Business Context and Reporting Period
This Form 10-Q covers E. I. du Pont de Nemours and Company (DuPont) for the quarterly period ended September 30, 1999. The filing details the company's financial position following the completion of the divestiture of its petroleum business, Conoco Inc., on August 6, 1999. The company is transitioning to a portfolio focused on agriculture, nutrition, nylon, coatings, polymers, and pharmaceuticals.
Key Financial Metrics
| Metric | Q3 1999 | Q3 1998 | 9 Months 1999 | 9 Months 1998 |
|---|---|---|---|---|
| Sales | $6,481 million | $6,042 million | $19,800 million | $18,668 million |
| Net Income | $7,530 million | $(605) million | $9,110 million | $1,260 million |
| Income from Continuing Ops (Pre-Extraordinary) | $181 million | $(564) million | $1,655 million | $867 million |
| Diluted EPS (Net Income) | $7.15 | $(0.54) | $8.19 | $1.09 |
| Diluted EPS (Continuing Ops) | $0.17 | $(0.50) | $1.48 | $0.75 |
| Cash Provided by Continuing Ops (9M) | $2,985 million (vs $2,367 million in 1998) | |||
| Total Debt (Sept 30, 1999) | $9.8 billion (vs $11.1 billion at Dec 31, 1998) | |||
| Cash and Cash Equivalents | $2,305 million (vs $1,059 million at Dec 31, 1998) |
Material Changes vs. Prior Period
- Conoco Divestiture: The most significant change is the $7.3 billion gain on the disposal of discontinued operations (Conoco), which drove the massive increase in Net Income and EPS for Q3 and the nine months ended Sept 30, 1999. Without this gain, the company reported a loss from continuing operations in Q3 1998 and a modest profit in Q3 1999.
- Restructuring Charges: Q3 1999 included $534 million in employee separation costs and asset write-downs, primarily in the Agriculture & Nutrition ($170 million) and Nylon Enterprise ($364 million) segments. This compares to $391 million in similar charges in Q3 1998.
- Acquisitions: Sales growth in Performance Coatings & Polymers (up 51% in Q3) was driven largely by the acquisition of Herberts (automotive coatings). The company also completed the merger with Pioneer Hi-Bred International, Inc. in October 1999.
- Debt Reduction: Total debt decreased by $1.3 billion year-over-year, aided by the repayment of intercompany debt from Conoco and cash generated from operations.
Guidance, Outlook, and Risks
- Outlook: Management notes that underlying diluted earnings per share from continuing operations increased 11% in Q3 1999 compared to Q3 1998. The company expects to be Year 2000-capable with total expenditures estimated between $300 million and $350 million.
- Year 2000 Readiness: Over 99% of critical systems have been tested. The company has established contingency plans for potential disruptions in supply chains or utilities but believes the probability of material adverse impact is low.
- Risks and Contingencies:
- Legal Proceedings: Approximately 140 pending lawsuits regarding "Benlate" 50 DF fungicide crop damage claims. A securities fraud class action regarding Benlate is also pending.
- Environmental: Ongoing settlement discussions with the DOJ regarding a 1997 hydrogen fluoride release in Louisville, Kentucky (proposed fine of $1.7 million). Natural resource damage assessments are ongoing for the Grand Calumet River.
- Conoco Tax Dispute: Disputes remain regarding tax sharing agreements with Conoco, with potential obligations ranging from zero to $160 million.
Investor Verification Checklist
- Verify the sustainability of earnings from continuing operations excluding the one-time $7.3 billion Conoco gain.
- Monitor the integration and performance of the newly acquired Pioneer Hi-Bred and Herberts businesses.
- Track the resolution of the "Benlate" litigation and the DOJ environmental settlement to assess potential future charges.
- Review the progress of restructuring initiatives in the Nylon Enterprise and Agriculture & Nutrition segments to ensure cost savings are realized.
- Confirm the company's Year 2000 contingency plans remain effective as the millennium approaches.