-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, slMKpefa6zUzxjujSPOUYX+K5KyzHv/GO2uNPuCRqeXQABVNgbLb0Wu43o3Pk1cc wo4VqGXfz7aY3HEfX4cJYw== 0000950109-95-000823.txt : 19950616 0000950109-95-000823.hdr.sgml : 19950616 ACCESSION NUMBER: 0000950109-95-000823 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUPONT E I DE NEMOURS & CO CENTRAL INDEX KEY: 0000030554 STANDARD INDUSTRIAL CLASSIFICATION: PLASTIC MAIL, SYNTH RESIN/RUBBER, CELLULOS (NO GLASS) [2820] IRS NUMBER: 510014090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00815 FILM NUMBER: 95522207 BUSINESS ADDRESS: STREET 1: 1007 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19898 BUSINESS PHONE: 3027741000 10-K 1 FORM 10-K 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-815 E. I. DU PONT DE NEMOURS AND COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 51-0014090 (I.R.S. EMPLOYER IDENTIFICATION NO.) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 1007 MARKET STREET WILMINGTON, DELAWARE 19898 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 302-774-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT (EACH CLASS IS REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.): TITLE OF EACH CLASS COMMON STOCK ($.60 PAR VALUE) PREFERRED STOCK (WITHOUT PAR VALUE-CUMULATIVE) $4.50 SERIES $3.50 SERIES 6% DEBENTURES DUE 2001 NO SECURITIES ARE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Aggregate market value of voting stock (excluding outstanding shares beneficially owned by directors and officers) as of March 7, 1995, was approximately $28.1 billion. As of such date, 681,246,974 shares of the company's common stock, $.60 par value, were outstanding. Documents Incorporated by Reference (Specific pages incorporated are indicated under the applicable Item herein):
INCORPORATED BY REFERENCE IN PART NO. --------------------- The company's 1994 Annual Report to Stockholders........ I, II, and IV The company's Proxy Statement, dated March 17, 1995, in connection with the Annual Meeting of Stockholders to be held on April 26, 1995.............................. III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- E. I. DU PONT DE NEMOURS AND COMPANY ------------------ The terms "DuPont" or the "company" as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries (which are wholly owned or majority-owned), or to E. I. du Pont de Nemours and Company, as the context may indicate. ------------------ TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business ................................................... 3 Item 2. Properties ................................................. 6 Item 3. Legal Proceedings .......................................... 11 Item 4. Submission of Matters to a Vote of Security Holders ........ 14 Executive Officers of the Registrant........................ 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................ 15 Item 6. Selected Financial Data .................................... 15 Management's Discussion and Analysis of Financial Condition Item 7. and Results of Operations ................................. 15 Item 8. Financial Statements and Supplementary Data ................ 16 Item 9. Disagreements on Accounting and Financial Disclosure ....... 16 PART III Item 10. Directors and Executive Officers of the Registrant ......... 16 Item 11. Executive Compensation ..................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................................ 16 Item 13. Certain Relationships and Related Transactions ............. 16 PART IV Exhibits, Financial Statement Schedules and Reports on Form Item 14. 8-K ....................................................... 17 Signatures............................................................ 19
NOTE ON INCORPORATION BY REFERENCE Throughout this report, various information and data are incorporated by reference to portions of the company's 1994 Annual Report to Stockholders (those portions are hereinafter referred to as Exhibit 13). Any reference in this report to disclosures in Exhibit 13 shall constitute incorporation by reference of that specific material into this Form 10-K. 2 PART I ITEM 1. BUSINESS DuPont was founded in 1802 and was incorporated in Delaware in 1915. The company is the largest United States chemical producer and is one of the leading chemical producers worldwide. The company conducts fully integrated petroleum operations primarily through its wholly owned subsidiary Conoco Inc. and, in 1993, ranked eighth in the worldwide production of petroleum liquids by U.S.-based companies, ninth in the production of natural gas, and seventh in refining capacity. Conoco Inc. and other subsidiaries and affiliates of DuPont conduct exploration, production, mining, manufacturing or selling activities, and some are distributors of products manufactured by the company. The company operates globally through approximately twenty strategic business units. Within the strategic business units approximately 85 businesses manufacture and sell a wide range of products to many different markets, including the energy, transportation, textile, construction, automotive, agricultural, printing, health care, packaging and electronics markets. The company and its subsidiaries have operations in about 70 nations worldwide and, as a result, about 47% of consolidated sales are derived from sales outside the United States, based on the location of the corporate unit making the sale. Total worldwide employment at year-end 1994 was about 107,000 people. The company is organized for financial reporting purposes into five principal industry segments--Chemicals, Fibers, Polymers, Petroleum, and Diversified Businesses. The following information describing the businesses of the company can be found on the indicated pages of Exhibit 13:
ITEM PAGE(S) ---- ------- Discussion of Business Developments in 1994: Letter to Stockholders.............................................. 1-4* Industry Segment Reviews: Business Discussions, Principal Products and Principal Markets: Chemicals......................................................... 16-17** Fibers............................................................ 18-19** Polymers.......................................................... 20-21** Petroleum......................................................... 22-25** Diversified Businesses............................................ 26-28** Sales, Transfers, Operating Profit, After-Tax Operating Income, and Identifiable Assets for 1994, 1993, and 1992....................... 61-63 Geographic Information: Sales, Transfers, After-Tax Operating Income, Identifiable Assets, and U.S. Export Sales for 1994, 1993, and 1992..................... 60 Revenues by Product Class (See footnote 1 on page 62 of Exhibit 13)... 62
- -------- * Includes text of letter except for inserts and for chart on page 3 and references thereto. ** Each review starts with paragraph describing segment products and principal markets; information above such paragraph is excluded. SOURCES OF SUPPLY The company utilizes numerous firms as well as internal sources to supply a wide range of raw materials, energy, supplies, services and equipment. To assure availability, the company maintains multiple sources for most raw materials, including hydrocarbon feedstocks, and for fuels. Large volume purchases are generally procured under competitively priced supply contracts. 3 A majority of sales in the Chemicals, Fibers, and Polymers segments' businesses is dependent on hydrocarbon feedstocks derived from crude oil and natural gas. Current hydrocarbon feedstock requirements are met by Conoco and other major oil companies. A joint venture with OxyChem, a subsidiary of Occidental Petroleum Corporation, manufactures and supplies a significant portion of the company's requirements for ethylene glycol. A joint venture with subsidiaries of RWE AG supplies the company's requirements for coal. A significant portion of the company's caustic/chlorine needs is supplied by a joint venture with Olin Corporation. The major purchased commodities, raw materials, and supplies for the following industry segments in 1994 are listed below:
DIVERSIFIED CHEMICALS FIBERS BUSINESSES POLYMERS --------- ------ ----------- -------- acetylene adipic acid aluminum acetic acid benzene ammonia gold butadiene carbon- tetrachloride butadiene metribuzin caustic soda caustic soda cyclohexane palladium/platinum chlorine chlorine ethylene glycol silver ethane chloroform isophthalic acid ethylene glycol cyclohexane nitrogen fiberglass fluorspar packaging materials nitrogen hydrofluoric acid paraxylene packaging materials methanol polyethylene paraxylene oxygen/nitrogen polyethylene packaging materials perchloroethylene propylene sulfur titanium ores
In the Petroleum segment, the major commodities and raw materials purchased are the same as those produced. Approximately 58% of the crude oil processed in the company's U.S. refineries in 1994 came from U.S. sources. In 1994, the company's refineries outside the United States processed principally North Sea and Middle East crude oils. In addition, during 1994, the company consumed substantial amounts of electricity and natural gas. PATENTS AND TRADEMARKS The company owns and is licensed under various patents, which expire from time to time, covering many products, processes and product uses. No individual patent is of material importance to any of the industry segments, although taken as a whole, the rights of the company and the products made and sold under patents and licenses are important to the company's business. During 1994, the company was granted 491 U.S. and 1,933 non-U.S. patents. The company also has about 900 registered trademarks for its products. Ownership rights in trademarks continue indefinitely if the trademarks are continued in use and properly protected. SEASONALITY In general, sales of the company's products are not substantially affected by seasonality. However, the Diversified Businesses segment is impacted by seasonality of sales of agricultural products with highest sales in the first half of the year, particularly the second quarter. Within the Petroleum segment, the mix of refined products, natural gas and natural gas liquids produced and sold varies because of increased demand for gasoline in the summer months and natural gas, heating oil and propane during the winter months. 4 MAJOR CUSTOMERS The company's sales are not materially dependent on a single customer or small group of customers. The Fibers and Polymers segments, however, have several large customers in their respective industries that are important to these segments' operating results. COMPETITION Principal competitors in the chemical industry include major chemical companies based in the United States, Europe, Japan, People's Republic of China and other Asian nations. Competitors offer a comparable range of products from agricultural, commodity and specialty chemicals to plastics, fibers and medical products. The company also competes in certain product markets with smaller, more specialized firms. Principal competitors in the petroleum industry are integrated oil companies (including national oil companies), many of which also have substantial petrochemical operations, and a variety of other firms including independent oil and gas producers, pipeline companies, and large and small refiners and marketers. In addition, the company competes with the growing petrochemical operations in oil-producing countries. Businesses in the Chemicals, Fibers, Polymers, and Diversified Businesses segments compete on a variety of factors such as price, product quality or specifications, customer service and breadth of product line, depending on the characteristics of the particular market involved. The Petroleum segment business is highly price-competitive and competes as well on quality and reliability of supply. Further information relating to competition is included in two areas of Exhibit 13 (1) the "Letter to Stockholders" on pages 1-4 and (2) Industry Segment Reviews on pages 16-28. RESEARCH AND DEVELOPMENT The company's substantial research and development activities are primarily funded with internal resources and conducted at over 60 domestic sites in 21 states at both dedicated research facilities and manufacturing plants. DuPont operates several large research centers near Wilmington, Delaware, supporting strategic business units in its Chemicals, Fibers, Polymers and Diversified Businesses segments. Among these, the Experimental Station laboratories engage in fundamental, exploratory and applied research, and the Stine-Haskell Research Center conducts agricultural product research and toxicological research of company products to assure they are safe for manufacture and use. At its facility in Ponca City, Oklahoma, the company conducts research for new products and technologies for petroleum operations as well as other segments of the business. DuPont also operates research facilities at a number of locations outside the United States in Belgium, Canada, France, Germany, Japan, Luxembourg, Mexico, The Netherlands, Switzerland and the United Kingdom reflecting the company's growing global business interests. Research and development activities include exploratory studies to advance scientific knowledge in fields of interest to the company; basic and applied work to support and improve existing products and processes; and scouting work to identify and develop new business opportunities in relevant fields. Each strategic business unit of the company funds research and development activities to support its business mission. The corporate laboratories are responsible for assuring that leading edge science and engineering concepts are identified and diffused throughout the DuPont technical community. All R&D activities are coordinated by senior R&D management to insure that business and corporate technical activities are integrated and that the core technical competencies underlying DuPont's current and future businesses remain healthy and continue to provide competitive advantages. Further information regarding research and development is in Exhibit 13 on pages 3 and 4 of the "Letter to Stockholders." Annual research and development expense and such expense shown "As Percent of Combined Segment Sales" for the five years 1990 through 1994 are included under the heading "General" of the Five-Year Financial Review on page 73 of Exhibit 13. 