Business Context and Reporting Period
Company: E. I. du Pont de Nemours and Company (DuPont)
Reporting Period: Year ended December 31, 1995
Overview: DuPont is the largest U.S. chemical producer and a leading global chemical company. Operations are organized into five segments: Chemicals, Fibers, Polymers, Petroleum (primarily through Conoco Inc.), and Diversified Businesses. The company operates in approximately 70 nations, with 49% of sales derived from outside the U.S. Total worldwide employment was approximately 105,000 at year-end 1995.
Strategic Actions: The company plans to sell its medical products businesses and form a 50-50 joint venture for its elastomer businesses with The Dow Chemical Company. Proceeds are intended to reduce debt incurred to fund the April 1995 redemption of 156 million common shares from The Seagram Company Ltd.
Key Financial Metrics
Note: Specific consolidated revenue, net income, and cash flow figures for 1995 are incorporated by reference to the 1995 Annual Report to Stockholders (Exhibit 13) and are not explicitly stated in the provided text.
- Market Capitalization: Approximately $44.6 billion (as of March 5, 1996).
- Shares Outstanding: 559,010,099 shares of common stock (excluding Flexitrust holdings).
- Capacity Utilization: Sales as a percent of capacity were 86% in 1995 (87% in 1994, 85% in 1993).
- Petroleum Production (Consolidated):
- Petroleum Liquids: 389,000 barrels per day (down from 420,000 in 1994).
- Natural Gas Deliveries: 1,204 million cubic feet per day (down from 1,313 in 1994).
- Petroleum Economics (1995):
- Average Production Cost (U.S.): $3.78 per barrel equivalent.
- Average Sales Price (U.S. Crude): $15.53 per barrel.
- Average Sales Price (U.S. Natural Gas): $1.44 per MCF.
- Refining Capacity: 621,000 barrels per day worldwide (448,000 in U.S.).
Material Changes and Operational Highlights
- Production Decline: Consolidated petroleum liquids production decreased by approximately 7.4% year-over-year (from 420,000 to 389,000 barrels per day), driven by declines in U.S. and European reserves.
- Share Redemption: In April 1995, the company redeemed 156 million shares beneficially owned by The Seagram Company Ltd., a transaction funded by debt.
- Legal Settlements: Two nationwide class actions regarding polybutylene plumbing systems were settled in Q4 1995. DuPont agreed to contribute 10% of repair costs, capped at $120 million.
- Unusual Items: Two nonrecurring charges totaling $0.15 per share were announced in Q4 1995: $0.07 per share for the plumbing lawsuit settlement and $0.08 per share for write-downs of certain petroleum assets.
Outlook, Risks, and Contingencies
Management Commentary & Outlook: The company is actively restructuring its portfolio to reduce debt and focus on core competencies through the planned divestiture of medical products and the elastomer joint venture. The company does not plan to adopt FASB Statement No. 123 regarding stock-based compensation measurement.
Legal Proceedings & Contingencies:
- "Benlate" Litigation: Over 700 lawsuits filed by growers alleging crop damage. Fewer than 100 remain active. Two appeals from adverse jury verdicts are pending (South Carolina and Hawaii). A federal court in Georgia conditionally fined DuPont $115 million for discovery abuse; this is under appeal.
- Environmental Matters: Multiple EPA and state agency actions are pending, including proposed penalties for:
- Triazine herbicide labeling violations ($1.9 million proposed).
- Wurtland, Kentucky oleum release (State seeking at least $400,000).
- Various reporting and recordkeeping violations at multiple plants (Circleville, East Chicago, Edge Moor).
- Foreign Operations Risk: Petroleum operations outside the U.S. face risks from host government actions, including tax changes, nationalization, and production controls.
Investor Verification Checklist
- Debt Levels: Verify the total debt load incurred to fund the Seagram share redemption and the impact of the planned divestitures on leverage ratios.
- Legal Accruals: Review the specific accrual amounts for the "Benlate" litigation and polybutylene plumbing settlements in the financial statement notes to assess potential for additional charges.
- Petroleum Asset Valuation: Investigate the specific petroleum assets written down in Q4 1995 and the rationale behind the $0.08 per share charge.
- Divestiture Timeline: Confirm the status and expected closing dates for the medical products sale and the Dow Chemical elastomer joint venture.
- Environmental Provisions: Assess the adequacy of reserves for the various pending EPA and state environmental penalties and remediation costs.