UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-815
E. I. du Pont de Nemours and Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 51-0014090
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1007 Market Street, Wilmington, Delaware 19898
(Address of Principal Executive Offices)
(302) 774-1000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
1,127,904,634 shares (excludes 11,609,520 shares held by DuPont's
Flexitrust) of common stock, $0.30 par value, were outstanding at
April 30, 1999.
1
Form 10-Q
E. I. DU PONT DE NEMOURS AND COMPANY
Table of Contents
Page(s)
-------
Part I Financial Information
Item 1. Financial Statements
Consolidated Income Statement ............................... 3
Consolidated Statement of Cash Flows ........................ 4
Consolidated Balance Sheet .................................. 5
Notes to Financial Statements ............................... 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements .................................. 12-13
Financial Results ........................................... 14-15
Segment Performance ......................................... 15-17
Financial Condition ......................................... 18-19
Other Items ................................................. 20-25
Part II Other Information
Item 1. Legal Proceedings .................................... 25-26
Item 4. Submission of Matters to a Vote of Security Holders .. 27-28
Item 5. Other Information .................................... 28-29
Item 6. Exhibits and Reports on Form 8-K ..................... 29-31
Signature ....................................................... 32
Exhibit Index ................................................... 33
Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges ................................................. 34
Exhibit 12-1 - Computation of Ratio of Earnings to
Fixed Charges - Pro Forma ..................................... 35
2
Form 10-Q
PART I. FINANCIAL STATEMENTS
Item 1. FINANCIAL STATEMENTS
E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES
Three Months Ended
CONSOLIDATED INCOME STATEMENT<Fa><Fb> March 31
- --------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1999 1998
- -------------------------------------------------------------------------------------
SALES<Fc> .................................................... $6,295 $6,194
Other Income ................................................. 18<Fd> 297
------ ------
Total .................................................... 6,313 6,491
------ ------
Cost of Goods Sold and Other Expenses ........................ 3,873 4,049
Selling, General and Administrative Expenses ................. 535 479
Depreciation and Amortization ................................ 335 332
Research and Development ..................................... 358 264
Interest Expense ............................................. 96 127
Purchased In-Process Research and Development<Fe> ............ 40 60
Employee Separation Costs and Write-Down of Assets ........... - 118<Ff>
------ ------
Total .................................................... 5,237 5,429
------ ------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
AND MINORITY INTERESTS ...................................... 1,076 1,062
Provision for Income Tax Expenses ............................ 432 417
Minority Interests in Earnings of Consolidated Subsidiaries .. 16 8
------ ------
INCOME FROM CONTINUING OPERATIONS<Fc> ........................ 628 637
DISCONTINUED OPERATIONS
Income from Operations of Discontinued Business,
Net of Income Taxes ...................................... - 269
Gain on Disposal of Discontinued Business,
Net of Income Taxes ...................................... 35 -
------ ------
NET INCOME ................................................... $ 663 $ 906
====== ======
BASIC EARNINGS PER SHARE OF COMMON STOCK<Fg>
Continuing Operations ...................................... $ .55 $ .56
Discontinued Operations .................................... .04 .24
------ ------
Net Income ................................................. $ .59 $ .80
====== ======
DILUTED EARNINGS PER SHARE OF COMMON STOCK<Fg>
Continuing Operations ...................................... $ .55 $ .55
Discontinued Operations .................................... .03 .24
------ ------
Net Income ................................................. $ .58 $ .79
====== ======
DIVIDENDS PER SHARE OF COMMON STOCK .......................... $ .35 $ .315
====== ======
See Notes to Financial Statements.
3
Form 10-Q
Three Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS<Fa><Fb> March 31
- ---------------------------------------------------------------------------------------------
(Dollars in millions) 1999 1998
- ---------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS
Net Income ..................................................... $ 663 $ 906
Adjustments to Reconcile Net Income to Cash
Provided by Continuing Operations:
Net Income from Discontinued Operations .................... (35) (269)
Depreciation and Amortization .............................. 335 332
Purchased In-Process Research and Development .............. 40 60
Other Noncash Charges and Credits - Net .................... 88 (24)
Change in Operating Assets and Liabilities - Net ........... (944) (853)
------- -------
Cash Provided by Continuing Operations ................... 147 152
------- -------
INVESTMENT ACTIVITIES
Purchases of Property, Plant and Equipment ..................... (473) (465)
Investment in Affiliates ....................................... (7) (17)
Payments for Businesses Acquired (Net of Cash Acquired) ........ (1,656) (694)
Proceeds from Sales of Assets .................................. 59 240
Investments in Short-Term Financial Instruments - Net .......... (2) (94)
Miscellaneous - Net ............................................ (7) (10)
------- -------
Cash Used for Investment Activities ...................... (2,086) (1,040)
------- -------
FINANCING ACTIVITIES
Dividends Paid to Stockholders ................................. (397) (358)
Net Increase in Borrowings ..................................... 2,590 2,734
Acquisition of Treasury Stock .................................. (44) (309)
Proceeds from Exercise of Stock Options ........................ 14 36
Increase in Minority Interests ................................. 79 -
------- -------
Cash Provided by Financing Activities .................... 2,242 2,103
------- -------
Net Cash Flow from Discontinued Operations ....................... (255) (191)
------- -------
Effect of Exchange Rate Changes on Cash .......................... (68) (4)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. $ (20)(h) $ 1,020
======= =======
See Notes to Financial Statements.
4
Form 10-Q
CONSOLIDATED BALANCE SHEET<Fa><Fb> March 31 December 31
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ........................................................ $ 1,003 $ 1,059
Marketable Securities ............................................................ 11 10
Accounts and Notes Receivable .................................................... 5,399 4,201
Inventories<Fi> .................................................................. 3,566 3,129
Prepaid Expenses ................................................................. 216 192
Deferred Income Taxes ............................................................ 596 645
------- -------
Total Current Assets ........................................................... 10,791 9,236
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization
(March 31, 1999 - $20,652; December 31, 1998 - $20,597) .......................... 14,817 14,131
INVESTMENT IN AFFILIATES ........................................................... 1,801 1,796
OTHER ASSETS ....................................................................... 5,908 4,956
NET ASSETS OF DISCONTINUED OPERATIONS<Fj> .......................................... 8,650 8,417
------- -------
TOTAL<Fc> ...................................................................... 41,967 38,536
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ................................................................. 1,900 1,929
Short-Term Borrowings and Capital Lease Obligations .............................. 9,232 6,629
Income Taxes ..................................................................... 374 130
Other Accrued Liabilities ........................................................ 3,157 2,922
------- -------
Total Current Liabilities ...................................................... 14,663 11,610
LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS ................................. 4,566 4,495
OTHER LIABILITIES .................................................................. 7,663 7,640
DEFERRED INCOME TAXES .............................................................. 478 430
------- -------
Total Liabilities .............................................................. 27,370 24,175
------- -------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .................................... 464 407
------- -------
STOCKHOLDERS' EQUITY<Fk>
Preferred Stock .................................................................. 237 237
Common Stock, $.30 par value; 1,800,000,000 shares authorized; shares issued
at March 31, 1999 - 1,139,514,154; December 31, 1998 - 1,140,354,154 ........... 342 342
Additional Paid-In Capital ....................................................... 7,866 7,854
Reinvested Earnings .............................................................. 6,933 6,705
Accumulated Other Comprehensive Loss ............................................. (526) (432)
Common Stock Held in Trust for Unearned Employee Compensation and Benefits
(Flexitrust), at Market (Shares: March 31, 1999 - 12,379,279;
December 31, 1998 - 14,167,867) ................................................ (719) (752)
------- -------
Total Stockholders' Equity ..................................................... 14,133 13,954
------- -------
TOTAL .......................................................................... $41,967 $38,536
======= =======
See Notes to Financial Statements.
