CTA-PB

Business Context and Reporting Period

Company: E. I. du Pont de Nemours and Company (DuPont)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2003
Context: The company is in the process of separating its Textiles & Interiors segment, which has been classified as "held for sale." This strategic shift, combined with significant raw material cost increases and higher pension expenses, heavily influenced the financial results for the quarter and year-to-date.

Key Financial Metrics

Note: Total Debt calculated as Short-term borrowings ($6,664) + Long-term borrowings ($5,269). Cash flow from operations for the nine months ended Sept 30, 2003, was negative $202 million, a decline from positive $386 million in the prior year.

Material Changes vs. Prior Period

• Net Loss vs. Profit: The company reported a net loss of $873 million for Q3 2003, compared to net income of $469 million in Q3 2002. This reversal is primarily due to $1.6 billion in pre-tax charges related to the Textiles & Interiors segment separation.
• Revenue Growth: Net sales increased 12% year-over-year in Q3 2003, driven by a 3% currency benefit, 5% from acquired businesses, and 5% from volume growth.
• Cost Pressures: Cost of goods sold increased significantly due to higher raw material costs (approx. $265 million impact in Q3) and increased non-cash pension expenses.
• Debt Levels: Consolidated net debt increased by approximately $5.6 billion from year-end 2002 to $8.3 billion as of September 30, 2003, largely financed through commercial paper.

Guidance, Outlook, and Risks

Management Commentary & Outlook

• Textiles & Interiors Sale: DuPont expects to complete the sale of substantially all Textiles & Interiors assets in the first half of 2004, subject to regulatory approval. The cessation of depreciation and amortization on these assets is expected to improve Q4 2003 results by approximately $0.05 per share.
• R&D Spending: The company expects Research and Development expenses to total approximately $1.3 billion for the full year 2003.
• Capital Spending: Full-year purchases of property, plant, and equipment are expected to be about $1.7 billion.

Risks and Contingencies

• Benlate Litigation: Ongoing litigation regarding crop damage and personal injury claims. While a securities fraud class action was settled for $77.5 million, 95 cases remain pending. Management does not believe a reserve is necessary for the adverse judgment in a Florida racketeering case but acknowledges costs incurred to date are approximately $1,900 million.
• PFOA Environmental Issues: The EPA is reviewing perfluorooctanoic acid (PFOA). A class action in West Virginia seeks medical monitoring for up to 50,000 individuals. DuPont has not established a reserve as it disputes the causal link to health effects, but a range of potential losses cannot be estimated.
• Antitrust Investigations: DuPont Dow Elastomers LLC is under investigation for potential antitrust violations in synthetic rubber markets. A loss is considered probable, but the amount cannot be estimated.

Investor Verification Checklist

• Textiles & Interiors Sale Terms: Verify the final sale price and timing of the Textiles & Interiors divestiture, as additional charges or credits may be recorded upon closing.
• Raw Material Cost Pass-Through: Assess the company's ability to offset rising raw material costs (oil, natural gas) through price increases in the coming quarters.
• Benlate Litigation Exposure: Monitor the status of the 95 pending Benlate cases, particularly the appeals regarding the Florida racketeering verdict and the West Virginia PFOA class action.
• Debt Maturity Profile: Review the maturity schedule of the increased commercial paper usage ($6.1 billion outstanding) to ensure liquidity stability.
• Pension Liability Remeasurement: Confirm the impact of the $317 million reduction in minimum pension liability on future earnings and cash flow requirements.