5 ENVIRONMENTAL MATTERS Information relating to environmental matters is included in two areas of Exhibit 13: (1) "Management's Discussion and Analysis" on pages 34-36; and (2) Note 28 to the Financial Statements on page 59. RISKS ATTENDANT TO FOREIGN OPERATIONS The company's petroleum exploration and production operations outside the United States are exposed to risks due to possible actions by host governments such as increases or variations in tax and royalty payments, participation in the company's concessions, limited or embargoed production, mandatory exploration or production controls, nationalization and export controls. Civil unrest and changes in government are also potential hazards. In certain circumstances the company has attempted to minimize its exposure by carrying political risk insurance. The profitability of the company's exploration and production operations is similarly exposed to risks due to actions of the United States government through tax legislation, executive order, and commercial restrictions. Actions by both the United States and host governments have affected operations significantly in the past and may continue to impact operations in the future. ITEM 2. PROPERTIES The company owns and operates manufacturing, processing, production, refining, marketing, research and development facilities worldwide. In addition, the company owns and leases petroleum properties worldwide. DuPont's corporate headquarters is located in Wilmington, Delaware, and the company's petroleum businesses are headquartered in Houston, Texas. In addition, the company operates sales offices, regional purchasing offices, distribution centers and various other specialized service locations. Further information regarding properties is included in Exhibit 13 in the Industry Segment Reviews on pages 16-28. Information regarding research and development facilities is incorporated by reference to Item 1, Business-- Research and Development on page 5 of this report. Additional information with respect to the company's property, plant and equipment, and leases is contained in Notes 13 and 20 to the company's consolidated financial statements on pages 49 and 52 of Exhibit 13. CHEMICALS, FIBERS, POLYMERS, AND DIVERSIFIED BUSINESSES Approximately 75% of the property, plant and equipment related to operations in the Chemicals, Fibers, Polymers, and Diversified Businesses is located in the United States and Puerto Rico. This investment is located at some 85 sites, principally in Texas, Delaware, Virginia, North Carolina, Tennessee, West Virginia, South Carolina, and New Jersey. The principal locations within these states are as follows: TEXAS DELAWARE VIRGINIA NORTH CAROLINA ----- -------- -------- -------------- Beaumont Edge Moor Front Royal Brevard Corpus Christi Glasgow James River Fayetteville LaPorte Newark Martinsville Kinston Orange Seaford Richmond Raleigh Victoria Waynesboro Wilmington TENNESSEE WEST VIRGINIA SOUTH CAROLINA NEW JERSEY --------- ------------- -------------- ---------- Chattanooga Belle Camden Deepwater Memphis Martinsburg Charleston Parlin New Johnsonville Parkersburg Florence Old Hickory
6 Property, plant and equipment outside the United States and Puerto Rico is located at about 70 sites, principally in Canada, the United Kingdom, Germany, The Netherlands, Luxembourg, Singapore, Mexico, Taiwan, Spain, France, Brazil, Japan, Republic of Korea, Belgium and Argentina. Products from more than one business are frequently produced at the same location. The company's plants and equipment are well maintained and in good operating condition. Sales as a percent of capacity were 87% in 1994, 85% in 1993, and 88% in 1992. These properties are directly owned by the company except for some auxiliary facilities and miscellaneous properties, such as certain buildings and transportation equipment, which are leased. Although no title examination of the properties has been made for the purpose of this report, the company knows of no material defects in title to any of these properties. PETROLEUM BUSINESSES The company owns and leases oil and gas properties worldwide. Exploration, production, and natural gas and gas products properties are described generally on pages 22-25 and 64-70 of Exhibit 13. Estimated proved reserves of oil and gas are found on pages 66 and 67 of Exhibit 13. Information regarding the company's refining, marketing, supply, and transportation properties is also provided on pages 22-25 of Exhibit 13. PETROLEUM PRODUCTION The following tables show the company's interests in petroleum liquids production and natural gas deliveries. Petroleum liquids production comprises crude oil and condensate produced for the company's account plus its share of natural gas liquids (NGL's) removed from natural gas deliveries from owned leases and NGL's acquired through gas plant ownership. Natural gas deliveries represent Conoco's share of deliveries from leases in which the company has an ownership interest.
1994 1993 1992 ----------- ----------- ----------- [THOUSANDS OF BARRELS DAILY (MBD)] Petroleum Liquids Production Consolidated Companies Crude Oil, Condensate, and Natural Gas Li- quids from Owned Reserves: United States............................ 94 108 110 Europe................................... 160 152 132 Other Regions............................ 109 107 93 ----------- ----------- ----------- Subtotal from Owned Reserves........... 363 367 335 Natural Gas Liquids from Gas Plant Owner- ship: United States............................ 57 55 54 ----------- ----------- ----------- Total Production--Consolidated Opera- tions................................. 420 422 389 Share of Equity Affiliates Crude Oil, Condensate, and Natural Gas Li- quids from Owned Reserves................. 4 -- -- Natural Gas Liquids from Gas Plant Owner- ship...................................... 12 12 7 ----------- ----------- ----------- Total Production--Equity Affiliates.... 16 12 7 ----------- ----------- ----------- Total Petroleum Liquids Production..... 436 434 396 =========== =========== =========== [MILLION CUBIC FEET DAILY (MMCFD)] Natural Gas Deliveries Consolidated Companies Natural Gas Deliveries from Owned Reserves: United States............................ 871 834 762 Europe................................... 398 409 360 Other Regions............................ 44 50 55 ----------- ----------- ----------- Subtotal Fully Consolidated............ 1,313 1,293 1,177 Share of Equity Affiliates Natural Gas Deliveries from Owed Reserves: United States............................ 34 18 3 ----------- ----------- ----------- Total Worldwide........................ 1,347 1,311 1,180 =========== =========== ===========
7 AVERAGE PRODUCTION COSTS AND SALES PRICES The following table presents data as prescribed by the Securities and Exchange Commission (SEC). Accordingly, the unit costs do not include income taxes and exploration, development and general overhead costs. Since these excluded costs are material, the following data should not be interpreted as measures of profitability or relative profitability. See Results of Operations for Oil and Gas Producing Activities on page 64 of Exhibit 13 for a more complete disclosure of revenues and expenses. See also the references to crude oil and natural gas prices and volumes in business review of the Petroleum segment on pages 22-25 of Exhibit 13.
UNITED OTHER STATES EUROPE REGIONS ------ ------ ------- (U.S. DOLLARS) For the year ended December 31, 1994 Average production costs per barrel equivalent of petroleum produced(a)................................. $3.99 $4.37 $1.62 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold.......... 13.36 15.65 15.18 Per thousand cubic feet (MCF) of natural gas sold.... 1.78 2.90 1.61 For the year ended December 31, 1993 Average production costs per barrel equivalent of petroleum produced(a)................................. 4.97 4.34 1.63 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold.......... 14.66 17.35 15.32 Per MCF of natural gas sold.......................... 1.94 2.77 1.32 For the year ended December 31, 1992 Average production costs per barrel equivalent of petroleum produced(a)................................. 5.86 6.73 1.98 Average sales prices of produced petroleum(b) Per barrel of crude oil and condensate sold.......... 17.35 19.39 17.30 Per MCF of natural gas sold.......................... 1.70 2.77 1.02
- -------- (a) Average production costs per barrel of equivalent liquids, with natural gas converted to liquids at a ratio of 6 MCF of gas to one barrel of liquids. (b) Excludes proceeds from sales of interest in oil and gas properties. PRESENT ACTIVITIES
TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (NUMBER OF WELLS) At December 31, 1994 Number of wells drilling* Gross....................................... 33 12 15 6 Net......................................... 19 9 5 5 Number of productive wells** Oil wells--gross............................ 12,867 12,263 242 362 --net.................................... 4,356 4,202 26 128 Gas wells--gross............................ 7,489 7,366 66 57 --net................................... 2,932 2,855 23 54
- -------- * Includes wells being completed. ** Approximately 165 gross (77 net) oil wells and 722 gross (229 net) gas wells, all in the United States, have multiple completions. 8 DEVELOPED AND UNDEVELOPED PETROLEUM ACREAGE
TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (THOUSANDS OF ACRES) At December 31, 1994 Developed acreage Gross....................................... 8,023 3,350 899 3,774 Net......................................... 3,592 1,852 269 1,471 Undeveloped acreage Gross....................................... 79,878 1,772 5,182 72,924 Net......................................... 51,158 1,271 2,228 47,659
NET EXPLORATORY AND DEVELOPMENT WELLS DRILLED
TOTAL UNITED OTHER WORLDWIDE STATES EUROPE REGIONS --------- ------ ------ ------- (NUMBER OF NET WELLS COMPLETED) For the year ended December 31, 1994 Exploratory--productive...................... 23.8 16.2 2.8 4.8 --dry................................... 39.3 30.0 1.7 7.6 Development--productive...................... 116.4 88.7 5.5 22.2 --dry................................... 14.3 13.3 0.0 1.0 For the year ended December 31, 1993 Exploratory--productive...................... 15.6 10.7 3.4 1.5 --dry................................... 24.5 16.3 2.5 5.7 Development--productive...................... 175.2 158.3 5.0 11.9 --dry................................... 24.5 24.0 0.0 0.5 For the year ended December 31, 1992 Exploratory--productive...................... 17.1 11.6 4.5 1.0 --dry................................... 22.0 10.2 5.0 6.8 Development--productive...................... 121.9 107.9 4.1 9.9 --dry................................... 13.1 10.9 0.7 1.5
ESTIMATES OF TOTAL PROVED RESERVES FILED WITH OTHER FEDERAL AGENCIES COVERING THE YEAR 1994 The company is not required to file, and has not filed on a recurring basis, estimates of its total proved net oil and gas reserves with any U.S. or non- U.S. governmental regulatory authority or agency other than the Department of Energy (DOE) and the SEC. The estimates furnished to the DOE have been consistent with those furnished to the SEC. They are not necessarily directly comparable, however, due to special DOE reporting requirements such as requirements to report in some instances on a gross, net or total operator basis, and requirements to report in terms of smaller units. In no instance have the estimates for the DOE differed by more than 5% from the corresponding estimates reflected in total reserves reported to the SEC. NATURAL GAS AND GAS PRODUCTS Upstream operations in the United States include consolidated interests in 30 natural gas processing plants located in Colorado, Louisiana, New Mexico, Oklahoma and Texas. Sixteen of the plants are operated by the company. The company's share of total natural gas liquids production (NGL) from the 30 plants averaged 71,881 barrels per day in 1994 and 68,631 barrels per day in 1993, of which 14,537 barrels per day in 1994 and 13,937 barrels per day in 1993 came from produced natural gas. Conoco's 50% owned equity affiliate, C&L Processors Partnership, has an additional 12 natural gas processing plants in Oklahoma and Texas, and the company's pro rata share of NGL production was 7,908 in 1994 and 7,885 in 1993. Other natural gas and gas products facilities in the United States include an 800-mile intrastate natural gas pipeline system in Louisiana operated by Conoco's 100% owned subsidiary Louisiana Gas System, Inc., natural gas 9 and natural gas liquids pipelines in several states, and a 22.5% equity interest in a 104,000-barrel-per-day natural gas liquids fractionating plant in Mt. Belvieu, Texas, owned by affiliated Gulf Coast Fractionators. Outside the United States, the company's Conoco (U.K.) Limited subsidiary operates a 50% owned gas processing facility at Theddlethorpe, England. Kinetica, a 50% joint venture between Conoco (U.K.) and electricity generator PowerGen, transports and markets natural gas in England. Phoenix Park Gas Processors, a 40% owned equity affiliate, operates a natural gas plant at Point Lisas, Trinidad. REFINING The company currently owns and operates four refineries in the United States located at Lake Charles, Louisiana; Ponca City, Oklahoma; Billings, Montana; and Denver, Colorado. The company also owns and operates the Humber refinery in England and has a 25% interest in a refinery at Karlsruhe in Germany. In November 1994, Conoco and Petronas each acquired a 50% interest in a company that will build a 100,000-barrel-per-day refinery near the city of Melaka, Malaysia, with completion in late 1997. Conoco and Petronas are evaluating potential third partners that would acquire a 15% interest in the joint venture and would lower Conoco's ownership to 40% and Petronas' ownership to 45%. Capacities at year-end 1994 as well as inputs processed during 1994 are summarized in the following table:
