Exhibit 13
Last year was an excellent year for DuPont, in which the commitment of our
people and our focus on customers and productivity resulted in a striking
success. The transformation of our company during the last three years has taken
us from the position of an average performer to that of a very strong performer.
We believe we have developed the competitive strength in terms of cost and
customer focus that will allow us to compete effectively in the future, even
when economic conditions are less favorable than in 1994. At the beginning of
1994 we saw that the transformation initiated in 1991 was reaping benefits, and
the world economy finally seemed to be in our favor. We expected a good year; we
had a terrific year. Our people around the world deserve the
credit for outstanding accomplishments in the marketplace and in our operations.
Long-term competitive advantage requires committed employees determined to build
healthy businesses. The results of 1994 demonstrate that commitment.
Financially, 1994 was a year of record earnings. Excluding non-recurring
items, earnings rose 65 percent compared to the prior year. Net income for 1994
was $2.7 billion or $4.00 per share compared to $555 million or $.81 per share
in 1993. Return on equity was 22.6 percent. Total 1994 sales were $39.3 billion,
up 6 percent over 1993. We ended 1994 in excellent shape financially, reducing
borrowings by $1.7 billion. We are in a good position to grow our businesses
globally.
While most of our businesses had a good year, some performances were
especially noteworthy. Several of our polymer-based businesses showed excellent
results, in particular automotive, engineering polymers, packaging and
industrial polymers and nonwovens. Agricultural products also performed
strongly. Our energy business did well in 1994 with Conoco performing
competitively opposite other companies in the petroleum industry. Overall, we
have a solid portfolio of businesses, and we are targeting to have all our
businesses earn our cost of capital (12 percent) by the end of 1995. Regionally,
a highlight was the performance of our European operations, which tripled
earnings on strong volume growth and a multi-year $500 million cost reduction
program that contributed cost savings of about $200 million in 1994.
Last year was also a good year for DuPont shareholders, with a total return
of 20 percent. However, we don't focus on performance in any one year, but
aspire to deliver superior results over time. As the chart* on page 3 indicates,
DuPont stock has outperformed the S&P 500 Stock Index during the past 10 years
with an average total return of 17.5 percent annually compared to 14.3 percent
for the S&P.
When you look at the strong results of the past year, it is readily
apparent that we have been on the right track with the changes we put in place.
The biggest changes of the past few years have been customer focus and cost
control. We had customers in mind when we eliminated the old, large department
organizations and reorganized the company into many separate strategic business
units. Many of our customers are telling us that they've seen in DuPont a
dramatic shift from an internal focus to a focus on being successful for and
with our customers.
* This information is not incorporated by reference in this Report.
2
The second major change we have made is in reducing costs by changing
attitudes about how we spend money. In 1991, we started with a goal to reduce
our fixed cost base by $1 billion; we've exceeded that goal. After adjusting for
inflation, our 1994 fixed costs are more than $2.5 billion lower than in 1991.
Undeniably, cost reductions have made the last several years a painful time. But
these actions were vital to our competitive success. We now are focused on
providing only the products and services that customers will pay for, and more
and more customers see partnership with DuPont as a key element in their own
success. We are becoming the preferred supplier to many customers because we
have the products, innovation, technology and capable people long associated
with DuPont, and now we can also compete on price. Our improved cost position
also allows us to compete in many new growth markets around the world.
We will be able to take advantage of those new opportunities because of
another big accomplishment of the past three years--we stayed the course with
globalizing our businesses. Even as we reduced costs and restructured the
company, we continued to expand around the world. We intend to be the leading
chemical and energy company in every region where we operate, and at the moment
we are focused in a special way on Asia. We had a very successful start-up of a
new titanium dioxide plant in Taiwan, which complements other chemical plants
recently built in Singapore, Korea and four new operations in China. We are
evaluating at least 20 other new initiatives in Asia. Elsewhere, Conoco began
pumping oil in Russia in 1994, and our Polar Lights project there is becoming
the technological and environmental standard against which all other petroleum
development projects in ecologically sensitive areas will be judged.
If there was one disappointment during the year, it was in safety, where
our performance was well below DuPont's rigorous standards. Even though we still
lead industry in the most important statistical categories of safety
performance, we are determined to return to and exceed our previous standards.
During 1994, we adopted a new Safety, Health and Environment Commitment.
Historically, we have maintained that the only acceptable standard for injuries
and illnesses is zero, and this has served us well. Our new commitment extends
that same philosophy to environmental incidents, wastes and emissions.
We can adopt this commitment because of the confidence we have in our
technological strength. Science and technology are the
3
historical bedrock of DuPont's competitive advantage and remain so. In recent
years, the attention surrounding change and transformation at the company has
sometimes eclipsed the ongoing achievements of our scientists and engineers.
They continue to provide discoveries that are renewing our product lines and
making our operations more efficient, more productive and more environmentally
sound.
Looking ahead to 1995, we will now seek to move from our present position
of a very strong company into that small group of companies that are universally
acknowledged as the best in the world because of their ability to sustain top
performance regardless of the business climate. A characteristic shared by such
companies is that every employee has a connection to customers and feels that
her or his personal growth and career development are closely tied to profitable
business and company growth. During 1994, I spoke to employees at plant or
business sites around the world on 30 occasions and had extensive informal
discussions throughout the organization. I am convinced that employee commitment
is vital to achieving higher levels of sustained performance. Most of our people
can and want to achieve more. I have challenged our managers to create work
environments and business practices that will enable DuPonters to do so. This
will help us to consolidate DuPont's distinctive strengths in world markets.
I am often asked what makes DuPont different from the many other major
companies that have also been going through cost reductions, re-engineering and
various types of change. I respond that DuPont starts with strengths others
don't have, and then we build on them. We have a broad range of outstanding
products, a superb reputation for market-driven innovation and outstanding
people. These all contribute to the power of the DuPont brand which benefits
from generations of credibility, trust and quality few others can match. We are
proud of our unique strengths and heritage, and we are enthusiastic about the
opportunities for profitable global growth and continued success that stretch
before us.
/s/ E. S. Woolard Jr.
E. S. Woolard, Jr., Chairman
March 1, 1995
4
Chemicals manufactures a wide range of commodity and specialty products,
including titanium dioxide, fluorochemicals and polymer intermediates, used in
the paper, plastics, chemical processing, refrigeration, textile and
environmental management industries.
Improving conditions in most economies around the world and strategic
reorganization helped increase the global presence and business success for
"Ti-Pure" titanium dioxide and specialty chemicals businesses.
Building on its position as the world's leading titanium dioxide producer,
DuPont began full production from its 60,000-ton plant in Kuan Yin, Taiwan, and
became a premier local supplier to Asia Pacific customers. The new plant brings
total DuPont capacity of the white pigment to 770,000 tons a year. Titanium
dioxide is used in paper, paint and plastic, and DuPont has long been a leading
supplier to these industries, offering products specific to customer needs, such
as "Ti-Pure" RPS rutile paper slurry supplied to the paper industry (see
above*).
DuPont Fluorochemicals has spent more than $500 million to develop and
commercialize alternatives to the ozone-depleting chlorofluorocarbons (CFCs) and
is now producing the broadest range of CFC alternatives with product families
including "Suva" refrigerants, "Formacel" foam expansion agents, "Dymel"
propellants and "Vertrel" cleaning agents. Early in 1995, DuPont commercialized
non-ozone-depleting "Suva" 9000 for applications that include home air
conditioners and heat pumps.
* This information is not incorporated by reference in this Report.
16
Specialty Chemicals continued to undergo changes to become more globally
competitive. Employment dropped from 8,500 four years ago to 5,500 in 1994, and
$350 million in costs have been trimmed, in total, during the past three years.
While this group of businesses includes specialty chemicals and materials and
environmental services, more than 60 percent of sales comes from industrial
chemicals such as ammonia, cyanide and peroxygen products. Proprietary strengths
continue in chemical specialties such as "Teflon" fabric protectors for apparel
and home furnishings.
1994 Versus 1993
Sales of $3.8 billion were up 6 percent, reflecting higher sales volume, with
most of the gains attributable to markets outside the United States. While
prices were trending upward during the second half of this year, average selling
prices were slightly less than last year's.
After-tax operating income (ATOI) was $386 million, up 133 percent from last
year's results, which included $116 million in nonrecurring charges, principally
for asset write-downs and facility shutdowns. Excluding nonrecurring charges
from both years, earnings were $391 million, up 39 percent.
1993 Versus 1992
Sales were down 2 percent, primarily reflecting lower U.S. volume. Additional
sales volume from acquisitions outside the United States was offset by lower
prices, largely due to the currency effects of a stronger dollar. ATOI was 27
percent lower, due to higher charges for facility shutdowns and employee
separation costs. Excluding nonrecurring charges, ATOI was $282 million, up 2
percent, reflecting improvement in specialty chemicals and fluorochemicals,
partly offset by lower results from "Ti-Pure" titanium dioxide.
Chemicals*
[CHART APPEARS HERE]
Sales ($ in Billions)
1992 3.6
1993 3.5
1994 3.8
ATOI ($ in Millions)
1992 226
1993 166
1994 386
*See Industry Segment Information (Note 30 to Financial Statements.)
Outlook
Solid growth from global expansion in 1994 is expected to continue in 1995. The
European and Asia Pacific regions remain particularly strong. Increased demand
for "Ti-Pure" titanium dioxide as well as gains in market share should further
improve overall results. The pricing environment is also expected to improve,
and competitive profit margins will be maintained as raw material costs
increase. By year-end 1994 DuPont had ceased CFC production for sale in
developed countries except the United States. The U.S. government has requested
that DuPont continue production of CFCs through 1995 to service existing
refrigeration and air conditioning equipment. CFC production in 1995 will be
based on customer purchase commitments. While the consumer transition to CFC
alternatives has been slower than anticipated, DuPont expects to maintain its
key role in this process and is well-positioned to be the premier supplier of
CFC alternatives.
17
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 and sold directly to the textile and other
industries for processing into products used in consumer and industrial markets.
Fibers businesses continued to focus on quality and service to increase market
share, participating in new high-growth markets worldwide, and developing high-
technology fiber and resin products to replace traditional materials.
Nonwovens grew revenues 15 percent in 1994. Growth performance was broad based,
with contributions coming from all market areas and regions. Nonwovens'
portfolio of flexible sheet structure technologies--"Tyvek", "Sontara", "Typar"-
- -serves diverse markets in packaging (see above*), construction, medical and
safety apparel, reinforcing backings and absorbents.
New product development milestones include expanding the use of post-consumer
recycle (PCR) in "Tyvek" from secure envelopes to protective apparel. This
technology advancement was recognized in the United States by the National
Recycle Coalition's Buy Recycled Business Alliance award for most innovative new
product. The "Sontara" business introduced a new family of antimicrobial wiping
cloths and commercialized an insulating windbarrier for outdoor apparel.
Concrete formliners, derived from "Typar" technology, are used in building water
spillways, sewers and bridge beams in Europe and North America.
Helped by high worldwide brand recognition, "Lycra" spandex continues to lead
the thrust into established and new markets. The "Lycra" strategy is to offer
the highest-value product, supported by strong research and development,
marketing and manufacturing in all growth areas. DuPont and China World Best
Development agreed to form a joint
* This information is not incorporated by reference in this Report.
18
venture to manufacture and market "Lycra" in China. There is substantial
commitment to growth in other parts of Asia, supported by world-scale
manufacturing facilities in Japan and Singapore.
The nylon business continues to meet customer needs through improved
productivity and efficiency. Re-engineering of all facets of nylon over the next
three years will improve competitiveness, principally in the United Kingdom,
Germany and the Netherlands. DuPont and Fibra, a member of the Vicunha group in
Brazil, initiated a joint venture to serve the South American textile nylon
market. A joint venture with Far Eastern Textile Ltd. has been established to
construct a nylon 6,6 plant in Taiwan and to market textile nylon in Taiwan and
China. And as part of its strategy to serve an expanding global tire cord
market, DuPont and Ballapur Industries Ltd. formed a venture to build the first
nylon 6,6 plant in India.
The "Dacron" polyester business completed an aggressive modernization program in
1994. This included start-up of two new filament yarn lines in Kinston, North
Carolina, which quickly established new standards for quality and uniformity.
The Cape Fear, North Carolina, plant completed upgrading its polyester
ingredients operation to lower cost and improve quality. The additional capacity
comes at a time of tight supply in the polyester market.
DuPont Advanced Fibers Systems' "Nomex" heat-resistant and "Kevlar" high-
strength aramid fibers businesses benefited from increased demand in the
industrial economies. The new "Nomex" fiber plant in Asturias, Spain, became
fully commercial. DuPont and Teijin Ltd. of Japan established joint ventures to
produce and sell "Nomex" aramid papers in Asia Pacific.
1994 Versus 1993
Fibers segment sales of $6.8 billion were up 9 percent, principally reflecting
the acquisition of ICI's nylon business.
Fibers*
[CHART APPEARS HERE]
Sales ($ in Billions)
1992 6.1
1993 6.2
1994 6.8
ATOI ($ in Millions)
1992 409
1993 169
1994 701
*See Industry Segment Information (Note 30 to Financial Statements.)
Excluding this acquisition, sales were up 5 percent, reflecting 6 percent higher
volume, principally from outside the United States, partly offset by 1 percent
lower average selling prices.
Fibers segment after-tax operating income (ATOI) of $701 million was 315 percent
above the $169 million earned in 1993. Excluding nonrecurring items, earnings
were $676 million versus $425 million mainly due to improved results for nylon,
nonwovens and aramids.
1993 Versus 1992
Sales, including the additional sales from the ICI nylon business, were 2
percent above the prior year. Worldwide sales volume was up 5 percent, while
prices were lower largely due to the exchange effects of a stronger dollar.
ATOI was down $240 million from the prior year principally due to higher
restructuring charges. Excluding nonrecurring items from both years, earnings
were $425 million, down 11 percent from 1992, reflecting lower results for
"Lycra", "Dacron" and nylon, particularly in Europe.
Outlook
DuPont will continue to reduce costs and enter joint ventures to better compete
in global markets. Fibers businesses will benefit from superior value products,
aggressive marketing and strong brand recognition.
19
Engineering polymers, elastomers, fluoropolymers, ethylene polymers, finishes
and performance films are produced to serve industries including packaging,
construction, chemical processing, electrical, paper, textiles and
transportation. This group also includes the automotive businesses, which are
engaged in manufacturing and marketing more than 100 DuPont product lines used
by the automotive industry.
Polymers had a very successful year with record results and continues on track
with its strategy of focusing on core strengths and customer needs. Polymers
businesses achieved strong leadership positions in high-growth end-use markets
such as automotive, electrical components and packaging.
DuPont Packaging & Industrial Polymers continued growth through technological
innovation and partnering with customers (see above*).
For DuPont Engineering Polymers, several factors contributed to excellent
results including cost reduction, faster-than-expected economic recovery in
Europe, increased automobile manufacturing in the Americas and new products to
meet customer needs for higher performance materials. New capacity for nylon
6,6, polybutylene terephthalate (PBT) polyester and liquid crystal polymers
supports customers' growth objectives around the globe. A new $100 million plant
in Singapore will begin producing "Zytel" nylon 6,6 resins in mid-1995. When
production begins in Singapore, DuPont will become the first nylon supplier to
manufacture and compound nylon 6,6 resins in all three major regions of the
world.
The resurgence of the U.S. auto industry was the key factor in the success of
the Polymers businesses linked to that industry. DuPont Automotive revenue and
earnings increased for the third straight year. Commercial sales began from the
new "Butacite" polyvinyl butyral plant, located in Korea, and purchase was
completed of ICI's 50 percent share of IDAC, an automotive coatings joint
venture. New "Spectramaster"
* This information is not incorporated by reference in this Report.
20
and "Chromavision" color systems expanded the automotive refinishes offerings.
"Bexloy" W automotive engineering resin won the prestigious Society of Plastics
Engineers Award for the Dodge and Plymouth "Neon" fascia in the automotive
exterior body category. "Sentryglas" composites, made with "Butacite" sheeting,
are the first and only glass systems that meet building codes for minimizing
hurricane damage.
Early in 1995, DuPont and Dow Chemical signed a letter of intent to explore
forming a joint enterprise for the discovery, development, production and sale
of thermoset and thermoplastic elastomer products used primarily in the
automotive, general rubber, wire and cable, construction, molded goods, durable
adhesives and oil and polymer modification markets.
DuPont is planning a $150 million global expansion program to increase its
fluoropolymer resin capacity for copolymer resins by 75 percent. These increases
are in response to rapidly growing demands, particularly in the U.S. wire and
cable market. Plans for completion of capacity increases in late 1997 involve
products sold under the company's "Teflon" trademark. Demand for high-
performance Category 5 wire insulation, which is typically specified in local
area network (LAN) installations in U.S. markets, is driving a substantial
portion of the growth. "Teflon" offers superior electrical properties for use in
LAN insulation.
