Business Context and Reporting Period
This Form 10-Q covers E. I. du Pont de Nemours and Company (DuPont) for the quarterly period ended June 30, 1997, and the six months ended June 30, 1997. The company operates across Chemicals, Fibers, Polymers, Petroleum, Life Sciences, and Diversified Businesses. All per share data reflect a 2-for-1 stock split effective May 15, 1997.
Key Financial Metrics
| Metric | Q2 1997 | Q2 1996 | 6M 1997 | 6M 1996 |
|---|---|---|---|---|
| Sales | $11,402M | $11,148M | $22,613M | $21,917M |
| Net Income | $1,140M | $1,001M | $2,160M | $1,880M |
| Earnings Per Share (Basic) | $1.01 | $0.89 | $1.91 | $1.68 |
| Cash Provided by Operations (6M) | $2,175M | $2,356M | ||
| Total Debt (Short + Long Term) | $11,197M (as of June 30, 1997) | |||
| Cash and Cash Equivalents | $1,637M (as of June 30, 1997) | |||
| Current Ratio | 1.0 |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 2% in Q2 1997 and 3% for the first six months compared to 1996. Chemicals and Specialties volumes grew 10%, offsetting lower selling prices due to a stronger dollar.
- Profitability: Net income rose 14% in Q2 and 15% for the six-month period. Q2 1997 net income of $1.1 billion was a record for any quarter in the company's history.
- Segment Performance:
- Petroleum: Earnings reached a Q2 record of $246M (+13%), driven by a 105% surge in downstream earnings despite lower crude oil prices.
- Fibers: Earnings increased 18% to $245M, led by Lycra and Dacron.
- Chemicals: Earnings declined 17% to $137M due to lower white pigments earnings.
- Cash Flow: Operating cash flow for the first six months was $2.2 billion, down slightly from $2.4 billion in 1996, primarily due to a $1.3 billion increase in net operating assets and liabilities.
- Capital Expenditures: Year-to-date capital spending was $2.8 billion, up $1.2 billion from the prior year, largely due to the acquisition of gas properties in South Texas.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: DuPont forecasts 1997 capital expenditures of $5.1 billion, excluding potential payments for business acquisitions.
- Acquisitions and Divestitures:
- Agreed to acquire ICI's white pigment and polyester films businesses for approximately $3 billion, with $1.4 billion expected to be paid in Q4 1997.
- Sold NEN Life Science Products division for $118 million.
- Entered agreements to sell graphics films and offset printing plates businesses to Agfa-Gevaert (expected closing Jan 1998) and sell hydrogen peroxide business to Degussa.
- Legal Contingencies: Significant litigation remains regarding "Benlate" 50 DF fungicide. Over 700 lawsuits have been filed alleging crop damage and personal injury. While DuPont maintains the product did not cause damage, accruals are recorded on the balance sheet, and adverse changes in estimates could result in future charges.
- Guarantees: DuPont has guaranteed Conoco's obligations for a $1.45 billion debt financing related to a joint venture in Venezuela (Petrozuata).
Investor Verification Checklist
- Verify the impact of the $3 billion ICI acquisition on Q4 1997 cash flow and debt levels.
- Monitor the resolution of "Benlate" 50 DF litigation and potential changes to legal accruals.
- Assess the performance of the Petroleum segment's downstream operations, which drove recent record earnings.
- Review the integration of the South Texas gas properties and their contribution to future production.
- Confirm the closing dates and financial terms for the Agfa-Gevaert and Degussa transactions.