TOTAL UNITED UNITED WORLDWIDE STATES KINGDOM GERMANY* --------- ------ ------- -------- (THOUSANDS OF BARRELS DAILY) At December 31, 1994 Refinery crude oil and condensate distilla- tion capacity (excluding additional feedstocks input to other refinery units). 602 429 130 43 For the year ended December 31, 1994 Inputs processed Crude oil and condensate.. 593 422 125 46 Additional feedstocks input to other refin- ery units................................. 103 29 59 15
- -------- * Represents 25% interest in the Karlsruhe refinery. Utilization of refinery capacity depends on the market demand for petroleum products, availability of crude oil and other feedstocks, and the economics of converting crude oil into refined products. The company announced in August 1994 the formation of Excel Paralubes, a company owned 50% each by Conoco and Atlas Processing Company (a Pennzoil subsidiary), to construct a lube oil hydrocracker facility at Lake Charles, Louisiana, to produce more than 15,000 barrels per day of high-quality base oils to be used in finished lubricants. MARKETING In the United States, the company sells refined products at retail in 39 states, principally under the "Conoco" brand. In addition, the company markets a wide range of products other than at retail in all 50 states and the District of Columbia. Refined products are also sold in Austria, Germany and the United Kingdom under the "Jet" and "Conoco" brands; in Belgium, France and Luxembourg under the "Seca" brand; and in Switzerland under the "OK Coop" brand. The "Jet" brand is used for marketing in the Czech Republic, Denmark, Finland, Hungary, Ireland, Norway, Poland, Spain, Sweden and Thailand. SUPPLY AND TRANSPORTATION The company has an extensive pipeline system for crude oil and refined products. Information concerning daily pipeline shipments is presented below:
1994 1993 1992 ------- ------- ------- (THOUSANDS OF BARRELS) Average Daily Pipeline Shipments Pipeline shipments of consolidated companies......... 849 761 816 Equity in shipments of nonconsolidated affiliates.... 365 366 334
10 Conoco Pipe Line Company (CPL), a wholly owned subsidiary and operator of the company's U.S. petroleum pipeline system, transported approximately 820 thousand barrels per day of crude oil and refined products in 1994. In addition to pipeline facilities, CPL operates, under a management contract, four marine terminals, one coke-exporting facility and 52 product terminals located throughout the United States. These facilities are wholly or jointly owned by the company. Crude oil is gathered in the Rocky Mountain, mid-continent and southern Louisiana areas primarily for delivery to local refiners. Refined products pipelines are located in the Rocky Mountain and mid-continent areas to serve regional demand centers. Other U.S. transportation assets include numerous tank cars, barges, tank trucks and other motor vehicles. The company also operates a fleet of seagoing crude oil tankers. These vessels, principally of Liberian registry, are described as follows:
1994 1993 1992 ---- ---- ---- (THOUSANDS OF DEADWEIGHT TONS) Controlled Seagoing Vessel Capacity Owned or Leased............................... 881 1,139 947 Trip Charter.................................. -- -- 174 --- ----- ----- Total Capacity.............................. 881 1,139 1,121 === ===== ===== (NUMBER OF VESSELS) Number of Vessels 80,000 DWT and Above Single Hull................................... 3 4 6 Double Hull................................... 4 4 2 --- ----- ----- Total Vessels............................... 7 8 8 === ===== =====
ITEM 3. LEGAL PROCEEDINGS In 1991, DuPont received claims by growers that use of "Benlate" 50 DF fungicide had caused crop damages. Based on the belief that "Benlate" 50 DF would be found to be a contributor to the claimed damage, DuPont paid claims. In 1992, after 18 months of extensive research, DuPont scientists concluded that "Benlate" 50 DF was not responsible for plant damage reports received since March 1991. Concurrent with these research findings, DuPont stopped paying claims relating to those reports. To date, DuPont has been served with more than 660 lawsuits in several jurisdictions, principally Florida, Hawaii, and Puerto Rico, by growers who allege plant damage from using "Benlate" 50 DF fungicide. Over half of the lawsuits brought against the company since 1991 have been disposed of by trial, dismissal or settlement, including 330 in 1994 and 45 thus far in 1995. There were four jury trials involving nine lawsuits completed in 1994. In the first three trials in Florida and Alabama, the juries found no product defect and no damages attributable to "Benlate" 50 DF fungicide. In the fourth trial involving one lawsuit in South Carolina, the jury found against DuPont and awarded damages of $17.2 million to the plaintiff. The trial judge, however, later struck the punitive damages portion of the award reducing the jury verdict to about $7.5 million. In January 1995, at the conclusion of a seven-month trial in Kona, Hawaii, the jury awarded the plaintiff $23.9 million. DuPont believes it has strong grounds for setting both of these adverse verdicts aside on appeal. A second trial in Hawaii of nine consolidated cases resulted, in March 1995, in a total award of $8.5 million in compensatory damages. The plaintiffs' request for punitive damages was denied. DuPont plans to appeal. Also in March 1995, a trial involving two growers in Puerto Rico was resolved in accordance with the terms of a judgment agreement negotiated with the plaintiffs before the jury verdict was returned. With the conclusion of these most recent trials, only three of the 125 cases involving "Benlate" 50 DF filed in Puerto Rico and three of more than 100 filed in Hawaii remain unresolved. DuPont believes that "Benlate" 50 DF fungicide did not cause the alleged damages and intends to prove this in ongoing matters. Since 1989, DuPont has been served with about 100 lawsuits in several jurisdictions, principally in Texas, Maryland, Arizona, Colorado and New Jersey alleging damages as a result of leaks in certain polybutylene 11 plumbing systems. In most cases, DuPont is a codefendant with Shell, Hoechst- Celanese, and parts manufacturers. The polybutylene plumbing systems consist of flexible pipe extruded from polybutylene connected by fittings made from acetal. Shell Chemical is the sole producer of polybutylene; the acetals are provided by Hoechst-Celanese and DuPont. It is not known how many commercial and residential units nationwide have plumbing systems containing acetals manufactured by DuPont. During 1994, DuPont settled a majority of the Texas lawsuits in which it was a defendant. In these cases DuPont will provide up to $34 million to cover approximately 64,000 claims. DuPont has not been to trial in any case. Class certification was denied in February 1995 in a nationwide class action filed in state court in Houston, Texas. Other class actions have been filed in Arizona, New Jersey, Colorado and San Diego County, California. The total number of potential plaintiffs included in all class actions filed has not been determined at this time. Claims outside of litigation are handled by the Plumbing Claims Group, a nonprofit corporation formed and funded by Shell, Hoechst-Celanese and DuPont to carry out repairs to leaking polybutylene/acetal plumbing systems. The company's balance sheets reflect accruals for estimated costs associated with these matters. Adverse changes in estimates of such costs could result in additional future charges. On October 24, 1988, the Louisiana Department of Environmental Quality (LDEQ) issued a Compliance Order and Notice of Proposed Penalty to Conoco Inc. for alleged violations of the Louisiana Hazardous Waste Regulations. Following an inspection, LDEQ proposed a penalty of $165,000 for alleged violations related to the handling of by-product caustic and other refinery waste management practices. The company's legal counsel believes that the allegations are generally without factual basis, and that the penalty will be significantly reduced. On April 3, 1991, the Environmental Protection Agency (EPA) assessed a civil penalty of $1.3 million pursuant to a Complaint and Notice of Hearing alleging violations of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) in connection with the distribution of a company fungicide. The allegations arise out of the discovery that a herbicide may have been introduced inadvertently into some batches of the fungicide during formulation at contractor sites in 1988 and 1989. The company was made aware of the potential problem by complaints from growers and notified EPA in August 1989 that it was undertaking a voluntary recall of suspect batches. EPA issued a stop sale order in September 1989 accompanied by a formal request for a product recall. The company has reviewed its recall with EPA and they have expressed satisfaction with the company's efforts. DuPont has agreed to settle the EPA civil complaint on behalf of itself and two of its contractors for $1 million. The EPA has agreed to terminate its stop sale order and recall request with respect to the product. On June 28, 1991, DuPont entered into a voluntary agreement with the EPA to conduct an audit of the U.S. sites under the Toxic Substance Control Act (TSCA). Agreement participation is not an admission of TSCA noncompliance. Maximum stipulated penalties that DuPont could pay under the agreement are capped at $1 million. The first phase of the audit was completed, but no findings have been issued. Subject to the EPA's issuance of new reporting criteria (delayed since 1991), a second phase of the audit will begin. On October 18, 1991, the EPA issued an Administrative Order under the Resource Conservation and Recovery Act (RCRA) directing Conoco Pipeline Company (CPLC) to undertake specific remedial measures related to a former oil reprocessing facility in Converse County, Wyoming. CPLC contested the Administrative Order, and has taken voluntary measures at the site together with other interested parties. On February 19, 1993, the U.S. Department of Justice filed a lawsuit against 10 entities, including CPLC, to enforce the Order and collect penalties. CPLC has settled this matter with the U.S. Government, and that settlement has been approved by the Court. CPLC along with four other companies has agreed to a cleanup of this site which is estimated to cost between $4.4 million and $8.9 million and pay as a group $300,000 in civil penalties. CPLC's share of this settlement is approximately 8%. CPLC has proceeded against other parties to reduce its share of the settlement. 