5
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
[FN]
<Fa> These statements are unaudited, but reflect all adjustments that, in
the opinion of management, are necessary to provide a fair presentation
of the financial position, results of operations and cash flows for
the dates and periods covered. All such adjustments are of a normal
recurring nature. The company's petroleum business is reported as
discontinued operations and is discussed in Notes (b) and (j).
<Fb> Discontinued Operations:
On September 28, 1998, the company announced that the Board of
Directors had approved a plan to divest the company's 100 percent-owned
petroleum business (Conoco Inc.). The company intends to complete the
divestiture with a tax-free split off by exchanging its remaining
Conoco shares (69.5 percent) for DuPont shares no later than third
quarter 1999. The company has not recognized a deferred tax liability
for the difference between the book basis and tax basis of its
investment in Conoco's common stock because the company does not expect
this basis difference to become subject to tax. The company's
consolidated financial statements and notes report its petroleum
business as discontinued operations. Prior periods have been restated.
Results reported separately by Conoco are reported on a stand-alone
basis and may differ from results based on discontinued operations
reporting. In addition, beginning October 22, 1998, the company's
results from discontinued operations reflect minority interests of
30.5 percent.
6
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
<FN>
<Fc> CONSOLIDATED SEGMENT INFORMATION - Three Months Ended
CONTINUING OPERATIONS March 31
-----------------------------------------------------------------------
(Dollars in millions) 1999 1998
----------------------------------------------------------------------
SEGMENT SALES<F1>
-------------
Agriculture & Nutrition ................. $ 780 $ 770
Nylon Enterprise ........................ 1,103 1,173
Performance Coatings & Polymers ......... 1,158 1,157
Pharmaceuticals<F2> ..................... 409 217
Pigments & Chemicals .................... 866 920
Polyester Enterprise .................... 624 734
Specialty Fibers ........................ 863 851
Specialty Polymers ...................... 1,002 1,034
Other ................................... 94 164
------ ------
Total Segment Sales ................. $6,899 $7,020
Elimination of Intersegment Transfers ... (173) (204)
Elimination of Equity Affiliate Sales ... (431) (622)
------ ------
SALES ............................... $6,295 $6,194
====== ======
AFTER-TAX OPERATING INCOME (LOSS)
---------------------------------
Agriculture & Nutrition ................. $ 91 $ 29<F3>
Nylon Enterprise ........................ 102 5<F4>
Performance Coatings & Polymers ......... 100 <F5> 122
Pharmaceuticals ......................... 75 50
Pigments & Chemicals .................... 146 157
Polyester Enterprise .................... (6) 4
Specialty Fibers ........................ 181 188
Specialty Polymers ...................... 164 158
Other ................................... 10 45
------ ------
Total Segment ATOI .................. 863 758
Interest & Exchange Gains (Losses) ...... (163)<F6> (70)
Corporate Expenses ...................... (72) (51)
------ ------
INCOME FROM CONTINUING OPERATIONS ... $ 628 $ 637
====== ======
March 31 December 31
SIGNIFICANT CHANGES IN SEGMENT ASSETS 1999 1998
------------------------------------- -------- -----------
Performance Coatings & Polymers ......... $4,195<F7> $2,214
====== ======
7
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
Footnotes to Note (c)
- ---------------------
<F1> Includes pro rata equity affiliate sales and intersegment transfers.
<F2> The increase in sales reflects the current 100 percent ownership of the
pharmaceuticals business versus 50 percent in 1998. In addition,
effective first quarter 1999, revenues from contract manufacturing are
reclassified from Other Income to Sales, and prior periods have been
restated. These revenues are $27 and $15 for 1999 and 1998,
respectively.
<F3> Includes a charge of $60 for revision, based on independent appraisals,
of the purchase price allocation in conjunction with the purchase of
Protein Technologies International, related to the value assigned to
research and development in progress at the time of purchase for which
technological feasibility has not yet been established and no alternative
future use is anticipated.
<F4> Includes a charge of $85 related to rationalization of global Nylon
operations, principally shutdown of certain manufacturing facilities and
employee separation costs.
<F5> Includes an estimated charge of $40 based on preliminary purchase price
allocations in conjunction with the purchase of Herberts, the automotive
coatings business of Hoechst AG, related to the value assigned to
research and development in progress at the time of purchase for which
technological feasibility has not yet been established and no alternative
future use is anticipated.
<F6> Includes an exchange loss of $81 on forward exchange contracts purchased
in 1998 to fix in U.S. dollars the cash required to acquire Herberts, the
automotive coatings business of Hoechst AG. The purchase price for
Herberts was negotiated in German marks.
<F7> The change is primarily the result of the purchase of Herberts, the
automotive coatings business of Hoechst AG, in February 1999.
8
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
<Fd> Includes an exchange loss of $131 on forward exchange contracts pur-
chased in 1998 to fix in U.S. dollars the cash required to acquire
Herberts, the automotive coatings business of Hoechst AG. The purchase
price for Herberts was negotiated in German marks.
<Fe> Purchased in-process research and development represents the value
assigned in a purchase business combination to research and develop-
ment projects of the acquired business that were in progress at time
of purchase for which technological feasibility has not yet been
established and no alternative future use is anticipated.
In this regard, an estimated charge was recorded in the first quarter
1999 in conjunction with the purchase of Herberts, the automotive
coatings business of Hoechst AG, based on preliminary allocations of
purchase price that are subject to revision.
First quarter 1998 represents a charge for revision, based on independ-
ent appraisals, of the purchase price allocation in conjunction with
the purchase of Protein Technologies International. The charge was not
tax effected because this transaction was a stock acquisition rather
than an asset purchase.
<Ff> Represents $40 of employee separation costs within the Nylon business
and $78 for the shutdown of related manufacturing facilities.
<Fg> Basic earnings per share is computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of
common shares (the denominator) for the period. The numerator for both
income from continuing operations and net income is reduced by
preferred dividends of $2.5. For diluted earnings per share, the
numerator is adjusted to recognize reduced share of earnings assuming
options in subsidiary company stock are exercised if the effect of this
adjustment is dilutive. The denominator is based on the following
weighted-average number of common shares and includes the additional
common shares that would have been outstanding if potentially dilutive
common shares had been issued:
Three Months Ended
March 31
-------------------------------
Basic Diluted
------------- -------------
1999 1,127,086,632 1,138,090,171
1998 1,128,415,102 1,145,674,145
9
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
The difference between basic and diluted weighted-average common shares
outstanding results from the assumption that dilutive stock options
outstanding were exercised.
The following number of stock options are antidilutive, and therefore
are not included in the diluted earnings per share calculation since the
exercise price is greater than the average market price:
March 31
-----------------------
1999 1998
--------- ---------
Stock Options 8,576,345 4,998,517
Compensation expense recognized in income for stock-based employee
compensation awards was $7 and $34 for the three months ended March 31,
1999 and 1998, respectively.
