TO OUR SHAREHOLDERS
DuPont in 2000 had a strong year, but by no means an ideal one. We confronted
dramatically higher prices for oil and natural gas, a weak euro and keen Asian
competition. We reported earnings growth in the face of these challenges.
However, our financial performance fell short of the levels that we had hoped
for. The result was a disappointing 27 percent drop in the price of DuPont
shares.
Thanks to the dedicated efforts of our 93,000 employees, we worked
creatively to counter the unfavorable macroeconomic conditions. Earnings per
share, excluding one-time items, increased 6 percent -- a very solid
performance. The last time energy prices rose to a comparable degree -- in
1990-91 -- chemical earnings dropped 30 percent. This time we overcame $1
billion of additional costs from higher raw materials and energy prices and
negative currency impacts.
The geographic diversity of our company contributed greatly to this
success. As U.S. earnings dropped during the second half of 2000, our businesses
outside of the United States continued to provide substantial earnings growth.
We also carefully managed our cash, reducing capital expenditures and
paying down net debt by $1.7 billion. As a result, we ended the year in a
stronger financial position than we began, despite the difficult economic
environment we faced.
There were also several important developments during 2000:
[ ] We took a significant step in redefining and focusing our business portfolio
when we announced in December the intent to separate DuPont Pharmaceuticals.
Separating DuPont Pharmaceuticals was a difficult decision considering the many
strengths of the business, particularly its employees, exciting early-stage
pipeline, and strong HIV and cardiovascular franchises. But we concluded that
the full value of the business can best be realized outside of DuPont.
[ ] We began executing against our $2.5 billion share buyback program.
[ ] We introduced DuPont(TM) Sorona(TM), the most recent addition to our overall
polymer science and technology platform. It will be our first bio-based material
- -- integrating biology and chemistry -- when we convert production of a key
intermediate to a biological route in 2003.
[ ] DuPont and General Mills announced plans to collaborate in developing and
marketing soy-based foods to consumers, a major new growth opportunity.
[ ] We acquired UNIAX Corporation, a start-up company that has produced the
world's first polymer-based plastic display used as an alternative to liquid
crystal display (LCD) technology in information devices such as laptop computers
and cell phones -- a $20 billion market. Alan J. Heeger of the University of
California at Santa Barbara, co-founder and consultant to UNIAX Corporation, was
one of three scientists who shared the 2000 Nobel Prize in Chemistry for the
discovery and development of conductive polymers.
[ ] Our world-class seed business, Pioneer, introduced 27 new corn hybrids and
26 new soybean varieties for the 2001 season. Pioneer also had a very successful
2000 season with revenues up 5 percent and operating results up almost 20
percent versus 1999 on a comparable full year basis.
2
[ ] We introduced DuPont(TM) Zodiaq(TM) quartz surfaces, a new brand and product
category for continued growth in the home and architectural surfaces market.
Zodiaq(TM) is a complement to the very successful DuPont(TM) Corian(R)
franchise.
[ ] DuPont and Unifi Inc. announced a manufacturing alliance to optimize
manufacturing facilities, increase productivity and improve product quality for
the production of partially oriented polyester filament yarn.
[ ] DuPont teamed with the U.S. Centers for Disease Control and Prevention (CDC)
to evaluate the role of our RiboPrinter(R) microbial characterization system to
enhance the CDC's state-of-the-art foodborne bacterial surveillance network.
The progress we achieved in the face of significant challenges underscores
what we have communicated all along: The fundamentals of our company are strong.
Our strategies are sound. We have businesses that can win in the marketplace. We
have the technology platforms to keep them competitive. We have talented people
who can lead them to success.
DuPont is a science company committed to sustainable growth. As we approach
our third century of operation, we are one of the premier science companies in
the world. We are confident we can bring our science to bear on the world's
human needs, while decreasing the environmental footprint of our operations
wherever we operate.
Our excellence in chemistry and engineering, which built the modern DuPont
company in the 20th century, is now complemented by an equally world-class
capability in biology. These are the technology drivers for DuPont. We are
already seeing that some of the most exciting and profitable opportunities for
business growth in the future will come from the integration of different areas
of scientific expertise. That process is a familiar and historic one at DuPont,
and integrated science is a key strategic thrust. To make this process as
effective as possible, we are listening carefully to our customers so we can
create the products that they will value most.
We are also continuing emphasis on our two other strategic pathways that I
spoke of in last year's annual report. We have made good progress in knowledge
intensity -- adding value to our product offerings through service, design,
branding or information. For example, earlier this year we introduced DuPont(TM)
Artistri(TM) technology and the DuPont(TM) Ink Jet 3210 printer, the first fully
integrated, production-capable, digital textile printing system. We have taken
our knowledge of ink jet inks and textiles and shifted our business model.
Instead of simply selling inks, we are offering the customer a complete solution
that enables us to capture more of the downstream value created by DuPont
innovation.
As for operational drivers of growth, productivity improvement through Six
Sigma leads the way. At year-end 2000 we had 1,100 black belts (advanced project
leaders) and 1,700 green belts (intermediate project leaders) working on 4,200
ongoing or completed projects. The actual annualized pretax benefit of completed
projects at the end of the year 2000 was $370 million.
In the pages that follow this letter, we offer some examples of how our
three strategic pathways of integrated science, knowledge intensity and Six
4
Sigma productivity are propelling us toward our overall goal of sustainable
growth. I encourage you to review these vignettes. They are a small sample of
our many activities underway around the world.
We remain a company in transformation. Our focus is sharp and our
understanding of our strengths and competitive realities is clear. The two
charts on these pages illustrate our revenue sources from technology and market
perspectives.
One chart identifies four "technology platforms." These platforms describe
the science that underpins our businesses. It should come as no surprise that
businesses based on polymer technologies continue to account for a high
percentage of our revenue. But electronics and biology are growing fast, and
they will take on an increasingly important role in our overall science mix as
the decade progresses.
The other chart shows the broad market categories that are important to us.
The traditional markets for DuPont chemicals and materials will remain critical
to our success for the foreseeable future. But even faster revenue growth could
come from our businesses that serve customers in food, health, and electronics.
DuPont businesses are being managed differentially. We have clear
milestones for the next eight quarters. We are focused on the customer, keeping
costs in line with the business environment, and managing businesses according
to their market and competitive realities.
Finally, we bring to our overall effort the added competitive advantage of
DuPont's solid set of core values. Our values are the glue that binds our
businesses together and makes our company strong wherever we operate in the
world.
Despite the stress of a difficult year, we did not relax our emphasis on
safety and the environment. We ended the year with significantly fewer lost
workday cases than the year before. Our total recordable injury rate is more
than three times better than the average for all industry. We completed 2000
without a single significant process incident and zero "Category A"
environmental incidents (those with an impact off site). DuPont people are among
the most ethical business people in the world. Also, we are recognized by
independent organizations as a company that treats people fairly while fostering
opportunity and growth for all employees.
As for the near future, we know that the business environment in 2001 will
remain volatile. We are facing unfavorable macroeconomic factors and increased
competitive pressures. The first half will be especially tough, and we will have
to run as lean as possible. But we have not taken our eye off our goal of
sustainable growth. We continue to deliver "The miracles of science" to people
around the world as we provide solutions for our customers and focus on creating
value for our shareholders.
/s/ Chad Holliday
Chad Holliday, Chairman and CEO March 2, 2001
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
This review and discussion of financial performance should be read in
conjunction with the letter to stockholders (pages 2-5) and consolidated
financial statements (pages 42-71).
Analysis of Continuing Operations
SALES
Consolidated sales in 2000 were a record $28.3 billion, $1.4 billion or 5
percent above 1999. Of this increase, $1.1 billion was attributable to portfolio
changes, primarily sales resulting from the Herberts and Pioneer acquisitions,
partly offset by sales reductions as formerly consolidated businesses in the
Polyester Enterprise were restructured into joint ventures and accounted for
using the equity method. Excluding portfolio changes, worldwide sales increased
1 percent, as 2 percent higher volume was partly offset by 1 percent lower U.S.
dollar selling prices. Specialty Fibers, Specialty Polymers and Pigments &
Chemicals segments had the most positive impact on volume. Performance Coatings
& Polymers, Specialty Fibers and Agriculture & Nutrition segments had the most
significant downward impact on the worldwide price average. The decline in
average worldwide U.S. dollar selling prices continued a trend that began in
1995, largely reflecting the currency impact of translating local country
currencies into U.S. dollars. The net effect of currency fluctuations during the
year reduced worldwide sales by 3 percent. Sales in the U.S. region increased 5
percent, including 6 percent growth from portfolio changes, 1 percent higher
prices, and 2 percent lower volume. Lower U.S. volume principally reflected
declines in the Pharmaceuticals, Specialty Fibers and Polyester Enterprise
segments. European region sales decreased 4 percent reflecting 9 percent lower
U.S. dollar prices, 6 percent higher volume, and a net reduction of 1 percent
from portfolio changes. The net effect of currency fluctuations during the year
reduced European sales by 12 percent. Sales in the Asia Pacific region grew 15
percent reflecting 10 percent volume growth, 3 percent higher U.S. dollar
prices, and a 2 percent benefit from portfolio changes.
Sales in 1999 reached a record $26.9 billion, 9 percent above 1998, principally
reflecting a $2.2 billion increase derived from business acquisitions. Excluding
portfolio additions, worldwide sales were flat, as 3 percent higher volume was
offset by 3 percent lower selling prices. The Polyester Enterprise, Nylon
Enterprise and Specialty Polymers segments had the most significant downward
impact on the worldwide price average. The net effect on prices from currency
fluctuations during the year was negligible. Sales in the U.S. region increased
5 percent, as 7 percent volume growth, including 6 percent from acquisitions,
was offset by 2 percent lower prices. Excluding acquisitions, U.S. volumes grew
significantly in the Performance Coatings & Polymers, Pharmaceuticals and
Specialty Fibers segments, while the Agriculture & Nutrition and Polyester
Enterprise segments had lower volumes. European region sales increased 13
percent reflecting the Herberts acquisition. Excluding the benefit of Herberts,
sales in the European region declined 5 percent, reflecting flat volume and 5
percent lower prices, the latter due to currency effect. Sales in the Asia
Pacific region grew 22 percent due to volume growth. Prices were flat as 5
percent lower local prices were offset by a 5 percent currency benefit.
EARNINGS
Net income for the year 2000 was $2,314 million compared with $7,690 million in
1999. The decrease in net income principally reflects the absence of a $7,471
million after-tax gain recorded in 1999 on disposal of discontinued business
(Conoco, the company's former energy subsidiary). Earnings per share on a
diluted basis were $2.19 in 2000 versus $6.99 in 1999.
Income from continuing operations was $2,314 million or $2.19 per share in 2000,
compared with $219 million or $.19 per share in 1999. These amounts include
one-time items which were significant in both years. For 2000, one-time items
totaled a net after-tax charge of $564 million, or $.54 per share, largely
attributable to restructuring activities, Pioneer purchase accounting and a
write-down of the company's investment in WebMD to fair market value. For 1999,
one-time items resulted in a net charge of $2,624 million, or $2.39 per share.
The most significant of these were a write-off of in-process research and
development in connection with the acquisition of Pioneer, charges for
impairment write-downs and restructuring activities in several segments and a
gain recognized from the exchange of the company's investment in WebMD for
Healtheon/WebMD.
Diluted earnings per share from continuing operations excluding one-time items
were $2.73 in 2000 versus $2.58 in 1999, up 6 percent. Income from continuing
operations excluding one-time items was $2,878 million in 2000 versus $2,843
million in 1999, up 1 percent. Earnings per share increased 6 percent primarily
due to reduced average common shares outstanding in 2000 versus 1999. After-tax
operating income (ATOI) excluding one-time items increased 6 percent reflecting
higher sales volume and local selling prices, partly offset by significantly
higher raw material costs and the negative currency impact of the stronger U.S.
dollar. The increased ownership in Pioneer for a full year in 2000 versus only
the fourth quarter in 1999 increased ATOI by $206 million.
12 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Net income for the year 1999 was $7,690 million compared with $4,480 million in
1998. The increase in net income principally reflects a $7,471 million after-tax
gain on disposal of Conoco, versus a similar gain of $2,439 million in 1998.
Partly offsetting this increase was a reduction in income from continuing
operations and the absence of 1998 income from operations of discontinued
business. Earnings per share on a diluted basis were $6.99 versus $3.90 in 1998.
Income from continuing operations before extraordinary item was $219 million or
$.19 per diluted share in 1999, compared with $1,648 million or $1.43 per
diluted share in 1998. These amounts include one-time items which were
significant in both years. For 1999, one-time items resulted in a net charge of
$2,624 million, or $2.39 per share. The most significant of these were: 1)
$2,186 million charge to write off in-process research and development in
connection with the acquisition of the remaining 80 percent interest in Pioneer;
2) charges of $484 million for impairment write-downs and restructuring
activities in the Nylon Enterprise, Agriculture & Nutrition and Polyester
Enterprise segments; and 3) a gain of $208 million recognized from the exchange
of the company's investment in WebMD for Healtheon/WebMD. For 1998, one-time
charges applicable to continuing operations totaled $1,265 million.
Diluted earnings per share from continuing operations excluding one-time items
in 1999 were $2.58 versus $2.55 in 1998. 1999 income from continuing operations
excluding one-time items was $2,843 million versus $2,913 million in 1998, down
2 percent. Earnings per share increased despite lower income because of reduced
average common shares outstanding in 1999 versus 1998. The $70 million lower
income excluding one-time items reflects 2 percent higher ATOI more than offset
by higher exchange losses and corporate expenses. The increased ATOI is due to
higher sales volume, reduced variable cost per unit, and a lower effective
income tax rate, partly offset by lower selling prices and slightly higher fixed
costs. The combined impact of business portfolio changes including the addition
of Herberts, as well as the increased ownership interest in DuPont
Pharmaceuticals and Pioneer, was to reduce full-year ATOI by about 1 percent.
Full-year results were reduced by inclusion of Pioneer's seasonal operating
losses in the fourth quarter on a full ownership basis and amortization of
acquired intangibles.
Income tax expense and effective income tax rates were as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
---------------------------------
Income tax expense (dollars in millions) $1,072 $1,410 $941
Effective income tax rate (EITR) 31.1% 83.4% 36.0%
================================================================================
The 2000 EITR of 31 percent and the 1998 EITR of 36 percent were significantly
lower than the 1999 EITR of 83 percent primarily due to the absence of the
write-off of acquired in-process research and development in connection with the
acquisition of Pioneer which reduced earnings with no tax effect in 1999.
Excluding one-time items and related tax effects, the EITR in 2000 of 32 percent
was unchanged from 1999. Excluding one-time items and related tax effects, the
EITR in 1999 decreased to 32 percent from 34 percent in 1998 due to a lower
effective rate on foreign earnings.
CORPORATE OUTLOOK
The company anticipates that most of the challenging economic conditions
experienced in North America during the second half of 2000 will continue for at
least the first half of 2001 and plans to aggressively manage costs at levels
commensurate with the business environment.
The Agriculture & Nutrition and Pioneer segments are operating principally in
the stable but difficult crop production sector of the U.S. farm economy. Both
segments are expected to be adversely affected, directly or indirectly, by high
natural gas prices. Therefore, earnings are expected to be moderately lower
versus 2000. The Pharmaceuticals segment is expected to incur substantial losses
in the first half of 2001, reflecting decisions to discontinue various
promotional sales programs and thereby reduce the amount of product in the
distribution channel. The company expects the Pharmaceuticals segment to return
to profitability in the second half of 2001. In addition DuPont has announced
its intent to separate DuPont Pharmaceuticals from the company.
For the remaining segments, which comprise the chemicals and materials
businesses, the company expects that high raw material costs, including natural
gas, and slower economic growth will adversely affect earnings, particularly
during the first half of 2001. This reflects anticipated continuing weakness in
the apparel and motor vehicle markets and slower growth in the construction
industry - which are end-use markets for over 40 percent of the company's sales.
In addition to the foregoing
DUPONT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
factors, earnings in 2001 will reflect modestly higher accruals for pension and
other postretirement employee benefit costs, principally due to higher health
care costs.
The company has accelerated operational initiatives to manage costs in line with
the business environment. Actions have been taken to streamline logistics,
production scheduling, purchasing and other processes through Six Sigma; improve
pricing and product mix; reduce working capital and capital expenditures; and
strengthen focus on the customer. Through aggressive and integrated management
of these initiatives, the company expects to mitigate some of the impact of
adverse macroeconomic factors while strengthening its businesses.
Discontinued Operations
On September 28, 1998, the company announced that the Board of Directors had
approved a plan to divest Conoco. On October 21, 1998, the company's interest in
Conoco was reduced to 69.5 percent following an initial public offering of
Conoco Class A common stock. On August 6, 1999, the company completed the
planned divestiture through a tax-free split off whereby the company exchanged
its 436,543,573 shares of Conoco Class B common stock for 147,980,872 shares of
DuPont common stock. The company also bought back 8 million shares for $646
million from non-U.S. persons who were not eligible to participate in the tender
offer. The company's consolidated financial statements and notes report its
former petroleum business as discontinued operations.
The 1999 gain on disposal of discontinued business reflects the company's share
of Conoco's results of operations through August 6, 1999, and the $7,306 million
gain recognized by the company from the completion of the split off. The gain
from the split off results from the difference between the market value and the
carrying value of the Conoco Class B common shares, less direct expenses. The
1998 gain on disposal of discontinued business reflects the company's share of
Conoco's results of operations from October 1 to December 31, 1998, and the
$2,586 million gain recognized by DuPont from the initial public offering of
Conoco Class A common stock.
In connection with the separation from DuPont, Conoco and DuPont entered into a
tax sharing agreement. Several matters under the tax sharing agreement are
currently in dispute between Conoco and DuPont. Among other things, Conoco
claims that DuPont owes Conoco in excess of $250 million pursuant to the tax
sharing agreement. DuPont disputes that it owes this amount and believes that
any settlement of the dispute will not be material to its financial position,
liquidity or the gain on disposal of discontinued business. This matter is in
arbitration and a hearing is not expected until 2002.
Segment Reviews
Segment sales discussed below include pro rata equity affiliate sales and
intersegment transfers. Segment ATOI does not include corporate expenses,
interest and exchange gains (losses). Prior years' data have been reclassified
to reflect the 2000 organizational structure.
AGRICULTURE & NUTRITION
DuPont Crop Protection
DuPont Nutrition & Health
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 2.5 189 245
1999 2.6 159 264
1998 2.8 252 325
See Industry Segment Information (Note 30 to Financial Statement.)
The mission of the Agriculture & Nutrition businesses is to best satisfy the
world's need for food and nutrition by transforming the ways renewable resources
are grown, processed and distributed. DuPont Crop Protection serves production
agriculture with products for the grain and specialty crop sectors as well as
forestry and vegetation management. It includes global herbicide, fungicide and
insecticide products and services. DuPont Crop Protection strategies are to
develop and commercialize new products; continue to build the broad line of
existing products; develop new business models particularly in e-commerce; and
capitalize on cross-business unit synergy opportunities.
Numerous new products were registered and introduced into the marketplace during
2000 in countries around the world. DuPont/TM/ Equation/TM/, Equation/TM/
Pro/TM/ and DuPont/TM/ Tanos/TM/ with the active ingredient DuPont/TM/
Famoxate/TM/ are now registered in 42 countries. They are used for disease
control primarily on grapes, potatoes, tomatoes and cucumbers. DuPont/TM/
Steward/TM/ and DuPont/TM/ Avaunt/TM/, with the active ingredient indoxacarb,
have been registered in 25 countries, including the United States, for insect
control on cotton, fruits and vegetables. DuPont/TM/ Milestone/TM/ and
DuPont/TM/ Evolus/TM/, with the active ingredient azafenidin, are used
14 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
for weed control on sugarcane, citrus, grapes and non-crop activities and are
registered in three countries.
DuPont Nutrition & Health includes Protein Technologies
International Inc. (PTI), Qualicon Inc. and DuPont Specialty Grains.
PTI is a world leader in the research, manufacturing and marketing of isolated
soy protein, soy oil and soy fiber ingredients. In late 1999 the U.S. Food and
Drug Administration (FDA) authorized the use of a health claim on food labels
concerning the association between soy protein and the reduced risk of coronary
heart disease. In November 2000 the health claim was reinforced by the American
Heart Association (AHA) when it recommended that consumers eat more soy protein
to lower cholesterol and the risk of heart disease. In its recommendation, the
AHA emphasized the importance of getting soy protein with its naturally
occurring bioactive components. DuPont(TM) Supro(R) soy brand proteins are
specially processed to retain naturally-occurring bioactive components and are
proven clinically to reduce the risk of coronary heart disease. PTI continues to
fund studies on other potential health benefits of soy with women's health being
the primary area of research, including menopausal symptoms and bone health. In
August 2000 PTI and General Mills Inc. formed a joint venture to collaborate on
developing and marketing new soy foods.
DuPont Qualicon is a world leader in food quality and safety. With a focus
on molecular biology, Qualicon provides a full range of microbial testing
products that help food industry customers understand and control the microbial
environment in their manufacturing processes and supply chains. Qualicon
products include the BAX(R) screening system, a fully automated genetics-based
system that provides highly sensitive and rapid detection of harmful bacteria in
food, water and environmental samples. BAX(R)system tests also are available to
help food processors determine if specific genetic enhancements are present in
food products as a critical component of Identity Preservation (IP) systems and
to comply with labeling requirements in some markets. The Qualicon
RiboPrinter(R) microbial characterization system is the world's only automated
instrument for fingerprinting the DNA of bacteria. The system is emerging as a
critical tool to address global health problems related to foodborne disease,
antibiotic resistance, hospital infection control and pharmaceutical quality
assurance.
On June 7, 2000, Optimum Quality Grains, LLC officially became known as DuPont
Specialty Grains (DSG). This name change reflects the expanded role of DSG in
developing and delivering enhanced grains for feed, food and industrial use. The
mission of DSG is to develop and market improved grain products through
innovative customer-focused production and distribution systems. Efforts to
build IP systems continue to show strong growth. DSG is creating coordinated
production systems that will help meet customer needs and requirements for
specialized products.
2000 versus 1999 Sales of $2.5 billion were 3 percent lower, reflecting 3
percent lower prices and flat volume. ATOI was $189 million compared with $159
million. ATOI before one-time items was $245 million versus $264 million, down 7
percent, as marginally higher DuPont Crop Protection earnings were more than
offset by lower DuPont Nutrition & Health earnings. The latter is due to higher
natural gas costs as well as planned higher research and development and
marketing expenses.
1999 versus 1998 Sales of $2.6 billion were 7 percent lower, reflecting flat
prices and 7 percent lower sales volume. ATOI was $159 million compared with
$252 million. ATOI before one-time items was $264 million, down $61 million, or
19 percent, principally reflecting lower DuPont Crop Protection earnings.
Outlook The crop protection industry has experienced significant change during
the past two to three years with a depressed farm economy, industry
consolidation, and the influence of insect and herbicide resistant crops. Net
U.S. farm income before government payments has declined by 50 percent since
1996. In order to compete in this business environment, DuPont Crop Protection
instituted a restructuring program in 1999 to reduce fixed costs and align the
size of the business with the realities in the global farm economy. The
operating outlook for 2001 will continue to be very challenging. High natural
gas prices will force PTI to operate in a difficult environment in 2001 since
its manufacturing processes are natural gas energy intensive.
The company has been served with several hundred lawsuits in connection with the
1991 stop-sale and recall of DuPont(TM) Benlate(R) 50 DF fungicide;
approximately 120 cases are pending. The majority of these lawsuits were
disposed of by trial,
DUPONT 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
settlement or dismissal. However, certain plaintiffs who previously settled with
the company have filed cases alleging fraud and other misconduct relating to the
litigation and settlement of Benlate(R) 50 DF claims. DuPont believes that
Benlate(R) 50 DF did not cause the damages alleged in these cases and denies the
allegations of fraud and misconduct. DuPont intends to defend itself in these
cases. The ultimate liabilities from Benlate(R) 50 DF lawsuits may be
significant to DuPont Crop Protection's results of operations in the period
recognized, but management does not anticipate that they will have a material
adverse effect on the company's consolidated financial position or liquidity.
- --------------------------------------------------------------------------------
NYLON ENTERPRISE
- --------------------------------------------------------------------------------
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 4.6 328 301
1999 4.5 63 389
1998 4.6 244 406
See Industry Segment Information (Note 30 to Financial Statements).
The Nylon Enterprise is the global leader in nylon intermediates, polymers and
fibers for major markets such as carpets and rugs, apparel, tire reinforcement
and numerous other industrial applications. Brands include DuPont(TM)
Stainmaster(R) and DuPont(TM) Antron(R) for carpets, DuPont(TM) Tactel(R) and
DuPont(TM) Supplex(R) for apparel, and DuPont(TM) Cordura(R) for products
including packs and bags, boots and shoes, and apparel.
Facilities modernization continued in 2000, including: apparel fiber operations
at Chattanooga, Tennessee, and Monterrey, Mexico, that are progressing toward a
year-end 2001 completion; consolidation of all European flooring fiber
facilities at Oestringen, Germany; and start-up of a state-of-the-art carpet
fiber expansion at Kingston, Ontario. A major nylon intermediates expansion at
the Chalampe, France, joint venture with Rhodia SA will be completed by year-end
2001.
Additional new product families such as Tactel(R) Soft Black and Tactel(R) Aero
were introduced in 2000. The introduction of DuPont(TM) Tactesse(R) fiber for
DuPont(TM) Stainmaster(R) carpets in the residential market has set a new
standard for soft, thick, wool-like and durable carpets with superior stain and
soil resistance. The Stainmaster(R) business has continued to grow well as a
result of continued new product development, increased awareness of the
Stainmaster(R) brand, and marketing programs that have improved its position in
key North America markets. Antron(R) nylon is the strongest, most preferred
brand in commercial flooring markets.
In December 2000, Nylon Enterprise and Sabanci further expanded their
multiregional alliance for industrial nylon. The new 50/50 joint venture,
DuPont-Sabanci International LLC (DUSA), is the world's leading supplier of
heavy decitex nylon industrial yarn and tire cord fabric and will operate with
eight manufacturing sites and approximately 2,300 employees worldwide.
2000 versus 1999 Sales of $4.6 billion were 1 percent higher, reflecting 1
percent higher prices and flat volume. ATOI was $328 million compared with $63
million. ATOI before one-time items was $301 million versus $389 million, down
23 percent. Lower earnings reflect rapidly declining profit margins resulting
from significantly higher raw material costs, principally those derived from oil
and natural gas.
1999 versus 1998 Sales of $4.5 billion were 2 percent lower, reflecting 3
percent lower prices, partly offset by 1 percent higher volume. ATOI was $63
million compared with $244 million. ATOI before one-time items was $389 million
versus $406 million, down 4 percent, reflecting lower revenue and higher raw
material costs, partly offset by lower fixed costs.
Outlook Prospects for Nylon Enterprise earnings growth are most dependent on
prices for natural gas and petroleum-based raw materials and on U.S. and
European markets for nylon flooring, nylon apparel, nylon intermediates and for
industrial nylon applications such as automobile air bags. Nylon Flooring volume
is closely tied to U.S. residential and commercial real estate markets. Activity
in these markets, particularly residential, slowed in mid-2000 and may not
recover to higher levels until mid-2001. Demand for industrial nylon is expected
to continue softening, principally reflecting the decline in U.S. motor vehicle
production. Apparel markets in 2000 were adversely affected by weakening
consumer markets in North America and Europe as well as the continuing shift of
garment production from these markets to those in Asia. These market conditions
are expected to continue into 2001, but should begin to be mitigated by the
expanded DuPont emphasis on product differentiation and branding.
16 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
PERFORMANCE COATINGS & POLYMERS
DuPont Engineering Polymers
DuPont Performance Coatings
DuPont Elastomers
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 6.5 674 733
1999 6.1 582 645
1998 4.6 508 525
See Industry Segment Information (Note 30 to Financial Statements).
DuPont Engineering Polymers manufactures and markets a broad portfolio of
engineering materials for automotive, electrical, electronic, consumer and
industrial applications. The automotive and electrical/electronics industries
are among its most important markets. Serving customers throughout the world,
the business supplies six families of engineering resins - DuPont(TM) Zytel(R)
nylon, DuPont(TM) Delrin(R) acetal, DuPont(TM) Rynite(R) PET polyester,
DuPont(TM) Crastin(R) PBT polyester, DuPont(TM) Hytrel(R) thermoplastic
elastomer and DuPont(TM) Zenite(R) LCP liquid crystal polymer - plus DuPont(TM)
Vespel(R) polyimide parts and shapes, and DuPont(TM) Tynex(R) filaments. The
business is focused on continuing its penetration of metals substitution
opportunities in applications that offer customers weight reduction, energy
savings and added manufacturing cost productivity.
