-----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, MDQ2Tnbu3ad35IpH535WEA0LaXbW8nAl0owDtF1UlSvcPzrh/8xCGMNpw7J3cHGY MmJW/eimzUVklebM0rvepQ== 0001036050-98-000429.txt : 19980324 0001036050-98-000429.hdr.sgml : 19980324 ACCESSION NUMBER: 0001036050-98-000429 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUPONT E I DE NEMOURS & CO CENTRAL INDEX KEY: 0000030554 STANDARD INDUSTRIAL CLASSIFICATION: PLASTIC MAIL, SYNTH RESIN/RUBBER, CELLULOS (NO GLASS) [2820] IRS NUMBER: 510014090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00815 FILM NUMBER: 98570694 BUSINESS ADDRESS: STREET 1: 1007 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19898 BUSINESS PHONE: 3027741000 10-K405 1 FORM 10-K405 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1997 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1007 MARKET STREET WILMINGTON, DELAWARE 19898 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 302-774-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT (EACH CLASS IS REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.): TITLE OF EACH CLASS ------------------- Common Stock ($.30 par value) Preferred Stock (without par value-cumulative) $4.50 Series $3.50 Series 6% Debentures Due 2001 NO SECURITIES ARE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] 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 --- --- AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT (EXCLUDES OUTSTANDING SHARES BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS; AND SHARES HELD BY DUPONT'S FLEXITRUST) AS OF MARCH 6, 1998, WAS APPROXIMATELY $70.0 BILLION. AS OF SUCH DATE, 1,125,643,356 SHARES (EXCLUDES 21,118,772 SHARES HELD BY DUPONT'S FLEXITRUST) OF THE COMPANY'S COMMON STOCK, $.30 PAR VALUE, WERE OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE (Specific pages incorporated are indicated under the applicable Item herein): INCORPORATED BY REFERENCE IN PART NO. --------------------- The company's 1997 Annual Report to Stockholders ..... I, II, and IV The company's Proxy Statement, dated March 20, 1998, in connection with the Annual Meeting of Stockholders to be held on April 29, 1998 ........................ III - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- E. I. DU PONT DE NEMOURS AND COMPANY ---------------- The terms "DuPont" or the "company" as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries (which are wholly owned or majority-owned), or to E. I. du Pont de Nemours and Company, as the context may indicate. ---------------- TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business................................................... 3 Item 2. Properties................................................. 6 Item 3. Legal Proceedings.......................................... 12 Item 4. Submission of Matters to a Vote of Security Holders........ 14 Executive Officers of the Registrant....................... 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ....................................... 15 Item 6. Selected Financial Data ................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................. 15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................... 15 Item 8. Financial Statements and Supplementary Data ............... 16 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure .................................. 16 PART III Item 10. Directors and Executive Officers of the Registrant ........ 16 Item 11. Executive Compensation .................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................................ 16 Item 13. Certain Relationships and Related Transactions ............ 16 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................................................. 17 Signatures........................................................... 20
NOTE ON INCORPORATION BY REFERENCE Throughout this report, various information and data are incorporated by reference to portions of the company's 1997 Annual Report to Stockholders (those portions are hereinafter referred to as Exhibit 13). Any reference in this report to disclosures in Exhibit 13 shall constitute incorporation by reference of that specific material into this Form 10-K. 2 PART I ITEM 1. BUSINESS DuPont was founded in 1802 and was incorporated in Delaware in 1915. DuPont is the largest chemical company in the world, and is organized for financial reporting purposes into six principal industry segments--Chemicals, Fibers, Polymers, Petroleum, Life Sciences, and Diversified Businesses. The company conducts fully integrated petroleum operations primarily through its wholly owned subsidiary Conoco Inc. In 1997, Conoco ranked ninth in the worldwide production of petroleum liquids by U.S.-based companies, eleventh in the production of natural gas, and eighth in refining runs. Conoco Inc. and other subsidiaries and affiliates of DuPont conduct exploration, production, mining, manufacturing or selling activities, and some are distributors of products manufactured by the company. The company operates globally through some 20 strategic business units. Within the strategic business units approximately 80 businesses manufacture and sell a wide range of products to many different markets, including the energy, transportation, textile, construction, automotive, agricultural, health care, packaging and electronics markets. The company and its subsidiaries have operations in about 70 nations worldwide and, as a result, about 48% of consolidated sales are derived from sales outside the United States, based on the location of the customer. Total worldwide employment at year-end 1997 was about 98,000 people. The following information describing the businesses of the company can be found on the indicated pages of Exhibit 13:
ITEM PAGE(S) ---- ------- Discussion of Business Developments in 1997: Letter to Shareholders.............................................. 1-3* Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life Sciences, Diversified................................................ 8-9** Segment Reviews: Business Discussions, Principal Products and Principal Markets: Chemicals.......................................................... 17-18 Fibers............................................................. 18 Polymers........................................................... 19 Petroleum.......................................................... 19-21 Life Sciences...................................................... 21-22 Diversified Businesses............................................. 22-23 Sales, Transfers, Operating Profit, After-Tax Operating Income, and Identifiable Assets for 1997, 1996, and 1995....................... 52-53 Geographic Information: Sales, Transfers, After-Tax Operating Income, Identifiable Assets, and U.S. Export Sales for 1997, 1996, and 1995..................... 51 Revenues by Product Class (See footnote 1 on page 53 of Exhibit 13)... 53
- -------- *Includes text of letter except for photograph page 2. **Excludes photographs and related captions. SOURCES OF SUPPLY The company utilizes numerous firms as well as internal sources to supply a wide range of raw materials, energy, supplies, services and equipment. To assure availability, the company maintains multiple sources for most raw materials, including hydrocarbon feedstocks, and for fuels. Large volume purchases are generally procured under competitively priced supply contracts. 3 A majority of sales in the Chemicals, Fibers, and Polymers segments' businesses is dependent on hydrocarbon feedstocks derived from crude oil and natural gas. Current hydrocarbon feedstock requirements are met by Conoco and other major petroleum companies. A joint venture with OxyChem, a subsidiary of Occidental Petroleum Corporation, manufactures and supplies a significant portion of the company's requirements for ethylene glycol. A joint venture with subsidiaries of RWE AG supplies a majority of the company's requirements for coal. The major purchased commodities, raw materials, and supplies for the following industry segments in 1997 are listed below:
DIVERSIFIED CHEMICALS FIBERS BUSINESSES POLYMERS - ------------------- ------------------- ------------------- ------------------- acetylene adipic acid ethylene glycol acetic acid benzene ammonia gold ethane caustic soda butadiene palladium/platinum fiberglass chlorine cyclohexane paraxylene methanol chloroform ethylene glycol silver methacrylates cyclohexane isophthalic acid packaging materials nitrogen fluorspar natural gas packaging materials hydrofluoric acid nitrogen pigments methanol packaging materials LIFE SCIENCES polyethylene ------------------- oxygen/nitrogen paraxylene acetaldoxime packaging materials polyethylene bromacil perchloroethylene cyanamide propylene dichlorophenol sulfur isocyanate titanium ores methyl mercaptan packaging materials
In the Petroleum segment, the major commodities and raw materials purchased are the same as those produced. Approximately 56% of the crude oil processed in the company's U.S. refineries in 1997 came from U.S. sources. During 1997, the company's refineries outside the United States processed principally North Sea, Russian and Middle East crude oils. In addition, during 1997, the company consumed substantial amounts of electricity and natural gas for energy. The company formed an alliance with Computer Sciences Corporation (CSC) and Andersen Consulting in June 1997. CSC operates a majority of the company's global information systems and technology infrastructures and provides selected applications and software services. Andersen Consulting provides information systems solutions designed to enhance DuPont's manufacturing, marketing, distribution and customer service for its chemicals businesses. PATENTS AND TRADEMARKS The company owns and is licensed under various patents, which expire from time to time, covering many products, processes and product uses. No individual patent is of material importance to any of the industry segments, although taken as a whole, the rights of the company and the products made and sold under patents and licenses are important to the company's business. During 1997, the company was granted 313 U.S. and 1,565 non-U.S. patents. The company also has approximately 2,000 individual trademarks and brands for its products and services which are registered in various countries throughout the world. Ownership rights in trademarks continue indefinitely if the trademarks are continued in use and properly protected. 4 SEASONALITY In general, sales of the company's products are not substantially affected by seasonality. However, the Life Sciences segment is impacted by seasonality of sales of agricultural products with highest sales in the first half of the year, particularly the second quarter. Within the Petroleum segment, the mix of refined products, natural gas and natural gas liquids produced and sold varies because of increased demand for gasoline in the summer months and natural gas, heating oil and propane during the winter months. MAJOR CUSTOMERS The company's sales are not materially dependent on a single customer or small group of customers. The Fibers and Polymers segments, however, have several large customers in their respective industries that are important to these segments' operating results. COMPETITION Principal competitors in the chemical industry include major chemical companies based in the United States, Europe, Japan, China and other Asian nations. Competitors offer a comparable range of products from agricultural, commodity and specialty chemicals to plastics and fibers products. The company also competes in certain product markets with smaller, more specialized firms. Principal competitors in the petroleum industry are integrated oil companies (including national oil companies), many of which also have substantial petrochemical operations, and a variety of other firms including independent oil and gas producers, pipeline companies, and large and small refiners and marketers. In addition, the company competes with the growing petrochemical operations in oil-producing countries. Conoco and American Electric Power Company of Columbus, Ohio, are negotiating the formation of two jointly held energy-venture companies to compete in the power generating business. These planned joint ventures are discussed on page 7. Businesses in the Chemicals, Fibers, Polymers, Life Sciences, and Diversified Businesses segments compete on a variety of factors such as price, product quality or specifications, customer service and breadth of product line, depending on the characteristics of the particular market involved. The Petroleum segment business is highly price-competitive and competes as well on quality and reliability of supply. RESEARCH AND DEVELOPMENT The company performs research and development at more than 75 sites worldwide. In the United States, research is conducted at over 40 sites in 18 states at either dedicated research facilities or manufacturing plants. The highest concentration of research is carried out at several large research centers in and around Wilmington, Delaware, which supports strategic business units in the Chemicals, Fibers, Polymers, Life Sciences, and Diversified Businesses segments. Among these, the Experimental Station laboratories engage in exploratory and applied research, the Chestnut Run laboratories focus on applications research, and the Stine-Haskell Research Center conducts agricultural product research and toxicological research on company products to assure they are safe for manufacture and use. The company conducts research related to petroleum operations as well as other segments of the business at its Ponca City, Oklahoma, facility. DuPont also operates an increasing number of research facilities at locations outside the United States in countries such as Belgium, Canada, France, Germany, Japan, Luxembourg, Mexico, The Netherlands, Spain, Switzerland and the United Kingdom, reflecting the company's growing global interests. The objectives of the company's research and development programs are to discover new products, processes and business opportunities in relevant fields, and to improve existing products and processes. Each strategic business unit of the company funds research and development activities to support its business mission. The corporate laboratories are responsible for assuring that leading-edge science and engineering concepts are 5 identified and diffused throughout the DuPont technical community. All R&D activities are coordinated by senior R&D management through a corporate technology council to ensure that technical activities are consistent with business and corporate plans, and that the core technical competencies underlying DuPont's current and future businesses remain healthy and continue to provide competitive advantages. Annual research and development expense and such expense shown "As Percent of Sales" for the five years 1993 through 1997 are included under the heading "General" of the Five-Year Financial Review on page 61 of Exhibit 13. ENVIRONMENTAL MATTERS Information relating to environmental matters is included in three areas of Exhibit 13: (1) under "Record year for safety and environmental performance" in Letter to Shareholders on page 3, (2) "Management's Discussion and Analysis" on pages 28-29, and (3) Notes 1 and 27 to the Financial Statements on pages 35-36 and 50-51. RISKS ATTENDANT TO FOREIGN OPERATIONS The company's petroleum exploration and production operations outside the United States are exposed to risks due to possible actions by host governments such as increases or variations in tax and royalty payments, participation in the company's concessions, limited or embargoed production, mandatory exploration or production controls, nationalization and export controls. Civil unrest and changes in government are also potential hazards. The profitability of the company's exploration and production operations is similarly exposed to risks due to actions of the United States government through tax legislation, executive order, and commercial restrictions. Actions by both the United States and host governments have affected operations significantly in the past and may continue to impact operations in the future. ITEM 2. PROPERTIES The company owns and operates manufacturing, processing, production, refining, marketing, power-generating, and research and development facilities worldwide. In addition, the company owns and leases petroleum properties worldwide. DuPont's corporate headquarters is located in Wilmington, Delaware, and the company's petroleum businesses are headquartered in Houston, Texas. In addition, the company operates sales offices, regional purchasing offices, distribution centers, and various other specialized service locations. Further information regarding properties is included in Exhibit 13 in the Segment Reviews on pages 17-23. Information regarding research and development facilities is incorporated by reference to Item 1, Business--Research and Development on pages 5-6 of this report. Additional information with respect to the company's property, plant and equipment, and leases is contained in Notes 12 and 27 to the company's consolidated financial statements on pages 40 and 50-51 of Exhibit 13. 6 CHEMICALS, FIBERS, POLYMERS, LIFE SCIENCES, AND DIVERSIFIED BUSINESSES Approximately 72% of the property, plant and equipment related to operations in the Chemicals, Fibers, Polymers, Life Sciences, and Diversified Businesses is located in the United States and Puerto Rico. This investment is located at some 65 sites, principally in Texas, Delaware, Virginia, North Carolina, Tennessee, West Virginia, South Carolina, and New Jersey. The principal locations within these states are as follows: TEXAS DELAWARE VIRGINIA NORTH CAROLINA - ---------------- ----------- -------------- -------------- Beaumont Edge Moor Front Royal Fayetteville Corpus Christi Newark Hopewell Kinston LaPorte Seaford James River Raleigh Orange Martinsville Wilmington Victoria Richmond Waynesboro WEST TENNESSEE VIRGINIA SOUTH CAROLINA NEW JERSEY - ---------------- ----------- -------------- -------------- Chattanooga Belle Camden Deepwater Memphis Martinsburg Charleston Parlin New Johnsonville Parkersburg Florence Old Hickory Property, plant and equipment outside the United States and Puerto Rico is located at about 70 sites, principally in the United Kingdom, Canada, Germany, The Netherlands, China, Singapore, Luxembourg, Spain, Mexico, Taiwan, France, Brazil, Belgium, Japan, Argentina and Republic of Korea. Products from more than one business are frequently produced at the same location. The company's plants and equipment are well maintained and in good operating condition. Sales as a percent of capacity were 88% in 1997, 88% in 1996, and 86% in 1995. These properties are directly owned by the company except for some auxiliary facilities and miscellaneous properties, such as certain buildings and transportation equipment, which are leased. Although no title examination of the properties has been made for the purpose of this report, the company knows of no material defects in title to any of these properties. In October 1997, Conoco, DuPont's petroleum subsidiary, and American Electric Power of Columbus, Ohio, announced plans to form two jointly held energy-venture companies. One venture company will acquire approximately $1 billion of energy related facilities from certain DuPont industrial plants in the United States and then lease them back to DuPont. The second venture company will provide energy management services, including operations, maintenance, and conservation advice. Capital needs for future energy projects at these sites, or for other large industrial or commercial customers, will be provided by the joint ventures. Negotiations toward formation and financial closure of the ventures are progressing. PETROLEUM BUSINESSES Properties relating to exploration, production, natural gas and gas products, refining, marketing, supply, and transportation are generally described on pages 19-21 and 54-59 of Exhibit 13. Estimated proved reserves of oil and gas are found on pages 56 and 57 of Exhibit 13. 7 PETROLEUM PRODUCTION The following tables show the company's interests in petroleum liquids production and natural gas deliveries. Petroleum liquids production comprises crude oil and condensate produced for the company's account plus its share of natural gas liquids (NGL) removed from natural gas deliveries from owned leases and NGL acquired through gas plant ownership. Natural gas deliveries represent Conoco's share of deliveries from leases in which the company has an ownership interest.
1997 1996 1995 --------- --------- --------- (THOUSANDS OF BARRELS DAILY) Petroleum Liquids Production Consolidated Companies Crude Oil, Condensate, and Natural Gas Liquids from Owned Reserves: United States........................... 90 91(a) 93(a) Europe.................................. 176 182 143 Other Regions........................... 92 88 98 --------- --------- --------- Subtotal.............................. 358 361 334 Natural Gas Liquids from Gas Plant Ownership: United States........................... 66 67 65 --------- --------- --------- Total Production--Consolidated Operations........................... 424 428 399 Share of Equity Affiliates Crude Oil, Condensate, and Natural Gas Liquids from Owned Reserves.............. 16 13 12 Natural Gas Liquids from Gas Plant Ownership................................ 13 13 13 --------- --------- --------- Total Production--Equity Affiliates... 29 26 25 --------- --------- --------- Total Petroleum Liquids Production.... 453 454 424 ========= ========= ========= (MILLION CUBIC FEET DAILY) Natural Gas Deliveries Consolidated Companies Natural Gas Deliveries from Owned Reserves: United States........................... 709 738(a) 740(a) Europe.................................. 432 416 341 Other Regions........................... 46 41 31 --------- --------- --------- Total Deliveries--Consolidated Operations........................... 1,187 1,195 1,112 Share of Equity Affiliates Natural Gas Deliveries from Owned Reserves: United States........................... 23 24 38 --------- --------- --------- Total Natural Gas Deliveries.......... 1,210 1,219 1,150 ========= ========= =========
- -------- (a) 1996 and 1995 U.S. natural gas production was reduced approximately 10% to convert from a wet volume to a dry volume and the associated NGL production was increased. 8 AVERAGE PRODUCTION COSTS AND SALES PRICES The following table presents data as prescribed by the Securities and Exchange Commission (SEC). Accordingly, the unit costs do not include income taxes and exploration, development, and general overhead costs. Since these excluded costs are material, the following data should not be interpreted as measures of profitability or relative profitability. See Results of Operations for Oil and Gas Producing Activities on page 54 of Exhibit 13 for a more complete disclosure of revenues and expenses. See also the references to crude oil and natural gas prices and volumes in Segment Review of Petroleum on pages 19-21 of Exhibit 13. TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (U.S. DOLLARS) For the year ended December 31, 1997 Average production costs per barrel equivalent of petroleum produced(a)......... $4.21 $4.23 $4.51 $3.40 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold....................................... 18.58 17.93 18.93 18.35 Per thousand cubic feet (MCF) of natural gas sold....................................... 2.51 2.34 3.25 1.41 For the year ended December 31, 1996 Average production costs per barrel equivalent of petroleum produced(a)(c)...... 3.84 4.11 4.13 2.50 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold....................................... 20.11 18.68 20.94 19.47 Per MCF of natural gas sold................. 2.21 1.90 2.92 1.24 For the year ended December 31, 1995 Average production costs per barrel equivalent of petroleum produced(a)(c)...... 3.92 3.78 4.82 2.49 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold....................................... 16.52 15.53 16.95 16.56 Per MCF of natural gas sold................. 1.86 1.44 2.96 1.13 - -------- (a) Average production costs per barrel of equivalent liquids, with natural gas converted to liquids at a ratio of 6 MCF of gas to one barrel of liquid. (b) Excludes proceeds from sales of interest in oil and gas properties. (c) 1996 and 1995 restated to conform to 1997 presentation. PRESENT ACTIVITIES TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (NUMBER OF WELLS) At December 31, 1997 Number of wells drilling* Gross....................................... 33 15 13 5 Net......................................... 14 9 3 2 Number of productive wells** Oil wells--gross............................ 7,761 7,173 278 310 --net.............................. 2,657 2,523 26 108 Gas wells--gross............................ 8,749 8,486 169 94 --net.............................. 4,210 4,089 33 88 - -------- * Includes wells being completed. ** Approximately 80 gross (27 net) oil wells and 757 gross (271 net) gas wells, all in the United States, have multiple completions. 9 DEVELOPED AND UNDEVELOPED PETROLEUM ACREAGE TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (THOUSANDS OF ACRES) At December 31, 1997 Developed acreage Gross........................................ 7,555 2,663 1,129 3,763 Net.......................................... 3,341 1,559 317 1,465 Undeveloped acreage Gross........................................ 108,803 2,749 4,984 101,070 Net.......................................... 80,017 2,103 1,648 76,266 NET EXPLORATORY AND DEVELOPMENT WELLS DRILLED TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (NUMBER OF NET WELLS COMPLETED) For the year ended December 31, 1997 Exploratory--productive ...................... 7.1 3.7 1.6 1.8 --dry ............................. 18.4 11.7 4.9 1.8 Development--productive ...................... 142.6 126.9 5.4 10.3 --dry ............................. 10.2 7.2 0.0 3.0 For the year ended December 31, 1996 Exploratory--productive ...................... 42.8 1.6 2.0 39.2 --dry ............................. 20.5 10.3 4.0 6.2 Development--productive ...................... 89.9 73.1 6.1 10.7 --dry ............................. 17.3 13.5 0.3 3.5 For the year ended December 31, 1995 Exploratory--productive ...................... 34.2 12.8 1.4 20.0 --dry ............................. 38.2 22.1 4.9 11.2 Development--productive ...................... 109.5 94.3 8.0 7.2 --dry ............................. 13.7 10.7 0.0 3.0 ESTIMATES OF TOTAL PROVED RESERVES FILED WITH OTHER FEDERAL AGENCIES COVERING THE YEAR 1997 The company is not required to file, and has not filed on a recurring basis, estimates of its total proved net oil and gas reserves with any U.S. or non- U.S. governmental regulatory authority or agency other than the Department of Energy (DOE) and the SEC. The estimates furnished to the DOE have been consistent with those furnished to the SEC. They are not necessarily directly comparable, however, due to special DOE reporting requirements such as requirements to report in some instances on a gross, net or total operator basis, and requirements to report in terms of smaller units. In no instance have the estimates for the DOE differed by more than 5% from the corresponding estimates reflected in total reserves reported to the SEC. NATURAL GAS AND GAS PRODUCTS Upstream operations in the United States include consolidated interests in 25 natural gas processing plants located in Colorado, Louisiana, New Mexico, Oklahoma and Texas. Seventeen of the plants are operated by the company. The company's share of total natural gas liquids (NGL) production from the 25 plants averaged 65,869 barrels per day (BPD) in 1997 and 67,489 BPD in 1996. Additional NGL production volumes of 30,098 BPD in 1997 and 19,279 BPD in 1996 are attributable to Conoco equity gas processed in third-party-operated plants. Conoco's 50% owned equity affiliate, C&L Processors Partnership, has six natural gas processing plants in Oklahoma and Texas, and the company's pro rata share of NGL production was 7,331 BPD in 1997 and 7,926 BPD in 1996. Other natural gas and gas products facilities in the United States include an 1,150-mile intrastate 10 natural gas pipeline system in South Texas operated by Conoco's 100% owned subsidiary Lobo Pipeline Company and an 800-mile intrastate natural gas pipeline system in Louisiana operated by Conoco's 100% owned subsidiary Louisiana Gas System, Inc., natural gas and NGL pipelines in several states, three underground NGL storage facilities, a 19,000 BPD natural gas liquids fractionating plant in Gallup, New Mexico, a 22.5% equity interest in a 104,000 BPD natural gas liquids fractionating plant in Mt. Belvieu, Texas, owned by affiliated Gulf Coast Fractionators, and a 75% equity interest in the Pocahontas Gas Partnership that gathers, treats, and markets coal bed methane associated with coal mines in Virginia. Outside the United States, the company's Conoco (U.K.) Limited subsidiary operates a 50% owned gas processing facility at Theddlethorpe, England. Phoenix Park Gas Processors, a 41% owned equity affiliate, operates a natural gas plant at Point Lisas, Trinidad, of which Conoco's share of production was 4,798 BPD in 1997 and 4,936 BPD in 1996. REFINING The company currently owns and operates four refineries in the United States located at Lake Charles, Louisiana; Ponca City, Oklahoma; Billings, Montana; and Denver, Colorado. The company also owns and operates the Humber refinery in England and owns a 16.33% interest in two refineries in the Czech Republic. Conoco also owns a 40% interest in a company that is constructing a 100,000 barrel-per-day refinery near the city of Melaka, Malaysia, with completion scheduled for 1998. Conoco also has an 18.75% interest in a refining complex in Karlsruhe, Germany. Capacities at year-end 1997 as well as inputs processed during 1997 are summarized in the following table:
TOTAL UNITED UNITED CZECH WORLDWIDE STATES KINGDOM GERMANY* REPUBLIC** --------- ------ ------- -------- ---------- (THOUSANDS OF BARRELS DAILY) At December 31, 1997 Refinery crude oil and condensate distillation capacity (excluding additional feedstocks input to other refinery units)................ 733 491 160 54 28 For the year ended December 31, 1997 Inputs processed Crude oil and condensate....... 685 476 137 51 21 Additional feedstocks input to other refinery units.......... 96 28 56 11 1
- -------- * Represents 18.75% interest in the Karlsruhe refinery complex. ** Represents 16.33% interest in two Czech Republic refineries. Utilization of refinery capacity depends on the market demand for petroleum products, availability of crude oil and other feedstocks, and the economics of converting crude oil into refined products. MARKETING In the United States, the company sells refined products at retail in 37 states, principally under the "Conoco" brand. In addition, the company markets a wide range of products other than at retail in all 50 states and the District of Columbia. Refined products are also sold in Austria, Germany and the United Kingdom under the "Jet" and "Conoco" brands; in Belgium, France and Luxembourg under the "Seca" brand; and in Switzerland under the "OK Coop" brand. The "Jet" brand is used for marketing in the Czech Republic, Denmark, Finland, Hungary, Norway, Poland, Slovakia, Spain, Sweden and Thailand. A joint venture in Turkey markets under the "Tabas" and "Turkpetrol" brands. 11 SUPPLY AND TRANSPORTATION The company has an extensive pipeline system for crude oil and refined products. Information concerning daily pipeline shipments is presented below: 1997 1996 1995 -------- ------- ------- (THOUSANDS OF BARRELS) -------- ------- ------- Average Daily Pipeline Shipments Pipeline shipments of consolidated companies................................... 895 845 873 Equity in shipments of nonconsolidated affiliates.................................. 367 360 358 Conoco Pipe Line Company (CPL), a wholly owned subsidiary and operator of the company's U.S. petroleum pipeline system, transported approximately 863 thousand barrels per day of crude oil and refined products in 1997. In addition to pipeline facilities, CPL operates, under a management contract, three marine terminals, one coke-exporting facility, and 43 product terminals located throughout the United States. These facilities are wholly or jointly owned by the company. Crude oil is gathered in the Rocky Mountain, mid- continent, and southern Louisiana areas primarily for delivery to local refiners. Refined products pipelines are located in the Rocky Mountain and mid-continent areas to serve regional demand centers. Other U.S. transportation assets include numerous tank cars, barges, tank trucks, and other motor vehicles. Outside the United States, Conoco signed a second major agreement to supply gas via the Interconnector pipeline from its U.K. North Sea fields to continental Europe. The pipeline was installed in 1997 and terminals at each end are scheduled for completion in late 1998. Conoco has a 10% ownership in the pipeline. The company also operates a fleet of seagoing crude oil tankers. These vessels, principally of Liberian registry, are described as follows: 1997 1996 1995 -------- ------- ------- (THOUSANDS OF DEADWEIGHT TONS) Controlled Seagoing Vessel Capacity Owned or Leased........................................ 1,006 1,006 881 ======== ======= ======= Number of Vessels 80,000 DWT and Above (NUMBER OF VESSELS) Single Hull.................................. 3 3 3 Double Hull.................................. 5 5 4 -------- ------- ------- Total Vessels.............................. 8 8 7 ======== ======= ======= ITEM 3. LEGAL PROCEEDINGS In 1991, DuPont began receiving claims by growers that use of "Benlate" 50 DF fungicide had caused crop damage. Based on the belief that "Benlate" 50 DF would be found to be a contributor to the claimed damage, DuPont began paying crop damage claims. In 1992, however, after 18 months of extensive research, DuPont scientists concluded that "Benlate" 50 DF was not responsible for plant damage reports received since March 1991, and concurrent with these research findings, DuPont stopped paying claims. To date, DuPont has been served with more than 700 lawsuits, most by growers who allege plant damage from using "Benlate" 50 DF fungicide. Approximately 80 lawsuits are pending against the company; the rest having been disposed of by trial, dismissal or settlement. The remaining docket of "Benlate" 50 DF cases includes alleged personal injury cases, alleged crop damage cases, and cases alleging discovery abuse and fraud. Among the remaining personal injury cases is the pending appeal of a June 1996 verdict of $3,980,000 against DuPont. Four personal injury cases are pending in West Virginia and three personal injury cases are pending in Delaware. The same plaintiffs' attorney who filed these Delaware and West Virginia cases has indicated that he intends to file additional personal injury cases. In 1997, three putative "Benlate" 50 DF class actions alleging crop damage and asserting fraud claims were filed: one in Florida state court on behalf of growers of ornamental plants in Florida; another in Hawaii state court on behalf of Hawaii growers; and a third in Alabama state court seeking a nationwide class. All three were removed to federal court. The Florida class action has been remanded back to state court, and motions to remand the remaining cases back to the state court have been or are expected to be 12 filed. The Alabama case received conditional class certification by the state court prior to its removal. In another crop damage case, Kawamata/Tomono, the Hawaii Supreme court in December 1997 affirmed the judgment and all trial court orders in an action in which a jury had returned a verdict for the plaintiffs in excess of $23 million. The United States Court of Appeals for the Eleventh Circuit reversed and remanded a sanctions order by a federal district court in Georgia which had found that DuPont had engaged in discovery abuse during the first "Benlate" 50 DF crop case to go to trial. The Eleventh Circuit ordered that a different judge shall preside over the matter on remand. DuPont's petition for writ of certiorari in the United States Supreme Court, seeking review of certain aspects of the Eleventh Circuit's decision, has been denied and DuPont awaits further proceedings in the trial court. A shareholder derivative action pending in the same Georgia federal district court, alleging that DuPont's Board of Directors breached various duties in its role in the "Benlate" 50 DF litigation, remains stayed. A securities fraud class action filed in September 1995 by a shareholder in federal district court in Florida against the company and the then-chairman is also still pending. The plaintiff in this case alleges 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 have previously settled with the company have filed cases alleging fraud and other misconduct relating to the litigation and settlement of "Benlate" 50 DF claims. One such lawsuit was filed in federal district court in Georgia by five growers alleging fraud (including civil racketeering claims) based generally on the assertion that, at the time of their settlements with DuPont, these plaintiffs were unaware of alleged discovery abuse by DuPont. The Georgia district court has granted DuPont's motion to dismiss, holding that the release plaintiffs executed when they originally settled barred their attempt to seek additional amounts from DuPont. The same court also granted a similar DuPont motion with respect to another case that had been transferred from Hawaii federal court. Plaintiffs have appealed the granting of DuPont's motion in both these cases. Five cases based on similar allegations were filed in Hawaii; the state court class action mentioned above, two individual state court actions, and two actions in Hawaii federal court. In both Hawaii federal cases, the court granted DuPont's motions to enforce prior settlement releases. Plaintiffs may appeal. One of the Hawaii state court individual actions has been voluntarily dismissed by the plaintiff. Seven additional such cases have been filed in Florida involving early settlements through DuPont's claims adjusting company. All seven of these have been dismissed on the grounds that prelitigation settlements barred their claims. Plaintiffs have appealed the dismissals. In a case brought in Texas on behalf of approximately 40 pecan growers, the judge on January 6, 1998, granted DuPont's motion for summary judgment on statute of limitations grounds. DuPont continues to believe that "Benlate" 50 DF fungicide did not cause the damages alleged in these cases and intends to defend against such allegations in ongoing matters. The company's balance sheets reflect accruals for estimated costs associated with this matter. Adverse changes in estimates of such costs could result in additional future charges. On December 21, 1993, Conoco's Denver refinery received a Notice of Violation from the Environmental Protection Agency (EPA), Region VIII, and the Colorado Department of Health requesting a civil penalty of $169,500 in a dispute over proper scope and scheduling of certain Resource and Conservation and Recovery Act (RCRA) on-site investigation activities. The investigation activities have previously been the subject of a settlement with the EPA and the Colorado Department of Health, and the work performed has been in compliance with such agreement in the opinion of company counsel. As such, it is anticipated that the fine will be significantly reduced pursuant to negotiations between the parties. On June 30, 1994, the California Department of Toxic Substances Control issued to DuPont's Antioch Works in Antioch, California, an Enforcement Order alleging violations of state hazardous waste regulations. The alleged violations center principally on the status of several tanks at the site. The Order would require DuPont to undertake certain remedial activities around the tanks and pay a fine of $200,000. DuPont has filed a Notice of Defense in the matter for a hearing before the Office of Administrative Hearings of the California Department of General Services. The EPA filed on October 7, 1994, an administrative complaint against DuPont proposing to assess $1.9 million in civil penalties for distributing triazine herbicides with product labels that the EPA alleges were not in compliance with its new Worker Protection Standards. The labels were submitted to the EPA for approval in 13 July 1993 and accepted by the EPA in November. However, in March of 1994, the EPA notified DuPont of alleged errors in the labels. DuPont has cooperated with the EPA in making label changes and has issued supplemental labeling for all products that had been distributed. DuPont believes the proposed penalties are unwarranted and is contesting the complaint and proposed civil penalty in an EPA administrative proceeding. On March 6, 1996, the Department of Justice filed a complaint in the United States District Court for the District of Montana against Yellowstone Pipeline Company (YPL) and the Conoco Pipe Line Company as a part owner and operator of YPL. The complaint alleges discharges of oil from a YPL pipeline in January 1993 and seeks civil penalties of up to $25,000 per day for each violation or up to $1,000 for each barrel of oil discharged. Since the duration of the discharge is in dispute, the penalty calculation is uncertain although it is expected to exceed $100,000. The parties are attempting to negotiate a settlement of the matter. On March 18, 1997, EPA Region VIII filed an Administrative Complaint and Compliance Order in which they allege 78 violations of the RCRA by Conoco at its refinery in Commerce City, Colorado. The agency is seeking a penalty of $666,771. The allegations involve training, record keeping, manifest and permitting issues. Conoco previously settled these allegations with the State of Colorado which is authorized to administer the RCRA program on behalf of U.S. EPA Region VIII. Conoco believes that the penalties are unwarranted and intends to defend itself vigorously against the allegations. On September 2, 1997, the U.S. Department of Justice (DOJ) filed suit against DuPont related to an August 1995 oleum release from DuPont's plant in Wurtland, Kentucky. DuPont previously paid a $125,000 fine and agreed to undertake supplemental environmental projects, related to the oleum release, valued at $460,000. In its complaint, the DOJ alleges violations under Section 112(r) of the Clean Air Act, Section 103(a) of the Comprehensive Environmental Response, Compensation and Liability Act and Section 304(a)(1) of the Emergency Planning and Community Right-to-Know Act. DOJ offered to settle this action for $2,700,000. DuPont denies these alleged violations, believes that DOJ's settlement offer is inappropriate and excessive and plans to contest this action by DOJ. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list, as of March 6, 1998, of the company's executive officers.