1994 Versus 1993
Segment sales of $6.3 billion increased 8 percent from 1993 and, after adjusting
for businesses divested in 1993, were up 12 percent. This results from 13
percent higher sales volume, with increases in all regions, partly offset by 1
percent lower selling prices.
After-tax operating income (ATOI) was $717 million, up 305 percent. This
reflects significantly improved results for engineering polymers, packaging and
industrial polymers, elastomers, fluoroproducts and automotive products.
Excluding nonrecurring items from both years, earnings were $706 million, up 108
percent from $340 million
Polymers*
[CHART APPEARS HERE]
Sales ($ in Billions)
1992 5.9
1993 5.9
1994 6.3
ATOI ($ in Millions)
1992 318
1993 177
1994 717
* See Industry Segment Information (Note 30 to Financial Statements.)
earned in 1993. This reflects higher sales volume and lower costs among most
businesses, with earnings from the European region nearly four times greater
than in the prior year.
1993 Versus 1992
Sales increased less than 1 percent, as a 5 percent worldwide volume increase
was nearly offset by lower prices, principally resulting from currency exchange
effects of the stronger dollar. ATOI was down 44 percent, reflecting higher
restructuring costs. Excluding nonrecurring items, 1993 ATOI was $340 million,
even with 1992. This reflected earnings gains in the United States, principally
from automotive businesses, offset by lower earnings in Europe and Canada.
Outlook
Future success for Polymers will depend on continued growth, improved
productivity and reduction of fixed costs. Profitability has improved over the
last three years and earnings have grown fivefold since 1991, while revenue
increased 14 percent in the same period. The primary growth region will be Asia
Pacific, and Polymers businesses are well-positioned to be major players in
that growth. It is expected that North American automobile markets will grow at
a slower rate than experienced over the last few years, making it critical to
achieve success in regions outside the United States.
21
Petroleum operations are carried out through Conoco, and range from exploring
for crude oil and natural gas to marketing finished products. The "upstream"
part of the business finds, develops and produces oil and gas, and processes
natural gas to recover higher-value liquids that are sold separately. The
"downstream" part of the business refines crude oil and other feedstocks to
produce high-quality fuels, lubricants and other products. These are sold to
customers primarily in the United States and Europe, and more recently in the
Asia Pacific region. Downstream also produces intermediates for use as chemical
feedstocks, and a wide range of specialty products such as petroleum coke and
lubricating oils for commercial and industrial customers worldwide.
Within an environment that is highly competitive, Conoco is focusing on three
basic strategies: maintaining healthy core businesses while reducing operating
costs; selectively expanding its existing businesses; and developing new
businesses where it sees opportunities for profitable growth. More than ever
before, it is pursuing these strategies through productive linkages with
partners, customers and suppliers.
During 1994, Conoco further directed its existing operations to concentrate on
core geographic areas where it can maintain a competitive cost position. In
exploration and production operations, an aggressive ongoing portfolio
optimization program resulted in the sale or exchange of interests in a number
of nonstrategic producing properties worldwide, including the declining Hutton
and Murchison oil fields and the Anglia gas field in the North Sea. In return,
Conoco increased access to future production in highly desirable oil and gas
producing areas. Significant acquisitions included additional interests in two
giant North Sea fields--the undeveloped Britannia gas and condensate field and
the Anglo-Norwegian Statfjord field--and in the Elk Basin oil field in Wyoming.
Concentrating activities within strategic core areas also helped Conoco lower
its upstream overhead and operating costs more than 7 percent during the year.
Since 1991, it has
22
increased upstream earnings per barrel by 14 percent, despite a $4.00-per-barrel
drop in average crude oil prices during the period.
New production also contributed to the company's earnings. Offshore Indonesia,
the third platform in the Belida development came onstream on schedule and under
budget in August. In the U.K. North Sea, the partner-operated Alba oil field and
Galleon gas field both came onstream during the year.
Overall, refining operations processed record volumes of feedstock while
responding to increasingly stringent environmental requirements. New products,
including reformulated gasoline, were introduced to meet U.S. Clean Air Act
Amendment provisions effective January 1995. In U.S. marketing, focused
strategies enabled Conoco to increase higher-margin branded sales 9 percent
during 1994--triple the industry's average volume growth.
Conoco also took important steps to expand its businesses. During the year it
announced a joint venture with Pennzoil to produce high-quality base oils, the
feedstock from which finished lubricating oils are made. Construction is under
way adjacent to Conoco's Lake Charles, Louisiana, refinery on a $500 million
lube oil hydrocracker that will enable the company to process low-cost sour
crude into a base oil of higher quality than that obtained through traditional
solvent extraction processes. When the venture begins production in 1997, it is
projected to be the lowest-cost manufacturer of base oils in the United States.
In western Europe, Conoco continues to expand its highly efficient retail
operations, which include over 2,400 stations in 13 countries. During 1994
Conoco partnered with Saras, an Italian refining company, to open the first
"Jet" stations in Spain. Plans are to build a network of 100 stations across
northern Spain by the year 2000. In Germany, Conoco has extended operations into
the eastern part of the country with 43 "Jet" stations, predominantly high-
quality, high-volume sites that offer a rapid payback on the original
investment. We are also building new markets in the Czech Republic, Poland and
Hungary. At the end of 1994, the company had a total of 32 retail stations in
these three countries, and sales volumes are expected to double during 1995.
Conoco is currently negotiating to acquire refining capacity in the Czech
Republic.
As Conoco strengthened its position in existing markets, the company invested
for growth in additional areas of the world. In Russia, the joint venture with
Arkhangelskgeologia celebrated first oil in August from the Ardalin field inside
the Arctic Circle. This history-making event, the first new field development by
a Russian-Western partnership, has opened opportunities for further investment
in Russia's oil-rich northern areas.
Off the coast of Norway, construction of the massive Heidrun oil platform is
nearing completion. This $3.5 billion project, of which the Norwegian state oil
company is the majority interest holder, is a monumental technological
undertaking, involving the development by Conoco of the world's first tension
leg platform constructed from concrete. Operations are on schedule for first oil
in August 1995. At its peak, the Heidrun field will produce more than 200,000
barrels of oil per day.
Also in 1995, production will begin from the Ganymede and Callisto gas fields
offshore the United Kingdom.
Conoco has significantly increased its emphasis on the growing natural gas
market in both Europe and North America. In the North Sea, it raised its
interest in the giant Britannia gas field to more than 42 percent. Britannia,
with estimated recoverable reserves of 2.5 trillion cubic feet of natural gas
and 140 million barrels of condensate and natural gas liquids, is the largest
known undeveloped field in the U.K. North Sea. In December, the U.K. government
granted approval
23
for joint development of the Britannia field to Conoco and Chevron in a unique
partnership agreement (see page 22*). Production is scheduled to begin in 1998.
Also in December, Conoco signed an agreement to participate in Interconnector, a
natural gas pipeline linking the U.K. market with continental Europe. When it is
completed, this pipeline will allow Conoco to export gas produced offshore the
United Kingdom to continental European gas markets, creating attractive
opportunities for further growth.
In North America, 80 percent of Conoco's exploratory wells now have natural gas
objectives. During 1994, successful discoveries were made in the Val Verde Basin
of West Texas, the San Juan Basin of New Mexico and the Basing field in Alberta,
Canada. Conoco also obtained interests in gas properties in Wyoming's Green
River Basin.
The company has also been highly successful in identifying new natural gas
reserves associated with coal fields. Conoco is one of the few companies with
the expertise and resources to produce coalbed methane on a global basis.
Building on experience in the United States, where Conoco has partnered with the
company's coal joint venture, CONSOL Energy Inc., to extract coalbed methane in
the Appalachian Mountains, in 1994 the company began exploration in France,
Germany, and Australia.
Downstream, Conoco is rapidly building a presence in the fast-growing Asia
Pacific market. It has opened 27 retail outlets in Thailand in less than two
years, and plans to continue expanding at a rate of up to 25 new stations a
year.
Over the next 10 years, Conoco expects the Asia Pacific market will become a
major region for its downstream business. To support this growth, in November
Conoco signed an agreement for a joint venture with Petronas, the Malaysian
national oil company, to construct and operate a 100,000-barrel-per-day high-
conversion refinery, which will be complete in late 1997.
1994 Versus 1993
Sales of $16.8 billion for the year were up 7 percent compared to 1993 due to
increased U.S. refinery production and higher excise taxes, which are included
in revenues. Lower worldwide crude oil prices and natural gas prices in the
United States held down this increase. Earnings of $680 million were down 16
percent from $812 million in the prior year. 1994 earnings included a net charge
of $26 million as a result of a $127 million international tax benefit offset by
a $95 million write-down of North Sea oil properties to be sold, and $58 million
for employee separation costs. 1993 earnings included a $230 million benefit due
to tax law changes, partly offset by property dispositions and restructuring
charges of $161 million. After adjusting for these nonrecurring items, earnings
were $706 million in 1994, down 5 percent from $743 million in 1993.
Upstream earnings were $483 million, down $26 million or 5 percent from $509
million in 1993. After adjusting for nonrecurring items, 1994 earnings were a
record $471 million, up 7 percent from the previous year, despite lower
worldwide crude oil prices. Lower costs, net benefits associated with portfolio
restructuring programs and higher natural gas liquid margins all contributed to
these record results.
Worldwide crude oil, condensate and natural gas liquids production was 436,000
barrels per day for the year compared with 434,000 barrels per day in 1993. The
net realized crude oil price averaged $15.10 per barrel, down 5 percent compared
with $15.96 in 1993. Worldwide natural
* This information is not incorporated by reference in this Report.
24
gas production for the year was 1,347 million cubic feet per day, up 3 percent
from 1993. Natural gas prices averaged $2.11 per million cubic feet in 1994,
down 3 percent from the prior year.
Downstream earnings were $197 million compared with $303 million in 1993.
Excluding nonrecurring items, 1994 earnings of $235 million were $67 million or
22 percent below 1993, primarily due to the fourth quarter's performance, which
was $84 million below last year. The weaker fourth quarter results were mainly
due to low downstream margins in the United States and Europe and downtime at
our three largest refineries related to maintenance programs in the United
Kingdom and Oklahoma and a major accident in Lake Charles, Louisiana. All
producing units at these refineries were fully operational by year end. Despite
the equipment downtime, U.S. refinery production was up from the prior year.
Total feedstocks processed increased 3 percent in 1994 to 696,000 barrels per
day, while worldwide product sales of 931,000 barrels per day were up 6 percent
from the prior year.
1993 Versus 1992
Sales were down slightly from 1992 while earnings were up 141 percent on lower
costs, higher production volumes and a lower overall effective tax rate. 1993
operating
Petroleum*
[CHART APPEARS HERE]
Sales ($ in Billions)
1992 16.1
1993 15.8
1994 16.8
ATOI ($ in Millions)
1992 337
1993 812
1994 680
*See Industry Segment Information (Note 30 to Financial Statements.)
income included a net benefit of $230 million due to tax law changes partly
offset by property dispositions and restructuring charges of $161 million, while
1992 income included a restructuring charge of $96 million. Excluding these
nonrecurring items, 1993 earnings of $743 million were up 72 percent from $433
million in the prior year.
Outlook
Worldwide demand for energy is projected to grow slowly over the near term. This
will limit upward movement in prices and margins, although both are expected to
remain subject to considerable volatility. Conoco's focus on improving the
profitability of its core businesses while investing in strategic areas for
growth should position the company well for continued earnings improvement in
this highly competitive environment.
25
Agricultural Products
Sales growth continued across all regions, particularly in the United States,
where use of "Accent" post-emergent corn herbicide gained broad acceptance. In
Europe, "Titus" corn herbicide and "Classic" herbicide for soybeans were also
widely used. Late in the year, U.S. registration for the post-emergent corn
herbicide "Basis" was received. "Basis" is yet another product in a wide array
of high-value new products which are developed for specific agricultural
applications. Innovation in packaging also continues with the objective of
reducing exposure to the farmer or applicator. There is an ongoing effort to
improve the convenience, safety and environmental capability of products. Water
soluble packets made of new polyvinyl alcohol film, a package that dissolves
completely in about a minute when placed in water, reduces worker exposures and
simplifies disposal.
Electronic Materials
Electronic Materials performance improved with market share gains and increased
demand for products. Both sales and earnings were at record levels. DuPont was
one of only two U.S. companies selected to participate in the NHK (Japan
Broadcasting Co.) consortium, which will design and develop high-definition
television. Commercial introduction of this TV will coincide with the 1998
Winter Olympics scheduled in Nagano, Japan. DuPont will partner with Shanghai
Precision Photomask Corporation Ltd. in a
26
joint venture to manufacture advanced photomasks that are an essential element
in the production of semi-conductor devices used in high-technology electronic
equipment. The new venture will contribute to the rapid growth of China's
electronics industry. The new plant is expected to begin operations in 1996. In
printed circuit materials, "Riston" photoresists are in record demand. Also,
"Pyralux" PC, a one-of-a-kind photo imagable coverlay for flexible circuit board
manufacture, was introduced.
Films
Films performance was strong in all major markets and regions. In revenue
growth, Asia Pacific was more than 20 percent better. All businesses are driven
by excellent customer satisfaction results. Fifteen percent of revenue was from
new products introduced over the past three years. Late in the year the "Mylar"
polyester film line in Circleville, Ohio, was converted to a new product
development facility to accelerate growth opportunities in polyester films.
Capacity utilization was high for "Mylar" and PET Resins and Chemicals. Teijin-
DuPont Films, a 50/50 joint venture, successfully started up polyester polymer
and audio/video film facilities in the United States.
Medical Products
Medical Products focused on programs to maximize sales in a soft worldwide
health care market, while continuing to reduce costs. We continued to expand our
share among U.S. hospital groups by leveraging a unique combination of DuPont
resources and core competencies to help customers reduce total operating costs.
Product introductions included the new "LINX" remote review diagnostic imaging
system, the "aca" Star and the "Dimension" XL blood chemistry analyzers, and a
variety of new centrifuge and detection products for life science research. The
DuPont Merck Pharmaceutical Company experienced another year of significant
earnings growth and recently received FDA clearance to market "ReVia" for the
treatment of alcoholism (see page 26*), and "Neurolite" for brain imaging.
Printing and Publishing
Printing and Publishing continued to focus on manufacturing and product
revitalization while continuing to drive for sales growth and reduced cost.
Significant sales gains were recorded in the proofing and packaging product
lines and in particular the Latin American and Asia Pacific markets. Graphic
arts operations benefited from consolidation at Neu Isenburg, Germany, and
world-class manufacturing facilities were completed at Leeds, England, for
offset plates and at Towanda, Pennsylvania, for proofing products. Key products
introduced were new "Crosfield" workstations for electronic imaging,
"Waterproof" proofing systems and "Silverlith" direct-to-plate systems.
Advertising, direct marketing and promotional materials, which are the lifeblood
of the printing and publishing industry, were cut substantially during the
economic downturn. Now with economic recovery, printing and publishing is seeing
an upturn in its business.
CONSOL
CONSOL Energy Inc., a coal operations joint venture owned 50 percent by DuPont,
showed substantially improved results in 1994. Although high-sulfur coal
continued to be depressed, overall coal demand was strong following strikes by
the United Mine Workers which affected results in much of 1993. Improved demand
and the effects of a full year of operation of mines acquired from Island Creek
Coal Inc. resulted in record production and sales for coal operations.
1994 Versus 1993
Sales of $5.7 billion were 5 percent over 1993 after adjusting for the absence
of the sporting goods business which was sold last year. Sales volume was up 7
percent, while average prices were down about 2 percent. Sales were up across
all regions with the largest percentage gain coming from South America, where
sales improved 27 percent. After-tax operating income (ATOI) was $623 million as
compared with a loss of $407 million in 1993.
* This information is not incorporated by reference in this Report.
27
1993 results included significant nonrecurring charges principally for
restructuring costs which were partly offset by gains from the sale of the
Remington Arms Company. Costs were incurred for reorganization of plant
operations, write-off of intangibles in printing and publishing and additional
charges taken for product liability and legal expenses related to the "Benlate"
DF 50 fungicide recall. Excluding nonrecurring items from both years, ATOI was
$676 million versus $238 million earned last year. This reflects higher sales
and lower costs in agricultural products, better pharmaceutical results and
significantly higher coal earnings compared to last year, which were adversely
affected by strikes.