DuPont Engineering Polymers is pursuing sustainable, profitable growth through
new products, such as DuPont(TM) Zytel(R) HTN high temperature polyamides and
DuPont(TM) Zenite(R) LCP liquid crystal polymers, which are aimed at fulfilling
growing needs for demanding telecommunications and computer applications in the
electrical/electronics industry, among other markets. Other new products and
product modifications for diverse market needs include the use of DuPont(TM)
Hytrel(R) for seat fabrics and for membranes that will bring efficient
irrigation methods to farmers in arid regions, as well as DuPont(TM) Vespel(R)
parts for demanding automotive and aerospace applications.
DuPont Performance Coatings - the world's leading automotive coatings supplier -
offers high performance liquid and powder coatings for the automotive OEM and
aftermarket and general industrial OEM applications, as well as high performance
specialty products for digital printing, adhesive bonding and electrical
insulation markets. The business is pursuing a strategy of profitable growth in
its core Automotive OEM and Aftermarket coatings businesses with emphasis on
growth outside the United States; completion of the Herberts integration and
rationalization programs; continued strong growth in Ink Jet digital printing
and exploration of new market segment opportunities; growth in the Powder
business; and focusing the Industrial business on profitable market niches.
DuPont Performance Coatings continued the expansion of its digital ink business
with the introduction of DuPont(TM) Artistri(TM), the industry's first
integrated digital textile printing solution for home furnishings, and a
complete line of Artistri(TM) inks for textiles. The Powder business introduced
new technology in Europe that allows for lower curing temperatures. This
technology is expected to increase the markets available to powder coatings.
DuPont Refinish introduced two new Ultra Productive clear coat systems for the
aftermarket, which were designed to significantly reduce cycle time of vehicle
refinishing.
DuPont Dow Elastomers, a 50/50 joint venture between DuPont and The Dow Chemical
Company, is the leading global supplier of mid- and high-performance elastomers.
Plant expansion continues for Engage(R) polyolefin elastomers and Viton(R)
fluoroelastomers.
2000 versus 1999 Sales of $6.5 billion were 6 percent higher, principally
reflecting the addition of Herberts for full year 2000. Excluding Herberts,
sales were 1 percent lower, reflecting 2 percent lower prices partly offset by 1
percent higher volume. ATOI was $674 million compared with $582 million. ATOI
before one-time items was $733 million versus $645 million, up 14 percent. ATOI
was higher in all three business units, with DuPont Performance Coatings
earnings up most significantly, principally reflecting a full year of Herberts
results.
1999 versus 1998 Sales of $6.1 billion were up 34 percent, reflecting a 30
percent increase attributable to the Herberts acquisition, 7 percent higher
sales volume and 3 percent lower prices. ATOI was $582 million compared with
$508 million. ATOI before one-time items was $645 million versus $525 million,
up $120 million or 23 percent. All businesses contributed to the earnings
increase, with about half attributable to DuPont Performance Coatings,
principally due to the Herberts acquisition.
Outlook Rising raw material prices continue to put pressure on DuPont
Performance Coatings earnings. The manufacturing rate of light vehicles began to
slow during the fourth quarter 2000 and
DUPONT 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
this slowdown is expected to continue. Industry consolidation trends are
occurring at all levels of the supply chain, and demand continues for more
environmentally friendly coatings, products and processes. In April 2000 DuPont
Performance Coatings announced plans to continue restructuring to consolidate
assets and eliminate redundancies associated with the 1999 acquisition of
Herberts. These actions, to be completed in mid-2001, are expected to help
maintain the company's leading position in the highly competitive global
performance coatings industry.
The outlook for DuPont Engineering Polymers is varied, reflecting the diversity
of the geographies and expected growth rates for the principal end use markets.
Near term, results will be adversely affected by slower growth in U.S.
industrial production, particularly motor vehicle production, and by high raw
material costs. However, the business is expected to remain strong in key
markets, most notably Europe and Asia. In addition, the rate of growth in
electronics and consumer applications continues to look favorable. By third
quarter 2001 a first stage capacity expansion for DuPont(TM) Zenite(R) LCP
liquid crystal polymer will boost base polymer capacity by 50 percent,
reflecting expectations for globally strong growth in connectors and other
electronic components. Overall, business results will benefit as engineering
polymers continue to become the material of choice in numerous applications
which traditionally use other materials.
PHARMACEUTICALS
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 1.5 89 133
1999 1.6 230 263
1998 1.2 (668) 185
See Industry Segment Information (Note 30 to Financial Statements).
DuPont Pharmaceuticals is focused on five therapeutic areas: HIV/AIDS,
cardiovascular, central nervous system, oncology and allergy/inflammation.
In January 2000 the U.S. Department of Health and Human Services named
Sustiva(TM) (efavirenz) as the only non-nucleoside reverse transcriptase
inhibitor (NNRTI) to be "strongly recommended" for use in first-line combination
treatment of HIV-infected individuals. In the United States, Sustiva(TM)
surpassed the leading protease inhibitors in total prescriptions, indicating a
movement by physicians toward increased use of Sustiva(TM) in potent and durable
protease inhibitor-sparing regimens for HIV-infected patients. DuPont
Pharmaceuticals continued to develop its pipeline of anti-HIV medications with
candidates in development in all three classes of treatment, the most advanced
being an NNRTI in Phase II development.
Marketing programs drove growth in demand for the heart-imaging agent
Cardiolite(R) (kit for the preparation of technetium Tc99m sestamibi for
injection). Resources were redirected to critical cardiovascular products in
2000 and promotion of the anti-Parkinson's drug Sinemet(R) CR
(carbidopa-levodopa) sustained-release tablets was ceased due to increased
generic competition. Growth in worldwide sales of the high blood pressure
treatments Cozaar(R) (losartan) and Hyzaar(R) (losartan potassium) also
benefited DuPont. In October 2000 DuPont Pharmaceuticals introduced in the
United States its new once-daily low molecular weight heparin Innohep(R)
(tinzaparin sodium injection) for treatment of deep vein thrombosis. Other
potential medications for treatment of cardiovascular disease are in
development, including roxifiban, a novel oral glycoprotein IIb/IIIa antagonist
in Phase III trials for treatment of moderate-to-severe peripheral arterial
disease, and an oral anti-coagulant that is scheduled to go into Phase II
development in 2001.
DuPont Pharmaceuticals formed an alliance with Kos Pharmaceuticals Inc. to
develop and market a unique cholesterol management drug, extended-release
niacin/lovastatin. Kos filed a New Drug Application with the FDA in 2000 with
approval anticipated in late 2001. DuPont Pharmaceuticals also formed an
alliance with Barr Laboratories Inc. to develop and market five different
proprietary drugs.
In addition, DuPont Pharmaceuticals had the following development programs
underway at the end of the year:
. Central Nervous System - One compound in Phase II development for treatment of
anxiety and depression and one pre-clinical compound for the treatment of
obesity;
. Oncology - Two compounds in pre-clinical development that are scheduled to go
into Phase I in 2001, the first targeted at
18 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
tamoxifen-resistant breast cancer, the second a radiotherapeutic for treatment
of solid tumors; and
. Allergy/Inflammation - A compound in Phase I development for asthma and
allergic rhinitis and another compound in Phase I for rheumatoid arthritis.
2000 versus 1999 Sales of $1.5 billion were 9 percent lower, reflecting a
significant drop in fourth quarter sales versus 1999. This decline was
anticipated, as the volume of product in the distribution channel is being
reduced from historically high levels resulting from previous sales promotion
programs. ATOI was $89 million compared with $230 million. ATOI before one-time
items was $133 million versus $263 million, down 49 percent. The decline results
principally from significantly lower fourth quarter sales as well as planned
higher research and development and marketing expenses.
1999 versus 1998 Sales of $1.6 billion were up 41 percent, reflecting 8 percent
higher sales volume and a 33 percent increase in segment sales attributable to
the mid-1998 acquisition of Merck's 50 percent interest in The DuPont Merck
Pharmaceutical Company, resulting in 100 percent ownership by DuPont. ATOI was
$230 million compared with a loss of $668 million. ATOI before one-time items
was $263 million versus $185 million, up $78 million or 42 percent, principally
attributable to earnings improvements from Sustiva(TM) and Cozaar(R), as well as
the full-year benefit of 100 percent ownership.
Outlook Over the past three years, DuPont Pharmaceuticals implemented various
promotional sales programs to ensure a fully adequate supply of product in the
marketplace. These promotional programs are no longer required or financially
justified and, accordingly, have been phased out. Revenue and earnings will
significantly decline in the first half of 2001 as products in the distribution
channel return to normal levels and DuPont Pharmaceuticals increases investment
in research, development and marketing to support a promising R&D pipeline.
Accordingly, the company expects Pharmaceuticals to show substantial losses in
the first half of 2001, weighted toward the first quarter.
Following a six-month review of strategic options, DuPont announced in December
2000 its intent to separate DuPont Pharmaceuticals from the company. DuPont is
evaluating separation options and will select the one that best contributes to
shareholder value.
PIGMENTS & CHEMICALS
DuPont White Pigment & Mineral Products
DuPont Chemical Solutions Enterprise
DuPont Fluorochemicals
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 3.9 714 715
1999 3.7 634 633
1998 3.7 574 578
See Industry Segment Information (Note 30 to Financial Statements).
DuPont White Pigment & Mineral Products is the world's largest manufacturer of
titanium dioxide, serving customers globally in the coatings, plastic and paper
industries. The company operates plants at DeLisle, Mississippi; New
Johnsonville, Tennessee; Edge Moor, Delaware; Altamira, Mexico; and Kuan Yin,
Taiwan, all of which utilize the chloride manufacturing process. DuPont(TM)
Ti-Pure(R) titanium dioxide is available to customers in slurry and powder form
in a variety of grades. In 2000 a third production line for Ti-Pure(R) started
operating at New Johnsonville.
DuPont Chemical Solutions Enterprise (CSE) develops, produces and markets a
diverse range of industrial and performance chemicals, selected services and
technologies. Primary markets served are plastics, textiles, mining, household
and industrial cleaners, petroleum refining and water treatment. Industrial
chemicals produced are aniline, acrylonitrile, hydrogen cyanide,
methylamines/amides, o,m,p-phenylene diamines, sodium, lithium and sulfur
products. Performance chemicals include DuPont(TM)Teflon(R)repellent finishes,
DuPont(TM)Krytox(R)lubricants, DuPont(TM)Oxone(R) oxidizing agents, DuPont(TM)
glycolic acid descaling systems, DuPont(TM) Tyzor(R) organic titanates and
DuPont(TM) Vazo(R) free radical sources.
CSE continued to enhance its portfolio in 2000. It completed the acquisition of
International Dioxide Inc., a producer of chlorine dioxide disinfecting systems
for food, sanitation and drinking water markets. Production capacity was
expanded for Tyzor(R) organic titanates, Oxone(R) potassium monopersulfate and
intermediates for Teflon(R) fabric finishes and DuPont(TM) Stainmaster(R)
carpets. New Teflon(R) products for the protection of leather and hard surfaces,
and systems for scale and biofilm removal and disinfection were introduced.
DUPONT 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
DuPont Fluorochemicals is a leading global manufacturer of industrial and
specialty fluorochemicals - both hydrofluorocarbons (HFCs) and
hydrochlorofluorocarbons (HCFCs). Products include DuPont(TM) Suva(R)
refrigerants used in air conditioning and refrigeration, DuPont(TM) Formacel(R)
foam expansion agents, DuPont(TM) Dymel(R) propellants, DuPont(TM) Vertrel(R)
solvents, DuPont(TM) Zyron(R) electronic gases, and fire extinguishants.
In 2000 DuPont Fluorochemicals continued its focus on specialties markets. HFC
227ea was introduced for use both as a clean agent fire extinguishant and as a
pharmaceutical propellant in applications such as metered dose inhalers. For
semiconductor chip manufacturers, Zyron(R) 8020 was added to its line of
electronic gases. DuPont Fluorochemicals divested its minority interest in
Quimica Fluor, a Mexico-based manufacturer of anhydrous hydrogen fluoride (HF).
DuPont continues to manufacture HF at its LaPorte, Texas, facility.
2000 versus 1999 Sales of $3.9 billion were 7 percent higher, reflecting 2
percent higher prices and 5 percent higher volume. ATOI was $714 million
compared with $634 million. ATOI before one-time items was $715 million versus
$633 million, up 13 percent. ATOI was higher in all three business units,
principally reflecting higher sales.
1999 versus 1998 Sales of $3.7 billion reflect flat prices and sales volume.
Higher sales of titanium dioxide were offset by lower sales of specialty
chemicals. ATOI was $634 million compared with $574 million. ATOI before
one-time items was $633 million versus $578 million, up $55 million or 10
percent, reflecting increased earnings from DuPont White Pigment & Mineral
Products and DuPont Fluorochemicals, partly offset by lower CSE earnings.
Outlook DuPont White Pigment & Mineral Products expects slower demand growth in
2001. The business is focused on enhancing customer offerings and renewing
chloride technology. CSE's performance chemicals businesses project continued
growth as more effective solutions are adopted in surface protection,
esterification catalysts, and broad based cleaning and disinfection
applications.
Continued strength in fluorochemicals markets is expected as global demand for
chlorofluorocarbon (CFC) alternatives continues to grow. The phasedown of HCFCs
will continue in developed countries. HFCs, which have replaced CFCs in many
applications and will eventually replace HCFCs, are expected to remain the
long-term product of choice because of their energy efficiency, safety,
efficacy, total cost and environmental benefit.
PIONEER
[GRAPH]
ATOI BEFORE
ONE-TIME ITEMS
SALES ($ in Billions) ATOI ($ in Millions) ($ in Millions)
2000 1.9 (195) 106
1999 0.4 (2,313) (100)
1998 0.4 5 5
See Industry Segment Information (Note 30 to Financial Statements).
2000 was the first full year of DuPont 100 percent ownership of Iowa-based,
plant genetics leader Pioneer Hi-Bred International Inc. Pioneer's principal
products are hybrid seed corn, soybean seed, and other crop seed lines sold to
customers who grow these products for sale (as commodities or to special
end-user markets), or for use in feeding livestock. Pioneer's business is
focused primarily on developing superior corn hybrids for grain and silage to
address the needs of the livestock feeding market. However, products for human
food and industrial uses also comprise significant and growing areas of focus
for Pioneer.
Competition in the seed business continues to be intense because of
consolidation throughout the industry and low commodity prices. North America
corn acreage in 2000 increased because exceptionally good weather encouraged
increased planting, despite a low commodity price. Net price improvements for
Pioneer corn seed products in North America resulted in nearly 6 percent corn
seed revenue growth. Unit growth and price improvements in Pioneer soybean
products increased soybean revenue by almost 12 percent in 2000.
Pioneer annually invests approximately 10 percent of revenue in research,
focusing on the development of products that are higher yielding, more
genetically diverse and have desirable agronomic characteristics that will
produce higher income for customers. In side-by-side comparisons across North
America, Pioneer(R) brand corn hybrids out-yielded competitor hybrids during
growing season 2000 by an average of 7.4 bushels per acre, based on a total of
more than 248,000 comparisons.
Despite ongoing debate over the appropriate use of biotechnology, Pioneer
continues to see demand for seed products that include biotech traits that
deliver additional value.
20 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
These products include corn hybrids with resistance to corn borers and herbicide
resistant soybeans that make it easier for growers to control weeds. In 2000
sales of Pioneer(R) brand corn products with biotech traits were flat and sales
of Pioneer(R) brand soybean products with biotech traits were up as a percent of
total sales when compared with 1999. While biotechnology offers tremendous
potential to bring increased value to Pioneer's customers, it is just one of
many tools researchers at Pioneer have at their disposal. Pioneer continues to
develop non-biotech seed products and offers farmers a choice of hybrids.
2000 versus 1999 Sales were $1.9 billion versus $0.4 billion in 1999 reflecting
the increased ownership interest in Pioneer. ATOI was a loss of $195 million in
2000 compared with a loss of $2,313 million in 1999. Both periods reflect
non-cash purchase accounting related charges, the most significant of which is a
$2,186 million charge in the fourth quarter of 1999 to write off in-process R&D
in connection with the acquisition by the company of the remaining 80 percent
interest in Pioneer. ATOI before onetime items was $106 million in 2000 versus a
loss of $100 million in 1999. The increase in earnings principally reflects the
increased ownership interest in Pioneer as well as improved operating results
for Pioneer on a full-year pro forma basis.
1999 versus 1998 Sales were $427 million compared with $369 million, reflecting
the fourth quarter 1999 acquisition of the 80 percent of Pioneer not already
owned. ATOI was a loss of $2,313 million principally due to the write-off of
acquired in-process R&D. ATOI before one-time items was a loss of $100 million
in 1999 versus income of $5 million in 1998, reflecting seasonal operating
losses in the fourth quarter on a full ownership basis and amortization of
acquired intangibles. 1998 results included only the company's 20 percent
ownership interest in Pioneer.
Outlook Pioneer expects another difficult farm economy during 2001. In addition,
as high U.S. natural gas prices drive up nitrogen fertilizer costs, the company
expects that North American planting decisions may be affected, tending to
decrease total acreage planted and shift the crop mix away from corn. As in the
past two years, many farmers around the world are expected to experience severe
cash flow problems in 2001 because of low commodity prices. TruChoice(SM) is an
integrated offering by Pioneer and DuPont Crop Protection of seed, chemicals and
credit which provides after-harvest payment terms to farmers. TruChoice(SM) has
been well received and will be significantly expanded in 2001.
Pioneer's investment in research and development will support continued new
product introductions, including 27 new corn hybrids for North America in 2001.
These products include biotechnology-enhanced hybrids as well as conventional
elite grain hybrids. It is anticipated that 9 percent of Pioneer(R) brand corn
hybrids and 11 percent of Pioneer(R) brand soybean variety sales in 2001 will be
from new genetics released in 2000 and 2001.
In longer-term programs, researchers are developing grains and oilseeds that
have the potential to command a premium price. Some of the most promising are
corn hybrids with improved energy and starch components that create value for
livestock feeders and grain processors, along with oilseeds that produce
healthier oils for consumers. Pioneer researchers are also working to develop
new technologies that can protect plants from yield-robbing diseases and insect
pests, such as the European corn borer and corn rootworm while reducing the need
for chemical pesticides.
While the debate over biotechnology potentially could have a negative impact on
sales of certain Pioneer products in some markets, seed purchase decisions are
based on a wide range of factors. Pioneer will continue to market products with
biotech traits that provide value and choices to growers.
Pioneer is involved in several lawsuits, both as plaintiff and defendant,
concerning intellectual property rights related to corn and soybean products. If
the outcome of these lawsuits is adverse to Pioneer, it may be significant to
Pioneer's results of operations in the period recognized, but management
anticipates that the ultimate outcome of these lawsuits will not have a material
adverse effect on the company's consolidated financial position or liquidity.
In accordance with purchase accounting rules, Pioneer's inventories acquired on
October 1, 1999, were recorded at fair value. This inventory step-up generates
noncash charges to cost of goods sold as the inventory on hand at the
acquisition date is sold. The estimated impact of this one-time charge on 2001
ATOI will be about $85 million.
DUPONT 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
POLYESTER ENTERPRISE
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI($ in Millions) ITEMS ($ in Millions)
2000 2.5 73 69
1999 2.6 (119) (39)
1998 2.8 (228) (7)
See Industry Segment Information (Note 30 to Financial Statements).
The company continues to transition the businesses of the Polyester Enterprise
to a network of joint ventures and alliances while retaining a core of
technology development and licensing. Major restructuring of these businesses
over the past two years has resulted in reduced fixed costs and improved
earnings. The markets for polyester in 2000 provided little uplift, so the
businesses focused on cost reduction and product mix enrichment to improve
performance.
Operations began January 1, 2000, of DuPont Teijin Films, a 50/50 global joint
venture between DuPont and Teijin Limited to produce and sell PET and PEN
polyester films in the specialty, industrial, packaging, electrical,
electronics, advanced magnetic media and photo systems markets. With sales of
$1.5 billion, the joint venture leads the industry with its strong product and
process technology platform and the broadest portfolio of differentiated
products offered throughout the world. Brand names include Mylar(R), Melinex(R)
and Teijin(R) Tetoron(R) PET films, and Teonex(R) and Kaladex(R) PEN polyester
films. In November 2000 DuPont Teijin Films announced that its China joint
venture, DuPont-Hongji Films Foshan Co. Ltd., will have an additional 10 kiloton
capability through a partnership with Ningbo Wuzhou Films Ltd. involving the use
of existing production equipment. This partnership puts the joint venture in the
leading share position in the fastest growing polymer market in the world.
As the polyester films industry struggles to recover from the worst downturn in
its history, new high-value film products are being developed by DuPont Teijin
Films for diverse applications including digital imaging, meat packaging,
specialty PEN films for electronic data storage, can laminates used to protect
food and beverage flavors, and vacuum insulation refrigeration panels that
enable the construction of high-barrier, ultra-thin structures offering
increased storage space at lower costs.
On January 1, 2000, DuPont and Sabanci started a 50/50 joint venture for the
development, production and sale of polyester fibers, bottles, resins, PTA
(purified terephthalic acid) and DMT (dimethyl terephthalate) for markets
throughout the European region, the Middle East and Africa. The new company,
DuPont Sabanci Polyester Europe, or DuPont SA, headquartered in The Netherlands,
is the largest polyester company in the region with annual revenues of about
$900 million. The joint venture is putting strong emphasis on developing
differentiated products and on productivity improvements from restructuring and
new technology. In the fourth quarter 2000 the joint venture commercialized
fundamentally new proprietary spinning technology for specialty fibers at its
Pontypool, United Kingdom, plant that allowed increased spinning speeds of
nearly 50 percent. Productivity gains and licensing revenues will accrue to this
development.
DuPont Polyester Technologies (DPT) was formed in January 2000 to consolidate
and leverage DuPont polyester process, product and technical knowledge, to
develop and license leading edge technology, and to manage existing brands for
maximum value generation. In its first year DPT completed more than 10 licensing
agreements for PTA and for polyester resin and fibers. Current projects span
locations in India, China, Pakistan and Italy and are expected to deliver more
than $100 million in license revenues from 2000 to 2002 to DuPont and DuPont SA.
The 50/50 DuPont Akra joint venture for polyester staple in the Americas, which
began operation in April 1999, showed improved results in 2000 as cost
reductions were implemented. Overcapacity in the Americas and Asian imports
continue to put significant pressure on fiber margins. The joint venture is
emphasizing productivity improvements and the development of new differentiated
products that provide value in textile mill productivity and end use
performance.
In June 2000 DuPont and Unifi Inc. formed a manufacturing alliance in the
Americas to produce polyester filament. The alliance integrates both companies'
partially oriented yarn manufacturing facilities in the Americas into a single
production unit. This alliance enables each company to match production with the
best assets available, significantly improving product quality and yields. The
filament segment continues to face difficult market conditions. The auto and
home furnishings markets were strong all year, but the apparel market softened
significantly in the second half as the result of increasing garment imports,
high retail inventories and concern about future retail
22 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
activity. Price increases implemented during the year were not enough to cover
rapidly escalating raw material and energy costs. These trends are expected to
continue into 2001.
DuPont(TM) Dacron(R) branded specialty fibers and fiberfill in the Americas and
Asia will be part of DuPont Apparel and Textile Sciences. As announced by DuPont
in October 2000, the new marketing alliance brings together DuPont(TM) Lycra(R)
and Nylon Textile with these Dacron(R) businesses in a single, market-focused
approach. Leading Dacron(R) brands such as DuPont(TM) CoolMax(R) performance
fabrics, DuPont(TM) Comforel(R) sleep products and DuPont(TM) Thermolite(R)
insulation fibers are included. Targeting mix enrichment for the home
furnishings market, in 2000 the business introduced Comforel(R) Downessence(TM),
a new cluster fiber that emulates the feel of down and offers a hypoallergenic
down alternative for pillows; launched DuPont(TM) Duralife(R) fiberfill,
offering superior loft and resiliency in pillows for the upholstered furniture
market; and created a marketing alliance with a leading supplier of latex foam
pillows to leverage the strong branded position of DuPont in the sleep products
market. In addition, the business began a new certification and testing program
to provide ultra-violet sunlight protection (UPF) ratings for CoolMax(R) fabrics
and a new high performance insulating system for footwear that combines
Thermolite(R) insulation and DuPont(TM) Cambrelle(R) lining.
Products for the polyester resins and intermediates markets include DuPont(TM)
Melinar(R) PET container resins, DuPont(TM) Crystar(R) specialty resins,
DuPont(TM) Biomax(R) hydrobiodegradable resin, PTA, DMT and ethylene glycol. The
Polyester Enterprise commercialized Biomax(R) in Japan for food packaging
applications and introduced Melinar(R) Laser+(R) H homopolymers for high
temperature food trays in that fast-growing market. DuPont manufactures PTA in
Taiwan through a joint venture with Far Eastern Textiles. The PTA business in
2000 was affected by high energy costs and weakness in downstream fibers demand,
especially in Taiwan and Korea. Improvement in PTA business performance is
expected in the second half of 2001. The resins business anticipates continued
strong market demand growth of 8 to 10 percent per year and is focused on
increasing product differentiation and mix enrichment. As in other polyester
businesses, raw materials and energy costs were up, but prices for resins were
able to keep up with these increases.
2000 versus 1999 Sales of $2.5 billion were 4 percent lower, principally due to
the restructuring of formerly wholly-owned businesses into joint ventures whose
sales are reflected in segment sales on a pro rata ownership basis. Apart from
the impact of restructuring, sales were flat as 4 percent higher prices were
offset by 4 percent lower volume. ATOI was $73 million compared with a loss of
$119 million. ATOI before one-time items was $69 million versus a loss of $39
million. The earnings improvement is primarily due to cost reductions resulting
from restructuring and productivity improvement initiatives.
1999 versus 1998 Sales of $2.6 billion were 5 percent lower, reflecting 8
percent lower prices partly offset by 3 percent higher sales volume. ATOI was a
loss of $119 million compared with a 1998 loss of $228 million. ATOI before
one-time items was a loss of $39 million versus a loss of $7 million, reflecting
earnings declines in all business units.
Outlook Generally, the global polyester market will remain a highly competitive
industry with a low-price, high-volume environment, exacerbated by excess
capacity and rapid rise in raw material and energy costs. The direction will be
to deliver value-added offerings that differentiate the businesses in market
segments where that value can be extracted, and on low cost operations in
commodity segments. DuPont is continuing to explore alternative strategies to
optimize the company's investment in its various polyester businesses.
SPECIALTY FIBERS
DuPont(TM) Lycra(R)
DuPont Nonwovens
DuPont Advanced Fiber Systems
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 3.5 690 690
1999 3.4 732 731
1998 3.3 659 662
See Industry Segment Information (Note 30 to Financial Statements).
DuPont(TM) Lycra(R) - the largest elastane manufacturer worldwide -continues to
be the leader in the high-growth stretch apparel market and is now expanding the
stretch concept to non-traditional and non-apparel end uses. Lycra(R) elastane,
which is the only consumer brand in this category, symbolizes quality, comfort
and style. A strong product development pipeline is accelerating the delivery of
innovation, with the introduction of two new polymers in 2000. These polymers
include an extension of the Lycra(R) SOFT line for lighter weight garments such
as
DUPONT 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
intimate apparel and a cotton-compatible product that permits more efficient
fabric production, particularly in the key ready-to-wear market. In addition, a
new type of non-elastane stretch fiber, based on DuPont(TM) Sorona(R)
technology, has been introduced into both the sock and ready-to-wear markets.
The move into generic stretch markets has improved market position while
resulting in higher operating rates and lower unit costs. To further strengthen
participation in this market, DuPont(TM) Lycra(R) entered into a marketing joint
venture with Shinkong Synthetic Fibers Corp. in Taiwan. To better capitalize on
the increasing consumer demand for stretch and to improve the ability to deliver
its advantages to customers, DuPont(TM) Lycra(R) introduced Lycra(R) Assured, a
business partnership with key industry players. Further, customer relationships
and market presence will be strengthened by the recent integration of DuPont
apparel platforms into one marketing alliance, DuPont Apparel and Textile
Sciences.
The mission of DuPont Nonwovens is continued growth in high-value markets,
providing end use-oriented, customized solutions to customer needs. Primary
products include DuPont(TM) Tyvek(R) brand protective material, DuPont(TM)
Sontara(R) spunlaced fabrics, DuPont(TM) Cambrelle(R) textiles and DuPont(TM)
Typar(R) high-strength spunbonded polypropylene. Major markets served include
construction, protective apparel, medical and health care, absorbents,
packaging, carpeting, industrial and geotextiles.
In 2000 the Tyvek(R) business experienced strong growth in the construction and
protective apparel markets in North America, as well as strong growth in the
European protective apparel business. An endeavor begun in 1997 was expanded and
formalized bringing together the strengths of the Tyvek(R), Tychem(R),
Kevlar(R), Nomex(R) and Sontara(R) brands. Known as the DuPont Protective
Apparel Marketing Company, it provides a unique combination of branded,
technically outstanding products, strong value-chain partnerships, and a single
voice to the customer at a local level.
Tyvek(R) FlexWrap(TM), an innovative window and door flashing product, was
previewed at major industry trade shows during the fourth quarter. Interest
among builders has been extremely high for this unique product that is highly
flexible, easy to install and creates a seamless layer of protection against
water in the most sensitive areas of square, round and arched rough openings.