EXECUTIVE OFFICER AGE SINCE --- --------- President and Chief Executive Officer Charles O. Holliday, Jr.(1).................................... 49 1992 Other Executive Officers: Archie W. Dunham, Executive Vice President(1).................. 59 1985 Kurt M. Landgraf, Executive Vice President..................... 51 1996 Joseph A. Miller, Jr., Senior Vice President and Chief Technol- ogy Officer................................................... 56 1994 Stacey J. Mobley, Senior Vice President........................ 52 1992 Gary M. Pfeiffer, Senior Vice President and Chief Financial Of- ficer......................................................... 48 1997 Howard J. Rudge, Senior Vice President and General Counsel..... 62 1994
- -------- (1) Member of the Board of Directors. The company's executive officers are elected or appointed for the ensuing year or for an indefinite term, and until their successors are elected or appointed. Each officer named above has been an officer or an executive of DuPont, its subsidiaries, or an affiliate during the past five years. 14 PART II Information with respect to the following Items can be found on the indicated pages of Exhibit 13 if not otherwise included herein. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's common stock is listed on the New York Stock Exchange, Inc. (symbol DD) and certain non-U.S. exchanges. The number of record holders of common stock was 154,014 at December 31, 1997 and 148,755 at March 6, 1998. PAGE(S) ------- Quarterly Financial Data: Dividends Per Share of Common Stock................................ 60 Market Price of Common Stock (High/Low)............................ 60 ITEM 6. SELECTED FINANCIAL DATA Five-Year Financial Review: Summary of Operations.............................................. 61 Financial Position at Year End..................................... 61 Ratios............................................................. 61 General............................................................ 61 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Letter to Shareholders .............................................. 1-3* Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life Sciences, Diversified............................................... 8-9** Management's Discussion and Analysis: Analysis of Operations............................................. 16-17 Segment Reviews.................................................... 17-23 Financial Condition and Cash Flows................................. 23-26 Environmental Matters.............................................. 28-29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management's Discussion and Analysis: Financial Instruments Derivatives and Other Hedging Instruments......................... 26 Foreign Currency Risk............................................. 26-27 Interest Rate Risk................................................ 27 Commodity Price Risk and Trading.................................. 27 - -------- *Includes text of letter except for photograph on page 2. **Excludes photographs and related captions. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE(S) ------- Financial Statements: Report of Independent Accountants................................... 30 Consolidated Income Statement for 1997, 1996 and 1995............... 31 Consolidated Balance Sheet as of December 31, 1997 and December 31, 1996............................................................... 32 Consolidated Statement of Stockholders' Equity for 1997, 1996 and 1995............................................................... 33 Consolidated Statement of Cash Flows for 1997, 1996 and 1995........ 34 Notes to Financial Statements....................................... 35-53 Supplemental Financial Information: Supplemental Petroleum Data: Oil and Gas Producing Activities................................... 54-59 Quarterly Financial Data and related notes for the following items for the two years 1997 and 1996: Sales............................................................... 60 Cost of Goods Sold and Other Expenses............................... 60 Net Income.......................................................... 60 Earnings Per Share of Common Stock.................................. 60 Dividends Per Share of Common Stock................................. 60 Market Price of Common Stock........................................ 60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information with respect to the following Items is incorporated by reference to the pages indicated in the company's 1998 Annual Meeting Proxy Statement dated March 20, 1998, filed in connection with the Annual Meeting of Stockholders to be held April 29, 1998. However, information regarding executive officers is contained in Part I of this report (page 14) pursuant to General Instruction G of this form. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT PAGE(S) ------- Election of Directors................................................. 4-7 Compliance With the Securities Exchange Act........................... 9 ITEM 11. EXECUTIVE COMPENSATION Compensation of Directors............................................. 2-3 Compensation and Stock Option Information............................. 12-15 Retirement Benefits................................................... 16-17 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Beneficial Ownership of Securities.................................... 8-9 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Election of Directors................................................. 4-7 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Financial Statements (See listing at Part II, Item 8 of this report regarding financial statements, which are incorporated by reference to Exhibit 13.) 2. Financial Statement Schedules--none required. The following should be read in conjunction with the previously referenced Financial Statements: Financial Statement Schedules listed under SEC rules but not included in this report are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto incorporated by reference. Condensed financial information of the parent company is omitted because restricted net assets of consolidated subsidiaries do not exceed 25% of consolidated net assets. Footnote disclosure of restrictions on the ability of subsidiaries and affiliates to transfer funds is omitted because the restricted net assets of subsidiaries combined with the company's equity in the undistributed earnings of affiliated companies does not exceed 25% of consolidated net assets at December 31, 1997. Separate financial statements of affiliated companies accounted for by the equity method are omitted because no such affiliate individually constitutes a 20% significant subsidiary. 3. Exhibits The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Company's Restated Certificate of Incorporation filed May 29, 1997 (incorporated by reference to the company's filing on Form 8-K on June 13, 1997). 3.2 Company's Bylaws, as last revised September 1, 1997 (incorporated by reference to Exhibit 3.2 of the company's Quarterly Report on Form 10- Q for the period ended September 30, 1997). 3.3 Company's Bylaws, as last revised October 29, 1997. 3.4 Company's Bylaws, as last revised November 15, 1997. 3.5 Company's Bylaws, as last revised February 1, 1998. 4 The company agrees to provide the Commission, on request, copies of instruments defining the rights of holders of long-term debt of the company and its subsidiaries. 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).
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 17 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.2* The DuPont Stock Accumulation and Deferred Compensation Plan for Directors, (formerly the Deferred Compensation Plan For Directors), as last amended effective January 1, 1996, and approved by shareholders at the company's 1996 Annual Meeting of Shareholders (incorporated by reference to Exhibit 10.12 of the company's Quarterly Report on Form 10-Q for the period ended March 31, 1996). 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). 10.5.1* Retirement Restoration Plan I of Conoco Inc., adopted by the Board of Directors on December 18, 1995 (incorporated by reference to Exhibit 10.6.1 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.5.2* Retirement Restoration Plan II of Conoco Inc., adopted by the Board of Directors on December 18, 1995 (incorporated by reference to Exhibit 10.6.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.6* Company's Stock Performance Plan, as last amended effective September 28, 1994 (incorporated by reference to Exhibit 10.7 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.7* 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). 10.8* Company's Salary Deferral & Savings Restoration Plan effective April 26, 1994 (incorporated by reference to Exhibit 10.9 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.9* Company's 1995 Corporate Sharing Plan, adopted by the Board of Directors on January 25, 1995 (incorporated by reference to Exhibit 10.10 of the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995). 10.10* Letter Agreement and Consulting Agreement, dated as of October 9, 1995, between the company and C. S. Nicandros (incorporated by reference to Exhibit 10.11 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.11* 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). 10.12* 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). 11 Statement re calculation of earnings per share. 12 Statement re computation of the ratio of earnings to fixed charges. 13 The 1997 Letter to Shareholders; "Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life Sciences, Diversified"; "Management's Discussion and Analysis"; and Financial Information Section of the Annual Report to Shareholders for the year ended December 31, 1997, which are furnished to the Commission for information only, and not filed except as expressly incorporated by reference in this Report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. - -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 18 (b) Reports on Form 8-K Reports on Form 8-K: (1) On October 22, 1997, a Current Report on Form 8-K was filed in connection with Debt and/or Equity Securities that may be offered on a delayed or continuous basis under Registration Statements on Form S-3 (No. 33-53327, No. 33-61339, and No. 33-60069). Under Item 7. "Financial Statements and Exhibits," the Registrant's Earnings Press Release, dated October 22, 1997, was filed. (2) On January 28, 1998, a Current Report on Form 8-K was filed in connection with Debt Securities that may be offered on a delayed or continuous basis under its Registration Statements on Form S-3 (No. 33-53327, No. 33-61339, and No. 33-60069). Under Item 7, "Financial Statements and Exhibits," the Registrant's Earnings Press Release, dated January 28, 1998, was filed. 19 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 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 AND IN THE CAPACITIES INDICATED, AS OF THE 23RD DAY OF MARCH 1998. E. I. DU PONT DE NEMOURS AND COMPANY (Registrant) By: G. M. PFEIFFER --------------------------------- G. M. PFEIFFER SENIOR VICE PRESIDENT--DUPONT FINANCE (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED AS OF THE 23RD DAY OF MARCH 1998, BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES INDICATED: CHAIRMAN OF THE BOARD: J. A. Krol --------------------- J. A. KROL PRESIDENT AND CHIEF EXECUTIVE OFFICER AND DIRECTOR: (PRINCIPAL EXECUTIVE OFFICER): EXECUTIVE VICE PRESIDENT AND DIRECTOR: C. O. Holliday, Jr. A. W. Dunham - ------------------------------------- ------------------------------------- C. O. HOLLIDAY, JR. A. W. DUNHAM DIRECTORS: P. N. Barnevik W. K. Reilly - ------------------------------------- ------------------------------------- P. N. BARNEVIK W. K. REILLY A. F. Brimmer H. R. Sharp, III - ------------------------------------- ------------------------------------- A. F. BRIMMER H. R. SHARP, III L. C. Duemling C. M. Vest - ------------------------------------- ------------------------------------- L. C. DUEMLING C. M. VEST E. B. du Pont G. Watanabe - ------------------------------------- ------------------------------------- E. B. DU PONT G. WATANABE C. M. Harper E. S. Woolard, Jr. - ------------------------------------- ------------------------------------- C. M. HARPER E. S. WOOLARD, JR. L. D. Juliber - ------------------------------------- L. D. JULIBER 20 E. I. DU PONT DE NEMOURS AND COMPANY INDEX OF EXHIBITS Exhibit Number Description - ------- ----------- 3.1 Company's Restated Certificate of Incorporation filed May 29, 1997 (incorporated by reference to the company's filing on Form 8-K on June 13, 1997). 3.2 Company's Bylaws, as last revised September 1, 1997 (incorporated by reference to Exhibit 3.2 of the company's Quarterly Report on Form 10-Q for the period ended September 30, 1997). 3.3 Company's Bylaws, as last revised October 29, 1997. 3.4 Company's Bylaws, as last revised November 15, 1997. 3.5 Company's Bylaws, as last revised February 1, 1998. 4 The company agrees to provide the Commission, on request, copies of instruments defining the rights of holders of long-term debt of the company and its subsidiaries. 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 for Directors, (formerly the Deferred Compensation Plan For Directors), as last amended effective January 1, 1996, and approved by shareholders at the company's 1996 Annual Meeting of Shareholders (incorporated by reference to Exhibit 10.12 of the company's Quarterly Report on Form 10-Q for the period ended March 31, 1996). 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). - ------------- *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. Exhibit Number Description - ------- ----------- 10.5.1* Retirement Restoration Plan I of Conoco Inc., adopted by the Board of Directors on December 18, 1995 (incorporated by reference to Exhibit 10.6.1 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.5.2* Retirement Restoration Plan II of Conoco Inc., adopted by the Board of Directors on December 18, 1995 (incorporated by reference to Exhibit 10.6.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.6* Company's Stock Performance Plan, as last amended effective September 28, 1994 (incorporated by reference to Exhibit 10.7 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.7* 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). 10.8* Company's Salary Deferral & Savings Restoration Plan effective April 26, 1994 (incorporated by reference to Exhibit 10.9 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.9* Company's 1995 Corporate Sharing Plan, adopted by the Board of Directors on January 25, 1995 (incorporated by reference to Exhibit 10.10 of the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995). 10.10* Letter Agreement and Consulting Agreement, dated as of October 9, 1995, between the company and C. S. Nicandros (incorporated by reference to Exhibit 10.11 of the company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.11* 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). 10.12* 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). 11 Statement re calculation of earnings per share. 12 Statement re computation of the ratio of earnings to fixed charges. 13 The 1997 Letter to Shareholders; "Segment Profiles: Chemicals, Fibers, Polymers, Petroleum, Life Sciences, Diversified"; "Management's Discussion and Analysis"; and Financial Information Section of the Annual Report to Shareholders for the year ended December 31, 1997, which are furnished to the Commission for information only, and not filed except as expressly incorporated by reference in this Report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule. - ------------- *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. EX-3.3 2 COMPANY'S BYLAWS, LAST REVISED OCTOBER 29, 1997 EXHIBIT 3.3 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ------------------------------------ Incorporated Under The Laws of Delaware AS REVISED October 29, 1997 EXHIBIT 3.3 BYLAWS Page ---- ARTICLE I. MEETING OF STOCKHOLDERS: Section 1. Annual 1 Section 2. Special 1 Section 3. Notice 1 Section 4. Quorum 1 Section 5. Organization 1 Section 6. Voting 2 Section 7. Inspectors 2 ARTICLE II. BOARD OF DIRECTORS: Section 1. Number 2 Section 2. Term 2 Section 3. Increase of Number 2 Section 4. Resignation 2 Section 5. Vacancies 2 Section 6. Regular Meetings 2 Section 7. Special Meetings 3 Section 8. Quorum 3 Section 9. Place of Meeting, Etc. 3 Section 10. Interested Directors; Quorum 3 ARTICLE III. COMMITTEES OF THE BOARD: Section 1. Committees 4 Section 2. Procedure 4 Section 3. Reports to the Board 4 Section 4. Strategic Direction Committee 4 Section 5. Audit Committee 5 Section 6 Environmental Policy Committee 5 Section 7. Compensation Committee 5 Section 8. Corporate Governance Committee 5 ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE 5 EXHIBIT 3.3 Page ---- ARTICLE V. OFFICERS: Section 1. Officers 6 Section 2. Chairman of the Board 6 Section 3. President 6 Section 4. Executive Vice Presidents 6 Section 5. Vice Presidents 6 Section 6. Executive Vice President - Finance 6 Section 7. Treasurer 6 Section 8. Assistant Treasurer 7 Section 9. Controller 7 Section 10. Assistant Controller 7 Section 11. Secretary 7 Section 12. Assistant Secretary 7 Section 13. Removal 7 Section 14. Resignation 7 Section 15. Vacancies 7 ARTICLE VI. MISCELLANEOUS: Section 1. Indemnification of Directors or Officers 8 Section 2. Certificate for Shares 8 Section 3. Transfer of Shares 9 Section 4. Regulations 9 Section 5. Record Date of Stockholders 9 Section 6. Corporate Seal 9 ARTICLE VII. AMENDMENTS 10 EXHIBIT 3.3 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ARTICLE I. MEETING OF STOCKHOLDERS SECTION 1. Annual. Meetings of the stockholders for the purpose of electing Directors, and transacting such other proper business as may be brought before the meeting, shall be held annually at such date, time and place, within or without the State of Delaware as may be designated by the Board of Directors ("Board"). SECTION 2. Special. Special meetings of the stockholders may be called by the Board and shall be called by the Secretary at the request in writing of the holders of record of at least twenty-five percent of the outstanding stock of the corporation entitled to vote. Special meetings shall be held within or without the State of Delaware, as the Board shall designate. SECTION 3. Notice. Written notice of each meeting of stockholders, stating the place, date and hour of the meeting, and the purpose or purposes thereof, shall be mailed not less than ten nor more than sixty days before the date of such meeting to each stockholder entitled to vote thereat. SECTION 4. Quorum. Unless otherwise provided by statute, the holders of shares of stock entitled to cast a majority of votes at a meeting, present either in person or by proxy, shall constitute a quorum at such meeting. Absence of a quorum of the holders of Common Stock or Preferred Stock at any meeting or adjournment thereof, at which under the Certificate of Incorporation the holders of Preferred Stock have the right to elect any Directors, shall not prevent the election of Directors by the other class of stockholders entitled to elect Directors as a class if the necessary quorum of stockholders of such other class shall be present in person or by proxy. SECTION 5. Organization. The Chairman of the Board or, in the Chairman's absence, the President shall preside at meetings of stockholders. The Secretary of the Company shall act as Secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint a Secretary of the meeting. The order of business for such meetings shall be determined by the Chairman of the Board, or, in the Chairman's absence, by the President. 1 EXHIBIT 3.3 SECTION 6. Voting. Each stockholder entitled to vote at any meeting shall be entitled to one vote, in person or by written proxy, for each share held of record. Upon the demand of any stockholder, such stockholder shall be entitled to vote by ballot. All elections and questions shall be decided by plurality vote, except as otherwise required by statute. SECTION 7. Inspectors. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies, and the acceptance or rejection of votes shall be decided by three Inspectors, two of whom shall have power to make a decision. Such Inspectors shall be appointed by the Board before the meeting, or in default thereof, by the presiding officer at the meeting, and shall be sworn to the faithful performance of their duties. If any of the Inspectors previously appointed shall fail to attend or refuse or be unable to serve, substitutes shall be appointed by the presiding officer. ARTICLE II. BOARD OF DIRECTORS SECTION 1. Number. The business and affairs of the Company shall be under the direction of the Board. The number of Directors, which shall not be less than ten, shall be determined from time to time by the vote of two-thirds of the whole Board. SECTION 2. Term. Each Director shall hold office until the next annual election of Directors and until the Director's successor is elected and qualified. SECTION 3. Increase of Number. In case of any increase in the number of Directors between Annual Meetings of Stockholders, each additional Director shall be elected by the vote of two-thirds of the whole Board. SECTION 4. Resignation. A Director may resign at any time by giving written notice to the Chairman of the Board or the Secretary. The acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 5. Vacancies. In case of any vacancy in the Board for any cause, the remaining Directors, by vote of majority of the whole Board, may elect a successor to hold office for the unexpired term of the Director whose place is vacant. SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such times as the Board may designate. A notice of each regular meeting shall not be required. 2 EXHIBIT 3.3 SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the direction of the Chairman of the Board, or of one-third of the Directors. The Secretary shall give notice of such special meetings by mailing the same at least two days before the meeting, or by telegraphing the same at least one day before the meeting to each Director; but such notice may be waived by any Director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. At any meeting at which every Director shall be present, any business may be transacted, irrespective of notice. SECTION 8. Quorum. One-third of the Board shall constitute a quorum. If there be less than a quorum present at any meeting, a majority of those present may adjourn the meeting from time to time. Except as otherwise provided by law, the Certificate of Incorporation, or by these Bylaws, the affirmative vote of a majority of the Directors present at any meeting at which there is a quorum shall be necessary for the passage of any resolution. SECTION 9. Place of Meeting, Etc. The Directors shall hold the meetings, and may have an office or offices in such place or places within or outside the State of Delaware as the Board from time to time may determine. SECTION 10. Interested Directors; Quorum 1) No contract or other transaction between the Company and one or more of its Directors, or between the Company and any other corporation, partnership, association, or other organization in which one or more of the Directors of the Company is a Director or officer, or has a financial interest, shall be void or voidable, because the Director is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because such Director's vote is counted for such purpose, if: (a) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (b) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or 3 EXHIBIT 3.3 (c) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee thereof, or the stockholders; and 2) Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. ARTICLE III. COMMITTEES OF THE BOARD SECTION 1. Committees. The Board shall by the affirmative vote of a majority of the whole Board, elect from the Directors a Strategic Direction Committee, an Audit Committee, an Environmental Policy Committee, a Compensation Committee, and a Corporate Governance Committee and may, by resolution passed by a majority of the whole Board, designate one or more additional committees, each committee to consist of one or more Directors. The Board shall designate for each of these committees a Chairman, and, if desired, a Vice Chairman, who shall continue as such during the pleasure of the Board. The number of members of each committee shall be determined from time to time by the Board. SECTION 2. Procedure. Each Committee shall fix its own rules of procedure and shall meet where and as provided by such rules. A majority of a committee shall constitute a quorum. In the absence or disqualification of a member of any committee, the members of such committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. SECTION 3. Reports To The Board. Each Committee shall keep regular minutes of its proceedings and shall periodically report to the Board summaries of the Committee's significant completed actions and such other matters as requested by the Board. SECTION 4. Strategic Direction Committee. The Strategic Direction Committee shall review the Company's strategic direction and overall objectives and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. 4 EXHIBIT 3.3 SECTION 5. Audit Committee. The Audit Committee shall employ independent public accountants, subject to stockholder ratification at each annual meeting, review the adequacy of internal controls and the accounting principles employed in financial reporting, and shall have such power and perform such duties as may be assigned to it from time to time by the Board. None of the Members of the Audit Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 6. Environmental Policy Committee. The Environmental Policy Committee shall review the Company's environmental policies and practices and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. SECTION 7. Compensation Committee. The Compensation Committee shall have the power and authority vested in it by the Compensation Plans of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Compensation Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 8. Corporate Governance Committee. The Corporate Governance Committee shall recommend to the Board nominees for election as directors of the Company. The Committee shall also have responsibility for reviewing and making recommendations to the Board related to matters on corporate governance and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Corporate Governance Committee shall be an officer or employee of the Company or its subsidiaries. ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE The Board shall elect an Office of the Chief Executive whose members shall include the Chairman of the Board, President and such other officers as may be designated by the Board. The Office of the Chief Executive shall have responsibility for the strategic direction and operations of all the businesses of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. All significant completed actions by the Office of the Chief Executive shall be reported to the Board at the next succeeding Board meeting, or at its meeting held in the month following the taking of such action. 5 EXHIBIT 3.3 ARTICLE V. OFFICERS SECTION 1. Officers. The officers of the Company shall be a Chairman of the Board, a President, one or more Executive Vice Presidents, an Executive Vice President - Finance and a Secretary. The Board and the Office of the Chief Executive, may appoint such other officers as they deem necessary, who shall have such authority and shall perform such duties as may be prescribed, respectively, by the Board or the Office of the Chief Executive. SECTION 2. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Company and, subject to the Board and the Office of the Chief Executive, shall have general charge of the business and affairs of the Company. The Chairman shall preside at all meetings of the stockholders and of the Board. The Chairman may sign and execute all authorized bonds, contracts or other obligations, in the name of the Company, and with the Treasurer may sign all certificates of the shares in the capital stock of the Company. SECTION 3. President. The President shall have such powers and perform such duties as may be assigned to the President by the Board or the Chairman of the Board. In the absence or inability to act of the Chairman of the Board, the President shall perform the duties of the Chairman of the Board. SECTION 4. Executive Vice Presidents. Each Executive Vice President shall have such powers and perform such duties as may be assigned to such Executive Vice President by the Board or the Office of the Chief Executive. SECTION 5. Vice Presidents. The Board or the Office of the Chief Executive may appoint one or more Vice Presidents. Each Vice President shall have such title, powers and duties as may be assigned to such Vice President by the Board or the Office of the Chief Executive. SECTION 6. Executive Vice President - Finance. The Executive Vice President - Finance shall be the chief financial officer of the Company, and shall have such powers and perform such duties as may be assigned to such Executive Vice President -Finance by the Board or the Office of the Chief Executive. SECTION 7. Treasurer. The Board shall appoint a Treasurer. Under the general direction of the Executive Vice President - Finance, the Treasurer shall have such powers and perform such duties as may be assigned to such Treasurer by the Board or the Office of the Chief Executive. 6 EXHIBIT 3.3 SECTION 8. Assistant Treasurer. The Board or the Office of the Chief Executive may appoint one or more Assistant Treasurers. Each Assistant Treasurer shall have such powers and shall perform such duties as may be assigned to such Assistant Treasurer by the Board or the Office of the Chief Executive. SECTION 9. Controller. The Board may appoint a Controller. Under the general direction of the Executive Vice President - Finance, the Controller shall have such powers and perform such duties as may be assigned to such Controller by the Board or the Office of the Chief Executive. SECTION 10. Assistant Controller. The Board or the Office of the Chief Executive may appoint one or more Assistant Controllers. Each Assistant Controller shall have such powers and shall perform such duties as may be assigned to such Assistant Controller by the Board or the Office of the Chief Executive. SECTION 11. Secretary. The Secretary shall keep the minutes of all the meetings of the Board and the minutes of all the meetings of the stockholders; the Secretary shall attend to the giving and serving of all notices of meetings as required by law or these Bylaws; the Secretary shall affix the seal of the Company to any instruments when so required; and the Secretary shall in general perform all the corporate duties incident to the office of Secretary, subject to the control of the Board or the Chairman of the Board, and such other duties as may be assigned to the Secretary by the Board or the Chairman of the Board. SECTION 12. Assistant Secretary. The Board or the Office of the Chief Executive may appoint one or more Assistant Secretaries. Each Assistant Secretary shall have such powers and shall perform such duties as may be assigned to such Assistant Secretary by the Board or the Chairman of the Board or the President; and such Assistant Secretary shall affix the seal of the Company to any instruments when so required. SECTION 13. Removal. All officers may be removed or suspended at any time by the vote of the majority of the whole Board. All officers, agents and employees, other than officers elected or appointed by the Board, may be suspended or removed by the committee or by the officer appointing them. SECTION 14. Resignation. Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 15. Vacancies. A vacancy in any office shall be filled in the same manner as provided for election or appointment to such office. 7 EXHIBIT 3.3 ARTICLE VI. MISCELLANEOUS SECTION 1. Indemnification of Directors or Officers. Each person who is or was a Director or officer of the Company (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Company as of right to the full extent permitted by the General Corporation Law of Delaware against any liability, cost or expense asserted against such Director or officer and incurred by such Director or officer by reason of the fact that such person is or was a Director or officer. The right to indemnification conferred by this Section shall include the right to be paid by the Company the expenses incurred in defending in any action, suit or proceeding in advance of its final disposition, subject to the receipt by the Company of such undertakings as might be required of an indemnitee by the General Corporation Law of Delaware. In any action by an indemnitee to enforce a right to indemnification hereunder or by the Company to recover advances made hereunder, the burden of proving that the indemnitee is not entitled to be indemnified shall be on the Company. In such an action, neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination that indemnification is proper, nor a determination by the Company that indemnification is improper, shall create a presumption that the indemnitee is not entitled to be indemnified or, in the case of such an action brought by the indemnitee, be a defense thereto. If successful in whole or in part in such an action, an indemnitee shall be entitled to be paid also the expense of prosecuting or defending same. The Company may, but shall not be obligated to, maintain insurance at its expense, to protect itself and any such person against any such liability, cost or expense. SECTION 2. Certificate for Shares. The shares of the capital stock of the Company shall be represented by certificates unless the Company provides by appropriate action that some or all of any or all classes or series of the Company's stock shall be uncertificated. Notwithstanding the Company's taking such action, to the extent required by law, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to a certificate representing the number of shares in the Company owned by such stockholder in such form, not inconsistent with the Certificate of Incorporation, as shall be prescribed by the Board. Certificates representing shares of the capital stock of the Company shall be signed by the Chairman of the Board, President or an Executive Vice President and the Treasurer, Secretary or an Assistant Secretary. Any or all signatures on the certificate, including those of the Transfer Agent and Registrar, may be facsimile. 8 EXHIBIT 3.3 The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Company's books. All certificates surrendered to the Company shall be cancelled, and no new certificates shall be issued until the former certificate for the same number of shares of the same class shall have been surrendered and cancelled, except that the Board may determine, from time to time, the conditions and provisions on which new certificates may be used in substitution of any certificates that may have been lost, stolen or destroyed. SECTION 3. Transfer of Shares. Shares in the capital stock of the Company shall be transferred by the record holder thereof, in person, or by any such person's attorney upon surrender and cancellation of certificates for a like number of shares. SECTION 4. Regulations. The Board also may make rules and regulations concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board may appoint one or more transfer agents and one or more registrars of transfers, and may require all stock certificates to bear the signature of a transfer agent and a registrar of transfer. SECTION 5. Record Date of Stockholders. The Board may fix in advance a date, not exceeding sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or other distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or other distribution, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive any such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date fixed as aforesaid. SECTION 6. Corporate Seal. The seal of the Company shall be circular in form, containing the words "E. I. DU PONT DE NEMOURS AND CO." and "DELAWARE" on the circumference, surrounding the words "FOUNDED" and "SEAL," and the date "1802." 9 EXHIBIT 3.3 The seal shall be in the custody of the Secretary. A duplicate of the seal may be kept and used by the Executive Vice President - Finance, any Vice President - DuPont Finance, the Treasurer, or by any Assistant Secretary or Assistant Treasurer. ARTICLE VII. AMENDMENTS The Board shall have the power to adopt, amend and repeal the Bylaws of the Company, by a vote of the majority of the whole Board, at any regular or special meeting of the Board, provided that notice of intention to adopt, amend or repeal the Bylaws in whole or in part shall have been given at the next preceding meeting, or, without any such notice, by the vote of two-thirds of the whole Board. I hereby certify that the foregoing is a true and correct copy of the Bylaws of E. I. du Pont de Nemours and Company. Witness my hand and the corporate seal of the Company this day of 199 . - ------------ ------------------ -- ---------------------------- Secretary 10 EX-3.4 3 COMPANY'S BYLAWS, LAST REVISED NOVEMBER 15, 1997 EXHIBIT 3.4 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ------------------------------------ Incorporated Under The Laws of Delaware AS REVISED November 15, 1997 EXHIBIT 3.4 BYLAWS Page ---- ARTICLE I. MEETING OF STOCKHOLDERS: Section 1. Annual 1 Section 2. Special 1 Section 3. Notice 1 Section 4. Quorum 1 Section 5. Organization 1 Section 6. Voting 2 Section 7. Inspectors 2 ARTICLE II. BOARD OF DIRECTORS: Section 1. Number 2 Section 2. Term 2 Section 3. Increase of Number 2 Section 4. Resignation 2 Section 5. Vacancies 2 Section 6. Regular Meetings 2 Section 7. Special Meetings 3 Section 8. Quorum 3 Section 9. Place of Meeting, Etc. 3 Section 10. Interested Directors; Quorum 3 ARTICLE III. COMMITTEES OF THE BOARD: Section 1. Committees 4 Section 2. Procedure 4 Section 3. Reports to the Board 4 Section 4. Strategic Direction Committee 4 Section 5. Audit Committee 5 Section 6 Environmental Policy Committee 5 Section 7. Compensation Committee 5 Section 8. Corporate Governance Committee 5 ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE 5 EXHIBIT 3.4 Page ---- ARTICLE V. OFFICERS: Section 1. Officers 6 Section 2. Chairman of the Board 6 Section 3. President 6 Section 4. Executive Vice Presidents 6 Section 5. Vice Presidents 6 Section 6. Senior Vice President - Finance 6 Section 7. Treasurer 6 Section 8. Assistant Treasurer 7 Section 9. Controller 7 Section 10. Assistant Controller 7 Section 11. Secretary 7 Section 12. Assistant Secretary 7 Section 13. Removal 7 Section 14. Resignation 7 Section 15. Vacancies 7 ARTICLE VI. MISCELLANEOUS: Section 1. Indemnification of Directors or Officers 8 Section 2. Certificate for Shares 8 Section 3. Transfer of Shares 9 Section 4. Regulations 9 Section 5. Record Date of Stockholders 9 Section 6. Corporate Seal 9 ARTICLE VII. AMENDMENTS 10 EXHIBIT 3.4 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ARTICLE I. MEETING OF STOCKHOLDERS SECTION 1. Annual. Meetings of the stockholders for the purpose of electing Directors, and transacting such other proper business as may be brought before the meeting, shall be held annually at such date, time and place, within or without the State of Delaware as may be designated by the Board of Directors ("Board"). SECTION 2. Special. Special meetings of the stockholders may be called by the Board and shall be called by the Secretary at the request in writing of the holders of record of at least twenty-five percent of the outstanding stock of the corporation entitled to vote. Special meetings shall be held within or without the State of Delaware, as the Board shall designate. SECTION 3. Notice. Written notice of each meeting of stockholders, stating the place, date and hour of the meeting, and the purpose or purposes thereof, shall be mailed not less than ten nor more than sixty days before the date of such meeting to each stockholder entitled to vote thereat. SECTION 4. Quorum. Unless otherwise provided by statute, the holders of shares of stock entitled to cast a majority of votes at a meeting, present either in person or by proxy, shall constitute a quorum at such meeting. Absence of a quorum of the holders of Common Stock or Preferred Stock at any meeting or adjournment thereof, at which under the Certificate of Incorporation the holders of Preferred Stock have the right to elect any Directors, shall not prevent the election of Directors by the other class of stockholders entitled to elect Directors as a class if the necessary quorum of stockholders of such other class shall be present in person or by proxy. SECTION 5. Organization. The Chairman of the Board or, in the Chairman's absence, the President shall preside at meetings of stockholders. The Secretary of the Company shall act as Secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint a Secretary of the meeting. The order of business for such meetings shall be determined by the Chairman of the Board, or, in the Chairman's absence, by the President. 1 EXHIBIT 3.4 SECTION 6. Voting. Each stockholder entitled to vote at any meeting shall be entitled to one vote, in person or by written proxy, for each share held of record. Upon the demand of any stockholder, such stockholder shall be entitled to vote by ballot. All elections and questions shall be decided by plurality vote, except as otherwise required by statute. SECTION 7. Inspectors. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies, and the acceptance or rejection of votes shall be decided by three Inspectors, two of whom shall have power to make a decision. Such Inspectors shall be appointed by the Board before the meeting, or in default thereof, by the presiding officer at the meeting, and shall be sworn to the faithful performance of their duties. If any of the Inspectors previously appointed shall fail to attend or refuse or be unable to serve, substitutes shall be appointed by the presiding officer. ARTICLE II. BOARD OF DIRECTORS SECTION 1. Number. The business and affairs of the Company shall be under the direction of the Board. The number of Directors, which shall not be less than ten, shall be determined from time to time by the vote of two-thirds of the whole Board. SECTION 2. Term. Each Director shall hold office until the next annual election of Directors and until the Director's successor is elected and qualified. SECTION 3. Increase of Number. In case of any increase in the number of Directors between Annual Meetings of Stockholders, each additional Director shall be elected by the vote of two-thirds of the whole Board. SECTION 4. Resignation. A Director may resign at any time by giving written notice to the Chairman of the Board or the Secretary. The acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 5. Vacancies. In case of any vacancy in the Board for any cause, the remaining Directors, by vote of majority of the whole Board, may elect a successor to hold office for the unexpired term of the Director whose place is vacant. SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such times as the Board may designate. A notice of each regular meeting shall not be required. 2 EXHIBIT 3.4 SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the direction of the Chairman of the Board, or of one-third of the Directors. The Secretary shall give notice of such special meetings by mailing the same at least two days before the meeting, or by telegraphing the same at least one day before the meeting to each Director; but such notice may be waived by any Director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. At any meeting at which every Director shall be present, any business may be transacted, irrespective of notice. SECTION 8. Quorum. One-third of the Board shall constitute a quorum. If there be less than a quorum present at any meeting, a majority of those present may adjourn the meeting from time to time. Except as otherwise provided by law, the Certificate of Incorporation, or by these Bylaws, the affirmative vote of a majority of the Directors present at any meeting at which there is a quorum shall be necessary for the passage of any resolution. SECTION 9. Place of Meeting, Etc. The Directors shall hold the meetings, and may have an office or offices in such place or places within or outside the State of Delaware as the Board from time to time may determine. SECTION 10. Interested Directors; Quorum 1) No contract or other transaction between the Company and one or more of its Directors, or between the Company and any other corporation, partnership, association, or other organization in which one or more of the Directors of the Company is a Director or officer, or has a financial interest, shall be void or voidable, because the Director is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because such Director's vote is counted for such purpose, if: (a) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (b) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or 3 EXHIBIT 3.4 (c) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee thereof, or the stockholders; and 2) Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. ARTICLE III. COMMITTEES OF THE BOARD SECTION 1. Committees. The Board shall by the affirmative vote of a majority of the whole Board, elect from the Directors a Strategic Direction Committee, an Audit Committee, an Environmental Policy Committee, a Compensation Committee, and a Corporate Governance Committee and may, by resolution passed by a majority of the whole Board, designate one or more additional committees, each committee to consist of one or more Directors. The Board shall designate for each of these committees a Chairman, and, if desired, a Vice Chairman, who shall continue as such during the pleasure of the Board. The number of members of each committee shall be determined from time to time by the Board. SECTION 2. Procedure. Each Committee shall fix its own rules of procedure and shall meet where and as provided by such rules. A majority of a committee shall constitute a quorum. In the absence or disqualification of a member of any committee, the members of such committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. SECTION 3. Reports To The Board. Each Committee shall keep regular minutes of its proceedings and shall periodically report to the Board summaries of the Committee's significant completed actions and such other matters as requested by the Board. SECTION 4. Strategic Direction Committee. The Strategic Direction Committee shall review the Company's strategic direction and overall objectives and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. 4 EXHIBIT 3.4 SECTION 5. Audit Committee. The Audit Committee shall employ independent public accountants, subject to stockholder ratification at each annual meeting, review the adequacy of internal controls and the accounting principles employed in financial reporting, and shall have such power and perform such duties as may be assigned to it from time to time by the Board. None of the Members of the Audit Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 6. Environmental Policy Committee. The Environmental Policy Committee shall review the Company's environmental policies and practices and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. SECTION 7. Compensation Committee. The Compensation Committee shall have the power and authority vested in it by the Compensation Plans of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Compensation Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 8. Corporate Governance Committee. The Corporate Governance Committee shall recommend to the Board nominees for election as directors of the Company. The Committee shall also have responsibility for reviewing and making recommendations to the Board related to matters on corporate governance and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Corporate Governance Committee shall be an officer or employee of the Company or its subsidiaries. ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE The Board shall elect an Office of the Chief Executive whose members shall include the Chairman of the Board, President and such other officers as may be designated by the Board. The Office of the Chief Executive shall have responsibility for the strategic direction and operations of all the businesses of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. All significant completed actions by the Office of the Chief Executive shall be reported to the Board at the next succeeding Board meeting, or at its meeting held in the month following the taking of such action. 5 EXHIBIT 3.4 ARTICLE V. OFFICERS SECTION 1. Officers. The officers of the Company shall be a Chairman of the Board, a President, one or more Executive Vice Presidents, a Senior Vice President - Finance and a Secretary. The Board and the Office of the Chief Executive, may appoint such other officers as they deem necessary, who shall have such authority and shall perform such duties as may be prescribed, respectively, by the Board or the Office of the Chief Executive. SECTION 2. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Company and, subject to the Board and the Office of the Chief Executive, shall have general charge of the business and affairs of the Company. The Chairman shall preside at all meetings of the stockholders and of the Board. The Chairman may sign and execute all authorized bonds, contracts or other obligations, in the name of the Company, and with the Treasurer may sign all certificates of the shares in the capital stock of the Company. SECTION 3. President. The President shall have such powers and perform such other duties as may be assigned to the President by the Board or the Chairman of the Board. In the absence or inability to act of the Chairman of the Board, the President shall perform the duties of the Chairman of the Board. SECTION 4. Executive Vice Presidents. Each Executive Vice President shall have such powers and perform such duties as may be assigned to such Executive Vice President by the Board or the Office of the Chief Executive. SECTION 5. Vice Presidents. The Board or the Office of the Chief Executive may appoint one or more Vice Presidents. Each Vice President shall have such title, powers and duties as may be assigned to such Vice President by the Board or the Office of the Chief Executive. SECTION 6. Senior Vice President - Finance. The Senior Vice President - Finance shall be the chief financial officer of the Company, and shall have such powers and perform such duties as may be assigned to such Senior Vice President - Finance by the Board or the Office of the Chief Executive. SECTION 7. Treasurer. The Board shall appoint a Treasurer. Under the general direction of the Senior Vice President - Finance, the Treasurer shall have such powers and perform such duties as may be assigned to such Treasurer by the Board or the Office of the Chief Executive. 6 EXHIBIT 3.4 SECTION 8. Assistant Treasurer. The Board or the Office of the Chief Executive may appoint one or more Assistant Treasurers. Each Assistant Treasurer shall have such powers and shall perform such duties as may be assigned to such Assistant Treasurer by the Board or the Office of the Chief Executive. SECTION 9. Controller. The Board may appoint a Controller. Under the general direction of the Senior Vice President - Finance, the Controller shall have such powers and perform such duties as may be assigned to such Controller by the Board or the Office of the Chief Executive. SECTION 10. Assistant Controller. The Board or the Office of the Chief Executive may appoint one or more Assistant Controllers. Each Assistant Controller shall have such powers and shall perform such duties as may be assigned to such Assistant Controller by the Board or the Office of the Chief Executive. SECTION 11. Secretary. The Secretary shall keep the minutes of all the meetings of the Board and the minutes of all the meetings of the stockholders; the Secretary shall attend to the giving and serving of all notices of meetings as required by law or these Bylaws; the Secretary shall affix the seal of the Company to any instruments when so required; and the Secretary shall in general perform all the corporate duties incident to the office of Secretary, subject to the control of the Board or the Chairman of the Board, and such other duties as may be assigned to the Secretary by the Board or the Chairman of the Board. SECTION 12. Assistant Secretary. The Board or the Office of the Chief Executive may appoint one or more Assistant Secretaries. Each Assistant Secretary shall have such powers and shall perform such duties as may be assigned to such Assistant Secretary by the Board or the Chairman of the Board or the President; and such Assistant Secretary shall affix the seal of the Company to any instruments when so required. SECTION 13. Removal. All officers may be removed or suspended at any time by the vote of the majority of the whole Board. All officers, agents and employees, other than officers elected or appointed by the Board, may be suspended or removed by the committee or by the officer appointing them. SECTION 14. Resignation. Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 15. Vacancies. A vacancy in any office shall be filled in the same manner as provided for election or appointment to such office. 7 EXHIBIT 3.4 ARTICLE VI. MISCELLANEOUS SECTION 1. Indemnification of Directors or Officers. Each person who is or was a Director or officer of the Company (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Company as of right to the full extent permitted by the General Corporation Law of Delaware against any liability, cost or expense asserted against such Director or officer and incurred by such Director or officer by reason of the fact that such person is or was a Director or officer. The right to indemnification conferred by this Section shall include the right to be paid by the Company the expenses incurred in defending in any action, suit or proceeding in advance of its final disposition, subject to the receipt by the Company of such undertakings as might be required of an indemnitee by the General Corporation Law of Delaware. In any action by an indemnitee to enforce a right to indemnification hereunder or by the Company to recover advances made hereunder, the burden of proving that the indemnitee is not entitled to be indemnified shall be on the Company. In such an action, neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination that indemnification is proper, nor a determination by the Company that indemnification is improper, shall create a presumption that the indemnitee is not entitled to be indemnified or, in the case of such an action brought by the indemnitee, be a defense thereto. If successful in whole or in part in such an action, an indemnitee shall be entitled to be paid also the expense of prosecuting or defending same. The Company may, but shall not be obligated to, maintain insurance at its expense, to protect itself and any such person against any such liability, cost or expense. SECTION 2. Certificate for Shares. The shares of the capital stock of the Company shall be represented by certificates unless the Company provides by appropriate action that some or all of any or all classes or series of the Company's stock shall be uncertificated. Notwithstanding the Company's taking such action, to the extent required by law, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to a certificate representing the number of shares in the Company owned by such stockholder in such form, not inconsistent with the Certificate of Incorporation, as shall be prescribed by the Board. Certificates representing shares of the capital stock of the Company shall be signed by the Chairman of the Board, President or an Executive Vice President and the Treasurer, Secretary or an Assistant Secretary. Any or all signatures on the certificate, including those of the Transfer Agent and Registrar, may be facsimile. 8 EXHIBIT 3.4 The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Company's books. All certificates surrendered to the Company shall be cancelled, and no new certificates shall be issued until the former certificate for the same number of shares of the same class shall have been surrendered and cancelled, except that the Board may determine, from time to time, the conditions and provisions on which new certificates may be used in substitution of any certificates that may have been lost, stolen or destroyed. SECTION 3. Transfer of Shares. Shares in the capital stock of the Company shall be transferred by the record holder thereof, in person, or by any such person's attorney upon surrender and cancellation of certificates for a like number of shares. SECTION 4. Regulations. The Board also may make rules and regulations concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board may appoint one or more transfer agents and one or more registrars of transfers, and may require all stock certificates to bear the signature of a transfer agent and a registrar of transfer. SECTION 5. Record Date of Stockholders. The Board may fix in advance a date, not exceeding sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or other distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or other distribution, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive any such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date fixed as aforesaid. SECTION 6. Corporate Seal. The seal of the Company shall be circular in form, containing the words "E. I. DU PONT DE NEMOURS AND CO." and "DELAWARE" on the circumference, surrounding the words "FOUNDED" and "SEAL," and the date "1802." 9 EXHIBIT 3.4 The seal shall be in the custody of the Secretary. A duplicate of the seal may be kept and used by the Senior Vice President - Finance, any Vice President - DuPont Finance, the Treasurer, or by any Assistant Secretary or Assistant Treasurer. ARTICLE VII. AMENDMENTS The Board shall have the power to adopt, amend and repeal the Bylaws of the Company, by a vote of the majority of the whole Board, at any regular or special meeting of the Board, provided that notice of intention to adopt, amend or repeal the Bylaws in whole or in part shall have been given at the next preceding meeting, or, without any such notice, by the vote of two-thirds of the whole Board. I hereby certify that the foregoing is a true and correct copy of the Bylaws of E. I. du Pont de Nemours and Company. Witness my hand and the corporate seal of the Company this day of 199 . - ------------ ------------------ -- ---------------------------- Secretary 10 EX-3.5 4 COMPANY'S BYLAWS, LAST REVISED FEBRUARY 1, 1998 EXHIBIT 3.5 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ------------------------------------ Incorporated Under The Laws of Delaware AS REVISED February 1, 1998 EXHIBIT 3.5 BYLAWS Page ---- ARTICLE I. MEETING OF STOCKHOLDERS: Section 1. Annual 1 Section 2. Special 1 Section 3. Notice 1 Section 4. Quorum 1 Section 5. Organization 1 Section 6. Voting 2 Section 7. Inspectors 2 ARTICLE II. BOARD OF DIRECTORS: Section 1. Number 2 Section 2. Term 2 Section 3. Increase of Number 2 Section 4. Resignation 2 Section 5. Vacancies 2 Section 6. Regular Meetings 2 Section 7. Special Meetings 3 Section 8. Quorum 3 Section 9. Place of Meeting, Etc. 3 Section 10. Interested Directors; Quorum 3 ARTICLE III. COMMITTEES OF THE BOARD: Section 1. Committees 4 Section 2. Procedure 4 Section 3. Reports to the Board 4 Section 4. Strategic Direction Committee 4 Section 5. Audit Committee 5 Section 6 Environmental Policy Committee 5 Section 7. Compensation Committee 5 Section 8. Corporate Governance Committee 5 ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE 5 EXHIBIT 3.5 Page ---- ARTICLE V. OFFICERS: Section 1. Officers 6 Section 2. Chairman of the Board 6 Section 3. President 6 Section 4. Executive Vice Presidents 6 Section 5. Vice Presidents 6 Section 6. Senior Vice President - Finance 6 Section 7. Treasurer 6 Section 8. Assistant Treasurer 7 Section 9. Controller 7 Section 10. Assistant Controller 7 Section 11. Secretary 7 Section 12. Assistant Secretary 7 Section 13. Removal 7 Section 14. Resignation 7 Section 15. Vacancies 7 ARTICLE VI. MISCELLANEOUS: Section 1. Indemnification of Directors or Officers 8 Section 2. Certificate for Shares 8 Section 3. Transfer of Shares 9 Section 4. Regulations 9 Section 5. Record Date of Stockholders 9 Section 6. Corporate Seal 9 ARTICLE VII. AMENDMENTS 10 EXHIBIT 3.5 BYLAWS OF E. I. DU PONT DE NEMOURS AND COMPANY ARTICLE I. MEETING OF STOCKHOLDERS SECTION 1. Annual. Meetings of the stockholders for the purpose of electing Directors, and transacting such other proper business as may be brought before the meeting, shall be held annually at such date, time and place, within or without the State of Delaware as may be designated by the Board of Directors ("Board"). SECTION 2. Special. Special meetings of the stockholders may be called by the Board and shall be called by the Secretary at the request in writing of the holders of record of at least twenty-five percent of the outstanding stock of the corporation entitled to vote. Special meetings shall be held within or without the State of Delaware, as the Board shall designate. SECTION 3. Notice. Written notice of each meeting of stockholders, stating the place, date and hour of the meeting, and the purpose or purposes thereof, shall be mailed not less than ten nor more than sixty days before the date of such meeting to each stockholder entitled to vote thereat. SECTION 4. Quorum. Unless otherwise provided by statute, the holders of shares of stock entitled to cast a majority of votes at a meeting, present either in person or by proxy, shall constitute a quorum at such meeting. Absence of a quorum of the holders of Common Stock or Preferred Stock at any meeting or adjournment thereof, at which under the Certificate of Incorporation the holders of Preferred Stock have the right to elect any Directors, shall not prevent the election of Directors by the other class of stockholders entitled to elect Directors as a class if the necessary quorum of stockholders of such other class shall be present in person or by proxy. SECTION 5. Organization. The Chairman of the Board or, in the Chairman's absence, the President shall preside at meetings of stockholders. The Secretary of the Company shall act as Secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint a Secretary of the meeting. The order of business for such meetings shall be determined by the Chairman of the Board, or, in the Chairman's absence, by the President. 1 EXHIBIT 3.5 SECTION 6. Voting. Each stockholder entitled to vote at any meeting shall be entitled to one vote, in person or by written proxy, for each share held of record. Upon the demand of any stockholder, such stockholder shall be entitled to vote by ballot. All elections and questions shall be decided by plurality vote, except as otherwise required by statute. SECTION 7. Inspectors. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies, and the acceptance or rejection of votes shall be decided by three Inspectors, two of whom shall have power to make a decision. Such Inspectors shall be appointed by the Board before the meeting, or in default thereof, by the presiding officer at the meeting, and shall be sworn to the faithful performance of their duties. If any of the Inspectors previously appointed shall fail to attend or refuse or be unable to serve, substitutes shall be appointed by the presiding officer. ARTICLE II. BOARD OF DIRECTORS SECTION 1. Number. The business and affairs of the Company shall be under the direction of the Board. The number of Directors, which shall not be less than ten, shall be determined from time to time by the vote of two-thirds of the whole Board. SECTION 2. Term. Each Director shall hold office until the next annual election of Directors and until the Director's successor is elected and qualified. SECTION 3. Increase of Number. In case of any increase in the number of Directors between Annual Meetings of Stockholders, each additional Director shall be elected by the vote of two-thirds of the whole Board. SECTION 4. Resignation. A Director may resign at any time by giving written notice to the Chairman of the Board or the Secretary. The acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 5. Vacancies. In case of any vacancy in the Board for any cause, the remaining Directors, by vote of majority of the whole Board, may elect a successor to hold office for the unexpired term of the Director whose place is vacant. SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such times as the Board may designate. A notice of each regular meeting shall not be required. 2 EXHIBIT 3.5 SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the direction of the Chairman of the Board, or of one-third of the Directors. The Secretary shall give notice of such special meetings by mailing the same at least two days before the meeting, or by telegraphing the same at least one day before the meeting to each Director; but such notice may be waived by any Director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. At any meeting at which every Director shall be present, any business may be transacted, irrespective of notice. SECTION 8. Quorum. One-third of the Board shall constitute a quorum. If there be less than a quorum present at any meeting, a majority of those present may adjourn the meeting from time to time. Except as otherwise provided by law, the Certificate of Incorporation, or by these Bylaws, the affirmative vote of a majority of the Directors present at any meeting at which there is a quorum shall be necessary for the passage of any resolution. SECTION 9. Place of Meeting, Etc. The Directors shall hold the meetings, and may have an office or offices in such place or places within or outside the State of Delaware as the Board from time to time may determine. SECTION 10. Interested Directors; Quorum 1) No contract or other transaction between the Company and one or more of its Directors, or between the Company and any other corporation, partnership, association, or other organization in which one or more of the Directors of the Company is a Director or officer, or has a financial interest, shall be void or voidable, because the Director is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because such Director's vote is counted for such purpose, if: (a) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (b) the material facts as to such Director's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or 3 EXHIBIT 3.5 (c) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee thereof, or the stockholders; and 2) Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. ARTICLE III. COMMITTEES OF THE BOARD SECTION 1. Committees. The Board shall by the affirmative vote of a majority of the whole Board, elect from the Directors a Strategic Direction Committee, an Audit Committee, an Environmental Policy Committee, a Compensation Committee, and a Corporate Governance Committee and may, by resolution passed by a majority of the whole Board, designate one or more additional committees, each committee to consist of one or more Directors. The Board shall designate for each of these committees a Chairman, and, if desired, a Vice Chairman, who shall continue as such during the pleasure of the Board. The number of members of each committee shall be determined from time to time by the Board. SECTION 2. Procedure. Each Committee shall fix its own rules of procedure and shall meet where and as provided by such rules. A majority of a committee shall constitute a quorum. In the absence or disqualification of a member of any committee, the members of such committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. SECTION 3. Reports To The Board. Each Committee shall keep regular minutes of its proceedings and shall periodically report to the Board summaries of the Committee's significant completed actions and such other matters as requested by the Board. SECTION 4. Strategic Direction Committee. The Strategic Direction Committee shall review the Company's strategic direction and overall objectives and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. 4 EXHIBIT 3.5 SECTION 5. Audit Committee. The Audit Committee shall employ independent public accountants, subject to stockholder ratification at each annual meeting, review the adequacy of internal controls and the accounting principles employed in financial reporting, and shall have such power and perform such duties as may be assigned to it from time to time by the Board. None of the Members of the Audit Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 6. Environmental Policy Committee. The Environmental Policy Committee shall review the Company's environmental policies and practices and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. SECTION 7. Compensation Committee. The Compensation Committee shall have the power and authority vested in it by the Compensation Plans of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Compensation Committee shall be an officer or employee of the Company or its subsidiaries. SECTION 8. Corporate Governance Committee. The Corporate Governance Committee shall recommend to the Board nominees for election as directors of the Company. The Committee shall also have responsibility for reviewing and making recommendations to the Board related to matters on corporate governance and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. None of the members of the Corporate Governance Committee shall be an officer or employee of the Company or its subsidiaries. ARTICLE IV. OFFICE OF THE CHIEF EXECUTIVE The Board shall elect an Office of the Chief Executive whose members shall include the President and such other officers as may be designated by the Board. The Office of the Chief Executive shall have responsibility for the strategic direction and operations of all the businesses of the Company and shall have such powers and perform such duties as may be assigned to it from time to time by the Board. All significant completed actions by the Office of the Chief Executive shall be reported to the Board at the next succeeding Board meeting, or at its meeting held in the month following the taking of such action. 5 EXHIBIT 3.5 ARTICLE V. OFFICERS SECTION 1. Officers. The officers of the Company shall be a Chairman of the Board, a President, one or more Executive Vice Presidents, a Senior Vice President - Finance and a Secretary. The Board and the Office of the Chief Executive, may appoint such other officers as they deem necessary, who shall have such authority and shall perform such duties as may be prescribed, respectively, by the Board or the Office of the Chief Executive. SECTION 2. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board. The Chairman may sign and execute all authorized bonds, contracts or other obligations, in the name of the Company, and with the Treasurer may sign all certificates of the shares in the capital stock of the Company. SECTION 3. President. The President shall be the chief executive officer of the Company and, subject to the Board and the Office of the Chief Executive, shall have general charge of the business and affairs of the Company and perform such other duties as may be assigned to the President by the Board or the Chairman of the Board. In the absence or inability to act of the Chairman of the Board, the President shall perform the duties of the Chairman of the Board. SECTION 4. Executive Vice Presidents. Each Executive Vice President shall have such powers and perform such duties as may be assigned to such Executive Vice President by the Board or the Office of the Chief Executive. SECTION 5. Vice Presidents. The Board or the Office of the Chief Executive may appoint one or more Vice Presidents. Each Vice President shall have such title, powers and duties as may be assigned to such Vice President by the Board or the Office of the Chief Executive. SECTION 6. Senior Vice President - Finance. The Senior Vice President - Finance shall be the chief financial officer of the Company, and shall have such powers and perform such duties as may be assigned to such Senior Vice President - Finance by the Board or the Office of the Chief Executive. SECTION 7. Treasurer. The Board shall appoint a Treasurer. Under the general direction of the Senior Vice President - Finance, the Treasurer shall have such powers and perform such duties as may be assigned to such Treasurer by the Board or the Office of the Chief Executive. 6 EXHIBIT 3.5 SECTION 8. Assistant Treasurer. The Board or the Office of the Chief Executive may appoint one or more Assistant Treasurers. Each Assistant Treasurer shall have such powers and shall perform such duties as may be assigned to such Assistant Treasurer by the Board or the Office of the Chief Executive. SECTION 9. Controller. The Board may appoint a Controller. Under the general direction of the Senior Vice President - Finance, the Controller shall have such powers and perform such duties as may be assigned to such Controller by the Board or the Office of the Chief Executive. SECTION 10. Assistant Controller. The Board or the Office of the Chief Executive may appoint one or more Assistant Controllers. Each Assistant Controller shall have such powers and shall perform such duties as may be assigned to such Assistant Controller by the Board or the Office of the Chief Executive. SECTION 11. Secretary. The Secretary shall keep the minutes of all the meetings of the Board and the minutes of all the meetings of the stockholders; the Secretary shall attend to the giving and serving of all notices of meetings as required by law or these Bylaws; the Secretary shall affix the seal of the Company to any instruments when so required; and the Secretary shall in general perform all the corporate duties incident to the office of Secretary, subject to the control of the Board or the Chairman of the Board, and such other duties as may be assigned to the Secretary by the Board or the Chairman of the Board. SECTION 12. Assistant Secretary. The Board or the Office of the Chief Executive may appoint one or more Assistant Secretaries. Each Assistant Secretary shall have such powers and shall perform such duties as may be assigned to such Assistant Secretary by the Board or the Chairman of the Board or the President; and such Assistant Secretary shall affix the seal of the Company to any instruments when so required. SECTION 13. Removal. All officers may be removed or suspended at any time by the vote of the majority of the whole Board. All officers, agents and employees, other than officers elected or appointed by the Board, may be suspended or removed by the committee or by the officer appointing them. SECTION 14. Resignation. Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 15. Vacancies. A vacancy in any office shall be filled in the same manner as provided for election or appointment to such office. 7 EXHIBIT 3.5 ARTICLE VI. MISCELLANEOUS SECTION 1. Indemnification of Directors or Officers. Each person who is or was a Director or officer of the Company (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Company as of right to the full extent permitted by the General Corporation Law of Delaware against any liability, cost or expense asserted against such Director or officer and incurred by such Director or officer by reason of the fact that such person is or was a Director or officer. The right to indemnification conferred by this Section shall include the right to be paid by the Company the expenses incurred in defending in any action, suit or proceeding in advance of its final disposition, subject to the receipt by the Company of such undertakings as might be required of an indemnitee by the General Corporation Law of Delaware. In any action by an indemnitee to enforce a right to indemnification hereunder or by the Company to recover advances made hereunder, the burden of proving that the indemnitee is not entitled to be indemnified shall be on the Company. In such an action, neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination that indemnification is proper, nor a determination by the Company that indemnification is improper, shall create a presumption that the indemnitee is not entitled to be indemnified or, in the case of such an action brought by the indemnitee, be a defense thereto. If successful in whole or in part in such an action, an indemnitee shall be entitled to be paid also the expense of prosecuting or defending same. The Company may, but shall not be obligated to, maintain insurance at its expense, to protect itself and any such person against any such liability, cost or expense. SECTION 2. Certificate for Shares. The shares of the capital stock of the Company shall be represented by certificates unless the Company provides by appropriate action that some or all of any or all classes or series of the Company's stock shall be uncertificated. Notwithstanding the Company's taking such action, to the extent required by law, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to a certificate representing the number of shares in the Company owned by such stockholder in such form, not inconsistent with the Certificate of Incorporation, as shall be prescribed by the Board. Certificates representing shares of the capital stock of the Company shall be signed by the Chairman of the Board, President or an Executive Vice President and the Treasurer, Secretary or an Assistant Secretary. Any or all signatures on the certificate, including those of the Transfer Agent and Registrar, may be facsimile. 8 EXHIBIT 3.5 The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Company's books. All certificates surrendered to the Company shall be cancelled, and no new certificates shall be issued until the former certificate for the same number of shares of the same class shall have been surrendered and cancelled, except that the Board may determine, from time to time, the conditions and provisions on which new certificates may be used in substitution of any certificates that may have been lost, stolen or destroyed. SECTION 3. Transfer of Shares. Shares in the capital stock of the Company shall be transferred by the record holder thereof, in person, or by any such person's attorney upon surrender and cancellation of certificates for a like number of shares. SECTION 4. Regulations. The Board also may make rules and regulations concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board may appoint one or more transfer agents and one or more registrars of transfers, and may require all stock certificates to bear the signature of a transfer agent and a registrar of transfer. SECTION 5. Record Date of Stockholders. The Board may fix in advance a date, not exceeding sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or other distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or other distribution, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive any such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date fixed as aforesaid. SECTION 6. Corporate Seal. The seal of the Company shall be circular in form, containing the words "E. I. DU PONT DE NEMOURS AND CO." and "DELAWARE" on the circumference, surrounding the words "FOUNDED" and "SEAL," and the date "1802." 9 EXHIBIT 3.5 The seal shall be in the custody of the Secretary. A duplicate of the seal may be kept and used by the Senior Vice President - Finance, any Vice President - DuPont Finance, the Treasurer, or by any Assistant Secretary or Assistant Treasurer. ARTICLE VII. AMENDMENTS The Board shall have the power to adopt, amend and repeal the Bylaws of the Company, by a vote of the majority of the whole Board, at any regular or special meeting of the Board, provided that notice of intention to adopt, amend or repeal the Bylaws in whole or in part shall have been given at the next preceding meeting, or, without any such notice, by the vote of two-thirds of the whole Board. I hereby certify that the foregoing is a true and correct copy of the Bylaws of E. I. du Pont de Nemours and Company. Witness my hand and the corporate seal of the Company this day of 199 . - ------------ ------------------ -- ---------------------------- Secretary 10 EX-11 5 STATEMENT RE CALCULATION OF EARNINGS PER SHARE
Exhibit 11 E. I. DU PONT DE NEMOURS AND COMPANY CALCULATION OF EARNINGS PER SHARE (RESTATED FOR TWO-FOR-ONE STOCK SPLIT EFFECTIVE MAY 15, 1997) ------------------------------------------------------------- (Dollars in millions, except per share) Years Ended December 31 ------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Net income less dividends on preferred stock ................ $2,395 $3,626 $3,283 $2,717 $545 ============= ============= ============= ============= ============= Average number of common shares (excludes treasury stock and the shares held by DuPont Flexitrust) - Basic ............ 1,130,755,483 1,121,350,592 1,170,214,952 1,359,999,832 1,353,244,230 Shares assumed to be issued due to stock options ............... 19,047,967 18,472,163 13,193,507 11,201,887 9,912,033 ------------- ------------- ------------- ------------- ------------- Adjusted average number of common shares and share equivalents - Diluted ...................... 1,149,803,450 1,139,822,755 1,183,408,459 1,371,201,719 1,363,156,263 ============= ============= ============= ============= ============= Earnings per share: - Diluted ...................... $ 2.08 $ 3.18 $ 2.77 $ 1.98 $.41 ============= ============= ============= ============= ============= - Basic ........................ $ 2.12 $ 3.23 $ 2.81 $ 2.00 $.41 ============= ============= ============= ============= =============
EX-12 6 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS
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 ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- ------- ------- --------- Net Income ........................................... $2,405 $3,636 $3,293 $2,727 $ 566(a) Provision for Income Taxes ........................... 2,275 2,345 2,097 1,655 392 Minority Interests in Earnings of Consolidated Subsidiaries ....................................... 67 59 30 18 5 Adjustment for Companies Accounted for by the Equity Method ............................... 982(b) 81 41 18 41 Capitalized Interest ................................. (169) (144) (170) (143) (194) Amortization of Capitalized Interest ................. 138(c) 191(c) 154 154 144 ------ ------ ------ ------ ------ 5,698 6,168 5,445 4,429 954 ------ ------ ------ ------ ------ Fixed Charges: Interest and Debt Expense .......................... 662 729 758 559 594 Adjustment for Companies Accounted for by the Equity Method - Interest and Debt Expense .... 97 70 71 55 42 Capitalized Interest ............................... 169 144 170 143 194 Rental Expense Representative of Interest Factor ... 127 118 113 118 143 ------ ------ ------ ------ ------ 1,055 1,061 1,112 875 973 ------ ------ ------ ------ ------ Total Adjusted Earnings Available for Payment of Fixed Charges ...................................... $6,753 $7,229 $6,557 $5,304 $1,927 ====== ====== ====== ====== ====== Number of Times Fixed Charges Are Earned ............. 6.4 6.8 5.9 6.1 2.0 ====== ====== ====== ====== ====== - ------------------------------- (a) Income Before Extraordinary Item and Transition Effect of Accounting Changes. (b) Includes write-off of Purchased In-Process Research and Development associated with acquisition of a 20% interest in Pioneer Hi-Bred International, Inc. (c) Includes write-off of capitalized interest associated with divested businesses.