1993 Versus 1992
Sales were 7 percent lower, reflecting the absence of sales from the divested
connectors business. Selling prices were 2 percent lower, reflecting higher
prices in the United States more than offset by lower prices in other regions,
reflecting the stronger dollar. Excluding nonrecurring items and the coal
results from both years, earnings were up 146 percent attributable to increases
in agricultural products earnings and better results from films and printing and
publishing.
Diversified Businesses*
[CHART APPEARS HERE]
Sales ($ in Billions)
1992 6.2
1993 5.7
1994 5.7
ATOI ($ in Millions)
1992 (49)
1993 (407)
1994 623
*See Industry Segment Information (Note 30 to Financial Statements).
Outlook
The outlook for Diversified Businesses will continue to largely depend on the
success of agricultural products, which itself depends to some extent on weather
and other variable conditions around the world. Agricultural Products is
positioned to serve growing market needs with a broad array of products which
are becoming increasingly widely accepted. Other businesses in this segment
continue with plans to increase market share and improve productivity while
paying attention to holding the line on cost increases. The pricing environment
continues to be more favorable and pricing increases are expected to be a
positive factor in results for 1995.
28
__ Financial Information
30 Management's Discussion and Analysis
37 Responsibilities for Financial Reporting
38 Report of Independent Accountants
Financial Statements:
39 Consolidated Income Statement
40 Consolidated Balance Sheet
41 Consolidated Statement of Stockholders' Equity
42 Consolidated Statement of Cash Flows
43 Notes to Financial Statements
64 Supplemental Petroleum Data
71 Quarterly Financial Data
72 Consolidated Geographic Data
73 Five-Year Financial Review
29
Management's Discussion and Analysis
This review and discussion of financial performance should be read in
conjunction with the letter to stockholders (pages 1-4),business reviews (pages
16-28) and the consolidated financial statements (pages 39-63).
Analysis of Operations
Sales
Sales in 1994 were $39.3 billion, up 6 percent from 1993. Petroleum segment
sales increased 7 percent, while the combined chemicals and specialties
segments of Chemicals, Fibers, Polymers and Diversified Businesses were up 6
percent. The chemicals and specialties segments sales increase was 8 percent
after adjusting for businesses acquired and divested, reflecting 9 percent
higher sales volume, with improvements in every region. Europe was
particularly strong, with sales volume up 14 percent, reflecting the economic
recovery in that region. Selling prices, while trending upward in 1994, still
averaged 1 percent below average 1993 levels. Full-year currency effect on
1994 average prices versus 1993 was negligible.
Sales in 1993 were $37.1 billion, 2 percent below 1992, reflecting 2
percent reductions for the combined chemicals and specialties segments and for
the petroleum segment. Lower sales were principally due to lower prices, largely
the result of adverse exchange effects from a stronger dollar, partly offset by
higher volume.
Earnings
Net income in 1994 was $2,727 million, or $4.00 per share, compared to $555
million, or $.81 per share, in 1993. Results in 1993 included nonrecurring
items--principally for restructuring, write-down of intangible assets,
product liability charges, asset sales and benefits from tax law
changes--which totaled a net charge of $1.65 per share. For similar
nonrecurring items in 1994, the total net charge was $.07 per share.
Excluding these charges from both years, 1994 net income was $2,775 million,
or $4.07 per share, versus $1,677 million, or $2.46 per share, in 1993, up 65
percent. This increase principally reflects improvements in the chemicals and
specialties segments from higher sales volume, lower fixed costs and a
slightly lower tax rate. The coal business improved, reflecting a full year
of normal operations, as compared to prior year results, which had been
adversely affected by United Mine Workers strikes. Petroleum segment earnings
were lower, principally reflecting reduced downstream worldwide refined
product margins and the adverse impact of refinery downtime, partly offset by
better results in upstream operations.
Net income in 1993 was $555 million, or $.81 per share, compared with a
loss of $3,927 million, or $(5.85) per share, in 1992. Excluding tax benefits in
1993, nonrecurring and extraordinary items from both years and one-time charges
in 1992 for the adoption of new accounting standards, 1993 earnings were $1,677
million, or $2.46 per share, 25 percent higher than the $1,341 million, or $1.98
per share, earned in 1992. The improvement principally resulted from higher
petroleum segment earnings from lower costs and increased production outside the
United States, partly offset by lower coal results, which were impaired by
strikes.
Taxes ($ in millions)
- --------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------
Income tax expense $1,655 $392 $836
Effective income tax rate (EITR) 37.8% 40.9% 46.2%
================================================================================
Over the last three years, the company's EITR exceeded the U.S. statutory rate
of 35 percent in 1994 and 1993 and 34 percent in 1992, principally because of
the higher tax rates associated with petroleum production operations outside the
United States. The 1994 EITR decreased about 3 percentage points from the prior
year, reflecting a lower EITR for the chemicals and specialties segments and a
lower proportion of higher-taxed petroleum earnings to total company earnings.
The decrease in the 1993 EITR versus 1992 reflected a lower effective tax rate
in Petroleum operations and a $265 million tax benefit, principally arising from
U.K. Petroleum Revenue Tax law revisions, partly offset by an increased
proportion of higher-taxed petroleum earnings.
The company paid total taxes of $7.5 billion in 1994, compared to $6.4
billion in 1993 and $6.6 billion in 1992. 1994 total tax payments were higher
than 1993, reflecting higher taxes on income and higher gas and oil excise
taxes. Tax payments in 1993 were less than 1992, reflecting lower income taxes.
30
Management's Discussion and Analysis
Restructuring
In 1993, restructuring was aimed at improving competitiveness in global
markets and focus on the customer. This included plans to eliminate
approximately 10,900 positions worldwide and to reduce large internal
business sectors in favor of smaller, more responsive, strategic business
units. The 1993 pretax charge to earnings for these business restructuring
activities was $1.6 billion. At year-end 1994, restructuring reserve balances
are about $300 million, approximately two-thirds of which will be paid during
1995. As this program is concluded, these future cash payments are not
expected to have a material impact on the company's liquidity. Additional
details on these restructuring charges are set forth in Note 6 to the
financial statements.
It is estimated that 1994 operating results included about $450 million in
pretax savings related to restructuring activities that have been completed.
Evaluation of the need for additional restructuring is ongoing and is made in
conjunction with corporate strategies to build and maintain globally competitive
businesses. However, requisite across-the-board downsizing is believed to be
complete, and no additional restructuring costs of the magnitude experienced in
recent years are anticipated.
Cash Flows and Financial Condition
During the past three years, cash provided by operations was the primary
source of funding for the company's capital investment programs and
dividends. Cash flow in excess of these needs was used to reduce borrowings.
Cash Provided by Operations
Cash provided by operations totaled $5.7 billion in 1994, about $300 million
more than in 1993. In substance, the increase was the result of higher net
income partly offset by higher cash payments for restructuring. As shown on
the Consolidated Statement of Cash Flows, net income in 1994, adjusted for
noncash charges and credits, was up $1.3 billion over that of 1993. Noncash
charges in 1993 included asset write-downs and write-offs as part of that
year's restructuring program. In 1993, the net change in operating assets and
liabilities resulted in an inflow of more than $900 million, reflecting
higher current liabilities, principally due to restructuring charges and
reduced inventories and accounts receivable. Cash provided by operations in
1993 totaled $5.4 billion, up $1.0 billion from 1992, reflecting higher net
income, excluding restructuring charges, and lower working capital.
Capital Expenditures
Capital expenditures of $3.1 billion in 1994, including investments in
affiliates, were 15 percent below the prior year's level. Capital
expenditures of $3.7 billion in 1993 were 19 percent lower than in 1992.
Lower capital expenditures in recent years result from a more focused and
rigorous approach to spending capital, combined with the implementation of
engineering and design practices that have significantly improved capital
productivity.
In the Petroleum segment, capital expenditures were $1.6 billion,
essentially equal to the 1993 level. The most significant Petroleum expenditures
in 1994 were for the continued development of the Heidrun field in Norway and
the Belida field in Indonesia, the acquisition of an additional interest in the
Britannia field in the United Kingdom and for an improvement at the Billings
refinery to comply with the U.S. Clean Air Act.
For other segments, capital spending in 1994 continued to concentrate on
strengthening and growing strategic businesses outside the United States. This
included projects for "Adi-Pure" adipic acid and "Zytel" engineering polymers in
Singapore, THF/"Terathane" polyether glycol in Spain and "Tyvek" spun-bonded
products in Luxembourg. In the United States, significant expenditures were also
made for commercialization of CFC alternatives and for modernization of "Dacron"
polyester and "Tyvek" spunbonded products facilities. Improvement projects
mainly concentrated on enhancing the efficiency and yields of existing
refineries and manufacturing facilities.
Capital expenditures are expected to increase to $3.6 billion in 1995, to
take advantage of growth opportunities.
31
Management's Discussion and Analysis
Proceeds From Sales of Assets
Proceeds from sales of assets were $432 million in 1994, versus $1.2 billion
in 1993 and $179 million in 1992. In 1994, $212 million came from the sale of
petroleum properties, none individually significant, and the balance
principally from sales of the "Sclair," Petroleum Additives and "Selar"
businesses. Principal proceeds in 1993 were $270 million from connector
systems, $280 million from acrylics and $300 million from the sale of the
Remington Arms Company.
Dividends
Dividends per share of common stock in 1994 were $1.82, versus $1.76 in 1993
and $1.74 in 1992. The regular quarterly dividend was increased from $.44 per
share to $.47 per share in the third quarter of 1994. The common stock
dividend payout in relation to cash provided by operations was 22 percent in
1994 and 1993, as compared to 27 percent in 1992.
Borrowings
Borrowings at year-end 1994 were $7.6 billion, as compared to $9.3 billion
and $10.9 billion in 1993 and 1992, respectively. Improved cash flow during
1994, principally due to higher cash flow provided by operations and lower
capital expenditures, was used to reduce borrowings by $1.7 billion. As a
result, the debt ratio* at year-end 1994 was 37 percent, versus 45 percent in
1993.
Working Capital Investment
Working capital investment (excluding cash and cash equivalents, marketable
securities, short-term borrowings and capital lease obligations) increased
about $700 million in 1994, principally due to accounts receivable and
inventory increases related to the exchange effect of a weaker dollar and a
decrease in other accrued liabilities resulting from cash payments for
"Benlate" DF 50 fungicide settlements and restructuring. These increases in
investment were partially offset by higher accounts payable and a decrease in
deferred tax asset balances as tax benefits were realized during the year. In
1993, working capital investment decreased $1.1 billion, reflecting lower
inventories and accounts receivable and higher current liabilities, which
increased principally due to the 1993 restructuring charge.
The ratio of current assets to current liabilities, including cash and
cash equivalents, marketable securties, short-term borrowings and capital
lease obligations, at year-end 1994 was 1.5:1, as compared to 1.2:1 in 1993
and 1992.
Financial Instruments
Derivatives and Other Hedging Instruments
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. The company is exposed to credit loss in the event
of nonperformance by these counterparties. The company manages this exposure to
credit loss 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. Procedures are in place to regularly monitor and report
to management the market and counterparty credit risks associated with these
instruments.
Foreign Currency
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.
- -------------------------
*Total short- and long-term borrowings and capital lease obligations divided by
the sum of these amounts plus stockholders' equity and minority interests in
consolidated subsidiaries.
32
Management's Discussion and Analysis
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.
Interest Rates
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 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 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.
Commodity Hedges and Trading
The company enters into exchange-traded and over-the-counter 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.
Commodity trading in petroleum futures contracts is a natural extension
of cash market trading and is used to physically acquire about 15 percent of
North America 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 (30-60 days) 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 futures contracts reduces the effects of price volatility, thereby
protecting against adverse short-term price movements, while limiting,
somewhat, the benefits of favorable short-term price movements.
33
Management's Discussion and Analysis
From time to time, on a limited basis, the company also purchases and
sells petroleum-based futures contracts for trading purposes. After-tax
gain/loss from such trading has not been material.
Additional details on these and other financial instruments are set forth
in Note 27 to the financial statements.
Environmental Matters
The company operates about 150 manufacturing facilities, five petroleum
refineries, 20 natural gas processing plants and numerous product-handling
and distribution facilities around the world, all of which are significantly
affected by a broad array of laws and regulations relating to the protection
of the environment. It is the company's policy to comply fully with or to
exceed all legal requirements worldwide. In addition, since some risk to the
environment is associated with the company's operations, as it is with other
companies engaged in similar businesses, voluntary programs are in place to
minimize that risk. These programs are designed to reduce air emissions,
curtail the generation of hazardous waste, decrease the volume of wastewater
discharges and improve the energy efficiency of operations. The cost of
complying with increasingly complex environmental laws and regulations, as
well as the company's own internal programs, is significant, and will
continue to be so for the foreseeable future, but is not expected to have a
material impact on the company's competitive or financial position. The
enactment of broader or more stringent environmental laws or regulations in
the future, however, could lead to an upward reassessment of the potential
environmental costs provided below.
New waste treatment facilities and pollution control and other equipment
are routinely installed to satisfy both legal requirements and the company's
waste elimination and pollution prevention goals. About $400 million was
spent for capital projects related to environmental requirements and company
goals in 1994. The company currently estimates expenditures for
environmental-related capital projects will total about the same in 1995. The
company anticipates 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 1990 Amendments to the Clean Air
Act (CAA). For example, environmental capital costs in 1993 and 1994 related
to the CAA Amendments included expenditures in the Petroleum segment to meet
federal requirements for reformulated gasoline/clean fuels, and additional
environmental capital expenditures are anticipated for plant air emission
controls, primarily in the Chemicals and Petroleum segments. Although
considerable uncertainty will remain with regard to future estimates of
capital expenditures until all new CAA regulatory requirements are known,
related capital costs over the next two years are currently estimated to
total approximately $20 million.
Estimated pretax environmental expenses charged to current operations
totaled about $950 million in 1994, as compared to $1 billion in 1993 and
$900 million in 1992. These expenses included the remediation accruals
discussed below, operating, maintenance and depreciation costs for solid
waste, air and water pollution control facilities and costs incurred in
conducting environmental research activities. The largest of these expenses
resulted from the operation of water pollution control facilities and solid
waste management facilities, each of which accounted for about $200 million.
About 75 percent of total annual expenses resulted from the operations of the
company's Chemicals, Fibers, Polymers and Diversified Businesses segments in
the United States, primarily the Chemicals and Polymers segments. Expenses
are expected to increase over the next several years as a result of
additional operating costs associated with new pollution prevention and
control equipment.
Remediation Accruals
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA, often referred to as Superfund) and the Resource Conservation and
Recovery Act (RCRA) both require that the company undertake certain
remediation activities at sites where the company conducts or once conducted
operations or
34
Management's Discussion and Analysis
at sites where company-generated waste was disposed. DuPont accrues for those
remediation activities when it is probable that a liability has been incurred
and reasonable estimates can be made. Accrued liabilities are exclusive of
claims against third parties and are not discounted. During 1994 the company
accrued $185 million for environmental remediation activities, compared to $183
million and $160 million in 1993 and 1992, respectively. At December 31, 1994,
the company's balance sheet included an accrued liability of $616 million as
compared to $522 million and $465 million at year-end 1993 and 1992,
respectively. Approximately 75 percent of the company's environmental accrual is
attributable to RCRA and similar remediation liabilities and 25 percent to
CERCLA liabilities. Expenditures for such previously accrued remediation
activities were $91 million in 1994, $126 million in 1993 and $121 million in
1992.
The company's assessment of the potential impact of these two principal
remediation statutes is subject to considerable uncertainty due to the
complex, ongoing and evolving process of generating estimates of remediation
costs. The various stages of remediation include initial broad-based analysis
of a site, on-site investigation, feasibility studies to select from among
various remediation methods, approval by applicable authorities and, finally,
the actual implementation of the remediation plan. Remediation activities
occur over a relatively long period of time and vary in cost substantially
from site to site depending on the mix of unique site characteristics, the
development of new remediation technologies and the evolving regulatory
framework. The company's assessment of those costs is a continuous process
which takes into account the factors affecting each specific site. DuPont
Environmental Remediation Services, a wholly owned subsidiary, provides
technical capability to address the company's remediation needs in a
cost-effective manner, while protecting human health and the environment.
RCRA, as amended in 1984, provides for extensive regulation of the
treatment, storage and disposal of hazardous waste. The regulations currently
provide that companies seeking to periodically renew RCRA permits, or close
facilities with permits, must, as a condition of renewal or closure,
undertake certain corrective measures to remediate contamination caused by
prior operations. The RCRA corrective action program affects the company
differently than the CERCLA program in that the cost of RCRA corrective
action activities is typically borne solely by the company. The company
anticipates that significant ongoing expenditures for RCRA corrective actions
may be required over the next two decades. 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, perhaps between
$50 million and $300 million in any one year. The company's expenditures
associated with RCRA and similar remediation activities were approximately
$70 million in 1994, $90 million in 1993 and $103 million in 1992.