Shares held by the Flexitrust are not considered outstanding in comput-
ing the foregoing weighted-average number of common shares.
<Fh> Includes the change in cash and cash equivalents classified in the
Consolidated Balance Sheet within "Net Assets of Discontinued
Operations."
March 31 December 31
<Fi> Inventories 1999 1998
----------- -------- -----------
Finished Products ......................... $ 2,567 $ 2,209
Semifinished Products ..................... 826 836
Raw Materials and Supplies ................ 846 749
------- -------
4,239 3,794
Less: Adjustment of Inventories to a
Last-In, First-Out (LIFO) Basis ......... 673 665
------- -------
Total ................................. $ 3,566 $ 3,129
======= =======
10
Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(Continued)
[FN]
March 31 December 31
<Fj> Net Assets of Discontinued Operations 1999 1998
------------------------------------- -------- -----------
Cash and Cash Equivalents ................. $ 411 $ 375
Other Current Assets ...................... 2,885 2,864
Property, Plant and Equipment - Net ....... 11,254 11,438
Other Assets .............................. 2,102 2,011
Current Liabilities ....................... (2,404) (2,473)
Other Liabilities ......................... (3,898) (4,115)
Minority Interests ........................ (1,700) (1,683)
------- -------
Net Assets of Discontinued Operations ... $ 8,650 $ 8,417
======= =======
<Fk> The following sets forth the company's total comprehensive income for
the periods shown:
Three Months Ended
March 31
------------------
1999 1998
----- -----
Net Income ................................ $663 $906
Other Comprehensive Loss, Net of Tax ...... (94) (20)
---- ----
Total Comprehensive Income ................ $569 $886
==== ====
11
Form 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
--------------------------
This report contains forward-looking statements which may
be identified by their use of words like "plans," "expects,"
"will," "anticipates," "intends," "projects," "estimates" or other
words of similar meaning. All statements that address expectations
or projections about the future, including statements about the
company's strategy for growth, product development, market
position, expenditures, financial results and the company's efforts
to remediate Year 2000 issues, are forward-looking statements.
Forward-looking statements are based on certain assumptions
and expectations of future events. The company cannot guarantee
that these assumptions and expectations are accurate or will be
realized. In addition to the factors discussed in this report, the
following are some of the important factors that could cause the
company's actual results to differ materially from those projected
in any such forward-looking statements:
o The company operates in approximately 65 countries world-
wide and derives about half of its revenues from sales
outside the United States. Changes in the laws or policies
of other governmental and quasi-governmental activities in
the countries in which the company operates could affect
its business in the country and the company's results of
operations. In addition, economic factors (including
inflation and fluctuations in interest rates and foreign
currency exchange rates) and competitive factors (such as
greater price competition or a decline in U.S. or European
industry sales from slowing economic growth) in those
countries could affect the company's revenues, expenses and
results.
o The company's growth objectives are largely dependent on
its ability to renew its pipeline of new products and to
bring those products to market. This ability may be
adversely affected by difficulties or delays in product
development including, but not limited to, the inability to
identify viable new products; successfully complete
clinical trials of new pharmaceuticals; obtain relevant
regulatory approvals, which may include approval from the
U.S. Food and Drug Administration; the ability to obtain
adequate intellectual property protection; or gain market
acceptance of the new products.
12
Form 10-Q
o As part of its strategy for growth, the company has made
and may continue to make acquisitions, divestitures and
alliances. There can be no assurance that these will be
completed or beneficial to the company.
o The company has articulated and updated in its periodic
reports filed with the Securities and Exchange Commission
on Forms 10-Q and 10-K its timetable and assessment of
costs to become Year 2000-capable. The failure of the
company or third parties with which it conducts business to
become Year 2000-capable could have a material adverse
affect on the company's financial condition, results of
operation and liquidity.
o The company's facilities are subject to a broad array of
environmental laws and regulations. The costs of complying
with complex environmental laws and regulations as well as
internal voluntary programs, are significant and will con-
tinue to be so for the foreseeable future. The company's
accruals for such costs and liabilities may not be adequate
since the estimates on which the accruals are based depend
on a number of factors including the nature of the allega-
tion, the complexity of the site, the nature of the remedy,
the outcome of discussions with regulatory agencies and
other potentially responsible parties (PRPs) at multi-party
sites, and the number and financial viability of other
PRPs.
o The company's results of operations could be affected by
significant litigation adverse to the company including
product liability claims, patent infringement claims and
antitrust claims.
o The profitability of the company's petroleum business
(Conoco Inc.), currently reported as discontinued opera-
tions, will be affected by the prices for crude oil,
natural gas and refined products. These prices are subject
to wide fluctuations in response to changes in global and
regional supply over which the company has no control,
including political developments and the ability of the
Organization of Petroleum Exporting Countries and other
producing nations to set and maintain production levels and
prices. The company has announced its intention to com-
pletely divest itself of Conoco no later than the third
quarter of 1999.
The foregoing list of important factors does not include
all such factors nor necessarily presents them in order of
importance.
13
Form 10-Q
(a) Results of Operations
(1) Financial Results:
Including discontinued operations and nonrecurring items,
diluted earnings per share were $.58 compared to $.79 in 1998.
First quarter diluted earnings per share from continuing operations
before nonrecurring items of $.66 compare to a first quarter record
of $.68 achieved last year.
Results From Continuing Operations
----------------------------------
Sales in the quarter were $6.3 billion, up 2 percent from
$6.2 billion in the first quarter of 1998. Volumes, including
acquisitions, were up 4 percent while worldwide average prices were
down 2 percent, including currency effects. Excluding acquisi-
tions, worldwide volumes were down about 2 percent from the record
first quarter of last year.
Regionally, U.S. volumes were comparable with last year's
first quarter, while prices were down 3 percent, adversely affected
by a significant decrease in polyester fiber prices. In Europe,
volumes were down 8 percent while prices were generally flat. In
Asia Pacific, volumes were up 6 percent and prices were down
2 percent.
Raw material costs were down significantly in the first
quarter. In addition, comparable fixed costs were down 2 percent,
and the impact of currency increased sales outside the United
States by about 1 percent. As a result, the total after-tax
operating income of the nine business segments achieved the record
level set in the first quarter last year.
Income from continuing operations for the first quarter
1999 was $628 million, compared to $637 million in 1998. Excluding
net charges for nonrecurring items totaling $121 million and
$145 million in 1999 and 1998, respectively, underlying income was
$749 million versus $782 million in 1998, down 4 percent.
In the current quarter nonrecurring items include charges
related to the Herberts' acquisition as described in the footnotes
on pages 8 and 9. First quarter 1998 nonrecurring items included a
charge for a revision to the estimate for purchased in-process
research and development related to the PTI acquisition and a
charge for global nylon operations modernization.
14
Form 10-Q
Results From Discontinued Operations
------------------------------------
On September 28, 1998, the company announced that the Board
of Directors had approved a plan to divest the company's
100 percent-owned petroleum business (Conoco Inc.). The company
intends to complete the divestiture with a tax-free split off by
exchanging its remaining Conoco shares (69.5 percent) for DuPont
shares no later than third quarter 1999. The company has not
recognized a deferred tax liability for the difference between the
book basis and tax basis of its investment in Conoco's common stock
because the company does not expect this basis difference to become
subject to tax. The company's consolidated financial statements
and notes report its petroleum business as discontinued operations.