EX-13 7 ANNUAL REPORT EXHIBIT 13 - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS In 1997, DuPont achieved a 30 percent total shareholder return. We posted our fourth consecutive year of record earnings, excluding nonrecurring items. And we announced $7 billion in acquisitions that will further strengthen our position in the chemicals, energy and specialties markets, while opening tremendous new potential for our life sciences businesses. Net income for the year before nonrecurring items was $4.1 billion, or basic earnings per share of $3.61, compared with $3.7 billion, or $3.32 per share in 1996. Overall, we achieved excellent financial performance. Despite a 7 percent negative impact on earnings from currency fluctuations, and 8 percent lower crude oil prices, earnings per share grew 9 percent. Reported net income for the year was $2.4 billion, or basic earnings per share of $2.12, compared with $3.6 billion, or $3.23 per share in 1996. Certain business areas stand out from the rest in terms of earnings contribution. Higher volumes and, in some cases, improved pricing led to increases in specialty fibers -- Lycra(R) spandex, Tyvek(R) and Sontara(R) nonwovens and Kevlar(R) and Nomex(R) fibers. Photopolymers and electronic materials -- one of our high growth businesses -- was also a strong performer. Automotive products and Dacron(R) polyester both had an excellent year. In the energy sector, downstream petroleum (a business targeted in 1997 for major improvement) showed the greatest gain, while upstream achieved its highest-ever earnings. A clear sense of direction DuPont is a chemical, materials and energy company that derives its competitive advantage from technological strengths in chemistry and chemical engineering, biotechnology, and geology. Our chemicals and specialties businesses are world class with strong core technology platforms, leading market and cost positions, value-added products, global presence and financial strength. The DuPont superbrand is among the most recognized in the world, and our many brand franchises offer unparalleled opportunity for our businesses in established and developing markets. After years of streamlining our businesses and restructuring both our portfolio and the way we work, DuPont is less susceptible to the impact of chemical and petroleum industry cycles. Even in the present uncertain times we remain committed to delivering record performance. Our target of 15 percent total annual return to shareholders over time remains unchanged. Strategies translated into actions We have restructured our chemicals and specialties portfolio to focus on those businesses where we can be number one or a strong number two globally, based on clear technological advantages that provide profitable growth. During 1997, we took bold steps in acquiring several businesses from ICI. These acquisitions will propel our polyester business by providing a very strong ingredients position based on world class technology and by substantially strengthening our polyester films and resins businesses. The pending purchase of ICI's considerable titanium dioxide assets will allow us to lead the world in white pigments and accelerate our growth in both Europe and Asia. In energy, Conoco is well along its path to doubling its value by 2003. In Venezuela, we established and completed financing on a joint venture that will give us access to major oil reserves for many years. In addition, the acquisition of natural gas fields in the Lobo Trend of South Texas represents a potential 70 percent increase in Conoco's U.S. gas reserves when fully developed. Conoco's worldwide proven reserves were up 38 percent, the largest single-year increase in Conoco's history, and a fourfold increase over production. By 1999, we expect a 15 percent increase in Conoco's production from these and earlier strategic initiatives. Among our most exciting future prospects is the growth we anticipate in our life sciences businesses. We are one of the world's industrial leaders in biotechnology and expect life sciences to account for at least 30 percent of earnings by 2002. About 1 one-third of our annual research and development expenditure is focused on these businesses. In 1997, we strengthened our position in the feed, food and industrial materials markets through an alliance with seed company Pioneer Hi- Bred International and through the purchase of Protein Technologies International from Ralston Purina. These actions will clearly strengthen our position as one of the top suppliers of crop protection and enhanced food and feed products worldwide. Synergy between our life sciences and materials businesses We believe that the application of biotechnology will redefine our company in the coming decades. While currently applied largely in the pharmaceuticals, food and feed businesses, biotechnology also has enormous potential in our traditional materials businesses. We expect that we will eventually produce chemicals and specialty products from plants and microorganisms instead of petrochemicals. By maintaining world class efforts in biotechnology and applying them to both the life sciences and traditional chemical businesses, DuPont is uniquely positioned to capture the full potential of biotechnology long term for our shareholders. Portfolio adjustments and productivity improvements -- a way of life As we aggressively expanded the most promising parts of our portfolio, we divested several units that we believed could not achieve the necessary global competitiveness to meet profitable growth goals. During the past five years, we divested, placed into joint ventures, or made an initial public offering of businesses representing more than $4 billion of revenue. This includes the divestitures announced in 1997, among them the sale of parts of the printing and publishing unit, which was targeted in last year's annual report. Where appropriate, we will continue to make changes to achieve greater value from our portfolio. Our productivity improvement over the last five years has been substantial and 2 - ---------------------------------------------------------------------- necessary to achieve globally competitive businesses. The focus today is on cost reduction and asset productivity as well as revenue growth. The next step change in productivity will come this year from further streamlining the administrative work in our company and from cost and capital effectiveness by accelerating efforts to improve yield and uptime. Record year for safety and environmental performance One of the most remarkable accomplishments during a year of considerable challenge and change occurred in safety and environmental performance. The people of our company achieved their best year ever in overall safety and environmental performance. Employee injuries and illnesses were down 27 percent globally over 1996 figures and down 60 percent since the early 1990s. Conoco was down more than 70 percent since the early 1990s. Among our contractors, there was a 45 percent reduction over the past three years. This improvement builds on our own record levels of performance, with DuPont nearly 30 times better than the U.S. industry average. Total releases to air, land and water and underground injection wells as recorded in the most recent data submitted to the U.S. Environmental Protection Agency are down 20 percent over the prior year and nearly 80 percent lower than our 1987 base year. These achievements in safety and the environment are something that each employee has a direct impact on every day, and we congratulate them and thank them for their commitment and resulting success. Our goal remains zero for all accidents and environmental incidents. 1998 -- Opportunities outweigh challenges The challenges of 1998 are already apparent in light of lower petroleum prices, the Asian economic turmoil, and the earnings dilution we face from our rapid pace of acquisitions. But given the cost reductions, restructuring and portfolio realignment of the past years, our prospects are vastly improved regardless of economic conditions. In fact, opportunities for us this year outweigh the challenges. Among the positive signs for the current year in the chemicals and specialties businesses: . The economies of the United States and Europe are projected to remain strong. These regions account for 80 percent of our sales, and we believe that volume growth is attainable in 1998. . Pricing in local currency for chemicals and specialties products increased in the fourth quarter of 1997, versus the fourth quarter of 1996. Currency should be less of a factor in 1998. . The lower prices for petroleum and natural gas mean lower raw material costs for our chemicals businesses. 21st century team in place In late 1997 we put in place the senior management that will lead DuPont into the 21st century. Many of the business leaders are from the new generation of executives with global experience. These men and women have a strong external focus, are veterans of global competition and have specific and challenging objectives. We are relying on the outstanding abilities and commitment to success of all of DuPont's people in discovery, manufacturing, marketing and customer service. We greatly appreciate their creativity and enthusiasm which keeps us on a winning path in a very dynamic, challenging global market. In spite of competitive pressures and changing business environments in many regions of the world, we see enough opportunities to deliver another record year in 1998. The task before us is to maintain solid fundamental business performance as we create the innovations to deliver the results that our shareholders expect from their company. /s/ John A. Krol /s/ Charles O. Holliday, Jr. John A. Krol Charles O. Holliday, Jr. Chairman of the Board President and Chief Executive Officer February 27, 1998 3 CHEMICALS The Chemicals segment includes a wide range of commodity and specialty products such as titanium dioxide, fluorochemicals and polymer intermediates used in the paper, plastics, chemical processing, refrigeration, textile and environmental management industries. Principal products include Ti-Pure(R) titanium dioxide white pigments, Suva(R) refrigerants, Formacel(R) blowing agents, Vertrel(R) cleaning agents, Dymel(R) aerosol propellants and fire extinguishants. FIBERS A diversified mix of specialty fibers is produced to serve end uses ranging from protective apparel, active sportswear and packaging to high-strength composites in aerospace. High-volume fibers are produced for apparel and home fabrics, carpeting and industrial applications. Some principal products include Lycra(R) brand spandex, Stainmaster(R) and Antron(R) nylon carpet fibers, Cordura(R) and Tactel(R) nylon yarns, and polyester fibers for fabrics and filling including Dacron(R), Micromattique(R), Thermax(R) and CoolMax(R). Nonwoven products include Tyvek(R) spunbonded olefin, Typar(R) spunbonded polypropylene and Sontara(R) spunlaced products. Advanced fibers are Kevlar(R) brand fiber, Nomex(R) brand fiber and paper, and Teflon(R) brand fluoropolymer fiber. POLYMERS The Polymers segment includes engineering polymers, fluoropolymers, ethylene polymers, finishes and performance films for industries such as packaging, construction, chemical processing, electrical, paper, textiles and transportation; the automotive businesses, which are engaged in manufacturing and marketing more than 100 DuPont product lines used by the automotive industry; and DuPont Dow Elastomers, a 50 percent-owned joint venture. Principal products of Polymers include Teflon(R) and Tefzel(R) fluoropolymers, SilverStone(R) non-stick finishes, Tedlar(R) polyvinyl fluoride film, Zytel(R) nylon resins, Hytrel(R) polyester elastomer, Crastin(R) polyester resins, Delrin(R) acetal resins, Tynex(R) nylon filaments, Centari(R) and Imron(R) automotive finishes, Butacite(R) safety glass interlayer and Corian(R) surfaces. 8 PETROLEUM Petroleum operations are carried out by Conoco. The "upstream" part of the business finds, develops and produces crude oil and natural gas, and processes natural gas to recover higher-value liquids. The "downstream" part of the business includes the refining of crude oil and other feedstocks into petroleum products, trading in crude oil and products, and distribution and marketing of high-quality fuels, motor oils and other products, including industrial lubricants, petroleum coke and intermediates for use in making petrochemicals. Brands include Conoco(R), Seca(R) and Jet(R) gasolines and motor oils, Hydroclear/TM/ lubricants, and LiquidPower/TM/ flow improver. Conoco also has a growing presence in the power generation business. LIFE SCIENCES Life Sciences consists of Agricultural Products, with a focus on crop protection chemicals and an increasing role in biotechnology and food; and Pharmaceuticals, which includes DuPont's 50 percent interest in The DuPont Merck Pharmaceutical Co. Principal agricultural products include Optimum(R) modified corn and soybeans, the herbicides Basis(R) Gold(R) and Accent(R) for corn, Classic(R), Canopy(R) and Synchrony(R) for soybeans, Glean(R) and Ally(R) for cereals, Londax(R) for rice, Staple(R) for cotton, and a range of fungicides and insecticides. Pharmaceutical products include Coumadin(R) anticoagulant, Cozaar(R) antihypertensive, Sinemet(R) antiparkinsons, Symmetrel(R) antiviral and antiparkinsons, Cardiolite(R) cardiac imaging agents, and Neurolite(R) brain-imaging agents. DIVERSIFIED Diversified Businesses include polyester intermediates, resins and films, photopolymer and electronic materials, and CONSOL, a coal operation owned 50 percent by DuPont. Principal products include Cronar(R) and Mylar(R) polyester films, Kapton(R) polyimide film, Teflon(R) fluoropolymer film, Crystar(R) and Melinar(R) polyester resins, Melinex(R) polyester film, Petretec/SM/ polyester regeneration technology, Riston(R) photoresists, Birox(R) microcircuit materials, Pyralux(R) flexible laminates, Cyrel(R) flexographic printing plates, Cromalin(R) color proofing systems, photomask imaging products, and Fodel(R) photoimageable compositions for flat panel displays. 9 Management's Discussion and Analysis This review and discussion of financial performance should be read in conjunction with the letter to stockholders (pages 1-3), segment profiles (pages 8-9) and consolidated financial statements (pages 31-53). Analysis of Operations SALES Sales in 1997 were a record $45.1 billion, up 3 percent from 1996. Petroleum segment sales were $21.0 billion compared to $20.2 billion in 1996, up 4 percent. This reflects higher U.S. downstream margins and volumes, increased natural gas volumes outside the United States, and higher U.S. natural gas prices. Worldwide crude oil prices averaged 8 percent lower, while natural gas prices were up 10 percent. Sales for the combined chemicals and specialties segments (Chemicals, Fibers, Polymers, Life Sciences and Diversified Businesses) were $24.1 billion, up 2 percent. Sales outside of the United States comprised 46 percent of total worldwide chemicals and specialties sales in 1997 versus 47 percent in the prior year. After adjusting for the divestiture of certain Medical Products businesses, as well as the formation of the DuPont Dow elastomers joint venture, sales were up 4 percent. This is due to 7 percent higher volume partly offset by 3 percent lower selling prices. Excluding the effect of currency fluctuation, worldwide selling prices were about flat versus 1996. U.S. prices were down less than 1 percent for the year, but were up 1 percent when comparing the fourth quarter 1997 to fourth quarter 1996. Outside the United States, prices for the year averaged 7 percent below 1996, and were down 5 percent comparing the fourth quarter of 1997 to the fourth quarter of 1996. In the fourth quarter comparison, worldwide prices, excluding the adverse effect of currency fluctuation, were up 2 percent. U.S. sales volume was up 5 percent, while outside the United States volume was up 10 percent. The latter reflects strength in Europe, South America and Mexico. Growth in Asia for the year averaged 7 percent, but had fallen to 1 percent below 1996 levels in the fourth quarter. Europe's annual volume growth of 11 percent was largely offset by lower selling prices due to the effect of currency fluctuation. Sales in 1996 were a record $43.8 billion, up 4 percent from 1995. Petroleum segment sales were $20.2 billion, compared to $17.7 billion in 1995, up 14 percent. This reflects higher worldwide prices for crude oil and natural gas and increased crude oil production and natural gas deliveries. Crude oil and natural gas average prices were higher than those in 1995 by 21 percent and 19 percent, respectively. Sales for the combined chemicals and specialties segments were $23.6 billion, 4 percent lower than in 1995. This reflects a reduction in sales resulting from the divestiture of certain Medical Products businesses and formation of the DuPont Dow elastomers joint venture. After adjusting for these changes in business composition, sales were 2 percent higher than 1995, reflecting 3 percent higher sales volume, partly offset by 1 percent lower average selling prices. U.S. selling prices were flat, while prices outside the United States averaged 3 percent lower, mostly attributable to a stronger U.S. dollar. U.S. sales volume was up 3 percent. Volume outside the United States was up 4 percent. Sales in Mexico and South America combined were up 13 percent, reflecting a recovery from the 1995 devaluation in the Mexican peso and the continuing growth in South America. Sales volume growth in Asia was 9 percent but was substantially offset by 7 percent lower prices. European sales were down 1 percent, as slightly higher volume was more than offset by lower selling prices. EARNINGS Net income in 1997 was $2,405 million versus $3,636 million in 1996. The decline in net income principally reflects net nonrecurring charges of $1,682 million taken in 1997 as compared to $101 million in net charges for 1996. The 1997 nonrecurring charges include $1,466 million for purchased in-process research and development associated with acquisitions made during the year. Excluding nonrecurring charges from both years, net income was a record $4,087 million compared to $3,737 million in 1996, up 9 percent. About one-half of this increase is due to 19 percent higher petroleum segment earnings which reflect higher natural gas prices, increased volumes and higher refined product margins. The remainder is due to 5 percent higher chemicals and specialties earnings. The latter reflects 7 percent higher sales volumes, partly offset by lower selling prices and the absence of $186 million after-tax from the favorable allocation of DuPont Merck pharmaceutical venture operating income in 1996. Lower selling prices were principally the result of the adverse currency impact of the stronger U.S. dollar. Basic earnings per share were $2.12 ($2.08 diluted) versus $3.23 ($3.18 diluted) in 1996. Excluding nonrecurring items from both years, 1997 basic earnings per share were a record $3.61 ($3.55 diluted), up 9 percent from $3.32 ($3.27 diluted) in 1996. Earnings growth on a per share basis tracked net income growth as average shares outstanding for 1997 were up less than 1 percent from 1996. Net income in 1996 was a record $3,636 million versus $3,293 million in 1995, up 10 percent. This principally reflects a 39 percent DUPONT 16 Management's Discussion and Analysis improvement in after-tax operating income for the Petroleum segment and lower after-tax interest expense. Upstream petroleum had record earnings, primarily resulting from higher oil and gas prices. In addition, Life Sciences earnings increased 15 percent. In 1996, net nonrecurring charges were $101 million versus $114 million in 1995. Excluding these charges, earnings were $3,737 million, up $330 million from 1995. Basic earnings per share were $3.23 ($3.18 diluted) in 1996 versus $2.81 ($2.77 diluted) in 1995. Excluding nonrecurring items from both years, 1996 basic earnings per share were $3.32 ($3.27 diluted), up 14 percent from $2.91 ($2.87 diluted) in 1995. One-half of this improvement was from higher Petroleum segment earnings with the balance attributable to higher results from the DuPont Merck pharmaceutical venture largely due to a more favorable allocation of operating income to DuPont, benefit from lower average shares outstanding and lower interest expense. Petroleum benefited from higher oil and gas prices and higher volumes. Earnings from the chemicals and specialties segments were up 1 percent as gains from higher sales volume were offset by lower selling prices and by reduction in earnings resulting from businesses that were divested or are now operated through a joint venture arrangement. TAXES ($ in millions) - -------------------------------------------------------------- 1997 1996 1995 --------------------------- Income tax expense $2,275 $2,345 $2,097 Effective income tax rate (EITR) 48.6% 39.2% 38.9% ============================================================== The 1997 EITR of nearly 49 percent is significantly higher than the 1996 and 1995 EITR of 39 percent and is due to purchased in-process research and development charges for the Pioneer and Protein Technologies transactions which reduced earnings but had no tax effect. The 1996 EITR of 39 percent was essentially equal to 1995, reflecting insignificant changes in the effective tax rates for both chemicals and specialties and petroleum compared to 1995. The company paid total taxes of $8.3 billion in 1997, compared to $8.4 billion in 1996 and $8.3 billion in 1995. 1997 total tax payments were slightly lower than in 1996 due principally to lower petroleum excise taxes, partly offset by higher income taxes. 1996 total tax payments were slightly higher than in 1995 due principally to higher income taxes and higher U.S. petroleum excise taxes, partly offset by lower petroleum excise taxes outside the United States. Segment Reviews CHEMICALS SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 4.3 1997 600 ------------------------------ ------------------------------ 1996 4.1 1996 563 ------------------------------ ------------------------------ 1995 4.2 1995 651 ------------------------------ ------------------------------ Chemicals segment businesses are: White Pigment and Mineral Products, which includes titanium dioxide products; Specialty Chemicals, which produces a range of chemical intermediates; and Fluorochemicals, which produces refrigerants. In White Pigment and Mineral Products, major developments during 1997 included announcement of the intention to buy ICI's titanium dioxide business, excluding North American assets and business, subject to government approval. Specialty Chemicals exited several businesses that were not integral to future growth, including DuPont's 50 percent share of the Niachlor caustic chlorine joint venture, which was sold to the Olin Corporation, DuPont's partner in the venture. Plans were also announced to sell the global hydrogen peroxide business. Fluorochemicals commercialized FE-36 fire extinguishants and Vertel(R) HFC-4310 cleaning agents. 1997 versus 1996 Sales of $4.3 billion were up 3 percent reflecting 7 percent higher volume. The average annual price level was 4 percent lower, but the fourth quarter average was 2 percent above prior year reflecting improved titanium dioxide prices. After-tax operating income (ATOI) was $600 million, versus $563 million in 1996. Excluding 1996 nonrecurring charges, ATOI was up 3 percent as higher earnings from specialty chemicals were partly offset by lower earnings from titanium dioxide. 1996 versus 1995 Sales of $4.1 billion were 1 percent lower, reflecting 4 percent higher sales volume more than offset by 5 percent lower prices. ATOI was $563 million, down 14 percent from $651 million in 1995. Excluding nonrecurring items from both years, earnings were $584 million, down 9 percent from the $641 million earned in 1995, principally reflecting lower earnings from titanium dioxide resulting from significantly lower selling prices. Partly offsetting this were higher earnings from chemical intermediates. Segment results were also negatively affected by investment write-offs in the fourth quarter. DUPONT 17 Management's Discussion and Analysis Perspective In White Pigment and Mineral Products, the ICI acquisition would, if approved, give DuPont a long-sought titanium dioxide manufacturing presence in Europe and additional capability in Asia and Africa, which should contribute significantly to future growth. Growth in demand and a continuing focus on productivity improvements should help Specialty Chemicals maintain profitable growth. Fluorochemicals' results will continue to be affected by overcapacity for HFC-134a. FIBERS SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 7.7 1997 980 ------------------------------ ------------------------------ 1996 7.2 1996 802 ------------------------------ ------------------------------ 1995 7.2 1995 805 ------------------------------ ------------------------------ The Fibers group of businesses consists of Nylon, Lycra(R), Dacron(R), Nonwovens and Advanced Fibers Systems. Nylon had another good year with strong results across the portfolio, continued focus on cost reduction globally, and progress in upgrading and consolidating fiber facilities, primarily in North America and Europe. New facilities were started up in Singapore (nylon intermediates), China and India (tire cord fibers and fabrics), Taiwan and Mexico (apparel fibers), and Japan (carpet and apparel fibers). An alliance was formed with P. T. Branta Mulia, a major producer of tire cord fibers and fabrics, to manufacture and market nylon tire cord in Asia Pacific, with DuPont acquiring a 19.8 percent equity interest in Branta Mulia. The nylon tire cord fabric business of Akzo Nobel in Brazil was acquired. Demand for Lycra(R) brand spandex products remained high and supply was tight during the year. The business completed a significant expansion at Waynesboro, Virginia, and a new facility in China. Expansions were also announced for existing sites in Maydown in the United Kingdom and in Singapore. The strategy continues to be growth through increased use in established segments such as hosiery and intimate apparel, development of new markets such as shoes and ready-to-wear clothing, and geographic expansion in developing markets. Dacron(R) had an excellent year, benefiting from a strong position in filament and differentiated products, cost control efforts and favorable ingredient prices. Work continued on building capacity at Suzhou, China, in a joint venture to supply the Chinese polyester market. The strategy continues to be to maintain market leadership in the polyester filament industry, branded and specialty products, and in niche and retail markets outside North America. Nonwovens' strong growth was led by the Tyvek(R) business, which posted gains in all major segments. In response to customer demand, Nonwovens is enhancing manufacturing capability for Tyvek(R) spunbonded olefin in Richmond, Virginia, and introducing new technology for Sontara(R) spunlaced products at a new plant in Asturias, Spain. A new product, Xavan(TM) spunbonded polypropylene, was introduced, bringing the business into new markets in industrial packaging, furniture and bedding. Advanced Fibers Systems continued to build on its Kevlar(R), Nomex(R) and Teflon(R) brands of fiber, paper and pressboard in developing new products, new applications and new regional markets. Kevlar(R) brand fiber is being introduced for concrete strengthening in earthquake-prone areas of Asia, Nomex(R) brand paper in honeycomb form is being used in a new generation of heating and cooling systems to improve air quality, and Teflon(R) brand fiber has found a new application in low-friction socks. 1997 versus 1996 Sales of $7.7 billion were up 7 percent reflecting 9 percent higher sales volume partly offset by 2 percent lower selling prices. After-tax operating income (ATOI) was $980 million versus $802 million in 1996. Excluding 1996 nonrecurring charges, ATOI increased 18 percent reflecting earnings growth across all business units, principally from Lycra(R) brand spandex and nylon. 1996 versus 1995 Sales of $7.2 billion were flat as average selling prices and sales volumes were essentially unchanged versus 1995. ATOI was $802 million, essentially even with the $805 million earned in 1995. Excluding nonrecurring items, earnings were $834 million, 8 percent above the $774 million earned in 1995, principally attributable to improved results for Lycra(R) brand spandex, nonwovens and Dacron(R) polyester. Perspective A five-year program of modernization and consolidation of manufacturing facilities, which began in 1997, should enhance Nylon's competitive position. Innovation and brand image should aid growth for Lycra(R) in new market segments and developing markets. Dacron(R) is in a strong position based on polyester intermediates and filament, branded and specialty products. Nonwovens and Advanced Fibers Systems are adding capacity in response to demand in new and traditional markets. DUPONT 18 Management's Discussion and Analysis POLYMERS SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 6.8 1997 924 ------------------------------ ------------------------------ 1996 6.7 1996 909 ------------------------------ ------------------------------ 1995 7.0 1995 829 ------------------------------ ------------------------------ The businesses in the Polymers segment are: Packaging and Industrial Polymers, Automotive, Corian(R), Engineering Polymers, Fluoropolymers and DuPont Dow Elastomers L.L.C., a 50-50 global joint venture. Packaging and Industrial Polymers sales continued strong in all major product lines. Demand was driven by evolving needs in the packaging industry, increasing product performance requirements in the various other industries served, and growing purchasing power and lifestyle changes in emerging economies in Asia, Mexico and South America. Plans were announced to expand polyvinyl alcohol capacity by 20 percent. Automotive achieved increases in sales and earnings, with strong growth outside the United States. The automotive finishes businesses continued to do well, as did Butacite(R) polyvinyl butyral safety glass interlayer in North America and Europe. The business concluded the acquisition of Carrs Paints, Ltd. of the United Kingdom. Corian(R) continued to expand sales and launched its first product variant, an antibacterial solid surface material that offers extra protection for home and commercial environments. The business also introduced 16 new colors. Engineering Polymers experienced growth in all regions. Capacity expansion startups to support global growth included a Zytel(R) nylon resin plant in Richmond, Virginia, Delrin(R) polyacetal resins at Dordrecht, The Netherlands, Tynex(R) toothbrush filament at Shenzen, China, Crastin(R) polyester resins at Uentrop, Germany, and Vespel(R) polyimide products at Circleville, Ohio. Fluoropolymers continued construction and is near completion of a major expansion program at plants in West Virginia, The Netherlands and Japan, in response to rising demand for its products. Products include Teflon(R) and Tefzel(R) resins, Teflon(R) and SilverStone(R) non-stick finishes, Tedlar(R) polyvinyl fluoride film and Nafion(R) perfluorinated membranes. DuPont Dow Elastomers completed its first full calendar year of operations and began commercial production of Nordel(R) IP hydrocarbon rubber, made via Dow's proprietary Insite(TM) process and catalyst technology. The new facility is at Plaquemine, Louisiana, and has capacity of 200 million pounds a year. Nordel(R) is used in the manufacture of a range of products including automotive hoses and gaskets. 1997 versus 1996 Sales were $6.8 billion versus $6.7 billion in 1996. After adjusting to exclude prior year elastomers sales now part of the DuPont Dow elastomers joint venture, sales were up 5 percent. This is attributable to 7 percent higher volume partly offset by 2 percent lower selling prices. After-tax operating income (ATOI) was $924 million versus $909 million in 1996. After excluding nonrecurring items from 1996 results, ATOI was up 8 percent. This principally reflects higher earnings from Packaging and Industrial Polymers and Automotive Products. 1996 versus 1995 Sales of $6.7 billion were 4 percent above 1995, after adjusting for the reduction in sales resulting from formation of the DuPont Dow elastomers joint venture. This reflects 4 percent higher volume and flat selling prices. ATOI was $909 million, up 10 percent from $829 million in 1995. Excluding nonrecurring items from both years, earnings were $854 million, down 1 percent from $864 million in 1995. Increased earnings from automotive products, engineering polymers, and Corian(R) surfaces were offset by a reduction in elastomers earnings due to formation of the DuPont Dow elastomers joint venture. Perspective Demand for most products in the Polymers segment should continue to be robust but this outlook is tempered by the possibility of further economic slowdown in Asia during 1998. Long term, demand in the emerging economies and emphasis on high-performance materials for vehicles and various industrial uses are positive factors. PETROLEUM SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 21.0 1997 1,068 ------------------------------ ------------------------------ 1996 20.2 1996 860 ------------------------------ ------------------------------ 1995 17.7 1995 619 ------------------------------ ------------------------------ Petroleum operations include exploration and production, and refining, trading, transportation and marketing, carried out by Conoco. In the United States, a $929 million acquisition of natural gas properties and transportation assets in the Lobo Trend of South Texas significantly expanded the company's North American DUPONT 19 Management's Discussion and Analysis natural gas business. Deepwater holdings in the Gulf of Mexico were also increased and a second advanced drillship was ordered to evaluate the acreage, while development of the large, partner-operated Ursa field in the Gulf of Mexico was on schedule for first production in 1999. A continuing exploration program in the Triangle Zone of western Canada added to natural gas reserves in the region. Excel Paralubes, Conoco's joint venture with Pennzoil, brought a $500 million hydrocracker onstream at the Lake Charles, Louisiana, site and Conoco introduced Hydroclear(TM) lubricants blended from the pure base oils produced by the hydrocracker. The two companies formed another joint venture, Penreco, to further use the hydrocracked base oils in the production and sales of premium white oils, petrolatum and solvents. In the U.K. sector of the North Sea, the Britannia gas field is scheduled to come onstream in the second half of 1998 following installation of the platform last summer. This giant field, in which Conoco holds a 42 percent interest, is expected to be an important contributor to earnings for many years. Conoco continued to apply its expertise in economically developing smaller North Sea fields such as the MacCulloch field. MacCulloch was brought onstream using a converted oil tanker as a floating production, storage and offtake system (FPSO). Full production from the similarly sized Banff field will begin in 1998 also using an FPSO, following successful tests. The Boulton gas field will also begin production, through a remotely controlled platform installed in 1997. Conoco increased to more than 20 percent its interest in the large Clair oil field west of the Shetland Islands; shortly before year-end, the U.K. government awarded Conoco and its partners two additional highly prospective exploration blocks in the area. In Norway, production from the Heidrun field increased as the use of Conoco's LiquidPower(TM) flow improver raised the capacity of the field's export pipeline. A methanol plant, using natural gas from Heidrun as feedstock, was commissioned. As part of its strategy to develop an integrated natural gas business across Europe, Conoco signed a second major agreement to supply gas via the Interconnector pipeline from its U.K. North Sea fields to continental Europe. The pipeline was installed in 1997 and terminals at each end are scheduled for completion in late 1998. Conoco and its partners in the Karlsruhe, Germany, refinery merged operations with the adjacent Esso refinery to significantly improve operating capability. Conoco continued to expand its marketing operations in Central Europe, opening 31 additional gasoline outlets in the region with 25 more planned in 1998. In South America, work began on the Petrozuata project, a 50 percent-owned $2.4 billion joint venture with state oil company Petroleos de Venezuela S.A., to extract 1.6 billion barrels of extra-heavy crude oil from the Orinoco oil belt. Project financing of $1.45 billion was also arranged. Initial production of 30,000 barrels per day is expected by the end of 1998. Conoco will drill exploratory wells in 1998 on light oil tracts in eastern and western Venezuela and three highly promising tracts in Colombia. In Asia Pacific, the company reached agreement in principle to supply large volumes of gas to Singapore from Block B offshore Indonesia and made a promising discovery in Irian Jaya. Additional exploration acreage was obtained in several countries, including Taiwan, where drilling is under way. A new joint venture refinery in Melaka, Malaysia, is scheduled for startup by mid-1998. In other developments, letters of intent were signed with American Electric Power Company, one of the largest investor-owned utilities in the United States, to create two joint venture companies to acquire and lease the assets of industrial and large commercial businesses and to manage power facilities. 1997 versus 1996 Sales for the year were $21.0 billion, up 4 percent from last year's $20.2 billion, as higher downstream prices and volumes, increased international natural gas volumes and stronger domestic natural gas prices more than compensated for lower crude oil prices. After-tax operating income (ATOI) was $1,068 million versus $860 million in 1996. Excluding nonrecurring items, earnings were a record $1,074 million, up $173 million or 19 percent from 1996. Nonrecurring items in 1997 include a $55 million dollar write-down of an office building held for sale in Europe and a $112 million impairment of certain international nonrevenue producing properties. Largely offsetting these losses was a $161 million gain from the sale of North Sea producing and exploration properties. Excluding nonrecurring items, Conoco's upstream operations had record ATOI of $775 million, up 10 percent from last year. U.S. upstream ATOI totaled $404 million, up 40 percent from $288 DUPONT 20 Management's Discussion and Analysis million in 1996 due to higher gas prices and gains from asset sales which more than offset lower crude oil prices. U.S. natural gas prices were up 23 percent to $2.34 per thousand cubic feet and gas deliveries outside the United States increased 5 percent. The company's net realized crude oil price averaged $18.58 per barrel, 8 percent lower than the previous year. Outside the United States, ATOI was $371 million, down 11 percent from last year due to lower crude oil prices, partly offset by increased oil and gas volumes. Downstream ATOI, excluding nonrecurring items, was $299 million, up 53 percent from the $195 million earned last year. In the United States, downstream earned $170 million versus $107 million in the prior year, an increase of 59 percent. The improvement is attributable to very strong refinery margins, reduced operating costs and higher refined product sales. Outside the United States, downstream earned $129 million, up 47 percent, primarily due to higher European margins and increased refinery production. Worldwide refined product sales were 1,048,000 barrels per day (bpd), up 5 percent versus 1996, due to higher refinery production from the new Lake Charles, Louisiana, hydrocracker and the Humber refinery's new vacuum unit in the United Kingdom. Worldwide crude oil and condensate production averaged 337,000 bpd for the year, up slightly versus 1996. 1996 versus 1995 Sales for 1996 were $20.2 billion, up 14 percent from 1995. The increase resulted from higher crude oil and natural gas prices and higher volumes outside the United States. Earnings of $860 million were up 39 percent from $619 million in 1995. Excluding nonrecurring items from both years, 1996 earnings were $901 million versus $664 million in 1995, a 36 percent increase. Upstream earnings of $632 million were up 43 percent from $443 million in 1995. Excluding nonrecurring charges, earnings of $706 million were up 46 percent from $482 million in 1995. Higher crude oil and natural gas prices and improved volumes outside the United States, partly offset by increased exploration costs, contributed to the improvement. Downstream earnings of $228 million in 1996 were up 30 percent from $176 million in 1995. Excluding nonrecurring items, earnings of $195 million were up 7 percent from $182 million in 1995 due to gradually improving margins, despite higher crude oil prices and one-time startup costs for new units in refining. Perspective The major investments that Conoco has made in the past few years will result in an increase in the company's oil and gas production and in its output of refined products in 1998, mitigating the effects of weaker prices. The significant improvement by Conoco's downstream operations in 1997 combines with its already competitive position in upstream to provide the balance and strength for long-term profitable growth. LIFE SCIENCES SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 2.5 1997 (786) ------------------------------ ------------------------------ 1996 2.5 1996 679 ------------------------------ ------------------------------ 1995 2.3 1995 588 ------------------------------ ------------------------------ Life Sciences consists of Agricultural Products and Pharmaceuticals. Agricultural Products made three important moves during the year in executing its strategy of developing a leading position in biotechnology businesses while building on its strong position in traditional crop protection products: (a) formed a research alliance plus a separate joint venture company, Optimum Quality Grains, L.L.C., with Pioneer Hi-Bred International, to speed the discovery, development and delivery of new crops for farmers and livestock producers, and acquired a 20 percent interest in Pioneer; (b) purchased Protein Technologies International, a global supplier of soy proteins, from Ralston Purina; and (c) signed a letter of intent to form a joint venture with Griffin Corporation to produce and market standard crop protectants worldwide. The DuPont Merck Pharmaceutical Company joint venture delivered another strong performance in 1997 with continued growth in sales and earnings, led by the anticoagulant Coumadin(R), which achieved record sales in 1997. Strong performance by other products, including Sinemet(R) and Sinemet(R) CR for Parkinson's disease, and by Cardiolite(R) heart imaging agent, also fueled earnings growth. In 1997, DuPont Merck's antiretroviral agent Sustiva(R) entered phase three development. Sustiva(R) is a new investigational nonnucleoside reverse transcriptase inhibitor used in combination therapy for HIV. DuPont Merck is preparing for marketing approval for Sustiva(R) in the United States, Canada and Europe in 1998. Two nuclear oncology products were launched in 1997: Miraluma(R) breast imaging agent and Quadramet(R) for treating bone pain. Revia(R), for the treatment of alcoholism, was launched in France. The generics and multisource product lines were sold. 1997 versus 1996 Segment sales of $2.5 billion were up 2 percent reflecting 6 percent higher volume, partly offset by 4 percent DUPONT 21 Management's Discussion and Analysis lower prices. After-tax operating income (ATOI) was a loss of $786 million versus earnings of $679 million reported in 1996. The loss resulted from $1.4 billion in net nonrecurring charges taken during the year, principally for the write-off of acquired in-process research and development costs associated with purchases of Protein Technologies International and a 20 percent interest in Pioneer Hi-Bred International. Excluding nonrecurring items, ATOI was $607 million versus $789 million in 1996. 