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 equivalent state legislation. In
addition, the company has on occasion been made a party to cost recovery
litigation by those agencies. These requests, notices and lawsuits assert
potential liability for remediation costs of various waste treatment or
disposal sites that are not company owned but allegedly contain wastes
attributable to the company from past operations. As of December 31, 1994,
the company was aware of potential liability under CERCLA or state laws at
about 310 sites around the United States. The CERCLA or state remediation
process is actively under way at one stage or another at about 145 of those
sites. In addition, the company has resolved its liability at 48 sites,
either by completing necessary remedial actions with other PRPs or by
participating in "de minimis buyouts" with other PRPs whose waste, like the
company's, only represented a small fraction of the total waste present at a
site.
35
Management's Discussion and Analysis
The company's expenditures associated with CERCLA or state remediation
activities were approximately $21 million in 1994, $36 million in 1993 and $18
million in 1992. Over the next decade the company may incur significant costs
under CERCLA. Considerable uncertainty exists with respect to these costs, and
under the most adverse circumstances potential liability may exceed amounts
accrued as of December 31, 1994. The company's share of the remediation cost at
these sites in many instances cannot be precisely estimated due to the large
number of PRPs involved, the scarcity of reliable data pertaining to many of
these sites, uncertainty as to how the laws and regulations may be applied to
these sites and the multiple choices and costs associated with diverse
technologies that may be used in remediation. For most sites, the company's
potential liability will be significantly less than the total site remediation
costs because the percentage of material attributable to the company versus that
attributable to other PRPs is relatively low. There are a few sites where the
company is a major participant, but 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. The process of estimating CERCLA remediation costs, the financial
viability of other PRPs and the PRPs' respective shares of liability is ongoing.
Often these estimates are performed by third parties and, thus far, have not
been subject to material uncertainty or dispute. Moreover, 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 certain PRPs cannot be located, the
company's own share of liability has not materially increased. The company's
general experience has been that, in most cases, its share of estimated costs at
any given site has trended downward as this process has matured.
Although future remediation expenditures in excess of current reserves
could be significant, the effect on future financial results is not subject to
reasonable estimation because considerable uncertainty exists as to the cost and
timing of expenditures. The company is actively pursuing claims against insurers
with respect to RCRA and CERCLA liabilities. Potential recoveries in this
litigation have not been offset against the accruals discussed above.
36
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 accounting controls at December 31, 1994 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 accounting controls to the
extent they deem necessary. Their report is shown on page 38. The adequacy of
the company's internal accounting 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/ Edgar S. Woolard, Jr.
Edgar S. Woolard, Jr.
Chairman of the Board
and Chief Executive Officer
/s/ Charles L. Henry
Charles L. Henry
Senior Vice President
DuPont Finance
and Chief Financial Officer
February 16, 1995
37
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 39-63
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, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, 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.
As discussed in Note 1 to the consolidated financial statements, the
company changed its method of accounting for postretirement benefits other than
pensions and for income taxes in 1992.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 16, 1995
38
Financial Statements
E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Income Statement
(Dollars in millions, except per share)
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
Sales* $39,333 $37,098 $37,799
Other Income (Note 2) 926 743 553
-----------------------------
Total 40,259 37,841 38,352
-----------------------------
Cost of Goods Sold and Other Operating Charges (Notes 3 and 12) 21,977 21,624 22,046
Selling, General and Administrative Expenses 2,888 3,081 3,553
Depreciation, Depletion and Amortization 2,976 2,833 2,655
Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties 357 361 416
Research and Development Expense 1,047 1,132 1,277
Interest and Debt Expense (Note 4) 559 594 643
Taxes Other Than on Income* (Note 5) 6,215 5,423 5,476
Restructuring (Note 6) (142) 1,621 475
Write-Down of Intangible Assets (Note 6) - 214 -
-----------------------------
Total 35,877 36,883 36,541
-----------------------------
Earnings Before Income Taxes 4,382 958 1,811
Provision for Income Taxes (Note 7) 1,655 392 836
-----------------------------
Income Before Extraordinary Item and Transition Effect of Accounting Changes 2,727 566 975
Extraordinary Charge from Early Extinguishment of Debt (Note 8) - (11) (69)
Transition Effect of Changes in Accounting Principles (Notes 1, 7 and 25) - - (4,833)
-----------------------------
Net Income (Loss) $ 2,727 $ 555 $(3,927)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock (Note 9)
Income Before Extraordinary Item and Transition Effect of Accounting Changes $ 4.00 $ .83 $ 1.43
Extraordinary Charge from Early Extinguishment of Debt (Note 8) - (.02) (.10)
Transition Effect of Changes in Accounting Principles (Notes 1, 7 and 25) - - (7.18)
-----------------------------
Net Income (Loss) $ 4.00 $ .81 $ (5.85)
=============================================================================================================================
*Includes petroleum excise taxes of $5,291, $4,477 and $4,508 in 1994, 1993 and
1992, respectively.
See pages 43-63 for Notes to Financial Statements.
39
Financial Statements
E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Balance Sheet
(Dollars in millions, except per share)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and Cash Equivalents (Note 10) $ 856 $ 1,109
Marketable Securities (Note 10) 253 85
Accounts and Notes Receivable (Note 11) 5,213 4,894
Inventories (Note 12) 3,969 3,818
Prepaid Expenses 259 231
Deferred Income Taxes (Note 7) 558 762
----------------------
Total Current Assets 11,108 10,899
----------------------
Property, Plant and Equipment (Note 13) 48,838 47,926
Less: Accumulated Depreciation, Depletion and Amortization 27,718 26,503
----------------------
21,120 21,423
----------------------
Investment in Affiliates (Note 14) 1,662 1,607
Other Assets (Notes 7 and 15) 3,002 3,124
----------------------
Total $36,892 $37,053
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable (Note 16) $ 2,734 $ 2,444
Short-Term Borrowings and Capital Lease Obligations (Note 17) 1,292 2,796
Income Taxes (Note 7) 409 321
Other Accrued Liabilities (Note 18) 3,130 3,878
----------------------
Total Current Liabilities 7,565 9,439
Long-Term Borrowings and Capital Lease Obligations (Notes 19 and 20) 6,376 6,531
Other Liabilities (Note 21) 8,438 8,200
Deferred Income Taxes (Note 7) 1,494 1,466
----------------------
Total Liabilities 23,873 25,636
----------------------
Minority Interests in Consolidated Subsidiaries 197 187
----------------------
Stockholders' Equity (see page 41)
Preferred Stock 237 237
Common Stock, $.60 par value; 900,000,000 shares authorized;
issued at December 31: 1994--681,004,944; 1993--677,577,437 408 407
Additional Paid-In Capital 4,771 4,660
Reinvested Earnings 7,406 5,926
----------------------
Total Stockholders' Equity 12,822 11,230
----------------------
Total $36,892 $37,053
===================================================================================================================================
See pages 43-63 for Notes to Financial Statements.
40
Financial Statements
E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Stockholders' Equity
(Dollars in millions, except per share)
- ---------------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------
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 $ 167
$3.50 Series--700,000 shares (callable at $102) 70 70 70
----------------------------
237 237 237
----------------------------
Common Stock (Notes 22 and 23), $.60 par value;
900,000,000 shares authorized; issued at December 31:
1994--681,004,944; 1993--677,577,437; 1992--675,008,236 408 407 405
Additional Paid-In Capital (Notes 22 and 23) ----------------------------
Balance at Beginning of Year 4,660 4,551 4,418
Common Stock Issued in Connection with Compensation Plans 111 109 133
----------------------------
Balance at End of Year 4,771 4,660 4,551
----------------------------
Reinvested Earnings
Balance at Beginning of Year 5,926 6,572 11,681
Net Income (Loss) 2,727 555 (3,927)
----------------------------
8,653 7,127 7,754
----------------------------
Preferred Dividends (10) (10) (10)
Common Dividends (1994--$1.82; 1993--$1.76; 1992--$1.74) (1,237) (1,191) (1,172)
----------------------------
Total Dividends (1,247) (1,201) (1,182)
----------------------------
Balance at End of Year 7,406 5,926 6,572
----------------------------
Total Stockholders' Equity $ 12,822 $ 11,230 $11,765
=====================================================================================================================
See pages 43-63 for Notes to Financial Statements.
41
Financial Statements
E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
- ---------------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------
Cash and Cash Equivalents at Beginning of Year $ 1,109 $ 1,640 $ 468
----------------------------
Cash Provided by Operations
Net Income (Loss) 2,727 555 (3,927)
Adjustments to Reconcile Net Income to Cash Provided by Operations:
Extraordinary Charge from Early Extinguishment of Debt (Note 8) - 11 69
Transition Effect of Accounting Changes (Notes 1, 7 and 25) - - 4,833
Depreciation, Depletion and Amortization 2,976 2,833 2,655
Dry Hole Costs and Impairment of Unproved Properties 152 201 185
Other Noncash Charges and Credits--Net (140) 843 (174)
Decrease in Operating Assets:
Accounts and Notes Receivable 30 103 104
Inventories and Other Operating Assets 19 664 219
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities (432) 686 907
Accrued Interest and Income Taxes (Notes 4 and 7) 332 (516) (483)
----------------------------
Cash Provided by Operations 5,664 5,380 4,388
----------------------------
Investment Activities (Note 24)
Purchases of Property, Plant and Equipment (3,050) (3,621) (4,448)
Investments in Affiliates (90) (70) (127)
Payments for Businesses Acquired (5) (409) -
Proceeds from Sales of Assets 432 1,160 179
Investments in Short-Term Financial Instruments--Net (379) (85) (70)
Miscellaneous--Net (41) (53) (87)
----------------------------
Cash Used for Investment Activities (3,133) (3,078) (4,553)
----------------------------
Financing Activities
Dividends Paid to Stockholders (1,247) (1,201) (1,182)
Net Increase (Decrease) in Short-Term Borrowings (517) (2,024) 2,310
Long-Term and Other Borrowings:
Receipts 824 1,806 2,976
Payments (2,032) (1,392) (2,711)
Common Stock Issued in Connection with Compensation Plans 94 67 86
----------------------------
Cash Provided by (Used for) Financing Activities (2,878) (2,744) 1,479
----------------------------
Effect of Exchange Rate Changes on Cash 94 (89) (142)
----------------------------
Cash and Cash Equivalents at End of Year $ 856 $ 1,109 $ 1,640
----------------------------
Increase (Decrease) in Cash and Cash Equivalents $ (253) $ (531) $ 1,172
=====================================================================================================================
See pages 43-63 for Notes to Financial Statements.
42
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.
Accounting Changes
In 1992, DuPont adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109, "Accounting for Income Taxes." The company
recorded charges to net income of $3,788 ($5.63 per share) and $1,045 ($1.55
per share), respectively, as of January 1, 1992 for the effects of transition
to these two new standards. See also Notes 7 and 25.
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 is generally classified in depreciable groups and depreciated
under the sum-of-the-years' digits method and other substantially similar
methods. Depreciation rates range from 4 percent to 12 percent per annum on
direct manufacturing facilities and from 2 percent to 10 percent per annum on
other facilities; in some instances appropriately higher or lower rates are
used. 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.
Beginning in 1995, nonpetroleum PP&E placed in service will be depreciated
using the straight-line method. This change in accounting principle is being
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 will conform to predominant industry practice.
Although the effect of this change on net income will be impacted by the level
of future capital spending, the change is not expected to have a material effect
on 1995 results.
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 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.
43
Notes to Financial Statements
(Dollars in millions, except per share)
Intangible Assets
Identifiable intangible assets such as purchased patents and trademarks are
amortized on a straight-line basis over their estimated useful lives.
Goodwill is amortized over periods up to 40 years on the straight-line
method. The company continually evaluates the reasonableness of its
amortization for 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.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value
of the property and/or mitigate or prevent contamination from future
operations.
Income Taxes
The provision for income taxes has been determined using the asset and
liability approach to accounting for income taxes. Under that 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 in cases in which earnings of foreign
subsidiaries 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
The company has determined that the U.S. dollar is the "functional currency"
of its worldwide operations. Foreign currency asset and liability amounts are
translated into U.S. dollars at end-of-period exchange rates, except for
inventories, prepaid expenses and property, plant and equipment, which are
translated at historical rates. Income and expenses are translated at average
exchange rates in effect during the year, except for expenses related to
balance sheet amounts that are translated at historical exchange rates. 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. Exchange gains and losses, net of their
related tax effects, are included in income in the period in which they
occur.
In addition, the company from time to time enters into forward exchange
contracts and similar agreements to effectively convert firm foreign currency
commitments to U.S. dollar-denominated transactions. Gains and losses on
these specific commitment hedges are deferred and included in the measurement
of the related foreign currency transactions.
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.
Interest Rate Swap Agreements
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.
Commodity Hedges and Trading
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. From time to time, on a limited basis, the company also
purchases and sells petroleum-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.
Reclassifications
Certain reclassifications of prior years' data have been made to conform to
1994 classifications.
44
Notes to Financial Statements
(Dollars in millions, except per share)
2. Other Income
- --------------------------------------------------------------------------
1994 1993 1992
-------------------------
Royalty income $ 95 $111 $118
Interest income, net of miscellaneous
interest expense 111 160 178
Equity in earnings of affiliates
(see Note 14) 361 121 216
Sales of assets 92 198 40
Miscellaneous income and
expenses--net 267 153 1
-------------------------
$926 $743 $553
==========================================================================
3. Fungicide Recall and Claims Provision
During 1991, the company initiated a stop-sale and recall of "Benlate" DF 50
fungicide. The company accrued $175, $200 and $212 in 1994, 1993 and 1992,
respectively, for estimated costs in excess of insurance coverage. The
related liability 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.
4. Interest and Debt Expense
- --------------------------------------------------------------------------
1994 1993 1992
-------------------------
Interest and debt cost incurred $703 $825 $860
Less: Interest and debt cost capitalized 143 194 194
Foreign currency adjustments* 1 37 23
-------------------------
$559 $594 $643
==========================================================================
* Represents exchange gains associated with local currency borrowings in
hyperinflationary economies. These amounts effectively offset the related
inflationary interest expense arising from currency devaluations.
Interest paid (net of amounts capitalized) was $598 in 1994, $614 in 1993 and
$611 in 1992.
5. Taxes Other Than on Income
- ---------------------------------------------------------------------------
1994 1993 1992
--------------------------
Petroleum excise taxes
(also included in Sales):
U.S. $1,049 $ 803 $ 709
Non-U.S. 4,242 3,674 3,799
Payroll taxes 424 443 459
Property taxes 202 201 201
Import duties 159 151 146
Production and other taxes 139 151 162
--------------------------
$6,215 $5,423 $5,476
================================================================================
6. Restructuring Charges and Write-Down of Intangible Assets
Restructuring charges are directly related to management decisions to reduce
worldwide employment levels and realign worldwide production and support
facilities in order to improve productivity and competitiveness. Charges
principally reflect employee separation costs, costs of shutting down certain
facilities and contract cancellation costs.
In the third quarter of 1993, the company recorded a restructuring charge
of $1,621. The principal component of this charge related to employee separation
costs of $665. This charge was for the involuntary and voluntary termination of
approximately 10,900 employees, and was based on plans that identified the
number of employees to be terminated, their functions and their businesses.
Substantially all of this charge was for estimated termination payments and
enhanced benefit costs for terminated employees. As of December 31, 1994, almost
9,000 employees have been terminated under this program and about $420 has been
settled and charged against the related $665 liability. In addition, during the
fourth quarter 1994, the restructuring reserve balance was reduced by $45
principally to reflect lower estimates for employee separation costs and a
reduction of about 500 in the number of employees to be terminated. As a result,
about $200 remains as a liability in the company's Consolidated Balance Sheet at
December 31, 1994. This $200 balance includes certain termination payments for
former employees that extend beyond December 31, 1994 under the terms of various
separation
45
Notes to Financial Statements
(Dollars in millions, except per share)
agreements, in addition to the liability for employees yet to be terminated. All
restructuring plans have been announced, and most of the remaining 1,400
employee terminations will be in Europe. The majority of these employees will be
terminated during 1995, and the program will be completed in 1997 concurrent
with the last plant closing.