DuPont Advanced Fiber Systems comprises DuPont(TM) Kevlar(R) brand fiber,
DuPont(TM) Nomex(R) brand fiber and paper, and DuPont(TM) Teflon(R) brand
fluoropolymer fiber. The business had strong volume and revenue growth in 2000
despite significant impact from the weak euro. Each of the core businesses -
Life Protection, Protective Apparel, Fiber Optic Cable, Electrical Insulation
and Electronics - showed significant strength. Growth in Asia was particularly
strong as DuPont(TM) Thermount(R) laminate substrate gained additional share in
printed wiring boards for cellular phones. Asian growth was also supported by
new infrastructure development in China and India which increased demand for
Kevlar(R) in fiber optic cable and Nomex(R) paper for transformer insulation.
The successful launch of a licensed Nomex(R) brand transformer insulation in
China furthered the focus of increasing the share of income derived from
knowledge intensity versus material, as did the expansion of the Kevlar(R)
branding program in sports apparel.
2000 versus 1999 Sales of $3.5 billion were essentially flat, reflecting 5
percent lower prices offset by 5 percent higher volume. ATOI was $690 million
compared with $732 million. ATOI before one-time items was $690 million versus
$731 million, down 6 percent, as higher earnings in DuPont Advanced Fiber
Systems were more than offset by lower earnings in DuPont(TM) Lycra(R) and
DuPont Nonwovens. Lower DuPont(TM) Lycra(R) earnings resulted principally from
increased pricing pressures from generic competition, adverse currency impact of
the stronger dollar, high natural gas prices and continued technical
difficulties at a European THF facility which has affected cost competitiveness
in the global market. While progress has been made, the facility continues to
operate substantially below design capacity.
1999 versus 1998 Sales of $3.4 billion were up 5 percent, reflecting 9 percent
higher sales volume partly offset by 4 percent lower prices. ATOI was $732
million compared with $659 million. ATOI before one-time items was $731 million
versus $662 million, up $69 million or 10 percent. All business units
contributed to the revenue and earnings increases.
Outlook DuPont(TM) Lycra(R) earnings in 2001 will be affected by pricing
pressures resulting from recent increases in Asian elastane capacity. Over the
long term, DuPont(TM) Lycra(R) expects to benefit from its strong brand
position, low manufacturing cost and global
24 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
market presence. New businesses for DuPont(TM) Lycra(R), particularly shoes,
upholstery, Leather with Lycra(R) and stretch nonwovens, are poised for growth.
A new, chlorine-resistant polymer will be introduced, as well as a more robust
elastane for increased customer value. In 2001 large scale state-of-the-art
DuPont(TM) Lycra(R) manufacturing facilities will be installed in Brazil and
Singapore to position the business for future growth.
DuPont Advanced Fiber Systems businesses are expected to continue to demonstrate
significant growth as they are focused to a significant degree on areas that are
projected to be less affected by an economic slowdown - retrofit in the U.S.
military, infrastructure in developing areas and expanding applications in both
the protective apparel and life protection markets.
For DuPont Nonwovens continued growth is expected in several markets, including
the worldwide protective apparel markets and the North American construction
markets, where Tyvek(R) weatherization systems anticipates double-digit growth.
Earnings in 2001 are expected to be affected by continued high raw material
costs.
SPECIALTY POLYMERS
DuPont iTechnologies
DuPont Packaging & Industrial Polymers
DuPont Fluoropolymers
DuPont Surfaces
[GRAPH]
ATOI BEFORE
ONE-TIME
SALES ($ in Billions) ATOI ($ in Millions) ITEMS ($ in Millions)
2000 4.5 713 713
1999 4.3 668 666
1998 4.0 596 606
See Industry Segment Information (Note 30 to Financial Statements).
DuPont iTechnologies provides differentiated materials-based solutions for
essentially all of the world's leading manufacturers of electronic components
and assemblies, packaging graphics, and producers of high-end commercial
printing.
For the printed wiring board, flexible circuit and microcircuit portions of the
electronics industry, DuPont iTechnologies markets DuPont(TM) Kapton(R)
polyimide film, DuPont(TM) Pyralux(R) flexible laminates, DuPont(TM) Riston(R)
dry film photoresists, and thick film materials systems including DuPont(TM)
Green Tape(TM) low temperature co-fired ceramics and DuPont(TM) Fodel(R)
photoprintable composites. Construction began on a $90 million expansion of
Kapton(R) polyimide film manufacturing facilities in Circleville, Ohio, to meet
the growing demand for flexible circuitry in wireless, digital and computer
markets. YieldMaster 2000 Riston(R) dry film lamination systems were introduced
to printed wiring board fabricators in the United States, providing improved
image resolution and yield improvements of greater than 10 percent. The newest
application for Green Tape(TM) is in the manufacture of Bluetooth modules that
facilitate wireless connectivity among electronic devices such as PCs, printers
and cell phones.
As the world leader in holographic optical components and holograms for
electronics, security and authentication applications, DuPont iTechnologies
announced the first commercial application of a holographic color filter,
developed with Victor Company of Japan Ltd. (JVC). The color filter is the next
in a series of holographic products that enhance the brightness, color and
efficiency of liquid crystal displays. DuPont iTechnologies also made a number
of strategic investments that strengthened its ability to develop new types of
displays for applications such as cell phones, PDAs and handheld computers, PC
monitors, high definition television and other large displays.
For the printing industry, the business markets DuPont(TM) Cyrel(R) flexographic
printing plates, as well as color proofing systems, including DuPont(TM)
WaterProof(R), DuPont(TM) Cromalin(R) and DuPont(TM) Dylux(R). Both businesses
continued to develop and introduce digital systems - the second generation of
Cyrel(R) FAST thermal technology and the Digital Halftone Proofing system for
four-color imaging - focused at driving accuracy, cycle time and improved
workflow.
In December 2000 DuPont formed a 50/50 joint venture with Air Products and
Chemicals Inc. to develop, manufacture and market colloidal silica-based
slurries for electronic precision polishing or planarization applications, such
as silicon wafer polishing chemical mechanical planarization processes used in
the manufacture of semiconductors.
DuPont Packaging & Industrial Polymers (P&IP) offers specialized, high value
resins and films for the packaging and selected industrial markets. Product and
end uses include DuPont(TM) Surlyn(R), DuPont(TM) Nucrel(R) and DuPont(TM)
Elvax(R) sealants and adhesives for flexible packaging structures; Nucrel(R) and
Elvax(R) resins for wire and cable construction; DuPont(TM) Keldax(R) resins for
automotive carpet backing; Surlyn(R) for golf ball covers; DuPont(TM) Vamac(R)
for
DUPONT 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
automotive hoses and gaskets; DuPont(TM) Butacite(R) interlayers for laminated
glass; DuPont(TM) Elvanol(R) for textile sizing; and DuPont(TM) Clysar(R) shrink
films for packaging.
P&IP introduced Clysar(R) Gold Series shrink films, a high performance family of
shrink films offering outstanding tear resistance, excellent clarity and a wider
sealing window for higher speed packaging. In October 2000 P&IP and Borealis
announced the launch of a manufacturing joint venture in Belgium to produce
polyolefins and ethylene copolymers. P&IP's Vinyls Enterprise introduced a new
PVB Interlayer, DuPont(TM) Butacite(R) Defect Resistant(TM) B340, based on
innovative technology to reduce defects and improve yields in laminated
automotive safety glass.
DuPont Fluoropolymers - the largest global manufacturer of fluoropolymers -
markets to the telecommunications, aerospace, automotive, electronics, chemical
processing and housewares industries. The DuPont offering includes DuPont(TM)
Teflon(R) and DuPont(TM) Tefzel(R) fluoropolymer resins, Teflon(R) and
DuPont(TM) Autograph(R) non-stick finishes, and Teflon(R) and DuPont(TM)
Tedlar(R) fluoropolymer films. In 2000 the business introduced Teflon(R) PFA HP
Plus, a new high-performance polymer specially designed to replace stainless
steel in high purity fluid handling systems in semiconductor and pharmaceutical
manufacturing. The business began operations of a pilot plant at its
Fayetteville, North Carolina, site to prove new technology to manufacture
Teflon(R) resins.
The Teflon(R) and Tedlar(R) films and non-stick finishes businesses were
combined into one fluorosurfacing business in 2000, a move aimed at better
leveraging the company's global market presence, application technology and
manufacturing capabilities across an increasing number of growth opportunities
in surfacing applications. Both the industrial fluoropolymers and
fluorosurfacing businesses continued to capitalize on the strength of the
Teflon(R) and DuPont(TM) SilverStone(R) non-stick brand, including expanding
their licensing efforts across markets, with particular focus on data
communications cabling products and housewares, respectively.
The DuPont(TM) Corian(R) business changed its name to DuPont Surfaces with the
addition of DuPont(TM) Zodiaq(TM) quartz surfaces and DuPont(TM) IntegriS(SM)
solutions to the brand portfolio. Zodiaq(TM) is a new surfacing material for
horizontal and vertical surfaces. Made with quartz crystals, pigments and
proprietary polymer technology, Zodiaq(TM) is available in 16 colors for both
residential applications and interior commercial cladding. IntegriS(SM) is a
service business providing project management assistance in product procurement,
fabrication and installation for commercial building owners across multiple
sites and product lines.
DuPont Surfaces' primary business mission is to grow by providing a range of
premium branded offerings in sheet product, sinks and services to the home and
architectural furnishings industries. To increase the perceived value of the
brands, beginning in 2001 the business will be increasing its investment in all
aspects of branding, including advertising and promotion. To broaden the DuPont
Surfaces audience segment base, the OEM market - furniture, lighting fixtures,
appliances and other accessories - will take on additional significance, joining
the primary segments of residential remodel, new construction and commercial.
The business seeks to broaden its routes to market with both balanced geographic
expansion in Europe and Asia Pacific, as well as added accessibility in newer
retail outlets such as home centers and the Internet. Reducing installed cost
from a manufacturing and fabrication perspective continues to be an important
strategy to make Corian(R) more accessible to more people. Twelve more colors
are planned for 2001, bringing the Colors of Corian(R) to more than 90.
2000 versus 1999 Sales of $4.5 billion were up 6 percent, reflecting 8 percent
higher volume, partly offset by 2 percent lower prices. All four business units
had higher sales. ATOI was $713 million compared with $668 million. ATOI before
one-time items was $713 million versus $666 million, up 7 percent. ATOI
increased in DuPont Surfaces, DuPont Fluoropolymers and DuPont iTechnologies
reflecting higher sales. This was partly offset by lower earnings in DuPont
Packaging & Industrial Polymers resulting from significantly higher raw material
costs, primarily natural gas.
1999 versus 1998 Sales of $4.3 billion were up 5 percent, reflecting 9 percent
higher sales volume, partly offset by 4 percent lower prices. ATOI was $668
million compared with $596 million. ATOI before one-time items was $666 million
versus $606 million, up $60 million or 10 percent. The earnings improvement was
driven principally by higher earnings from DuPont Surfaces and DuPont
iTechnologies.
Outlook Although the second half of 2000 financial performance in DuPont
iTechnologies was very strong, mixed macroeconomic signals for the electronics
industry may indicate some softening of performance in 2001. The printing
business is undergoing consolidation at all stages, driven by excess capacity,
limited differentiation and rapid transformation to digital technologies. These
factors will have a negative impact on revenues of the color proofing business.
The outlook for sales of P&IP products
26 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
continues to be positive. Bottom line results, however, will continue to be
affected by high raw materials and energy costs.
Within DuPont Fluoropolymers, growth in Teflon(R) resins is expected to slow in
all regions in 2001. Growth in fluorosurfacing is expected due to continuing
strength in consumer segments, new applications in industrial segments, and a
strong effort to leverage the strength of the Teflon(R) brand, including a major
focus on marketing communications and brand licensing. Competitive pressure on
Corian(R) continues to grow with the decreasing price of stone (e.g., granite)
and increasing interest in glass, concrete and other more exotic materials for
use as a surfacing material. Increased pressure from ingredient pricing is
expected to affect manufacturing cost.
OTHER
The company groups the results of its nonaligned businesses and embryonic
businesses such as DuPont Bio-Based Materials and DuPont Safety Resources under
Other. In aggregate, sales from these businesses represent less then 2 percent
of the total 2000 segment sales. Sales of $456 million were down 5 percent,
principally reflecting the reduced ownership interest in DuPont Photomasks, Inc.
ATOI before one-time items was a loss of $21 million in 2000 versus earnings of
$22 million in 1999.
The mission of DuPont Bio-Based Materials is to serve as the focal point for the
company's expertise in the application of modern biology to industrial markets.
Biotechnology already has had significant impacts on industrial marketplaces
such as fine and specialty chemicals and vitamins. DuPont believes that these
technologies have transformative potential in many other industrial markets as
well. Formed in late 1999, DuPont Bio-Based Materials is dedicated to driving
business growth opportunities in current DuPont markets and those into which it
might expand.
The current business direction is twofold: bringing to market the fruits of
technology developed in recent years, and concentrating resources into areas of
exploration aimed at new products with enhanced functionality - differentiated
products with demonstrable consumer benefits. Although there is competitive
activity in the bio-based materials arena, DuPont is clearly at the leading edge
of this technology. The company's new polymer platform, DuPont(TM) Sorona(TM),
is the first DuPont Bio-Based Materials product. While Sorona(TM) has potential
applications in a number of markets, the textile fibers area offers the largest
near-term potential.
DuPont Safety Resources (DSR) is a global safety consulting and training
business. DSR focuses on "Building a Safer World"(R). DuPont formed DSR in 1998
to commercially leverage its vast safety experience derived over almost 200
years of operation with a core value and extraordinary competency in safety. For
over 30 years DuPont has been helping thousands of companies worldwide improve
their safety and overall business performance.
Financial Condition
Following the divestiture of Conoco and acquisition of Herberts and Pioneer in
1999, DuPont's financial focus in 2000 was to reduce debt and strengthen the
balance sheet. The table below summarizes changes in net debt for 1998 through
2000.
- --------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Net Debt - Beginning of Year $ 9,984 $ 10,055 $ 10,903
- --------------------------------------------------------------------------------
Cash Provided by Continuing Operations 5,070 4,840 4,132
Purchases of Property, Plant &
Equipment & Investment in Affiliates (2,022) (2,103) (2,303)
Net Payments for Businesses Acquired (46) (5,073) (3,282)
Proceeds from Sales of Assets 703 609 946
Net Proceeds from Sale of
Interest in Conoco - - 4,206
Dividends Paid to Stockholders (1,465) (1,511) (1,549)
Acquisition of Treasury Stock (462) (690) (704)
Cash from
Discontinued Operations - 4,475 (568)
Other (82) (476) (30)
- --------------------------------------------------------------------------------
Decrease in Net Debt 1,696 71 848
- --------------------------------------------------------------------------------
Net Debt - End of Year $ 8,288 $ 9,984 $ 10,055
================================================================================
Net debt includes borrowings and capital lease obligations less cash and cash
equivalents and marketable securities. Net debt was reduced by $1.7 billion in
2000 from $10.0 billion at year-end 1999 to $8.3 billion at year-end 2000.
Continued tight capital spending control, asset monetizations, sale of
non-strategic assets and funds generated from operations were the primary
contributors to 2000 debt reduction. With a focus on further capital spending
reductions and working capital productivity improvements, management's intent is
to again reduce net debt in 2001 to further increase the company's financial
flexibility. Management believes that the company's ability to generate cash
from operations and its capacity to issue short-term and long-term debt will be
adequate to meet anticipated cash requirements
DUPONT 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
to fund working capital, capital spending, dividend payments and other cash
requirements in the foreseeable future.
Standard & Poor's and Moody's Investors Service maintain their ratings of the
company's senior, unsecured long-term debt at AA- and Aa3, respectively. The
company's commercial paper rating remains at A-1+ by S&P and Prime 1 by Moody's.
In 1999 cash provided by operations and debt repayments from Conoco were largely
offset by capital expenditures, acquisitions, payment of dividends and
repurchase of stock. As a result, net debt at year-end 1999 of $10.0 billion was
$0.1 billion lower than the $10.1 billion at year-end 1998.
CASH PROVIDED BY CONTINUING OPERATIONS
Cash provided by continuing operations totaled $5.1 billion in 2000, $0.2
billion more than 1999. In 2000 cash provided by continuing operations excluding
changes in working capital was $0.4 billion more than 1999. Working capital was
unchanged in 2000 reflecting $0.6 billion proceeds from securitization of
accounts receivable offset by a $0.6 billion increase in other working capital
components. In 1999 reductions in working capital increased cash provided by
continuing operations by $0.2 billion. In both 2000 and 1999, about $0.3 billion
was transferred from the company's pension trust in the United States to pay the
company's portion of certain retiree health care costs as permitted under
federal law; these receipts are reflected as a reduction in other operating
assets.
In 1999 cash provided by continuing operations totaled $4.8 billion, $0.7
billion more than in 1998. The increase reflects $0.5 billion due to changes in
net working capital in 1999 as compared with 1998. Excluding acquisitions,
accounts and notes receivable were flat in 1999 compared with an increase in
1998. Net income after adjustment for discontinued operations and noncash
charges and credits was $0.2 billion higher in 1999 compared with 1998.
In 1999 net cash flow from discontinued operations was $4.5 billion principally
reflecting repayment of intercompany loans from Conoco to DuPont. Net cash flow
from discontinued operations in 1998 was $(0.6) billion.
WORKING CAPITAL INVESTMENT
At the end of 2000 the investment in working capital (excluding cash and cash
equivalents, marketable securities, and short-term borrowings and capital lease
obligations) was $4.0 billion, a decrease of $0.8 billion from the $4.8 billion
at year-end 1999. The 2000 decrease was primarily due to securitization of $0.6
billion of accounts receivable and a $0.6 billion reduction in Pioneer
inventories reflecting the sale of inventory on hand at the acquisition date
that had been written up to fair value in accordance with purchase accounting
rules. These reductions were partially offset by increases in other net working
capital items, primarily lower current liabilities.
Current assets, including cash and cash equivalents and marketable securities,
decreased $1.0 billion with inventories down $0.4 billion, accounts and notes
receivable down $0.8 billion, and other current assets up $0.2 billion. Current
liabilities, excluding short-term borrowings and capital lease obligations,
decreased $0.3 billion with $0.2 billion lower accounts and income tax payables,
and $0.1 billion lower other accrued liabilities.
In 1999 working capital investment increased $1.6 billion from $3.2 billion at
year-end 1998 to $4.8 billion at year-end 1999. The increase was principally due
to the Herberts and Pioneer acquisitions.
The ratio of current assets to current liabilities at year-end 2000 was 1.3:1
compared with 1.1:1 in 1999.
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment, and investments in affiliates were
$2.0 billion in 2000, compared with $2.1 billion in 1999 and $2.3 billion in
1998. There were no significant payments for businesses acquired in 2000. 1999
payments for businesses acquired of $5.1 billion included $3.5 billion for the
acquisition of the remaining 80 percent interest in Pioneer and $1.6 billion for
the acquisition of Herberts. The Pioneer acquisition included the issuance of
$4.2 billion in DuPont common stock, and the Pioneer and Herberts acquisitions
included the assumption of debt. 1998 payments for businesses were $3.3 billion
including $2.6 billion for the acquisition of Merck's 50 percent interest in The
DuPont Merck Pharmaceutical Company, and $0.7 billion for the acquisition of
ICI's polyester films business.
Nonacquisition spending in 2001 is expected to be under $2.0 billion. There will
continue to be significant expenditures in support of development and
integration of business software
28 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
systems that will improve operational and transactional efficiencies. Many of
the large 2000 projects will continue with capital expenditures supporting their
final construction activities and shift into start-up and production.
Proceeds from sales of assets were $0.7 billion in 2000. Sale of
available-for-sale securities generated about $220 million. Reductions in the
company's ownership interest in DuPont Photomasks generated $153 million. Sale
of various transportation and construction equipment generated $138 million.
Other proceeds totaling $192 million were primarily derived from sale of
non-strategic business assets including Pigments & Chemicals' silicas business
and the company's interest in the Quimica Fluor venture in Mexico, Agriculture &
Nutrition's Fiber Sales business, and other miscellaneous small assets. Proceeds
from sales of assets were $0.6 billion in 1999, principally reflecting cash
proceeds from the formation of the DuPont Teijin Films joint venture. In 1998
net proceeds from the sale of an interest in Conoco were $4.2 billion. In
addition, proceeds from the sale of assets were $0.9 billion, principally
reflecting $0.5 billion from the sale of the company's interest in CONSOL Energy
Inc. and $0.3 billion from the sale of hydrogen peroxide assets.
FINANCING ACTIVITIES
Dividends per share of common stock were $1.40 in 2000, $1.40 in 1999, and
$1.365 in 1998. The quarterly dividend was increased from $.315 to $.35 in the
second quarter of 1998. Cash outflows for dividends in 2000 were lower than 1999
due to fewer shares outstanding.
In both 1997 and 1998, the company's Board of Directors approved programs to
purchase and retire up to 20 million shares of DuPont common stock to offset
dilution from shares issued under compensation programs. In July 2000 the Board
of Directors approved an increase in the number of shares remaining to be
purchased under the 1998 program from about 16 million shares to the total
number of shares of DuPont common stock which can be purchased for $2.5 billion.
The remaining purchases are not limited to those needed to offset dilution from
shares issued under compensation programs. Shares purchased were 9.5 million
shares for $462 million in 2000, 8.8 million shares for $690 million in 1999,
and 12.8 million shares for $769 million in 1998. The company also received $65
million in 1998 in final settlement of shares purchased in 1997. Accordingly the
1997 program has been completed. The company anticipates completing in 2002 the
$2.3 billion in purchases remaining under the current authorization. These share
purchases are expected to be funded through monetization of nonstrategic assets.
Purchased In-Process Research and Development
Purchased in-process research and development represents the value assigned in a
purchase business combination to research and development projects of the
acquired business that were commenced, but not yet completed, at the date of
acquisition and which, if unsuccessful, have no alternative future use in
research and development activities or otherwise. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 2, "Accounting for Research and
Development Costs," as interpreted by FASB Interpretation No. 4, amounts
assigned to purchased in-process research and development meeting the above
criteria must be charged to expense at the date of consummation of the purchase
business combination. In this regard, the company recorded charges for purchased
in-process research and development totaling $1,443 million in 1998 with respect
to two purchase business combinations completed that year ($1,280 million) and
revisions ($163 million) of preliminary estimates for two purchase business
combinations completed in December 1997. In 1999 the company recorded charges
totaling $2,250 million with respect to two purchase business combinations
completed that year. In 2000, the company recorded a credit totaling $11 million
for revisions of preliminary estimates for a purchase business combination
completed in 1999.
The following is a more detailed discussion of the purchased in-process research
and development associated with each of these acquisitions. The company believes
that the assumptions and forecasts used in valuing purchased in-process research
and development were reasonable at the time of the respective business
combination. No assurance can be given, however, that future events will
transpire as estimated. As such, actual results may vary from the projected
results.
Management expects to continue supporting these research and development
efforts. However, as noted below, there is uncertainty associated with the
successful completion of these research and development projects. There can be
no assurance that any of these projects will meet with either technological or
commercial success. If none of these projects is successfully
DUPONT 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
completed, the sales and profitability of the company may be adversely affected
in future periods. Failure of any single project would not materially impact the
company's financial condition, results of operations or liquidity.
VALUATION METHODOLOGY
There are three general types of in-process research and development projects -
New Product Development Projects, Process Modification Projects and New
Manufacturing Process Projects. New Product Development Projects have as their
goal the discovery and development of new formulations and/or significant
modifications of existing product formulations to meet specific end user needs.
Process Modification Projects have as their goal the design and development of
significant modifications to existing capital assets in order to increase
capacity or otherwise improve the efficiency of the manufacturing process. New
Manufacturing Process Projects have as their goal the design and development of
totally new manufacturing processes. Successful completion of a project is
deemed to occur when the new product or process has been defined and
technological feasibility has been objectively demonstrated.
The fair values of purchased in-process research and development projects are
based on estimates prepared by management. These estimates utilize explicit
assumptions about the range of possible estimated cash flows and their
respective probabilities to determine the expected cash flow for each project.
Under this approach, projected cash flows are adjusted for risks prior to being
discounted to present value. Risks so addressed include completion risk,
competitive risk and timing risk. A simplified model of these procedures is as
follows:
Cash Flows from Successful Completion
Less: Cash Flows to Complete
Less: Return on Assets Employed
---------------------------------------------
Equals: Adjusted Cash Flows
Times: Probability of Technical & Commercial Success
---------------------------------------------
Equals: Risk Adjusted Cash Flows
Times: Present Value Factor
---------------------------------------------
Equals: Fair Value
Cash Flows from Successful Completion represent the estimated future revenues
and/or cost savings forecast to be realized from the successful completion of
the project less the costs and expenses required to generate those revenues/cost
savings. Significant assumptions include estimates of market size, market share
to be achieved, timing of completion, life cycle pattern, product pricing,
operating margins and the effects of competition. These projections do not
anticipate material changes from historical pricing, margins, and expense levels
unless specifically noted otherwise.
Cash Flows to Complete represent the estimated future research and development
costs required to complete the project, assuming the project is successful.
Significant assumptions include the work required to complete the project, the
timing of expenditures and the date of completion.
Return on Assets Employed represents an allocation of the project's estimated
Cash Flows from Successful Completion to existing assets, including identifiable
intangible assets, thereby ensuring that all appropriate future cash flows are
attributed to existing assets for purposes of determining their fair value.
Probability of Technical and Commercial Success represents management's informed
assessment of the unique risks associated with successfully completing a
specific project and implementing the project's results. It is used to adjust
for the risk that a project may not be successfully completed and for the risk
that, even if the project is successfully completed, it may not be able to be
successfully implemented on a commercial scale. In developing these
probabilities, consideration is given to scientific assessments regarding the
project's stage of completion, the results achieved to date, and the complexity
of completing the project. Consideration is also given to the business'
historical experience with similar types of research and development projects
and to the effects competition, changes in industry trends, and similar economic
risks may have on successful completion of the project. Probability of Technical
and Commercial Success is also used by the company in managing its research and
development activities.
Risk Adjusted Cash Flows are discounted to present value using a discount rate
generally aligned with the estimated weighted average cost of capital for the
acquired business. The weighted average cost of capital is a market-based
measure of investment risk, i.e., the risk associated with investing in a
particular business, company, industry, etc.
30 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
PIONEER HI-BRED INTERNATIONAL
On October 1, 1999, the company acquired the approximately 80 percent of Pioneer
Hi-Bred International not previously owned by the company for $7,684 million
consisting of:
. $3,419 million representing cash payments for the purchase of Pioneer
shares;
. $4,154 million representing the fair value of 68,612,135 shares of DuPont
common stock issued in exchange for Pioneer shares;
. $81 million representing 80 percent of the fair value of options to
purchase DuPont common stock issued in exchange for the outstanding vested
options to purchase Pioneer common stock under Pioneer's employee stock
option plan; and
. $30 million representing the company's estimated acquisition related costs
and expenses.
The allocation of purchase price to the identifiable assets acquired and
liabilities assumed, based on their estimated fair values, is as follows
(dollars in millions):
- ---------------------------------------------------------------------------
Current Assets $2,176
Property, Plant and Equipment 602
Other Assets 2,264
In-Process Research and Development 2,175
Current Liabilities (954)
Long-Term Borrowings (163)
Other Liabilities (287)
Deferred Income Taxes (847)
Minority Interests (6)
- ---------------------------------------------------------------------------
Total Identifiable Assets Less Liabilities $4,960
===========================================================================
The $2,724 million excess of the cost of the acquisition over the estimated fair
value of the identifiable assets less liabilities was recorded as goodwill.
At the date of acquisition, Pioneer had extensive research and development
efforts underway that met the criteria for purchased in-process research and
development. These research and development activities had as their goals (a)
the improvement of harvestable yield, (b) the reduction of crop losses, grower
input costs and risk through genetically improving insect, disease and herbicide
resistance and (c) improving the quality of the grain and forage produced
through a combination of traditional breeding methods and modern biotechnology.
Pioneer's research and development efforts consist of new product development
for its traditional businesses and trait and technology development. Of the
$2,175 million estimated fair value of purchased in-process research and
development, $1,012 million represents the estimated fair value of projects
related to new product development for traditional businesses and $1,163 million
represents the estimated fair value of projects related to trait and technology
development.