Prior periods have been restated. Results reported separately by
Conoco are reported on a stand-alone basis and may differ from
results based on discontinued operations. In addition, beginning
October 22, 1998, the company's results from discontinued
operations reflect minority interest of 30.5 percent. Further
discussion of this split off is on page 23.
Income from discontinued operations was $35 million com-
pared to $269 million, down 87 percent. Oil production was flat
versus first quarter 1998, while gas production increased signifi-
cantly. However, upstream oil and gas prices both declined over
20 percent. This combined with lower downstream prices and margins
and the reduction of the company's ownership to 70 percent,
resulted in a significant decline in earnings.
(2) Segment Performance:
The following text compares first quarter 1999 results
with first quarter 1998, for sales and earnings of each segment,
excluding the earnings impact of nonrecurring items described in
the footnotes to the "Consolidated Segment Information -
Continuing Operations" table at Note (c) on pages 7 and 8.
Segment results include intersegment transfers and a pro rata
ownership share of the sales and earnings of equity affiliates.
Total segment after-tax operating income was $903 million, equal
to last year.
o Agriculture & Nutrition segment earnings were up
2 percent, as stronger U.S. earnings offset lower results
outside the United States and increase in research and
development. Segment sales increased 1 percent reflecting
flat prices and a modest volume increase.
15
Form 10-Q
o Nylon Enterprise segment earnings were up 13 percent
principally reflecting increased earnings from carpet
fibers. Segment sales were down 6 percent including
3 percent lower prices. The impact of lower prices was
offset by lower raw materials costs and fixed costs.
Total cost productivity improved 4 percent versus the
first quarter 1998.
o Performance Coatings & Polymers segment earnings were up
15 percent, principally reflecting better results for
engineering polymers and elastomers. Herberts' earnings
results are being consolidated one month in arrears and
therefore will first be included in the second quarter.
o Pharmaceuticals segment earnings were $75 million compared
with $50 million, up 50 percent. Segment sales were
$409 million, up 88 percent from $217 million last year.
These results reflect the current 100 percent ownership of
the pharmaceuticals business versus 50 percent last year.
In addition, earnings improvement also reflects higher
income from "Cozaar" antihypertensive, largely offset by
higher research and development expense and goodwill
amortization.
o Pigments and Chemicals segment earnings were down
7 percent, reflecting lower earnings in Specialty
Chemicals, partly offset by better results for white
pigments and fluorochemicals. The earnings decline in
Specialty Chemicals reflects generally lower industrial
chemical volumes and specialty prices as well as the
absence of a gain from the sale of a hydrogen peroxide
plant last year.
o Polyester Enterprise segment posted a loss of $6 million
versus earnings of $4 million last year reflecting
15 percent lower sales. Over capacity and intense price
pressure continue to depress polyester results. Better
results from resins and intermediates were more than
offset by lower earnings for polyester films and "Dacron"
polyester fiber. Recently announced ventures with Teijin,
Sabanci Holding and Alpek, discussed on pages 23-25,
should strengthen the company's position in polyester.
16
Form 10-Q
o Specialty Fibers segment earnings were down 4 percent,
principally reflecting lower "Lycra" spandex earnings
which were modestly below their record first quarter in
1998. Earnings from Nonwovens were up on strong U.S.
sales of "Tyvek" and "Sontara". Segment sales were up
1 percent.
o Specialty Polymers segment earnings were 4 percent higher
principally reflecting strength in the Photopolymers &
Electronic Materials.
o The Other segment earnings were $10 million versus
$45 million last year, principally reflecting the absence
of earnings from the company's interest in coal which has
been substantially divested. Partly offsetting was a gain
on the sale of shares of DuPont Photomasks, Inc.
17
Form 10-Q
(b) Financial Condition at March 31, 1999
First quarter 1999 cash provided by continuing operations of
$147 million was comparable with the $152 million generated in the first
quarter of 1998. Income from continuing operations of $628 million in 1999
was in line with $637 million from 1998. Noncash charges for depreciation
and amortization and for the write-off of purchased in-processed R&D were
comparable quarter to quarter. Other noncash charges and credits - net were
higher in 1999 primarily reflecting the absence of the timing difference
between affiliate income and dividends for DuPont Merck Pharmaceuticals.
Net operating assets and liabilities increased $944 million in 1999 as
compared to a $853 million increase in 1998, reflecting a typical pattern of
seasonal working capital builds in a number of business units. Seasonal
increases in working capital are usually reversed by year end.
First quarter 1999 capital investments for purchases of property,
plant, and equipment and investments in affiliates were $480 million, as
compared to $482 million spent in 1998. Payments for businesses acquired in
1999 totaled $1.7 billion and reflect a cash outlay of $1.6 billion in
February for the acquisition of Herberts, the automotive coatings business
of Hoechst AG. The purchase price also included the assumption of
$0.2 billion in Herbert's debt. This acquisition makes DuPont Performance
Coatings the world's third largest coatings business and the largest
automotive coatings supplier with sales approaching $4 billion. First
quarter 1998 payments for businesses acquired include $0.7 billion for
acquisition of ICI's polyester films business.
In March, DuPont announced agreement with Pioneer Hi-Bred
International, Inc. of Des Moines, Iowa, for a cash and stock merger valued
at $7.7 billion. The company's estimated cash outlay to complete the
acquisition will be $3.5 billion, and is expected in the third quarter of
1999. DuPont currently has a 20 percent interest in Pioneer, and after the
purchase will own 100 percent. Pioneer is the world's largest seed company
and is a leader in North America and other key markets. Further discussion
of this acquisition is on page 22.
Proceeds from sales of assets in the first quarter of 1999 totaled
$59 million, and included the sale of several small operating assets as well
as office real estate assets. Proceeds from sales of assets in the first
quarter of 1998 totaled $240 million, and included the sale of certain
hydrogen peroxide properties for $150 million, and proceeds related to the
sale of the Printing and Publishing business totaling $86 million.
During the quarter, the company spent $44 million to purchase and
retire 840,000 shares of DuPont common stock. These purchases were part of
the program initiated in 1997 to purchase and retire up to 20 million shares
of DuPont common stock to offset dilution from shares issued under compen-
sation programs. In first quarter 1998, the company spent $374 million to
18
Form 10-Q
purchase and retire 6 million shares in a private placement transaction.
Not related to the shares buyback program, the company received $65 million
as a final settlement payment associated with 16 million shares repurchased
in a private placement transaction in December 1997.
Increase in minority interests in 1999 reflects $79 million for
sale of an approximate 14 percent interest in the DuPont Photomasks, Inc.
business, further reducing DuPont's ownership to approximately 55 percent.
Total debt, including capital lease obligations and debt assumed in
acquisitions, at March 31, 1999, was $13.8 billion as compared to
$11.1 billion at year-end 1998. The $2.7 billion increase in total debt
reflects primarily the issuance of commercial paper. These funds were used
to finance the $0.9 billion increase in operating assets and liabilities,
and the Herberts acquisition cash outlay of $1.6 billion.