The remaining portion of the restructuring charge, $956, is related to
asset write-downs and facility shutdowns, principally:
a) The decision to discontinue the manufacture of silver halide films in New
Jersey and to consolidate manufacturing at existing facilities in Germany
and North Carolina. A charge of $330 was recorded to fully reserve
discontinued facilities and to cover other costs directly associated with
manufacturing and product line rationalizations of the printing and
publishing business;
b) Write-downs of operating assets to be sold, specifically, certain North
American petroleum-producing properties. The petroleum properties were
written down by $233 to their estimated net realizable value, generally
based on their respective estimated selling prices;
c) The write-down of a polymers plant in Texas by $102 to its estimated net
realizable value. This charge covered the net book value of the facilities
and estimated dismantlement costs less estimated salvage proceeds since it
was uncertain at that time whether an appropriate buyer could be
identified. This plant was subsequently sold as discussed below;
d) Charges of $108 related to restructuring by an equity affiliate, write-off
of chlorofluorocarbon (CFC) manufacturing facilities in South America, and
contract cancellations; and
e) A write-off of $70 associated with rationalization of certain fibers
facilities in the United States, Europe and South America.
This portion of the restructuring, after 1994 adjustments described below, is
expected to be essentially completed in 1995. The related reserve balances at
year-end 1994 were about $100.
In the fourth quarter 1992, the company recorded charges of $475 for
termination incentives and payments, as well as certain other charges,
related to business restructuring. During 1994, an additional $25 charge was
recorded to reflect higher-than-projected employee termination costs. This
restructuring is complete.
Adjustments of 1993 Restructuring Charges
1994 earnings included a $167 benefit associated with several adjustments of
restructuring provisions established in September 1993. Revisions related to
asset write-downs and facility shutdowns totaled $122 and reflected
higher-than-anticipated proceeds from the disposal of a portion of a plant
previously written down, continuation of CFC operations in South America, at
the request of local government, to allow for an orderly transition to
alternative products, and further refinement of certain of the other items
reflected in the 1993 restructuring charge. In addition, an adjustment of $45
was made to reflect lower estimates for employee separation costs.
Write-Down of Intangible Assets
A charge of $214 was recorded in the third quarter 1993 for the write-down of
intangible assets (technology and goodwill) associated with a series of
acquisitions made by the printing and publishing business in 1989. Such
action was taken when it became probable that undiscounted future cash flows
would not be adequate to support carrying values. (See Note 1, "Intangible
Assets.")
46
Notes to Financial Statements
(Dollars in millions, except per share)
7. Provision for Income Taxes
Effective January 1, 1992, the company adopted SFAS No. 109, "Accounting for
Income Taxes." On adoption, the company recorded an increase in deferred tax
liabilities at January 1, 1992 and a charge to income of $1,045, principally
to provide deferred taxes for purchase business combinations consummated
prior to 1992 for which it was not practicable to adjust all remaining assets
and liabilities to pretax amounts. Total income taxes paid worldwide were
$1,344 in 1994, $896 in 1993 and $1,213 in 1992.
1994 1993 1992
- --------------------------------------------------------------------------------
Current tax expense:
U.S. federal $ 337 $ 321 $ 34
U.S. state and local 47 21 5
Non-U.S. 1,023 758 857
-------------------------------
Total 1,407 1,100 896
-------------------------------
Deferred tax expense:
U.S. federal 497 (486) (319)
U.S. state and local (55) (53) (35)
Non-U.S. (136) (198) 133
-------------------------------
Total 306 (737) (221)
-------------------------------
Other/1/ (58) 29 161
-------------------------------
Provision for Income Taxes (Excluding
Extraordinary Item and Transition
Effect of Accounting Change) 1,655 392 836
Extraordinary Item - (7) (39)
Transition Effect of Change in
Accounting for Postretirement
Benefits Other Than Pensions - - (2,130)
Stockholders' Equity/2/ (26) (20) (11)
-------------------------------
Total Provision $1,629 $ 365 $(1,344)
================================================================================
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. The 1992 amount also includes $97 representing exchange
gains on unhedged non-U.S. deferred tax liabilities established in conjunction
with the adoption of SFAS No. 109. Excluding this item, exchange gains and
losses, net of their related tax effects, were not material in the periods
presented.
2 Represents tax benefit of certain stock compensation amounts that are
deductible for income tax purposes but do not affect net income.
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 (excluding extraordinary item and transition
effect of accounting change) are as follows:
- ---------------------------------------------------------------------------
1994 1993 1992
--------------------------
Depreciation $ 144 $(105) $ 232
Accrued employee benefits (19) (69) (69)
Other accrued expenses 185 (346) (67)
Intangible drilling costs (48) (68) 10
Inventory (87) 109 (53)
Unrealized exchange gains/(losses) 103 (22) (125)
Investment in subsidiaries and affiliates (7) (4) -
Other temporary differences 33 30 (55)
Tax loss/tax credit carryforwards 90 4 (103)
Valuation allowance change--net 17 8 9
Tax rate changes - (274) -
Tax status changes (105) - -
--------------------------
$ 306 $(737) $(221)
===========================================================================
The significant components of deferred tax assets and liabilities at
December 31, 1994 and 1993 are as follows:
- ----------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------
Deferred Tax Asset Liability Asset Liability
- ----------------------------------------------------------------------------
Depreciation $ - $2,940 $ - $2,808
Accrued employee benefits 2,873 630 2,875 651
Other accrued expenses 782 4 963 -
Intangible drilling costs - 289 - 337
Inventory 174 310 107 330
Unrealized exchange gains - 19 85 -
Tax loss/tax credit carryforwards 395 - 590 -
Investment in subsidiaries
and affiliates 37 125 34 130
Other 331 835 352 878
-------------------------------------
Total 4,592 $5,152 5,006 $5,134
======= =======
Less: Valuation allowance (357) (445)
------- -------
Net $4,235 $4,561
============================================================================
47
Notes to Financial Statements
(Dollars in millions, except per share)
Current deferred tax liabilities (included in the Consolidated Balance
Sheet caption "Income Taxes") were $63 and $67 at December 31, 1994 and 1993,
respectively. In addition, deferred tax assets of $82 and $198 were included in
Other Assets at December 31, 1994 and 1993, respectively (see Note 15).
An analysis of the company's effective income tax rate (excluding
extraordinary item and transition effect of accounting changes) follows:
- --------------------------------------------------------------------------------
1994 1993 1992
-------------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 34.0%
Higher effective tax rate on non-U.S.
operations (principally Petroleum) 9.9 51.9 20.5
Lower effective tax rate on operations
within U.S. possessions (1.1) (5.6) (2.4)
Alternative fuels credit (2.1) (6.9) (2.0)
Tax rate changes - (28.6)/1/ -
Tax status changes (2.4)/2/ - -
Other--net (1.5) (4.9) (3.9)
-------------------------------
Effective income tax rate 37.8% 40.9% 46.2%
================================================================================
1 Reflects a net tax benefit of $265, arising principally from U.K. Petroleum
Revenue Tax law revisions.
2 Reflects a tax valuation allowance benefit of $105 related to a change in tax
status resulting from a transfer of properties among certain North Sea
affiliates.
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.
- --------------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------
U.S. (including exports) $2,651 $ (167) $ 136
Other regions 1,731 1,125 1,675
-------------------------------------------
$4,382 $ 958 $1,811
================================================================================
At December 31, 1994, unremitted earnings of non-U.S. subsidiaries totaling
$4,333 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, 1994, the tax
effect of such carryforwards approximated $395. Of this amount, $176 has no
expiration date, $20 expires in 1995, $139 expires after 1995 but before 2001
and $60 expires between 2001 and 2010.
8. Extraordinary Charge from Early Extinguishment of Debt
In 1993, there was a charge of $11, net of a tax benefit of $7, for the
redemption of $285 of outstanding debentures. In 1992, outstanding debt of $603
was redeemed with a resulting charge of $69, net of a tax benefit of $39.
Charges principally represent call premium and unamortized discount,
respectively.
9. Earnings Per Share of Common Stock
Earnings per share are calculated on the basis of the following average number
of common shares outstanding: 1994--679,999,916; 1993--676,622,115; and 1992--
673,454,935.
10. 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 variable rate
financial instruments classified as available-for-sale securities and reported
at fair value.
11. Accounts and Notes Receivable
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Trade--net of allowances of $86
in 1994 and $97 in 1993 $4,244 $4,020
Miscellaneous 969 874
-------------------------
$5,213 $4,894
================================================================================
Accounts and notes receivable are carried at amounts which approximate fair
value.
See Note 30 for a description of business segment markets and associated
concentrations of credit risk.
48
Notes to Financial Statements
(Dollars in millions, except per share)
12. Inventories
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Chemicals $ 237 $ 250
Fibers 677 571
Polymers 617 550
Petroleum 1,365 1,367
Diversified Businesses 1,073 1,080
---------------------------
$3,969 $3,818
================================================================================
The excess of replacement or current cost over stated value of inventories for
which cost has been determined under the LIFO method approximated $819 and $766
at December 31, 1994 and 1993, 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 88 percent and 87
percent of consolidated inventories before LIFO adjustment at December 31, 1994
and 1993, respectively.
The liquidation of LIFO inventory quantities carried in the aggregate at
lower costs prevailing in prior years increased 1993 net income by about $50
($.07 per share).
13. Property, Plant and Equipment
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Chemicals $ 5,086 $ 4,984
Fibers 10,574 10,280
Polymers 7,827 7,742
Petroleum 17,999 17,698
Diversified Businesses 5,377 5,265
Corporate 1,975 1,957
---------------------------
$48,838 $47,926
================================================================================
Property, plant and equipment includes gross assets acquired under capital
leases of $148 and $72 at December 31, 1994 and 1993, respectively; related
amounts included in accumulated depreciation, depletion and amortization were
$88 and $57 at December 31, 1994 and 1993, respectively.
14. 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. and The DuPont Merck Pharmaceutical
Company; DuPont has a 50 percent equity ownership in each of these companies.
Dividends received from equity affiliates were $326 in 1994, $243 in 1993 and
$124 in 1992.
- -------------------------------------------------------------------------------
Year Ended December 31
----------------------------------
Results of operations 1994 1993 1992
- -------------------------------------------------------------------------------
Sales* $9,161 $8,030 $8,173
Earnings before income taxes 947 446 771
Net Income 732 252 568
DuPont's equity in earnings of affiliates
(see Note 2) 361 121 216
===============================================================================
* Includes sales to DuPont of $828 in 1994, $752 in 1993 and $803 in 1992.
- --------------------------------------------------------------------------------
December 31
------------------------------
Financial position 1994 1993
- --------------------------------------------------------------------------------
Current assets $ 3,254 $ 2,703
Noncurrent assets 8,147 6,813
------------------------------
Total assets $11,401 $ 9,516
------------------------------
Short-term borrowings* $ 648 $ 475
Other current liabilities 2,065 1,820
Long-term borrowings* 2,590 2,220
Other long-term liabilities 2,934 2,847
------------------------------
Total liabilities $ 8,237 $ 7,362
------------------------------
DuPont's investment in affiliates
(includes advances) $ 1,662 $ 1,607
- --------------------------------------------------------------------------------
* DuPont's pro rata interest in total borrowings was $1,220 in 1994 and $985 in
1993, of which $599 in 1994 and $388 in 1993 was guaranteed by the company.
These amounts are included in the guarantees disclosed in Note 28.
49
Notes to Financial Statements
(Dollars in millions, except per share)
15. Other Assets
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Prepaid pension cost (see Note 26) $1,502 $1,384
Intangible assets 225 278
Other securities and investments 508 474
Deferred income taxes (see Note 7) 82 198
Miscellaneous 685 790
---------------------------
$3,002 $3,124
================================================================================
Other securities and investments includes $351 and $391 at December 31, 1994 and
1993, 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.
16. Accounts Payable
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Trade $1,847 $1,675
Payables to banks 321 264
Compensation awards 222 94
Other 344 411
-------------------------------
$2,734 $2,444
================================================================================
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.
17. Short-Term Borrowings and Capital Lease Obligations
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Commercial paper/1/ $ 450 $ 325
Bank borrowings:
U.S. dollars -- 25
Other currencies/2/ 264 395
Master notes -- 495
Medium-term notes payable within one year 519 853
Long-term borrowings payable within one year/3/ -- 636
Industrial development bonds
payable on demand 51 50
Capital lease obligations 8 17
-----------------------
$1,292 $2,796
================================================================================
1 An interest rate swap effectively converted $50 of these floating rate
borrowings to a fixed rate obligation at December 31, 1994 and 1993, as part
of the program to manage the fixed and floating interest rate mix of total
borrowings. The interest rate was 8.3 percent and the remaining maturity was
1.2 years at December 31, 1994.
2 1993 includes 1,173 million Norwegian krone borrowing ($158 at the December
31, 1993 exchange rate) with an average interest rate of 5.9 percent.
3 1993 includes notes denominated as 125 billion Italian lire with a 12.375
percent Italian lira fixed interest rate. Concurrent with the issuance of
these notes, the company entered into interest and principal currency swaps
that effectively established a $100 fixed principal amount with a 7.45
percent U.S. dollar fixed interest rate.
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 $1,300 and $2,900 at December 31, 1994 and 1993,
respectively.
Unused short-term bank credit lines were approximately $1,360 and $2,100 at
December 31, 1994 and 1993, respectively. These lines support short-term
industrial development bonds, a portion of the company's commercial paper
program and other borrowings.
50
Notes to Financial Statements
(Dollars in millions, except per share)
18. Other Accrued Liabilities
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Payroll and other employee benefits $ 725 $ 694
Taxes other than on income 422 380
Postretirement benefits other than pensions
(see Note 25) 333 343
Restructuring charges 219 810
Miscellaneous 1,431 1,651
------------------------
$3,130 $3,878
================================================================================
19. Long-Term Borrowings and Capital Lease Obligations
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
U.S. dollar:
Industrial development bonds due 2001-2024 $ 295 $ 234
Medium-term notes due 1995-2005/1/ 592 837
8.50% notes due 1996 251 252
8.45% notes due 1996 300 300
8.65% notes due 1997 300 300
8.50% notes due 1998 302 302
7.50% notes due 1999 303 304
9.15% notes due 2000/2/ 306 307
6.00% debentures due 2001 ($660 face value,
13.95% yield to maturity) 430 411
6.75% notes due 2002/3/ 299 299
8.00% notes due 2002 253 254
8.50% notes due 2003/2/ 300 300
8.13% notes due 2004 331 349
8.25% notes due 2006 282 299
8.25% debentures due 2022 372 399
7.95% debentures due 2023/3/ 299 299
7.50% debentures due 2033/3/ 247 247
6.25% Swiss franc notes due 2000/4/ 103 103
Other loans (various currencies)
due 1995-2005/5/ 725 701
Capital lease obligations 86 34
-----------------------
$6,376 $6,531
================================================================================
1 Average interest rates at December 31, 1994 and 1993 were 7.5 percent and 6.8
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 fair value and carrying value of these swaptions at
December 31, 1994 and 1993 were not material.
3 Interest rate swaps effectively converted $775 of these notes and debentures
to a floating rate obligation as part of the program to manage the fixed and
floating interest rate mix of total borrowings. The remaining average maturity
of these swaps was 2.2 years at December 31, 1994.
4 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.
5 Includes notes denominated as 160 million Australian dollars with a 16.5
percent Australian dollar fixed interest rate issued by the company's
majority-owned Canadian subsidiary, which were effectively converted to a
Canadian dollar borrowing with an implicit 12.43 percent Canadian dollar fixed
interest rate. Also includes a loan of 190 million pounds sterling ($296 and
$292 at the respective 1994 and 1993 year-end exchange rates) with a floating
money market-based interest rate.
51
Notes to Financial Statements
(Dollars in millions, except per share)
Average interest rates on industrial development bonds and on other loans
(various currencies) were 6.1 percent and 7.3 percent at December 31, 1994, and
6.0 percent and 7.4 percent at December 31, 1993.
Maturities of long-term borrowings, together with sinking fund requirements
in each of the four years after December 31, 1995, are as follows:
1996--$908 1998--$407
1997--$798 1999--$443
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 $6,600 and $7,500 at December 31, 1994 and 1993,
respectively.
20. Leases
The company uses various leased facilities and equipment in its operations. The
company's future minimum lease payments under operating and capital leases,
together with the present value of the net minimum capital lease payments at
December 31, 1994, are as follows:
- --------------------------------------------------------------------------------
Capital Operating
Leases Leases*
-----------------------------
Minimum lease payments for
years ending December 31:
1995 $ 20 $ 290
1996 16 224
1997 11 182
1998 11 156
1999 11 124
Remainder 104 673
-------------------------
173 $1,649
------
Less: Estimated executory costs 7
------
Net minimum lease payments 166
Less: Imputed interest 72
------
Present value of net minimum lease payments 94
Due in 1995 8
------
Due after 1995 $ 86
================================================================================
* Minimum lease payments have not been reduced by minimum sublease rentals due
in the future under noncancelable subleases related to operating leases in the
amount of $102.