12 On October 15, 1993, the EPA filed a complaint in the U.S. District Court, Eastern District of Texas (Beaumont), against DuPont alleging various violations of the Clean Water Act at the Sabine River Works. Included were alleged unauthorized discharges, effluent limitation violations and monitoring and reporting violations under the plant's wastewater permit. On April 20, 1994, the government and DuPont reached a settlement in this action under the terms of which DuPont agreed to pay a civil penalty of $516,430 and to implement a Supplemental Environmental Project with an estimated cost to DuPont of $3.2 million. A Consent Order resolving the matter was entered by the District Court October 7, 1994. On December 21, 1993, Conoco's Denver refinery received a Notice of Violation from the EPA, Region VIII, and the Colorado Department of Health requesting a civil penalty of $169,500 in a dispute over proper scope and scheduling of certain RCRA on-site investigation activities. The investigation activities have previously been the subject of a settlement with the EPA and the Colorado Department of Health, and the work performed has been in compliance with such agreement in the opinion of company counsel. As such, it is anticipated that the fine will be significantly reduced pursuant to negotiations between the parties. On April 11, 1994, the Texas Natural Resource Conservation Commission (TNRCC) issued a Notice of Executive Director's Preliminary Report and Petition for a TNRCC Order assessing penalties of $122,640 for alleged violations at DuPont's Beaumont Works Plant of the Texas Solid Waste Disposal Act, the Texas Water Code and the applicable regulations. The matter has been resolved at the staff level through settlement. DuPont, without admitting the truth of any allegation, has agreed to pay a penalty of $90,000. On May 13, 1994, the EPA, Region II, filed an Administration Complaint seeking a $143,000 penalty alleging that DuPont's Deepwater, New Jersey, facility failed to file Emergency Planning Community Right-To-Know Act/Toxic Release Inventory report forms for two chemical substances. The parties settled the Administrative Complaint on December 5, 1994. Under the terms of the settlement the EPA withdrew one allegation and agreed to clarify the regulation supporting its remaining allegation. DuPont paid a penalty of $56,250 and agreed to conduct a Supplemental Environmental Project. On June 30, 1994, the California Department of Toxic Substances Control issued to DuPont's Antioch Works in Antioch, California, an Enforcement Order alleging violations of state hazardous waste regulations. The alleged violations center principally on the status of several tanks at the site. The Order would require DuPont to undertake certain remedial activities around the tanks and pay a fine of $200,000. DuPont has filed a Notice of Defense in the matter for a hearing before the Office of Administrative Hearings of the California Department of General Services. On July 1, 1994, the EPA issued a proposed Administrative Penalty Assessment to Conoco Inc. for alleged violations of the Clean Water Act related to wastewater discharges from Conoco's Lake Charles, Louisiana, refinery. The proposed Penalty Assessment sought a civil penalty of $125,000 for alleged discharge permit exceedences that occurred during the past five years. The company has reached agreement with the EPA on the wording of the Consent Agreement and Order assessing administrative penalties and has now resolved the matter with payment of a fine of $125,000. On July 15, 1994, Conoco's Denver, Colorado, refinery received a Notice of Violation (NOV) and Cease and Desist Order from the State of Colorado for violations of its state clean water permit. The NOV alleges twenty-one violations of effluent parameters and other permit conditions from January 1993 to the present. Although the State had indicated previously it would seek a penalty in excess of $100,000, Conoco has reached an agreement with the State to settle the alleged permit variances for payment of a fine of $30,000 and performance of two supplemental environmental projects (SEP). The estimated cost of the SEPs is around $150,000. On August 26, 1994, DuPont was advised by the Delaware Attorney General's office that it was seeking a civil penalty of $100,000 in connection with the accidental release on March 13, 1994, of low pH wastewater from a landfill waste pond containing waste from DuPont's Edge Moor, Delaware, titanium dioxide pigment 13 plant. DuPont and the State of Delaware have agreed to settle the matter for a payment of an Administrative Penalty of $50,000 and the donation of $25,000 worth of equipment to the Delaware State Emergency Response Team. The EPA filed on October 7, 1994, an administrative complaint against DuPont proposing to assess $1.9 million in civil penalties for distributing triazine herbicides with product labels that the EPA alleges were not in compliance with its new Worker Protection Standards. The labels were submitted to the EPA for approval in July 1993 and accepted by the EPA in November. However, in March of 1994, the EPA notified DuPont of alleged errors in the labels after most of the products had been shipped and were in the distribution chain. DuPont has cooperated with the EPA in making label changes and has issued supplemental labeling for all products that had been distributed. DuPont believes the proposed penalties are unwarranted and excessive and plans to contest or seek a substantial reduction of them. On January 31, 1995, DuPont received a Notice of Proposed Assessment of Civil Penalty from the Region III office of the EPA alleging various violations of the Clean Water Act at DuPont's Edge Moor Plant in Edge Moor, Delaware. The Proposed Assessment seeks a Class II administrative penalty of $121,000. The matter is under negotiation with the EPA. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list, as of March 7, 1995, of the company's executive officers.
EXECUTIVE OFFICER AGE SINCE --- --------- Chairman of the Board of Directors and Chief Executive Officer Edgar S. Woolard, Jr.(1)....................................... 60 1981 Vice Chairmen of the Board of Directors John A. Krol(1)................................................ 58 1987 Constantine S. Nicandros(1).................................... 61 1981 Other Executive Officers: Jerald A. Blumberg, Senior Vice President...................... 55 1990 Archie W. Dunham, Senior Vice President........................ 56 1985 Gary W. Edwards, Senior Vice President......................... 53 1991 Michael B. Emery, Senior Vice President........................ 56 1990 Charles L. Henry, Senior Vice President and Chief Financial Of- ficer......................................................... 53 1986 Charles O. Holliday, Jr., Senior Vice President................ 46 1992 Robert v.d. Luft, Senior Vice President........................ 59 1988 Robert E. McKee, III, Senior Vice President.................... 49 1992 Joseph A. Miller, Jr., Senior Vice President................... 53 1994 Stacey J. Mobley, Senior Vice President........................ 49 1992 Howard J. Rudge, Senior Vice President and General Counsel..... 59 1994
- -------- (1) Member of the Board of Directors. The Company's executive officers are elected or appointed for the ensuing year or for an indefinite term, and until their successors are elected or appointed. Each officer named above has been an officer or an executive of DuPont or its subsidiaries during the past five years. 14 PART II Information with respect to the following Items can be found on the indicated pages of Exhibit 13 if not otherwise included herein. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's common stock is listed on the New York Stock Exchange, Inc. (symbol DD) and certain non-U.S. exchanges. The number of record holders of common stock was 172,244 at December 31, 1994 and 171,207 at March 7, 1995.
PAGE(S) ------- Quarterly Financial Data: Dividends Per Share of Common Stock................................... 71 Market Price of Common Stock (High/Low)............................... 71
ITEM 6. SELECTED FINANCIAL DATA Five-Year Financial Review: Summary of Operations..................................................... 73 Financial Position at Year End............................................ 73 General................................................................... 73
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Letter to Stockholders.................................................. 1-4* Industry Segment Reviews: Chemicals............................................................. 16-17** Fibers................................................................ 18-19** Polymers.............................................................. 20-21** Petroleum............................................................. 22-25** Diversified Businesses................................................ 26-28** Management's Discussion and Analysis: Sales................................................................. 30 Earnings.............................................................. 30 Taxes................................................................. 30 Restructuring......................................................... 31 Cash Flows and Financial Condition.................................... 31-32 Financial Instruments................................................. 32-34 Environmental Matters................................................. 34-36
- -------- * Includes text of letter except for inserts and for chart on page 3 and references thereto. ** Each review starts with paragraph describing segment products and principal markets; information above such paragraph is excluded. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE(S) ------- Financial Statements: Report of Independent Accountants.................................... 38 Consolidated Income Statement for 1994, 1993 and 1992................ 39 Consolidated Balance Sheet as of December 31, 1994 and December 31, 1993................................................................ 40 Consolidated Statement of Stockholders' Equity for 1994, 1993 and 1992................................................................ 41 Consolidated Statement of Cash Flows for 1994, 1993 and 1992......... 42 Notes to Financial Statements........................................ 43-63 Supplemental Financial Information: Supplemental Petroleum Data: Oil and Gas Producing Activities................................... 64-70 Quarterly Financial Data and related notes for the following items for the two years 1994 and 1993: Sales................................................................ 71 Cost of Goods Sold and Other Expenses................................ 71 Net Income (Loss).................................................... 71 Earnings (Loss) Per Share of Common Stock............................ 71 Dividends Per Share of Common Stock.................................. 71 Market Price of Common Stock......................................... 71
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information with respect to the following Items is incorporated by reference to the pages indicated in the company's 1995 Annual Meeting Proxy Statement dated March 17, 1995, filed in connection with the Annual Meeting of Stockholders to be held April 26, 1995. However, information regarding executive officers is contained in Part I of this report (page 14) pursuant to General Instruction G of this form. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PAGE(S) ------- Election of Directors................................................... 4-8 Compliance With the Securities Exchange Act............................. 9 ITEM 11. EXECUTIVE COMPENSATION Compensation of Directors............................................... 2-3 Compensation and Stock Option Information............................... 12-13 Retirement Benefits..................................................... 14-15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Beneficial Ownership of Securities...................................... 8-9 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Election of Directors................................................... 4-8
16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Financial Statements (See listing at Part II, Item 8 of this report regarding financial statements, which are incorporated by reference to Exhibit 13.) 2. Financial Statement Schedules The following should be read in conjunction with the previously referenced Financial Statements: Financial Statement Schedules listed under SEC rules but not included in this report are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto incorporated by reference. Condensed financial information of the parent company is omitted because restricted net assets of consolidated subsidiaries do not exceed 25% of consolidated net assets. Footnote disclosure of restrictions on the ability of subsidiaries and affiliates to transfer funds is omitted because the restricted net assets of subsidiaries combined with the company's equity in the undistributed earnings of affiliated companies does not exceed 25% of consolidated net assets at December 31, 1994. Separate financial statements of affiliated companies accounted for by the equity method are omitted because no such affiliate individually constitutes a 20% significant subsidiary. 3. Exhibits The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Company's Certificate of Incorporation, as last amended December 22, 1989. 3.2 Company's Bylaws, as last revised November 24, 1993 (incorporated by reference to Exhibit 3.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1993). 4 The company agrees to provide the Commission, on request, copies of instruments defining the rights of holders of long-term debt of the company and its subsidiaries. 10.1 Amendment dated as of March 26, 1986 to, and restatement of, the Agreement dated as of October 2, 1981 between The Seagram Company Ltd. and the company (incorporated by reference to Exhibit 10.1 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.2* Company's Corporate Sharing Plan, as last amended August 28, 1991 (incorporated by reference to Exhibit 10.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.3* Company's Deferred Compensation Plan for Directors, as last amended November 21, 1986 (incorporated by reference to Exhibit 10.3 of the company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.4* Company's Supplemental Retirement Income Plan, as last amended effective October 1, 1991 (incorporated by reference to Exhibit 10.4 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.5* Company's Pension Restoration Plan, as last amended effective October 1, 1991 (incorporated by reference to Exhibit 10.5 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.6* Retirement Restoration Plan of Conoco Inc., as last amended effective December 1, 1994.