New product development for traditional businesses consists of Pioneer's seed
research done through classical plant breeding techniques. Each year, Pioneer
maize researchers evaluate about 1 million new experimental corn hybrids. These
hybrids enter into a four- to five-year testing cycle during which the hybrids
are tested in a range of soil types, stresses and climate conditions. As the
results of these tests become known, fewer and fewer hybrids are designated as
candidates for further testing. The Pioneer research and development procedures
classify these projects based on their stage of completion as follows:
- ----------------------------------------------------------------------------
Probability of
Approximate Technical &
Stage of Number of Commercial
Completion Hybrids Success
- ----------------------------------------------------------------------------
First Cross 1,000,000 0.01%
Second Generation 210,000 0.02%
R1 - R2 10,000 0.50%
R3 250 20.00%
R4 160 30.00%
R5 50 95.00%
============================================================================
Each hybrid at each stage of completion is genetically unique. The Probability
of Technical and Commercial Success in this table is the probability that an
individual hybrid at a particular stage of completion will ultimately become a
commercial product. These probabilities were developed based on Pioneer's
extensive historical experience in developing new hybrids of corn. While stage
of completion is indicative of how long it will take to develop hybrids in that
stage, results can vary, with some hybrids taking less time and others taking
longer. Based on these probabilities, it is projected that Pioneer will
introduce, on average, approximately 50 new hybrids of corn each year for the
next seven years as a result of these research and development projects. These
projects represent approximately 73 percent of the estimated fair value of
research and development projects related to new product development for
traditional businesses.
DUPONT 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
After seven years, new hybrids will principally result from research and
development projects that have not yet begun. These future projects are not
included in the valuation of purchased in-process research and development.
Each year, Pioneer's soybean researchers test approximately 500,000 new
experimental lines of soybeans. These experimental lines of soybeans undergo a
testing and selection process similar to the one described for corn. Soybean
projects are classified as to stage of completion using essentially the same
classification system shown for corn. Probabilities of Technical and Commercial
Success were estimated for each stage of completion based on Pioneer's extensive
historical experience. Soybean research and development projects represent
approximately 15 percent of the estimated fair value of in-process research and
development projects related to new product development for traditional
businesses.
Research and development projects for alfalfa, sorghum, wheat, sunflowers,
canola and microbial products make up the remaining approximately 12 percent of
the estimated fair value of in-process research and development projects related
to new product development for traditional businesses.
Research and development projects related to trait and technology development
have as their objective the use of modern biotechnology to improve insect,
disease and herbicide resistance in crops and to develop products that increase
the value of commodity grains by modifying their protein, oil and carbohydrate
components. At the date of acquisition, six in-process projects had progressed
sufficiently to meet the criteria used by DuPont to identify projects qualifying
as purchased in-process research and development. Key criteria in this
identification process include the ability to reasonably estimate the future
benefits if the project is successful, the cost to complete the project, the
probable completion date, and the project's Probability of Technical and
Commercial Success.
Approximately 53 percent of the estimated fair value of research and development
projects related to trait and technology development is represented by a project
to develop resistance to a broad spectrum of lepidopteran insects, including
European corn borer. This project is expected to be completed in 2002. The
Probability of Technical and Commercial Success for this project is 85 percent.
Approximately 20 percent of the estimated fair value of research and development
projects related to trait and technology development is represented by a project
to impart resistance to molds and mycotoxins. This project is expected to be
completed in 2004. The Probability of Technical and Commercial Success for this
project is 80 percent.
Approximately 15 percent of the estimated fair value of research and development
projects related to trait and technology development is represented by a project
to develop resistance to corn rootworm. This project is expected to be completed
in 2002. The Probability of Technical and Commercial Success for this project is
65 percent.
The remaining approximately 12 percent of the estimated fair value of research
and development projects related to trait and technology development is
represented by projects to develop sclerotinia resistance in oil seeds, high
oleic high oil corn and nuclear male sterility in corn. These projects are
expected to be completed in 2003, 2004 and 2005, respectively. The Probability
of Technical and Commercial Success for these projects is 65 percent, 80 percent
and 70 percent, respectively.
At the date of acquisition, the company expected to spend approximately $960
million through 2006 to complete these projects. Risk Adjusted Cash Flows were
discounted to present value using discount rates ranging from 12.25 percent to
13.75 percent, except for the high oleic high oil corn trait and technology
project for which a 17 percent discount rate was used. These discount rates are
somewhat higher than the 11.5 percent estimated weighted average cost of capital
for Pioneer and are intended to compensate for projection risk and market
uncertainty beyond that explicitly addressed in the cash flow projections.
Future results of Pioneer may be significantly impacted by government programs,
weather and commodity prices.
PERFORMANCE COATINGS
In February 1999 the company purchased the global Herberts coatings business
from Hoechst AG for $1,588 million cash and acquisition related costs of $10
million. The allocation of purchase price to the identifiable assets acquired
and liabilities
32 DUPONT
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
assumed, based on their estimated fair values, is as follows
(dollars in millions):
- ---------------------------------------------------------------------------
Current Assets $720
Property, Plant and Equipment 526
Other Assets 203
In-Process Research and Development 64
Liabilities (including assumed debt of $113) (690)
- ---------------------------------------------------------------------------
Total Identifiable Assets Less Liabilities $823
===========================================================================
The $775 million excess of the cost of the acquisition over the estimated fair
value of the identifiable assets less liabilities was recorded as goodwill.
At the date of the acquisition, the business had 29 research and development
projects meeting the criteria for purchased in-process research and development.
These projects were of two principal types (dollars in millions):
- -----------------------------------------------------------------------
Number of Fair Final
Project Type Projects Value
- -----------------------------------------------------------------------
New Product Development 25 $51
New Manufacturing Processes 4 $13
=======================================================================
Cash flows were discounted to present value using a 16 percent discount rate.
This rate is higher than the estimated weighted average cost of capital for this
business and reflects management's assessment of the risks of projections,
volatility and market uncertainty. Other than reflecting the future benefits
associated with planned cost reduction initiatives, the project cash flows do
not anticipate any material changes from historical pricing, margins and expense
levels.
Management estimates the Probability of Technical and Commercial Success for New
Product Development projects ranges from 28 percent to 85 percent. These
projects are expected to be completed by 2004.
Management estimates the Probability of Technical and
Commercial Success for New Manufacturing Processes projects ranges from 29
percent to 49 percent. These projects are expected to be completed by 2005.
The risk-adjusted cost to complete these 29 projects is estimated to total $24
million through 2006. As of December 31, 2000, six of the projects have achieved
technical feasibility; six have been terminated and the remaining projects are
still in process.
DUPONT PHARMACEUTICALS
On July 1, 1998, the company purchased the 50 percent general partnership
interest of Merck & Co. in The DuPont Merck Pharmaceutical Company for $2,586
million cash, the assumption of approximately $282 million of liabilities, and
acquisition related costs of $8 million. As part of the transaction, the company
agreed to indemnify Merck for certain future liabilities that may arise from
events that occurred during Merck's tenure as a general partner. The business,
renamed DuPont Pharmaceuticals, is engaged in the research, development,
manufacturing and sale of human pharmaceutical and radiopharmaceutical products
and is the principal component of the company's Pharmaceuticals business
segment. The purchase price was allocated to the identifiable assets acquired,
based on their estimated fair values, as follows (dollars in millions):
- ---------------------------------------------------------------------------
Current Assets $ 275
Property, Plant and Equipment 307
Other Assets 1,034
In-Process Research and Development 1,230
- ---------------------------------------------------------------------------
Total Identifiable Assets $2,846
===========================================================================
The $30 million excess of the cost of the acquisition ($2,876 million) over the
estimated fair value of the identifiable assets acquired has been recorded as
goodwill.
At the date of acquisition, the business had 32 research and development
projects meeting the criteria for purchased in-process research and development.
The pharmaceuticals industry categorizes research and development activities
into phases, which represent stages of completion in the research and
development process. Successful completion of a research and development project
is deemed to occur upon receipt of regulatory approval for sale of the drug in a
major market, which is normally approval by the FDA for sale in the United
States. The following summarizes the status of the research and development
efforts in process at the date of acquisition and the allocation of purchase
price to each group (dollars in millions):
- ----------------------------------------------------------------------
Number of
Status Projects Fair Value
- ----------------------------------------------------------------------
Pre-Clinical Trial 20 $170
Phase I 2 $ 40
Phase II 4 $240
Phase III 3 $690
New Applications for Existing Products 3 $ 90
======================================================================
DUPONT 33
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Projects in the Pre-Clinical Trial phase of the research and development process
represent compounds that have demonstrated biological activity directed at
disease targets in specific therapeutic areas. Research and development
activities conducted during this phase include optimizing the pharmacological
activity, early screening for toxicity, testing and other activities that must
be performed before a new drug can be administered to humans. If successful,
projects in this phase are expected to be completed in the period 2003 to 2007.
Phase I involves the first clinical trials in humans to test a potential new
drug for pharmacological activity, tolerance and safety. This stage of
development typically takes about one year to complete. The two Phase I projects
in process at the acquisition date involve the development of second generation
nonnucleoside reverse transcriptase inhibitors to be used in combination therapy
for HIV. If successful, these projects were expected to be completed in 2001
assuming the projects would qualify for accelerated regulatory review (see
below).
Phase II involves clinical trials designed to determine efficacy and dosing.
Efforts to optimize manufacturing of active pharmaceutical ingredients,
formulation and packaging are also underway during this phase. This stage of
development normally takes 18 months to complete. The four Phase II projects in
process at the acquisition date were:
. DMP754 (roxifiban), an oral IIb/IIIa platelet receptor antagonist to be
used in the inhibition of platelet activity in cardiovascular patients;
. DMP777, an elastase inhibitor to be used in the treatment of cystic
fibrosis;
. DMP543, a neurotransmitter release enhancer with the potential for use in
the treatment of Alzheimer's disease; and
. DMP444, a radiopharmaceutical agent for use in thrombus imaging.
If successful, these projects were expected to be completed in the period 2001
to 2005.
Phase III typically involves large multicenter clinical trials intended to
gather evidence of the effectiveness of the new drug for specific therapeutic
use and to better understand safety and drug-related adverse effects. This stage
of development normally takes two to four years plus an additional 6 to 12
months for regulatory review. The regulatory review period can take less time if
the new drug qualifies for accelerated review. The three Phase III projects in
process at the date of acquisition were:
. DMP266 Sustiva(TM) (efavirenz), a nonnucleoside reverse transcriptase
inhibitor for use in combination therapy for HIV;
. DMP115 Definity(TM), a contrast imaging agent for ultrasound procedures;
and
. DMP702 Innohep(R) (tinzaparin sodium injection), a low- molecular weight
heparin anticoagulant.
At the date of acquisition, Sustiva(TM) (efavirenz) was expected to be completed
in late 1998, assuming an accelerated regulatory review and successful
completion, and Definity(TM) and Innohep(R) were expected, if successful, to be
completed in 1999.
At the date of acquisition, there were two projects underway to support the
submission for regulatory approval of new therapeutic uses for Coumadin(R)
(warfarin sodium). These projects, if successful, were expected to be completed
in the period 2000 to 2003. A third project, the submission for regulatory
approval of Coumadin(R) for the extended (180 to 300 day) use in treatment of
deep vein thrombosis was, if successful, expected to be completed later in 1998.
At the date of acquisition the company estimated that it would spend $1 billion,
on a risk-adjusted basis, over 10 years in its efforts to complete the above
projects. This estimate recognized the fact that not all projects would be
completed successfully. The cost of successfully taking a project from
pre-clinical development through regulatory approval is estimated to range from
$250 million to $500 million. Estimates of the cost to complete a specific
project are dependent on its stage of development, the disease to be treated,
the size and structure of clinical trials required to prove improved efficacy
and/or safety versus current treatment options, and the project's Probability of
Technical and Commercial Success.
The range of Probability of Technical and Commercial Success factors used in
determining the estimated fair value of in-process research and development at
the date of acquisition is as follows:
34 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
- --------------------------------------------------------------------
Probability of Technical
Status & Commercial Success
- --------------------------------------------------------------------
Pre-Clinical Trial 5% to 9%
Phase I 14% to 18%
Phase II 30% to 50%
Phase III 55% to 95%
New Applications for Existing Products 70% to 90%
===================================================================
Risk Adjusted Cash Flows were discounted to present value using a 13 percent
discount rate, which is 50 basis points higher than the estimated weighted
average cost of capital for research-based pharmaceutical companies. The higher
discount rate used to present value these Risk Adjusted Cash Flows compensates
for the increased risk associated with a finite number of projects versus a
diversified business as a whole.
Since the date of acquisition, Sustiva(TM) and Innohep(R) have received FDA
approval. Definity(TM) has been submitted for FDA approval, DMP754 has begun
Phase III trials, four second generation NNRTI compounds have entered
development, including two that were in Phase I on the date of acquisition, and
projects for DMP444, DMP543, DMP777 and the use of Coumadin(R) in the prevention
of myocardial infarction have been terminated. The remaining projects are still
in process.
POLYESTER FILMS
In January 1998 the company purchased the global polyester films business of ICI
for $647 million cash, the assumption of $110 million of liabilities, and
acquisition related costs of $5 million. The purchase price was allocated to the
identifiable assets acquired, based on their estimated fair values, as follows
(dollars in millions):
- --------------------------------------------------------------------------
Current Assets $ 62
Property, Plant and Equipment 501
Other Assets 73
In-Process Research and Development 50
- --------------------------------------------------------------------------
Total Identifiable Assets $686
==========================================================================
The $76 million excess of the cost of the acquisition ($762 million) over the
estimated fair value of the identifiable assets acquired has been recorded as
goodwill.
At the date of the acquisition, the business had 10 research and development
projects meeting the criteria for purchased in-process research and development.
These projects were of two general types (dollars in millions):
- --------------------------------------------------------------------
Project Type Number of Projects Fair Value
- --------------------------------------------------------------------
New Product Development 7 $36
Process Modification 3 $14
====================================================================
New Product Development projects were expected to be completed in the period
1998 to 1999. Management estimated the Probability of Technical and Commercial
Success for these projects ranged from 40 percent to 80 percent. Process
Modification projects were expected to be completed in the period 1998 to 1999.
Management estimated the Probability of Technical and Commercial Success for
these projects ranged from 60 percent to 70 percent.
The cost to complete these projects was estimated to total $5 million through
1999. Risk Adjusted Cash Flows were discounted to present value using a 15
percent discount rate. This rate is higher than the estimated weighted average
cost of capital for this business and reflects management's assessment of the
risks of projections, volatility and market uncertainty.
As of December 31, 1999, most of the seven New Product Development projects had
achieved technical feasibility. On December 31, 1999, the polyester films
business, including acquired in-process research and development projects that
had not been completed, became DuPont Teijin Films, a joint venture between
DuPont and Teijin Limited. Continuation of these projects is no longer
controlled by DuPont.
See also the respective Segment Reviews on pages 14-27 for additional
information concerning current market conditions, the status of purchased
research and development projects, and the outlook for these and other acquired
businesses.
Financial Instruments
DERIVATIVES AND OTHER HEDGING INSTRUMENTS
Under procedures and controls established by the company's Financial Risk
Management Framework, the company enters into contractual arrangements
(derivatives) in the ordinary course of business to hedge its exposure to
foreign currency, interest rate
DUPONT 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
and commodity price risks. The counterparties to these contractual arrangements
are major financial institutions. Although the company is exposed to credit loss
in the event of nonperformance by these counterparties, this exposure is managed
through credit approvals, limits and monitoring procedures and, to the extent
possible, by restricting the period over which unpaid balances are allowed to
accumulate. The company does not anticipate nonperformance by counterparties to
these contracts, and no material loss would be expected from any such
nonperformance.
FOREIGN CURRENCY RISK
The company routinely uses forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-denominated monetary
assets and liabilities of its operations. The primary business objective of this
hedging program is to maintain an approximately balanced position in foreign
currencies so that exchange gains and losses resulting from exchange rate
changes, net of related tax effects, are minimized.
In addition, from time to time, the company will enter into forward exchange
contracts to establish with certainty the U.S. dollar amount of future firm
commitments denominated in a foreign currency. Decisions regarding whether or
not to hedge a given commitment are made on a case-by-case basis taking into
consideration the amount and duration of the exposure, market volatility and
economic trends. Forward exchange contracts are also used from time to time to
manage near-term foreign currency cash requirements and to place foreign
currency deposits and marketable securities investments into currencies offering
favorable returns.
Principal currency exposures and related hedge positions at December 31, 2000,
were as follows (dollars in millions):
- ------------------------------------------------------------------------------------------------------------------------------------
After-Tax After-Tax After-Tax Net
Net Monetary Net Monetary Net Monetary Open Contracts To After-Tax
Asset (Liability) Asset/(Liability) Buy/(Sell) Foreign Currency Exposure
---------------------------
Currency Exposure Exposure Exposure Pre-Tax After-Tax Asset/(Liability)
- ------------------------------------------------------------------------------------------------------------------------------------
British pound sterling $697 $(845) $(148) $ 238 $ 148 $ -
Canadian dollar $569 $(185) $ 384 $(620) $(384) $ -
Japanese yen $738 $(675) $ 63 $(102) $ (63) $ -
Korean won $ 95 $ (26) $ 69 $(112) $ (69) $ -
Mexican peso $194 $(275) $ (81) $ 127 $ 79 $(2)
Taiwan dollar $101 $(244) $(143) $ 231 $ 143 $ -
====================================================================================================================================
The fair value of forward exchange contracts accounted for as hedges that were
outstanding as of December 31, 2000, was $24 million. Given the company's
balanced foreign exchange position, a 10 percent adverse change in foreign
exchange rates upon which these contracts are based would result in exchange
losses from these contracts that, net of tax, would, in all material respects,
be fully offset by exchange gains on the underlying net monetary exposures for
which the contracts are designated as hedges.
In December 1998 the company entered into forward exchange contracts to purchase
3.1 billion German marks for $1.9 billion in conjunction with the signing of a
definitive agreement to purchase the performance coatings business of Hoechst AG
for 3.1 billion German marks. The business purpose of these contracts was to
lock in the U.S. dollar functional currency cost of this acquisition and thereby
prevent adverse movements in the dollar/mark exchange rate from causing the net
U.S. dollar cash purchase price to exceed the negotiated fair value of the
business. The use of hedge accounting for these contracts was precluded by
accounting guidance. Changes in fair value of these contracts were included in
income in the period the change occurred. The contracts expired in August 1999.
INTEREST RATE RISK
The company uses a combination of financial instruments, including interest rate
swaps, interest and principal currency swaps and structured medium-term
financings, as part of its program to manage the 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.
36 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Interest rate swaps also involve the exchange of floating for fixed rate
interest payments to effectively convert floating rate debt into fixed rate
debt. Interest rate swaps allow the company to maintain a target range of
floating rate debt.
Under interest and principal currency swaps, the company receives predetermined
foreign currency-denominated payments corresponding, both as to timing and
amount, to the fixed or floating interest rate and fixed principal amounts to be
paid by the company under concurrently issued foreign currency-denominated
bonds. In return, the company pays U.S. dollar interest and a fixed U.S. dollar
principal amount to the counterparty thereby effectively converting the foreign
currency-denominated bonds into U.S. dollar-denominated obligations for both
interest and principal. Interest and principal currency swaps allow the company
to be fully hedged against fluctuations in currency exchange rates and foreign
interest rates and to achieve U.S. dollar fixed or floating interest rate
payments below the market interest rate, at the date of issuance, for borrowings
of comparable maturity.
Structured medium-term financings consist of a structured medium-term note and a
concurrently executed structured medium-term swap which, for any and all
calculations of the note's interest and/or principal payments over the term of
the note, provide a fully hedged transaction such that the note is effectively
converted to a U.S. dollar-denominated fixed or floating interest rate payment.
Structured medium-term swaps allow the company to be fully hedged against
fluctuations in exchange rates and interest rates and to achieve U.S. dollar
fixed or floating interest rate payments below the market interest rate, at the
date of issuance, for borrowings of comparable maturity.
The fair value of interest rate derivatives outstanding as of December 31, 2000,
was not material. A one percentage point adverse change in the interest rates
upon which these contracts are based would not cause these instruments to have a
material impact on future earnings.
COMMODITY PRICE RISK
The company enters into exchange-traded and over-the-counter derivative
commodity instruments to hedge its exposure to price fluctuations on certain raw
material purchases.
Pioneer contracts with independent growers to produce finished seed inventory.
Under these contracts, Pioneer compensates growers with bushel equivalents that
are marketed to Pioneer for the market price of grain for a period of time
following harvest.
Pioneer uses derivative instruments such as commodity futures that have a very
high correlation to the underlying commodity to hedge the commodity price risk
involved in compensating growers.
The fair value of derivative commodity instruments outstanding as of December
31, 2000, was not material. A 10 percent adverse change in the commodity prices
upon which these contracts are based would not cause these instruments to have a
material impact on future earnings.
Additional details on these and other financial instruments are set forth in
Note 27 to the financial statements.
ACCOUNTING FOR DERIVATIVES
On January 1, 2001, DuPont will adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," including the amendments in SFAS No. 138.
The new standard requires that all derivative instruments be reported on the
balance sheet at their fair values. For derivative instruments designated as
fair value hedges, changes in the fair value of the derivative instrument will
generally be offset on the income statement by changes in the fair value of the
hedged item. For derivative instruments designated as cash flow hedges, the
effective portion of any hedge is reported in accumulated other comprehensive
income (loss) until it is cleared to earnings during the same period in which
the hedged item affects earnings. The ineffective portion of all hedges will be
recognized in current earnings each period. Changes in the fair value of
derivative instruments that are not designated as a hedge will be recorded each
period in current earnings.
Based on the planned adoption of SFAS No. 133 the company reviewed and updated
its Corporate Risk Management Policy to include hedging certain anticipated
foreign currency revenues. Management expects this new risk management activity
will be fully implemented in 2001.
The company anticipates it will use option and forward exchange contracts to
hedge certain anticipated foreign currency revenues. By policy, the company will
maintain coverage between minimum and maximum percentages of certain anticipated
foreign currency revenues. The company estimates any gains or losses on these
contracts will be offset by changes in the value of the related anticipated
revenues, excluding any hedging costs.
It is the company's policy to enter into foreign currency contracts only to the
extent considered necessary to meet its objectives as
DUPONT 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
stated in the Corporate Risk Management Policies. The company does not enter
into these transactions for speculative purposes.
The company does not anticipate making any significant changes to its interest
rate risk and commodity price risk hedging activities as a result of adopting
SFAS No. 133 and SFAS No. 138.
The company estimates that on January 1, 2001, it will record a net-of-tax
cumulative-effect-type adjustment to net income which is expected to be a gain
of approximately $12 million, or $.01 per share.
In addition, the company estimates that on January 1, 2001, it will record a
net-of-tax cumulative-effect-type adjustment to increase accumulated other
comprehensive income approximately $6 million. This adjustment will recognize at
fair value all derivative instruments that will be designated as cash flow
hedging instruments.
Environmental Matters
DuPont operates global manufacturing facilities, product-handling and
distribution facilities that are subject to a broad array of environmental laws
and regulations. Company policy requires that all operations fully meet or
exceed legal and regulatory requirements. DuPont implements voluntary programs
to reduce air emissions, eliminate the generation of hazardous waste, decrease
the volume of wastewater discharges and increase the efficiency of energy use.
The costs to comply with complex environmental laws and regulations, as well as
internal voluntary programs and goals, are significant and will continue to be
so for the foreseeable future. Even though these costs may increase in the
future, they are not expected to have a material impact on the company's
competitive or financial position, liquidity or results of operations.
In 2000 DuPont spent about $140 million on environmental capital projects either
required by law or necessary to meet the company's internal waste elimination
and pollution prevention goals. The company currently estimates expenditures for
environmental-related capital projects will total $130 million in 2001.
Significant capital expenditures are expected to be required over the next
decade for treatment, storage and disposal facilities for solid and hazardous
waste and for compliance with the Clean Air Act (CAA). Until all new CAA
regulatory requirements are established and known, considerable uncertainty will
remain regarding future estimates for capital expenditures. Total CAA capital
costs over the next two years are currently estimated to range from $20 million
to $40 million.
The Environmental Protection Agency (EPA) challenged the U.S. chemical industry
to voluntarily conduct screening level health and environmental effects testing
on nearly 3,000 high production volume (HPV) chemicals or to make equivalent
information publicly available. An HPV chemical is a chemical listed on the 1990
Inventory Update Rule with an annual U.S. cumulative production of 1 million
pounds or more. The cost to DuPont of testing for HPV chemicals it makes is
estimated to be $10 million to $15 million over the next five years; for the
entire industry, the cost of testing is estimated to be $500 million.
Global climate change is being addressed by the Framework Convention on Climate
Change adopted in 1992. The Kyoto Protocol adopted in December 1997 is an effort
to establish short-term actions under the Convention. If ratified by a
sufficient number of countries over the next few years, the Kyoto Protocol would
establish significant emission reduction targets for six gases considered to
have global warming potential. DuPont has a stake in a number of these gases:
CO2, N2O, HFCs and PFCs. DuPont has been reducing its emissions of these
so-called "greenhouse gases" since 1991 and is well ahead of the
target/timetable contemplated by the Protocol, on a global basis. Specific
measures to implement the Protocol are already being put in place in some
countries, but action to impose reduction mandates within the United States is
not expected in the near future.
Estimated pretax environmental expenses charged to current operations totaled
about $550 million in 2000 compared with $560 million in both 1999 and 1998.
These expenses include the remediation accruals discussed below, operating,
maintenance and depreciation costs for solid waste, air and water pollution
control facilities and the costs of environmental research activities. The
largest of these expenses in 2000 resulted from the operation of water pollution
control facilities and solid waste management facilities for about $180 million
and $150 million, respectively. About 77 percent of total annual expenses
resulted from the operations in the United States.
REMEDIATION ACCRUALS
DuPont accrues for remediation activities when it is probable that a liability
has been incurred and reasonable estimates of the liability can be made. These
accrued liabilities exclude claims against third parties and are not discounted.
Much of this liability results from
38 DUPONT
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA, often referred to as Superfund), the Resource Conservation and Recovery
Act (RCRA) and similar state laws. These laws require the company to undertake
certain investigative and remedial activities at sites where the company
conducts or once conducted operations or at sites where company-generated waste
was disposed. The accrual also includes a number of sites identified by the
company that may require environmental remediation, but which are not currently
the subject of CERCLA, RCRA or state enforcement activities. Over the next two
decades the company may incur significant costs under both CERCLA and RCRA.
Considerable uncertainty exists with respect to these costs and under adverse
changes in circumstances, potential liability may exceed amounts accrued as of
December 31, 2000.
Remediation activities vary substantially in duration and cost from site to
site. These activities, and their associated costs, depend on the mix of unique
site characteristics, evolving remediation technologies, diverse regulatory
agencies and enforcement policies, as well as the presence or absence of
potentially liable third parties. Therefore, it is difficult to develop
reasonable estimates of future site remediation costs. At December 31, 2000, the
company's balance sheet included an accrued liability of $408 million as
compared with $435 million and $462 million at year-end 1999 and 1998,
respectively. Approximately 76 percent of the company's environmental reserve at
December 31, 2000, was attributable to RCRA and similar remediation liabilities,
while 24 percent was attributable to CERCLA liabilities. During 2000,
remediation accruals of $38 million were added to the reserve compared with $35
million in 1999 and $77 million in 1998.
REMEDIATION EXPENDITURES
RCRA extensively regulates and requires permits for the treatment, storage and
disposal of hazardous waste. RCRA requires that permitted facilities undertake
an assessment of environmental contamination at the facility. If conditions
warrant, companies may be required to remediate contamination caused by prior
operations. As contrasted by CERCLA, the costs of the RCRA corrective action
program are typically borne solely by the company. The company anticipates that
significant ongoing expenditures for RCRA remediation activities may be required
over the next two decades. Annual expenditures for the near term, however, are
not expected to vary significantly from the range of such expenditures
experienced in the past few years. Longer term, expenditures are subject to
considerable uncertainty and may fluctuate significantly. The company's
expenditures associated with RCRA and similar remediation activities were
approximately $53 million in 2000, $43 million in 1999 and $40 million in 1998.
The company, from time to time, receives requests for information or notices of
potential liability from the EPA and state environmental agencies alleging that
the company is a "potentially responsible party" (PRP) under CERCLA or an
equivalent state statute. The company has also, on occasion, been engaged in
cost recovery litigation initiated by those agencies or by private parties.
These requests, notices and lawsuits assert potential liability for remediation
costs at various sites that typically are not company owned, but allegedly
contain wastes attributable to the company's past operations. As of December 31,
2000, the company had been notified of potential liability under CERCLA or state
law at 348 sites around the United States, with active remediation under way at
133 of those sites. In addition, the company has resolved its liability at 124
sites, either by completing remedial actions with other PRPs or by participating
in "de minimis buyouts" with other PRPs whose waste, like the company's,
represented only a small fraction of the total waste present at a site. The
company received notice of potential liability at 13 new sites during 2000
compared with 10 similar notices in 1999 and eight in 1998. In 2000, five sites
were settled by the company. The company's expenditures associated with CERCLA
and similar state remediation activities were approximately $12 million in 2000,
$19 million in 1999 and $22 million in 1998.
For nearly all Superfund sites, the company's potential liability will be
significantly less than the total site remediation costs because the percentage
of waste attributable to the company versus that attributable to all other PRPs
is relatively low. Other PRPs at sites where the company is a party typically
have the financial strength to meet their obligations and, where they do not, or
where PRPs cannot be located, the company's own share of liability has not
materially increased. There are relatively few sites where the company is a
major participant, and the cost to the company of remediation at those sites,
and at all CERCLA sites in the aggregate, is not expected to have a material
impact on the competitive or financial position, liquidity or results of
operations of the company.