On April 20, 1999, Conoco paid $4.0 billion in partial payment of
its outstanding debt owed to DuPont with funds obtained through third-party
debt offerings in the month. The third-party debt obtained by Conoco is not
guaranteed by DuPont, and this will result in a decrease in Net Assets of
Discontinued Operations. DuPont intends to use this payment for general
corporate purposes, including reduction of debt.
Certain Statistics - Continuing Operations
------------------------------------------
At 3/31/99 At 12/31/98
---------- -----------
Cash Flow to Total Debt
(previous 12 months cash
provided by operations to
total debt) .................. 30% 37%
Current Ratio (current assets
to current liabilities) ...... 0.7:1 0.8:1
Earnings to Fixed Charges ...... 5.8 3.3
Earnings to Fixed Charges -
Pro Forma*.................... 8.4 4.5
------------------
*Pro Forma statistics exclude interest and debt expense
which has been allocated to discontinued operations.
The Cash Flow to Total Debt ratio was down in first quarter 1999
versus year-end primarily due to the $2.7 billion increase in total debt.
Days' sales outstanding averaged 59 days in the first quarter, an increase
of 5 days from fourth quarter 1998, and up 2 days from the first quarter of
1998.
19
Form 10-Q
(c) Other Items
Year 2000
---------
This is an update on the status of the company's program to become
Year 2000-capable, and should be read in conjunction with the Year 2000
Readiness Disclosure in the company's 1998 annual report on Form 10-K.
Project reporting data indicates that approximately 94 percent of
the company's critical and significant computer systems are now Year 2000-
capable, and the remaining systems in these categories are expected to be
remediated on the following schedule:
Status As Of
Systems Time Frame 3/31/99
------- ------------ ------------
Telecommunications ...................... 11/98 - 3/99 Completed*
Mainframe Corporate Data Centers ........ 4/99 98%**
Mid-Range Computers ..................... 10/98 - 6/99 61%**
Corporate
(e.g., Payroll and Electronic Mail) ... 1/99 - 6/99 90%**
Business
(e.g., Inventory Processing) .......... 12/98 - 4Q99 82%**
Manufacturing, Process Control and
Equipment ............................. 4Q98 - 4Q99 94%**
- -----------------------
*"Completed" means that the remediation phase is substantially completed
for systems in the indicated category. Continuous monitoring is
necessary, and therefore, further remediation may be required because of
system updates.
**The percent represents the percent of systems which have been remediated
in the indicated category as measured by the businesses and functional
units.
The company is continuing its Business Partner 2000 Program with
key suppliers and major customers. The company has substantially completed
its survey of key suppliers and as of the end of the first quarter of 1999,
assessed approximately 23% of its key suppliers as having a high risk of not
becoming Year 2000-capable on a timely basis.
20
Form 10-Q
The company continued its survey of its major customers focusing on
their Year 2000-capability as it affects ordering procedures for, as well as
delivery of and payment for DuPont products. Based on responses from
55 percent of its major customers, the company assessed approximately
33 percent of them as being in the high risk category as of the end of the
first quarter 1999 versus 28 percent as of December 31, 1998. This change
results from an increase in the number of surveys conducted of major
customers from Asia Pacific and South America. However, the company is
working with its major customers and key suppliers to reduce the risk that
they will not become Year 2000-capable on a timely basis. If this risk
cannot be reduced to the company's satisfaction, appropriate contingency
plan will be developed by the end of June 1999.
In February 1999, the company acquired Herberts, a leading supplier
of automotive coatings in Europe, from Hoechst A.G. Prior to its acquisi-
tion by the company, Herberts had initiated a program to become Year
2000-capable. Herberts has remediated certain systems, but has yet to
assess others.
Since Herberts' Year 2000 Program is configured differently from the
company's, Herberts' systems are not included in the foregoing remediation
timetable. However, the company is working with Herberts to integrate them
into its Year 2000 Program. The company's Year 2000 Program for Herberts
focuses on remediating Herberts' critical manufacturing and process control
systems as well as related equipment. In addition, all other critical and
significant internal Herberts' systems will be remediated. The company
believes that as a result of these efforts, the foregoing internal Herberts'
systems will be Year 2000-capable on a timely basis. A Project Management
Office has been established to lead Herberts' Year 2000 Program in Europe
and Asia Pacific. Herberts' Year 2000 efforts in Mexico, South America and
the United States will be lead by the company's existing Project Management
Office. A plan has been developed to identify key suppliers to Herberts
which are not already part of the company's Business Partner 2000 Program.
Finally, a contingency planning test case will be implemented at certain
Herberts' manufacturing sites.
Excluding Herberts, the company continues to expect total expenditures
to become Year 2000-capable to be in the range of $350 million to
$400 million, of which 20 percent represents internal costs. As of
March 31, 1999, the company had spent an estimated $225 million on imple-
menting its plan. The company has not yet estimated the total expenditures
required for Herberts to become Year 2000-capable, however, the company's
current expectation is that Herberts' estimated total expenditures will not
have a material adverse impact on the company. The company does not
specifically track all costs associated with employees working on Year 2000
projects, but has included an estimate of these costs in the amount of
internal costs included in the range above. The company does not include
the costs of systems projects which will address the Year 2000 problem but
21
Form 10-Q
were initiated to accomplish other (non-Year 2000) objectives. The company
will fund Year 2000 expenditures from company cash flow from operations and
expects that total remediation costs, including those required for Herberts
and the reallocation of internal resources, will not have a material adverse
effect on the company's financial condition, results of operations or
liquidity.
The foregoing timetable and assessment of costs to become Year 2000-
capable reflect management's best estimates. These estimates are based upon
many assumptions, including: assumptions about the cost, availability and
ability of resources to identify and classify systems properly; properly
identifying them as needing remediation; locating, remediating and modifying
affected systems; and making various assessments of Year 2000 readiness of
key third parties and Herberts. Based upon its activities to date, the
company does not believe that these factors will cause its current cost and
timetable projections to differ significantly from those estimated. How-
ever, the company cannot reasonably estimate the potential impact on its
financial condition, results of operations or liquidity if critical third
parties, including suppliers, customers and governments, do not become Year
2000-capable on a timely basis.
Other Activities
----------------
Pioneer Hi-Bred International, Inc.
-----------------------------------
In March, DuPont and Pioneer Hi-Bred International, Inc. executed a
definitive agreement for a stock and cash merger that will result in the
company's complete ownership of Pioneer. The company currently has a
20 percent equity interest in Pioneer. Under the terms of the agreement,
Pioneer shareholders will receive $40.00 per share, with 45 percent of the
shares to be exchanged for cash and 55 percent of the shares receiving
DuPont common stock. The total equity value of the transaction is estimated
to be approximately $7.7 billion for the 80 percent of Pioneer not currently
owned by DuPont. Pioneer shareholders will have certain rights to elect
which form of consideration they will receive. The merger is expected to
close during the third quarter of 1999 subject to approval of relevant
regulatory agencies and Pioneer's shareholders.
Life Science Alliances and Tracking Stock
-----------------------------------------
In March, the company announced that it is actively seeking
alliances with other strong partners in the pharmaceuticals industry. The
company expects to conclude one or more of these alliances by the end of
1999. In addition, the company announced that its board of directors
authorized actions toward the creation and issuance of a tracking stock for
its life sciences businesses, i.e., the Agriculture & Nutrition and
Pharmaceuticals segments. The creation and issuance of tracking stock
require the company to file a registration statement with the Securities and
Exchange Commission and obtain DuPont shareholder approval. It is antici-
pated that shareholder approval will be sought in the first half of 2000.