Rental expense under operating leases was $355 in 1994, $429 in 1993 and
$453 in 1992.
21. Other Liabilities
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
Accrued postretirement benefits cost (see Note 25) $6,058 $5,998
Reserves for employee-related costs 937 989
Miscellaneous 1,443 1,213
---------------------
$8,438 $8,200
================================================================================
22. Stockholders' Equity
Shares of new common stock issued in connection with employee compensation and
benefit plans were 3,427,507 in 1994, 2,569,201 in 1993 and 3,766,099 in 1992.
52
Notes to Financial Statements
(Dollars in millions, except per share)
23. Compensation Plans
In 1990, the Board of Directors approved the adoption of a worldwide Corporate
Sharing Program. Under the program, in February 1991, essentially all employees
each received a one-time grant of options to acquire 100 shares of DuPont common
stock at the fair market value ($38.25 per share) at date of grant. Common
shares subject to option under this Plan are as follows:
- --------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------
Outstanding at January 1 8,916,709 10,525,892 12,693,600
Options:
Exercised 2,199,142 1,534,403 1,960,028
Terminated 43,215 74,780 207,680
Outstanding at December 31 6,674,352 8,916,709 10,525,892
================================================================================
In January 1995, the Board of Directors approved the worldwide 1995
Corporate Sharing Program and awarded to essentially all employees a one-time
grant of options to acquire 100 shares of DuPont common stock at the fair market
value ($57 per share) on the date of grant.
Awards for 1994 under the DuPont Stock Performance Plan (granted to key
employees in 1995) consisted of 3,133,091 options to acquire DuPont common stock
at fair market value of $55.50 per share. Payment of the purchase price must be
made in cash or in DuPont common stock (at fair market value on the date of
exercise). Common shares subject to option under this Plan are as follows:
- --------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------
Outstanding at January 1 14,553,921 13,594,606 13,822,375
Options granted 2,324,720 2,160,360 2,425,130
Average price $52.50 $46.01 $49.21
Options exercised 1,954,064 1,092,473 2,456,592
Average price $32.46 $27.77 $26.78
Options expired or terminated 229,677 108,572 196,307
At December 31:
Participants 1,318 1,226 1,188
Options outstanding 14,694,900 14,553,921 13,594,606
Average price $40.83 $37.62 $35.47
Options exercisable 12,384,780 12,418,711 11,202,016
Shares available for option 27,527,631 26,215,426 25,092,886
================================================================================
At December 31, 1994, there were 559,463 stock appreciation rights (SARs)
outstanding, at an average option price of $32.51 per share. SARs may be
exercised only in tandem with the exercise of an accompanying stock option. As
each SAR is exercised, one additional stock option is cancelled. Expiration
dates for outstanding options and SARs ranged from February 17, 1995 to
September 20, 2004.
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 $208 for 1994, $87 for 1993 and $87
for 1992. 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 $220 in 1994, $89 in 1993 and $85 in 1992. In
accordance with the terms of the Variable Compensation Plan and similar plans of
subsidiaries, 1,326,922 shares of common stock were awaiting delivery from
awards for 1994 and prior years.
24. Investment Activities
Payments for businesses acquired in 1993 include $380 as part of the third
quarter acquisition of Imperial Chemical Industries P.L.C.'s worldwide nylon
business. In addition to the cash payment, a deferred payment of $93 was
reflected in Other Liabilities. Of the total purchase price, $259 and $170 were
reflected in property, plant and equipment and inventories, respectively.
In 1994, there were no individually material items included in Proceeds from
Sales of Assets. Proceeds from sales in 1993 principally include $270 from the
sale of the connector systems business, $280 from the sale of the acrylics
business and $300 from the sale of the Remington Arms Company. Assets sold in
connection with these sales amounted to $656, of which $336 was property, plant
and equipment with the remainder divided about equally between inventories and
other current assets.
53
Notes to Financial Statements
(Dollars in millions, except per share)
25. 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
the benefit plans, the company reserves the right to change, modify or
discontinue the plans.
In 1992, the company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Medical, dental and life insurance
costs for these plans and related disclosures are determined under the
provisions of SFAS No. 106. Cash expenditures are not affected by this
accounting change. At January 1, 1992, the accumulated postretirement benefit
obligation was $5,990, and related accrued liabilities were $68, resulting in a
transition charge of $5,922. Other postretirement benefits cost includes the
following components:
- --------------------------------------------------------------------------------
Health Life
Care Insurance Total
---------------------------------
1994
Service cost--benefits allocated
to current period $ 56 $ 17 $ 73
Interest cost on accumulated
postretirement benefit obligation 288 77 365
Amortization of net gains and
prior service credit (78) 8 (70)
---------------------------------
Other postretirement benefits cost $266 $102 $368
=================================
1993
Service cost--benefits allocated
to current period $ 55 $ 12 $ 67
Interest cost on accumulated
postretirement benefit obligation 305 69 374
Amortization of net gains and
prior service credit (94) -- (94)
---------------------------------
Other postretirement benefits cost $266 $ 81 $347
=================================
1992
Service cost--benefits allocated
to current period $ 82 $ 11 $ 93
Interest cost on accumulated
postretirement benefit obligation 431 67 498
---------------------------------
Other postretirement benefits cost $513 $ 78 $591
================================================================================
The lower health care costs in 1994 and 1993 versus 1992 were due to changes
in the company's health care benefits programs in the United States, which were
announced on December 31, 1992. These changes provide for increased cost control
through prevention and managed care, and for increased cost sharing by employees
and pensioners. The impact of these changes resulted in an unrecognized prior
service credit of $1,219 at the beginning of 1993; the accumulated
postretirement benefit obligation was reduced by a similar amount.
The following provides a reconciliation of the accumulated postretirement
benefit obligation to the liabilities reflected in the balance sheet at December
31, 1994 and 1993.
- --------------------------------------------------------------------------------
Health Life
Care Insurance Total
----------------------------------
1994
Accumulated postretirement benefit
obligation for:
Current pensioners and survivors $(2,366) $ (570) $(2,936)
Fully eligible employees (139) -- (139)
Other employees (674) (319) (993)
----------------------------------
(3,179) (889) (4,068)
Unrecognized net loss/(gain) (1,267) 3 (1,264)
Unrecognized prior service credit (1,059) -- (1,059)
----------------------------------
Accrued postretirement benefits cost $(5,505) $ (886) $(6,391)
==================================
Amount included in Other
Accrued Liabilities (see Note 18) $ 333
========
Amount included in Other Liabilities
(see Note 21) $ 6,058
========
1993
Accumulated postretirement benefit
obligation for:
Current pensioners and survivors $(2,993) $ (692) $(3,685)
Fully eligible employees (146) -- (146)
Other employees (934) (404) (1,338)
----------------------------------
(4,073) (1,096) (5,169)
Unrecognized net loss/(gain) (285) 252 (33)
Unrecognized prior service credit (1,139) -- (1,139)
----------------------------------
Accrued postretirement benefits cost $(5,497) $ (844) $(6,341)
==================================
Amount included in Other
Accrued Liabilities (see Note 18) $ 343
========
Amount included in Other Liabilities
(see Note 21) $ 5,998
================================================================================
54
Notes to Financial Statements
(Dollars in millions, except per share)
The health care accumulated postretirement benefit obligation was determined
at December 31, 1994 using a health care cost escalation rate of 8 percent
decreasing to 5 percent over 8 years and at December 31, 1993 using a health
care escalation rate of 10 percent decreasing to 5 percent over 10 years. The
assumed long-term rate of compensation increase used for life insurance was 5
percent. The discount rate was 9 percent at December 31, 1994 and 7.25 percent
at December 31, 1993. A one-percentage-point increase in the health care cost
escalation rate would have increased the accumulated postretirement benefit
obligation by $251 at December 31, 1994, and the 1994 other postretirement
benefit cost would have increased by $44.
26. 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:
- -------------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Service cost--benefits
earned during the period $ 380 $ 301 $ 283
Interest cost on projected
benefit obligation 1,079 1,038 980
Return on assets:
Actual (gain)/loss $ 214 $(1,880) $(1,055)
Deferred gain/(loss) (1,540) (1,326) 617 (1,263) (164) (1,219)
------- ------- -------
Amortization of net gains
and prior service cost (91) (123) (127)
------- ------- -------
Net pension cost/(credit) $ 42 $ (47) $ (83)
=============================================================================================================
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.
The funded status of these plans was as follows:
- ---------------------------------------------------------------------------------------------------------
December 31 1994 1993
- ---------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(10,342) $(11,681)
-------- --------
Accumulated benefit obligation $(10,744) $(12,177)
-------- --------
Projected benefit obligation $(12,303) $(14,195)
Plan assets at fair value 14,223 15,250
-------- --------
Excess of assets over projected benefit obligation 1,920 1,055
Unrecognized net (gains)/1/ (877) (35)
Unrecognized prior service cost 459 364
-------- --------
Prepaid pension cost/2/ $ 1,502 $ 1,384
=========================================================================================================
1 Includes the unamortized balance of $(1,339) and $(1,513) at December 31, 1994
and 1993, respectively, of unrecognized net gain at January 1, 1985, the
initial application date of Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions."
2 Excludes the pension liability for unfunded plans of $820 and $744 and the
related projected benefit obligation of $1,213 and $1,228 at December 31, 1994
and 1993, respectively.
55
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 9 percent at December 31, 1994 and 7.25 percent at December 31,
1993, 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 and U.S. government obligations. For non-
U.S. plans, no one of which was material, similar economic assumptions were
used.
The Omnibus Budget Reconciliation Act of 1990 permits employers to transfer
some of the excess funds from an overfunded pension trust to pay the company
portion of certain postretirement health care benefits. The company transferred
$260 during 1993 to a special retiree health care account to be used toward the
payment of these benefits. This transfer had no impact on earnings (see Note
25).
27. Derivatives and Other Hedging Instruments
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. The company is exposed to credit loss in the event
of nonperformance by these counterparties. The company manages this exposure to
credit loss 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. Procedures are in place to regularly monitor and report
to management the market and counterparty credit risks associated with these
instruments. The company's accounting policies with respect to these financial
instrument transactions are set forth in Note 1.
Foreign Currency
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.
Principal foreign currency exposures and related hedge positions at December
31, 1994 were as follows:
- -------------------------------------------------------------------------------------
Open Contracts To
Buy/(Sell)
Net Monetary Foreign Currency Net
Asset/(Liability) ------------------------- After-Tax
Currency Exposure Pretax After-Tax Exposure
- -------------------------------------------------------------------------------------
British Pound $(1,428) $2,306 $1,427 $(1)
German Mark $ (593) $ 955 $ 595 $ 2
Norwegian Krone $ (564) $ 914 $ 567 $ 3
French Franc $ 451 $ (620) $ (453) $(2)
Italian Lira $ 205 $ (333) $ (206) $(1)
Dutch Guilder $ 273 $ (355) $ (271) $ 2
Japanese Yen $ (205) $ 285 $ 204 $(1)
=====================================================================================
56
Notes to Financial Statements
(Dollars in millions, except per share)
In addition, the company from time to time 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. At December 31, 1994, no such commitments were hedged. 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 $139, $(84)
and $146 for the years 1994, 1993 and 1992, respectively.
Interest Rates
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. Notional amounts do not represent the
amounts exchanged by the counterparties, and thus are not a measure of market or
credit exposure to the company. The amounts exchanged by the counterparties are
calculated on the basis of the notional amounts and the fixed and floating
interest rates.
The following interest rate swaps were outstanding at December 31, 1994:
- --------------------------------------------------------------------------------
Weighted
Weighted Average
Notional Average Rate
Type of Swap Amount Rate Paid Received
- --------------------------------------------------------------------------------
Pay Fixed, Receive Floating $ 50 8.3% 4.5%
Pay Floating, Receive Fixed $775 5.4% 5.8%
================================================================================
These interest rate swaps mature in 1 to 3 years, with a weighted average
maturity of 2.1 years.
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
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.
One interest and principal currency swap was outstanding at December 31,
1994 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.
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 indices; and
57
Notes to Financial Statements
(Dollars in millions, except per share)
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 these structured medium-term financings outstanding at
December 31, 1994 was $522, with a weighted average interest rate of 6.1
percent, and a weighted average maturity of 1.9 years.
In addition, the company's majority-owned Canadian subsidiary had a
structured medium-term financing outstanding at December 31, 1994 that
effectively converted a 160 million Australian dollar borrowing, with a 16.5
percent Australian dollar fixed interest rate and a maturity of 1996, to a
Canadian dollar borrowing with an implicit 12.43 percent Canadian dollar
fixed interest rate.
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
credit-worthy 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, 1994 and 1993.
See also Notes 17 and 19 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, 1994 and
1993.
Notional amounts represent the face amount of the contractual arrangements
and are not a measure of market or credit exposure. Estimated fair values
represent a reasonable approximation of amounts the company would have received
from/(paid to) a counterparty at December 31 to unwind the positions prior to
maturity. Estimated fair value of forward exchange contracts is based on market
prices for contracts of comparable time to maturity. Estimated fair value of
swaps represents the present value of remaining net cash flows to maturity under
swap agreements, discounted using market-implied future interest rates existing
at December 31, 1994 and 1993, respectively. At December 31, 1994, the company
had no plans to unwind these positions prior to maturity. Carrying amounts
represent the receivable/(payable) recorded in the Consolidated Balance Sheet.
See also Notes 10, 11, 15, 16, 17 and 19 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, 1994 $7,978 $ 62 $ 73
1993 9,181 7 10
Interest Rate Swaps
December 31, 1994 $ 825 $(47) $ (1)
1993 775 (3) 2
Interest and Principal
Currency Swaps
December 31, 1994 $ 103 $ 21 $ 11
1993 204 (24) (31)
Structured Medium-Term Swaps
December 31, 1994 $ 646 $ 23 $ 36
1993 1,172 30 38
- --------------------------------------------------------------------------------
Estimated fair values shown above only represent the value of the hedge or swap
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 $7,900 and $10,400 at December 31, 1994 and 1993,
respectively. The improvement in fair value of $2,500 in 1994 was primarily due
to lower borrowing levels and the change in the interest rate environment. As
fully hedged transactions, the estimated fair values of the integrated debt and
interest rate financial instruments do not affect income and are not recorded in
the financial statements, but rather only represent the amount to unwind the
debt and financial instruments at a specific point in time prior to maturity.
58
Notes to Financial Statements
(Dollars in millions, except per share)
Commodity Hedges and Trading
The company enters into exchange-traded and over-the-counter 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.
Commodity trading in petroleum futures contracts is a natural extension of
cash market trading and is used to physically acquire about 15 percent of North
America 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 (30-60 days) 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 futures
contracts reduces the effects of price volatility, thereby protecting against
adverse short-term price movements, while limiting, somewhat, the benefits of
favorable short-term price movements. Open hedge positions and deferred
gains/losses for petroleum futures contracts were immaterial at December 31,
1994 and 1993.
From time to time, on a limited basis, the company also purchases and sells
petroleum-based futures contracts for trading purposes. After-tax gain/loss from
such trading has not been material.
28. Commitments and Contingent Liabilities
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.
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.
The company is also subject to contingencies pursuant to environmental laws
and regulations that in the future may require the company to take 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 remediation activities consistent with the
policy set forth in Note 1. At December 31, 1994, such accrual amounted to $616
and, in management's opinion, was appropriate based on existing facts and
circumstances. Under the most adverse circumstances, however, this potential
liability could be significantly higher. 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, 1994,
these indirect guarantees totaled $13. In addition, at December 31, 1994, the
company had directly guaranteed $832 of the obligations of certain affiliated
companies and others. No material loss is anticipated by reason of such
agreements and guarantees.
59
Notes to Financial Statements
(Dollars in millions, except per share)
29. Geographic Information
- ----------------------------------------------------------------------------------------------
United Other
States Europe Regions Consolidated
-------------------------------------------------
1994
Sales to Unaffiliated Customers/1/ $20,769 $14,216 $ 4,348 $39,333
Transfers Between Geographic Areas/2/ 2,044 673 507 -
-------------------------------------------------
Total $22,813 $14,889 $ 4,855 $39,333
-------------------------------------------------
After-Tax Operating Income $ 1,993 $ 874 $ 240 $ 3,107
Identifiable Assets at December 31 $16,933 $10,232 $ 3,857 $31,022
-------------------------------------------------
1993
Sales to Unaffiliated Customers/1/ $20,342 $12,639 $ 4,117 $37,098
Transfers Between Geographic Areas/2/ 2,260 395 522 -
-------------------------------------------------
Total $22,602 $13,034 $ 4,639 $37,098
-------------------------------------------------
After-Tax Operating Income $ 133 $ 721 $ 63 $ 917
Identifiable Assets at December 31 $17,117 $ 9,995 $ 3,812 $30,924
-------------------------------------------------
1992
Sales to Unaffiliated Customers/1/ $20,331 $13,571 $ 3,897 $37,799
Transfers Between Geographic Areas/2/ 2,477 298 469 -
-------------------------------------------------
Total $22,808 $13,869 $ 4,366 $37,799
-------------------------------------------------
After-Tax Operating Income $ 528 $ 624 $ 89 $ 1,241
Identifiable Assets at December 31 $19,197 $ 9,667 $ 3,827 $32,691
- ----------------------------------------------------------------------------------------------
1 Sales outside the United States of products manufactured in and exported from
the United States totaled $3,625 in 1994, $3,500 in 1993 and $3,509 in 1992.