Total expenditures for previously accrued remediation activities under CERCLA,
RCRA and similar state laws were $65 million in 2000 and $62 million in both
1999 and 1998. Although future remediation expenditures in excess of current
reserves are
DUPONT 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
possible, the effect on future financial results is not subject to reasonable
estimation because of the considerable uncertainty regarding the cost and timing
of expenditures.
Forward-Looking Statements
This report contains forward-looking statements which may be identified by their
use of words like "plans," "expects," "will," "anticipates," "intends,"
"projects," "estimates" or other words of similar meaning. All statements that
address expectations or projections about the future, including statements about
the company's strategy for growth, product development, market position,
expenditures and financial results are forward-looking statements.
Forward-looking statements are based on certain assumptions and expectations of
future events. The company cannot guarantee that these assumptions and
expectations are accurate or will be realized. In addition to the factors
discussed in this report, the following are some of the important factors that
could cause the company's actual results to differ materially from those
projected in any such forward-looking statements:
. The company operates in approximately 70 countries worldwide and derives
about half of its revenues from sales outside the United States. Changes in
the laws or policies of other governmental and quasi-governmental activities
in the countries in which the company operates could affect its business in
the country and the company's results of operations. In addition, economic
factors (including inflation and fluctuations in interest rates and foreign
currency exchange rates) and competitive factors (such as greater price
competition or a decline in U.S. or European industry sales from slowing
economic growth) in those countries could affect the company's revenues,
expenses and results.
. The company's ability to grow earnings will be affected by increases in the
cost of raw materials, particularly petroleum-based feedstocks, natural gas
and paraxylene. The company may not be able to fully offset the effects of
higher raw material costs through price increases or productivity
improvements.
. The company's growth objectives are largely dependent on its ability to renew
its pipeline of new products and to bring those products to market. This
ability may be adversely affected by difficulties or delays in product
development such as the inability to: identify viable new products;
successfully complete research and development projects; obtain relevant
regulatory approvals, which may include approval from the U.S. Food and Drug
Administration; obtain adequate intellectual property protection; or gain
market acceptance of the new products.
. As part of its strategy for growth, the company has made and may continue to
make acquisitions and divestitures and form strategic alliances. There can be
no assurance that these will be completed or beneficial to the company.
. To a significant degree, results in the company's Agriculture & Nutrition and
Pioneer segments reflect changes in agricultural conditions, including
weather and government programs. These results also reflect the seasonality
of sales of agricultural products; highest sales in the United States occur
in the first half of the year. In addition, demand for products produced in
these segments may be affected by market acceptance of genetically enhanced
products.
. The company has undertaken and may continue to undertake productivity
initiatives, including organizational restructurings and Six Sigma
productivity improvement projects, to improve performance and generate cost
savings. There can be no assurance that these will be completed or beneficial
to the company. Also there can be no assurance that any estimated cost
savings from such activities will be realized.
. The company's facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental laws and
regulations, as well as internal voluntary programs, are significant and will
continue to be so for the foreseeable future. The company's accruals for such
costs and liabilities may not be adequate since the estimates on which the
accruals are based depend on a number of factors including the nature of the
allegation, the complexity of the site, the nature of the remedy, the outcome
of discussions with regulatory agencies and other potentially responsible
parties (PRPs) at multiparty sites, and the number and financial viability of
other PRPs.
. The company's results of operations could be affected by significant
litigation adverse to the company including product liability claims, patent
infringement claims and antitrust claims.
The foregoing list of important factors is not inclusive, or necessarily in
order of importance.
40 DUPONT
RESPONSIBILITY FOR FINANCIAL REPORTING
- --------------------------------------------------------------------------------
Management is responsible for the consolidated financial statements and the
other financial information contained in this Annual Report. The financial
statements have been prepared in accordance with generally accepted accounting
principles considered by management to present fairly the company's financial
position, results of operations and cash flows. The financial statements include
some amounts that are based on management's best estimates and judgments.
The company's system of internal controls is designed to provide reasonable
assurance as to the protection of assets against loss from unauthorized use or
disposition, and the reliability of financial records for preparing financial
statements and maintaining accountability for assets. The company's business
ethics policy is the cornerstone of our internal control system. This policy
sets forth management's commitment to conduct business worldwide with the
highest ethical standards and in conformity with applicable laws. The business
ethics policy also requires that the documents supporting all transactions
clearly describe their true nature and that all transactions be properly
reported and classified in the financial records. The system is monitored by an
extensive program of internal audit, and management believes that the system of
internal controls at December 31, 2000, meets the objectives noted above.
The financial statements have been audited by the company's independent
accountants, PricewaterhouseCoopers LLP. The purpose of their audit is to
independently affirm the fairness of management's reporting of financial
position, results of operations and cash flows. To express the opinion set forth
in their report, they study and evaluate the internal controls to the extent
they deem necessary. Their report is shown on this page. The adequacy of the
company's internal controls and the accounting principles employed in financial
reporting are under the general oversight of the Audit Committee of the Board of
Directors. This committee also has responsibility for employing the independent
accountants, subject to stockholder ratification. No member of this committee
may be an officer or employee of the company or any subsidiary or affiliated
company. The independent accountants and the internal auditors have direct
access to the Audit Committee, and they meet with the committee from time to
time, with and without management present, to discuss accounting, auditing and
financial reporting matters.
/S/ Charles O. Holliday, Jr. /S/ Gary M. Pfeiffer
Charles O. Holliday, Jr. Gary M. Pfeiffer
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
February 16, 2001
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 42-71
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, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
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
auditing standards generally accepted in the United States of America, 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 our opinion.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, Pennsylvania 19103
February 16, 2001
DUPONT 41
FINANCIAL STATEMENTS
--------------------
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Income Statement
(Dollars in millions, except per share)
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
Sales $ 28,268 $ 26,918 $ 24,767
Other Income (Note 2) 934 974 981
-------- -------- --------
Total 29,202 27,892 25,748
-------- -------- --------
Cost of Goods Sold and Other Operating Charges (Note 3) 18,207 16,991 15,556
Selling, General and Administrative Expenses 3,041 2,595 2,115
Depreciation 1,415 1,444 1,452
Amortization of Goodwill and Other Intangible Assets 445 246 108
Research and Development Expense 1,776 1,617 1,308
Interest Expense (Note 4) 810 535 520
Purchased In-Process Research and Development (Note 5) (11) 2,250 1,443
Employee Separation Costs and Write-down of Assets (Note 6) 101 524 633
Gain on Issuance of Stock by Affiliates--Nonoperating (Note 7) (29) - -
-------- -------- --------
Total 25,755 26,202 23,135
-------- -------- --------
Income from Continuing Operations Before Income Taxes and Minority Interests 3,447 1,690 2,613
Provision for Income Taxes (Note 8) 1,072 1,410 941
Minority Interests in Earnings of Consolidated Subsidiaries 61 61 24
-------- -------- --------
Income from Continuing Operations 2,314 219 1,648
Discontinued Operations (Note 9)
Income from Operations of Discontinued Business, Net of Income Taxes - - 594
Gain on Disposal of Discontinued Business, Net of Income Taxes - 7,471 2,439
-------- -------- --------
Income Before Extraordinary Item - 7,690 4,681
Extraordinary Charge from Early Extinguishment of Debt, Net of Income Taxes (Note 10) - - (201)
-------- -------- --------
Net Income $ 2,314 $ 7,690 $ 4,480
==============================================================================================================================
Basic Earnings (Loss) Per Share of Common Stock (Note 11)
Continuing Operations Before Extraordinary Item $ 2.21 $ .19 $ 1.45
Discontinued Operations - 6.89 2.69
-------- -------- --------
Before Extraordinary Item 2.21 7.08 4.14
Extraordinary Charge - - (.18)
-------- -------- --------
Net Income $ 2.21 $ 7.08 $ 3.96
======== ======== ========
Diluted Earnings (Loss) Per Share of Common Stock (Note 11)
Continuing Operations Before Extraordinary Item $ 2.19 $ .19 $ 1.43
Discontinued Operations - 6.80 2.65
-------- -------- --------
Before Extraordinary Item 2.19 6.99 4.08
Extraordinary Charge - - (.18)
-------- -------- --------
Net Income $ 2.19 $ 6.99 $ 3.90
==============================================================================================================================
See pages 46-71 for Notes to Financial Statements.
42 DUPONT
FINANCIAL STATEMENTS
--------------------
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Balance Sheet
(Dollars in millions, except per share)
- ------------------------------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and Cash Equivalents $ 1,540 $ 1,466
Marketable Securities 77 116
Accounts and Notes Receivable (Note 12) 4,552 5,318
Inventories (Note 13) 4,658 5,057
Prepaid Expenses 228 202
Deferred Income Taxes (Note 8) 601 494
---------- ----------
Total Current Assets 11,656 12,653
---------- ----------
Property, Plant and Equipment (Note 14) 34,650 35,416
Less: Accumulated Depreciation 20,468 20,545
---------- ----------
Net Property, Plant and Equipment 14,182 14,871
---------- ----------
Goodwill and Other Intangible Assets (Note 15) 8,365 8,724
Investment in Affiliates (Note 16) 2,206 1,459
Other Assets (Notes 8 and 17) 3,017 3,070
---------- ----------
Total $ 39,426 $ 40,777
======================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable (Note 18) $ 2,731 $ 2,780
Short-Term Borrowings and Capital Lease Obligations (Note 19) 3,247 4,941
Income Taxes (Note 8) 250 359
Other Accrued Liabilities (Note 20) 3,027 3,148
---------- ----------
Total Current Liabilities 9,255 11,228
Long-Term Borrowings and Capital Lease Obligations (Note 21) 6,658 6,625
Other Liabilities (Note 22) 7,729 7,872
Deferred Income Taxes (Note 8) 2,105 1,660
---------- ----------
Total Liabilities 25,747 27,385
---------- ----------
Minority Interests 380 517
---------- ----------
Stockholders' Equity (next page)
Preferred Stock, without par value--cumulative; 23,000,000 shares
authorized; issued at December 31:
$4.50 Series--1,672,594 shares (callable at $120) 167 167
$3.50 Series--700,000 shares (callable at $102) 70 70
Common Stock, $.30 par value; 1,800,000,000 shares authorized;
Issued at December 31, 2000--1,129,973,354; 1999 --1,139,514,154 339 342
Additional Paid-In Capital 7,659 7,941
Reinvested Earnings 12,153 11,699
Accumulated Other Comprehensive Income (Loss) (188) (133)
Common Stock Held in Trust for Unearned Employee Compensation and
Benefits (Flexitrust), at Market (Shares: December 31, 2000--
3,601,199; 1999--7,342,245) (174) (484)
Common Stock Held in Treasury, at Cost (6,727) (6,727)
---------- ----------
(Shares: December 31, 2000-- 87,041,427; 1999-- 87,041,427)
Total Stockholders' Equity 13,299 12,875
---------- ----------
Total $ 39,426 $ 40,777
=======================================================================================================
See pages 46-71 for Notes to Financial Statements.
DUPONT 43
FINANCIAL STATEMENTS
--------------------
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Stockholders' Equity (Notes 23 and 24)
(Dollars in millions, except per share)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total Total
Preferred Common Paid-In Reinvested Comprehensive Treasury Stockholders Comprehensive
Stock Stock Capital Earnings Income (Loss) Flexitrust Stock Equity Income
1998
Balance January 1, 1998 $ 237 $ 346 $ 7,991 $ 4,389 $ (297) $ (1,396) $ - $ 11,270
------- ------- -------- --------- -------- -------- -------- ---------
Net Income 4,480 $ 4,480
Cumulative Translation (23) (23)
Adjustment
Minimum Pension Liability (112) (112)
---------
Total Comprehensive Income $ 4,345
=========
Common Dividends ($1.365 per (1,539)
share)
Preferred Dividends (10)
Treasury Stock
Acquisition (704)
Issuance/Retirement (4) (85) (615) 704
Common Stock Issued
Flexitrust (279) 598
Businesses Acquired 4
Compensation Plans 269
Adjustments to Market Value (46) 46
------- ------- -------- --------- -------- -------- -------- ---------
Balance December 31, 1998 $ 237 $ 342 $ 7,854 $ 6,705 $ (432) $ (752) $ - $ 13,954
------- ------- -------- --------- -------- -------- -------- ---------
1999
Net Income 7,690 $ 7,690
Cumulative Translation 172 172
Adjustment
Minimum Pension Liability 76 76
Net Unrealized Gain on
Securities 51 51
--------
Total Comprehensive Income $ 7,989
========
Common Dividends ($1.40 per (1,501)
share)
Preferred Dividends (10)
Treasury Stock
Acquisition (12,095)
Businesses Acquired (5) (1,147) 5,324
Retirement (6) (38) 44
Common Stock Issued
Flexitrust (220) 427
Compensation Plans 159
Adjustments to Market Value 159 (159)
------- ------- -------- --------- -------- -------- -------- ---------
Balance December 31, 1999 $ 237 $ 342 $ 7,941 $ 11,699 $ (133) $ (484) $ (6,727) $ 12,875
------- ------- -------- --------- -------- -------- -------- ---------
2000
Net Income 2,314 $ 2,314
Cumulative Translation (38) (38)
Adjustment
Minimum Pension Liability 4 4
Net Unrealized (Loss) on (21) (21)
Securities
--------
Total Comprehensive Income $ 2,259
========
Common Dividends ($1.40 per share) (1,455)
Preferred Dividends (10)
Treasury Stock
Acquisition (462)
Retirement (3) (64) (395) 462
Common Stock Issued
Flexitrust (96) 204
Compensation Plans (16)
Adjustments to Market Value (106) 106
------- ------- -------- --------- -------- -------- -------- ---------
Balance December 31, 2000 $ 237 $ 339 $ 7,659 $ 12,153 $ (188) $ (174) $ (6,727) $ 13,299
======= ======= ======== ========= ========= ======== ======== =========
See pages 46-71 for Notes to Financial Statements.
44 DUPONT
FINANCIAL STATEMENTS
--------------------
E.I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
- ------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------- --------- ---------
Cash and Cash Equivalents at Beginning of Year $ 1,466 $ 1,434 $ 1,004
---------- --------- ---------
Cash Provided by Continuing Operations
Net Income 2,314 7,690 4,480
Adjustments to Reconcile Net Income to Cash Provided by Continuing Operations:
Net Income from Discontinued Operations - (7,471) (3,033)
Extraordinary Charge from Early Retirement of Debt (Note 10) - - 275
Depreciation 1,415 1,444 1,452
Amortization of Goodwill and Other Intangible Assets 445 246 108
Purchased In-Process Research and Development (Note 5) (11) 2,250 1,443
Other Noncash Charges and Credits-- Net 899 443 (319)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable 379 (21) (580)
Inventories and Other Operating Assets (727) (384) (74)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities 87 185 254
Accrued Interest and Income Taxes (Notes 4 and 8) 269 458 126
---------- --------- ---------
Cash Provided by Continuing Operations 5,070 4,840 4,132
---------- --------- ---------
Investment Activities of Continuing Operations (Note 25)
Purchases of Property, Plant and Equipment (1,925) (2,055) (2,240)
Investments in Affiliates (97) (48) (63)
Payments for Businesses (Net of Cash Acquired) (46) (5,073) (3,282)
Proceeds from Sales of Assets 703 609 946
Net Proceeds from Sale of Interest in Petroleum Operations (Note 9) - - 4,206
Net Decrease (Increase) in Short-Term Financial Instruments 25 (258) 131
Miscellaneous-- Net 96 14 124
---------- --------- ---------
Cash Used for Investment Activities of Continuing Operations (1,244) (6,811) (178)
---------- --------- ---------
Financing Activities
Dividends Paid to Stockholders (1,465) (1,511) (1,549)
Net Increase (Decrease) in Short-Term Borrowings (95) (3,244) 1,574
Long-Term and Other Borrowings:
Receipts 4,996 8,420 6,335
Payments (6,574) (5,612) (8,966)
Acquisition of Treasury Stock (Note 23) (462) (690) (704)
Proceeds from Exercise of Stock Options 63 168 257
Increase in Minority Interests - 105 -
---------- --------- ---------
Cash Used for Financing Activities (3,537) (2,364) (3,053)
---------- --------- ---------
Net Cash Flow from Discontinued Operations* - 4,475 (568)
Effect of Exchange Rate Changes on Cash (215) (108) 97
---------- --------- ---------
Cash and Cash Equivalents at End of Year $ 1,540 $ 1,466 $ 1,434
---------- --------- ---------
Increase in Cash and Cash Equivalents $ 74 $ 32 $ 430
========================================================================================================================
* Includes payments of direct expenses related to the Conoco initial public
offering and exchange transactions.
See pages 46-71 for Notes to Financial Statements.
DUPONT 45
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
1. Summary of Significant Accounting Policies
DuPont observes the generally accepted accounting principles described below.
These, together with the other notes that follow, are an integral part of the
consolidated financial statements.
Basis of Consolidation
The accounts of wholly owned and majority-owned subsidiaries are included in the
consolidated financial statements. Investments in affiliates owned 20 percent or
more are accounted for under the equity method. Investments in companies owned
less than 20 percent are accounted for under the cost method. Divestiture of the
company's petroleum business was completed on August 6, 1999, and is reported as
discontinued operations (see Note 9).
Revenue Recognition
The company recognizes revenue when the earnings process is complete. This
generally occurs when products are shipped to the customer in accordance with
terms of the agreement, title and risk of loss have been transferred,
collectibility is probable, and pricing is fixed and determinable. Accruals are
made for sales returns and other allowances based on the company's experience.
The company accounts for sales incentives as a reduction in revenue at the time
revenue is recorded. Royalty income is recognized in accordance with agreed upon
terms, when the amount is determinable and collectibility is probable.
Affiliate and Subsidiary Stock Transactions
Gains or losses arising from issuances by an affiliate or a subsidiary of its
own stock are recorded as nonoperating items.
Cash and Cash Equivalents
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-term 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
Marketable debt securities represent investments in fixed and floating rate
financial instruments with maturities of twelve months or less from time of
purchase. They are classified as held-to-maturity and recorded at amortized
cost.
Inventories
Except for Pioneer 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. For Pioneer, inventories are valued at
the lower of cost as determined by the first-in, first-out (FIFO) method or
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, when placed in
service in 1995 or thereafter, is depreciated using the straight-line method.
PP&E placed in service prior to 1995 is depreciated under the sum-of-the-years'
digits method or other substantially similar methods. Substantially all
equipment and buildings are depreciated over useful lives ranging from 15 to 25
years. Capitalizable costs associated with computer software for internal use
are amortized on a straight-line basis over 5 to 7 years. When assets are
surrendered, retired, sold or otherwise disposed of, their gross carrying value
and related accumulated depreciation are removed from the accounts and included
in determining gain or loss on such disposals.
Maintenance and repairs are charged to operations; replacements and improvements
are capitalized. In situations where maintenance activities are planned at
manufacturing facilities, the company accrues in advance the costs expected to
be incurred. Historically, the company's accruals for maintenance activities
have not been significant.
Goodwill and Other Intangible Assets
Goodwill is amortized over periods up to 40 years using the straight-line
method. Identifiable intangible assets such as purchased technology, patents and
trademarks are amortized using the straight-line method over their estimated
useful lives, generally for periods ranging from 5 to 40 years. The company
continually evaluates the reasonableness of the useful lives of these assets.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets,
46 DuPont
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
when events or changes in circumstances indicate the carrying value may not be
recoverable. The carrying value of a long-lived asset is considered impaired
when the total projected undiscounted cash flows from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the projected cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for disposal costs.
Investment Securities
Marketable equity securities are classified as available-for-sale and reported
at fair value. Unrealized gains and losses are reported, net of their related
tax effects, as a component of accumulated other comprehensive income (loss) in
stockholders' equity until sold. At the time of sale, any gains or losses
calculated by the specific identification method are recognized in other income.
Other securities and investments for which market values are not readily
available are carried at cost.
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 do not include claims against third
parties and are not discounted.
Costs related to environmental remediation are charged to expense. Other
environmental costs are also charged to expense unless they increase the value
of the property and/or mitigate or prevent contamination from future operations,
in which case they are capitalized.
Income Taxes
The provision for income taxes has been determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
Provision has been made for income taxes on unremitted earnings of subsidiaries
and affiliates, except for subsidiaries in which earnings are deemed to be
permanently invested. Investment tax credits or grants are accounted for in the
period earned (the flow-through method).
Foreign Currency Translation
The U.S. dollar is the "functional currency" of most of the company's worldwide
continuing operations. For subsidiaries where the U.S. dollar is the functional
currency, all foreign currency asset and liability amounts are remeasured into
U.S. dollars at end-of-period exchange rates, except for inventories, prepaid
expenses, property, plant and equipment, and intangible assets, which are
remeasured at historical rates. Foreign currency income and expenses are
remeasured at average exchange rates in effect during the year, except for
expenses related to balance sheet amounts remeasured at historical exchange
rates. Exchange gains and losses arising from remeasurement of foreign
currency-denominated monetary assets and liabilities are included in income in
the period in which they occur.
For subsidiaries where the local currency is the functional currency, assets and
liabilities denominated in local currencies are translated into U.S. dollars at
end of period exchange rates, and the resultant translation adjustments are
reported, net of their related tax effects, as a component of accumulated other
comprehensive income (loss) in stockholders' equity. Assets and liabilities
denominated in other than the local currency are remeasured into the local
currency prior to translation into U.S. dollars, and the resultant exchange
gains or losses are included in income in the period in which they occur. Income
and expenses are translated into U.S. dollars at average exchange rates in
effect during the period.
Hedging and Trading Activities
The company routinely uses forward exchange contracts to hedge its net exposure,
by currency, related to monetary assets and liabilities denominated in
currencies other than the functional currency. Exchange gains and losses
associated with these
DUPONT 47
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
contracts are included in income in the period in which they occur and
substantially offset the exchange gains and losses arising from remeasurement as
described above. As a result, net exchange gains and losses are not expected to
be material in amount.
The company selectively enters into forward exchange contracts and similar
agreements to effectively convert firm foreign currency commitments to
functional currency-denominated transactions. Gains and losses on these firm
commitment hedges are deferred and included in the functional currency
measurement of the related foreign currency-denominated transactions. Changes in
the fair value of forward exchange contracts that do not qualify for hedge
accounting treatment are reflected in income in the period the change occurs.
The exchange gain associated with such contracts was not material in 2000.
Exchange losses associated with such contracts were $131 and $20 in 1999 and
1998, respectively.
The company enters into interest rate swap agreements as part of its program to
manage the fixed and floating interest rate mix of its total debt portfolio and
related overall cost of borrowing. The differential to be paid or received is
accrued as interest rates change and is recognized in income over the life of
the agreements.
The company enters into commodity futures contracts to hedge its exposure to
price fluctuations for certain raw material purchases. Gains and losses on these
hedge contracts are deferred and included in the measurement of the related
transaction.
Pioneer contracts with independent growers to produce finished seed inventory.
Under these contracts, Pioneer compensates growers with bushel equivalents that
are marketed to Pioneer for the market price of grain for a period of time
following harvest. Pioneer uses derivative instruments such as commodity futures
that have a very high correlation to the underlying commodity to hedge the
commodity price risk involved in compensating growers. The hedge position gains
or losses are accounted for as inventory costs and expensed as cost of goods
sold when the associated crop inventory is sold.
In the event that a derivative designated as a hedge of a firm commitment or
anticipated transaction is terminated prior to the maturation of the hedged
transaction, gains or losses realized at termination are deferred and included
in the measurement of the hedged transaction. If a hedged transaction matures,
or is sold, extinguished or terminated prior to the maturity of a derivative
designated as a hedge of such transaction, gains or losses associated with the
derivative through the date the transaction matured are included in the
measurement of the hedged transaction and the derivative is reclassified as for
trading purposes. Derivatives designated as a hedge of an anticipated
transaction are reclassified as for trading purposes if the anticipated
transaction is no longer likely to occur.
In the Consolidated Statement of Cash Flows, the company reports the cash flows
resulting from its hedging activities in the same category as the related item
that is being hedged.
On January 1, 2001, DuPont will adopt Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," including the amendments in SFAS No. 138. The new standard requires
that all derivative instruments be reported on the balance sheet at their fair
values. For derivative instruments designated as fair value hedges, changes in
the fair value of the derivative instrument will generally be offset on the
income statement by changes in the fair value of the hedged item. For derivative
instruments designated as cash flow hedges, the effective portion of any hedge
is reported in accumulated other comprehensive income (loss) until it is cleared
to earnings during the same period in which the hedged item affects earnings.
The ineffective portion of all hedges will be recognized in current earnings
each period. Changes in the fair value of derivative instruments that are not
designated as a hedge will be recorded each period in current earnings.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior years' data have been made to conform to 2000
classifications.
48 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
2. Other Income
- --------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------
Royalty income $349 $289/1/ $159
Interest income, net of miscellaneous
interest expense 168 185/2/ 112
Equity in earnings of affiliates (see
Note 16) 289 135 278
Gains (losses) on sales of assets 394/3/ 16/4/ 375/5/
Miscellaneous income and
expenses--net (266)/6/ 349/7/ 57
---------------------------------------
$934 $974 $981
================================================================================
1 Increase principally reflects the change in DuPont's ownership interest of
DuPont Pharmaceuticals.
2 Includes a $80 benefit related to recalculation of interest on federal tax
refunds and liabilities.
3 Includes gains of $176 resulting from the sale by Pioneer of certain
investment securities and $94 associated with the company's sale of a
portion of its interest in DuPont Photomasks, Inc.
4 Includes a $55 loss on formation of the DuPont Teijin Films joint venture.
5 Includes a $217 gain on the sale of substantially all of the company's
remaining interest in CONSOL Energy Inc.
6 Includes a $342 noncash charge associated with writing down the company's
investment in WebMD to estimated fair market value in recognition that such
decline is other than temporary and writing off warrants returned to WebMD
in connection with terminating the company's 1999 health care collaboration
agreement.
7 Includes a $336 noncash gain associated with exchanging the company's
investment in WebMD for Healtheon/WebMD, and a $131 exchange loss on
forward exchange contracts purchased in 1998 to lock in the U.S. dollar
cost of the acquisition of Herberts.
3. Cost of Goods Sold and Other Operating Charges
In accordance with purchase accounting rules, Pioneer inventories which were
acquired on October 1, 1999, were recorded at estimated fair value. The increase
in inventory values above Pioneer's pre-acquisition historical cost is, under
the FIFO method, recorded in cost of goods sold as the inventory on hand at the
acquisition date is sold. During 2000 this inventory step-up resulted in a $609
noncash charge to cost of goods sold. In addition, the company accrued $100 to
increase its reserve associated with Benlate(R) 50 DF fungicide litigation and
$45 to establish a litigation reserve within the Pharmaceuticals segment.
4. Interest Expense
2000 1999 1998
---------------------------------------
Interest incurred $879 $642 $640
Less: Interest capitalized 69 107 120
---------------------------------------
$810 $535 $520
================================================================================
Interest paid (net of amounts capitalized) was $823 in 2000, $471 in 1999 and
$553 in 1998.
5. Purchased In-Process Research and Development
Purchased in-process research and development represents the value assigned in a
purchase business combination to research and development projects of the
acquired business that were commenced, but not yet completed at the date of
acquisition, for which technological feasibility has not been established and
which have no alternative future use in research and development activities or
otherwise. In accordance with SFAS No. 2, "Accounting for Research and
Development Costs," as interpreted by FASB Interpretation No. 4, amounts
assigned to purchased in-process research and development meeting the above
criteria must be charged to expense at the date of consummation of the purchase
business combination.
In 2000 a credit of $11 was recorded to revise the preliminary allocation for
the company's purchase of the remaining 80 percent interest in Pioneer upon
revisions of preliminary purchase price allocations.
In 1999 estimated charges of $2,186 and $64 were recorded in conjunction with
the purchase of the remaining 80 percent interest in Pioneer and the purchase of
the Herberts coatings business, respectively, based on preliminary allocations
of purchase price.
In 1998 charges of $60 and $103 were recorded to revise the preliminary
allocation for Protein Technologies International and the ICI polyester resins
and intermediates businesses, respectively, upon revision of preliminary
purchase price allocations for these acquisitions. In addition, a charge of $50
was recorded in conjunction with the 1998 acquisition of the ICI polyester films
business based on preliminary allocations of the purchase price for this
acquisition and a charge of $1,230 was recorded in conjunction with the 1998
purchase of Merck & Co.'s interest in The DuPont Merck Pharmaceutical Company,
based on preliminary allocations of purchase price. See Note 25.
DUPONT 49
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
6. Employee Separation Costs and Write-down of Assets
During 2000 the company recorded a net charge of $101. Charges totaling $124
relate to restructuring activities in the Performance Coatings & Polymers ($96)
and Pigments & Chemicals ($28) segments. These charges were partly offset by a
net benefit of $20 to reflect changes in estimates related to restructuring
initiatives and $3 to reflect higher than expected proceeds from the sale of
assets as discussed below under the respective prior years' activities.