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 17
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7* Company's Stock Performance Plan, as last amended effective September 28, 1994 (incorporated by reference to Exhibit 10.7 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.8* Company's Variable Compensation Plan, as last amended effective November 24, 1993, reflecting changes approved by the Board on that date for Shareholder approval on April 27, 1994 (incorporated by reference to Exhibit 10.8 of the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994). 10.9* Company's Salary Deferral & Savings Restoration Plan effective April 26, 1994 (incorporated by reference to Exhibit 10.9 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 11 Statement re computation of earnings per share--assuming full dilution. 12 Statement re computation of the ratio of earnings to fixed charges (includes information concerning average outstanding borrowings and interest rates). 13 The 1994 "Letter to Stockholders," Business Review Section, and Financial Information Section of the Annual Report to Shareholders for the year ended December 31, 1994, which are furnished to the Commission for information only, and not filed except as expressly incorporated by reference in this Report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants.
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. (b) Reports on Form 8-K The following Current Report on Form 8-K was filed during the quarter ended December 31, 1994. (1) On October 26, 1994, a Current Report on Form 8-K was filed in connection with Debt Securities that may be offered on a delayed or continuous basis under its Registration Statements on Form S-3 (No. 33- 48128 and No. 33-53327). Under Item 7, "Financial Statements and Exhibits," the Registrant's Earnings Press Release, dated October 26, 1994 was filed. 18 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED AND IN THE CAPACITIES INDICATED, ON THE 20TH DAY OF MARCH, 1995. E. I. DU PONT DE NEMOURS AND COMPANY (Registrant) C. L. Henry By______________________________________ C. L. HENRY SENIOR VICE PRESIDENT-- DUPONT FINANCE (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED ON THE 20TH DAY OF MARCH 1995, BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES INDICATED: CHAIRMAN AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER): E. S. Woolard, Jr. - ------------------------- E. S. WOOLARD, JR. VICE CHAIRMAN AND VICE CHAIRMAN AND DIRECTOR: DIRECTOR: J. A. Krol C. S. Nicandros - ------------------------- ------------------------- J. A. KROL C. S. NICANDROS DIRECTORS: P. N. Barnevik L. C. Duemling H. R. Sharp, III - ------------------------- ------------------------- ------------------------- P. N. BARNEVIK L. C. DUEMLING H. R. SHARP, III A. F. Brimmer E. B. Du Pont C. M. Vest - ------------------------- ------------------------- ------------------------- A. F. BRIMMER E. B. DU PONT C. M. VEST C. R. Bronfman C. M. Harper J. L. Weinberg - ------------------------- ------------------------- ------------------------- C. R. BRONFMAN C. M. HARPER J. L. WEINBERG E. M. Bronfman M. P. MacKimm - ------------------------- ------------------------- E. M. BRONFMAN M. P. MACKIMM E. Bronfman, Jr. W. K. Reilly - ------------------------- ------------------------- E. BRONFMAN, JR. W. K. REILLY 19 E. I. DU PONT DE NEMOURS AND COMPANY INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Company's Certificate of Incorporation, as last amended December 22, 1989. 3.2 Company's Bylaws, as last revised November 24, 1993 (incorporated by reference to Exhibit 3.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1993). 4 The company agrees to provide the Commission, on request, copies of instruments defining the rights of holders of long-term debt of the company and its subsidiaries. 10.1 Amendment dated as of March 26, 1986 to, and restatement of, the Agreement dated as of October 2, 1981 between The Seagram Company Ltd. and the company (incorporated by reference to Exhibit 10.1 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.2* Company's Corporate Sharing Plan, as last amended August 28, 1991 (incorporated by reference to Exhibit 10.2 of the company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.3* Company's Deferred Compensation Plan for Directors, as last amended November 21, 1986 (incorporated by reference to Exhibit 10.3 of the company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.4* Company's Supplemental Retirement Income Plan, as last amended effective October 1, 1991 (incorporated by reference to Exhibit 10.4 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.5* Company's Pension Restoration Plan, as last amended effective October 1, 1991 (incorporated by reference to Exhibit 10.5 of the company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.6* Retirement Restoration Plan of Conoco Inc., as last amended effective December 1, 1994. 10.7* Company's Stock Performance Plan, as last amended effective September 28, 1994 (incorporated by reference to Exhibit 10.7 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.8* Company's Variable Compensation Plan, as last amended effective November 24, 1993, reflecting changes approved by the Board on that date for Shareholder approval on April 27, 1994 (incorporated by reference to Exhibit 10.8 of the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994). 10.9* Company's Salary Deferral & Savings Restoration Plan effective April 26, 1994 (incorporated by reference to Exhibit 10.9 of the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 11 Statement re computation of earnings per share--assuming full dilution. 12 Statement re computation of the ratio of earnings to fixed charges (includes information concerning average outstanding borrowings and interest rates). 13 The 1994 "Letter to Stockholders," Business Review Section, and Financial Information Section of the Annual Report to Shareholders for the year ended December 31, 1994, which are furnished to the Commission for information only, and not filed except as expressly incorporated by reference in this Report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants.
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. EX-3.1 2 CHARTER OF E. I. DU PONT DE NEMOURS AND COMPANY EXHIBIT 3.1 CHARTER of E. I. DU PONT DE NEMOURS AND COMPANY ------------------------------------ DUPONT Incorporated Under The Laws of Delaware CHARTER of E. I. DU PONT DE NEMOURS AND COMPANY DUPONT Incorporated Under The Laws of Delaware AUTHORIZED CAPITAL Preferred Stock .............................. 23,000,000 Shares No. Par Value Common Stock ................................. 900,000,000 Shares $.60 Par Value ------------------------- Original Certificate Filed September 4, 1915 Certificate of Amendment Filed December 4, 1922 Certificate of Amendment Filed June 19, 1925 Certificate of Amendment Filed October 27, 1926 Certificate of Amendment Filed January 19, 1929 Certificate of Amendment Filed April 23, 1934 Certificate of Amendment Filed June 18, 1937 Certificate of Amendment Filed September 29, 1939 Certificate of Amendment Filed March 15, 1940 Certificate of Amendment Filed March 10, 1942 Certificate of Change of Resident Agent Filed April 23, 1946 Certificate of Amendment Filed April 25, 1947 Certificate of Change of Resident Agent Filed May 23, 1947 Certificate of Amendment Filed June 15, 1949 Certificate of Amendment Filed July 6, 1955 Certificate of Change of Resident Agent Filed July 6, 1955 Certificate of Amendment Filed November 13, 1957 Certificate of Change of Resident Agent Filed June 19, 1963 Certificate of Change of Resident Agent Filed September 21, 1966 Certificate of Amendment Filed April 8, 1968 Certificate of Amendment Filed April 13, 1970 Certificate of Amendment Filed April 8, 1974 Agreement of Merger Amending Certificate of Incorporation Filed October 17, 1977 Certificate of Amendment Filed April 16, 1979 Certificate of Amendment Filed April 21, 1980 Certificate of Amendment Filed August 17, 1981 Certificate of Amendment Filed May 4, 1987 Certificate of Amendment Filed December 21, 1989 Restated Certificate Filed December 22, 1989 E. I. DU PONT DE NEMOURS AND COMPANY RESTATED CERTIFICATE OF INCORPORATION E. I. du Pont de Nemours and Company, a corporation organized and existing under the Laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is E. I. du Pont de Nemours and Company. The date of filing its original Certificate of Incorporation with the Secretary of State was September 4, 1915. 2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full. First: -- The name of the corporation is E. I. DU PONT DE NEMOURS AND COMPANY Second: -- The principal office of the corporation is to be located at No. 1007 Market Street, in the City of Wilmington, in the County of New Castle, in the State of Delaware. The name of its resident agent is E. I. du Pont de Nemours and Company, whose address is Room 8042, DuPont Building, No. 1007 Market Street, in the City of Wilmington, County of New Castle, State of Delaware 19898. Third: -- The nature of the business of the corporation and the objects and purposes proposed to be transacted, promoted or carried on by it, are as follows: (a) To manufacture, produce, prepare, experiment with, purchase, and otherwise acquire, import, export, sell, distribute, and otherwise dispose of, and generally to trade and deal in, in any manner whatsoever, (1) chemicals of every description, organic or inorganic, natural or synthetic, in the form of raw materials, intermediates, or finished products, and chemicals which may be used in the manufacture of any and all products of every kind whatsoever; and (2) chemical products of every kind and description. - 1 - (b) To engage in research, exploration, laboratory and development work relating to any substance, compound or mixture, now known or which may hereafter be known, discovered or developed, and to perfect, develop, manufacture, use, apply and generally deal in any such substance, compound or mixture. (c) To purchase or otherwise acquire, hold, own, occupy, develop, improve, sell, dispose of and convey real property and any and every interest therein either within or without the State of Delaware and anywhere in the world; to extract, remove, produce or prepare from any such property any animal, vegetable, mineral or other product or material therein or thereon, either by agricultural pursuits, mining, quarrying, or by any other method or means now know or that may hereafter be discovered or invented, and to avail itself in every manner of each and every resource of such property by reducing it to proper form and by use, sale or other disposition thereof. (d) To erect, purchase, sell, lease, manage, occupy and improve buildings and to do and perform all things needful and lawful for the holding, development and improvement of the same for residence, trade and business purposes; to buy, own, operate, improve, lease and occupy, lands and buildings for hotels, apartment houses, dwelling houses, and business structures of all kinds, for the accommodation of the public and of individuals; to manage, operate, conduct, and carry on, hotels, apartment houses, dwelling houses, office buildings, restaurants, cafes, pharmacies, drug stores, theaters, and other places for the accommodation of the public and of individuals. (e) To manufacture, acquire, own, sell or otherwise dispose of all kinds of goods, merchandise and personal property of every nature whatsoever either within or without the State of Delaware and anywhere in the world. (f) To engage in all kinds of business, including the following but without excluding others: All manufacturing, milling, mining, quarrying, building, construction and industrial works and operations; development and utilization of every kind of power; the acquirement, construction, use, operation, sale and other disposition of all kinds of machinery, plants, factories, warehouses, elevators, buildings and other structures, bridges, wharves, docks, slips, dams, power works, water works, boats, ships, engines, cars, equipment and appliances, whether in connection with said business or other- wise, and generally the utilization of all instrumentalities, methods, processes and appliances, in all ways and by all means now known or which may hereafter be discovered or invented. - 2 - (g) To apply for, obtain, register, purchase, lease or otherwise to