Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, for E. I. du Pont de Nemours and Company (DuPont). The report details financial results for the third quarter and the first nine months of 2001, comparing them to the same periods in 2000. The company operates globally in approximately 70 countries, deriving roughly half of its revenues from outside the United States. Key business segments include Agriculture & Nutrition, Nylon, Performance Coatings & Polymers, Pharmaceuticals, Pigments & Chemicals, Polyester, Specialty Fibers, and Specialty Polymers.
Key Financial Metrics
| Metric | Q3 2001 | Q3 2000 | 9M 2001 | 9M 2000 |
|---|---|---|---|---|
| Sales | $5,641 million | $6,445 million | $19,497 million | $21,952 million |
| Net Income | $142 million | $562 million | $424 million | $2,053 million |
| Diluted EPS | $0.13 | $0.53 | $0.40 | $1.94 |
| Cash from Operations (9M) | $922 million (vs. $3,144 million in 2000) | |||
| Debt (Net of Cash) | $9.1 billion (as of Sept 30, 2001) | |||
| Cash & Equivalents | $2,444 million (as of Sept 30, 2001) |
Segment Performance (Q3 2001 After-Tax Operating Income/Loss):
- Pharmaceuticals: $133 million (Gain driven by Cozaar/Hyzaar earnings and a $49 million tax benefit).
- Pigments & Chemicals: $112 million.
- Specialty Fibers: $65 million.
- Specialty Polymers: $90 million.
- Performance Coatings & Polymers: $75 million.
- Nylon: $25 million.
- Agriculture & Nutrition: $(153) million loss (Includes $35 million litigation reserve).
- Polyester: $(20) million loss.
Material Changes vs. Prior Period
Financial results for the third quarter of 2001 declined significantly compared to the same period in 2000, driven by weaker global economic conditions, lower sales volumes, and pricing pressures.
- Sales Decline: Consolidated sales fell 12.5% year-over-year in Q3. Worldwide volumes declined 9%, with U.S. volumes down 12% and Asia Pacific sales down 14%.
- Earnings Decline: Net income dropped 75% to $142 million. Diluted earnings per share before one-time items were $0.12, down 76% from $0.51 in Q3 2000.
- Restructuring Charges: Year-to-date 2001 included $1,046 million in charges for employee separations (approx. 5,500 employees) and asset write-downs. Major write-downs occurred in the Polyester segment ($273 million) related to the sale of domestic TPA and PET container resin businesses.
- One-Time Items: Q3 2001 included a $56 million pretax charge for the settlement of YieldGard litigation with Monsanto. Conversely, Q3 2000 included significant gains from the sale of stock in DuPont Photomasks ($123 million pretax) which were not present in 2001.
Guidance, Outlook, and Risks
Outlook: Management expects the U.S. economy to continue weakening through the fourth quarter of 2001. The company forecasts fourth-quarter earnings per share to be roughly similar to the third quarter ($0.13 range). This outlook balances positives (lower raw material costs, restructuring savings, lower interest expense) against negatives (lower volumes, pricing pressure, and lower Pharmaceuticals earnings).
Subsequent Events: On October 1, 2001, DuPont sold substantially all assets of DuPont Pharmaceuticals to Bristol-Myers Squibb for approximately $7.8 billion in cash. The company estimates an after-tax gain of approximately $4,000 million on this transaction.
Risks and Contingencies:
- Legal Proceedings: Significant litigation remains regarding Benlate 50 DF fungicide, including a recent Florida jury verdict of approximately $88.5 million. Additionally, an appeal is pending regarding the termination of a license agreement for Roundup Ready soybeans with Monsanto.
- Market Conditions: Results are sensitive to raw material costs (petroleum, natural gas), foreign currency fluctuations, and the acceptance of genetically enhanced agricultural products.
- Accounting Changes: The company adopted SFAS No. 133 in 2001, resulting in a cumulative effect gain of $11 million. Future adoption of SFAS No. 142 (Goodwill) in 2002 is expected to eliminate approximately $150 million in annual after-tax amortization charges.
Investor Verification Checklist
- Pharmaceuticals Sale: Verify the final closing terms and the exact after-tax gain realization from the $7.8 billion sale to Bristol-Myers Squibb.
- Restructuring Progress: Monitor the cash outflow for the $1,046 million in restructuring charges, specifically the $297 million remaining liability for employee separation costs.
- Benlate Litigation: Track the status of the $88.5 million Florida verdict and the appeal process, as well as the outcome of the Roundup Ready soybean license appeal.
- Debt Reduction: Confirm the utilization of proceeds from the Pharmaceuticals sale to reduce the net debt level of $9.1 billion.
- Volume Trends: Assess whether the 9% decline in worldwide volumes stabilizes in Q4, given the management's expectation of continued economic weakness.