1996 included $186 million after-tax from a favorable allocation of operating income to DuPont from the DuPont Merck joint venture. Excluding this benefit from 1996 and nonrecurring charges from both years, ATOI was essentially unchanged, $607 million versus $603 million, as costs associated with recent agricultural acquisitions and the shutdown of triazines were offset by higher pharmaceutical results. 1996 versus 1995 Segment sales of $2.5 billion were up 6 percent reflecting 9 percent higher volume partly offset by 3 percent lower prices. ATOI was $679 million, up 15 percent from $588 million. Excluding nonrecurring items from both years, ATOI was $789 million, up 21 percent from $651 million in 1995. This reflects earnings improvement from both pharmaceuticals and agricultural products. The increase in pharmaceuticals earnings was largely due to a more favorable allocation of operating income to DuPont from the DuPont Merck joint venture totaling $186 million in 1996, compared to $111 million in 1995. Perspective Agricultural Products is poised for a new phase of growth as a result of its acquisitions and alliances in biotechnology and traditional products. The Pharmaceuticals business is developing well as pipeline therapeutics enter commercialization. Additionally, Cozaar(R), launched in 1995 for hypertension, continues strong growth worldwide. DIVERSIFIED BUSINESSES SALES ($ in Billions) ATOI ($ in Millions) ------------------------------ ------------------------------ 1997 2.8 1997 (8) ------------------------------ ------------------------------ 1996 3.1 1996 205 ------------------------------ ------------------------------ 1995 3.7 1995 252 ------------------------------ ------------------------------ The Diversified group of businesses consists of Polyester Films, Polyester Resins and Intermediates, Photopolymer and Electronic Materials, Printing and Publishing and CONSOL, a coal operation 50 percent owned by DuPont. Films was divided into Polyester Resins and Intermediates and Polyester Films as the business acquired ICI's global polyester resins and intermediates businesses in December 1997 and ICI's global polyester films business in February 1998. During 1997 the product viability of NG-3 (next generation) polyester polymerization technology was demonstrated. This technology, when coupled with the acquired ICI technology, will provide the lowest-cost, highest-productivity polyester value chain, providing a 40 percent investment advantage. Other initiatives under start-up or completing construction include terephthalic acid capacity in Taiwan, polyester film capacity in Luxembourg and the United Kingdom, and capacity for Kapton(R) polyimide film in the United States and Japan. Photopolymer and Electronic Materials continued its growth strategy with formation of a global joint venture in high-performance liquid polyimide materials for semiconductor applications. The 50-50 joint venture, Hitachi DuPont MicroSystems L.L.C., combines the Hitachi Chemical Co. Ltd. and DuPont polyimide coating businesses, including research and development, manufacturing, sales and technical service. Polyimides are used in the fabrication of semiconductor chips and related components. Also, a majority-owned venture was formed in Taiwan to market dry film resists for the printed circuit board industry. The business introduced Fodel(R) photoimageable compositions, which are used in the emerging flat panel display market, and the Cyrel(R) digital imager. Printing and Publishing proceeded with business associated with exiting the electronic imaging joint venture with Fujifilm and prepared for the sale of the global graphic arts films and offset printing plates businesses to the Agfa-Gevaert Group. CONSOL Energy Inc., a coal operations joint venture owned 50 percent by DuPont, had another record year of earnings and continued to make productivity gains. Medical Products' last remaining business, NEN Life Sciences Products, was sold. 1997 versus 1996 Sales were $2.8 billion compared to $3.1 billion in 1996. After adjusting for the divestiture of certain Medical Products businesses, sales were 2 percent lower. This reflects 6 percent higher volume which was more than offset by 8 percent lower selling prices. Prices were down largely due to lower prices for films, graphic arts, and printed circuit products. After-tax operating income (ATOI) was a loss of $8 million versus DUPONT 22 Management's Discussion and Analysis earnings of $205 million in 1996. The current year includes nonrecurring charges for writedown of the global graphic arts films and offset printing plates business assets held for sale and other related costs as well as a charge for purchased in-process research and development in connection with the purchase of ICI's global polyester intermediates and resins businesses. Excluding nonrecurring items from both years, ATOI was $275 million, versus $157 million in 1996, up 75 percent. This reflects lower operating losses from the Printing and Publishing businesses pending sale and the Medical Products businesses now divested. Higher earnings were realized from Photopolymers and Electronic Materials and CONSOL. 1996 versus 1995 Segment sales were $3.1 billion, up 2 percent, after adjusting for the divested Medical Products businesses. This reflects flat selling prices and 2 percent higher sales volume. ATOI was $205 million, down 19 percent from $252 million in 1995. Excluding nonrecurring items from both years, earnings were $157 million, down 41 percent. This is principally due to the absence of earnings from Medical Products businesses that were divested in 1996, and lower Printing and Publishing earnings. Partly offsetting were higher earnings from electronic materials and coal. Perspective Growth prospects for Polyester Resins and Intermediates, Polyester Films and Photopolymer and Electronic Materials are good, tempered near term by problems in Asian economies. CONSOL should benefit from growth in the U.S. domestic utility market and continued productivity gains. Financial Condition and Cash Flows FINANCIAL CONDITION During 1997, DuPont made four strategic acquisitions to strengthen both the company's position in the chemicals, energy and specialties markets, as well as for future opportunities in the life sciences businesses. In May, Conoco spent $0.9 billion to purchase the Lobo Trend natural gas properties in South Texas. In September, the company purchased a 20 percent interest in Pioneer Hi-Bred International for $1.7 billion. In December, ICI's global polyester intermediates and resins businesses were acquired for $1.2 billion and the company acquired the Protein Technologies International (PTI) business from Ralston Purina for 22.5 million shares of DuPont stock valued at $1.3 billion. In each of the ICI and PTI transactions, the company assumed $0.2 billion of debt of the respective companies. (See Note 23, "Investment Activities," to the financial statements.) Following the PTI acquisition, the company spent $1.4 billion to repurchase 22.5 million shares to offset dilution resulting from the shares issued to Ralston. (See Note 21, "Stockholders' Equity," to the financial statements.) As a result of these actions, borrowings at year-end 1997 of $12.0 billion were $3.1 billion higher than the $8.9 billion at the end of 1996. With this increase in debt, the ratio of cash provided by operations to debt decreased from 71 percent at the end of 1996 to 58 percent at the end of 1997.The company expects that this ratio will improve gradually over the next few years. In August, following the announcement of the four major acquisitions, Moody's Investors Service (Moody's) confirmed their rating of the company's senior unsecured long-term debt at Aa3. Standard & Poor's (S&P) also affirmed its rating on senior debt of AA-. However, both Moody's and S&P cautioned that the higher level of debt has weakened the company's debt protection measures and further deterioration could result in a ratings downgrade. The company's commercial paper rating remains at Prime-1 by Moody's and A-1+ by S&P. Borrowings at year-end 1996 of $8.9 billion were $2.8 billion below the $11.7 billion at the end of 1995. This reduction was accomplished through a combination of internally generated funds and $1.3 billion of asset sales, including proceeds from sales of essentially all of the Medical Products businesses and certain petroleum properties, plus proceeds from the formation of the elastomers joint venture with Dow. CASH PROVIDED BY OPERATIONS Cash provided by operations totaled $7.0 billion in 1997; this was $0.6 billion higher than the $6.4 billion in 1996. This increase is principally the result of $0.7 billion higher net income in 1997 after adjusting for noncash charges and credits. Two transactions in December also contributed to this year's higher inflow as follows: (a) Conoco received $303 million from a contract for future sales of natural gas to Centrica, a U.K. company which holds gas contracts for the British government; and (b) $250 million was transferred from the company's pension trust in the United States to pay the company's portion of certain retiree health care costs as permitted under federal law. These higher inflows were partially offset by higher inventory levels. The $1.5 billion adjustment for "Purchased In-Process Research and Development" eliminates the noncash charge to earnings DUPONT 23 Management's Discussion and Analysis associated with the purchase of a 20 percent interest in Pioneer, the acquisition of Protein Technologies International from Ralston and the purchase of ICI's polyester intermediates and resins businesses. (See Note 5, "Purchased In-Process Research and Development," to the financial statements.) "Other Noncash Charges and Credits -- Net" of $437 million includes a $340 million adjustment to eliminate the noncash charge taken in the third quarter to write down certain Printing and Publishing assets to be sold. It also includes $167 million to eliminate the noncash charges for impairment of nonrevenue producing properties and an office building held for sale. (See Note 6, "Write-down of Assets and Other Related Costs," to the financial statements.) In 1996, cash provided by operations totaled $6.4 billion; this was $0.4 billion below the $6.8 billion inflow in 1995. This reduction is primarily due to higher working capital investment in support of increased business activity in the latter part of 1996 and tax payments related to gains on divestitures and the joint venture formation. CAPITAL INVESTMENTS Total capital investments, including investments in affiliates and acquisitions, were $8.3 billion. This is an increase of $4.5 billion from 1996. As discussed under "Financial Condition" above, $3.9 billion of the 1997 expenditures were for three strategic acquisitions. Excluding these items, 1997 expenditures of $4.4 billion were up $0.6 billion, or 16 percent, from $3.8 billion spent last year. The 1996 expenditures were up $0.3 billion, or 9 percent, from $3.5 billion in 1995. In the Petroleum segment, capital investments were $3.0 billion and included $0.9 billion to purchase the Lobo natural gas properties in South Texas. Excluding the South Texas natural gas properties purchase, expenditures were $2.1 billion versus $2.0 billion in 1996 and upstream capital expenditures were $1.5 billion, up 15 percent from the $1.3 billion spent in 1996. The most significant upstream expenditures in 1997 included development of the newly acquired Lobo gas properties and continued development of the Britannia gas field in the U.K. North Sea and the Ursa deepwater oil field in the Gulf of Mexico. Downstream capital expenditures of $0.6 billion were down 14 percent from the $0.7 billion spent in 1996. Downstream spending included continuing construction of the Melaka refinery in Malaysia and expansion of refining and marketing operations in central and eastern Europe. For the chemicals and specialties businesses, capital investments totaled $5.3 billion in 1997. Excluding the $3.0 billion spent for the Pioneer and ICI acquisitions, capital investments were $2.3 billion, which is $0.5 billion above the $1.8 billion for 1996. The program to modernize, consolidate and renew the cost competitiveness of the Nylon business continued in 1997 with expenditures made in the United States, Europe and Asia to upgrade both nylon manufacturing facilities and nylon intermediates. Other expenditures this past year were to expand capacity and build market positions in Europe and Asia for key businesses, including Lycra(R) brand spandex, crop protection agents, Dacron(R) polyester, Terathane(R), Mylar(R) thin films, Sontara(R) nonwoven and Softec(TM) polyester. In the United States, expenditures increased capacity for Hytrel(R) and Vespel(R) resins, Lycra(R), Fortress(R) insecticide, Vamac(R) elastomers and terephthalic acid. Also, significant expenditures were made for environmental projects. In 1998, the company currently expects that capital investments will be about $6.0 billion. This includes $1.6 billion to complete the acquisition of ICI's polyester films and tioxide businesses. Excluding these strategic acquisitions, capital spending is expected to total $4.4 billion, or about the same as in 1997. Petroleum expenditures are expected to be about $2.1 billion and include equity contributions for the Petrozuata extra-heavy oil development in Venezuela, continuing development of the Lobo gas properties, expansion of refining and marketing in central and eastern Europe, and completion of the Britannia gas development in the U.K. North Sea and the Melaka refinery in Malaysia. Chemicals and specialties expenditures are expected to be $2.3 billion and include funding for a number of growth-oriented projects to expand manufacturing capacity globally, especially for businesses such as Lycra(R) utilizing a new generation of technology, engineering polymers and crop protection chemicals. Renewal and modernization of nylon manufacturing and intermediates capacity in the United States, Europe and Asia will continue. The budget also provides funds for the newly acquired polyester resins, intermediates and films, tioxide and life sciences businesses. PROCEEDS FROM SALES OF ASSETS Proceeds from asset sales were $1,123 million in 1997. Half of this total came from sales of various petroleum properties which totaled $565 million in 1997 as compared with $275 million the 24 DUPONT Management's Discussion and Analysis previous year. Proceeds from sales of chemicals and specialties assets and businesses amounted to $558 million in 1997. The most significant proceeds came from: (a) collection of the note received from the sale of the Diagnostic Imaging business last year; (b) the sale of NEN Life Sciences Products which concluded the divestiture of the company's Medical Products businesses; and (c) the sale by DuPont Merck of its generic and multisource product lines. (See Note 23, "Investment Activities," to the financial statements.) In 1996, proceeds were $1,271 million, principally from the sale of two Medical Products businesses (Diagnostic Imaging and In-Vitro Diagnostics), the formation of the elastomers joint venture with Dow and sales of various petroleum properties. OTHER INVESTMENT ACTIVITIES "Miscellaneous - Net" Investment Activities of $555 million included $450 million from the liquidation of financial investments by Danube Insurance Limited, the company's self-insurance subsidiary. These funds from excess insurance reserves were used for operating and investment purposes. DIVIDENDS Dividends per share of common stock were $1.23 in 1997, $1.115 in 1996 and $1.015 in 1995. The quarterly dividend was increased from $.285 to $.315 in the second quarter of 1997 and from $.26 to $.285 in the second quarter of 1996. The company's objective is to pay dividends that are 15 to 25 percent of cash provided by operations. For 1997 and 1996, dividends paid in relation to cash provided by operations were 20 percent, as compared with 18 percent in 1995. FINANCING ACTIVITIES In accordance with the company's announced intent to offset dilution resulting from DuPont stock issued under compensation plans and the acquisition of the PTI business, the company spent $1,747 million in 1997 to purchase shares of DuPont common stock. Immediately after purchase, these shares were retired. The total includes $1,420 million spent in December to buy back 22.5 million shares, equivalent to the shares issued to acquire the PTI business. The remaining $327 million was for the purchase of 5.8 million shares to offset dilution from compensation plans. In July 1996, the company paid $504 million to repurchase warrants from Seagram. The warrants were issued to Seagram as part of the 1995 transaction to redeem 312 million shares of the company's common stock. Also, in 1996, the company received $297 million from the formation of a partnership in which Vanguard Energy Investors L.P. owns a 33 percent interest. WORKING CAPITAL INVESTMENT At the end of 1997, the company's investment in working capital (excluding cash and cash equivalents, marketable securities, and short-term borrowings and capital lease obligations) was $2.8 billion, an increase of $0.1 billion from the $2.7 billion in 1996. This increase is principally due to the acquisition of the Protein Technologies International business and ICI's polyester intermediates and resins businesses in December. Current assets increased by $0.9 billion due to the two acquisitions, higher miscellaneous receivables for gains on foreign exchange contracts and higher inventories in support of increased business levels partially offset by collection of the note receivable from The Sterling Group, Inc. Current liabilities increased $0.8 billion principally due to higher accrued liabilities for losses on foreign exchange contracts and the two acquisitions. In 1996, working capital investment decreased $0.2 billion from the $2.9 billion in 1995. Accounts and notes receivable increased $281 million, primarily due to the $175 million note received from The Sterling Group, Inc., in connection with the sale of the Diagnostic Imaging business, but this increase was more than offset by a $503 million increase in current liabilities principally due to increased business activity at the end of 1996 as compared with 1995 as well as higher crude oil prices. The ratio of current assets to current liabilities, including cash and cash equivalents, marketable securities, short-term borrowings and capital lease obligations, at year-end 1997 was 0.8:1 as compared with 1.0:1 in 1996 and 0.9:1 in 1995. The lower ratio in 1997 is due to a $2.2 billion increase in short-term borrowings from 1996, resulting from commercial paper borrowings. YEAR 2000 Historically, certain computer programs have been written using two digits rather than four digits to define the applicable year, which could result in computers recognizing a date using "00" as the year 1900 rather than the year 2000. This could result in major system failures or miscalculations, and is generally referred to as the "Year 2000" problem or issue. DUPONT 25 Management's Discussion and Analysis The company is conducting a global assessment of its key internal computer systems and software and will take steps necessary to ensure that its information technology infrastructure will be Year 2000-capable. The company has established a "Year 2000 Project Office" to lead and coordinate all of its global Year 2000 activities. This office is accountable to provide the necessary leadership, tools and knowledge required by all operating units to become Year 2000-capable. The company is also working with Computer Sciences Corporation and Andersen Consulting, who operate the majority of the company's global information systems and technology infrastructure, so that the services they provide will be Year 2000-capable. At this time, the company cannot reasonably estimate the potential impact on its financial position and operations if key suppliers, customers and other constituents (e.g., government) do not become Year 2000-capable on a timely basis. Out-of-pocket costs incurred to become Year 2000-capable are currently estimated to be about $200 million and are not expected to have a material adverse effect on the company's financial condition, operations or liquidity. The company will devote all necessary resources to make its key systems Year 2000-capable on a timely basis. Financial Instruments DERIVATIVES AND OTHER HEDGING INSTRUMENTS Under procedures and controls established by the company's Financial Risk Management Framework, the company enters into contractual arrangements (derivatives) in the ordinary course of business to hedge its exposure to foreign currency, interest rate and commodity price risks. The counterparties to these contractual arrangements are major financial institutions. Although the company is exposed to credit loss in the event of nonperformance by these counterparties, this exposure is managed through credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. The company does not anticipate nonperformance by counterparties to these contracts, and no material loss would be expected from any such nonperformance. FOREIGN CURRENCY RISK The company routinely uses forward exchange contracts to hedge its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. In addition, from time to time, the company will enter into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis taking into consideration the amount and duration of the exposure, market volatility and economic trends. Forward exchange contracts are also used to manage near-term foreign currency cash requirements and to place foreign currency deposits and marketable securities investments into currencies offering favorable returns. Principal currency exposures and related hedge positions at December 31, 1997, were as follows (dollars in millions):
- ----------------------------------------------------------------------------------------------------- Open Contracts To Buy/(Sell) Currency Net Monetary Monetary Net Monetary -------------------- After-Tax Currency Assets Liabilities Exposure Pretax After-Tax Exposure - ----------------------------------------------------------------------------------------------------- British Pound $2,052 $1,042 $1,010 $(1,623) $(1,006) $ 4 Canadian Dollar $ 341 $ 180 $ 161 $ (264) $ (164) $ (3) German Mark $ 565 $1,027 $ (462) $ 749 $ 461 $ (1) Norwegian Krone $ 408 $ - $ 408 $ (661) $ (410) $ (2) French Franc $1,375 $1,009 $ 366 $ (587) $ (364) $ 2 Italian Lira $ 445 $ 212 $ 233 $ (377) $ (234) $ (1) =====================================================================================================
26 DUPONT Management's Discussion and Analysis The fair value of forward exchange contracts outstanding as of December 31, 1997, was $(3) million. Given the company's balanced foreign exchange position shown above, a ten percent adverse change in foreign exchange rates upon which these contracts are based would result in exchange losses from these contracts that, net of tax, would, in all material respects, be fully offset by exchange gains on the underlying net monetary exposures for which the contracts are designated as hedges. INTEREST RATE RISK The company uses a combination of financial instruments, including interest rate swaps, interest and principal currency swaps and structured medium-term financings, as part of its program to manage the fixed and floating interest rate mix of the total debt portfolio and related overall cost of borrowing. Interest rate swaps involve the exchange of fixed for floating rate interest payments to effectively convert fixed rate debt into floating rate debt based on LIBOR or commercial paper rates. Interest rate swaps also involve the exchange of floating for fixed rate interest payments to effectively convert floating rate debt into fixed rate debt. Interest rate swaps allow the company to maintain a target range of floating rate debt. Under interest and principal currency swaps, the company receives predetermined foreign currency-denominated payments corresponding, both as to timing and amount, to the fixed or floating interest rate and fixed principal amounts to be paid by the company under concurrently issued foreign currency-denominated bonds. In return, the company pays U.S. dollar interest and a fixed U.S. dollar principal amount to the counterparty thereby effectively converting the foreign currency-denominated bonds into U.S. dollar-denominated obligations for both interest and principal. Interest and principal currency swaps allow the company to be fully hedged against fluctuations in currency exchange rates and foreign interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. Structured medium-term financings consist of a structured medium-term note and a concurrently executed structured medium-term swap which, for any and all calculations of the note's interest and/or principal payments over the term of the note, provide a fully hedged transaction such that the note is effectively converted to a U.S. dollar-denominated fixed or floating interest rate payment. Structured medium-term swaps allow the company to be fully hedged against fluctuations in exchange rates and interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. The fair value of interest rate derivatives outstanding as of December 31, 1997, was not material. A one percentage point adverse change in the interest rates upon which these contracts are based would not cause these instruments to have a material impact on future earnings. COMMODITY PRICE RISK AND TRADING The company enters into exchange-traded and over-the-counter derivative commodity instruments to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Commodity trading in petroleum futures contracts is a natural extension of cash market trading and is used to physically acquire a portion of refining crude supply requirements. The commodity futures market has underlying principles of increased liquidity and longer trading periods than the cash market and is one method of reducing exposure to the price risk inherent in the petroleum business. Typically, trading is conducted to manage price risk around near-term supply requirements. Occasionally, as market views and conditions allow, longer-term positions will be taken to manage price risk for the company's equity production (crude and natural gas) or net supply requirements. The company's use of derivative commodity instruments reduces the effects of price volatility, thereby protecting against adverse price movements, while limiting, somewhat, the benefits of favorable price movements. On a limited basis, the company also purchases and sells petroleum- and other energy-based futures contracts for trading purposes. After-tax gain/loss from such trading has not been material. The fair value of derivative commodity instruments outstanding as of December 31, 1997, was not material. A ten percent adverse change in the commodity prices upon which these contracts are based would not cause these instruments to have a material impact on future earnings. Additional details on these and other financial instruments are set forth in Note 26 to the financial statements. DUPONT 27 Management's Discussion and Analysis Environmental Matters DuPont operates manufacturing facilities, petroleum refineries, natural gas processing plants and product-handling and distribution facilities around the world. These facilities are significantly affected by a broad array of environmental laws and regulations. Company policy requires that all operations fully meet or exceed legal and regulatory requirements. DuPont facilities worldwide are run in accordance with the highest standards of safe operation, even where those standards exceed the requirements of local law. DuPont has also implemented voluntary programs to reduce air emissions, curtail the generation of hazardous waste, decrease the volume of wastewater discharges and improve the efficiency of energy use. The costs of complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. These costs may increase in the future, but are not expected to have a material impact on the company's competitive or financial position. In 1997 DuPont spent about $330 million for environmental capital projects either required by law or necessary to meet the company's internal waste elimination and pollution prevention goals. The company currently estimates expenditures for environmental-related capital projects will total $300 million in 1998. Significant capital expenditures may be required over the next decade for treatment, storage and disposal facilities for solid and hazardous waste and for compliance with the Clean Air Act (CAA) and its 1990 Amendments. Until all new CAA regulatory requirements are known, considerable uncertainty will remain regarding future estimates of capital expenditures. Total CAA capital costs over the next two years are currently estimated to range from $20 million to $200 million. Estimated pretax environmental expenses charged to current operations totaled about $700 million, before insurance recoveries, in 1997 as compared to about $800 million in both 1996 and 1995. These expenses include the remediation accruals discussed below, operating, maintenance and depreciation costs for solid waste, air and water pollution control facilities and the costs of environmental research activities. The largest of these expenses resulted from the operation of wastewater treatment facilities and solid waste management facilities, each of which accounted for about $170 million. About 72 percent of total annual expenses resulted from the operations of the company's Chemicals, Fibers, Polymers, Life Sciences and Diversified Businesses segments in the United States. REMEDIATION ACCRUALS DuPont accrues for remediation activities when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. These accrued liabilities exclude claims against third parties and are not discounted. Much of this liability results from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as Superfund), the Resource Conservation and Recovery Act (RCRA) and similar state laws that require the company to undertake certain investigative and remedial activities at sites where the company conducts or once conducted operations or at sites where company-generated waste was disposed. The accrual also includes a number of sites identified by the company that may require environmental remediation, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. Over the next one to two decades the company may incur significant costs under both CERCLA and RCRA. Considerable uncertainty exists with respect to these costs and under adverse changes in circumstances, potential liability may exceed amounts accrued as of December 31, 1997. Remediation activities vary substantially in duration and cost from site to site depending on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies and the presence or absence of potentially liable third parties. Therefore, it is difficult to develop reasonable estimates of future site remediation costs. At December 31, 1997, the company's balance sheet included an accrued liability of $561 million as compared to $586 million and $602 million at year-end 1996 and 1995, respectively. Approximately 78 percent of the company's environmental reserve at December 31, 1997 was attributable to RCRA and similar remediation liabilities and 22 percent to CERCLA liabilities. During 1997, remediation accruals of $54 million, offset by $55 million in insurance proceeds, resulted in a credit to income of $1 million, compared to credits of $9 million and $79 million in 1996 and 1995, respectively, also resulting from insurance recoveries. REMEDIATION EXPENDITURES RCRA extensively regulates the treatment, storage and disposal of hazardous waste and requires a permit to conduct such activities. The law requires that permitted facilities undertake an 28 DUPONT Management's Discussion and Analysis assessment of environmental conditions at the facility. If conditions warrant, the company may be required to remediate contamination caused by prior operations. As contrasted by CERCLA, the RCRA corrective action program results in the cost of corrective action activities being typically borne solely by the company. The company anticipates that significant ongoing expenditures for RCRA remediation activities may be required over the next two decades, although annual expenditures for the near term are not expected to vary significantly from the range of such expenditures over the past few years. Longer term, expenditures are subject to considerable uncertainty and may fluctuate significantly. The company's expenditures associated with RCRA and similar remediation activities were approximately $62 million in 1997, $79 million in 1996 and $94 million in 1995. The company from time to time receives requests for information or notices of potential liability from the Environmental Protection Agency (EPA) and state environmental agencies alleging that the company is a "potentially responsible party" (PRP) under CERCLA or an equivalent state statute. The company has also on occasion been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not company owned but allegedly contain wastes attributable to the company's past operations. As of December 31, 1997, the company had been notified of potential liability under CERCLA or state law at about 347 sites around the United States, with active remediation under way at 175 of those sites. In addition, the company has resolved its liability at 96 sites, either by completing remedial actions with other PRPs or by participating in "de minimis buyouts" with other PRPs whose waste, like the company's, represented only a small fraction of the total waste present at a site. The company received notice of potential liability at 12 new sites during 1997 compared with 7 similar notices in 1996 and 16 in 1995. The company's expenditures associated with CERCLA and similar state remediation activities were approximately $18 million in 1997, $28 million in 1996 and $25 million in 1995. For most Superfund sites, the company's potential liability will be significantly less than the total site remediation costs because the percentage of waste attributable to the company versus that attributable to all other PRPs is relatively low. Other PRPs at sites where the company is a party typically have the financial strength to meet their obligations and, where they do not, or where PRPs cannot be located, the company's own share of liability has not materially increased. There are relatively few sites where the company is a major participant, and neither the cost to the company of remediation at those sites, nor at all CERCLA sites in the aggregate, is expected to have a material impact on the competitive or financial position of the company. Total expenditures for previously accrued remediation activities under CERCLA, RCRA and similar state laws were $80 million in 1997, $107 million in 1996 and $119 million in 1995. Although future remediation expenditures in excess of current reserves is possible, the effect on future financial results is not subject to reasonable estimation because of the considerable uncertainty regarding the cost and timing of expenditures. DUPONT 29 Responsibilities for Financial Reporting Management is responsible for the consolidated financial statements and the other financial information contained in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles considered by management to present fairly the company's financial position, results of operations and cash flows. The financial statements include some amounts that are based on management's best estimates and judgments. The company's system of internal controls is designed to provide reasonable assurance as to the protection of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The company's business ethics policy is the cornerstone of our internal control system. This policy sets forth management's commitment to conduct business worldwide with the highest ethical standards and in conformity with applicable laws. The business ethics policy also requires that the documents supporting all transactions clearly describe their true nature and that all transactions be properly reported and classified in the financial records. The system is monitored by an extensive program of internal audit, and management believes that the system of internal controls at December 31, 1997, meets the objectives noted above. The financial statements have been audited by the company's independent accountants, Price Waterhouse LLP. The purpose of their audit is to independently affirm the fairness of management's reporting of financial position, results of operations and cash flows. To express the opinion set forth in their report, they study and evaluate the internal controls to the extent they deem necessary. Their report is shown on this page. The adequacy of the company's internal controls and the accounting principles employed in financial reporting are under the general oversight of the Audit Committee of the Board of Directors. This committee also has responsibility for employing the independent accountants, subject to stockholder ratification. No member of this committee may be an officer or employee of the company or any subsidiary or affiliated company. The independent accountants and the internal auditors have direct access to the Audit Committee, and they meet with the committee from time to time, with and without management present, to discuss accounting, auditing and financial reporting matters. /s/ Charles O. Holliday, Jr. /s/ Gary M. Pfeiffer Charles O. Holliday, Jr. Gary M. Pfeiffer President Senior Vice President and Chief Executive Officer and Chief Financial Officer February 13, 1998 Report of Independent Accountants To the Stockholders and the Board of Directors of E. I. du Pont de Nemours and Company In our opinion, the consolidated financial statements appearing on pages 31-53 of this Annual Report present fairly, in all material respects, the financial position of E. I. du Pont de Nemours and Company and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Price Waterhouse LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 February 13, 1998 30 DUPONT Financial Statements E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Income Statement (Dollars in millions, except per share) - ----------------------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------------------- Sales* $45,079 $43,810 $42,163 Other Income (Note 2) 1,574 1,340 1,059 ---------------------------------------- Total 46,653 45,150 43,222 ---------------------------------------- Cost of Goods Sold and Other Operating Charges 26,377 25,144 23,363 Selling, General and Administrative Expenses 2,711 2,856 2,995 Depreciation, Depletion and Amortization 2,385 2,621 2,722 Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties 457 404 331 Research and Development Expense 1,116 1,032 1,067 Interest and Debt Expense (Note 3) 642 713 758 Taxes Other Than on Income* (Note 4) 6,300 6,399 6,596 Purchased In-Process Research and Development (Note 5) 1,478 -- -- Write-down of Assets and Other Related Costs (Note 6) 507 -- -- ---------------------------------------- Total 41,973 39,169 37,832 ---------------------------------------- Earnings Before Income Taxes 4,680 5,981 5,390 Provision for Income Taxes (Note 7) 2,275 2,345 2,097 ---------------------------------------- Net Income $ 2,405 $ 3,636 $ 3,293 =========================================================================================================== Earnings Per Share of Common Stock (Note 8) Basic $ 2.12 $ 3.23 $ 2.81 Diluted $ 2.08 $ 3.18 $ 2.77 ===========================================================================================================
* Includes petroleum excise taxes of $5,349, $5,461 and $5,655 in 1997, 1996 and 1995, respectively. See pages 35-53 for Notes to Financial Statements. DUPONT 31 Financial Statements E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Balance Sheet (Dollars in millions, except per share) - ---------------------------------------------------------------------------------------------------------------- December 31 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and Cash Equivalents (Note 9) $ 1,004 $ 1,066 Marketable Securities (Note 9) 142 253 Accounts and Notes Receivable (Note 10) 5,740 5,193 Inventories (Note 11) 4,070 3,706 Prepaid Expenses 397 297 Deferred Income Taxes (Note 7) 521 588 ----------------------------- Total Current Assets 11,874 11,103 ----------------------------- Property, Plant and Equipment (Note 12) 54,284 50,549 Less: Accumulated Depreciation, Depletion and Amortization 30,701 29,336 ----------------------------- 23,583 21,213 ----------------------------- Investment in Affiliates (Note 13) 3,477 2,278 Other Assets (Notes 7 and 14) 4,008 3,276 ----------------------------- Total $ 42,942 $ 37,870 ================================================================================================================ Liabilities and Stockholders' Equity Current Liabilities Accounts Payable (Note 15) $ 3,007 $ 2,757 Short-Term Borrowings and Capital Lease Obligations (Note 16) 6,154 3,910 Income Taxes (Note 7) 593 526 Other Accrued Liabilities (Note 17) 4,316 3,794 ----------------------------- Total Current Liabilities 14,070 10,987 Long-Term Borrowings and Capital Lease Obligations (Note 18) 5,929 5,087 Other Liabilities (Note 19) 8,919 8,450 Deferred Income Taxes (Note 7) 2,084 2,133 ----------------------------- Total Liabilities 31,002 26,657 ----------------------------- Minority Interests (Note 20) 670 620 ----------------------------- Stockholders' Equity (next page) Preferred Stock, without par value - cumulative; 23,000,000 shares authorized; issued at December 31: $4.50 Series--1,672,594 shares (callable at $120) 167 167 $3.50 Series--700,000 shares (callable at $102) 70 70 Common Stock, $.30 par value; 1,800,000,000 shares authorized; Issued at December 31, 1997--1,152,762,128; 1996--1,158,085,450 346 347 Additional Paid-In Capital 7,991 6,676 Reinvested Earnings 4,389 4,931 Cumulative Translation Adjustments (153) (23) Minimum Pension Liability Adjustments (144) (116) Common Stock Held in Trust for Unearned Employee Compensation and Benefits (Flexitrust), at Market (Shares: December 31, 1997--23,245,747; 1996--30,991,590) (1,396) (1,459) ----------------------------- Total Stockholders' Equity 11,270 10,593 ----------------------------- Total $ 42,942 $ 37,870 ================================================================================================================