22
Form 10-Q
Conoco Split-Off
----------------
In March, DuPont received a favorable ruling from the Internal
Revenue Service that the proposed split-off of Conoco Inc. will be tax free,
a key condition to completing the exchange offer more fully described in the
registration statement filed with the Securities and Exchange Commission.
On April 28, 1999, DuPont's board of directors has authorized a split-off
plan to establish Conoco as a fully independent company. The split off will
be achieved through an exchange offer providing DuPont stockholders the
opportunity to exchange, on a tax-free basis, shares of DuPont common stock
for shares of Conoco Class B common stock currently held by DuPont.
The exchange offer remains subject to the registration statement
being approved by the Securities and Exchange Commission and acceptable
market conditions. A registration statement relating to DuPont common stock
and Conoco Class B common stock has been filed with the Securities and
Exchange Commission but has not yet become effective. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. It is currently anticipated that
the exchange offer will be completed in the third quarter of 1999.
The offering will be made only by means of a prospectus which will
contain the specific terms of the transaction and which will be provided to
DuPont stockholders at the commencement of the exchange offer.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Polyester Joint Ventures
------------------------
In February, DuPont and Teijin Limited signed a letter of intent
to form a global joint venture to produce and sell polyethylene
terephthalate and polyethylene naphthalate polyester film. The 50/50 joint
venture provides DuPont and Teijin with a world-class, integrated global
platform for supplying differentiated, value-added polyester film products.
DuPont will also receive cash, reflecting the difference in the agreed-upon
values of the respective businesses.
The new venture with Teijin, including combined sales of about
$1.4 billion and production capacity over 300,000 tons per year, creates a
global industry leadership position in polyester films. It provides for the
flow of technology between the two companies and leverages DuPont's
strengths in the U.S., Europe and China with Teijin's strengths in Japan and
Asia Pacific.
23
Form 10-Q
The venture will operate globally with a single face to the market,
recognizing and responding to regional market requirements. Included in the
venture is the existing Teijin DuPont Films Ltd. joint venture with opera-
tions in Circleville, Ohio, and Contern, Luxembourg.
In April the following activities took place:
(1) DuPont and Haci Omer Sabanci Holding, A.S., announced their
intent to form a joint venture to develop, make, and sell
polyester filament, staple, resins, intermediates, and
related products for markets throughout the European region,
the Middle East and Africa. The joint venture is expected
to begin operations in the fourth quarter 1999, subject to
final corporate and appropriate regulatory approvals. DuPont
and Sabanci will be equal partners in the joint venture,
which will have revenues of $1 billion annually and employ
approximately 4,500 people.
The joint venture will include DuPont's PTA (pure tere-
phthalic acid) and resins businesses at Wilton, U.K., and
"Dacron" filament and staple businesses at Pontypool, U.K.,
and Uentrop, Germany. Also included will be Sabanci's
polyester subsidiary SASA, with its businesses in polyester
filament, staple, resins, bottles and DMT (dimethyl
terephthalate) based in Adana, and other sites in Turkey and
the Sabanci texturizing plant in Garforth, U.K.
DuPont and Sabanci will form a separate company that will
manage this polyester business under a single management
team, which will be named shortly. The vast majority of
DuPont and Sabanci employees currently operating the assets
and businesses that are part of the joint venture will become
employees of the new company.
The new company will have full access to DuPont polyester
technology and brand management resources, including brands
such as "Dacron", "Coolmax", "Melinar" and "Laser+". The new
company will develop and apply polyester technology with
DuPont's Global Polyester Enterprise that includes polyester
intermediates, staple, filament, fiberfill, films, and resin
businesses.
(2) DuPont, Alpek S.A. de C.V., and Teijin Limited, announced
their intent to form a joint venture to make and sell
polyester filament yarn in the Americas. The joint venture
is expected to begin operations before year-end, subject to
appropriate regulatory approvals.
24
Form 10-Q
DuPont will be a 50 percent partner in the joint venture,
with Alpek and Teijin owning the remaining 50 percent. The
joint venture will have more than 850 million pounds of
capacity and revenues of approximately $600 million. It will
include all of the polyester polymer, filament, and textured
yarn facilities in Monterrey, Mexico, of the Alpek and Teijin
existing joint venture. The DuPont "Dacron" polyester
textile filament facilities at its Cape Fear and Kinston
production sites in North Carolina also will be included.
(3) DuPont-Akra Polyester, LLC, a newly-formed company head-
quartered in Charlotte, North Carolina, began producing
polyester staple fiber for markets primarily in the Americas
as part of a separate joint venture between DuPont and Alpek.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In 1991, DuPont began receiving claims by growers that use of
"Benlate" 50 DF fungicide had caused crop damage. Based on the belief that
"Benlate" 50 DF would be found to be a contributor to the claimed damage,
DuPont began paying crop damage claims. In 1992, however, after 18 months
of extensive research, DuPont scientists concluded that "Benlate" 50 DF was
not responsible for plant damage reports received since March 1991, and
concurrent with these research findings, DuPont stopped paying claims. To
date, DuPont has been served with more than 750 lawsuits, most by growers
who allege plant damage from using "Benlate" 50 DF fungicide. Approximately
65 crop lawsuits are still pending against the company, as are approximately
75 additional "Benlate" 50 DF cases based on alleged personal injury,
alleged securities violations, alleged discovery abuse and fraud, and
alleged damage to shrimp farming operations. On February 17, 1999, the
Florida Third Circuit Court of Appeals reversed a June 1996 personal injury
verdict of $3,980,000 against DuPont. Other personal injury cases are
pending. 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. The class allegations in Florida have
been dropped. The Alabama case received conditional class certification by
the state court, but that certification has since been vacated. A consent
order and settlement recently ended a long running Georgia case wherein
plaintiffs had accused the Company of discovery abuse during a 1993
"Benlate" 50 DF crop case. Under the consent order, DuPont will supply
$11 million to fund academic chairs at four Georgia law schools and an
annual symposium on professionalism in the practice of law in Georgia. The
settlement also provides for the payment of plaintiffs' attorneys fees. A
25
Form 10-Q
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. A shareholder derivative action
filed in Georgia federal district court, alleging that DuPont's Board of
Directors breached various duties in connection with the "Benlate" 50 DF
litigation, remains pending. 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. A
number of these cases, filed in Florida, Georgia and Hawaii, have been
dismissed by trial courts. The Eleventh Circuit Court of Appeals has
affirmed the dismissal of a number of such cases and has referred others to
the Florida Supreme Court for resolution of questions of Florida law. In
February 1999 the Ninth Circuit Court of Appeals overturned the dismissal of
one of the Hawaii cases, remanding the case to federal district court.
Another of the Hawaii cases is on appeal. DuPont continues to believe that
"Benlate" 50 DF fungicide did not cause the damages alleged in these cases
and intends to defend against such allegations in ongoing matters.
The company's balance sheets reflect accruals for estimated costs
associated with this matter. Adverse changes in these estimated costs could
result in additional future charges.
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. In March, DuPont
entered into a Consent Order with the California Department of Justice
settling this matter. No penalties or fines were assessed against DuPont.