2 Products are transferred between geographic areas on a basis intended to
reflect as nearly as practicable the "market value" of the products.
60
Notes to Financial Statements
(Dollars in millions, except per share)
30. Industry Segment Information
The company has five principal business segments that manufacture and sell a
wide range of products to many different markets, including the energy,
transportation, textile, construction, automotive, electronics, printing, health
care, packaging and agricultural markets. 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.
- --------------------------------------------------------------------------------------------------------------------------
Diversified
Chemicals Fibers Polymers Petroleum Businesses Consolidated
----------------------------------------------------------------------------
1994
Sales to Unaffiliated Customers/1/ $ 3,760 $ 6,767 $ 6,318 $16,815/2/ $ 5,673 $39,333
Transfers Between Segments 208 44 181 388 36 -
----------------------------------------------------------------------------
Total $ 3,968 $ 6,811 $ 6,499 $17,203 $ 5,709 $39,333
----------------------------------------------------------------------------
Operating Profit $ 536 $ 1,083 $ 1,084 $ 1,141 $ 595 $ 4,439
Provision for Income Taxes (208) (412) (423) (486) (191) (1,720)
Equity in Earnings of Affiliates 58 30 56 25 219 388
----------------------------------------------------------------------------
After-Tax Operating Income/3/ $ 386 $ 701 $ 717 $ 680 $ 623 $ 3,107/4/
----------------------------------------------------------------------------
Identifiable Assets at December 31 $ 2,880 $ 6,020 $ 5,160 $11,961 $ 5,001 $31,022/5/
----------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 412 $ 512 $ 403 $ 1,191 $ 434 $ 3,106/6/
Capital Expenditures $ 298 $ 541 $ 310 $ 1,576 $ 283 $ 3,151/7/
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Diversified
Chemicals Fibers Polymers Petroleum Businesses Consolidated
----------------------------------------------------------------------------
1993
Sales to Unaffiliated Customers/1/ $ 3,546 $ 6,188 $ 5,869 $15,771/2/ $ 5,724 $37,098
Transfers Between Segments 475 14 23 428 1 -
----------------------------------------------------------------------------
Total $ 4,021 $ 6,202 $ 5,892 $16,199 $ 5,725 $37,098
----------------------------------------------------------------------------
Operating Profit $ 237 $ 258 $ 255 $ 1,195 $ (495) $ 1,450
Provision for Income Taxes (99) (144) (108) (428) 162 (617)
Equity in Earnings of Affiliates 28 55 30 45 (74) 84
----------------------------------------------------------------------------
After-Tax Operating Income/8/,/9/,/10/ $ 166 $ 169 $ 177 $ 812/11/ $ (407)/12/ $ 917/4/
----------------------------------------------------------------------------
Identifiable Assets at December 31 $ 2,960 $ 5,771 $ 5,226 $11,938 $ 5,029 $30,924/5/
----------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 303 $ 658 $ 527 $ 1,379 $ 460 $ 3,451/6/
Capital Expenditures $ 294 $ 751 $ 428 $ 1,659 $ 329 $ 3,655/7/
- --------------------------------------------------------------------------------------------------------------------------
61
Notes to Financial Statements
(Dollars in millions, except per share)
- --------------------------------------------------------------------------------------------------------------------------
Diversified
Chemicals Fibers Polymers Petroleum Businesses Consolidated
----------------------------------------------------------------------------
1992
Sales to Unaffiliated Customers/1/ $ 3,617 $ 6,074 $ 5,856 $16,065/2/ $ 6,187 $37,799
Transfers Between Segments 187 6 51 414 5 -
----------------------------------------------------------------------------
Total $ 3,804 $ 6,080 $ 5,907 $16,479 $ 6,192 $37,799
----------------------------------------------------------------------------
Operating Profit $ 324 $ 591 $ 471 $ 1,008 $ (182) $ 2,212
Provision for Income Taxes (128) (246) (185) (707) 101 (1,165)
Equity in Earnings of Affiliates 30 64 32 36 32 194
----------------------------------------------------------------------------
After-Tax Operating Income/13/ $ 226 $ 409 $ 318 $ 337 $ (49)/14/ $ 1,241/4/
----------------------------------------------------------------------------
Identifiable Assets at December 31 $ 3,201 $ 5,738 $ 5,412 $12,307 $ 6,033 $32,691/5/
----------------------------------------------------------------------------
Depreciation, Depletion and Amortization $ 317 $ 592 $ 409 $ 1,006 $ 410 $ 2,839/6/
Capital Expenditures $ 366 $ 856 $ 642 $ 1,781 $ 558 $ 4,397/7/
- --------------------------------------------------------------------------------------------------------------------------
1 Sales of refined petroleum products of $12,853 in 1994, $12,403 in 1993 and
$12,681 in 1992 exceeded 10 percent of consolidated sales.
2 Excludes crude oil and refined product exchanges and trading transactions
totaling $2,254 in 1994, $3,808 in 1993 and $3,881 in 1992.
3 Includes the following (charges)/benefits/a/:
- --------------------------------------------------------------------------------
Chemicals/b/ $ (5)
Fibers 25
Polymers 11
Petroleum/c/ (26)
Diversified Businesses/d/ (53)
----
$(48)
- --------------------------------------------------------------------------------
a Reflects a net benefit of $112 from adjustments in estimates associated with
the third quarter 1993 restructuring charge of which $88 relates to
adjustments for other than employee separation costs. The $112 is reflected
in Chemicals $22; Fibers $25; Polymers $11; and Diversified Businesses $54.
b Includes a charge of $27 associated with the discontinuation of certain
products, asset sales and write-downs.
c Includes a charge of $58 for employee separation costs, a loss of $95 from
the write-down of certain North Sea oil properties to be sold and a benefit
of $127 principally related to a favorable change in tax status resulting
from a transfer of properties among certain North Sea affiliates.
d Includes charges of $110 associated with the "Benlate" DF 50 fungicide
recall and $27 for the write-down of assets and discontinuation of certain
products, and a benefit of $30 from an adjustment of prior-year tax
provisions.
4 The following reconciles After-Tax Operating Income to Net Income:
- --------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------
After-Tax Operating Income $3,107 $ 917 $1,241
Interest and Other Corporate
Expenses Net of Tax/a/ (380) (351) (266)
-----------------------------------
Net Income/b/ $2,727 $ 566 $ 975
- --------------------------------------------------------------------------------
a 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), minority interests in earnings of
consolidated subsidiaries and amortization of capitalized interest. The year
1992 includes an exchange gain of $97 related to unhedged non-U.S. deferred
tax liabilities, which were established on the adoption of SFAS No. 109.
b Before extraordinary item and transition effect of accounting changes. See
the Consolidated Income Statement on page 39.
62
Notes to Financial Statements
(Dollars in millions, except per share)
5 The following reconciles Identifiable Assets to Total Assets:
- --------------------------------------------------------------------------------
1994 1993 1992
-------------------------------------
Identifiable Assets at December 31 $31,022 $30,924 $32,691
Investment in Affiliates 1,662 1,607 1,746
Corporate Assets 4,208 4,522 4,433
-------------------------------------
Total Assets at December 31 $36,892 $37,053 $38,870
- --------------------------------------------------------------------------------
6 Includes depreciation on research and development facilities, impairment of
unproved properties and depreciation reflected in 1993 and 1992 restructuring
charges.
7 Excludes investments in affiliates.
8 Includes the following third-quarter charges for asset write-downs, employee
separation costs, facility shutdowns and other restructuring costs (see Note
6):
- --------------------------------------------------------------------------------
Chemicals/a/ $ 112
Fibers/b/ 266
Polymers/c/ 148
Petroleum/d/ 172
Diversified Businesses/e/ 413
------
$1,111
- --------------------------------------------------------------------------------
a Includes $59 for asset write-downs and facility shutdowns for the
fluorochemicals and specialty chemicals businesses.
b Includes $46 for facility shutdowns and asset write-downs, primarily for
the nylon business.
c Includes $64 for shutdown of a portion of a polymers plant in LaPorte,
Texas.
d Includes $147 for asset write-downs, primarily for certain North American
petroleum-producing properties sold in the fourth quarter.
e Includes $264 for asset write-downs, principally facilities for the
printing and publishing business.
9 Includes a net benefit of $265 resulting from tax law changes. The Petroleum
segment reflects $230, primarily due to a reduction in deferred U.K.
petroleum revenue taxes, and $35 is reflected in the remaining segments
(Chemicals $6; Fibers $10; Polymers $10; and Diversified Businesses $9).
10 Includes a net charge of $92 related to certain product liability claims and
litigation costs ($144, of which $126 is associated with the "Benlate" DF 50
fungicide recall) and a loss on the sale of a polyethylene business ($17),
partly offset by a gain from the sale of the Remington Arms Company ($69).
The foregoing amounts are reflected in the Chemicals ($10), Polymers ($25)
and Diversified Businesses ($57) segments.
11 Includes a $21 loss from sale of petroleum-producing properties and a $32
gain from exchange of several proved and unproved North Sea petroleum
properties for an interest in a Norwegian offshore pipeline and cash; since
these are not "similar productive assets" as defined under Accounting
Principles Board Opinion No. 29, a gain was recognized on the exchange.
12 Includes a charge of $184 for the write-down of intangible assets (technology
and goodwill) associated with the printing and publishing business.
13 Includes the following fourth-quarter charges for termination incentives and
payments, as well as other charges, related to business restructurings (see
Note 6):
- --------------------------------------------------------------------------------
Chemicals/a/ $ 51
Fibers/b/ 69
Polymers 22
Petroleum/c/ 96
Diversified Businesses/d/ 91
----
$329
- --------------------------------------------------------------------------------
a Includes $38 charge for project and facility shutdowns.
b Includes $38 charge principally for shutdown of fire-damaged facilities.
c Includes $17 charge for shutdown of refinery facilities.
d Includes $42 charge principally for withdrawal from certain printing and
publishing business lines.
14 Includes charge of $134 associated with "Benlate" DF 50 fungicide recall.
See segment discussions on pages 16-28 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.
63
Supplemental Petroleum Data
(Dollars in millions)
Oil and Gas Producing Activities
The disclosures on pages 64-70 are presented in accordance with the provisions
of Statement of Financial Accounting Standards No. 69. Accordingly, volumes of
reserves and production exclude royalty interests of others, and royalty
payments are reflected as reductions in revenues.
In January 1989, the U.S. Treasury Department was authorized by the
President to modify the sanctions levied against Libya in 1986. In June 1989,
Conoco was granted a license by the Treasury Department to resume its activities
in Libya, and commenced negotiations with the Libyan government's national oil
company. Although negotiations are continuing, Conoco has not resumed its
participation in Libyan operations. Accordingly, disclosures for 1994 continue
to exclude petroleum reserve data applicable to the company's petroleum assets
in Libya.
Results of Operations for Oil and Gas Producing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Total Worldwide United States Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Consolidated Companies
Revenues:
Sales to unaffiliated customers $ 2,196 $ 2,177 $ 1,990 $ 552 $ 538 $ 535 $ 1,015 $ 1,000 $ 874
Transfers to other
company operations 733 930 1,003 401 558 583 332 372 407
Exploration, including
dry hole costs (323) (329) (347) (130) (107) (82) (110) (109) (165)
Production (786) (868) (1,039) (327) (424) (492) (377) (363) (473)
Depreciation, depletion,
amortization and
valuation provisions (957) (1,140) (786) (334) (591)/2/ (433) (533)/3/ (468) (296)
Other/4/ 67 (20) (55) 38 (17) (8) 25 9 (28)
Income taxes (463) (281) (626) 7 84 2 (122)/5/ (16)/6/ (219)
-----------------------------------------------------------------------------------------------
Total consolidated
companies 467 469 140 207 41 105 230 425 100
-----------------------------------------------------------------------------------------------
Equity Affiliates
Results of operations
of equity affiliates (16) (13) (13) 1 (1) (1) (17) (12) (12)
-----------------------------------------------------------------------------------------------
Total $ 451 $ 456 $ 127 $ 208 $ 40 $ 104 $ 213 $ 413 $ 88
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions/1/
-----------------------------
1994 1993 1992
-----------------------------
Consolidated Companies
Revenues:
Sales to unaffiliated customers $ 629 $ 639 $ 581
Transfers to other
company operations - - 13
Exploration, including
dry hole costs (83) (113) (100)
Production (82) (81) (74)
Depreciation, depletion,
amortization and
valuation provisions (90) (81) (57)
Other/4/ 4 (12) (19)
Income taxes (348) (349) (409)
-----------------------------
Total consolidated
companies 30 3 (65)
-----------------------------
Equity Affiliates
Results of operations
of equity affiliates - - -
-----------------------------
Total $ 30 $ 3 $ (65)
- -----------------------------------------------------------------
1 Comprises exploration costs in all areas outside the United States and Europe
and production operations primarily in Canada, Dubai and Indonesia.
2 Includes a charge of $219 ($137 after taxes) for impairment of certain U.S.
petroleum-producing properties to be sold.
3 Includes a charge of $115 ($95 after taxes) for impairment of certain North
Sea oil properties to be sold.
4 Includes gain/(loss) on disposal of fixed assets and other miscellaneous
revenues and expenses.
5 Includes a tax benefit of $127 principally related to a favorable change in
tax status resulting from a transfer of properties among certain North Sea
affiliates.
6 Includes a benefit of $241 resulting from tax law changes in the United
Kingdom.
64
Supplemental Petroleum Data
(Dollars in millions)
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities/1/
- -----------------------------------------------------------------------------------------------------------------------------------
Total Worldwide United States Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Consolidated Companies
Property acquisitions:
Proved/3/ $ 139 $ 111 $ 16 $ 14 $ 93 $ 16 $ 115 $ 5 $ -
Unproved 36 11 23 18 8 7 5 - -
Exploration 403 352 432 151 83 99 136 158 221
Development 713 864 806 174 195 206 466 567 498
-----------------------------------------------------------------------------------------------
Total consolidated companies 1,291 1,338 1,277 357 379 328 722 730 719
-----------------------------------------------------------------------------------------------
Equity Affiliates
Property acquisitions:
Proved - 43 - - 43 - - - -
Development 75 70 38 12 16 19 63 54 19
-----------------------------------------------------------------------------------------------
Total equity affiliates 75 113 38 12 59 19 63 54 19
-----------------------------------------------------------------------------------------------
Total $ 1,366 $ 1,451 $ 1,315 $ 369 $ 438 $ 347 $ 785 $ 784 $ 738
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions/2/
-----------------------------
1994 1993 1992
-----------------------------
Consolidated Companies
Property acquisitions:
Proved/3/ $ 10 $ 13 $ -
Unproved 13 3 16
Exploration 116 111 112
Development 73 102 102
-----------------------------
Total consolidated companies 212 229 230
-----------------------------
Equity Affiliates
Property acquisitions:
Proved - - -
Development - - -
-----------------------------
Total equity affiliates - - -
-----------------------------
Total $ 212 $ 229 $ 230
- -----------------------------------------------------------------
1 These data comprise all costs incurred in the activities shown, whether
capitalized or charged to expense at the time they were incurred.