See pages 35-53 for Notes to Financial Statements. 32 DUPONT Financial Statements E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Stockholders' Equity (Notes 21 and 22) (Dollars in millions, except per share) - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount ---------------------------------------------------------------------------------- Preferred Stock $ 237 $ 237 $ 237 ---------------------------------------------------------------------------------- Common Stock Balance January 1 1,158,085,450 347 1,470,085,448 441 1,362,009,888 408 Issuance of Shares in Connection with: Businesses Acquired 23,009,778 7 -- -- -- -- Public and Private Offerings -- -- 2 -- 54,678,750 16 Establishment of Flexitrust -- -- -- -- 48,000,000 14 Compensation Plans -- -- -- -- 5,396,810 3 Retirement of Treasury Stock (28,333,100) (8) (312,000,000) (94) -- -- ---------------------------------------------------------------------------------- Balance December 31 1,152,762,128 346 1,158,085,450 347 1,470,085,448 441 ---------------------------------------------------------------------------------- Additional Paid-In Capital Balance January 1 6,676 8,689 4,771 Changes due to: Businesses Acquired 1,317 -- -- Public and Private Offerings -- -- 1,731 Common Stock Held by Flexitrust 356 458 1,662 Shares Issued by Flexitrust (299) (289) (19) Issuance (Repurchase) of Warrants -- (504) 439 Compensation Plans 134 70 105 Retirement of Treasury Stock (193) (1,748) -- ---------------------------------------------------------------------------------- Balance December 31 7,991 6,676 8,689 ---------------------------------------------------------------------------------- Reinvested Earnings Balance January 1 4,931 9,503 7,406 Net Income 2,405 3,636 3,293 Preferred Dividends (10) (10) (10) Common Dividends (1997-$1.23; 1996-$1.115; 1995-$1.015) (1,391) (1,251) (1,186) Retirement of Treasury Stock (1,546) (6,947) -- ---------------------------------------------------------------------------------- Balance December 31 4,389 4,931 9,503 ---------------------------------------------------------------------------------- Cumulative Translation Adjustments Balance January 1 (23) -- -- Adjustments during Year (130) (23) -- ---------------------------------------------------------------------------------- Balance December 31 (153) (23) -- ---------------------------------------------------------------------------------- Minimum Pension Liability Adjustments Balance January 1 (116) (113) (79) Adjustments during Year (28) (3) (34) ---------------------------------------------------------------------------------- Balance December 31 (144) (116) (113) ---------------------------------------------------------------------------------- Less: Common Stock Held in Flexitrust Balance January 1 30,991,590 1,459 47,092,352 1,645 -- -- Establishment of Flexitrust -- -- -- -- 48,000,000 1,626 Shares Issued (7,745,843) (419) (16,100,762) (644) (907,648) (31) Adjustments to Market Value -- 356 -- 458 -- 50 ---------------------------------------------------------------------------------- Balance December 31 23,245,747 1,396 30,991,590 1,459 47,092,352 1,645 ---------------------------------------------------------------------------------- Less: Common Stock Held in Treasury, at Cost Balance January 1 -- -- 312,000,000 8,789 -- -- Acquisition (Retirement) -- -- (312,000,000) (8,789) 312,000,000 8,789 ---------------------------------------------------------------------------------- Balance December 31 -- -- -- -- 312,000,000 8,789 ---------------------------------------------------------------------------------- Total Stockholders' Equity $11,270 $10,593 $8,323 ===================================================================================================================================
See pages 35-53 for Notes to Financial Statements. DUPONT 33 Financial Statements E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Cash Flows (Dollars in millions) - ------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------------------- Cash and Cash Equivalents at Beginning of Year $ 1,066 $ 1,408 $ 856 ----------------------------------------- Cash Provided by Operations Net Income 2,405 3,636 3,293 Adjustments to Reconcile Net Income to Cash Provided by Operations: Depreciation, Depletion and Amortization 2,385 2,621 2,722 Dry Hole Costs and Impairment of Unproved Properties 169 137 121 Purchased In-Process Research and Development 1,478 -- -- Other Noncash Charges and Credits--Net 437 (244) (67) Decrease (Increase) in Operating Assets: Accounts and Notes Receivable (650) (359) 151 Inventories and Other Operating Assets (390) (253) 21 Increase (Decrease) in Operating Liabilities: Accounts Payable and Other Operating Liabilities 857 531 (8) Accrued Interest and Income Taxes (Notes 3 and 7) 293 319 528 ----------------------------------------- Cash Provided by Operations 6,984 6,388 6,761 ----------------------------------------- Investment Activities (Note 23) Purchases of Property, Plant and Equipment (4,768) (3,303) (3,240) Investments in Affiliates (2,283) (413) (249) Payments for Businesses (Net of Cash Acquired) (1,238) (75) (5) Proceeds from Sales of Assets 1,123 1,271 337 Net Decrease (Increase) in Short-Term Financial Instruments 115 (197) 500 Miscellaneous--Net 555 57 (56) ----------------------------------------- Cash Used for Investment Activities (6,496) (2,660) (2,713) ----------------------------------------- Financing Activities Dividends Paid to Stockholders (1,401) (1,261) (1,196) Net Increase (Decrease) in Short-Term Borrowings 1,737 (954) 2,172 Long-Term and Other Borrowings: Receipts 6,462 3,194 7,640 Payments (5,562) (5,171) (5,642) Acquisition of Treasury Stock (Note 21) (1,747) -- (8,350) Repurchase of Warrants (Note 21) -- (504) -- Net Proceeds from Issuance of Common Stock through Public and Private Offerings (Note 21) -- -- 1,747 Proceeds from Exercise of Stock Options 116 315 58 Increase (Decrease) in Minority Interests (Note 20) (56) 363 -- ----------------------------------------- Cash Used for Financing Activities (451) (4,018) (3,571) ----------------------------------------- Effect of Exchange Rate Changes on Cash (99) (52) 75 ----------------------------------------- Cash and Cash Equivalents at End of Year $ 1,004 $ 1,066 $ 1,408 ----------------------------------------- Increase (Decrease) in Cash and Cash Equivalents $ (62) $ (342) $ 552 ===================================================================================================================
See pages 35-53 for Notes to Financial Statements. 34 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 1. Summary of Significant Accounting Policies DuPont observes the generally accepted accounting principles described below. These, together with the other notes that follow, are an integral part of the consolidated financial statements. Basis of Consolidation The accounts of wholly owned and majority-owned subsidiaries are included in the consolidated financial statements. Investments in affiliates owned 20 percent or more and corporate joint ventures are accounted for under the equity method. Investments in noncorporate joint ventures of petroleum operations are consolidated on a pro rata basis. Other securities and investments, excluding marketable securities, are generally carried at cost. Inventories Substantially all inventories are valued at cost as determined by the last-in, first-out (LIFO) method; in the aggregate, such valuations are not in excess of market. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or market, whichever is lower; cost is generally determined by the average cost method. Property, Plant and Equipment Property, plant and equipment (PP&E) is carried at cost and, except for petroleum PP&E, PP&E placed in service prior to 1995 is depreciated under the sum-of-the-years' digits method and other substantially similar methods. PP&E placed in service after 1994 is depreciated using the straight-line method. This change in accounting was made to reflect management's belief that the productivity of such PP&E will not appreciably diminish in the early years of its useful life, and it will not be subject to significant additional maintenance in the later years of its useful life. In these circumstances, straight-line depreciation is preferable in that it provides a better matching of costs with revenues. Additionally, the change to the straight-line method conforms to predominant industry practice. The effect of this change on net income is dependent on the level of future capital spending; it did not have a material effect in 1995. Depreciation rates are based on estimated useful lives ranging from 3 to 25 years. Generally, for PP&E acquired prior to 1991, the gross carrying value of assets surrendered, retired, sold or otherwise disposed of is charged to accumulated depreciation and any salvage or other recovery therefrom is credited to accumulated depreciation. For disposals of PP&E acquired after 1990, the gross carrying value and related accumulated depreciation are removed from the accounts and included in determining gain or loss on such disposals. Petroleum PP&E, other than "Oil and Gas Properties" described below, is depreciated on the straight-line method at various rates calculated to extinguish carrying values over estimated useful lives. When petroleum PP&E is surrendered, retired, sold or otherwise disposed of, the nature of the assets involved determines if a gain or loss is recognized, or if the gross carrying value is charged to accumulated depreciation, depletion and amortization, and any salvage or other recovery therefrom is credited to accumulated depreciation, depletion and amortization. Maintenance and repairs are charged to operations; replacements and betterments are capitalized. Oil and Gas Properties The company's exploration and production activities are accounted for under the successful-efforts method. Costs of acquiring unproved properties are capitalized, and impairment of those properties, which are individually insignificant, is provided for by amortizing the cost thereof based on past experience and the estimated holding period. Geological, geophysical and delay rental costs are expensed as incurred. Costs of exploratory dry holes are expensed as the wells are determined to be dry. Costs of productive properties, production and support equipment and development costs are capitalized and amortized on a unit-of-production basis. Intangible Assets Identifiable intangible assets such as purchased patents and trademarks are amortized using the straight-line method over their estimated useful lives. Goodwill is amortized over periods up to 40 years using the straight-line method. The company continually evaluates the reasonableness of its amortization of intangibles. In addition, if it becomes probable that expected future undiscounted cash flows associated with intangible assets are less than their carrying value, the assets are written down to their fair value. Environmental Liabilities and Expenditures Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities are exclusive of claims against third parties and are not discounted. DUPONT 35 Notes to Financial Statements (Dollars in millions, except per share) Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or mitigate or prevent contamination from future operations, in which event they are capitalized. Income Taxes The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates, except for subsidiaries in which earnings are deemed to be permanently invested. Investment tax credits or grants are accounted for in the period earned (the flow-through method). Foreign Currency Translation Through December 31, 1995, the company had determined that the U.S. dollar was the "functional currency" of its worldwide operations. For subsidiaries where the U.S. dollar is the functional currency, all foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for inventories, prepaid expenses and property, plant and equipment, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur. Effective January 1, 1996, management determined that the local currency should be designated as the functional currency for the company's integrated European petroleum operations to properly reflect changed circumstances in the primary economic environment in which these subsidiaries operate. For subsidiaries whose functional currency is local currency, assets and liabilities denominated in local currency are translated into U.S. dollars at end-of-period exchange rates, and resultant translation adjustments are reported as a separate component of stockholders' equity. Assets and liabilities denominated in other than the local currency are remeasured into the local currency prior to translation into U.S. dollars, and the resultant exchange gains or losses, net of their related tax effects, are included in income in the period in which they occur. Income and expenses are translated into U.S. dollars at average exchange rates in effect during the period. Exchange gains and losses, net of their related tax effects, are not material in amount. Hedging and Trading Activities The company routinely uses forward exchange contracts to hedge its net exposure, by currency, related to monetary assets and liabilities denominated in currencies other than the functional currency of the reporting unit. Exchange gains and losses associated with these contracts are included in income in the period in which they occur. The company selectively enters into forward exchange contracts and similar agreements to effectively convert firm foreign currency commitments to functional currency-denominated transactions. Gains and losses on these firm commitment hedges are deferred and included in the functional currency measurement of the related foreign currency-denominated transactions. The company enters into interest rate swap agreements as part of its program to manage the fixed and floating interest rate mix of its total debt portfolio and related overall cost of borrowing. The differential to be paid or received is accrued as interest rates change and is recognized in income over the life of the agreements. The company enters into commodity futures contracts to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Gains and losses on these hedge contracts are deferred and included in the measurement of the related transaction. On a limited basis, the company also purchases and sells petroleum- and other energy-based futures contracts for trading purposes. Changes in the market values of these trading contracts are reflected in income in the period the change occurs. 36 DUPONT Notes to Financial Statements (Dollars in millions, except per share) In the event that a derivative designated as a hedge of a firm commitment or anticipated transaction is terminated prior to the maturation of the hedged transaction, gains or losses realized at termination are deferred and included in the measurement of the hedged transaction. If a hedged transaction matures, or is sold, extinguished or terminated prior to the maturity of a derivative designated as a hedge of such transaction, gains or losses associated with the derivative through the date the transaction matured are included in the measurement of the hedged transaction and the derivative is reclassified as for trading purposes. Derivatives designated as a hedge of an anticipated transaction are reclassified as for trading purposes if the anticipated transaction is no longer likely to occur. In the Consolidated Statement of Cash Flows, the company reports the cash flows resulting from its hedging activities in the same category as the related item that is being hedged. Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications of prior years' data have been made to conform to 1997 classifications. 2. Other Income - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------- Royalty income $ 66 $ 74 $ 70 Interest income, net of miscellaneous interest expense 225 211 178 Equity in earnings of affiliates (see Note 13) 682/1/ 669 545 Sales of assets 382/2/ 279 102 Pipeline tariff revenue 115 81 71 Miscellaneous income and expenses--net 104 26 93 ------------------------------- $1,574 $1,340 $1,059 ================================================================================ 1 Includes a benefit of $115 from the gain on the sale by DuPont Merck of its generic and multisource product lines. 2 Includes a benefit of $239 from the gain on the sale of certain North Sea petroleum producing and exploration properties. 3. Interest and Debt Expense - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------- Interest and debt cost incurred $811 $857 $928 Less: Interest and debt cost capitalized 169 144 170 ------------------------------- $642 $713 $758 ================================================================================ Interest paid (net of amounts capitalized) was $577 in 1997, $755 in 1996, and $688 in 1995. 4. Taxes Other Than on Income - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------- Petroleum excise taxes (also included in Sales): U.S $1,201 $1,145 $1,060 Non-U.S 4,148 4,316 4,595 Payroll taxes 417 439 433 Property taxes 207 205 214 Import duties 189 168 166 Production and other taxes 138 126 128 ------------------------------- $6,300 $6,399 $6,596 ================================================================================ 5. Purchased In-Process Research and Development Purchased in-process research and development represents the value assigned in a purchase business combination to research and development projects of the acquired business that were commenced but not yet completed at the date of acquisition and which, if unsuccessful, have no alternative future use in research and development activities or otherwise. In accordance with Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs," as interpreted by FASB Interpretation No. 4, amounts assigned to purchased in-process research and development meeting the above criteria must be charged to expense at the date of consummation of the purchase business combination. In this regard, a charge of $903 was recorded in conjunction with the purchase of a 20 percent interest in Pioneer Hi-Bred International, Inc. based on an independent appraisal. In addition, charges of $500 and $75 were recorded in conjunction with the purchase of Protein Technologies International and the polyester intermediates and resins businesses of Imperial Chemical Industries PLC, respectively, based on preliminary allocations of purchase price which are subject to revision upon completion of purchase accounting allocations and/or obtaining independent valuations by an outside appraisal firm. See Note 23. DUPONT 37 Notes to Financial Statements (Dollars in millions, except per share) 6. Write-down of Assets and Other Related Costs During 1997 DuPont and the Agfa-Gevaert Group (Agfa) signed an agreement under which Agfa will acquire DuPont's global graphic arts films and offset printing plates businesses. Agfa will purchase manufacturing facilities in Germany and the United Kingdom and provide employment to most of the 2,200 DuPont employees working in these businesses. A decision was made to dispose of these businesses, which are a component of DuPont's Diversified Businesses segment, after it became apparent that the company would not be a leader in this industry. The transaction is expected to close during the first quarter of 1998. In connection with the pending sale, DuPont recorded a charge of $340 against third quarter 1997 earnings to write down assets being sold to their estimated net realizable value and to provide for other expenses associated with exiting these businesses. The 1997 loss from operations from these businesses was not material. Also in 1997, the Petroleum segment recorded impairment provisions of $167 for nonrevenue producing properties and an office building held for sale. 7. Provision for Income Taxes - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------------ Current tax expense: U.S. federal $ 901 $ 869 $ 617 U.S. state and local 51 40 36 Non-U.S 1,324 1,248 1,077 ------------------------------------------ Total 2,276 2,157 1,730 ------------------------------------------ Deferred tax expense: U.S. federal 116 135 379 U.S. state and local 8 4 22 Non-U.S (125) 49 (25) ------------------------------------------ Total (1) 188 376 ------------------------------------------ Other/1/ -- -- (9) ------------------------------------------ Provision for Income Taxes 2,275 2,345 2,097 Stockholders' Equity Stock Compensation/2/ (96) (69) (30) Minimum Pension Liability/3/ (18) (1) (21) ------------------------------------------ Total Provision $2,161 $2,275 $2,046 ================================================================================ 1 Represents exchange (gains) losses associated with the company's hedged non-U.S. tax liabilities. These amounts offset the tax effect arising from related hedging activities. 2 Represents tax benefit of certain stock compensation amounts that are deductible for income tax purposes but do not affect net income. 3 Represents deferred tax charge for minimum pension liability recorded in stockholders' equity. Total income taxes paid worldwide were $2,048 in 1997, $1,984 in 1996, and $1,649 in 1995. Deferred income taxes result from temporary differences between the financial and tax bases of the company's assets and liabilities. The tax effects of temporary differences and tax loss/tax credit carryforwards included in the deferred income tax provision are as follows: - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------ Depreciation $ 18 $ 68 $ 152 Accrued employee benefits 31 99 62 Other accrued expenses 16 (91) 118 Intangible drilling costs 27 (15) (23) Inventories (29) (52) (71) Unrealized exchange gains (losses) (6) 5 (1) Investment in subsidiaries and affiliates (38) (19) -- Other temporary differences 64 107 40 Tax loss/tax credit carryforwards (112) 210 18 Valuation allowance change--net 28 (124) 81 ------------------------------------ $ (1) $ 188 $ 376 ================================================================================ The significant components of deferred tax assets and liabilities at December 31, 1997 and 1996, are as follows:
- ------------------------------------------------------------------------------------ 1997 1996 --------------------------------------------------- Deferred Tax Asset Liability Asset Liability - ------------------------------------------------------------------------------------ Depreciation $ -- $3,214 $ 3 $3,220 Accrued employee benefits 3,067 968 2,926 811 Other accrued expenses 761 25 773 24 Intangible drilling costs -- 278 -- 251 Inventories 331 317 267 285 Unrealized exchange gains 5 19 7 37 Tax loss/tax credit carryforwards 287 -- 236 -- Investment in subsidiaries and affiliates 61 93 60 129 Other 470 1,145 447 1,061 --------------------------------------------------- Total $4,982 $6,059 $4,719 $5,818 ------- --------- Less: Valuation allowance 326 298 ------- ------- Net $4,656 $4,421 ====================================================================================
38 DUPONT Notes to Financial Statements (Dollars in millions, except per share) Current deferred tax liabilities (included in the Consolidated Balance Sheet caption "Income Taxes") were $67 and $48 at December 31, 1997 and 1996, respectively. In addition, deferred tax assets of $227 and $196 were included in Other Assets at December 31, 1997 and 1996, respectively (see Note 14). An analysis of the company's effective income tax rate follows: - -------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% Higher effective tax rate on non-U.S operations (principally Petroleum) 6.7 6.7 6.8 Lower effective tax rate on export sales (1.3) (0.8) (1.0) Alternative fuels credit (1.4) (1.1) (1.1) In-Process R&D* 10.8 -- -- Other--net (1.2) (0.6) (0.8) ----------------------------------- Effective income tax rate 48.6% 39.2% 38.9% ================================================================================ * Charges associated with the Pioneer and PTI transactions were not tax effected because these purchases were stock acquisitions rather than asset purchases. See Note 5. Earnings before income taxes shown below are based on the location of the corporate unit to which such earnings are attributable. However, since such earnings are often subject to taxation in more than one country, the income tax provision shown above as U.S. or non-U.S. does not correspond to the earnings set forth below. - -------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------------- United States (including exports) $2,241 $3,633 $3,066 Other regions 2,439 2,348 2,324 ----------------------------------- $4,680 $5,981 $5,390 ================================================================================ At December 31, 1997, unremitted earnings of non-U.S. subsidiaries totaling $7,007 were deemed to be permanently invested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States. Under the tax laws of various jurisdictions in which the company operates, deductions or credits that cannot be fully utilized for tax purposes during the current year may be carried forward, subject to statutory limitations, to reduce taxable income or taxes payable in a future year. At December 31, 1997, the tax effect of such carryforwards approximated $287. Of this amount, $267 has no expiration date, $17 expires in 1998 and $3 expires after 1998 but before 2002. 8. Earnings Per Share of Common Stock Statement of Financial Accounting Standards No. 128, "Earnings Per Share," became effective in the fourth quarter of 1997 and requires two presentations of earnings per share - "basic" and "diluted." 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 computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The numerator in calculating both basic and diluted earnings per share for each year is reported net income less preferred dividends of $10. The denominator is based on the following weighted-average number of common shares: - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------------------ Basic 1,130,755,483 1,121,350,592 1,170,214,952 Diluted 1,149,803,450 1,139,822,755 1,183,408,459 ================================================================================ The difference between basic and diluted weighted-average common shares results from the assumption that dilutive stock options outstanding were exercised. The following stock options and warrants are not included in the diluted earnings per share calculation since in each case the exercise price is greater than the average market price: - -------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------------------ Stock options 4,992,300 - 512,000 Warrants - - 312,000,000 ================================================================================ Shares held by the Flexitrust are not considered in computing the weighted- average number of common shares. See Notes 21 and 22. 9. Cash and Cash Equivalents and Marketable Securities Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value because of the short maturity of these instruments. Cash and cash equivalents are used in part to support a portion of the company's commercial paper program. Marketable securities represent investments in fixed and floating rate financial instruments classified as available-for-sale securities and reported at fair value. DUPONT 39 Notes to Financial Statements (Dollars in millions, except per share) 10. Accounts and Notes Receivable - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Trade--net of allowances of $66 in 1997 and 1996 $4,366 $4,216 Miscellaneous 1,374 977 -------------------- $5,740 $5,193 ================================================================================ Accounts and notes receivable are carried at amounts that approximate fair value and include $94 for 1997 and $137 for 1996 from equity affiliates. See Note 29 for a description of business segment markets and associated concentrations of credit risk. 11. Inventories - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Chemicals $ 289 $ 281 Fibers 744 692 Polymers 707 620 Petroleum 1,278 1,270 Life Sciences 676 561 Diversified Businesses 376 282 ------------------------ $4,070 $3,706 ================================================================================ The excess of replacement or current cost over stated value of inventories for which cost has been determined under the LIFO method approximated $552 and $785 at December 31, 1997 and 1996, respectively. In the aggregate, the market value of the company's vertically integrated petroleum and petroleum-based chemical products exceeds cost. Inventories valued at LIFO comprised 84 percent and 88 percent of consolidated inventories before LIFO adjustment at December 31, 1997 and 1996, respectively. 12. Property, Plant and Equipment - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Chemicals $ 6,387 $ 6,074 Fibers 12,805 12,325 Polymers 7,034 6,813 Petroleum 21,326 20,070 Life Sciences 2,412 1,871 Diversified Businesses 4,320 3,396 ------------------------ $54,284 $50,549 ================================================================================ Property, plant and equipment includes gross assets acquired under capital leases of $212 and $209 at December 31, 1997 and 1996, respectively; related amounts included in accumulated depreciation, depletion and amortization were $108 and $99 at December 31, 1997 and 1996, respectively. 13. Summarized Financial Information for Affiliated Companies Summarized combined financial information for affiliated companies for which DuPont uses the equity method of accounting (see Note 1, "Basis of Consolidation") is shown below on a 100 percent basis. The most significant of these affiliates are CONSOL Energy Inc., DuPont Dow Elastomers L.L.C., The DuPont Merck Pharmaceutical Company and Pioneer Hi-Bred International, Inc.; DuPont has a 50 percent equity ownership in each of these companies with the exception of Pioneer, in which the ownership is 20 percent. Dividends received from equity affiliates were $734 in 1997, $860 in 1996 and $671 in 1995. - -------------------------------------------------------------------------------- Year Ended December 31 --------------------------------------- Results of operations 1997 1996 1995 - -------------------------------------------------------------------------------- Sales/1/ $14,257 $13,374 $10,447 Earnings before income taxes 1,719 1,108 1,084 Net Income 1,369 822 828 DuPont's equity in earnings of affiliates (see Note 2) 682/2/ 669/3/ 545/3/ ================================================================================ 1 Includes sales to DuPont of $1,064 in 1997, $804 in 1996, and $802 in 1995. 2 Includes a benefit of $115 from the gain on the sale by DuPont Merck of its generic and multisource product lines. 3 Reflects a more favorable allocation of DuPont Merck operating income to recognize the performance of assets originally contributed to the venture by DuPont. - -------------------------------------------------------------------------------- Financial position at December 31 1997 1996 - -------------------------------------------------------------------------------- Current assets $ 6,944 $ 4,715 Noncurrent assets 13,774 10,936 -------------------------- Total assets $20,718 $15,651 -------------------------- Short-term borrowings* $ 968 $ 830 Other current liabilities 3,433 2,630 Long-term borrowings* 5,199 3,802 Other long-term liabilities 3,502 3,250 -------------------------- Total liabilities $13,102 $10,512 -------------------------- DuPont's investment in affiliates (includes advances) $ 3,477 $ 2,278 ================================================================================ * DuPont's pro rata interest in total borrowings was $2,153 in 1997 and $1,565 in 1996 of which $1,372 in 1997 and $789 in 1996 was guaranteed by the company. These amounts are included in the guarantees disclosed in Note 27. 40 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 14. Other Assets - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Prepaid pension cost (see Note 25) $1,673 $1,760 Intangible assets 1,285* 221 Other securities and investments 185 586 Deferred income taxes (see Note 7) 227 196 Miscellaneous 638 513 ------------------------- $4,008 $3,276 ================================================================================ * Includes $1,025 based on preliminary allocations of purchase price for businesses purchased from Ralston Purina and ICI. See Note 23. Other securities and investments includes $97 and $478 at December 31, 1997 and 1996, respectively, representing marketable securities classified as available for sale and reported at fair value. The remainder represents numerous small investments in securities for which there are no quoted market prices and for which it is not practicable to determine fair value. Such securities are reported at cost. 15. Accounts Payable - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Trade $2,043 $1,926 Payables to banks 273 264 Compensation awards 267 231 Miscellaneous 424 336 ---------------------------- $3,007 $2,757 ================================================================================ Payables to banks represents checks issued on certain disbursement accounts but not presented to the banks for payment. The reported amounts approximate fair value because of the short maturity of these obligations. 16. Short-Term Borrowings and Capital Lease Obligations - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Commercial paper $2,576 $1,663 Private placement commercial paper 2,896 1,318 Bank borrowings: U.S. dollars -- 61 Other currencies 197 136 Medium-term notes payable within one year 128 372 Long-term borrowings payable within one year 300 300 Industrial development bonds payable on demand 51 51 Capital lease obligations 6 9 ----------------------- $6,154 $3,910 ================================================================================ The estimated fair value of the company's short-term borrowings, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, was $6,200 and $3,900 at December 31, 1997 and 1996, respectively. The increase in estimated fair value in 1997 was primarily due to higher short-term borrowing levels. Unused short-term bank credit lines were approximately $6,200 and $4,500 at December 31, 1997 and 1996, respectively. These lines support short-term industrial development bonds, a portion of the company's commercial paper program and other borrowings. The weighted-average interest rate on short-term borrowings outstanding at December 31, 1997 and 1996, was 5.9 percent and 6.0 percent, respectively. 17. Other Accrued Liabilities - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Payroll and other employee-related costs $ 682 $ 688 Taxes other than on income 444 395 Accrued postretirement benefits cost (see Note 24) 341 356 Miscellaneous 2,849 2,355 ----------------------- $4,316 $3,794 ================================================================================ DUPONT 41 Notes to Financial Statements (Dollars in millions, except per share) 18. Long-Term Borrowings and Capital Lease Obligations - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- U.S. dollar: Industrial development bonds due 2007-2026 $ 333 $ 334 Medium-term notes due 1998-2005/1/ 437 516 8.50% notes due 1998 -- 301 7.50% notes due 1999 301 302 9.15% notes due 2000/2/ 303 304 6.00% debentures due 2001 ($660 face value, 13.95% yield to maturity) 505 475 6.50% notes due 2002 498 -- 6.75% notes due 2002 299 299 8.00% notes due 2002 252 253 8.50% notes due 2003/2/ 300 300 8.13% notes due 2004 331 330 8.25% notes due 2006 282 282 6.75% notes due 2007 499 -- 8.25% debentures due 2022 372 372 7.95% debentures due 2023 299 299 7.50% debentures due 2033 247 247 6.25% Swiss franc notes due 2000/3/ 103 103 Other loans (various currencies) due 1998-2008 475 266 Capital lease obligations 93 104 --------------------- $5,929 $5,087 ================================================================================ 1 Average interest rates at December 31, 1997 and 1996, were 7.1 percent and 7.0 percent, respectively. 2 The company entered into an interest rate swaption agreement for each of these notes as part of the program to manage the fixed and floating interest rate mix of total borrowings. Each agreement gives the swaption counterparty the one-time option to put the company into an interest rate swap with a notional amount of $300, whereby the company would, over the remaining term of the notes, receive fixed rate payments essentially equivalent to the fixed interest rate of the underlying notes, and pay the counterparty a floating rate of interest essentially equivalent to the rate the company pays on its commercial paper. If exercised, the swaptions would effectively convert the notes to a floating rate obligation over the remaining maturity of the notes. The premium received from the counterparties for these swaptions is being amortized to income, using the effective interest method, over the remaining maturity of the notes. The interest rate swaption agreement for the 9.15 percent notes due 2000 expired on April 15, 1997, without being exercised. The fair value and carrying value of these swaptions at December 31, 1997 and 1996, were not material. 3 Represents notes denominated as 150 million Swiss francs with a 6.25 percent Swiss franc fixed interest rate. Concurrent with the issuance of these notes, the company entered into an interest and principal currency swap that effectively established a $103 fixed principal amount with a 6.9 percent U.S. dollar fixed interest rate. Average interest rates on industrial development bonds and on other loans (various currencies) were 6.1 percent and 7.0 percent at December 31, 1997, and 6.1 percent and 6.9 percent at December 31, 1996. Maturities of long-term borrowings, together with sinking fund requirements for years ending after December 31, 1998, are $445, $523, $783 and $1,199 for the years 1999, 2000, 2001 and 2002, respectively. The estimated fair value of the company's long-term borrowings, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities was $6,500 and $5,700 at December 31, 1997 and 1996, respectively. 19. Other Liabilities - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Accrued postretirement benefits cost (see Note 24) $5,867 $5,847 Reserves for employee-related costs 1,102 1,159 Miscellaneous 1,950 1,444 --------------------- $8,919 $8,450 ================================================================================ 20. Minority Interests In 1996 certain petroleum subsidiaries contributed assets with an aggregate fair value of $613 to Conoco Oil & Gas Associates L.P. (COGA) for a general partnership interest of 67 percent. The remaining 33 percent was purchased by Vanguard Energy Investors L.P. (Vanguard) as a limited partner. The net result of this transaction was to increase minority interests by $297. Vanguard is entitled to a cumulative annual priority return on its investment and participation in residual earnings at rates established in the partnership agreement. The priority return rate, currently 6.52 percent, is negotiated every four years. Vanguard's share of COGA's earnings was $22 or 18 percent in 1997 and $18 or 17 percent in 1996. 21. Stockholders' Equity The company's common stock was split two-for-one effective May 15, 1997; all per share data and common stock information have been restated to reflect this split. 42 DUPONT Notes to Financial Statements (Dollars in millions, except per share) In January 1997 the company approved plans to purchase and retire up to 20 million shares of common stock to offset dilution resulting from shares issued under its compensation programs. During the year, 5,833,100 shares were repurchased for $327 and retired under this program. In February 1998 the company purchased 6 million shares for $374 in a private placement transaction. The purchase price is subject to adjustment under the terms of the private placement agreement. In 1997, 509,778 shares were issued for 100 percent of the capital stock of Pfister Hybrid Corn Company. Also in 1997, 22.5 million shares were issued for 100 percent of the capital stock of Protein Technologies International (PTI). Immediately subsequent to the PTI transaction, 22.5 million shares were repurchased for $1,420 ($63.13 a share) in two private placement transactions. The purchase price for one transaction for 16 million shares is subject to adjustment under terms of the private placement agreement. The remaining 6.5 million shares were purchased from the DuPont Pension Trust Fund for $410. Additional paid-in capital (compensation plans) includes $38 at December 31, 1997, related to amounts accrued for variable options. In April 1995 the company redeemed 312 million shares of its common stock from Seagram for $8,775 ($28.13 per share), including warrants valued at $439. In addition, related costs of $14 were incurred. In July 1996 DuPont repurchased the warrants for $504. Coincident with the repurchase, the company retired 312 million shares of common stock held as treasury stock. In the second quarter of 1995, the company sold through public and private offerings 54,678,750 shares of newly issued common stock for $1,747, including 15,578,750 shares that were sold to the DuPont Pension Trust Fund for $500 ($32.10 a share). The company also established a Flexitrust that will effect the sale or distribution of common stock to satisfy existing employee compensation and benefit programs. In May 1995 DuPont issued 48 million shares of common stock to the Flexitrust in return for a $1,612 promissory note and $14 in cash. 22. Compensation Plans From time to time, the Board of Directors has approved the adoption of a worldwide Corporate Sharing Program. Under these programs, essentially all employees received a one-time grant to acquire shares of DuPont common stock at the fair market value at the date of grant. Option terms are "fixed" and generally are exercisable one year after date of grant and expire 10 years from date of grant. There are no additional shares that may be subject to option under existing programs. Stock option awards under the DuPont Stock Performance Plan may be granted to key employees of the company and may be "fixed" and/or "variable." The purchase price of shares subject to option is the fair value of the company's stock at the date of grant. In January 1997 a reload feature was added to the Stock Performance Plan to accelerate stock ownership by more effectively using stock options. Through February 13, 1999, optionees are eligible for reload options upon the exercise of stock options with the condition that shares received from the exercise are held for at least five years. A reload option is granted at the fair market value on the date of grant and has a term equal to the remaining term of the original option. The maximum number of reload options granted is limited to the number of shares subject to option in the original option times the original option price divided by the option price of the reload option. Generally, fixed options are fully exercisable from one to three years after date of grant and expire 10 years from date of grant. Beginning in 1998, shares otherwise receivable from the exercise of nonqualified options can be deferred as stock units for a designated future delivery. During 1997 variable stock option grants were made to certain senior management. These options are subject to forfeiture if, within five years from the date of grant, the market price of DuPont common stock does not achieve a price of $75 per share for 50 percent of the options and $90 per share for the remaining 50 percent. At December 31, 1997, none of the outstanding variable options were exercisable. The maximum number of shares that may be subject to option for any consecutive five-year period is 72 million shares. Subject to this limit, additional shares that may have been made subject to options for the years 1997, 1996 and 1995 were 56,842,462, 59,078,926 and 56,770,460, respectively. Awards for 1997 under the DuPont Stock Performance Plan (granted to key employees in 1998) consisted of 5,377,304 fixed options to acquire DuPont common stock at the fair market value ($59.50 per share) on the date of grant. These options vest over a three-year period and, except for the last six months of the ten-year option term, are exercisable when the market price of DuPont common stock exceeds the option grant price by 20 percent. DUPONT 43 Notes to Financial Statements (Dollars in millions, except per share) The following table summarizes activity for fixed and variable options for the last three years: - ------------------------------------------------------------------------------ Fixed Variable ------------------------------------------------------ Number Weighted- Number Weighted- of Average of Average Shares Price Shares Price ------------------------------------------------------ January 1, 1995 42,729,694 $20.02 -- -- Granted 26,521,722 $28.39 -- -- Exercised 7,117,248 $18.03 -- -- Forfeited 594,990 $22.76 -- -- - ------------------------------------------------------------------------------ December 31, 1995 61,539,178 $23.83 -- -- Granted 5,674,188 $39.41 -- -- Exercised 17,754,052 $23.56 -- -- Forfeited 93,186 $25.96 -- -- - ------------------------------------------------------------------------------ December 31, 1996 49,366,128 $25.73 -- -- Granted 22,937,612 $52.82 4,926,900 $52.66 Exercised 9,719,982 $24.47 -- -- Forfeited 1,373,884 $47.85 95,600 $52.50 - ------------------------------------------------------------------------------ December 31, 1997 61,209,874 $35.58 4,831,300 $52.66 =============================================================================== Fixed options exercisable at the end of the last three years and the weighted- average fair value of fixed options granted are as follows: - -------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------------------- Options exercisable at year-end: Number of shares 40,037,649 43,742,702 35,419,276 Weighted-average price $26.50 $23.97 $20.47 Weighted-average fair value of options granted during the year $12.91 $8.95 $5.94 ================================================================================ The weighted-average fair value of variable options granted during 1997 was $13.08. The fair value of options is calculated using the Black-Scholes option pricing model. Assumptions used were as follows: - -------------------------------------------------------------------------------- 1997 1996 1995 -------------------------------------------------------- Fixed Variable Fixed Fixed -------------------------------------------------------- Dividend yield 2.2% 2.2% 2.6% 3.4% Volatility 18.8% 18.6% 21.0% 20.6% Risk-free interest rate 6.4% 6.4% 5.4% 7.6% Expected life (years) 5.6 5.7 6.0 4.5 ================================================================================ The following table summarizes information concerning currently outstanding and exercisable fixed options. For total variable options outstanding at December 31, 1997, the weighted-average remaining contractual life was 9.1 years. - -------------------------------------------------------------------------------- Exercise Exercise Exercise Exercise Price Price Price Price $13.17- $22.63- $35.00- $52.66- December 31, 1997 $19.63 $33.88 $52.50 $64.75 - -------------------------------------------------------------------------------- Options outstanding 11,036,697 23,521,320 24,517,251 2,134,606 Weighted-avg. remaining contractual life (years) 2.7 6.3 8.9 9.0 Weighted-avg. price $18.51 $26.81 $49.92 $55.90 Options exercisable 11,036,697 23,521,320 4,824,875 654,757 Weighted-avg. price $18.51 $26.81 $39.38 $55.27 ================================================================================ The company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for fixed options. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," was issued in 1995. The company has elected not to adopt the optional recognition provisions of SFAS No. 123. The table below sets forth pro forma information as if the company had adopted these recognition provisions. - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Reduction of: Net Income $199 $ 34 $100 Earnings per share Basic $.18 $.03 $.09 Diluted $.17 $.03 $.08 ================================================================================ Compensation expense recognized in income for stock-based employee compensation awards was $65, $22 and $16 for 1997, 1996 and 1995, respectively. Awards under the Variable Compensation Plan may be granted in stock and/or cash to employees who have contributed most in a general way to the company's success, consideration being given to ability to succeed to more important managerial responsibility. Such awards were $268 for 1997, $233 for 1996 and $240 for 1995. Amounts credited to the Variable Compensation Fund are dependent on company earnings and are subject to maximum limits as defined by the plan. The amounts credited to the fund were $265 in 1997, $230 in 1996 and $240 in 1995. In accordance with the terms of the Variable Compensation Plan and similar plans of subsidiaries, 1,668,211 shares of common stock are awaiting delivery from awards for 1997 and prior years. 44 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 23. Investment Activities Purchases of property, plant and equipment in 1997 includes $929 for natural gas properties in South Texas. Investment in affiliates in 1997 includes $1,711 for the September 1997 purchase of a 20 percent interest in Pioneer Hi-Bred International. Pioneer develops, produces and markets hybrids of corn and varieties of soybeans. For accounting purposes, the acquisition has been treated as a purchase. Of the $1,711 purchase price, $903 was allocated to purchased in-process research and development and the remainder was allocated based on fair values to assets and liabilities of Pioneer, principally intangible assets, for purposes of determining equity in earnings. Protein Technologies International was purchased on December 1, 1997. PTI is a global supplier of soy proteins and applied technology to the food and paper processing industries. 22,500,000 shares of DuPont common stock were issued in this transaction with a fair value of $1,297. In addition, related costs of $4 were incurred. For accounting purposes, the acquisition has been treated as a purchase. Based on preliminary estimates that are subject to revision, the purchase price has been allocated as follows: cash $47; other current assets $158; noncurrent assets $897; in-process research and development $500; and liabilities assumed $301, including $188 of debt. The company purchased ICI's global polyester intermediates and resins businesses on December 31, 1997, for a cash payment of $1,240. As part of the transaction, the company acquired a 70 percent interest in an ICI subsidiary that had approximately $225 in long-term borrowings at December 31, 1997. For accounting purposes, the acquisition has been treated as a purchase. Based on preliminary estimates that are subject to revision, the purchase price has been allocated as follows: current assets $116; non-current assets $1,444; in-process research and development $75; and liabilities assumed $395, including $251 of debt. The operating results of Pioneer, PTI, and the polyester intermediates and resins businesses of ICI have been included in consolidated results from their respective dates of acquisition. Excluding the effect of the $1,478 charge associated with purchased in-process research and development, unaudited pro forma results, assuming these acquisitions had all taken place on January 1, 1996, indicate that net income and earnings per share in 1996 and 1997 would be reduced approximately 4 percent from amounts reported for these periods, principally reflecting additional interest expense that would have been incurred if borrowings used to finance these acquisitions had been outstanding from the beginning of each year at the interest rates that would have been applicable to borrowings during these periods. Note 5 provides information on purchased in-process research and development in connection with the Pioneer, PTI and ICI purchases. In February 1998, DuPont acquired ICI's global polyester films business for $650. The acquisition, accounted for under the purchase method, consisted of film manufacturing facilities located in the United Kingdom, United States, Japan and The Netherlands, and related technology and inventories. The results of this business will be reported in the Diversified Businesses segment. The unaudited pro forma effect on net income and earnings per share for 1996 and 1997 is not material. Proceeds from sales of assets in 1997 principally include: (a) $175 from collection of a note from The Sterling Group, Inc. received in connection with their purchase of the Diagnostic Imaging business in 1996; (b) $125 from DuPont Merck for sale of its generic and multisource product lines; and (c) $62 from the sale of the NEN Life Sciences Products to Genstar Capital LLC. Sales of other chemicals and specialties businesses and assets total $196, and proceeds from sales of various petroleum properties were $565, including $272 from the sale of certain North Sea properties. Proceeds from sales of assets in 1996 principally include $570 from the sales of Medical Products businesses, $390 from the formation of the elastomers joint venture, and $275 from the sales of various petroleum properties. Assets sold in connection with these sales amounted to $1,163, of which $644 was for property, plant and equipment, with the remainder being primarily working capital. In 1995 there were no individually material items included in sales of assets. Payments for businesses acquired in 1996 principally relate to the purchase of commercial floorcovering distribution and installation companies. 45 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 24. Other Postretirement Benefits The parent company and certain subsidiaries provide medical, dental and life insurance benefits to pensioners and survivors. The associated plans are unfunded, and approved claims are paid from company funds. Under the terms of these plans, the company reserves the right to change, modify or discontinue the plans. Other postretirement benefits cost includes the following components: - -------------------------------------------------------------------------------- Health Life 1997 Care Insurance Total --------------------------------- Service cost--benefits allocated to current period $ 50 $ 11 $ 61 Interest cost on accumulated postretirement benefit obligation 280 73 353 Amortization of net gains and prior service credit (91) (1) (92) --------------------------------- Other postretirement benefits cost $ 239 $ 83 $ 322 ================================= 1996 Service cost--benefits allocated to current period $ 51 $ 17 $ 68 Interest cost on accumulated postretirement benefit obligation 259 74 333 Amortization of net gains and prior service credit (102) (1) (103) --------------------------------- Other postretirement benefits cost $ 208 $ 90 $ 298 ================================= 1995 Service cost--benefits allocated to current period $ 39 $ 13 $ 52 Interest cost on accumulated postretirement benefit obligation 274 78 352 Amortization of net gains and prior service credit (133) (1) (134) --------------------------------- Other postretirement benefits cost $ 180 $ 90 $ 270 ================================================================================ The higher health care costs in 1997 and 1996 versus 1995 were due to the discount rate and health care trends used to determine the accumulated postretirement benefit obligation. In 1996 the company recorded a curtailment gain of $115 related to business divestitures, joint venture activity and other business restructurings. The following provides a reconciliation of the accumulated postretirement benefit obligation to the liabilities reflected in the balance sheet at December 31, 1997 and 1996:
- -------------------------------------------------------------------------------------------------- Health Life 1997 Care Insurance Total ---------------------------------------- Accumulated postretirement benefit obligation for: Current pensioners and survivors $(2,623) $ (747) $(3,370) Fully eligible employees (188) -- (188) Other employees (1,014) (319) (1,333) ---------------------------------------- (3,825) (1,066) (4,891) Unrecognized net loss (gain) (706) 96 (610) Unrecognized prior service credit (707) -- (707) ---------------------------------------- Accrued postretirement benefits cost $(5,238) $ (970) $(6,208) ======================================== Amount included in Other Accrued Liabilities (see Note 17) $ 341 -------- Amount included in Other Liabilities (see Note 19) $ 5,867 -------- 1996 Accumulated postretirement benefit obligation for: Current pensioners and survivors $(2,661) $ (676) $(3,337) Fully eligible employees (195) -- (195) Other employees (908) (287) (1,195) ---------------------------------------- (3,764) (963) (4,727) Unrecognized net loss (gain) (714) 13 (701) Unrecognized prior service credit (775) -- (775) ---------------------------------------- Accrued postretirement benefits cost $(5,253) $ (950) $(6,203) ======================================== Amount included in Other Accrued Liabilities (see Note 17) $ 356 -------- Amount included in Other Liabilities (see Note 19) $ 5,847 ==================================================================================================
The health care accumulated postretirement benefit obligation was determined at December 31, 1997 and 1996, using a health care escalation rate of 8 percent decreasing to 5 percent over 8 years. The assumed long-term rate of compensation increase used for life insurance was 5 percent. The discount rate was 7 percent at December 31, 1997, and 7.75 percent at December 31, 1996. A one-percentage- point increase in the health care cost escalation rate would have increased the accumulated postretirement benefit obligation by $405 at December 31, 1997, and the 1997 other postretirement benefit cost would have increased by $42. 46 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 25. Pensions The company has noncontributory defined benefit plans covering substantially all U.S. employees. The benefits for these plans are based primarily on years of service and employees' pay near retirement. The company's funding policy is consistent with the funding requirements of federal law and regulations. Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. Net pension cost (credit) for defined benefit plans includes the following components:
- ----------------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------------------------------------------------- Service cost--benefits earned during the period $ 388 $ 382 $ 292 Interest cost on projected benefit obligation 1,211 1,173 1,140 Return on assets: Actual (gain) $(3,391) $(2,477) $(3,417) Deferred gain (loss) 1,876 (1,515) 1,017 (1,460) 2,082 (1,335) ------- ------- ------- Amortization of net gains and prior service cost (58) (72) (108) ------- ------- ------- Net pension cost (credit) $ 26 $ 23 $ (11) =====================================================================================================
The change in the annual pension cost (credit) was primarily due to the discount rate used to determine the present value of future benefits and the return on pension trust assets. In 1996, the company recorded a curtailment loss of $88 related to business divestitures, joint venture activity and other business restructurings. The funded status of these plans was as follows:
- ------------------------------------------------------------------------------------------------------------------------------- Fully Funded Partially Funded ------------------------------------------------------------------------------------ December 31 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $(13,817) $(12,584) $(1,487) $(1,152) -------- -------- ------- ------- Accumulated benefit obligation $(14,283) $(13,073) $(1,537) $(1,207) -------- -------- ------- ------- Projected benefit obligation $(16,601) $(15,085) $(1,935) $(1,597) Plan assets at fair value 19,355 17,654 538 379 -------- -------- ------- ------- Plan assets in excess of (less than) projected benefit obligation 2,754 2,569 (1,397) (1,218) Unrecognized net (gain) loss* (1,698) (1,493) 551 388 Unrecognized prior service cost 617 684 153 145 Additional minimum liability - - (403) (329) -------- -------- ------- ------- Accrued pension asset (liability) $1,673 $1,760 $(1,096) $(1,014) ===============================================================================================================================
* Includes the unamortized balance of $(835) and $(1,000) for fully funded plans and $3 and $14 for partially funded plans at December 31, 1997 and 1996, respectively, of unrecognized net (gain) loss at January 1, 1985, the initial application date of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." 47 DUPONT Notes to Financial Statements (Dollars in millions, except per share) For U.S. plans, the projected benefit obligation was determined using a discount rate of 7 percent at December 31, 1997, and 7.75 percent at December 31, 1996, and an assumed long-term rate of compensation increase of 5 percent. The assumed long-term rate of return on plan assets is 9 percent. Plan assets consist principally of common stocks, including 9,715,087 shares of DuPont at December 31, 1997, and U.S. government obligations. For non-U.S. plans, no one of which was material, similar economic assumptions were used. In the United States, federal law permits employers to transfer some of the excess funds from an overfunded pension plan to pay a company's portion of certain retiree health care costs. Accordingly, on December 31, 1997, $250 was transferred with respect to eligible 1997 costs. This action had no impact on earnings. 26. Derivatives and Other Hedging Instruments The company enters into contractual arrangements (derivatives) in the ordinary course of business to hedge its exposure to currency, interest rate and commodity price risks. The company has established an overlying Financial Risk Management Framework for risk management and derivative activities. The framework sets forth senior management's financial risk management philosophy and objectives through a Corporate Financial Risk Management Policy. In addition, it establishes oversight committees and risk management guidelines that authorize the use of specific derivative instruments and further establishes procedures for control and valuation, counterparty credit approval, and routine monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company manages this exposure to credit loss through the aforementioned credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. The company does not anticipate nonperformance by counterparties to these contracts, and no material loss would be expected from such nonperformance. Market and counterparty credit risks associated with these instruments are regularly reported to management. The company's accounting policies with respect to these financial instrument transactions are set forth in Note 1. Currency Risk The company routinely uses forward exchange contracts to hedge its net exposures, by currency, related to monetary assets and liabilities of its operations that are denominated in currencies other than the designated functional currency. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. In addition, the company from time to time will enter into forward exchange contracts to establish with certainty the functional currency amount of future firm commitments denominated in another currency. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility and economic trends. At December 31, 1997, the company had 11 open forward exchange contracts designated as hedges of firm foreign currency commitments. Deferred losses associated with these contracts were not material. Forward exchange contracts are also used to manage near-term foreign currency cash requirements and to place foreign currency deposits and marketable securities investments into currencies offering favorable returns. Net cash inflow (outflow) from settlement of forward exchange contracts was $146, $(192) and $195 for the years 1997, 1996 and 1995, respectively. Interest Rate Risk The company uses a combination of financial instruments, including interest rate swaps, interest and principal currency swaps and structured medium-term financings, as part of its program to manage the fixed and floating interest rate mix of the total debt portfolio and related overall cost of borrowing. Interest rate swaps involve the exchange of fixed for floating rate interest payments that are fully integrated with underlying fixed-rate bonds or notes to effectively convert fixed rate debt into floating rate debt based on LIBOR or commercial paper rates. Interest rate swaps also involve the exchange of floating for fixed rate interest payments that are fully integrated with commercial paper or other floating rate borrowings to effectively convert floating rate debt into fixed rate debt. Both types of interest rate swaps are denominated in U.S. dollars. Interest rate swaps allow the company to maintain a target range of floating rate debt. Under interest and principal currency swaps, the company receives predetermined foreign currency-denominated payments 48 DUPONT Notes to Financial Statements (Dollars in millions, except per share) corresponding, both as to timing and amount, to the fixed or floating interest rate and fixed principal amount to be paid by the company under concurrently issued foreign currency-denominated bonds. In return, the company pays a U.S. dollar-denominated fixed or floating interest rate and a U.S. dollar-denominated fixed principal amount to the counterparty, thereby effectively converting the foreign currency-denominated bonds into U.S. dollar-denominated obligations for both interest and principal. Interest and principal currency swaps allow the company to be fully hedged against fluctuations in currency exchange rates and foreign interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. An interest and principal currency swap was outstanding at December 31, 1997 and 1996, that effectively converted a 150 million Swiss franc borrowing with a 6.25 percent Swiss franc fixed interest rate and a maturity of 2000 to a U.S. dollar fixed principal amount of $103 with a 6.9 percent U.S. dollar fixed interest rate. The fair value of this swap at December 31, 1997 and 1996, was not material. Structured medium-term financings consist of: (a) a structured medium-term note with interest and/or principal payments (denominated in either U.S. dollars or foreign currencies) determined using a specified calculation incorporating changes in currency exchange rates or other financial indexes; and (b) a concurrently executed structured medium-term swap that, for any and all calculations of the note's interest and/or principal payments over the term of the note, provides a fully hedged transaction such that the note is effectively converted to a U.S. dollar-denominated fixed or floating interest rate with a U.S. dollar-denominated fixed principal amount. Structured medium-term swaps allow the company to be fully hedged against fluctuations in exchange rates and interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. The face amount of structured medium-term financings outstanding was $50 and $135 at December 31, 1997 and 1996, respectively. The weighted-average interest rate and weighted-average maturity was 5.6 percent and 5.8 percent, and 7.8 years and 3.8 years, at December 31, 1997 and 1996, respectively. The fair value of the structured medium-term swap associated with these financings at December 31, 1997 and 1996, was not material. It is the company's policy that foreign currency bonds and structured medium-term notes will not be issued unless a hedge of the market risks inherent in such borrowings is executed simultaneously with a management-approved, highly creditworthy counterparty to provide a fully hedged transaction. Interest rate financial instruments did not have a material effect on the company's overall cost of borrowing at December 31, 1997 and 1996. See also Notes 16 and 18 for additional descriptions of interest rate financial instruments. Summary of Outstanding Derivative Financial Instruments Set forth below is a summary of the notional amounts, estimated fair values and carrying amounts of outstanding financial instruments at December 31, 1997 and 1996. Notional amounts represent the face amount of the contractual arrangements and are not a measure of market or credit exposure. Estimated fair value of forward exchange contracts is based on market prices for contracts of comparable time to maturity. Carrying amounts represent the receivable (payable) recorded in the Consolidated Balance Sheet. See also Notes 9, 10, 14, 15, 16 and 18 for fair values and carrying amounts of other financial instruments. Notional Amount, Estimated Fair Value and Carrying Amount of Outstanding Derivative Financial Instruments - ------------------------------------------------------------------------------ Notional Estimated Carrying Type of Instrument Amount Fair Value Amount - ------------------------------------------------------------------------------ Forward Exchange Contracts December 31, 1997 $ 8,621 $ (3) $ 16 1996 7,597 (30) (52) ============================================================================== Estimated fair values shown above only represent the value of the hedge component of these transactions, and thus are not indicative of the fair value of the company's overall hedged position. The estimated fair value of the company's total debt portfolio, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, was $12,700 and $9,600 at December 31, 1997 and 1996, respectively. The increase in fair value in 1997 was primarily due to higher borrowing levels. 49 DUPONT Notes to Financial Statements (Dollars in millions, except per share) Commodity Price Risk The company enters into exchange-traded and over-the-counter derivative commodity instruments to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Commodity trading in petroleum futures contracts is a natural extension of cash market trading and is used to physically acquire a portion of refining crude supply requirements. The commodity futures market has underlying principles of increased liquidity and longer trading periods than the cash market and is one method of reducing exposure to the price risk inherent in the petroleum business. Typically, trading is conducted to manage price risk around near-term supply requirements. Occasionally, as market views and conditions allow, longer-term positions will be taken to manage price risk for the company's equity production (crude and natural gas) or net supply requirements. These positions may not exceed anticipated equity production or net supply requirements for the hedge period. The company's use of derivative commodity instruments reduces the effects of price volatility, thereby protecting against adverse price movements, while limiting, somewhat, the benefits of favorable price movements. On a limited basis, the company also purchases and sells petroleum- and other energy-based futures contracts for trading purposes. After-tax gain/loss from such trading has not been material. The fair value of outstanding derivative commodity instruments at December 31, 1997 and 1996, was not material. 27. Commitments and Contingent Liabilities The company uses various leased facilities and equipment in its operations. Future minimum lease payments under noncancelable operating leases are $361, $304, $225, $185 and $161 for the years 1998, 1999, 2000, 2001 and 2002, respectively, and $884 for subsequent years, and are not reduced by noncancelable minimum sublease rentals due in the future in the amount of $141. Rental expense under operating leases was $382 in 1997, $354 in 1996 and $339 in 1995. In June 1997, DuPont formed alliances with Computer Sciences Corporation (CSC) and Andersen Consulting. CSC operates a majority of DuPont's global information systems and technology infrastructure and provides selected applications and software services. Andersen Consulting provides information systems solutions designed to enhance DuPont's manufacturing, marketing, distribution and customer service for its chemicals businesses. The total dollar value of the contracts is in excess of $4,000 over 10 years. Minimum payments due under the contracts are: $336, $275, $221, $182 and $174 for the years 1998, 1999, 2000, 2001 and 2002, respectively, and a total of $711 thereafter. The company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market. In addition, at December 31, 1997, the company had an obligation to purchase natural gas at prices that were in excess of year-end 1997 market prices. No material annual loss is expected from this long-term commitment. The company is subject to various lawsuits and claims with respect to such matters as product liabilities, governmental regulations and other actions arising out of the normal course of business. While the effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists, in the opinion of company counsel, the ultimate liabilities resulting from such lawsuits and claims will not materially affect the consolidated financial position of the company. During 1991 the company initiated a stop-sale and recall of Benlate(R) 50 DF fungicide. About 80 of the more than 700 cases filed against the company in connection with the recall remain, the rest having been disposed of by trial, dismissal or settlement. In the fourth quarter of 1995, DuPont and the other major defendants in litigation concerning allegedly defective plumbing systems made with polybutylene pipe and acetal fittings settled two of several national class actions. The company's liability in the settled actions is limited to 10 percent of the cost of repairing plumbing systems up to a total company payout of $120. The related liability for each of these matters included in the Consolidated Balance Sheet is not reduced by the amounts of any expected insurance recoveries. Adverse changes in estimates for such costs could result in additional future charges. The company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the company or other parties. The company has accrued for certain environmental 50 DUPONT Notes to Financial Statements (Dollars in millions, except per share) remediation activities consistent with the policy set forth in Note 1. At December 31, 1997, such accrual amounted to $561 and, in management's opinion, was appropriate based on existing facts and circumstances. Under adverse changes in circumstances, potential liability may exceed amounts accrued. In the event that future remediation expenditures are in excess of amounts accrued, management does not anticipate that they will have a material adverse effect on the consolidated financial position of the company. The company has indirectly guaranteed various debt obligations under agreements with certain affiliated and other companies to provide specified minimum revenues from shipments or purchases of products. At December 31, 1997, these indirect guarantees totaled $29, and the company had directly guaranteed $1,756 of the obligations of certain affiliated companies and others. No material loss is anticipated by reason of such agreements and guarantees.
28. Geographic Information - --------------------------------------------------------------------------------------------------- United Other States Europe Regions Consolidated -------------------------------------------- 1997 Sales to Unaffiliated Customers/1/ $24,648 $15,389 $5,042 $45,079 Transfers Between Geographic Areas/2/ 3,108 625 832 - -------------------------------------------- Total $27,756 $16,014 $5,874 $45,079 ============================================ After-Tax Operating Income $ 1,346 $ 1,306 $ 126 $ 2,778 Identifiable Assets at December 31 $20,015 $11,346 $5,242 $36,603 -------------------------------------------- 1996 Sales to Unaffiliated Customers/1/ $22,969 $16,045 $4,796 $43,810 Transfers Between Geographic Areas/2/ 2,699 753 671 - -------------------------------------------- Total $25,668 $16,798 $5,467 $43,810 ============================================ After-Tax Operating Income $ 2,688 $ 1,144 $ 186 $ 4,018 Identifiable Assets at December 31 $17,230 $10,973 $4,462 $32,665 -------------------------------------------- 1995 Sales to Unaffiliated Customers/1/ $21,534 $15,859 $4,770 $42,163 Transfers Between Geographic Areas/2/ 2,406 755 605 - -------------------------------------------- Total $23,940 $16,614 $5,375 $42,163 ============================================ After-Tax Operating Income $ 2,414 $ 1,161 $ 169 $ 3,744 Identifiable Assets at December 31 $17,387 $10,879 $4,149 $32,415 ===================================================================================================
1 Sales outside the United States of products manufactured in and exported from the United States totaled $4,005 in 1997, $3,826 in 1996 and $4,289 in 1995. 2 Products are transferred between geographic areas on a basis intended to reflect as nearly as practicable the "market value" of the products. 51 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 29. Industry Segment Information The company has six principal segments that manufacture and sell a wide range of products to many different markets, including energy, transportation, textile, construction, automotive, electronics, printing, health care, packaging and agricultural products. The company sells its products worldwide, however, about 52 percent and 34 percent of sales are made in the United States and Europe, respectively. Major products by segment include: Chemicals (specialty chemicals, white pigment and mineral products, fluorochemicals and nylon intermediates); Fibers (textile, industrial and carpet nylon, Dacron(R) polyester, Lycra(R) brand spandex, nonwovens and aramids); Polymers (automotive finishes, elastomers, fluoropolymers, Corian(R) surfaces, packaging and industrial polymers, and engineering polymers); Petroleum (crude oil, natural gas and refined products), Life Sciences (agricultural products and pharmaceuticals), and Diversified Businesses (photopolymers and electronic materials, printing industry products, polyester films, intermediates and resins, and coal). The company's sales are not materially dependent on a single customer or small group of customers. The Fibers and Polymers segments, however, have several large customers in their respective industries that are important to these segments' operating results.
- -------------------------------------------------------------------------------------------------------------------------- Life Diversified Chemicals Fibers Polymers Petroleum Sciences Businesses Consolidated -------------------------------------------------------------------------------- 1997 Sales to Unaffiliated Customers/1/ $4,267 $7,680 $6,830 $20,990/2/ $2,518 $2,794 $ 45,079 Transfers Between Segments 215 23 225 420 -- 42 -- -------------------------------------------------------------------------------- Total $4,482 $7,703 $7,055 $21,410 $2,518 $2,836 $ 45,079 -------------------------------------------------------------------------------- Operating Profit $ 864 $1,494 $1,319 $ 1,928 $ (123) $ (128) $ 5,354 Provision for Income Taxes (313) (541) (511) (899) (118) 33 (2,349) Equity in Earnings of Affiliates 49 27 116 39 (545) 87 (227) -------------------------------------------------------------------------------- After-Tax Operating Income/3/ $ 600 $ 980 $ 924 $ 1,068 $ (786) $ (8) $ 2,778/4/ -------------------------------------------------------------------------------- Identifiable Assets at December 31 $3,684 $7,118 $4,854 $13,822 $3,380 $3,745 $ 36,603/5/ -------------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 310 $ 555 $ 313 $ 1,070 $ 86 $ 157 $ 2,491/6/ Capital Expenditures $ 429 $ 782 $ 570 $ 2,771 $ 119 $ 229 $ 4,900/7/ ========================================================================================================================== 1996 Sales to Unaffiliated Customers/1/ $4,141 $7,204 $6,699 $20,166/2/ $2,472 $3,128 $ 43,810 Transfers Between Segments 190 22 213 413 -- 52 -- -------------------------------------------------------------------------------- Total $4,331 $7,226 $6,912 $20,579 $2,472 $3,180 $ 43,810 -------------------------------------------------------------------------------- Operating Profit $ 808 $1,247 $1,306 $ 1,818 $ 436 $ 257 $ 5,872 Provision for Income Taxes (301) (455) (489) (933) (254) (90) (2,522) Equity in Earnings of Affiliates 56 10 92 (25) 497 38 668 -------------------------------------------------------------------------------- After-Tax Operating Income/8/ $ 563 $ 802 $ 909 $ 860 $ 679 $ 205 $ 4,018/4/ -------------------------------------------------------------------------------- Identifiable Assets at December 31 $3,723 $6,805 $4,535 $13,018 $2,033 $2,551 $ 32,665/5/ -------------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 330 $ 609 $ 350 $ 1,128 $ 83 $ 219 $ 2,719/6/ Capital Expenditures $ 338 $ 611 $ 446 $ 1,616 $ 93 $ 213 $ 3,317/7/ ========================================================================================================================== 1995 Sales to Unaffiliated Customers/1/ $4,181 $7,215 $7,037 $17,660/2/ $2,322 $3,748 $ 42,163 Transfers Between Segments 248 31 208 298 -- 46 -- -------------------------------------------------------------------------------- Total $4,429 $7,246 $7,245 $17,958 $2,322 $3,794 $ 42,163 -------------------------------------------------------------------------------- Operating Profit $ 947 $1,199 $1,244 $ 1,257 $ 468 $ 283 $ 5,398 Provision for Income Taxes (360) (435) (465) (660) (202) (82) (2,204) Equity in Earnings of Affiliates 64 41 50 22 322 51 550 -------------------------------------------------------------------------------- After-Tax Operating Income/9/ $ 651 $ 805 $ 829 $ 619 $ 588 $ 252 $ 3,744/4/ -------------------------------------------------------------------------------- Identifiable Assets at December 31 $3,643 $6,305 $4,678 $12,634 $1,935 $3,220 $ 32,415/5/ -------------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 352 $ 626 $ 362 $ 1,111 $ 91 $ 281 $ 2,823/6/ Capital Expenditures $ 417 $ 593 $ 399 $ 1,714 $ 73 $ 198 $ 3,394/7/ ==========================================================================================================================
52 DUPONT Notes to Financial Statements (Dollars in millions, except per share) 1 Sales of refined petroleum products of $15,115 in 1997, $15,169 in 1996 and $13,938 in 1995 exceeded 10 percent of consolidated sales. 2 Excludes crude oil and refined product exchanges and trading transactions totaling $4,249 in 1997, $3,549 in 1996 and $2,299 in 1995. 3 Includes the following (charges): Petroleum/a/ $ (6) Life Sciences/b/ (1,393) Diversified Businesses/c/ (283) ------ $(1,682) ================================================================================ a Includes charges of $112 for impairment of nonrevenue producing properties and $55 for a write-down of an office building held for sale, substantially offset by a $161 gain on the sale of certain North Sea properties. b Includes charges of $1,403 for acquired in-process research and development relating to the Pioneer transaction ($903) and PTI transaction ($500) and $62 associated with the Benlate(R) 50 DF fungicide recall, partly offset by a $72 gain on the sale by DuPont Merck of its generic and multisource product lines. c Includes charges of $220 associated with the planned divestiture of certain printing and publishing businesses and $63 for acquired in-process research and development relating to the ICI polyester intermediates and resins transaction. 4 The following reconciles After-Tax Operating Income to Net Income: - -------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------- After-Tax Operating Income $2,778 $4,018 $3,744 Interest and Other Corporate Expenses Net of Tax* (373) (382) (451) ---------------------------- Net Income $2,405 $3,636 $3,293 ================================================================================ *Includes interest and debt expense and other corporate expenses such as exchange gains and losses (including the company's share of equity affiliates' exchange gains and losses). 5 The following reconciles Identifiable Assets to Total Assets: - -------------------------------------------------------------------------------- 1997 1996 1995 -------------------------------------- Identifiable Assets at December 31 $36,603 $32,665 $32,415 Investment in Affiliates 3,477 2,278 1,846 Corporate Assets 2,862 2,927 2,938 -------------------------------------- Total Assets at December 31 $42,942 $37,870 $37,199 ================================================================================ 6 Includes depreciation on research and development facilities and impairment of unproved properties; excludes write-down of assets discussed in Note 6. 7 Excludes investments in affiliates and payments for businesses acquired. See Note 23 for discussion of 1997 strategic acquisitions in the Life Sciences and Diversified Businesses segments. 8 Includes the following (charges) benefits: Chemicals/a/ $ (21) Fibers/a/ (32) Polymers/b/ 55 Petroleum/c/ (41) Life Sciences/d/ (110) Diversified Businesses/e/ 48 ------ $(101) ================================================================================ a Charges associated principally with employee separation costs in the United States. b Benefit associated with formation of the DuPont Dow elastomers joint venture. c Includes charges of $63 for write-down of investment in a European natural gas marketing joint venture and $22, principally, for employee separation costs in the United States partly offset by a net benefit of $44 related to environmental insurance recoveries. d Charge associated with the Benlate(R) 50 DF fungicide recall. e Includes gains of $41 from the sale of certain medical products businesses and $33 related to sale of stock received in connection with the previously sold connector systems business, and a charge of $26, principally employee separation costs outside the United States, associated with the printing and publishing business. 9 Includes the following (charges) benefits/a/: - -------------------------------------------------------------------------------- Chemicals $ 10 Fibers 31 Polymers/b/ (35) Petroleum/c/ (45) Life Sciences/d/ (63) Diversified Businesses/e/ (12) ------- $(114) ================================================================================ a Includes a benefit of $69 principally from adjustments in estimates associated with the third quarter 1993 restructuring charge. The $69 is reflected in Chemicals ($10), Fibers ($31), Polymers ($3), and Diversified Businesses ($25). b Includes a charge of $38 for costs to settle certain plumbing systems litigation. c Charge for write-down of certain North American and European assets. d Charge associated with the Benlate(R) 50 DF fungicide recall. e Includes a charge of $24 for printing and publishing operations, principally for employee separation costs in Europe, and a litigation provision of $13 related to a previously sold business. See segment discussions on pages 8-9 and 17-23 for a description of each industry segment. Products are transferred between segments on a basis intended to reflect as nearly as practicable the "market value" of the products. DUPONT 53 Supplemental Petroleum Data (Dollars in millions) Oil and Gas Producing Activities "Supplemental Petroleum Data" disclosures are presented in accordance with the provisions of Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities." Accordingly, volumes of reserves and production exclude royalty interests of others, and royalty payments are reflected as reductions in revenues.