On April 3, 1998, the Environmental Protection Agency Region III
(EPA) filed an Administrative Complaint against the DuPont Belle plant,
located in West Virginia, in which it alleges violations of the Resource
Conservation Recovery Act (RCRA) Boiler and Industrial Furnace (BIF)
Regulations. The allegations are that DuPont failed to record feed rates
while burning hazardous waste, failed to inspect the boiler and failed to
operate the boiler within established feed limits. EPA has proposed a civil
penalty of $263,800. On February 1, 1999, the matter was settled for
$69,000 in view of prompt voluntary action taken by DuPont and recognition
by the EPA that a major potential for harm to health or the environment was
not created.
26
Form 10-Q
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Business transacted at the Annual Meeting:
A total of 938,815,508 shares of common stock were voted in person
or by proxy at the annual meeting of stockholders on April 28, or
82.4 percent of the shares entitled to be voted. Business was transacted as
follows:
1. ELECTION OF DIRECTORS: The 12 nominees listed below were elected
to serve on the Board of Directors for the ensuing year. The vote
tabulation with respect to each nominee follows:
Votes Votes Cast Against
Director Cast for or Withheld
------------------- ----------- ------------------
C. J. Crawford 931,979,412 6,836,096
L. C. Duemling 931,956,783 6,858,725
A. W. Dunham 931,874,744 6,940,764
E. B. du Pont 932,019,089 6,796,419
C. O. Holliday, Jr. 932,174,993 6,640,515
L. D. Juliber 932,259,557 6,555,951
W. K. Reilly 932,214,125 6,601,383
H. R. Sharp, III 932,009,520 6,805,988
C. M. Vest 932,363,669 6,451,839
G. Watanabe 932,077,116 6,738,392
S. I. Weill 920,492,142 18,323,366
E. S. Woolard, Jr. 932,140,310 6,675,198
2. RATIFICATION OF INDEPENDENT ACCOUNTANTS: The proposal to ratify
the appointment of PricewaterhouseCoopers LLP as independent
accountants for 1999 was approved by a vote of 933,041,674 shares
for, 5,979,625 shares against, and 3,960,684 abstentions and broker
nonvotes.
3. ANNUAL MEETING LOCATION: A stockholder proposal to rotate the
company's annual meeting each year to different parts of the
country where DuPont has plant locations and/or large concentration
of stockholders was defeated by a vote of 716,200,792 shares
against, 19,251,868 for, and 203,362,848 abstentions and broker
nonvotes.
4. EXECUTIVE COMPENSATION: A stockholder proposal to limit increases
in cash compensation of executive officers was defeated by a vote
of 701,595,206 shares against, 32,747,443 shares for, and
204,472,859 abstentions and broker nonvotes.
5. COMMITTEE MEMBERSHIP: A stockholder proposal that DuPont adopt a
policy that Compensation Committee members be independent was
defeated by a vote of 495,437,083 shares against, 236,145,656
shares for, and 207,232,769 abstentions and broker nonvotes.
27
Form 10-Q
6. BOARD COMPOSITION: A stockholder proposal to commit to a more
diverse board was defeated by a vote of 696,579,951 shares against,
38,023,541 shares for, and 204,212,016 abstentions and broker
nonvotes.
Item 5. OTHER INFORMATION
Organization:
------------
Effective May 1, 1999, the following senior leadership changes were
made to align DuPont's organizational structure with the company's ongoing
transformation and plans to achieve sustainable growth.
Three executive vice presidents now serve as chief operating
officers for their respective business segments. They are:
o Richard R. Goodmanson, former president and chief executive officer
of America West Airlines, who joins DuPont as executive vice
president and chief operating officer.
A U.S. citizen, Mr. Goodmanson is a native of Australia and spent
his early career in heavy civil construction primarily in Southeast
Asia. Previously he was senior vice president of operations for
Frito-lay, Inc. and a principal with McKinsey & Company. He brings
to DuPont a strong results orientation, extensive international
experience, and a track record of marketing and operating excel-
lence in a variety of industries and markets.
Mr. Goodmanson has responsibility for the Specialty Fibers business
segment; the Performance Coatings & Polymers business segment;
Safety Resources; the Global Services Business; and the Asia
Pacific Region.
o Kurt M. Landgraf, executive vice president, adds the role of chief
operating officer. He continues to lead the Pharmaceuticals
business segment and the Agriculture & Nutrition business segment
and retains responsibility for the European region.
o Dennis H. Reilley, senior vice president, was promoted to executive
vice president and chief operating officer. Mr. Reilley has
responsibility for the following business segments: Pigments &
Chemicals; Specialty Polymers; Nylon; and Polyester.
Concurrently:
William F. Kirk, senior vice president - Agricultural Enterprise, is
temporarily assigned full time to the critical role of ensuring a smooth
integration of Pioneer Hi-Bred International into DuPont. In this capacity,
28
Form 10-Q
he reports to Charles O. Holliday, Jr., chairman and chief executive
officer. The overall Agricultural Enterprise and Pioneer integration
strategy is led by Messrs. Kirk, Holliday, and Landgraf.
Cinda A. Hallman, senior vice president, leads a major effort to
define the new business models associated with the change from a chemicals
and energy based company to a chemicals, biology and knowledge based
company. This includes behavior, know-how, and business processes. The
purpose is to expedite the company's drive to a higher value producing
company. In the near term this includes how DuPont integrates Pioneer and
uses tracking stock effectively. Cinda Hallman reports to Mr. Holliday and
coordinates with the Office of the Chief Executive in this work. She
retains full responsibility for the information technology organization and
strategy, as well as Y2K and business contingency planning.
Stacey J. Mobley, senior vice president, adds the role of chief
administrative officer. In addition to his current staff responsibilities,
Stacey has responsibility for the Americas region.
John W. Himes, vice president - investor relations, corporate plans
and financial communications, was promoted to senior vice president.
With these changes, the Office of the Chief Executive expands and
includes: Charles O. Holliday, Jr.; Richard R. Goodmanson; Kurt M.
Landgraf; Dennis H. Reilley; Stacey J. Mobley; Gary M. Pfeiffer, senior vice
president and chief financial officer; and Joseph A. Miller, senior vice
president and chief science and technology officer.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit index filed with this Form 10-Q is on page 33.
(b) Reports on Form 8-K
1. On January 27, 1999, a Current Report on Form 8-K was
filed in connection with Debt Securities that may be
offered on a delayed or continuous basis under its
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 7.
"Financial Statements and Exhibits," the Registrant's
Earnings Press Release, dated January 27, 1999, was filed.
2. On February 1, 1999, a Current Report on Form 8-K was
filed in connection with Debt and/or Equity Securities
that may be offered on a delayed or continuous basis
29
Form 10-Q
under Registration Statements on form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5. "Other
Events," the Registrant filed the principal agreement
governing the separation of Conoco from DuPont, plus
certain exhibits to that agreement: the $7.5 billion
note issued by Conoco and the Registration Rights
Agreement.
3. On February 4, 1999, a Current Report on Form 8-K was
filed in connection with Debt and/or Equity Securities
that may be offered on a delayed or continuous basis
under Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5. "Other
Events," the Registrant filed a press release entitled,
"DuPont and Teijin Announce Plans to Form a Joint Venture
for Their Global Polyester Films Businesses."