2 Includes Canada, Dubai and Indonesia.
3 Does not include properties acquired through property exchanges.
Capitalized Costs Relating to Oil and Gas Producing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Total Worldwide United States Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Consolidated Companies
Gross costs:
Proved properties $11,057 $11,663 $11,356 $ 4,806 $ 4,934 $ 5,587 $ 4,950 $ 5,582 $ 4,732
Unproved properties 790 701 1,152 291 321 471 323 218 461
Accumulated depreciation,
depletion, amortization
and valuation allowances:
Proved properties 6,173 6,467 6,171 3,073 3,023 3,244 2,122 2,604 2,169
Unproved properties 185 261 347 110 162 235 6 13 13
-----------------------------------------------------------------------------------------------
Total net costs of
consolidated companies 5,489 5,636 5,990 1,914 2,070 2,579 3,145 3,183 3,011
-----------------------------------------------------------------------------------------------
Equity Affiliates
Net costs of equity affiliates:
Proved properties 253 177 66 93 92 36 160 85 30
-----------------------------------------------------------------------------------------------
Total $ 5,742 $ 5,813 $ 6,056 $ 2,007 $ 2,162 $ 2,615 $ 3,305 $ 3,268 $ 3,041
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions*
-----------------------------
1994 1993 1992
-----------------------------
Consolidated Companies
Gross costs:
Proved properties $ 1,301 $ 1,147 $ 1,037
Unproved properties 176 162 220
Accumulated depreciation,
depletion, amortization
and valuation allowances:
Proved properties 978 840 758
Unproved properties 69 86 99
-----------------------------
Total net costs of
consolidated companies 430 383 400
-----------------------------
Equity Affiliates
Net costs of equity affiliates:
Proved properties - - -
-----------------------------
Total $ 430 $ 383 $ 400
- -----------------------------------------------------------------
* Includes Canada, Dubai and Indonesia.
65
Supplemental Petroleum Data
(In millions of barrels)
Estimated Proved Reserves of Oil/1/
- -----------------------------------------------------------------------------------------------------------------------------------
Total Worldwide United States Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Consolidated
Companies
Beginning of year 964 1,034 1,112 344 421 470 390 391 392
Revisions and other changes 51 14 26 14 (6) (13) 26 13 37
Extensions and discoveries 50 83 23 8 19 9 21 41 10
Improved recovery 10 7 3 9 5 3 - - -
Purchase of reserves/3/ 43 25 5 14 7 5 29 2 -
Sale of reserves/4/ (33) (64) (12) (20) (62) (12) (13) (2) -
Production (132) (135) (123) (33) (40) (41) (59) (55) (48)
-----------------------------------------------------------------------------------------------
End of year 953 964 1,034 336 344 421 394 390 391
-----------------------------------------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year 19 19 - - - - 19 19 -
Revisions and other changes 6 - - - - - 6 - -
Extensions and discoveries 11 - 19 - - - 11 - 19
Production (1) - - - - - (1) - -
-----------------------------------------------------------------------------------------------
End of year 35 19 19 - - - 35 19 19
-----------------------------------------------------------------------------------------------
Total 988 983 1,053 336 344 421 429 409 410
-----------------------------------------------------------------------------------------------
Proved Developed Reserves
of Consolidated Companies
Beginning of year 708 750 778 332 397 441 160 153 118
End of year 706 708 750 324 332 397 171 160 153
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions/2/
-----------------------------
1994 1993 1992
-----------------------------
Proved Developed and Undeveloped
Reserves of Consolidated
Companies
Beginning of year 230 222 250
Revisions and other changes 11 7 2
Extensions and discoveries 21 23 4
Improved recovery 1 2 -
Purchase of reserves/3/ - 16 -
Sale of reserves/4/ - - -
Production (40) (40) (34)
-----------------------------
End of year 223 230 222
-----------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year - - -
Revisions and other changes - - -
Extensions and discoveries - - -
Production - - -
-----------------------------
End of year - - -
-----------------------------
Total 223 230 222
-----------------------------
Proved Developed Reserves
of Consolidated Companies
Beginning of year 216 200 219
End of year 211 216 200
- -----------------------------------------------------------------
1 Oil reserves comprise crude oil and condensate and natural gas liquids (NGL)
expected to be removed for the company's account from its natural gas
deliveries.
2 Includes Canada, Dubai and Indonesia.
3 Includes reserves acquired through property exchanges.
4 Includes reserves disposed of through property exchanges.
66
Supplemental Petroleum Data
(In billion cubic feet)
Estimated Proved Reserves of Gas
- -----------------------------------------------------------------------------------------------------------------------------------
Total Worldwide United States Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Consolidated
Companies
Beginning of year 3,680 3,445 3,619 1,802 1,928 2,149 1,752 1,417 1,321
Revisions and other changes 317 72 (36) 121 (22) (55) 187 54 56
Extensions and discoveries 514 712 307 139 196 127 356 507 172
Improved recovery - 1 - - 1 - - - -
Purchase of reserves/2/ 375 53 37 42 53 37 321 - -
Sale of reserves/3/ (71) (122) (51) (37) (49) (51) (34) (68) -
Production (485) (481) (431) (318) (305) (279) (151) (158) (132)
-----------------------------------------------------------------------------------------------
End of year 4,330 3,680 3,445 1,749 1,802 1,928 2,431 1,752 1,417
-----------------------------------------------------------------------------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year 586 368 128 586 368 128 - - -
Revisions and other changes 255 72 167 255 72 167 - - -
Extensions and discoveries - - 75 - - 75 - - -
Purchase of reserves 2 151 - 2 151 - - - -
Production (13) (5) (2) (13) (5) (2) - - -
-----------------------------------------------------------------------------------------------
End of year 830 586 368 830 586 368 - - -
-----------------------------------------------------------------------------------------------
Total 5,160 4,266 3,813 2,579 2,388 2,296 2,431 1,752 1,417
-----------------------------------------------------------------------------------------------
Proved Developed Reserves
of Consolidated Companies
Beginning of year 2,570 2,539 2,750 1,717 1,837 2,013 738 618 602
End of year 2,496 2,570 2,539 1,687 1,717 1,837 683 738 618
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions/1/
-----------------------------
1994 1993 1992
-----------------------------
Proved Developed and Undeveloped
Reserves of Consolidated
Companies
Beginning of year 126 100 149
Revisions and other changes 9 40 (37)
Extensions and discoveries 19 9 8
Improved recovery - - -
Purchase of reserves/2/ 12 - -
Sale of reserves/3/ - (5) -
Production (16) (18) (20)
-----------------------------
End of year 150 126 100
-----------------------------
Proved Developed and Undeveloped
Reserves of Equity Affiliates
Beginning of year - - -
Revisions and other changes - - -
Extensions and discoveries - - -
Purchase of reserves - - -
Production - - -
-----------------------------
End of year - - -
-----------------------------
Total 150 126 100
-----------------------------
Proved Developed Reserves
of Consolidated Companies
Beginning of year 115 84 135
End of year 126 115 84
- -----------------------------------------------------------------
1 Includes Canada, Dubai and Indonesia.
2 Includes reserves acquired through property exchanges.
3 Includes reserves disposed of through property exchanges.
67
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, 1994 data averaged $14.38 for the United States, $15.81 for
Europe and $16.08 for Other Regions, and the gas prices per thousand cubic feet
averaged approximately $1.59 for the United States, $2.87 for Europe and $1.34
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.
68
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 Europe
----------------------------- ----------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------
Consolidated Companies
Future cash flows:
Revenues $23,836 $19,558 $24,439 $ 7,201 $ 7,199 $10,027 $12,945 $ 9,380 $10,785
Production costs (8,967) (9,117) (10,011) (3,411) (4,361) (5,228) (4,719) (4,005) (4,119)
Development costs (1,693) (1,802) (1,719) (184) (515) (534) (1,439) (1,143) (1,001)
Income tax expense (6,084) (3,607) (6,022) (873) (414) (1,060) (2,893) (1,514) (2,585)
-----------------------------------------------------------------------------------------------
Future net cash flows 7,092 5,032 6,687 2,733 1,909 3,205 3,894 2,718 3,080
Discounted to present value
at a 10% annual rate (2,817) (1,818) (2,379) (1,154) (655) (1,239) (1,522) (1,021) (1,000)
-----------------------------------------------------------------------------------------------
Total consolidated
companies 4,275 3,214 4,308 1,579 1,254 1,966 2,372 1,697 2,080
-----------------------------------------------------------------------------------------------
Equity Affiliates
Standardized measure of
discounted future net
cash flows of equity
affiliates 211 99 70 102 96 55 109 3 15
-----------------------------------------------------------------------------------------------
Total $ 4,486 $ 3,313 $ 4,378 $ 1,681 $ 1,350 $ 2,021 $ 2,481 $ 1,700 $ 2,095
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------
Other Regions*
-----------------------------
1994 1993 1992
-----------------------------
Consolidated Companies
Future cash flows:
Revenues $ 3,690 $ 2,979 $ 3,627
Production costs (837) (751) (664)
Development costs (70) (144) (184)
Income tax expense (2,318) (1,679) (2,377)
-----------------------------
Future net cash flows 465 405 402
Discounted to present value
at a 10% annual rate (141) (142) (140)
-----------------------------
Total consolidated
companies 324 263 262
-----------------------------
Equity Affiliates
Standardized measure of
discounted future net
cash flows of equity
affiliates - - -
-----------------------------
Total $ 324 $ 263 $ 262
- -----------------------------------------------------------------
* Includes Canada, Dubai and Indonesia.
69
Supplemental Petroleum Data
(Dollars in millions)
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves for Fully Consolidated Companies
- ------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------
Balance at January 1 $ 3,214 $ 4,308 $ 3,558
Sales and transfers of oil and gas produced, net of production costs (2,143) (2,239) (2,053)
Development costs incurred during the period 713 864 833
Net changes in prices and in development and production costs 1,275 (3,017) 765
Extensions, discoveries and improved recovery, less related costs 775 915 453
Revisions of previous quantity estimates 796 130 178
Purchases (sales) of reserves in place--net 333 (120) (42)
Accretion of discount 529 791 689
Net change in income taxes (1,174) 1,493 (369)
Other (43) 89 296
----------------------------------------
Balance at December 31 $ 4,275 $ 3,214 $ 4,308
- ------------------------------------------------------------------------------------------------------------------------
70
Quarterly Financial Data
(Dollars in millions, except per share)
- -----------------------------------------------------------------------------------------------------------------
Quarter Ended March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------
1994
Sales $ 9,190 $10,161 $ 9,845 $10,137
Cost of Goods Sold and Other Expenses/1/ 8,101 8,924 8,958 9,335
Net Income 642 792/2/ 647/3/ 646/4/
Earnings Per Share of Common Stock .94 1.16 .95 .95
Dividends Per Share of Common Stock .44 .44 .47 .47
Market Price of Common Stock/5/:
High 59 7/8 62 3/8 61 3/8 60 1/2
Low 48 1/4 51 1/2 56 7/8 50 3/4
- -----------------------------------------------------------------------------------------------------------------
1993
Sales $ 9,070 $ 9,546 $ 9,231 $ 9,251
Cost of Goods Sold and Other Expenses/1/ 8,247 8,684 10,375 8,983
Net Income (Loss) 493/6/ 516/7/ (680)/8/ 237/9/,/10/
Earnings (Loss) Per Share of Common Stock .73 .76 (1.01) .35/9/
Dividends Per Share of Common Stock .44 .44 .44 .44
Market Price of Common Stock/5/:
High 50 53 7/8 49 5/8 50 1/2
Low 44 1/2 46 1/2 45 7/8 44 1/2
- -----------------------------------------------------------------------------------------------------------------
1 Excludes interest and debt expense and provision for income taxes.
2 Includes a charge of $47 ($.07 per share) associated with "Benlate" DF 50
fungicide recall.
3 Includes a net charge of $3 reflecting: a benefit of $50 from adjustments in
estimates associated with the third quarter 1993 restructuring charge; a
charge of $58 for employee separation costs; a loss of $95 from the write-
down of certain North Sea oil properties to be sold; a charge of $27
associated with the discontinuation of certain products, assets sales and
write-downs and a benefit of $127 principally related to a favorable change
in tax status resulting from a transfer of properties among certain North Sea
affiliates.
4 Includes a net benefit of $2 reflecting: a benefit of $62 from adjustments in
estimates associated with the third quarter 1993 restructuring charge; a
charge of $63 associated with the "Benlate" DF 50 fungicide recall; a charge
of $27 for the write-down of assets and discontinuation of certain products;
and a benefit of $30 from an adjustment of prior-year tax provisions.
5 As reported on the New York Stock Exchange, Inc. Composite Transactions Tape.
6 Includes a gain of $32 ($.05 per share) from exchange of North Sea properties
(see footnote 11 to Note 30 on page 63).
7 Includes a loss of $21 ($.03 per share) from sale of petroleum-producing
properties.
8 Includes restructuring charges of $1,111 ($1.64 per share) and write-down of
intangible assets of $184 ($.27 per share), partially offset by a net tax
benefit of $265 ($.39 per share).
9 Before extraordinary item.
10 Includes net charge of $92 ($.13 per share) related to certain product
liability claims and litigation costs ($144, of which $126 is associated with
the "Benlate" DF 50 fungicide recall) and a loss on the sale of a
polyethylene business ($17), partly offset by a gain from the sale of the
Remington Arms Company ($69). Also includes a benefit of about $50 ($.07 per
share) as a result of the liquidation of certain LIFO inventory quantities.
71
Consolidated Geographic Data
(Dollars in millions)
- -----------------------------------------------------------------------------------------------
Capital Total Assets Average
Expenditures December 31 Employment
------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993
------------------------------------------------------------------------
United States $ 1,520 $ 1,842 $19,857 $20,610 73,507 81,587
Europe 1,317 1,277 11,957 11,315 22,624 22,427
Other Regions 404 606 5,078 5,128 14,376 15,395
------------------------------------------------------------------------
Total $ 3,241 $ 3,725 $36,892 $37,053 110,507 119,409
- -----------------------------------------------------------------------------------------------
Capital expenditures, total assets and average employment are assigned to
geographic areas, generally based on physical location.
72
Five-Year Financial Review/1/
(Dollars in millions, except per share)
- --------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------------------------------------------------------
Summary of Operations
Sales $39,333 $37,098 $37,799 $38,695 $40,047
Earnings Before Income Taxes $ 4,382 $ 958 $ 1,811 $ 2,818 $ 4,154
Provision for Income Taxes $ 1,655 $ 392 $ 836 $ 1,415 $ 1,844
Net Income/2/ $ 2,727 $ 566 $ 975 $ 1,403 $ 2,310
As Percent of Average Stockholders' Equity/2/ 22.6% 4.8% 8.1% 8.3% 14.3%
Earnings Per Share of Common Stock/2/,/3/ $ 4.00 $ .83 $ 1.43 $ 2.08 $ 3.40
---------------------------------------------------------------
Financial Position at Year End
Working Capital $ 3,543 $ 1,460 $ 2,002 $ 3,381 $ 2,210
Total Assets $36,892 $37,053 $38,870 $36,559 $38,128
Borrowings and Capital Lease Obligations:
Short Term $ 1,292 $ 2,796 $ 3,799 $ 1,841 $ 3,928
Long Term $ 6,376 $ 6,531 $ 7,193 $ 6,456 $ 5,663
Stockholders' Equity $12,822 $11,230 $11,765 $16,739 $16,418
Total Debt as Percent of Total Capitalization 37% 45% 48% 33% 37%
---------------------------------------------------------------
General
For the Year:
Capital Expenditures $ 3,241 $ 3,725 $ 4,524 $ 5,246 $ 5,513
Depreciation, Depletion and Amortization $ 2,976 $ 2,833 $ 2,655 $ 2,640 $ 2,625
Research and Development Expense $ 1,047 $ 1,132 $ 1,277 $ 1,298 $ 1,428
As Percent of Combined Segment Sales for:
Chemicals, Fibers, Polymers and
Diversified Businesses 4.5% 5.1% 5.6% 5.8% 6.2%
Petroleum 0.3% 0.3% 0.4% 0.4% 0.3%
Average Number of Shares Outstanding (millions) 680 677 673 671 676
Dividends Per Common Share $ 1.82 $ 1.76 $ 1.74 $ 1.68 $ 1.62
Dividends as Percent of Earnings on Common Stock/2/ 46% 212% 122% 81% 48%
Common Stock Prices:
High $ 62 3/8 $ 53 7/8 $ 54 7/8 $ 50 $ 42 3/8
Low $ 48 1/4 $ 44 1/2 $ 43 1/2 $ 32 3/4 $ 31 3/8
Year-End Close $ 56 1/8 $ 48 1/4 $ 47 1/8 $ 46 5/8 $ 36 3/4
At Year End:
Employees (thousands) 107 114 125 133 144
Common Stockholders of Record (thousands) 172 181 188 195 199
Book Value Per Common Share $ 18.48 $ 16.22 $ 17.08 $ 24.58 $ 24.16
- --------------------------------------------------------------------------------------------------------------------------
1 See Management's Discussion and Analysis on pages 30-36, Consolidated Income
Statement on page 39, Notes to Financial Statements on pages 43-63 and
Quarterly Financial Data on page 71 for information relating to significant
items affecting the results of operations and financial position.
2 Before effect on income of extraordinary item (1993 and 1992) and transition
effect of accounting changes (1992). See the Consolidated Income Statement on
page 39.
3 Based on the average number of common shares outstanding.
73