2000 Activities
Performance Coatings & Polymers
A restructuring program (Phase II) was instituted to continue the consolidation
of business assets and to eliminate redundancies as a result of the acquisition
of Herberts in 1999 by Performance Coatings. Charges resulting from these
activities totaled $96. The charges included $71 related to termination payments
to be settled over time for about 1,000 employees involved in technical,
manufacturing, marketing and administrative activities. At December 31, 2000,
about $27 had been settled and charged against the related liabilities and
approximately 600 employees had been terminated. Restructuring charges of $13
related to the write-down of operating facilities in Germany and the United
States that were shut down in the second quarter. The remaining charge of $12
relates to the cancellation of contractual agreements principally associated
with the global distribution of products and about $5 had been settled and
charged against the related liability as of December 31, 2000. Termination of
services under the contractual agreements will be completed during 2001.
Pigments & Chemicals
A restructuring program was instituted to address poor economic and intensely
competitive market conditions for the Chemical Solutions Enterprise. Charges
resulting from this restructuring totaled $28. This charge included $24 related
to the write-down of operating facilities at the New Jersey Chambers Works site
that were shut down in the third quarter. The charge covers the net book value
of the facilities of $15 and estimated dismantlement and removal costs less
estimated proceeds from the sale of equipment and scrap of $9. The effect on
2000 results of removing these facilities from operations was not material.
Charges against the liability for dismantlement and removal will begin and these
activities will be completed in 2001. The remaining restructuring charge of $4
relates to employee termination payments to be settled over time for
approximately 65 employees involved in manufacturing and technical activities.
At December 31, 2000, about 50 employees had been terminated and settlement
charges against the liability will begin in early 2001.
Account balances and activity for the 2000 restructuring programs are summarized
below:
Write- Employee Other
down Separation Exit
of Assets Costs Costs Total
- --------------------------------------------------------------------------------
Charges to income in 2000 $ 28 $ 75 $ 21 $124
Changes to accounts
Employee separation
settlements (27) (27)
Facility shutdowns (28) (28)
Other expenditures (5) (5)
- --------------------------------------------------------------------------------
Balance at December 31, 2000 $ - $ 48 $ 16 $ 64
================================================================================
1999 Activities
During 1999 the company recorded a net charge of $524. Charges totaling $604
relate to restructuring and impairment activities in the following segments:
Agriculture & Nutrition - $169; Nylon Enterprise - $375; Polyester Enterprise -
$60. These charges were partly offset by a net benefit of $80 to reflect changes
in estimates related to restructuring and divestiture initiatives as discussed
below under the respective prior years' activities.
Agriculture & Nutrition
A restructuring program was instituted to address poor economic and intensely
competitive market conditions for DuPont Crop Protection. Charges resulting from
these restructuring activities totaled $124. This charge included $45 related to
employee termination payments to be settled over time for approximately 800
employees involved in technical, manufacturing, marketing and administrative
activities. A net benefit of $2 was recorded in 2000 to reflect lower costs
associated with employees who accepted other work assignments partially offset
by higher costs associated with terminating employees. At December 31, 2000,
approximately $38 had been settled and charged against the related liability.
50 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
At December 31, 2000, approximately 730 employees had been terminated and the
remaining employees have accepted other work assignments within the company
thereby completing this program. The remaining restructuring charge of $79
principally related to the write-down of operating facilities that were shut
down in 1999 at Belle, West Virginia; Chambers Works, New Jersey; LaPorte,
Texas; Mobile, Alabama; Japan; and Puerto Rico. The effect on results of
removing these facilities from operations was not material. The charge covers
the net book value of the facilities ($64) and estimated dismantlement and
removal costs less estimated proceeds from the sale of equipment and scrap
($15). A benefit was recorded in 2000 to reflect lower costs associated with
dismantlement and removal ($6) and higher than expected sale proceeds ($3). At
December 31, 2000, approximately $5 in dismantlement and removal costs had been
paid.
An impairment charge of $45 was recorded to write off an intangible asset. The
company had previously established an intangible asset related to the
acquisition of exclusive rights to market a product under a long-term contract
that included the purchase of stipulated minimum quantities. Due to
significantly lower than expected sales, the company notified the supplier that
it would not purchase the minimum quantity and therefore would forego the right
to exclusively market the product.
Nylon Enterprise
Charges included an impairment of $252 for the write-down of a manufacturing
facility in Singapore that continues to operate. The Nylon Enterprise
constructed a manufacturing plant designed to produce 250 million pounds of
adipic acid annually. The company has made substantial efforts to resolve
operational and technical problems that have plagued this facility. Despite
these efforts, the plant continues to operate at significantly less than its
design capacity. As a result, an impairment charge was recorded to write down
the plant to its estimated fair value based on the present value of cash flows.
The company also announced its intent to withdraw from certain nylon ventures in
the Asia Pacific region after it became apparent that these operations would not
become profitable due to unfavorable market conditions. In connection with
exiting the company's majority-owned subsidiary in India, a charge of $61 was
recorded to write down assets to their estimated net realizable value pursuant
to a sale agreement. The charge principally covers the net assets being sold and
a contractual obligation associated with exiting this business. In 1999
definitive agreements were signed under which a third party would acquire the
company's ownership interest and certain related manufacturing equipment.
Subsequently, the company operated the facility in trust for the buyer until the
sale was completed in 2000. In addition, the company recorded a charge of $34
associated with its decision to withdraw from a joint venture in China due to
depressed market conditions. The charge covers the write-off of the company's
investment in this joint venture.
The company also recorded a charge of $28 associated with restructuring
activities in Europe to modernize and consolidate sites. This included employee
termination payments to be settled over time of $15 to about 120 employees
involved principally in manufacturing activities at several locations. A charge
of $2 was recorded in 2000 to reflect higher costs associated with terminating
employees. At December 31, 2000, essentially all employees had been terminated
and approximately $9 had been settled and charged against the related liability.
Also included was $13 for a manufacturing facility in Germany that was shut down
in 1999. The effect on operating results of this shutdown was not material.
Polyester Enterprise
A restructuring program was instituted to address poor economic and intensely
competitive market conditions. Charges of $60 relate to employee separation
costs to be settled over time for about 850 employees primarily engaged in
manufacturing. A net benefit of $2 was recorded in 2000 to reflect lower costs
associated with employees who accepted other work assignments partially offset
by higher costs associated with terminating employees. At December 31, 2000, $53
in benefits had been charged against the related liability. At December 31,
2000, approximately 800 employees had been terminated and the remaining
employees had accepted other work assignments within the company thereby
completing this program.
DUPONT 51
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Account balances and activity for the 1999 restructuring programs are summarized
below:
Write- Employee Other
down Separation Exit
of Assets Costs Costs Total
- --------------------------------------------------------------------------------
Charges to income in 1999 $ 469 $ 120 $ 15 $ 604
Changes to accounts
Asset impairments (358) (358)
Employee separation
settlements (47) (47)
Facility shutdowns (77) (77)
Withdrawal from
joint venture (34) (34)
- --------------------------------------------------------------------------------
Balance at December 31, 1999 $ - $ 73 $ 15 $ 88
- --------------------------------------------------------------------------------
Changes to accounts
Credits to income in 2000 (2) (6) (8)
Employee separation
settlements (53) (53)
Other expenditures (5) (5)
- --------------------------------------------------------------------------------
Balance at December 31, 2000 $ - $ 18 $ 4 $ 22
================================================================================
1998 Activities
During 1998 the company recorded a charge of $633 in connection with
restructuring activities and asset impairments. Restructuring charges totaling
$577 directly related to management decisions to implement company-wide
productivity improvement initiatives. Charges from these initiatives reduced
segment earnings as follows: Agriculture & Nutrition - $19; Nylon Enterprise -
$231; Performance Coatings & Polymers - $25; Pigments & Chemicals - $23;
Polyester Enterprise - $158; Specialty Fibers - $6; Specialty Polymers - $47;
Other - $68.
These charges included $310 related to employee separation costs to be settled
over time, substantially all of which were for estimated termination payments
for approximately 4,100 employees, and were based on plans that identified the
number of employees to be terminated, their functions and their businesses. A
net benefit of $27 was recorded in 1999 to reflect changes in estimates related
to this program principally in the following segments: Agriculture & Nutrition -
$3; Nylon Enterprise - $14; Pigments & Chemicals - $4; Polyester Enterprise -
$4. A net benefit of $6 was recorded in 2000 to reflect changes in estimates
related to this program principally in the Nylon Enterprise ($5). About $270 in
benefits have been charged against the related liability. As of December 31,
1999, about 4,000 employees had been terminated and the remaining employees have
accepted other work assignments within the company thereby completing this
program.
The remaining charge of $267 related to write-downs of property, plant and
equipment, principally due to the shutdown of excess production capacity. The
charge covers the net book value of the facilities ($232) and estimated
dismantlement and removal costs less estimated proceeds from the sale of
equipment and scrap ($35). The largest component, $114, covers the shutdown of
polyester manufacturing lines at Circleville, Ohio; Cooper River, South
Carolina; Kinston, Cape Fear and Cedar Creek, North Carolina; and Luxembourg. In
addition, $78 represents the shutdown of nylon manufacturing operations at
Martinsville, Virginia; Doncaster, United Kingdom; and Bayswater, Australia.
Other charges are principally attributable to the shutdown of manufacturing and
other facilities within Pigments & Chemicals and Other. The effect of these
shutdowns on operating results was not material. A net benefit of $26 was
recorded in 1999 to reflect changes in estimates related to this program
principally in the Nylon Enterprise ($15) and the Polyester Enterprise ($9). A
net benefit of $6 was recorded in 2000 principally to reflect lower costs
associated with dismantlement and removal principally in Polyester Enterprise
($4). All facilities have been shut down. Approximately $34 in dismantlement and
removal costs have been paid, and there are no outstanding liabilities for
dismantlement and removal activities for this program.
In 1998 the company also recorded a charge of $56 relating to the impairment of
certain intangible assets held for use by the Pharmaceuticals segment when it
was determined that future undiscounted cash flows associated with these assets
were insufficient to recover their carrying value. The impaired assets
principally represent the company's historical ownership interest in product
rights and license agreements contributed in 1991 by Merck & Co. Inc. to The
DuPont Merck Pharmaceutical Company. The assets were written down to fair value,
which was determined on the basis of discounted cash flows.
DUPONT 52
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Account balances and activity for the 1998 restructuring programs are summarized
below:
Write- Employee Other
down Separation Exit
of Assets Costs Costs Total
- --------------------------------------------------------------------------------
Charges to income in 1998 $ 288 $ 310 $ 35 $ 633
Changes to accounts
Asset impairment (56) (56)
Employee separation
settlements (134) (134)
Facility shutdowns (71) (71)
- --------------------------------------------------------------------------------
Balance at December 31, 1998 $ 161 $ 176 $ 35 $ 372
- --------------------------------------------------------------------------------
Changes to accounts
Charges (credits) to
income in 1999 (31) (27) 5 (53)
Employee separation
settlements (123) (123)
Facility shutdowns (130) (130)
Other expenditures (21) (21)
- --------------------------------------------------------------------------------
Balance at December 31, 1999 $ - $ 26 $ 19 $ 45
- --------------------------------------------------------------------------------
Changes to accounts
Credits to income in 2000 (6) (6) (12)
Employee separation
settlements (13) (13)
Other expenditures (13) (13)
- --------------------------------------------------------------------------------
Balance at December 31, 2000 $ - $ 7 $ - $ 7
================================================================================
Other Activities
In 1999 the company also reflected a benefit of $27 due to changes in estimates
of liabilities established in connection with the sale of Endo Laboratories and
the Medical Products businesses ($13) and the sale of DuPont's global graphic
arts and printing plates businesses ($14). These adjustments resulted from lower
than expected costs associated with exiting these businesses. There are no
outstanding liabilities for these divestitures.
7. Gain on Issuance of Stock by Affiliates--Nonoperating
In July 2000 DuPont Photomasks, Inc. sold about 1.4 million shares of its common
stock to unrelated parties at a price of $77 per share which raised net cash
proceeds of $104. As a result of this transaction, the company's ownership
interest in DuPont Photomasks was reduced from approximately 38.5 percent to
35.3 percent. The pretax gain of $29 represents the increase in the company's
equity investment in DuPont Photomasks which resulted from the issuance of stock
at a price in excess of book value. The company provided for deferred income
taxes resulting from the gain.
8. Provision for Income Taxes
- --------------------------------------------------------------------------------
2000 1999 1998
--------- -------- -------
Current tax expense:
U.S. federal $ 489 $ 536 $ 526
U.S. state and local 27 14 (15)
International 515 480 447
--------- -------- -------
Total 1,031 1,030 958
--------- -------- -------
Deferred tax expense:
U.S. federal (128) 322 (129)
U.S. state and local (1) (4) 21
International 170 62 91
--------- -------- -------
Total 41 380 (17)
--------- -------- -------
Provision for income taxes 1,072 1,410 941
Stockholders' equity
Stock compensation/1/ (19) (55) (82)
Minimum pension liability/2/ 3 7 (81)
Net unrealized gains (losses)
on securities/3/ (21) 35 -
Extraordinary loss - - (74)
Discontinued operations - 153 195
--------- -------- -------
Total $ 1,035 $ 1,550 $ 899
================================================================================
1 Represents deferred tax charge (benefit) of certain stock compensation
amounts that are deductible for income tax purposes but do not affect net
income.
2 Represents deferred tax charge (benefit) for minimum pension liability
recorded in stockholders' equity. See Note 23.
3 Represents deferred tax charge (benefit) associated with available-for-sale
securities that are marked to market and recorded as a component of
accumulated other comprehensive income (loss) in stockholders' equity. See
Note 23.
Total income taxes paid on continuing operations worldwide were $791 in 2000,
$1,015 in 1999 and $782 in 1998.
DUPONT 53
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Deferred income taxes result from temporary differences between the financial
and tax bases of the company's assets and liabilities. The tax effects of
temporary differences and tax loss/tax credit carryforwards included in the
deferred income tax provision are as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
--------------------------------
Depreciation $ 157 $ 120 $ 185
Accrued employee benefits 63 67 71
Other accrued expenses 34 36 19
Inventories (143) 31 54
Unrealized exchange gains (losses) (4) (10) (11)
Investment in subsidiaries and 102 51 (73)
affiliates
Amortization of intangibles (102) 32 (504)*
Other temporary differences (53) 74 158
Tax loss/tax credit carryforwards (19) 3 35
Valuation allowance change -- net 6 (24) 49
--------------------------------
$ 41 $ 380 $ (17)
================================================================================
* Amortization of intangibles includes the write-off of in-process research
and development for DuPont Pharmaceuticals and Polyester Enterprise.
The significant components of deferred tax assets and liabilities at December
31, 2000 and 1999, are as follows:
2000 1999
------------------------------------------
Deferred Tax Asset Liability Asset Liability
- --------------------------------------------------------------------------------
Depreciation $ - $1,932 $ - $1,812
Accrued employee benefits 3,220 1,357 3,098 1,149
Other accrued expenses 407 3 457 2
Inventories 218 158 253 329
Unrealized exchange gains 37 11 17 3
Tax loss/tax credit
carryforwards 151 - 125 -
Investment in subsidiaries
and affiliates 19 151 43 52
Amortization of intangibles 530 1,053 513 1,148
Other 358 1,141 336 1,149
--------------------------------------
Total $4,940 $5,806 $4,842 $5,644
====== ======
Less: Valuation
allowance 210 204
------ ------
Net $4,730 $4,638
================================================================================
Current deferred tax liabilities (included in the Consolidated Balance Sheet
caption "Income Taxes") were $34 and $303 at December 31, 2000 and 1999,
respectively. In addition, deferred tax assets of $462 and $463 were included in
Other Assets at December 31, 2000 and 1999, respectively (see Note 17).
An analysis of the company's effective income tax rate follows:
2000 1999 1998
----------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
International operations (2.8) 4.2 2.0
Lower effective tax rate on export sales (1.7) (2.2) (1.9)
In-process research and development* - 46.6 1.7
Other--net 0.6 (0.2) (0.8)
Effective income tax rate 31.1% 83.4% 36.0%
================================================================================
* The charge associated with the 1999 Pioneer transaction was not tax
effected because the purchase was a stock acquisition rather than an asset
purchase. See Note 5.
Income from continuing operations before income taxes and minority interests
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 international does not correspond to the earnings shown in the following
table:
- --------------------------------------------------------------------------------
2000 1999 1998
--------------------------------
United States (including exports) $ 1,544 $ 463 $ 1,388
International 1,903 1,227 1,225
--------------------------------
$ 3,447 $ 1,690 $ 2,613
================================================================================
At December 31, 2000, unremitted earnings of subsidiaries outside the United
States totaling $8,865 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, 2000, the tax
effect of such carryforwards approximated $151. Of this amount, $84 has no
expiration date, $39 expires after 2000 but before 2005 and $28 expires after
2005.
54 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
9. Discontinued Operations
On September 28, 1998, the company announced that the Board of Directors had
approved a plan to divest the company's 100 percent-owned petroleum business
(Conoco Inc.). On October 21, 1998, the company's interest in Conoco was reduced
to 69.5 percent following an initial public offering of Conoco Class A common
stock. On August 6, 1999, the company completed the planned divestiture through
a tax-free split off whereby the company exchanged its 436,543,573 shares of
Conoco Class B common stock for 147,980,872 shares of DuPont common stock. The
company's consolidated financial statements and notes report its former
petroleum business as discontinued operations.
Income from operations of discontinued business reflects Conoco's operations
through September 30, 1998. Effective October 1, 1998, through August 6, 1999,
Conoco's results are reported as part of gain on disposal of discontinued
business, and include gains recognized by the company from completion of the
Conoco exchange offer in 1999 and the IPO in 1998. For 1999, gain on disposal of
discontinued business is $7,471 and includes income from Conoco's operations of
$165. The gain on the exchange offer of $7,306 results from the difference
between the market value and the carrying value of the Conoco Class B common
shares, less direct expenses. The company did not recognize a deferred tax
liability for the difference between the book basis and tax basis of its
investment in Conoco's common stock because this basis difference was not
subject to tax. For 1998 gain on disposal of discontinued business is $2,439.
This includes a loss from Conoco's operations of $147 (after a tax benefit of
$116) and reflects one-time charges of $164; principally $127 for compensation
expense for options granted by Conoco in substitution for DuPont options held by
Conoco employees, $69 for employee separation costs and property impairments,
partially offset by $32 of asset sales. In addition, net gain from sale of stock
by subsidiary includes charges of $40 that are a direct result of the decision
to divest Conoco. Also, 1998 results of income from operations of discontinued
business includes a $31 tax benefit related to the sale of an international
subsidiary, partly offset by a $28 litigation accrual in the United States.
- -----------------------------------------------------------------------------
Income from operations of
discontinued business 1998/1/
- -----------------------------------------------------------------------------
Net sales $14,446
Income before income taxes and
minority interests/2/ 921
Provision for income taxes 311
Minority interests 16
Income from operations, --------
net of income taxes $ 594
=============================================================================
1 Nine months ended September 30, 1998.
2 Includes net interest expense allocation (based on the ratio of net assets
of discontinued operations to consolidated net assets plus debt) of $240.
- ----------------------------------------------------------------------------
Gain on disposal of discontinued business 1999/1/ 1998/2/
- ----------------------------------------------------------------------------
Net sales $12,015 $ 4,737
Income (loss) before income taxes and
minority interests/3/ 453 (308)
Provision (benefit) for income taxes 164 (116)
Minority interests 124 (45)
----------------------
Income (loss) from operations, net of income
taxes 165 (147)
Net gain from exchange offer 7,306 -
Net gain from sale of stock by subsidiary - 2,586
----------------------
Gain on disposal of discontinued business,
net of income taxes $ 7,471 $ 2,439
============================================================================
1 Through August 6, 1999.
2 Three months ended December 31, 1998.
3 Includes interest expense allocation (based on specific debt to be assumed)
of $93 for both 1999 and 1998. Conoco repaid this debt in second quarter
1999.
10. Extraordinary Charge from Early Extinguishment of Debt
In September 1998 the company redeemed various outstanding notes and debentures
with an aggregate principal value of $1,633. The extraordinary charge of $201,
net of a tax benefit of $74, principally represents call premium and unamortized
discount. The effective income tax rate of 26.9 percent reflects the mix of U.S.
and international operations.
DUPONT 55
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
11. Earnings Per Share of Common Stock
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The numerator for both income from continuing
operations and net income is reduced by preferred dividends of $10. For diluted
earnings per share, the numerator is adjusted to recognize reduced share of
earnings assuming options in subsidiary company stock are exercised if the
effect of this adjustment is dilutive. For 1998 this effect was anti-dilutive.
The denominator is based on the following weighted-average number of common
shares and includes the additional common shares that would have been
outstanding if potentially dilutive common shares had been issued:
- --------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------
Basic 1,043,358,416 1,084,537,228 1,128,826,525
Diluted 1,051,042,524 1,097,970,329 1,145,347,028
================================================================================
Average stock options of 29,814,855, 4,453,930 and 5,527,629 are not included in
the diluted earnings per share calculation for the years 2000, 1999 and 1998,
respectively.
Shares held by the Flexitrust and treasury stock are not considered as
outstanding in computing the weighted-average number of common shares. See Notes
23 and 24.
12. Accounts and Notes Receivable
- --------------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------------
Trade--net of allowances of $175 in 2000
and $177 in 1999 $3,634 $4,509
Miscellaneous 918 809
---------------------------
$4,552 $5,318
================================================================================
Accounts and notes receivable are carried at amounts that approximate fair value
and include $150 for 2000 and $146 for 1999 due from equity affiliates.
In 2000 the company entered into a program to sell an interest in a revolving
pool of its trade accounts receivable. Proceeds received were $610 and have been
reflected as a reduction of accounts receivable. Expenses incurred in connection
with the sale of the interest totaled $16 and are included in other income.
Miscellaneous receivables at December 31, 2000, include an overcollateralization
of $149 provided for under terms of the program.
13. Inventories
- --------------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------------
Finished products $2,818 $3,322
Semifinished products 1,504 1,518
Raw materials and supplies 907 823
-----------------------------
Total 5,229 5,663
Less: Adjustment of inventories to a
last-in, first-out (LIFO) basis 571 606
-----------------------------
$4,658 $5,057
================================================================================
Inventory values before LIFO adjustment are generally determined by the average
cost method, which approximates current cost. Excluding Pioneer, inventories
valued under the LIFO method comprised 81 percent and 80 percent of consolidated
inventories before LIFO adjustment at December 31, 2000 and 1999, respectively.
Pioneer inventories of $913 and $1,637 at December 31, 2000 and 1999,
respectively, were valued under the FIFO method. In accordance with purchase
accounting rules, these inventories included an adjustment above Pioneer's
pre-acquisition historical cost so that they were reported at estimated fair
market value, of which $140 and $757 remained in inventory at December 31, 2000
and 1999, respectively.
14. Property, Plant and Equipment
- --------------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------------
Buildings $ 4,380 $ 4,622
Equipment 28,417 28,764
Land 484 494
Construction 1,369 1,536
------------------------------
$34,650 $35,416
================================================================================
Property, plant and equipment includes gross assets acquired under capital
leases of $141 and $146 at December 31, 2000 and 1999, respectively; related
amounts included in accumulated depreciation were $60 and $57 at December 31,
2000 and 1999, respectively.
15. Goodwill and Other Intangible Assets
- --------------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------------
Goodwill - net of accumulated amortization
of $234 in 2000 and $106 in 1999 $3,935 $3,900
Intangible assets - net of accumulated
amortization of $724 in 2000 and $394 in 1999 4,430 4,824
-----------------------------
$8,365 $8,724
================================================================================
56 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
The company's 1999 acquisitions of the Herberts coatings business and the
approximately 80 percent of Pioneer not previously owned resulted in a
significant amount of goodwill and other intangible assets, principally
purchased technology. With respect to Pioneer, goodwill in the amount of $2,724
is being amortized over 40 years, and other intangible assets of $2,140 are
being amortized over periods ranging from 10 to 40 years. With respect to
Herberts, goodwill in the amount of $775 is being amortized over 20 years and
purchased technology of $65 is being amortized over 7 years.
16. Summarized Financial Information for Affiliated Companies
Summarized combined financial information for affiliated companies for which the
equity method of accounting is used (see Note 1, Basis of Consolidation) is
shown on a 100 percent basis. The most significant of these affiliates at
December 31, 2000, are DuPont Dow Elastomers LLC, DuPont Teijin Films and DuPont
SA, all of which are owned 50 percent by DuPont. Dividends received from equity
affiliates were $180 in 2000, $168 in 1999 and $239 in 1998.
- ------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------
Results of operations 2000 1999/1/ 1998/2/
- ------------------------------------------------------------------------------
Sales/3/ $7,615 $6,512 $8,656
Earnings before income taxes 728 400 863
Net income 620 249 689
--------------------------------------
DuPont's equity in earnings of
affiliates
Partnerships/4/ $ 153 $ 114 $ 162
Corporate joint ventures (after
income taxes) 136 21 116
-------------------------------------
$ 289 $ 135 $ 278
=============================================================================
1 Effective October 1, 1999, DuPont purchased the remaining 80 percent
interest in Pioneer and results are fully consolidated.
2 Effective July 1, 1998, DuPont purchased Merck's 50 percent interest in
DuPont Merck and results are fully consolidated. Effective November 5,
1998, substantially all of DuPont's 50 percent interest in CONSOL Energy
Inc. was sold.
3 Includes sales to DuPont of $884 in 2000, $572 in 1999 and $614 in 1998.
4 Income taxes are reflected in the company's provision for income tax.
- ------------------------------------------------------------------------------
Financial position at December 31 2000 1999
- ------------------------------------------------------------------------------
Current assets $4,267 $3,241
Noncurrent assets 5,610 3,658
------------------------
Total assets $9,877 $6,899
------------------------
Short-term borrowings* $1,112 $1,293
Other current liabilities 1,934 1,424
Long-term borrowings* 1,256 802
Other long-term liabilities 763 174
------------------------
Total liabilities $5,065 $3,693
------------------------
DuPont's investment in affiliates
(includes advances) $2,206 $1,459
==============================================================================
* DuPont's pro rata interest in total borrowings was $1,134 in 2000 and
$1,013 in 1999 of which $834 in 2000 and $464 in 1999 was guaranteed by the
company. These amounts are included in the guarantees disclosed in Note 28.
17. Other Assets
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Prepaid pension cost $1,843 $1,452
Investment securities 215 565
Deferred income taxes (see Note 8) 462 463
Miscellaneous 497 590
------------------------
$3,017 $3,070
==============================================================================
Investment securities include those securities for which market values are not
readily available of $105 and $54 at December 31, 2000 and 1999, respectively;
these securities are carried at cost. Investment securities also include
securities classified as available-for-sale as follows:
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Cost $ 66 $ 425
Gross unrealized gains 53 129
Gross unrealized losses (9) (43)
------------------------
Fair value $110 $ 511
==============================================================================
The aggregate excess of fair value over cost for available-for-sale securities
is included as a separate component of stockholders' equity. Gains or losses
realized upon sale are included in income. Losses are also included in income
when a decline in market value is deemed to be other than temporary. During 2000
proceeds from the sale of equity securities totaled $220, with gross realized
gains of $195. In addition, the company had gross realized losses of $342 in
2000.
DUPONT 57
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
18. Accounts Payable
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Trade $1,900 $1,844
Payables to banks 237 181
Compensation awards 191 180
Miscellaneous 403 575
------------------------
$2,731 $2,780
==============================================================================
Payables to banks represents checks issued on certain disbursement accounts but
not presented to the banks for payment. The reported amounts shown above
approximate fair value because of the short-term maturity of these obligations.
19. Short-Term Borrowings and Capital Lease Obligations
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Commercial paper $2,461 $3,457
Non-U.S. bank borrowings 297 267
Medium-term notes payable within one year/1/ 459 779
Long-term borrowings payable within one year - 300
6.25% Swiss franc notes due 2000/2/ - 103
Industrial development bonds payable on demand 26 26
Capital lease obligations 4 9
------------------------
$3,247 $4,941
==============================================================================
1 The company entered into interest rate swap agreements with a notional
amount of $400. Over the remaining term of the notes the company will
receive fixed payments equivalent to the underlying debt and pay floating
payments based on U.S. dollar LIBOR. The fair value of the swaps at
December 31, 2000 was not material.
2 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.
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 $3,200 and $5,000 at December 31, 2000 and 1999,
respectively. The change in estimated fair value in 2000 was primarily due to
changes in short-term borrowing levels.
Unused short-term bank credit lines were approximately $4,300 and $5,300 at
December 31, 2000 and 1999, respectively. These lines support short-term
industrial development bonds, a portion of the company's commercial paper
program and other borrowings.
The weighted-average interest rate on short-term borrowings outstanding at
December 31, 2000 and 1999, was 6.8 percent and 6.0 percent, respectively.
