991 (incorporated by reference to Exhibit 10.1 of the
company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.2* The DuPont Stock Accumulation and Deferred Compensation
Plan, as last amended April 29, 1998 (incorporated by
reference to Exhibit 10.3 of the company's Quarterly Report
on Form 10-Q for the period ended March 31, 1998).
10.3* Company's Supplemental Retirement Income Plan, as last
amended effective June 4, 1996 (incorporated by reference to
Exhibit 10.3 of the company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.4* Company's Pension Restoration Plan, as last amended
effective June 4, 1996 (incorporated by reference to
Exhibit 10.4 of the company's Annual Report on Form 10-K for
the year ended December 31, 1996).
10.5* Company's Stock Performance Plan, as last amended effective
January 28, 1998 (incorporated by reference to Exhibit 10.1
of the company's Quarterly Report on Form 10-Q for the
period ended March 31, 1998).
10.6* Company's Variable Compensation Plan, as last amended
effective April 30, 1997 (incorporated by reference to
Exhibit 10.7 of the company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
10.7* Company's Salary Deferral & Savings Restoration Plan
effective April 26, 1994 (incorporated by reference to
Exhibit 10.7 of the company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.8* Company's 1995 Corporate Sharing Plan, adopted by the Board
of Directors on January 25, 1995 (incorporated by reference
to Exhibit 10.8 of the company's Annual Report on Form 10-K
for the year ended December 31, 1999).
------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-Q.
35
<PAGE>
Form 10-Q
EXHIBIT INDEX
(continued)
Exhibit
Number Description
------- ------------------------------------------------------------
10.9* Company's 1997 Corporate Sharing Plan, adopted by the Board
of Directors on January 29, 1997 (incorporated by reference
to Exhibit 10.11 of the company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.10* Company's Retirement Income Plan for Directors, as last
amended August 1995 (incorporated by reference to
Exhibit 10.12 of the company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997).
10.11* Letter Agreement and Employee Agreement, dated as of
April 22, 1999, between the company and R. R. Goodmanson
(incorporated by reference to Exhibit 10.11 of the company's
Annual Report on Form 10-K for the year ended December 31,
1999).
10.12 Company's Tax Sharing Agreement dated October 27, 1998, by
and among the company and Conoco Inc., formerly known as
Conoco Energy Company (incorporated by reference to
Exhibit 10.13 of the company's Annual Report on Form 10-K
for the year ended December 31, 1998).
12 Computation of Ratio of Earnings to Fixed Charges.
27** Financial Data Schedule.
-------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-Q.
** Filed electronically only.
36
<PAGE>
<TABLE>
Form 10-Q
Exhibit 12
E. I. DU PONT DE NEMOURS AND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Years Ended December 31
Nine Months Ended -------------------------------------------------------
September 30, 2000 1999 1998 1997 1996 1995
------------------ --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations Before
Extraordinary Item ............................ $2,053 $ 219 $1,648 $1,432 $2,931 $2,858
Provision for Income Taxes ...................... 1,133 1,410 941 1,354 1,416 1,432
Minority Interests in Earnings of Consolidated
Subsidiaries .................................. 48 61 24 43 40 29
Adjustment for Companies Accounted for
by the Equity Method .......................... (155) 33 (39) 936<Fa> 82 126
Capitalized Interest ............................ (53) (107) (120) (80) (70) (76)
Amortization of Capitalized Interest ............ 49 88<Fb> 65<Fb> 82<Fb> 127<Fb> 81
------ ------ ------ ------ ------ ------
3,075 1,704 2,519 3,767 4,526 4,450
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense - Continuing
Operations .................................. 616 535 520 389 409 449
Interest and Debt Expense - Discontinued
Operations<Fc> .............................. - 180 304 252 304 308
Capitalized Interest - Continuing Operations .. 53 107 120 80 70 76
Capitalized Interest - Discontinued
Operations<Fc> .............................. - 3 78 90 73 95
Rental Expense Representative of Interest
Factor ...................................... 51 66 71 83 80 80
------ ------ ------ ------ ------ ------
720 891 1,093 894 936 1,008
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment
of Fixed Charges .............................. $3,795 $2,595 $3,612 $4,661 $5,462 $5,458
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned ........ 5.3 2.9 3.3 5.2 5.8 5.4
====== ====== ====== ====== ====== ======
<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> Divestiture of Conoco Inc. was completed August 6, 1999.
</TABLE>
37