acquire, and to hold, use, own, operate and introduce, and to sell, assign or otherwise to dispose of any trademarks, trade names, brands, copyrights, concessions, patents, inventions, formulae, improvements and processes used in connection with or secured under letters patent of the United States, or any other country, or otherwise, and to use, exercise, develop, grant licenses in respect of, or otherwise to turn to account any such trademarks, copyrights, concessions, patents, licenses, processes and the like, or any such property or rights. (h) To subscribe or cause to be subscribed for, and to purchase or otherwise acquire, hold for investment, or otherwise, sell, assign, transfer, mortgage, pledge, exchange, distribute or otherwise dispose of the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, evidences of indebtedness, notes, goodwill, rights, assets and property of any and every kind whatsoever, or any part thereof of itself or any other corporation or corporations, stock companies, association or associations, now or hereafter existing, and whether created by or under the laws of the State of Delaware, or of any other state, district, territory or colony of the United States, or any other country or otherwise, and to use, operate, manage and control such properties or any of them, either in the name of such other corporation or corporations, stock company or association, or in the name of this corporation, and while owners of any of said shares of capital stock or bonds or other property to exercise all the rights, powers and privileges of ownership of every kind and description, including the right to vote thereon, with power to designate some person for that purpose from time to time to the same extent as natural persons might or could do. (i) To endorse, guarantee and secure the payment and satisfaction of the bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, evidences of indebtedness, and shares of the capital stock of other corporations, and also to guarantee and secure the payment or satisfaction of dividends on shares of the capital stock of other corporations; also to undertake the whole or any part of the assets and liabilities, existing or prospective, of any person, firm or association, also to procure any other person or corporation to assume any such obligation or obligations. (j) Without in any particular limiting any of the objects and powers of the corporation, it is hereby expressly declared and provided that the corporation shall have power to do all the - 3 - things hereinbefore enumerated, and also to issue or exchange stock, bonds and other obligations in payment for property purchased or acquired by it, or for any other object in or about its business; to borrow money without limit; to mortgage or pledge its franchises, real or personal property, income and profits accruing to it, any stocks, bonds or other obligations, or any property which may be acquired by it; to secure any bonds or other obligations by it issued or incurred; to guarantee any dividends, or bonds, or contracts, or other obligations; to make and perform contracts of any kind and description, and in carrying on its business, or for the purpose of attaining or furthering any of its objects, to do any and all other acts and things, and to exercise any and all other powers which a co-partnership or natural person could do and exercise, and which now or hereafter may be authorized by law in any part of the world. (k) To carry on any business whatsoever which the corporation may deem proper or convenient in connection with any of the foregoing purposes or otherwise, or which may be calculated directly or indirectly to promote the interests of the corporation or to enhance the value of its property; and it is the purpose of the corporation from time to time to do any one or more of the acts and things herein set forth; and it may conduct its business in other states, in the territories, the District of Columbia, the colonies and dependencies and in foreign countries and places;it may have one office or more than one office and keep the books of the company outside the State of Delaware, except as otherwise provided by law. Fourth: -- The total authorized stock of the corporation is as follows: The total number of shares of all classes of stock which the corporation shall have authority to issue shall be Nine Hundred Twenty-Three Million (923,000,000), of which Twenty-Three Million (23,000,000) shares shall be Preferred Stock without par value and Nine Hundred Million (900,000,000) shares shall be Common Stock having a par value of Sixty Cents ($0.60) each. I. The Preferred Stock may be issued from time to time in one or more series, each of such series to have such designa- tion, preferences and relative, optional or other rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein, or in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided. - 4 - II. (a) The 1,688,850 shares of the corporation's Preferred Stock issued and outstanding on April 25, 1947, shall constitute a series of Preferred Stock, designated as "Preferred Stock - $4.50 Series" (hereinafter sometimes called the "$4.50 Series Stock"). The Board of Directors may from time to time authorize the issuance of additional shares of Preferred Stock as $4.50 Series Stock. (b) The shares of $4.50 Series Stock shall bear dividends at the rate of Four Dollars and Fifty Cents ($4.50) per annum from and after April 25, 1947, provided, however, that any shares of said Series issued after April 25, 1947 shall bear dividends from and after such date or dates as the Board of Directors from time to time may determine. (c) In the event of any liquidation or dissolution or winding-up of the corporation, whether voluntary or involuntary, the Preferred Stock - $4.50 Series shall entitle the holders thereof to be paid, in the event of any involuntary liquidation or dissolution or winding-up of the corporation, One Hundred Dollars ($100.00) per share with all unpaid accumulated dividends thereon to the date of such payment or, in the event of any voluntary liquidation or dissolution or winding-up of the corporation, One Hundred Fifteen Dollars ($115.00) per share with all unpaid accumulated dividends thereon to the date of such payment. (d) The Preferred Stock - $4.50 Series shall be subject to redemption on or before April 25, 1952 at One Hundred Twenty-Five Dollars ($125.00) per share and accumulated dividends thereon to the date of redemption, and thereafter at One Hundred Twenty Dollars ($120.00) per share and accumulated dividends thereon to the date of redemption, upon the terms and in the manner as hereinafter provided. III. Authority is hereby expressly granted to the Board of Directors of the corporation, subject to the provisions of this Article FOURTH, to authorize the issue of one or more series of Preferred Stock in addition to the $4.50 Series and with respect to each such series to fix by resolution or resolutions providing for the issue of such series: (a) The number of shares to constitute such series and the distinctive designation thereof; - 5 - (b) The dividend rate on the shares of such series and the date or dates from which dividends shall accumulate; (c) The amount per share over and above any accumulated dividends thereon which the shares of such series shall be entitled to receive upon redemption; (d) The amount per share over and above accumulated dividends which such series shall be entitled to receive (1) upon involuntary liquidation or dissolution or winding-up of the corporation, which amount shall not exceed $100.00 a share, and (2) upon voluntary liquidation or dissolution or winding-up of the corporation; and (e) The rights, if any, which the shares of such series may have for conversion into shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation. All shares of any one series of Preferred Stock shall be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which the initial dividends thereon shall accumulate; and all series shall rank equally and be identical in all respects, except as permitted in the foregoing provisions of this Section III. IV. The Preferred Stock shall entitle the holders thereof to receive, when and as declared from the surplus or net earnings of the corporation, cumulative dividends, payable quarterly on such dates as the Board of Directors may determine, at the rates fixed herein or fixed by the Board of Directors for the respective series, as herein provided, and no more, which dividends shall be paid or set apart before any dividend shall be set apart or paid on the Common Stock. The dividend payment dates for all series of Preferred Stock shall be the same and no dividends shall be declared on any series in respect of any quarterly dividend payment unless there shall likewise be or have been declared on all shares of Preferred Stock of each other series at the time outstanding like proportionate dividends ratably in proportion to the respective annual dividend rates fixed therefor. V. In the event of any liquidation or dissolution or winding-up of the corporation, whether voluntary or involuntary, the Preferred Stock shall entitle the holders thereof to be paid the amounts fixed herein or fixed by the Board of Directors for - 6 - the respective series as herein provided, including all unpaid accumulated dividends thereon to the date of such payment, before any amount shall be paid to the holders of the Common Stock of the corporation. Such payments to the holders of the Preferred Stock shall be made without preference or priority of one series over any other series and shall be made before any amount shall be paid to the holders of the Common Stock. If the assets of the corporation distributable upon any such liquidation or dissolu- tion or winding-up of the corporation shall be insufficient to permit the payments to the holders of the Preferred Stock of the full amounts above provided for, including an amount equivalent to all unpaid accumulated dividends as aforesaid, the said assets shall be allocated to the respective series of Preferred Stock in the ratios that such aggregate liquidation value of the issued shares of each series bears to the aggregate liquidation value of the issued shares of all series of Preferred Stock as fixed for the respective series of Preferred Stock in the Certificate of Incorporation or in the resolution or resolutions of the Board of Directors providing for the issuance of the respective series, and shall be distributed among the holders of the respective series of Preferred Stock according to their respective shares. VI. The Preferred Stock of any series shall be subject to redemption at any time in whole or in part at the amount fixed herein, or fixed by the Board of Directors as herein provided, for the redemption of such series including an amount equivalent to all unpaid accumulated dividends thereon, upon not less than sixty days' notice addressed to the respective holders of record of the stock to be redeemed at their addresses as the same shall appear on the stock transfer records of the corporation in such manner as the Board of Directors shall determine. VII. The holders of the Preferred Stock shall have no voting power on any questions whatsoever except as otherwise provided by law, and except that in the event that the corporation shall fail to pay any dividend on the Preferred Stock when it regularly becomes due and such default shall continue for the period of six (6) months, then until but not after such time as accumulated and unpaid dividends on all outstanding Preferred Stock of all series shall have been paid, the holders of the outstanding Preferred Stock shall have the exclusive right, voting separately and as a class, to elect two directors or, if the total number of directors of the corpora- tion be only three, then only one director, at each meeting of the stockholders of the corporation held for the purpose of electing directors. At all meetings of stockholders held for the purpose of electing directors at which the holders of - 7 - Preferred Stock shall have the exclusive right, voting separately and as a class, to elect any directors as aforesaid, the presence in person or by proxy of the holders of a majority of the outstanding shares of Preferred Stock shall be required to constitute a quorum of such class for the election of any directors by holders of Preferred Stock, as a