Results of Operations for Oil and Gas Producing Activities - ----------------------------------------------------------------------------------------------------------------------- Total Worldwide United States ---------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------- Consolidated Companies Revenues: Sales to unaffiliated customers $ 2,603 $ 2,479 $ 1,863 $ 787 $ 621 $ 443 Transfers to other company operations 849 927 862 272 363 386 Exploration, including dry hole costs (412) (374) (275) (101) (131) (80) Production (854) (755) (727) (320) (297) (287) Depreciation, depletion, amortization and valuation provisions (872) (800) (727) (279) (302) (290) Other /2/ 321 69 82 106 48 48 Income taxes (847) (912) (626) (109) (47) (24) ---------------------------------------------------------------------- Total consolidated companies 788 634 452 356 255 196 ---------------------------------------------------------------------- Equity Affiliates Results of operations of equity affiliates 34 36 12 11 11 -- ---------------------------------------------------------------------- Total $ 822 $ 670 $ 464 $ 367 $ 266 $ 196 ======================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------- Europe Other Regions ----------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------------------------------------------------- Consolidated Companies Revenues: Sales to unaffiliated customers $ 1,181 $ 1,204 $ 817 $ 635 $ 654 $ 603 Transfers to other company operations 577 566 477 -- (2) (1) Exploration, including dry hole costs (131) (156) (134) (180) (87) (61) Production (409) (372) (347) (125) (86) (93) Depreciation, depletion, amortization and valuation provisions (419) (443) (362) (174)/1/ (55) (75) Other /2/ 215 (1) 31 -- 22 3 Income taxes (393) (436) (242) (345) (429) (360) ----------------------------------------------------------------------- Total consolidated companies 621 362 240 (189) 17 16 ----------------------------------------------------------------------- Equity Affiliates Results of operations of equity affiliates 29 25 12 (6) -- -- ----------------------------------------------------------------------- Total $ 650 $ 387 $ 252 $ (195) $ 17 $ 16 =======================================================================================================================
1 Includes a charge of $112 for impairment of nonrevenue producing properties. 2 Includes gain (loss) on disposal of fixed assets and other miscellaneous revenues and expenses. 54 DUPONT Supplemental Petroleum Data (Dollars in millions)
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities/1/ - ----------------------------------------------------------------------------------------------------------------------- Total Worldwide United States ---------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------- Consolidated Companies Property acquisitions: Proved/2/ $ 152 $ 21 $ 96 $ 148 $ 14 $ 95 Unproved 831 42 58 723/3/ 41 29 Exploration 450 445 358 107 144 128 Development 921 828 745 289 203 242 ---------------------------------------------------------------------- Total consolidated companies 2,354 1,336 1,257 1,267 402 494 ---------------------------------------------------------------------- Equity Affiliates Development 269 22 29 18 8 19 ---------------------------------------------------------------------- Total equity affiliates 269 22 29 18 8 19 ---------------------------------------------------------------------- Total $ 2,623 $ 1,358 $ 1,286 $ 1,285 $ 410 $ 513 ======================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------- Europe Other Regions ----------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------------------------------------------------- Consolidated Companies Property acquisitions: Proved/2/ $ - $ - $ - $ 4 $ 7 $ 1 Unproved 95 - 1 13 1 28 Exploration 135 169 159 208 132 71 Development 568 543 463 64 82 40 ----------------------------------------------------------------------- Total consolidated companies 798 712 623 289 222 140 ----------------------------------------------------------------------- Equity Affiliates Development 2 14 10 249/4/ - - ----------------------------------------------------------------------- Total equity affiliates 2 14 10 249 - - ----------------------------------------------------------------------- Total $ 800 $ 726 $ 633 $ 538 $ 222 $ 140 =======================================================================================================================
1 These data comprise all costs incurred in the activities shown, whether capitalized or charged to expense at the time they were incurred. 2 Excludes properties acquired through property exchanges. 3 Includes acquisition costs associated with gas reserves acquired in the South Texas Lobo Trend. 4 Includes Conoco's equity share of the Petrozuata heavy oil venture in Venezuela.
Capitalized Costs Relating to Oil and Gas Producing Activities - ------------------------------------------------------------------------------------------------------------ Total Worldwide United States ----------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------------------------------------- Consolidated Companies Gross costs: Proved properties $12,420 $11,914 $11,023 $ 4,676 $ 4,255 $ 4,440 Unproved properties 1,491 913 883 774/1/ 262 251 Accumulated depreciation, depletion, amortization and valuation allowances: Proved properties 6,940 6,729 6,290 2,836 2,739 2,822 Unproved properties 261 157 156 71 77 76 ----------------------------------------------------------- Total net costs of consolidated companies 6,710 5,941 5,460 2,543 1,701 1,793 ----------------------------------------------------------- Equity Affiliates Net costs of equity affiliates: Proved properties 464 217 223 68 55 60 ----------------------------------------------------------- Total $ 7,174 $ 6,158 $ 5,683 $ 2,611 $ 1,756 $ 1,853 ============================================================================================================ - ------------------------------------------------------------------------------------------------------------ Europe Other Regions ----------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------------------------------------- Consolidated Companies Gross costs: Proved properties $ 6,276 $ 6,268 $ 5,220 $ 1,468 $ 1,391 $ 1,363 Unproved properties 432 444 439 285 207 193 Accumulated depreciation, depletion, amortization and valuation allowances: Proved properties 3,001 2,947 2,425 1,103 1,043 1,043 Unproved properties 7 7 7 183 73 73 ----------------------------------------------------------- Total net costs of consolidated companies 3,700 3,758 3,227 467 482 440 ----------------------------------------------------------- Equity Affiliates Net costs of equity affiliates: Proved properties 147 162 163 249/2/ - - ----------------------------------------------------------- Total $ 3,847 $ 3,920 $ 3,390 $ 716 $ 482 $ 440 ============================================================================================================
1 Includes costs associated with gas reserves acquired in the South Texas Lobo Trend. 2 Includes Conoco's equity share of the Petrozuata heavy oil venture in Venezuela. DUPONT 55 Supplemental Petroleum Data (In millions of barrels) Estimated Proved Reserves of Oil/1/
- ------------------------------------------------------------------------------------------------------- Total Worldwide United States ---------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 926 933 953 299 294 336 Revisions and other changes 54 55 (1) 3 11 (8) Extensions and discoveries 62 75 122 12 31 25 Improved recovery 3 4 4 3 4 1 Purchase of reserves/3/ 5 (1) 5 4 (1) 3 Sale of reserves/4/ (27) (12) (33) (11) (10) (33) Production (130) (128) (117) (33) (30) (30) ---------------------------------------------------------------- End of year/5/ 893 926 933 277 299 294 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year 47 44 35 -- -- -- Revisions and other changes 10 8 5 -- -- -- Extensions and discoveries 680 -- 8 -- -- -- Production (6) (5) (4) -- -- -- ---------------------------------------------------------------- End of year 731 47 44 -- -- -- ---------------------------------------------------------------- Total 1,624 973 977 277 299 294 ================================================================ Proved Developed Reserves of Consolidated Companies Beginning of year 630 684 706 258 265 324 End of year 600 630 684 242 258 265 ======================================================================================================= - ------------------------------------------------------------------------------------------------------- Europe Other Regions/2/ ---------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 413 408 394 214 231 223 Revisions and other changes 43 36 (9) 8 8 16 Extensions and discoveries 44 35 72 6 9 25 Improved recovery -- -- 3 -- -- -- Purchase of reserves/3/ 1 -- -- -- -- 2 Sale of reserves/4/ (16) -- -- -- (2) -- Production (64) (66) (52) (33) (32) (35) ---------------------------------------------------------------- End of year/5/ 421 413 408 195 214 231 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year 47 44 35 -- -- -- Revisions and other changes 10 8 5 -- -- -- Extensions and discoveries -- -- 8 680/6/ -- -- Production (6) (5) (4) -- -- -- ---------------------------------------------------------------- End of year 51 47 44 680 -- -- ---------------------------------------------------------------- Total 472 460 452 875 214 231 ================================================================ Proved Developed Reserves of Consolidated Companies Beginning of year 185 217 171 187 202 211 End of year 174 185 217 184 187 202 =======================================================================================================
/1/ Oil reserves comprise crude oil and condensate and natural gas liquids expected to be removed for the company's account from its natural gas deliveries. /2/ Excludes reserve data applicable to Conoco's petroleum assets in Libya. Although negotiations with the Libyan government's national oil company continue, Conoco has not resumed its participation in Libyan operations. /3/ Includes reserves acquired through property exchanges. /4/ Includes reserves disposed of through property exchanges. /5/ Includes reserves of 87 and 89 at year-end 1997 and 1996, respectively, attributable to Conoco Oil & Gas Associates L.P. in which there is a minority interest with an approximate 18 percent and 17 percent revenue share at year-end 1997 and 1996, respectively. See Note 20. /6/ Includes Conoco's equity share of the Petrozuata heavy oil venture in Venezuela. 56 DUPONT Supplemental Petroleum Data (In billion cubic feet)
Estimated Proved Reserves of Gas - -------------------------------------------------------------------------------------------------------------- Total Worldwide United States ---------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 5,063 4,709 4,330 1,822 1,891 1,749 Revisions and other changes 134 41 292 -- 79 95 Extensions and discoveries 518 780 400 453 176 225 Improved recovery 1 -- 1 1 -- 1 Purchase of reserves/1/ 270 41 167 264/2/ 3 167 Sale of reserves/3/ (62) (71) (78) (46) (57) (78) Production (433) (437) (403) (259) (270)/4/ (268)/4/ ---------------------------------------------------------------------- End of year/5/ 5,491 5,063 4,709 2,235 1,822 1,891 ---------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year 613 627 830 613 627 830 Revisions and other changes (5) 1 -- (5) 1 -- Extensions and discoveries 74 -- -- 74 -- -- Purchase of reserves -- -- -- -- -- -- Sale of reserves -- -- (189) -- -- (189) Production (8) (15) (14) (8) (15) (14) ---------------------------------------------------------------------- End of year 674 613 627 674 613 627 ---------------------------------------------------------------------- Total 6,165 5,676 5,336 2,909 2,435 2,518 ====================================================================== Proved Developed Reserves of Consolidated Companies Beginning of year 2,843 2,933 2,496 1,672 1,733 1,687 End of year 3,061 2,843 2,933 1,801 1,672 1,733 ==============================================================================================================
- ------------------------------------------------------------------------------------------------------------ Europe Other Regions ---------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 3,068 2,649 2,431 173 169 150 Revisions and other changes 97 (39) 195 37 1 2 Extensions and discoveries 59 574 147 6 30 28 Improved recovery -- -- -- -- -- -- Purchase of reserves/1/ -- 36 -- 6 2 -- Sale of reserves/3/ (7) -- -- (9) (14) -- Production (157) (152) (124) (17) (15) (11) ---------------------------------------------------------------- End of year/5/ 3,060 3,068 2,649 196 173 169 ---------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year -- -- -- -- -- -- Revisions and other changes -- -- -- -- -- -- Extensions and discoveries -- -- -- -- -- -- Purchase of reserves -- -- -- -- -- -- Sale of reserves -- -- -- -- -- -- Production -- -- -- -- -- -- ---------------------------------------------------------------- End of year -- -- -- -- -- -- ---------------------------------------------------------------- Total 3,060 3,068 2,649 196 173 169 ================================================================ Proved Developed Reserves of Consolidated Companies Beginning of year 1,041 1,071 683 130 129 126 End of year 1,091 1,041 1,071 169 130 129 ============================================================================================================
1 Includes reserves acquired through property exchanges. 2 Includes reserves acquired in the South Texas Lobo Trend. 3 Includes reserves disposed of through property exchanges. 4 Restated to exclude natural gas liquids which are included in estimated proved reserves of oil reported on previous page. 5 Includes reserves of 115 and 104 at year-end 1997 and 1996, respectively, attributable to Conoco Oil & Gas Associates L.P. in which there is a minority interest with an approximate 18 percent and 17 percent revenue share at year- end 1997 and 1996, respectively. See Note 20. DUPONT 57 Supplemental Petroleum Data Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves The information on the following page has been prepared in accordance with Statement of Financial Accounting Standards No. 69, which requires the standardized measure of discounted future net cash flows to be based on year-end sales prices, costs and statutory income tax rates and a 10 percent annual discount rate. Specifically, the per-barrel oil sales prices used to calculate the December 31, 1997, data averaged $15.34 for the United States, $16.11 for Europe and $14.92 for Other Regions, and the gas prices per thousand cubic feet averaged approximately $2.07 for the United States, $2.75 for Europe and $1.52 for Other Regions. Because prices used in the calculation are as of December 31, the standardized measure could vary significantly from year to year based on market conditions at that specific date. The projections should not be viewed as realistic estimates of future cash flows nor should the "standardized measure" be interpreted as representing current value to the company. Material revisions to estimates of proved reserves may occur in the future, development and production of the reserves may not occur in the periods assumed, actual prices realized are expected to vary significantly from those used and actual costs may also vary. The company's investment and operating decisions are not based on the information presented on the following page, but on a wide range of reserve estimates that includes probable as well as proved reserves, and on different price and cost assumptions from those reflected in this information. Beyond the above considerations, the "standardized measure" is also not directly comparable with asset balances appearing elsewhere in the financial statements because any such comparison would require reconciling adjustments, including reduction of the asset balances for related deferred income taxes. 58 DUPONT Supplemental Petroleum Data (Dollars in millions) Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
- --------------------------------------------------------------------------------------------------------------- Total Worldwide United States ---------------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------------- Consolidated Companies Future cash flows: Revenues $ 26,666 $ 34,366 $ 26,766 $ 8,355 $ 10,044 $ 7,631 Production costs (9,251) (10,406) (9,152) (2,997) (3,085) (3,038) Development costs (1,586) (1,669) (1,583) (446) (283) (218) Income tax expense (6,822) (10,364) (7,404) (1,175) (2,041) (1,169) ---------------------------------------------------------------------------- Future net cash flows 9,007 11,927 8,627 3,737 4,635 3,206 Discounted to present value at a 10% annual rate (3,384) (4,638) (3,469) (1,552) (2,088) (1,456) ---------------------------------------------------------------------------- Total* 5,623 7,289 5,158 2,185 2,547 1,750 ---------------------------------------------------------------------------- Equity Affiliates Future cash flows: Revenues 9,255 2,786 1,952 1,628 1,783 1,198 Production costs (2,860) (801) (827) (487) (446) (456) Development costs (1,437) (306) (380) (311) (283) (348) Income tax expense (1,228) (668) (274) (299) (365) (116) ---------------------------------------------------------------------------- Future net cash flows 3,730 1,011 471 531 689 278 Discounted to present value at a 10% annual rate (3,087) (654) (305) (427) (533) (234) ---------------------------------------------------------------------------- Total 643 357 166 104 156 44 ---------------------------------------------------------------------------- Total $ 6,266 $ 7,646 $ 5,324 $ 2,289 $ 2,703 $ 1,794 ================================================================================================================ Europe Other Regions ---------------------------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------------- Consolidated Companies Future cash flows: Revenues $ 15,119 $ 19,364 $ 14,995 $ 3,192 $ 4,958 $ 4,140 Production costs (5,387) (6,378) (5,154) (867) (943) (960) Development costs (1,094) (1,294) (1,234) (46) (92) (131) Income tax expense (3,921) (5,179) (3,758) (1,726) (3,144) (2,477) ---------------------------------------------------------------------------- Future net cash flows 4,717 6,513 4,849 553 779 572 Discounted to present value at a 10% annual rate (1,679) (2,317) (1,813) (153) (233) (200) ---------------------------------------------------------------------------- Total* 3,038 4,196 3,036 400 546 372 ---------------------------------------------------------------------------- Equity Affiliates Future cash flows: Revenues 651 1,003 754 6,976 - - Production costs (315) (355) (371) (2,058) - - Development costs (30) (23) (32) (1,096) - - Income tax expense (170) (303) (158) (759) - - ---------------------------------------------------------------------------- Future net cash flows 136 322 193 3,063 - - Discounted to present value at a 10% annual rate (44) (121) (71) (2,616) - - ---------------------------------------------------------------------------- Total 92 201 122 447 - - ---------------------------------------------------------------------------- Total $ 3,130 $ 4,397 $ 3,158 $ 847 $ 546 $ 372 ================================================================================================================
* Includes $372 and $686 at year-end 1997 and 1996, respectively, attributable to Conoco Oil & Gas Associates L.P. in which there is a minority interest with an approximate 18 percent and 17 percent revenue share at year-end 1997 and 1996, respectively. See Note 20. Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
- ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Companies Equity Affiliates ----------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------------------------------------- Balance at January 1 $ 7,289 $ 5,158 $ 4,275 $ 357 $ 166 $ 211 Sales and transfers of oil and gas produced, net of production costs (2,583) (2,647) (1,998) (61) (83) (46) Development costs incurred during the period 921 828 745 224 22 30 Net changes in prices and in development and production costs (4,974) 2,525 675 (1,287) 128 135 Extensions, discoveries and improved recovery, less related costs 818 1,630 1,219 1,190 - - Revisions of previous quantity estimates 439 553 375 39 83 68 Purchases (sales) of reserves in place--net 36 (54) (62) - - (34) Accretion of discount 1,312 931 753 63 26 15 Net change in income taxes 2,285 (1,676) (897) 20 (182) (155) Other 80 41 73 98 197 (58) ----------------------------------------------------------- Balance at December 31 $ 5,623 $ 7,289 $ 5,158 $ 643 $ 357 $ 166 ===================================================================================================================================
59 Quarterly Financial Data (Dollars in millions, except per share)
- ----------------------------------------------------------------------------------------------------------------- Quarter Ended March 31 June 30 September 30 December 31 - ----------------------------------------------------------------------------------------------------------------- 1997 Sales $11,211 $11,402 $11,136 $11,330 Cost of Goods Sold and Other Expenses/1/ 9,602 9,732 11,015 10,982 Net Income 1,020 1,140 (17)/4/ 262/5/ Earnings Per Share of Common Stock/2/ Basic .90 1.01 (.02) .23 Diluted/3/ .89 .99 (.02) .23 Dividends Per Share of Common Stock/2/ .285 .315 .315 .315 Market Price of Common Stock/2,//6/ High 57 5/8 62 7/8 69 3/4 64 15/16 Low 46 3/8 49 3/4 60 11/16 50 3/16 - ----------------------------------------------------------------------------------------------------------------- 1996 Sales $10,769 $11,148 $10,486 $11,407 Cost of Goods Sold and Other Expenses/1/ 9,457 9,673 9,131 10,195 Net Income 879/7/ 1,001/8/ 898/9/ 858 Earnings Per Share of Common Stock/2/ Basic/3/ .79 .89 .80 .76 Diluted/3/ .77 .88 .79 .75 Dividends Per Share of Common Stock/2/ .26 .285 .285 .285 Market Price of Common Stock/2,//6/ High 42 3/16 42 7/16 44 15/16 49 11/16 Low 34 13/16 38 3/8 36 7/16 43 7/8 ==================================================================================================================
1 Excludes interest and debt expense and provision for income taxes. 2 Restated to reflect two-for-one split of common stock effective May 15, 1997. 3 Earnings per share for the year does not equal to the sum of quarterly earnings per share due to changes in average share calculations. 4 Includes a net charge of $998 ($.88 per share - basic) reflecting: a charge of $850 associated with acquired in-process research and development for the Pioneer transaction; a charge of $220 associated with the planned divestiture of certain printing and publishing businesses; and a gain of $72 from the sale by DuPont Merck of its generic and multisource product lines. 5 Includes a net charge of $684 ($.61 per share - basic) reflecting: a charge of $616 associated with acquired in-process research and development relating to the PTI transaction ($500), the Pioneer transaction ($53), and the ICI polyester intermediates and resins transaction ($63); a charge of $62 associated with the Benlate(R) 50 DF fungicide recall; a charge of $112 associated with the impairment of nonrevenue producing petroleum properties; a charge of $55 associated with the write-down of an office building held for sale; and a gain of $161 associated with the sale of certain North Sea petroleum producing and exploration properties. 6 As reported on the New York Stock Exchange, Inc. Composite Transactions Tape. 7 Includes a net charge of $20 ($.02 per share - basic) reflecting: a charge of $53 principally for employee separation costs; and a benefit of $33 for sale of stock received in connection with a previously sold business. 8 Includes a net charge of $34 ($.03 per share - basic) reflecting: a charge of $63 for write-down of investment in a European natural gas marketing joint venture; a charge of $48 principally for employee separation costs; a charge of $63 associated with Benlate(R) 50 DF fungicide recall; a gain of $55 associated with the formation of the DuPont Dow elastomers joint venture; a benefit of $44 related to environmental insurance recoveries; and a gain of $41 from the sale of certain medical products businesses. 9 Includes a charge of $47 ($.04 per share - basic) associated with Benlate(R) 50 DF fungicide recall. Consolidated Geographic Data (Dollars in millions)
- --------------------------------------------------------------------------------------------------- Capital Total Assets Average Expenditures December 31 Employment --------------------------------------------------------- 1997 1996 1997 1996 1997 1996 --------------------------------------------------------- United States $ 7,029 $1,723 $23,819 $19,508 63,653 67,119 Europe 1,644 1,418 12,459 12,039 19,136 19,796 Other Regions 1,535 589 6,664 6,323 15,110 14,556 --------------------------------------------------------- Total $10,208 $3,730 $42,942 $37,870 97,899 101,471 ===================================================================================================
Capital expenditures, total assets and average employment are assigned to geographic areas, generally based on physical location. 60 DUPONT Five-Year Financial Review/1/ (Dollars in millions, except per share)
- --------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------------------------------- Summary of Operations Sales $45,079 $43,810 $42,163 $39,333 $37,098 Earnings Before Income Taxes $ 4,680 $ 5,981 $ 5,390 $ 4,382 $ 958 Provision for Income Taxes $ 2,275 $ 2,345 $ 2,097 $ 1,655 $ 392 Net Income $ 2,405 $ 3,636 $ 3,293 $ 2,727 $ 566/2/ Earnings Per Share of Common Stock/3/ Basic $ 2.12 $ 3.23 $ 2.81 $ 2.00 $ .41 Diluted $ 2.08 $ 3.18 $ 2.77 $ 1.98 $ .41 ----------------------------------------------------------------------- Financial Position at Year End Working Capital $(2,196) $ 116 $ (1,776) $ 3,543 $ 1,460 Total Assets $42,942 $37,870 $ 37,199 $36,813 $36,958 Borrowings and Capital Lease Obligations: Short Term $ 6,154 $ 3,910 $ 6,157 $ 1,292 $ 2,796 Long Term $ 5,929 $ 5,087 $ 5,678 $ 6,376 $ 6,531 Stockholders' Equity $11,270 $10,593 $ 8,323 $12,743 $11,135 ----------------------------------------------------------------------- Ratios Dividends as Percent of Cash Provided by Operations 20% 20% 18% 22% 22% Cash Provided by Operations as Percent of Total Debt 58% 71% 57% 74% 58% Total Debt as Percent of Total Capitalization 50% 45% 58% 37% 45% Return on Average Investors' Capital 12.3% 20.0% 18.0% 14.6% 4.0% Net Income As Percent of Average Stockholders' Equity 21.3% 38.2% 32.9% 22.8% 4.8% ----------------------------------------------------------------------- General For the Year: Capital Expenditures $10,208/4/ $ 3,730 $ 3,643 $ 3,241 $ 3,725 Depreciation, Depletion and Amortization $ 2,385 $ 2,621 $ 2,722 $ 2,976 $ 2,833 Research and Development Expense $ 1,116 $ 1,032 $ 1,067 $ 1,047 $ 1,132 As Percent of Sales for: Chemicals and Specialties Businesses 4.5% 4.2% 4.2% 4.5% 5.1% Petroleum 0.2% 0.2% 0.2% 0.3% 0.3% Average Number of Shares (millions)/3/ Basic 1,131 1,121 1,170 1,360 1,353 Diluted 1,150 1,140 1,183 1,371 1,363 Dividends Per Common Share/3/ $ 1.23 $ 1.115 $ 1.015 $ .91 $ .88 Common Stock Prices:/3/ High $ 69 3/4 $ 49 11/16 $ 36 1/2 $ 31 3/16 $ 26 15/16 Low $ 46 3/8 $ 34 13/16 $ 26 5/16 $ 24 1/8 $ 22 1/4 Year-End Close $ 60 1/16 $ 47 1/16 $ 34 15/16 $ 28 1/16 $ 24 1/8 At Year End: Employees (thousands) 98 97 105 107 114 Common Stockholders of Record (thousands) 154 158 166 172 181 Book Value Per Common Share/3/ $ 9.77 $ 9.19 $ 7.28 $ 9.18 $ 8.04 ================================================================================================================
1 See Management's Discussion and Analysis, Consolidated Financial Statements and Quarterly Financial Data for information relating to significant items affecting the results of operations and financial position. 2 Before effect on income of extraordinary item. 3 Restated to reflect two-for-one split of common stock effective May 15, 1997. 4 Includes strategic acquisitions discussed in Note 23. DUPONT 61 EX-21 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name Organized Under Laws of - --------------------------------------------------- ----------------------- Conoco Asia Ltd. .................................. Bermuda Conoco Canada Limited ............................. Canada Conoco Developments Limited ....................... England Conoco Inc. ....................................... Delaware Conoco Indonesia Inc. ............................. Delaware Conoco International, Inc. ........................ Delaware Conoco Investments Norge A/S ...................... Norway Conoco Limited .................................... England Conoco Mineraloel GmbH ............................ Germany Conoco Norway Inc. ................................ Delaware Conoco Petroleum Limited .......................... England Conoco Petroleum Norge AS ......................... Norway Conoco Pipe Line Company .......................... Delaware Conoco Specialty Products Inc. .................... Delaware Conoco Timan-Pechora Ltd. ......................... Bermuda Conoco (U.K.) Limited ............................. England Consol Energy Inc. (50% owned) .................... Delaware Continental Oil Company of Libya .................. Delaware Danube Insurance Ltd. ............................. Bermuda Douglas Oil Company of California ................. California Dubai Petroleum Company ........................... Delaware DuPont Agrichemicals Caribe, Inc. ................. Delaware DuPont Argentina S.A. ............................. Argentina DuPont Asia Pacific, Ltd. ......................... Delaware DuPont (Australia) Limited ........................ Australia DuPont Canada Inc. (76.2% owned) .................. Canada DuPont Chemical and Energy Operations, Inc. ....... Delaware DuPont Coordination Center N.V. ................... Belgium DuPont Conoco Nordic A.B. ......................... Sweden DuPont Delaware, Inc. ............................. Delaware DuPont Diagnostics, Inc. .......................... Delaware DuPont de Colombia, S.A. .......................... Colombia DuPont de Nemours (Belgium) N.V. .................. Belgium DuPont de Nemours (Deutschland) GmbH .............. Germany DuPont de Nemours (Flandre), S.A. ................. France DuPont de Nemours (France) S.A. ................... France DuPont de Nemours International S.A. .............. Switzerland DuPont de Nemours Italiana S.p.A. ................. Italy DuPont de Nemours (Luxembourg) S.A. ............... Luxembourg DuPont de Nemours (Nederland) B.V. ................ The Netherlands DuPont do Brasil S.A. ............................. Brazil DuPont Dow Elastomers, L.L.C. (50% owned) ......... Delaware DuPont Electronic Materials, Inc. ................. Delaware DuPont Energy Company ............................. Delaware Name Organized Under Laws of - --------------------------------------------------- ----------------------- DuPont Engineering Products, S.A. ................. Luxembourg DuPont Feedstocks Company ......................... Delaware DuPont Foreign Sales Corporation .................. Virgin Islands DuPont Iberica, S.A. .............................. Spain DuPont Kabushiki Kaisha ........................... Delaware DuPont (Korea) Inc. ............................... Republic of Korea DuPont Merck Pharmaceutical Company (Delaware Partnership) (50% owned) ........................ Delaware DuPont Merck Pharma (Puerto Rico Partnership) (50% owned) ..................................... Puerto Rico DuPont (New Zealand) Ltd. ......................... New Zealand DuPont Photomasks, Inc. (69.24% owned) ............. Texas DuPont Protein Technologies International, Inc. ... Delaware DuPont, S.A. de C.V. .............................. Mexico DuPont (Singapore) Pte. Ltd. ...................... Singapore DuPont (Singapore) Fibres Pte. Ltd. (90% owned) ... Singapore DuPont Taiwan Ltd. ................................ Taiwan DuPont (Thailand) Co. Ltd. ........................ Thailand DuPont Treasury Ltd. .............................. England DuPont (U.K.) Limited ............................. England Kayo Oil Company .................................. Delaware Holding DP, S.A. de C.V. .......................... Mexico Lobo Pipeline Company ............................. Delaware Norske Conoco A/S ................................. Norway Petrozuata C.A. (50% Owned) ....................... Venezuela Societe Europeene Des Carburants .................. Belgium World Wide Transport, Inc. ........................ Liberia Subsidiaries not listed would not, if considered in the aggregate as a single subsidiary, constitute a significant subsidiary. 2 EX-23 9 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (No. 33-53327, No. 33-61339, and No. 33-60069) and Form S-8 (No. 2-74004, No. 33-43918, No. 33-51817, No. 33-51821, No. 33-60037, and No. 33-61703) of E. I. du Pont de Nemours and Company of our report dated February 13, 1998, appearing on page 30 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 March 23, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,004 142 5,740 66 4,070 11,874 54,284 30,701 42,942 14,070 5,929 0 237 346 10,687 42,942 45,079 46,653 26,377 41,331 0 0 642 4,680 2,275 2,405 0 0 0 2,405 2.12 2.08 Includes Other Accounts In Addition To Notes And Accounts Receivable - Trade. Includes Other Operating Charges. Cost of Goods Sold and Other Operating Charges; Selling, General and Administrative Expenses; Depreciation, Depletion and Amortization; Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties; Research and Development Expense; Taxes Other Than On Income; Purchased In-Process Research and Development; and Write-down of Assets and Other Related Costs. Basic Earnings Per Share.
-----END PRIVACY-ENHANCED MESSAGE-----