20. Other Accrued Liabilities
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Payroll and other employee-related costs $ 676 $ 760
Accrued postretirement benefits cost (see Note 26) 381 361
Miscellaneous 1,970 2,027
------------------------
$3,027 $3,148
==============================================================================
21. Long-Term Borrowings and Capital Lease Obligations
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
U.S. dollar:
Industrial development bonds due
2007-2029 $ 332 $ 336
Medium-term notes due 2002-2048/1, 2/ 642 635
6.50% notes due 2002 499 499
6.75% notes due 2002 300 300
8.00% notes due 2002 251 251
8.50% notes due 2003/3/ 140 140
6.75% notes due 2004 998 997
8.13% notes due 2004 331 331
8.25% notes due 2006 282 282
6.75% notes due 2007 499 499
5.88% notes due 2009/2/ 398 398
6.88% notes due 2009 988 987
8.25% debentures due 2022/2/ 49 49
7.95% debentures due 2023/2/ 38 38
6.50% debentures due 2028 298 298
7.50% debentures due 2033/2/ 23 23
Other loans (various currencies)
due 2002-2009 536 492
Capital lease obligations 54 70
------------------------
$6,658 $6,625
==============================================================================
58 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
1 Average interest rates at December 31, 2000 and 1999, were 6.3 percent for
both years.
2 The company entered into interest rate swap agreements with a notional
amount totaling $560. Over the remaining term of the notes and debentures
the company will receive fixed payments equivalent to the underlying debt
and pay floating payments based on U.S. dollar LIBOR or commercial paper
rates. The fair value of the swaps at December 31, 2000, was not material
and at December 31, 1999, was ($36).
3 The company entered into an interest rate swaption agreement that gave the
counterparty the one-time option to put the company into an interest rate
swap with a notional amount of $140 where the company over the remaining
term of the notes would receive fixed payments equivalent to the underlying
notes and pay floating payments equivalent to commercial paper. The premium
received from the counterparty is being amortized to income using the
effective interest method over the remaining maturity of the notes. The
fair value of the swaption at December 31, 1999, was not material. The
swaption expired unexercised in 2000.
Average interest rates on industrial development bonds and on other loans
(various currencies) were 6.1 percent and 6.2 percent, respectively, at December
31, 2000, and 6.0 percent and 6.4 percent, respectively, at December 31, 1999.
Maturities of long-term borrowings, together with sinking fund requirements for
years ending after December 31, 2001, are $1,238, $409, $1,410 and $257 for the
years 2002, 2003, 2004 and 2005, respectively.
The estimated fair value of the company's long-term borrowings, including
interest rate financial instruments, based on quoted market prices for the same
or similar issues or on current rates offered to the company for debt of the
same remaining maturities was $6,700 and $6,600 at December 31, 2000 and 1999,
respectively. The change in estimated fair value in 2000 was primarily due to
changes in interest rates.
22. Other Liabilities
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Accrued postretirement benefits cost (see Note 26) $5,376 $5,470
Reserves for employee-related costs 1,128 1,149
Miscellaneous 1,225 1,253
------------------------
$7,729 $7,872
==============================================================================
23. Stockholders' Equity
In both 1997 and 1998, the company's Board of Directors approved programs to
purchase and retire up to 20 million shares of DuPont common stock to offset
dilution from shares issued under compensation programs. In July 2000 the Board
of Directors approved an increase in the number of shares remaining to be
purchased under the 1998 program from about 16 million shares to the total
number of shares of DuPont common stock which can be purchased for $2,500. The
remaining purchases are not limited to those needed to offset dilution from
shares issued under compensation programs. Shares purchased were 9.5 million
shares for $462 in 2000, 8.8 million shares for $690 in 1999, and 12.8 million
shares for $769 in 1998. The company also received $65 in 1998 in final
settlement of shares purchased in 1997. Accordingly the 1997 program has been
completed and $2,288 in purchases remain under the current authorization.
In connection with the stock repurchase plan, the company has entered into
privately negotiated forward equity purchase agreements with a financial
institution. As of December 31, 2000, the company has the right to purchase up
to approximately 6.2 million shares of DuPont common stock from the financial
institution in 2001 at a weighted average price of about $42 per share. The
company, at its election, can settle these agreements by delivery of shares on a
net basis.
In August 1999 DuPont shareholders tendered 147,980,872 shares of DuPont common
stock in exchange for Conoco Class B shares. The company also bought back 8
million shares for $646 from non-U.S. persons who were not eligible to
participate in the tender offer. These shares were held as treasury shares. In
October 1999 the company issued 68,612,135 treasury shares as part of the cash
and stock acquisition of the remaining 80 percent interest in Pioneer. Also in
October 1999, 327,310 treasury shares were issued as part of the cash and stock
acquisition of worldwide intellectual property rights from ImaRx.
Additional paid-in capital (compensation plans) includes $61, $85 and $66 at
December 31, 2000, 1999 and 1998, respectively, related to amounts accrued for
variable options.
Shares held by the Flexitrust are used to satisfy existing employee compensation
and benefit programs.
DUPONT 59
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Set forth below is a reconciliation of common stock share activity for the three
years ended December 31, 2000:
- --------------------------------------------------------------------------------
Shares of common stock Held In
--------------------------------
Issued Flexitrust Treasury
- --------------------------------------------------------------------------------
Balance January 1, 1998 1,152,762,128 (23,245,747) -
- --------------------------------------------------------------------------------
Businesses acquired 72,326
Issued 9,077,880 333,862
Treasury stock
Acquisition (12,814,162)
Retirement (12,480,300) 12,480,300
- --------------------------------------------------------------------------------
Balance December 31, 1998 1,140,354,154 (14,167,867) -
- --------------------------------------------------------------------------------
Issued 6,825,622
Treasury stock
Acquisition (156,820,872)
Businesses acquired 68,939,445
Retirement (840,000) 840,000
- --------------------------------------------------------------------------------
Balance December 31, 1999 1,139,514,154 (7,342,245) (87,041,427)
- --------------------------------------------------------------------------------
Issued 3,741,046
Treasury stock
Acquisition (9,540,800)
Retirement (9,540,800) 9,540,800
- --------------------------------------------------------------------------------
Balance December 31, 2000 1,129,973,354 (3,601,199) (87,041,427)
================================================================================
The pretax, tax and after-tax effects of the components of other comprehensive
income (loss) are shown below:
- --------------------------------------------------------------------------------
Other comprehensive income (loss) Pretax Tax After-tax
----------------------------------
2000
Cumulative translation adjustment $ (38) $ - $ (38)
Minimum pension liability
adjustment 7 (3) 4
Net unrealized losses on securities
Unrealized losses arising in
2000 (187) 76 (111)
Reclassification adjustments for
net losses realized in 2000 145 (55) 90
----------------------------------
(42) 21 (21)
----------------------------------
Other comprehensive income (loss) $ (73) $ 18 $ (55)
----------------------------------
1999
Cumulative translation adjustment $ 172 $ - $ 172
Minimum pension liability
adjustment 83 (7) 76
Net unrealized gains on securities 86 (35) 51
----------------------------------
Other comprehensive income (loss) $ 341 $ (42) $ 299
----------------------------------
1998
Cumulative translation adjustment $ (23) $ - $ (23)
Minimum pension liability adjustment (193) 81 (112)
----------------------------------
Other comprehensive income (loss) $(216) $ 81 $(135)
================================================================================
Balances of related after-tax components comprising accumulated other
comprehensive income (loss) are summarized below:
- --------------------------------------------------------------------------------
December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Foreign currency translation adjustment $ (42) $ (4) $(176)
Minimum pension liability adjustment (176) (180) (256)*
Net unrealized gains on securities 30 51 -
----------------------------------
$(188) $(133) $(432)
================================================================================
*Includes $79 for Conoco.
24. Compensation Plans
From time to time, the Board of Directors has approved the adoption of worldwide
Corporate Sharing Programs. Under these programs, essentially all employees have
received a one-time grant to acquire shares of DuPont common stock at the market
price on the date of grant. Option terms are "fixed" and options are generally
exercisable one year after date of grant and expire 10 years from date of grant.
There are no additional shares that may be subject to option under existing
programs.
Stock option awards under the DuPont Stock Performance Plan may be granted to
key employees of the company and may be "fixed" and/or "variable." The purchase
price of shares subject to option is equal to or in excess of the market price
of the company's stock at the date of grant. Optionees are eligible for reload
options upon the exercise of stock options with the condition that shares
received from the exercise are held for at least two years. A reload option is
granted at the market price on the date of grant and has a term equal to the
remaining term of the original option. The maximum number of reload options
granted is limited to the number of shares subject to option in the original
option times the original option price divided by the option price of the reload
option. Generally, fixed options are fully exercisable from one to three years
after date of grant and expire 10 years from date of grant. Beginning in 1998,
shares otherwise receivable from the exercise of nonqualified options can be
deferred as stock units for a designated future delivery.
Variable stock option grants have been made to certain members of senior
management. These options are subject to forfeiture if, within five years from
the date of grant, the market price of DuPont common stock does not achieve a
price of $75 per share for 50 percent of the options and $90 per share for the
remaining 50 percent. This condition was met in 1998 for options with a $75 per
share hurdle price and, as a result, these options became "fixed" and
exercisable.
60 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
The maximum number of shares that may be subject to option for any consecutive
five-year period is 72 million shares. Subject to this limit, additional shares
that may have been made subject to options were 45,583,953 for 2000, 57,203,985
for 1999 and 60,949,492 for 1998.
Under the DuPont Stock Performance Plan, awards granted to key employees in 2001
consisted of 11,749,625 fixed options to acquire DuPont common stock at the
market price ($43.25 per share) on the date of grant. These options vest over a
three-year period and, except for the last six months of the 10-year option
term, are exercisable when the market price of DuPont common stock exceeds the
option grant price by 20 percent.
The following table summarizes activity for fixed and variable options for the
last three years:
- --------------------------------------------------------------------------------
Fixed Variable
--------------------------------------------------------
Number Weighted- Number Weighted-
of Average of Average
Shares Price Shares Price
- --------------------------------------------------------------------------------
January 1, 1998 61,209,874 $35.58 4,831,300 $52.66
- --------------------------------------------------------------------------------
Granted 5,697,539 $59.96 101,000 $64.90
Reclassified 2,387,650 $52.51 (2,387,650) $52.51
Exercised 8,345,303 $33.70 - -
Forfeited/1/ 8,786,328 $39.74 629,800 $52.50
- --------------------------------------------------------------------------------
December 31, 1998 52,163,432 $38.62 1,914,850 $53.55
- --------------------------------------------------------------------------------
Granted/2/ 8,683,066 $49.59 - -
Exercised 6,337,300 $29.42 - -
Forfeited 342,176 $48.87 - -
- --------------------------------------------------------------------------------
December 31, 1999 54,167,022 $41.39 1,914,850 $53.55
- --------------------------------------------------------------------------------
Granted/3/ 14,587,726 $48.97
Exercised 3,004,920 $24.80
Forfeited 1,104,730 $55.22 52,950 $53.07
- --------------------------------------------------------------------------------
December 31, 2000 64,645,098 $43.64 1,861,900 $53.56
================================================================================
1 Includes both forfeitures and those options cancelled as part of the Conoco
IPO.
2 Includes options granted in exchange for outstanding vested options under
Pioneer's employee stock option plan.
3 Includes 8,304,800 options related to a one-time stock option grant to
certain Pioneer employees.
Options exercisable and weighted-average exercise prices at the end of the last
three years and the weighted-average fair values of options granted are as
follows:
- --------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------
Fixed Options:
Number of shares at year-end 44,945,610 45,117,694 47,462,223
Weighted-avg. price at
year-end $40.29 $38.20 $36.54
Weighted-avg. fair value of
options granted during year $13.40 $19.44 $14.30
- --------------------------------------------------------------------------------
Variable Options:
Number of shares at year-end - - -
Weighted-avg. price at year-end - - -
Weighted-avg. fair value of
options granted during year - - $15.79
================================================================================
The fair value of options granted is calculated using the Black-Scholes option
pricing model. Assumptions used were as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------
Fixed Variable Fixed Variable Fixed Variable
---------------------------------------------------------
Dividend yield 3.0% - 3.2% - 2.1% 2.1%
Volatility 25.4% - 23.4% - 19.8% 19.9%
Risk-free
interest rate 6.1% - 5.3% - 5.5% 5.6%
Expected life
(years) 6.2 - 5.3 - 5.7 5.8
================================================================================
The following table summarizes information concerning currently outstanding and
exercisable options:
- --------------------------------------------------------------------------------
Exercise Exercise Exercise Exercise
Price Price Price Price
$18.00- $27.75- $42.25- $63.56-
December 31, 2000 $27.00 $41.63 $63.38 $82.09
- --------------------------------------------------------------------------------
Fixed Options
Options outstanding 10,545,228 20,536,323 32,473,512 1,090,035
Weighted-avg. remaining
contractual life (years) 1.8 6.6 7.1 7.6
Weighted-avg. price $22.33 $35.04 $54.97 $74.25
Options exercisable 10,545,228 12,173,584 22,001,166 225,632
Weighted-avg. price $22.33 $31.12 $53.64 $73.13
- --------------------------------------------------------------------------------
Variable Options
Options outstanding - - 1,773,900 88,000
Weighted-avg. remaining
contractual life (years) - - 6.1 6.9
Weighted-avg. price - - $52.79 $69.07
Options exercisable - - - -
Weighted-avg. price - - - -
================================================================================
DUPONT 61
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for fixed
options. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
1995. The company has elected not to adopt the optional recognition provisions
of SFAS No. 123. In addition, certain majority-owned subsidiaries of the company
grant options to their respective employees under APB Opinion No. 25 and have
elected not to adopt SFAS No. 123. The following table sets forth pro forma
information as if the company had adopted these recognition provisions. The pro
forma disclosures are not representative of the effects on net income and
earnings per share in future years.
- --------------------------------------------------------------------------------
Pro forma net income and
earnings per share 2000 1999 1998
- --------------------------------------------------------------------------------
Net income
As reported $2,314 $7,690 $4,480
Pro forma $2,217 $7,683 $4,584
Earnings per share -- basic
As reported $ 2.21 $ 7.08 $ 3.96
Pro forma $ 2.12 $ 7.08 $ 4.05
Earnings per share -- diluted
As reported $ 2.19 $ 6.99 $ 3.90
Pro forma $ 2.10 $ 6.99 $ 3.99
================================================================================
Compensation expense (benefit) recognized in income for stock-based employee
compensation awards was $(27) for 2000, $71 ($53 excluding Conoco) for 1999 and
$174 ($15 excluding Conoco) for 1998.
Awards under the company's 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, with consideration being given to the ability to succeed to
more important managerial responsibility. Such awards were $186 for 2000, $188
for 1999 and $182 for 1998. 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 $189 in 2000, $180 in 1999
and $188 in 1998. Awards made and amounts credited under the Variable
Compensation Plan for 2000 relate solely to employees of continuing operations.
In accordance with the terms of the Variable Compensation Plan and similar plans
of subsidiaries, 1,296,125 shares of common stock are awaiting delivery from
awards for 2000 and prior years.
25. Investment Activities
On October 1, 1999, the company acquired the approximately 80 percent of Pioneer
Hi-Bred International not previously owned by the company for $7,684 consisting
of $3,419 cash payments for the purchase of Pioneer common shares, $4,154
representing the fair value of 68,612,135 shares of DuPont common stock issued
in exchange for Pioneer common shares, $81 representing 80 percent of the fair
value of options to purchase DuPont common stock issued in exchange for the
outstanding vested options to purchase Pioneer common stock under Pioneer's
employee stock option plan, and direct acquisition costs and expenses of $30.
The business of Pioneer is the broad application of the science of genetics.
Pioneer develops, produces and markets hybrids of corn, sorghum and sunflowers;
varieties of soybeans, alfalfa, wheat and canola; and microorganisms useful in
crop and livestock production.
The acquisition has been accounted for as a purchase. The final allocation of
purchase price to the identifiable assets acquired and liabilities assumed,
based on their estimated fair values is as follows: current assets $2,176;
noncurrent assets $5,590; in-process research and development $2,175; current
liabilities $954; long term borrowings $163; other liabilities $287; deferred
income taxes $847; and minority interests $6. Noncurrent assets includes $2,724
of goodwill, which is being amortized over 40 years.
On February 26, 1999, the company purchased the Herberts coatings business from
Hoechst AG for a cash payment of $1,588, acquisition related costs of $10, and
assumed debt of $113. For accounting purposes, the acquisition has been treated
as a purchase. The allocation of purchase price is as follows: current assets
$720; noncurrent assets $1,504; in-process research and development $64; and
assumed liabilities $690. Noncurrent assets include $775 of goodwill, which is
being amortized over 20 years.
62 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Assumed liabilities include $51 in employee separation costs and $12 in other
exit costs pursuant to a restructuring plan the company began to formulate as of
the acquisition date. Through December 31, 2000, nearly all of the planned 1,300
employee terminations have occurred as manufacturing facilities were shut down
and other business activities were reorganized. About $43 in employee separation
costs have been charged against the related liability. The remaining reserve
balances for terminations and other exit costs are $9 at December 31, 2000.
The company purchased Merck's 50 percent interest in The DuPont Merck
Pharmaceutical Company on July 1, 1998, for a cash payment of $2,586. As part of
the purchase, the company agreed to indemnify Merck for certain liabilities that
may arise from events that occurred during Merck's tenure as a general partner
(see Note 28). In addition, related costs of $8 were incurred. The company now
operates as DuPont Pharmaceuticals Company. For accounting purposes, the
acquisition has been treated as a purchase. The allocation of purchase price is
as follows: other current assets $275; noncurrent assets $1,371; in-process
research and development $1,230; and liabilities $282. Noncurrent assets
includes $30 of goodwill, which is being amortized over 20 years.
The company purchased ICI's global polyester films business on January 31, 1998,
for a cash payment of $647; in addition, related costs of $5 were incurred and
liabilities of $110 were assumed, including $54 in employee separation costs and
$6 in other costs pursuant to an exit plan the company began to formulate as of
the acquisition date. For accounting purposes, the acquisition has been treated
as a purchase. The allocation of purchase price is as follows: current assets
$62; noncurrent assets $650; and in-process research and development $50.
Noncurrent assets includes $76 of goodwill, which is being amortized over 20
years. On December 31, 1999, this business was part of the assets contributed by
DuPont to form a joint venture with Teijin Limited.
Note 5 provides information on purchased in-process research and development in
connection with the Pioneer, Herberts, ICI and DuPont Merck transactions.
Proceeds from sales of assets in 2000 were $703 and principally included $220
from sale of investment securities, $153 from a sale of a portion of the
company's interest in DuPont Photomasks, and $138 from sale of various
transportation and construction equipment. Proceeds from sales of assets in 1999
included $537 related to the formation of the DuPont Teijin films joint venture.
In 1998 proceeds from sales of assets principally included $500 from the sale of
substantially all of DuPont's 50 percent interest in CONSOL Energy Inc., $279
from the sale of the global hydrogen peroxide business and $86 from the sale of
the printing and publishing businesses.
26. Pensions and Other Postretirement Benefits
The company offers various postretirement benefits to its employees. Where
permitted by applicable law, the company reserves the right to change, modify or
discontinue the plans.
Pensions
The company has noncontributory defined benefit plans covering substantially all
U.S. employees. The benefits under 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.
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.
DUPONT 63
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
Summarized information on the company's postretirement plans is as follows:
- --------------------------------------------------------------------------------
Pension Benefits Other Benefits
----------------------------------------
2000 1999 2000 1999
----------------------------------------
Change in Benefit Obligation
Benefit obligation at
beginning of year $17,719 $19,271 $ 4,627 $ 4,765
Service cost 340 412 50 60
Interest cost 1,243 1,192 344 305
Plan participants'
contributions 14 16 34 32
Actuarial (gain) loss 35 (2,336) 488 (199)
Foreign currency exchange
rate changes (248) (194) (2) 3
Benefits paid (1,329) (1,347) (415) (393)
Amendments - 57 - 6
Business combinations - 611 - 48
Divestiture (18) (1) - -
Special termination benefits 7 38 - -
----------------------------------------
Benefit obligation at end
of year $17,763 $17,719 $ 5,126 $ 4,627
========================================
Change in Plan Assets
Fair value of plan assets
at beginning of year $21,861 $19,829 $ - $ -
Actual return on
plan assets 85 3,091 - -
Foreign currency exchange
rate changes (186) (125) - -
Employer contributions 182 175 381 361
Plan participants'
contributions 14 16 34 32
Benefits paid (1,329) (1,347) (415) (393)
Retiree health care pension
assets transfer (305) (264) - -
Business combinations - 479 - -
Divestiture (8) 7 - -
----------------------------------------
Fair value of plan assets
at end of year $20,314 $21,861 $ - $ -
========================================
Funded status $ 2,551 $ 4,142 $(5,126) $(4,627)
Unrecognized prior
service cost 514 574 (595) (671)
Unrecognized actuarial
(gain) loss (1,689) (3,559) (36) (533)
Unrecognized transition asset (324) (475) - -
----------------------------------------
Net amount recognized $ 1,052 $ 682 $(5,757) $(5,831)
========================================
Amounts recognized in the
statement of financial
position consist of:
Prepaid (accrued) benefit
cost $ 1,179 $ 770 $(5,757) $(5,831)
Accrued benefit liability (448) (422) - -
Intangible asset 35 41 - -
Accumulated other
comprehensive income 286 293 - -
----------------------------------------
Net amount recognized $ 1,052 $ 682 $(5,757) $(5,831)
========================================
- --------------------------------------------------------------------------------
Weighted-average Pension Benefits Other Benefits
assumptions as of ----------------------------------------
December 31 2000 1999 2000 1999
----------------------------------------
Discount rate 7.75% 7.75% 7.75% 7.75%
Expected return on plan
assets 9.5% 9.0% - -
Rate of compensation increase 5.0% 5.0% 5.0% 5.0%
================================================================================
The above assumptions are for U.S. plans only. For non-U.S. plans, no one of
which was material, assumptions reflect economic assumptions applicable to each
country.
The assumed health care trend rates used in determining other benefits at
December 31, 2000, are 7.5 percent decreasing gradually to 5 percent in 2004. At
December 31, 1999, such rates were 7.5 percent decreasing gradually to 4 percent
in 2004.
- ------------------------------------------------------------------------------------
Components of Pension Benefits Other Benefits
Net Periodic --------------------------------------------------------------
Benefit Cost 2000 1999 1998 2000 1999 1998
--------------------------------------------------------------
Service cost $ 340 $ 412 $ 355 $ 50 $ 60 $ 61
Interest cost 1,243 1,192 1,121 344 305 310
Expected return
on plan assets (1,902) (1,719) (1,581) - - -
Amortization of
transition asset (151) (150) (150) - - -
Amortization of
unrecognized
(gain) loss (52) 49 56 (10) (6) (25)
Amortization of
prior service
cost 53 50 53 (75) (75) (65)
Curtailment/
settlement loss 4 2 6 - - -
--------------------------------------------------------------
Net periodic
benefit cost
(credit) $ (465) $ (164) $ (140) $ 309 $ 284 $ 281
====================================================================================
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets are $1,514, $1,246 and $229, respectively, as of December 31,
2000, and $1,497, $1,163 and $165 respectively, as of December 31, 1999. U.S.
pension assets consist principally of common stocks, including 9,912,753 shares
of DuPont at December 31, 2000, and U.S. government obligations.
Assumed health care cost trend rates have a significant effect on the amount
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
64 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
- --------------------------------------------------------------------------------
1-Percentage 1-Percentage
Point Increase Point Decrease
--------------------------------
Effect on total of service
and interest cost components $ 44 $ (36)
Effect on postretirement
benefit obligation $443 $(371)
================================================================================
27. Derivatives and Other Hedging Instruments
The company enters into contractual arrangements (derivatives) in the ordinary
course of business to hedge its exposure to currency, interest rate and
commodity price risks. The company has established an overlying Financial Risk
Management Framework for risk management and derivative activities. The
framework sets forth senior management's financial risk management philosophy
and objectives through a Corporate Financial Risk Management Policy. In
addition, it establishes oversight committees and risk management guidelines
that authorize the use of specific derivative instruments and further
establishes procedures for control and valuation, counterparty credit approval,
and routine monitoring and reporting. The counterparties to these contractual
arrangements are major financial institutions. The company is exposed to credit
loss in the event of nonperformance by these counterparties. The company manages
this exposure to credit loss through the aforementioned credit approvals, limits
and monitoring procedures and, to the extent possible, by restricting the period
over which unpaid balances are allowed to accumulate. The company does not
anticipate nonperformance by counterparties to these contracts, and no material
loss would be expected from such nonperformance. Market and counterparty credit
risks associated with these instruments are regularly reported to management.
The company's accounting policies with respect to these financial instrument
transactions are set forth in Note 1.
Currency Risk
The company routinely uses forward exchange contracts to hedge its net
exposures, by currency, related to monetary assets and liabilities of its
operations that are denominated in currencies other than the designated
functional currency. The primary business objective of this hedging program is
to maintain an approximately balanced position in foreign currencies so that
exchange gains and losses resulting from exchange rate changes, net of related
tax effects, are minimized.
In addition, the company from time to time will enter into forward exchange
contracts to establish with certainty the functional currency amount of future
firm commitments denominated in another currency. Decisions regarding whether or
not to hedge a given commitment are made on a case-by-case basis, taking into
consideration the amount and duration of the exposure, market volatility and
economic trends. At December 31, 2000, the fair value of open forward exchange
contracts designated as hedges of firm foreign currency commitments was not
material. Forward exchange contracts are also used from time to time to manage
near-term foreign currency cash requirements and, from time to time, 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, $(73) and $(31) for the years 2000, 1999 and 1998,
respectively.
In December 1998 the company entered into forward exchange contracts to purchase
3.1 billion German marks for about $1,900 in conjunction with the signing of a
definitive agreement to purchase the coatings business of Hoechst AG for 3.1
billion German marks. The business purpose of these contracts was to lock in the
U.S. dollar functional currency cost of this acquisition and thereby prevent
adverse movements in the dollar/mark exchange rate from causing the net U.S.
dollar cash purchase price to exceed the negotiated fair value of the business.
The use of hedge accounting for these contracts was precluded by accounting
guidance. Changes in fair value of these contracts were included in income in
the period the change occurred. These contracts expired in August 1999.
Interest Rate Risk
The company primarily uses interest rate swaps as part of its program to manage
the 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.
At December 31, 2000, the company had entered into interest rate swap agreements
totaling a notional amount of $960 whereby the company, over the remaining term
of the underlying note, will receive a fixed rate payment equivalent to the
fixed interest rate of the underlying note, and pay a floating rate of interest
that is based on three- or six-month U.S. dollar LIBOR or commercial
DUPONT 65
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
paper rates. The fair value of the swaps at December 31, 2000, was not material.
Interest rate financial instruments did not have a material effect on the
company's overall cost of borrowing at December 31, 2000 and 1999.
See also Notes 19 and 21 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, 2000 and
1999.
Notional amounts represent the face amount of the contractual arrangements and
are not a measure of market or credit exposure. Estimated fair value of forward
exchange contracts is based on market prices for contracts of comparable time to
maturity. Carrying amounts represent the receivable (payable) recorded in the
Consolidated Balance Sheet. See also Notes 12, 17, 18, 19 and 21 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, 2000 $3,682 $ 6 $ 10
1999 $4,873 $ (17) $ (19)
================================================================================
Estimated fair values shown above only represent the value of the hedge
component of these transactions, and thus are not indicative of the fair value
of the company's overall hedged position. The estimated fair value of the
company's total debt portfolio, based on quoted market prices for the same or
similar issues or on current rates offered to the company for debt of the same
remaining maturities, was $9,900 and $11,600 at December 31, 2000, and 1999,
respectively.
Commodity Price Risk
The company enters into exchange-traded and over-the-counter derivative
commodity instruments to hedge its exposure to price fluctuations on certain raw
material purchases. In addition, Pioneer enters into exchange-traded derivative
commodity instruments to hedge the commodity price risk associated with
compensating growers. The fair value of outstanding derivative commodity
instruments at December 31, 2000 and 1999, was not material.
28. Commitments and Contingent Liabilities
The company uses various leased facilities and equipment in its operations.
Future minimum lease payments under noncancelable operating leases are $238,
$188, $163, $130 and $115 for the years 2001, 2002, 2003, 2004 and 2005,
respectively, and $406 for subsequent years, and are not reduced by
noncancelable minimum sublease rentals due in the future in the amount of $8. In
connection with certain of these leased facilities the company has residual
value guarantees in the amount of $192 at December 31, 2000. Rental expense
under operating leases was $221 in 2000, $198 in 1999 and $214 in 1998.
In June 1997 DuPont formed alliances with Computer Sciences Corporation (CSC)
and Accenture LLP (formerly Andersen Consulting). CSC operates a majority of
DuPont's global information systems and technology infrastructure and provides
selected applications and software services. Accenture provides information
systems solutions designed to enhance DuPont's manufacturing, marketing,
distribution and customer service. The total dollar value of the contracts is in
excess of $4,000 over 10 years. Minimum payments due under the contracts are:
$175, $167, $160, $156 and $150 for the years 2001, 2002, 2003, 2004 and 2005,
respectively, and a total of $216 thereafter.
