-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HpxbUIVH9sroYdlfYuxZROzwPx48HUE2np8RW26kDaCM5uMq7XohGGDFz/InGfiL Qj0Vh03VxC5pjYgSjf7ODw== /in/edgar/work/0000030554-00-000041/0000030554-00-000041.txt : 20001108 0000030554-00-000041.hdr.sgml : 20001108 ACCESSION NUMBER: 0000030554-00-000041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001107 FILED AS OF DATE: 20001107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUPONT E I DE NEMOURS & CO CENTRAL INDEX KEY: 0000030554 STANDARD INDUSTRIAL CLASSIFICATION: [2820 ] IRS NUMBER: 510014090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00815 FILM NUMBER: 754367 BUSINESS ADDRESS: STREET 1: 1007 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19898 BUSINESS PHONE: 3027741000 MAIL ADDRESS: STREET 1: 1007 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19898 10-Q 1 0001.txt 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 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 Form 10-Q PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES
Three Months Ended Nine Months Ended CONSOLIDATED INCOME STATEMENT September 30 September 30 - ------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------- SALES ................................................... $6,445 $6,459 $21,952 $19,778 Other Income ............................................ 420 159 986 412 ------ ------ ------- ------- Total ..................................................... 6,865 6,618 22,938 20,190 ------ ------ ------- ------- Cost of Goods Sold and Other Operating Charges........... 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 .... 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 ........... - - (11) 40 Employee Separation Costs and Write-Down of Assets ...... 28 534 126 596 Gain on Issuance of Stock by Affiliates - Nonoperating .. (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 ....................... 562 181 2,053 1,655 DISCONTINUED OPERATIONS Gain on Disposal of Discontinued Business, Net of Income Taxes ................................. - 7,349 - 7,455 ------ ------ ------- ------- NET INCOME .................................................. $ 562 $7,530 $ 2,053 $ 9,110 ====== ====== ======= ======= - ------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE OF COMMON STOCK 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 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
3 Form 10-Q
Nine Months Ended CONSOLIDATED STATEMENT OF CASH FLOWS September 30 - ------------------------------------------------------------------------------------------------ (Dollars in millions) 2000 1999 - ------------------------------------------------------------------------------------------------ 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 ........................ - 4,534 ------- ------- Effect of Exchange Rate Changes on Cash ............................... (258) (78) ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS ................................. $ 223 $ 871 ======= ======= - ------------------------------------------------------------------------------------------------ See Notes to Financial Statements.
4 Form 10-Q
CONSOLIDATED BALANCE SHEET September 30 December 31 - ----------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share) 2000 1999 - ----------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Cash Equivalents ..................................................... $ 1,689 $ 1,466 Marketable Securities ......................................................... 59 116 Accounts and Notes Receivable ................................................. 5,531 5,318 Inventories ............................................................... 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 .................................................... 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 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.
5 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions, except per share) [FN] 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. SEGMENT INFORMATION - CONTINUING Three Months Ended Nine Months Ended OPERATIONS September 30 September 30 -------------------------------------------------------------------------- (Dollars in millions) 2000 1999 2000 1999 -------------------------------------------------------------------------- SEGMENT SALES ---------------- 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 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions, except per share) (continued) [FN] SEGMENT INFORMATION - CONTINUING Three Months Ended Nine Months Ended OPERATIONS September 30 September 30 --------------------------------------------------------------------------- (Dollars in millions) 2000 1999 2000 1999 -------------------------------------------------------------------------- AFTER-TAX OPERATING INCOME (LOSS) --------------- Agriculture & Nutrition ..... $ 13 $ (117) $ 149 $ 127 Nylon Enterprise .... 74 (250) 249 (44) Performance Coatings & Polymers ...... 170 155 478 415 Pharmaceuticals . 41 58 146 182 Pigments & Chemicals ..... 168 162 518 466 Pioneer ......... (152) (26) (69) 26 Polyester Enterprise .... 19 (23) 39 (82) Specialty Fibers ........ 167 189 543 538 Specialty Polymers ...... 175 166 523 494 Other ........... 58 21 65 44 ------ ------ ------- ------- Total Segment ATOI ........ 733 335 2,641 2,166 Interest & Exchange Gains and Losses .... (122) (81) (381) (292) Corporate Expenses ...... (49) (73) (207) (219) ------ ------ ------- ------- INCOME FROM CONTINUING OPERATIONS .... $ 562 $ 181 $ 2,053 $ 1,655 ====== ====== ======= ======= 7 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions, except per share) (continued) [FN] FOOTNOTES TO NOTE (b) - --------------------- Certain reclassifications of segment data have been made to reflect changes in organizational structure. Includes pro rata equity affiliate sales and intersegment transfers. 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. Includes a charge of $62 to increase the company's reserve for "Benlate" 50 DF fungicide litigation. 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. 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. 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. 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. 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 Form 10-Q [FN] NOTES TO CONSOLIDATED SEGMENT INFORMATION - CONTINUING OPERATIONS - (CONT'D) - ---------------------------------------------------------------------------- Includes a charge of $40 related to employee separation costs for about 850 employees within the Polyester Enterprise. Includes a gain of $62 resulting from the sale of stock that reduced the company's ownership interest in DuPont Photomasks, Inc. 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. 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 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions, except per share) (continued) [FN] 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. 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. 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. 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. 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 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 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. 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. 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 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. 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 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. Year-to-date earnings per share do not equal the sum of quarterly earnings per share due to changes in average share calculations. 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 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 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions, except per share) (continued) [FN] 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. 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. 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 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Form 10-Q Exhibit 12 E. I. DU PONT DE NEMOURS AND COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Years Ended December 31 Nine Months Ended ------------------------------------------------------- September 30, 2000 1999 1998 1997 1996 1995 ------------------ --------- --------- --------- --------- ------- 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 82 126 Capitalized Interest ............................ (53) (107) (120) (80) (70) (76) Amortization of Capitalized Interest ............ 49 88 65 82 127 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 .............................. - 180 304 252 304 308 Capitalized Interest - Continuing Operations .. 53 107 120 80 70 76 Capitalized Interest - Discontinued Operations .............................. - 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 ====== ====== ====== ====== ====== ====== - -------------------------------- Includes write-off of Purchased In-Process Research and Development associated with acquisition of 20% interest in Pioneer Hi-Bred International, Inc. Includes write-off of capitalized interest associated with divested businesses. Divestiture of Conoco Inc. was completed August 6, 1999.
37 EX-27 2 0002.txt
5 This Schedule Contains Summary Financial Information Extracted From Form 10-Q For The Quarterly Period Ended September 30, 2000, And Is Qualified In Its Entirety By Reference To Such Financial Statements 1,000,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,689 59 5,531 0 4,466 12,471 34,621 20,448 40,049 10,350 6,668 0 237 339 12,659 40,049 21,952 22,938 14,019 19,088 0 0 616 3,234 1,133 2,053 0 0 0 2,053 1.96 1.94 Includes Other Accounts In Addition To Notes and Accounts Receivable-Trade Includes Other Operating Charges Costs of Goods Sold and Other Operating Charges; Depreciation; Amortization of Goodwill and Other Intangible Assets; Research and Development Expense; Selling, General and Administrative Expenses; Purchased In-Process Research and Development; Employee Separation Costs and Write-Down of Assets; and Gain on Issuance of Stock by Affiliates - Nonoperating
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