class, provided, however, that the absence of a quorum of the holders of Preferred Stock shall not prevent the election at any such meeting or adjournment thereof of the remaining directors for whose election a class vote of the holders of Preferred Stock is not required, if the necessary quorum of the stockholders entitled to vote in the election of such remaining directors is present in person or by proxy in accordance with the by-laws of the corporation; and provided further, that in the absence of a quorum of the holders of Preferred Stock, a majority of those holders of such Preferred Stock who are present in person or by proxy shall have power to adjourn the election of those directors to be elected by their class from time to time without notice other than announcement at the meeting until the requisite amount of holders of Preferred Stock shall be present in person or by proxy. The holders of Common Stock shall have the right to vote on all questions to the exclusion of all other stockholders except as hereinbefore specifically stated. VIII. Whenever, at any time, full accumulated dividends as aforesaid for all past dividend periods and for the current dividend period shall have been paid, or declared and set apart for payment, on the then outstanding Preferred Stock, the Board of Directors may declare dividends on the Common Stock of the corporation. IX. Upon any liquidation or dissolution or winding-up of the corporation, whether voluntary or involuntary, the assets and funds of the corporation remaining, after the payments have been made to the holders of the Preferred Stock, as provided in Section V hereof, shall be divided and paid to the holders of the Common Stock according to their respective shares. X. From time to time the Preferred Stock or the Common Stock may be increased according to law. XI. From time to time the Preferred Stock and the Common Stock may be issued in such amounts and proportions and for such consideration as may be fixed by the Board of Directors, or, in the case of Common Stock issued upon the exercise of the options referred to in Section XIII hereof, as provided in such Section. - 8 - XII. No stockholder of the corporation, of whatever class or series, shall have any preemptive or preferential right of subscription to any shares of any series of the Preferred Stock of the corporation, authorized hereunder or under any amendment hereof, or to any obligations convertible into said Preferred Stock of any series of the corporation, issued or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors of the corporation in its discretion from time to time may determine, and the Board of Directors may issue said Preferred Stock of any series of the corporation, or obligations convertible into said Preferred Stock of any series, without offering said Preferred Stock, or said obligations, either in whole or in part, to any stockholders of the corporation. No holder of any shares of the Preferred Stock of any series of the corporation shall have any preemptive or preferen- tial right of subscription to any shares of stock of any class of the corporation, or to any obligations convertible into shares of stock of any class of the corporation, issued or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors of the corporation in its discretion from time to time may determine. XIII. The Board of Directors may create and issue to employees (including officers and directors) of this corpora- tion, or of any corporation in which this corporation shall directly or indirectly own fifty percent or more of the voting stock, options to purchase the corporation's Common Stock in accordance with the terms of any duly adopted compensation plan. The sales of stock so optioned may be unissued, or issued and reacquired shares of Common Stock of the corporation, as shall be determined by the Board of Directors, and the Board shall have power to take all action necessary and appropriate in connection with any such issuance or sale of shares. The options shall be evidenced by such instruments as shall be approved by the Board of Directors. The terms upon which, the time or times at or within which, and the consideration for which such options may be issued, and for which any shares of stock may be issued or sold by the corporation upon the exercise of such options, shall be such as shall be stated in the resolution or resolutions adopted by the Board of Directors providing for the creation and issuance of such options and, in every case, set forth or incorporated by reference in the instrument or instruments evidencing such options. The judgment of the Board of Directors as to the consideration and suffi- ciency thereof for the issuance of such options and for the issuance or sale of stock pursuant to the exercise thereof shall be conclusive. - 9 - Any standing committee duly designated by resolution passed by a majority of the whole Board of Directors and consisting of two or more of the directors, shall have and may exercise any or all of the rights, powers and functions of the Board of Directors specified in this Section XIII, or otherwise pertain- ing to any duly adopted compensation plan, to the extent provided in a resolution passed by a majority of the whole Board or in the By-Laws of the corporation. XIV. The amount of capital stock with which this corporation will commence business is Seventy-Five Hundred Dollars ($7,500). Fifth: -- The names and places of residence of each of the original subscribers to the capital stock and the number of shares subscribed for by each are as follows: Number Name Residence of Shares ----------------- ------------------- --------- Pierre S. du Pont Christiana Hundred, Delaware 25 John J. Raskob Brandywine Hundred, Delaware 25 John P. Laffey Wilmington, Delaware 25 Sixth: -- The corporation is to have perpetual existence. Seventh: -- The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. Eighth: -- The number of the directors of the corporation shall be fixed from time to time by the by-laws and the number may be increased or decreased as therein provided. In case of any increase in the number of directors the additional directors shall be elected as provided by the By-Laws by the directors or by the stockholders at an annual or special meeting. In case of any vacancy in the Board of Directors for any cause the remaining Directors by affirmative vote of a majority of the whole Board of Directors may elect a successor to hold office for the unexpired term of the Director whose place is vacant and until the election of his successor. - 10 - In furtherance, but not in limitation of the powers conferred by law, the Board of Directors are expressly authorized: (a) To hold their meetings outside of the State of Delaware at such places as from time to time may be designated by the By-Laws or by resolution of the Board. The By-Laws may prescribe the number of directors necessary to constitute a quorum of the Board of Directors, which number may be less than a majority of the whole number of directors. (b) To appoint the regular officers of the corporation, and such other officers as they may deem necessary for the proper conduct of the business of the Company. (c) To remove at any time any officer elected or appointed by the Board of Directors but only by the affirmative vote of a majority of the whole Board of Directors. (d) To remove any other officer or employee of the corporation or to confer such power on any committee or superior officer of the corporation, unless such removals are otherwise regulated by the By-Laws. (e) To appoint standing committees by the affirmative vote of a majority of the whole Board, and such standing committees shall have and may exercise such powers as shall be conferred or authorized by the By-Laws. (f) To issue the stock of every class in such amounts and proportions as they may determine up to the total amount of the authorized capital stock or any increase thereof, subject, however, to the provisions of this certificate. (g) From time to time to fix and determine and to vary the sum to be reserved over and above its capital stock paid in as working capital before declaring any dividends among its stock- holders; to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in; to fix the time of declaring and paying any dividend, and, unless otherwise provided in the By-Laws, to determine the amount of any dividend. All sums reserved as working capital or otherwise may be applied from time to time to the acquisition or purchase of its bonds or other obligations or shares of its own capital stock or other property to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient, and neither the stock, bonds or other property so acquired shall be regarded as accumulated profits for the purpose of declaring or paying dividends unless otherwise - 11 - determined by the Board of Directors, but shares of such capital stock so purchased or acquired may be resold, unless such shares shall have been retired for the purpose of decreasing the Company's capital stock as provided by law. (h) From time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the corporation, or any of them, shall be open to the inspection of the stock- holders, and no stockholders shall have any right to inspect any account or book or document of the corporation, except as conferred by statute or authorized by the Board of Directors or by a resolution of the stockholders. (i) Subject always to By-Laws made by the stockholders, to make By-Laws; and, from time to time, to alter, amend or repeal any By-Laws; but any By-Laws made by the Board of Directors may be altered or repealed by the stockholders at any annual meeting, or at any special meeting, provided notice of such proposed alteration or repeal be included in the notice of the meeting. (j) With the written assent, without a meeting of the holders of two-thirds of its stock, or pursuant to the affirmative vote, in person or by proxy, at any meeting called as provided in the By-Laws, of the holders of two-thirds of its stock, issued and outstanding, the Board of Directors may sell, convey, assign, transfer or otherwise dispose of, the property, assets, rights and privileges of the corporation as an entirety, for such consideration and on such terms as they may determine. Ninth: -- A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law of Delaware is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the full extent permitted by the General Corporation Law of Delaware, as so amended. - 12 - Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation exist- ing at the time of such repeal or modification. 4. This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. 