The company has various purchase commitments for materials, supplies and items
of permanent investment incident to the ordinary conduct of business. In the
aggregate, such commitments are not at prices in excess of current market.
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. In the opinion of company counsel
considerable uncertainty exists with respect to the outcome of this litigation,
therefore the effect on future financial results is not subject to reasonable
estimation. While ultimate liabilities resulting from such lawsuits and claims
may be significant to results of operations in the period recognized, management
does not anticipate they will have a material adverse effect on the consolidated
financial position or liquidity of the company.
66 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
DuPont has been served with several hundred lawsuits in connection with the 1991
stop-sale and recall of DuPont(TM) Benlate(R) 50 DF fungicide; approximately 120
cases are pending. The majority of these lawsuits were filed by growers who
allege plant damage from using Benlate(R) 50 DF and have been disposed of by
trial, settlement or dismissal. However, certain plaintiffs who previously
settled with the company have filed cases alleging fraud and other misconduct
relating to the litigation and settlement of Benlate(R) 50 DF claims. DuPont
believes that Benlate(R) 50 DF did not cause the damages alleged in these cases
and denies the allegations of fraud and misconduct. DuPont intends to defend
itself in these cases. DuPont and other major defendants have been served with
lawsuits, including several class actions, which claim damages from allegedly
defective plumbing systems made with polybutylene pipe and acetal fittings. In
the fourth quarter of 1995, the company settled two of the class actions
limiting its liability to 10 percent of the cost of repairing the allegedly
defective plumbing systems up to a total company payout of $120. Other lawsuits,
including the unsettled class actions, are pending in several states and Canada.
The related liability for each of these matters included in the Consolidated
Balance Sheet is not reduced by the amount of any expected insurance recoveries.
Adverse changes in estimates for such liabilities could result in additional
future charges.
Pioneer is involved in several lawsuits, both as plaintiff and defendant,
concerning intellectual property rights related to corn and soybean products. If
the outcome of these lawsuits is adverse to Pioneer, it may be significant to
Pioneer's results of operations in the period recognized, but management
anticipates that the ultimate outcome of these lawsuits will not have a material
adverse effect on the company's consolidated financial position or liquidity.
The company is also subject to contingencies pursuant to environmental laws and
regulations that in the future may require the company to take further action to
correct the effects on the environment of prior disposal practices or releases
of chemical or petroleum substances by the company or other parties. The company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 1. At December 31, 2000, such accrued liabilities
amounted to $408 and, in management's opinion, were appropriate based on
existing facts and circumstances. Under adverse changes in circumstances,
potential liability may exceed amounts accrued. In the event that future
remediation expenditures are in excess of amounts accrued, they may be
significant to results of operations in the period recognized but management
does not anticipate that they will have a material adverse effect on the
consolidated financial position or liquidity of the company.
The company has directly or 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, 2000,
the company had directly guaranteed $942 and indirectly guaranteed $7 of the
obligations of certain affiliated companies and others. No material loss is
anticipated by reason of such agreements and guarantees.
As part of the company's purchase of Merck's 50 percent interest in The DuPont
Merck Pharmaceutical Company, the company agreed to indemnify Merck for certain
liabilities that may arise from events that occurred during Merck's tenure as
general partner. As this contingency is resolved and if additional consideration
is paid, the amount of such payments will be recorded as additional cost of the
acquired business and will increase the amount of goodwill recorded for this
acquisition. Amounts paid under the indemnity were not material.
In addition, the company has historically guaranteed certain obligations and
liabilities of Conoco Inc., its subsidiaries and affiliates. The company has
guaranteed $972, plus interest, of the financial obligations of Conoco as well
as certain nonfinancial performance obligations. Conoco has indemnified the
company for any liabilities the company may incur pursuant to these guarantees.
The Restructuring, Transfer and Separation Agreement between DuPont and Conoco
requires Conoco to use its best efforts to have Conoco, or any of its
subsidiaries, substitute for DuPont as guarantor.
In connection with the separation from DuPont, Conoco and DuPont entered into a
tax sharing agreement. Several matters under the tax sharing agreement are
currently in dispute between Conoco and DuPont. Among other things, Conoco
claims that DuPont owes Conoco in excess of $250 pursuant to the tax sharing
agreement. DuPont disputes that it owes this amount and believes that any
settlement of the dispute will not be material to its financial position,
liquidity or the gain on disposal of discontinued business. This matter is in
arbitration and a hearing is not expected until 2002.
DUPONT 67
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
29. Geographic Information
- ------------------------------------------------------------------------------------------------------
2000 1999 1998
Net Net Net Net Net Net
Sales* Property Sales* Property Sales* Property
-------------------------------------------------------------------
North America
United States $14,509 $ 8,887 $13,656 $ 8,977 $13,075 $ 8,454
Canada 1,074 538 989 482 881 459
Mexico 581 165 500 146 421 117
Other 76 151 114 150 93 135
-------------------------------------------------------------------
Total 16,240 9,741 15,259 9,755 14,470 9,165
Europe, Middle East and Africa
Germany 1,716 641 1,743 733 1,450 388
France 986 181 979 228 904 181
United Kingdom 783 721 960 965 988 1,078
Italy 915 29 884 29 902 5
Other 2,474 1,232 2,598 1,275 2,108 1,188
-------------------------------------------------------------------
Total 6,874 2,804 7,164 3,230 6,352 2,840
Asia Pacific
Japan 1,023 78 928 138 820 159
Taiwan 809 680 690 769 591 707
China 487 142 361 146 398 208
Singapore 134 345 112 379 86 635
Other 1,506 126 1,393 197 947 244
-------------------------------------------------------------------
Total 3,959 1,371 3,484 1,629 2,842 1,953
South America
Brazil 686 123 594 105 659 83
Other 509 143 417 152 444 90
-------------------------------------------------------------------
Total 1,195 266 1,011 257 1,103 173
-------------------------------------------------------------------
Total $28,268 $14,182 $26,918 $14,871 $24,767 $14,131
======================================================================================================
* Sales are attributed to countries based on location of customer.
30. Industry Segment Information
The company's strategic business units (operating segments) are organized by
product line. For purposes of SFAS No. 131, these have been aggregated into nine
reportable segments including Agriculture & Nutrition, Nylon Enterprise,
Performance Coatings & Polymers, Pharmaceuticals, Pigments & Chemicals, Pioneer,
Polyester Enterprise, Specialty Fibers and Specialty Polymers. The company
groups the results of its nonaligned businesses and embryonic businesses under
Other. Major products by segment include: Agriculture & Nutrition (herbicides,
fungicides, insecticides, soy protein and value-enhanced grains); Nylon
Enterprise (flooring systems, textiles, industrial fibers and intermediates);
Performance Coatings & Polymers (automotive finishes, engineering polymers and
elastomers); Pharmaceuticals (prescription pharmaceuticals and
radiopharmaceuticals); Pigments & Chemicals (white pigment and mineral products,
specialty chemicals and fluorochemicals); Pioneer (hybrid seed corn and soybean
seed); Polyester Enterprise (Dacron(R) polyester, high-performance films and
resins and intermediates); Specialty Fibers (Lycra(R) elastane, nonwovens and
aramids); and Specialty Polymers (photopolymers, electronic materials, packaging
and industrial polymers, Corian(R) solid surfaces and fluoropolymers). The
company operates globally in substantially all of its product lines. The
company's sales are not materially dependent on a single customer or small group
of customers. The Performance Coatings & Polymers, Pharmaceuticals and Nylon
Enterprise segments have several large customers in their respective industries
that are important to these segments' operating results.
68 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
In general, the accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies. Exceptions are
noted as follows and are shown in the reconciliations below. Prior years' data
have been reclassified to reflect the 2000 organizational structure. Sales
include pro rata equity affiliate sales and intersegment transfers. Products are
transferred between segments on a basis intended to reflect as nearly as
practicable the "market value" of the products. After-tax operating income does
not include corporate expenses, interest and exchange gains (losses). Segment
net assets measures net working capital, net permanent investment and other
noncurrent operating assets and liabilities of the segment. Affiliate net assets
(pro rata share) excludes borrowings and other long-term liabilities.
Depreciation and amortization includes depreciation on research and development
facilities and amortization of goodwill and other intangible assets, excluding
write-down of assets discussed in Note 6. Expenditures for long-lived assets
excludes investments in affiliates and includes payments for property, plant and
equipment as part of business acquisitions. See Note 25 for discussion of
strategic acquisitions in the segments.
Agriculture Performance Pigments
& Nylon Coatings & Pharma- & Polyester Specialty
Nutrition Enterprise Polymers ceuticals Chemicals Pioneer Enterprise Fibers
-------------------------------------------------------------------------------------------
2000
Total Segment Sales $ 2,511 $ 4,554 $ 6,485 $ 1,487 $ 3,907 $ 1,938 $ 2,533 $ 3,452
Intersegment Transfers - 31 4 - 262 - 51 73
After-Tax Operating Income/2/ 189 328 674 89 714 (195) 73 690
Depreciation and Amortization 142 239 245 138 185 335 132 227
Equity in Earnings of Affiliates (13) 41 67 - 3 - 23 28
Provision for Income Taxes (43) 190 426 (2) 342 (62) 30 325
Segment Net Assets 3,021 3,298 4,158 2,054 1,693 6,817 2,752 2,669
Affiliate Net Assets 145 854 615 34 44 - 1,337 176
Expenditures for Long-Lived Assets 154 312 208 114 166 112 43 233
====================================================================================================================================
1999
Total Segment Sales $ 2,592 $ 4,487 $ 6,111 $ 1,630 $ 3,660 $ 427 $ 2,649 $ 3,448
Intersegment Transfers - 35 10 - 237 - 187 80
After-Tax Operating Income/3/ 159 63 582 230 634 (2,313) (119) 732
Depreciation and Amortization 142 241 225 121 190 85 226 229
Equity in Earnings of Affiliates 2 43 60 - 2 20 (13) 28
Provision for Income Taxes (71) 220 416 132 317 (56) (40) 361
Segment Net Assets 3,228 3,004 4,060 1,941 1,814 7,937 2,679 2,735
Affiliate Net Assets 123 572 404 31 63 - 770 135
Expenditures for Long-Lived Assets 262 377 759 101 144 786 126 251
====================================================================================================================================
1998
Total Segment Sales $ 2,787 $ 4,594 $ 4,563 $ 1,156 $ 3,659 $ 369 $ 2,797 $ 3,296
Intersegment Transfers - 39 9 - 228 - 175 86
After-Tax Operating Income/4/ 252 244 508 (668) 574 5 (228) 659
Depreciation and Amortization 133 236 149 60 232 - 252 230
Equity in Earnings of Affiliates 2 35 16 77 (3) 8 (1) 25
Provision for Income Taxes 43 189 302 (317) 335 6 (80) 363
Segment Net Assets 3,067 3,077 2,214 1,843 1,737 1,008 3,142 2,574
Affiliate Net Assets 170 551 281 23 62 999 174 134
Expenditures for Long-Lived Assets 214 493 229 655 189 - 706 361
====================================================================================================================================
Specialty
Polymers Other Total/1/
-------------------------------
2000
Total Segment Sales $ 4,508 $ 456 $31,831
Intersegment Transfers 196 25 642
After-Tax Operating Income/2/ 713 (174) 3,101
Depreciation and Amortization 175 36 1,854
Equity in Earnings of Affiliates 41 8 198
Provision for Income Taxes 391 (109) 1,488
Segment Net Assets 2,374 280 29,116
Affiliate Net Assets 266 145 3,616
Expenditures for Long-Lived Assets 243 123 1,708
=========================================================================
1999
Total Segment Sales $ 4,255 $ 481 $29,740
Intersegment Transfers 152 32 733
After-Tax Operating Income/3/ 668 246 882
Depreciation and Amortization 172 60 1,691
Equity in Earnings of Affiliates 27 (4) 165
Provision for Income Taxes 365 150 1,794
Segment Net Assets 2,330 538 30,266
Affiliate Net Assets 248 - 2,346
Expenditures for Long-Lived Assets 270 125 3,201
=========================================================================
1998
Total Segment Sales $ 4,040 $ 542 $27,803
Intersegment Transfers 155 37 729
After-Tax Operating Income/4/ 596 188 2,130
Depreciation and Amortization 165 68 1,525
Equity in Earnings of Affiliates 12 81 252
Provision for Income Taxes 356 91 1,288
Segment Net Assets 2,167 278 21,107
Affiliate Net Assets 237 - 2,631
Expenditures for Long-Lived Assets 264 137 3,248
=========================================================================
DUPONT 69
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
1 A reconciliation of the totals reported for the operating segments to the
applicable line items on the consolidated financial statements is as follows:
Segment Sales to Total Sales
- --------------------------------------------------------------------------------
2000 1999 1998
----------------------------------
Total Segment Sales $ 31,831 $ 29,740 $ 27,803
Elimination of Intersegment
Transactions (642) (733) (729)
Elimination of Equity Affiliate Sales (2,927) (2,092) (2,263)
Miscellaneous 6 3 (44)
----------------------------------
Total Sales $ 28,268 $ 26,918 $ 24,767
================================================================================
After-Tax Operating Income to Income from Continuing Operations
- --------------------------------------------------------------------------------
2000 1999 1998
----------------------------------
Total Segment ATOI $ 3,101 $ 882 $ 2,130
Interest and Exchange Gains (Losses) (493) (362)/a/ (292)
Corporate Expenses (294)/b/ (301) (190)
----------------------------------
Income from Continuing Operations $ 2,314 $ 219 $ 1,648
================================================================================
a Includes a charge of $81 on forward exchange contracts to lock in the U.S.
dollar cost of the Herberts acquisition partly offset by a $49 benefit
related to recalculation of interest on federal tax refunds and tax
liabilities.
b Includes a nonoperating gain of $19 on issuance of stock by an affiliate.
This represents the increase in the company's equity investment in DuPont
Photomasks that resulted from the issuance by DuPont Photomasks of
additional shares to unrelated parties at a price in excess of book value.
Segment Net Assets to Total Assets
- --------------------------------------------------------------------------------
2000 1999 1998
----------------------------------
Total Segment Net Assets $ 29,116 $ 30,266 $ 21,107
Corporate Assets 5,603 5,173 4,756
Liabilities included in Net Assets 4,707 5,338 4,256
Net Assets of Discontinued Operations - - 8,417
----------------------------------
Total Assets $ 39,426 $ 40,777 $ 38,536
================================================================================
Other Items
- --------------------------------------------------------------------------------
Segment Consolidated
Totals Adjustments Totals
----------------------------------
2000
Depreciation and Amortization $ 1,854 $ 6 $ 1,860
Equity in Earnings of Affiliates 198 91 289
Provision for Income Taxes 1,488 (416) 1,072
Affiliate Net Assets 3,616 (1,410) 2,206
Expenditures for Long-Lived
Assets 1,708 226 1,934
1999
Depreciation and Amortization $ 1,691 $ (1) $ 1,690
Equity in Earnings of Affiliates 165 (30) 135
Provision for Income Taxes 1,794 (384) 1,410
Affiliate Net Assets 2,346 (887) 1,459
Expenditures for Long-Lived
Assets 3,201 177 3,378
1998
Depreciation and Amortization $ 1,525 $ 35 $ 1,560
Equity in Earnings of Affiliates 252 26 278
Provision for Income Taxes 1,288 (347) 941
Affiliate Net Assets 2,631 (835) 1,796
Expenditures for Long-Lived
Assets 3,248 135 3,383
================================================================================
2 Includes the following (charges) benefits:
- --------------------------------------------------------------------------------
Agriculture & Nutrition /a b/ $ (56)
Nylon Enterprise /a c/ 27
Performance Coatings & Polymers /a d/ (59)
Pharmaceuticals /e/ (44)
Pigments & Chemicals /f/ (1)
Pioneer /g/ (301)
Polyester Enterprise /a/ 4
Other /h/ (153)
--------
$ (583)
================================================================================
a Includes a net benefit of $15 resulting from changes in estimates related
to prior restructuring activities as follows: Agriculture & Nutrition - $6;
Nylon Enterprise - $3; Performance Coatings & Polymers - $2; and Polyester
Enterprise - $4.
b Includes a charge of $62 to increase the company's reserve for Benlate(R)50
DF fungicide litigation.
c Includes a $24 gain related to formation of a 50/50 global joint venture
with Sabanci for industrial nylon.
d Includes a charge of $61 related to employee separation costs for about
1,000 employees within Performance Coatings, the shutdown of related
manufacturing facilities, and other exit costs.
e Includes a charge of $44 to establish a litigation reserve.
f Includes a charge of $17 resulting from restructuring manufacturing
operations at the Chambers Works site, offset by a gain of $16 attributable
to the sale of the company's interest in a Mexican affiliate.
70 DUPONT
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions, except per share)
g Includes a noncash charge of $379 resulting from the sale of acquired
Pioneer inventories, a charge of $42 for accrued post-employment costs for
Pioneer employees, partly offset by a $109 gain resulting from the sale by
Pioneer of certain equity securities classified as available-for-sale, and
a credit of $11 to reduce the preliminary allocation of purchase price to
purchased in-process research and development.
h Includes a noncash charge of $215 to write down the company's investment in
WebMD to estimated fair market value and to write off warrants returned to
WebMD in connection with terminating the company's 1999 health care
collaboration agreement, partly offset by a gain of $62 resulting from the
sale of stock that reduced the company's ownership interest in DuPont
Photomasks.
3 Includes the following (charges) benefits:
- --------------------------------------------------------------------------------
Agriculture & Nutrition /a b/ $ (105)
Nylon Enterprise /a c/ (326)
Performance Coatings & Polymers /a d/ (63)
Pharmaceuticals /a e/ (33)
Pigments & Chemicals /a/ 1
Pioneer /f/ (2,213)
Polyester Enterprise /a g/ (80)
Specialty Fibers /a/ 1
Specialty Polymers /a/ 2
Other /a h/ 224
-------
$(2,592)
================================================================================
a Includes a net benefit of $47 resulting from changes in estimates related
to restructuring and divestiture activities as follows: Agriculture &
Nutrition - $2; Nylon Enterprise - $11; Performance Coatings & Polymers -
$1; Pharmaceuticals - $3; Pigments & Chemicals - $1; Polyester Enterprise -
$10; Specialty Fibers - $1; Specialty Polymers - $2; and Other - $16.
b Includes a charge of $107 attributable to employee separation costs,
shutdown of various manufacturing facilities and the write-off of an
intangible asset resulting from the loss of exclusive product marketing
rights.
c Includes a charge of $337, of which $247 is attributable to an impairment
charge for the write-down of the adipic acid plant in Singapore that
continues to be operated. Other costs are principally due to the write-down
of manufacturing assets in India pursuant to a sales agreement and the
liquidation of a joint venture in China.
d Includes a charge of $64 attributable to purchased in-process research and
development in conjunction with the acquisition of Herberts.
e Includes a charge of $36 resulting from the finalization of the tax basis
related to the assets acquired and liabilities assumed in connection with
the purchase of Merck's 50 percent interest in The DuPont Merck
Pharmaceutical Company.
f Includes a charge of $2,186 related to the write-off of purchased
in-process research and development in conjunction with the acquisition of
the remaining 80 percent interest in Pioneer.
g Includes a $50 charge resulting from a loss on the formation of a 50/50
global joint venture with Teijin for the polyester films business and a $40
charge related to employee separation costs.
h Includes a $208 gain associated with exchanging the company's investment in
WebMD for Healtheon/WebMD.
4 Includes the following (charges) benefits:
- --------------------------------------------------------------------------------
Agriculture & Nutrition /a/ $ (73)
Nylon Enterprise /b/ (162)
Performance Coatings & Polymers /b/ (17)
Pharmaceuticals /c/ (853)
Pigments & Chemicals /b/ (4)
Polyester Enterprise /d/ (221)
Specialty Fibers /b/ (3)
Specialty Polymers /b/ (10)
Other /e/ 78
-------
$(1,265)
================================================================================
a Includes a $60 charge to adjust the preliminary allocation of purchased
in-process research and development for PTI and a $13 charge related to
productivity improvement initiatives.
b Includes charges associated with productivity improvement initiatives.
c Includes a $799 charge for purchased in-process research and development
associated with the purchase of Merck's 50 percent interest in The DuPont
Merck Pharmaceutical Company and a $54 impairment write-down to fair value
of certain Pharmaceuticals assets.
d Includes a $123 charge for adjustments to the preliminary allocation of
purchased in-process research and development for the purchase of the ICI
polyester businesses and a $98 charge associated with productivity
improvement initiatives.
e Includes a $121 gain on the sale of CONSOL Energy Inc. and a $43 charge
related to productivity improvement initiatives.
DUPONT 71
QUARTERLY FINANCIAL DATA
(Dollars in millions, except per share)
- ------------------------------------------------------------------------------------------------------------------
Quarter Ended March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------
2000
Sales $ 7,593 $ 7,914 $ 6,445 $ 6,316
Cost of Goods Sold and Other Expenses/1/ 6,481 6,857 5,779 5,857
Net Income 803/2/ 688/3/ 562/4/ 261/5/
Basic Earnings Per Share of Common Stock/6/ .76 .66 .54 .25
Diluted Earnings Per Share of Common Stock/6/ .76 .65 .53 .25
Dividends Per Share of Common Stock .35 .35 .35 .35
Market Price of Common Stock/7/
High 74 63 5/8 50 11/16 49 7/8
Low 45 1/16 43 1/8 38 3/16 39 5/8
- ------------------------------------------------------------------------------------------------------------------
1999
Sales $ 6,295 $ 7,024 $ 6,459 $ 7,140
Cost of Goods Sold and Other Expenses/1/ 5,141 5,858 6,087 8,581
Income (Loss) from Continuing Operations 628/8/ 846/9/ 181/10/ (1,436)/11/
Income from Discontinued Operations 35 71 7,349 16
Net Income (Loss) 663 917 7,530 (1,420)
Basic Earnings Per Share of Common Stock/6/
Income (Loss) from Continuing Operations .55 .75 .17 (1.38)
Income from Discontinued Operations .04 .06 7.08 .02
Net Income (Loss) .59 .81 7.25 (1.36)
Diluted Earnings Per Share of Common Stock/6/
Income (Loss) from Continuing Operations .55 .74 .17 (1.38)
Income from Discontinued Operations .03 .06 6.98 .02
Net Income (Loss) .58 .80 7.15 (1.36)
Dividends Per Share of Common Stock .35 .35 .35 .35
Market Price of Common Stock/7/
High 60 1/8 75 3/16 75 1/16 69 7/16
Low 50 1/16 57 3/16 58 58 1/16
==================================================================================================================
1 Excludes interest expense and nonoperating items.
2 Includes a net charge of $95 ($.09 per share-diluted) reflecting: a noncash
charge of $215 resulting from the sale of acquired Pioneer inventories; a
gain of $109 from sale of available-for-sale securities; and a gain of $11
to revise a prior estimate for the 1999 write-off of acquired in-process
research and development.
3 Includes a net charge of $261 ($.25 per share-diluted) reflecting: a
noncash charge of $138 resulting from the sale of acquired Pioneer
inventories; a charge of $62 to increase the company's reserve for
Benlate(R) 50 DF fungicide litigation; and a charge of $61 related to
employee separation costs and shutdown of manufacturing facilities.
4 Includes a net benefit of $25 ($.02 per share-diluted) reflecting: a gain
of $81 on the sale of DuPont Photomasks stock; a charge of $55 related to
Pioneer post-employment costs and finalization of purchase accounting; a
charge of $17 related to restructuring manufacturing operations; and a gain
of $16 from the sale of DuPont's interest in an affiliate.
5 Includes a net charge of $233 ($.22 per share-diluted) reflecting: a
noncash charge of $215 relating to the WebMD investment write-down and
warrant write-off; a charge of $44 to establish a litigation reserve in
Pharmaceuticals; a noncash charge of $13 resulting from the sales of
Pioneer inventories; a gain of $24 related to formation of a global 50/50
industrial nylon joint venture with Sabanci; and a gain of $15 related to
changes in restructuring activity estimates.
6 Earnings per share for the year may not equal the sum of quarterly earnings
per share due to changes in average share calculations.
7 As reported on the New York Stock Exchange, Inc. Composite Transactions
Tape.
8 Includes a charge of $121 ($.11 per share-diluted) reflecting a loss of $81
on forward exchange contracts and a charge of $40 associated with acquired
in-process research and development.
9 Includes a charge of $40 ($.04 per share-diluted) related to employee
separation costs within the Polyester Enterprise.
10 Includes a net charge of $444 ($.42 per share-diluted) related to
impairment charges and restructuring activities within Nylon Enterprise and
Agriculture & Nutrition.
11 Includes a net charge of $2,019 ($1.93 per share-diluted) principally
reflecting a charge of $2,186 to write off acquired in-process research and
development relating to the Pioneer acquisition partly offset by a $208
gain associated with exchanging the company's investment in WebMD for
Healtheon/WebMD.
72 DUPONT
FIVE-YEAR FINANCIAL REVIEW /1/
------------------------------
(Dollars in millions, except per share)
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------
Summary of Operations
Sales $ 28,268 $ 26,918 $ 24,767 $ 24,089 $ 23,644
Income from Continuing Operations Before Income Taxes
and Minority Interests $ 3,447 $ 1,690 $ 2,613 $ 2,829 $ 4,387
Provision for Income Taxes $ 1,072 $ 1,410 $ 941 $ 1,354 $ 1,416
Income from Continuing Operations $ 2,314 $ 219 $ 1,648 $ 1,432 $ 2,931
Income from Discontinued Operations $ - $ 7,471 $ 3,033 $ 973 $ 705
Net Income $ 2,314 $ 7,690 $ 4,681/2/ $ 2,405 $ 3,636
----------------------------------------------------------------------
Basic Earnings Per Share of Common Stock
Income from Continuing Operations $ 2.21 $ 0.19 $ 1.45 $ 1.26 $ 2.60
Income from Discontinued Operations $ - $ 6.89 $ 2.69 $ 0.86 $ 0.63
Net Income $ 2.21 $ 7.08 $ 4.14/2/ $ 2.12 $ 3.23
Diluted Earnings Per Share of Common Stock
Income from Continuing Operations/3/ $ 2.19 $ 0.19 $ 1.43 $ 1.24 $ 2.56
Income from Discontinued Operations $ - $ 6.80 $ 2.65 $ 0.84 $ 0.62
Net Income $ 2.19 $ 6.99 $ 4.08/2/ $ 2.08 $ 3.18
----------------------------------------------------------------------
Financial Position at Year End
Working Capital $ 2,401 $ 1,425 $ (2,374) $ (2,110) $ 15
Total Assets $ 39,426 $ 40,777 $ 38,536 $ 36,689 $ 32,342
Borrowings and Capital Lease Obligations
Short Term $ 3,247 $ 4,941 $ 6,629 $ 6,152 $ 3,907
Long Term $ 6,658 $ 6,625 $ 4,495 $ 5,897 $ 5,052
Stockholders' Equity $ 13,299 $ 12,875 $ 13,954 $ 11,270 $ 10,593
----------------------------------------------------------------------
General
For the Year
Capital Expenditures $ 2,022 $ 6,988/4/ $ 5,480/4/ $ 7,075/4/ $ 1,783
Depreciation $ 1,415 $ 1,444 $ 1,452 $ 1,361 $ 1,526
Research and Development Expense/5/ $ 1,776 $ 1,617 $ 1,308 $ 1,072 $ 990
As Percent of Sales 6.3% 6.0% 5.3% 4.5% 4.2%
Average Number of Shares (millions)
Basic 1,043 1,085 1,129 1,131 1,121
Diluted 1,051 1,098 1,145 1,150 1,140
Dividends Per Common Share $ 1.40 $ 1.40 $ 1.365 $ 1.23 $ 1.115
Common Stock Prices
High $ 74 $ 75 3/16 $ 84 7/16 $ 69 3/4 $ 49 11/16
Low $ 38 3/16 $ 50 1/16 $ 51 11/16 $ 46 3/8 $ 34 13/16
Year-End Close $ 48 5/16 $ 65 7/8 $ 53 1/16 $ 60 1/16 $ 47 1/16
At Year End
Employees (thousands)/6/ 93 94 101 98 97
Common Stockholders of Record (thousands) 132 140 145 154 158
Book Value Per Common Share $ 12.57 $ 12.09 $ 12.18 $ 9.77 $ 9.19
====================================================================================================================================
1 See Management's Discussion and Analysis, Consolidated Financial Statements
and Quarterly Financial Data for information relating to significant items
affecting the results of operations and financial position.
2 Before extraordinary item (Note 10).
3 Earnings from continuing operations before one-time items--diluted were
$2.73, $2.58, $2.55, $2.70 and $2.61 for the years 2000, 1999, 1998, 1997
and 1996, respectively.
4 Includes strategic acquisitions.
5 Excludes purchased in-process research and development.
6 Includes employees of discontinued operations prior to 1999.
DUPONT 73