4. On March 1, 1999, a Current Report on Form 8-K was filed
in connection with Debt and/or Equity Securities that may
be offered on a delayed or continuous basis under
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5. "Other
Events," the Registrant filed a press release entitled,
"DuPont Announces The Completion of Its Acquisition of
Herberts."
5. On March 10, 1999, a Current Report on Form 8-K was filed
in connection with Debt and/or Equity Securities that may
be offered on a delayed or continuous basis under
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5, "Other
Events," the Registrant filed a press release entitled,
"DuPont Takes Steps To Execute Life Sciences Strategy."
6. On March 12, 1999, a Current Report on Form 8-K was filed
in connection with Debt and/or Equity securities that may
be offered on a delayed or continuous basis under
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5, "Other
Events," the Registrant filed a press release announcing
discussions with Pioneer Hi-Bred International, Inc.
regarding a possible business combination.
7. On March 15, 1999, a Current Report on Form 8-K was filed
in connection with Debt and/or Equity Securities that may
be offered on a delayed or continuous basis under
Registration Statements on Form S-3 (No. 33-53327,
30
Form 10-Q
No. 33-61339, and No. 33-60069). Under Item 5, "Other
Events," the Registrant filed a press release entitled,
"DuPont Outlines Sustainable Growth Strategy For
Investors."
8. On March 15, 1999, a Current Report on Form 8-K was filed
in connection with Debt and/or Equity Securities that may
be offered on a delayed or continuous basis under
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5, "Other
Events," the Registrant filed a press release entitled,
"DuPont and Pioneer Hi-Bred International, Inc., Sign
Merger Agreement."
9. On April 16, 1999, a Current Report on Form 8-K was
filed in connection with Debt and/or Equity Securities
that may be offered on a delayed or continuous basis
under Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 5, "Other
Events," the Registrant filed Consolidated Industry
Segment Information (Quarterly) of Continuing Operations
for the years ending December 31, 1998 and 1997.
10. On April 27, 1999, a Current Report on Form 8-K was
filed in connection with Debt Securities that may be
offered on a delayed or continuous basis under its
Registration Statements on Form S-3 (No. 33-53327,
No. 33-61339, and No. 33-60069). Under Item 7,
"Financial Statements and Exhibits," the Registrant's
Earnings Press Release, dated April 27, 1999, was filed.
31
Form 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
E. I. DU PONT DE NEMOURS AND COMPANY
(Registrant)
Date: May 6, 1999
-----------------------------------------
By /s/ G. M. Pfeiffer
-----------------------------------------
G. M. Pfeiffer
Senior Vice President - DuPont Finance
(As Duly Authorized Officer and Principal
Financial and Accounting Officer)
32
Form 10-Q
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Company's Agreement and Plan of Merger, dated as of
March 15, 1999, by and among the company, Pioneer Hi-Bred
International, Inc. and Delta Acquisition Sub, Inc.
(incorporated by reference to Exhibit E to the company's
Amendment No. 3, dated March 17, 1999, to its Schedule 13D,
originally filed on August 18, 1997, which is the company's
statement of beneficial ownership of Pioneer Hi-Bred
International, Inc.).
12 Computation of Ratio of Earnings to Fixed Charges.
12.1 Computation of Ratio of Earnings to Fixed Charges -
Pro Forma.
27* Financial Data Schedule - quarter ended March 31, 1999.
- --------------
*Filed electronically only.
33
Form 10-Q
Exhibit 12
E. I. DU PONT DE NEMOURS AND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31
Three Months Ended -----------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
------------------ --------- --------- --------- ------- -------
Income from Continuing Operations Before
Extraordinary Item .............................. $ 628 $1,648 $1,432 $2,931 $2,858 $2,205
Provision for Income Taxes ........................ 432 941 1,354 1,416 1,432 1,164
Minority Interests in Earnings of Consolidated
Subsidiaries .................................... 16 24 43 40 29 15
Adjustment for Companies Accounted for
by the Equity Method ............................ (6) (39) 936<Fa> 82 126 (33)
Capitalized Interest .............................. (29) (120) (80) (70) (76) (83)
Amortization of Capitalized Interest .............. 16 65<Fb> 82<Fb> 127<Fb> 81 77
------ ------ ------ ------ ------ ------
1,057 2,519 3,767 4,526 4,450 3,345
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense - Continuing
Operations .................................... 96 520 389 409 449 343
Interest and Debt Expense - Discontinued
Operations .................................... 73 304 252 304 308 216
Capitalized Interest - Continuing Operations .... 29 120 80 70 76 83
Capitalized Interest - Discontinued
Operations .................................... 2 78 90 73 95 59
Rental Expense Representative of Interest
Factor ........................................ 18 71 83 80 80 83
------ ------ ------ ------ ------ ------
218 1,093 894 936 1,008 784
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................... $1,275 $3,612 $4,661 $5,462 $5,458 $4,129
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned .......... 5.8 3.3 5.2 5.8 5.4 5.3
====== ====== ====== ====== ====== ======
<FN>
- --------------------------------
<Fa> Includes write-off of Purchased In-Process Research and Development
associated with acquisition of 20% interest in Pioneer Hi-Bred
International, Inc.
<Fb> Includes write-off of capitalized interest associated with divested
businesses.
34
Form 10-Q
Exhibit 12.1
E. I. DU PONT DE NEMOURS AND COMPANY
PRO FORMA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Ratio of earnings to fixed charges on a continuing
operations basis reflecting interest allocations to
Conoco Inc., which is reported as discontinued operations.
Years Ended December 31
Three Months Ended -----------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
------------------ --------- --------- --------- ------- -------
Income from Continuing Operations Before
Extraordinary Item .............................. $ 628 $1,648 $1,432 $2,931 $2,858 $2,205
Provision for Income Taxes ........................ 432 941 1,354 1,416 1,432 1,164
Minority Interests in Earnings of Consolidated
Subsidiaries .................................... 16 24 43 40 29 15
Adjustment for Companies Accounted for
by the Equity Method ............................ (6) (39) 936<Fa> 82 126 (33)
Capitalized Interest .............................. (29) (120) (80) (70) (76) (83)
Amortization of Capitalized Interest .............. 16 65<Fb> 82<Fb> 127<Fb> 81 77
------ ------ ------ ------ ------ ------
1,057 2,519 3,767 4,526 4,450 3,345
------ ------ ------ ------ ------ ------
Fixed Charges:
Interest and Debt Expense<Fc> ................... 96 520 389 409 449 343
Capitalized Interest ............................ 29 120 80 70 76 83
Rental Expense Representative of Interest
Factor ........................................ 18 71 83 80 80 83
------ ------ ------ ------ ------ ------
143 711 552 559 605 509
------ ------ ------ ------ ------ ------
Total Adjusted Earnings Available for Payment of
Fixed Charges ................................. $1,200 $3,230 $4,319 $5,085 $5,055 $3,854
====== ====== ====== ====== ====== ======
Number of Times Fixed Charges are Earned<Fc> .... 8.4 4.5 7.8 9.1 8.4 7.6
====== ====== ====== ====== ====== ======
<FN>
- -----------------------------
<Fa> Includes write-off of Purchased In-Process Research and Development
associated with acquisition of 20% interest in Pioneer Hi-Bred
International, Inc.
<Fb> Includes write-off of capitalized interest associated with divested
businesses.
<Fc> Excludes interest and debt expense which has been allocated to
discontinued operations.
35