5. This Restated Certificate of Incorporation shall be effective at 5:00 p.m. Eastern Standard Time on December 22, 1989. IN WITNESS WHEREOF, said E. I. du Pont de Nemours and Company has caused this certificate to be signed by John F. Schmutz, its Senior Vice President and General Counsel, and attested by Roger W. Arrington, its Secretary, this 21st day of December, 1989. E. I. DU PONT DE NEMOURS AND COMPANY By: JOHN F. SCHMUTZ ---------------------------------------- Senior Vice President and General Counsel ATTEST: By: R. W. Arrington ------------------------- Secretary I hereby certify that the within and foregoing is a true and correct copy of the Restated Certificate of Incorporation of E. I. du Pont de Nemours and Company. Witness my hand and the corporate seal of the Company this day of 19 . ------------------------- Secretary - 13 - PREFERRED STOCK - $3.50 SERIES Certificate Authorizing the Issue of Preferred Stock - $3.50 Series Filed April 30, 1947 Certificate Decreasing the Number of Authorized Shares of Preferred Stock - $3.50 Series Filed July 6, 1955 - 14 - CERTIFICATE SETTING FORTH COPY OF RESOLUTION OF THE BOARD OF DIRECTORS OF E. I. DU PONT DE NEMOURS AND COMPANY ESTABLISHING AND AUTHORIZING THE ISSUE OF A NEW SERIES OF PREFERRED STOCK DESIGNATED "PREFERRED STOCK - $3.50 SERIES" (Pursuant to Section 13 of the General Corporation Law of the State of Delaware and of the Certificate of Incorporation, as amended, of E. I. du Pont de Nemours and Company) - -------------------------------------------------------------------------------- We, W. J. Beadle, a Vice-President, and W. F. Raskob, Secretary, of E. I. du Pont de Nemours and Company, a corporation of the State of Delaware, do hereby certify under the seal of said Corporation as follows: That at a special meeting of the Board of Directors of the Corporation duly called for the consideration of the resolutions hereinafter set forth and on notice thereof duly given in accordance with the By-Laws of the Corporation and with the laws of the State of Delaware, and held on April 29, 1947, and pursuant to power and authority expressly vested in the Board of Directors by the provisions of the General Corporation Law of the State of Delaware and Article FOURTH of the Certificate of Incorporation, as amended, of E. I. du Pont de Nemours and Company, the Board of Directors duly adopted the following resolutions: "RESOLVED that the Board of Directors hereby establishes and authorizes the issue of a new series of Preferred Stock without par value of the corporation and hereby fixes the designation, the number of shares to be issued, the dividend rate, the redemption price and the amount payable upon liquidation or dissolution or winding-up of the corporation with respect to such new series of Preferred Stock without par value as follows, such attributes to be in addition to the other provisions set forth in Article Fourth of the Certificate of Incorporation as amended, which are applicable to all shares of Preferred Stock without par value irrespective of any variations between the shares of Preferred Stock without par value of the different series: (a) The new series of Preferred Stock without par value established by this resolution is hereby designated Preferred Stock - $3.50 Series; - 15 - (b) Preferred Stock - $3.50 Series be and hereby is authorized to be issued in the amount of 1,000,000 shares; (c) The dividend rate on the Preferred Stock - $3.50 Series shall be $3.50 per share per annum and no more, and dividends on the 1,000,000 shares of Preferred Stock - $3.50 Series herein authorized to be issued shall accumulate from and after April 25, 1947; (d) The amount per share over and above any accumulated dividends thereon which the shares of Preferred Stock - $3.50 Series shall be entitled to receive upon redemption is as follows: if redeemed on or before April 25, 1952, $107.00 a share; thereafter on or before April 25, 1955, $106.00 a share; thereafter on or before April 25, 1958, $105.00 a share; thereafter on or before April 25, 1961, $104.00 a share; thereafter on or before April 25, 1964, $103.00 a share; and thereafter, $102.00 a share; and (e) The amount per share over and above accumulated dividends which the shares of Preferred Stock - $3.50 Series shall be entitled to receive upon involuntary liquidation or dissolution or winding-up of the corporation is $100.00 a share, and upon voluntary liquidation or dissolution or winding-up of the corporation is $107.00 a share. FURTHER RESOLVED that a certificate setting forth a copy of the foregoing resolution providing for the establishment and issue of 1,000,000 shares of Preferred Stock - $3.50 Series shall be made under the seal of the corporation, signed by the President or a Vice-President and by the Secretary or an Assistant Secretary of the corporation, acknowledged by such President or Vice-President before an officer authorized by the laws of Delaware to take acknowledg- ments of deeds, and shall be filed and a copy thereof shall be recorded pursuant to and in the manner provided pursuant to and in the manner provided by Section 13 of the Delaware Corporation Law." - 16 - IN WITNESS WHEREOF, we have hereunto signed this certificate and have caused the corporate seal of the Corporation to be hereunto affixed this 29th day of April, A.D. 1947. E. I. DU PONT DE NEMOURS AND COMPANY By: W. J. Beadle Vice-President Attest: W. F. Raskob Secretary - ------------------------------------ E. I. DU PONT DE NEMOURS AND CO. FOUNDED 1802 SEAL DELAWARE - ------------------------------------ - 17 - STATE OF DELAWARE } ss COUNTY OF NEW CASTLE } BE IT REMEMBERED, that on this 29th day of April, A.D. 1947, before the subscriber, a Notary Public in and for the State and County aforesaid, authorized by the laws of Delaware to take acknowledgments of deeds, personally appeared W. J. Beadle, Vice-President of E. I. du Pont de Nemours and Company, the Corporation mentioned in and which executed the foregoing Certificate, known to me personally to be such, and he, the said W. J. Beadle, as such Vice-President, acknowledged the said Certificate to be his act and deed and the act and deed of said Corporation, and that the seal thereto affixed is the common and corporate seal of said Corporation duly affixed by its authority, and that his act of executing, acknowledging and delivering said Certificate was duly authorized by the Board of Directors of said Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this Certificate above written. J. H. CASSIDY Notary Public - -------------------------- J. H. CASSIDY Notary Public Appointed July 3, 1946 For Two Years Delaware - -------------------------- - 18 - CERTIFICATE SETTING FORTH COPY OF RESOLUTION OF THE BOARD OF DIRECTORS OF E. I. DU PONT DE NEMOURS AND COMPANY DECREASING THE AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK - $3.50 SERIES FROM ONE MILLION SHARES TO SEVEN HUNDRED THOUSAND SHARES (Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, as amended, of E. I. du Pont de Nemours and Company) - -------------------------------------------------------------------------------- We, L. du P. Copeland, a Vice-President, and F. G. Hess, Assistant Secretary, of E. I. du Pont de Nemours and Company, a corporation of the State of Delaware, DO HEREBY CERTIFY under the seal of said Corporation as follows: That at a meeting of the Board of Directors of the Corporation duly called, and held on the 20th day of June, 1955, in accordance with the By-Laws of the Corporation and with the laws of the State of Delaware, and pursuant to power and authority expressly vested in the Board of Directors by the provisions of the General Corporation Law of the State of Delaware and Article Fourth of the Certificate of Incorporation, as amended, of E. I. du Pont de Nemours and Company, the Board of Directors duly adopted the following resolution: "RESOLVED, by the Board of Directors of this Company that pursuant to authority expressly vested in it by the provisions of this Company's Certificate of Incorporation, as amended, the Series of 1,000,000 shares of Preferred Stock, without par value, designated 'Preferred Stock - $3.50 Series' (provided for in a resolution of the Board of Directors of this Company adopted April 29, 1947 and a certificate therefor duly filed and a copy thereof duly recorded) shall be and stand decreased by 300,000 shares of said 'Preferred Stock - $3.50 Series,' that have been duly retired and are not now outstanding, to 700,000 shares thereof by a certificate hereby authorized and directed to be made, signed, acknowledged and filed, and a copy thereof recorded in accordance with the provisions of Title 8, Section 151 of the Revised Code of Delaware of 1953, setting forth a statement that a decrease in said Series of 1,000,000 shares of 'Preferred Stock - $3.50 Series' by 300,000 shares thereof not now outstanding, to 700,000 - 19 - shares of said 'Preferred Stock - $3.50 Series' without par value, had been authorized and directed by a resolution duly adopted by the Board of Directors of this Company on the 20th day of June 1955." IN WITNESS WHEREOF, we have hereunto signed this certifi- cate and have caused the corporate seal of the Corporation to be hereunto affixed this 20th day of June, A.D. 1955. E. I. DU PONT DE NEMOURS AND COMPANY By: L. DU P. COPELAND Vice-President Attest: F. G. HESS Asst. Secretary - ------------------------------------ E. I. DU PONT DE NEMOURS AND CO. FOUNDED 1802 SEAL DELAWARE - ------------------------------------ - 20 - STATE OF DELAWARE } ss COUNTY OF NEW CASTLE } BE IT REMEMBERED, that on this 20th day of June, A.D. 1955, before the subscriber, a Notary Public in and for the State and County aforesaid, authorized by the laws of Delaware to take acknowledgments of deeds, personally appeared L. du P. Copeland, Vice-President of E. I. du Pont de Nemours and Company, the Corporation mentioned in and which executed the foregoing Certificate, known to me personally to be such, and he, the said L. du P. Copeland, as such Vice-President, acknowledged the said Certificate to be his act and deed and the act and deed of said Corporation, and that the seal thereto affixed is the common and corporate seal of said Corporation duly affixed by its authority, and that his act of executing, acknowledging and delivering said Certificate was duly authorized by the Board of Directors of said Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this Certificate above written. RICHARD H. TALLANT Notary Public - ----------------------------- RICHARD H. TALLANT Notary Public Appointed October 5, 1953 For Two Years Delaware - ----------------------------- - 21 - EX-10.6 3 RETIREMENT RESTORATION PLAN OF CONOCO INC. EXHIBIT 10.6 RETIREMENT RESTORATION PLAN OF CONOCO INC. ------------------------------------------ SECTION 1. PURPOSE A. Retirement Restoration Benefit feature: The purpose of this feature of the Plan is to provide each member of the Title Two of the Pension and Retirement Plan ("Retirement Plan") all benefits otherwise payable in accordance with the terms thereof, but for the limitation on maximum benefits set forth in Section 4(8) of the Retirement Plan. B. Retirement Restoration Compensation feature: The purpose of this feature of the Plan is to provide each member of the Retirement Plan who is a participant in the Incentive Compensation Plan of Conoco Inc. under which awards were granted on and after January 1, 1981, and the Incentive Compensation Plan of E. I. du Pont de Nemours and Company and such other Incentive Compensation Plan ("ICP Plan") as may from time to time be in effect in substitution therefor and in which members of the Retirement Plan shall participate, all benefits to which the participant would be entitled if compensation, as defined in the Retirement Plan, included the annual awards (or in the case of Members who did not have an Hour of Service under the Retirement Plan on or after August 1, 1994, one-half the annual awards) granted to the member under the ICP Plan then in effect. C. Retirement Restoration Enhancement feature: The purpose of this feature of the Plan is to provide each member of the Retirement Plan who was not eligible for benefits under the Temporary Retirement/Termination Incentive Program due to salary grade and who is approved for retirement enhancement by the President of Conoco Inc. or his delegee, retirement benefits provided for in the Retirement Plan under the terms of the Temporary Retirement/Termination Incentive Program, but without the limitations on salary grade and election date. SECTION 2. ADMINISTRATION A. The Plan shall be administered by the Employee Benefit Plans Board ("Board") as defined in Section 1(6) of the Retirement Plan. B. The Board shall have the power to interpret the Plan, establish rules for the administration of the Plan, and make all other determinations necessary or desirable for the Plan's administration. - 1 - SECTION 2. ADMINISTRATION C. The decision of the Board on any question concerning or involving the interpretation or administration of the Plan shall be final and conclusive. SECTION 3. ELIGIBILITY FOR BENEFITS AND AMOUNT OF BENEFITS A. Retirement Restoration Benefit feature: All members of the Retirement Plan who would otherwise be entitled to benefits from the Retirement Plan in accordance with the terms thereof, but for the limitation on maximum benefits set forth in Section 4(8) of the Retirement Plan, shall be paid such benefits under this feature to the extent such benefits exceed the limitation. B. Retirement Restoration Compensation feature: (1) All members of the Retirement Plan, who are entitled to benefits from the Retirement Plan in accordance with the terms thereof, shall be paid benefits under this feature as follows: (a) In an amount equal to the amount of benefits which would have been paid to the members pursuant to Section 4 of the Retirement Plan if compensation, as defined in section 1(9)(a), included the annual awards (or in the case of Members who do not have an Hour of Service under the Retirement Plan on or after August 1, 1994, one-half of the annual awards) granted to members on or after January 1, 1981, under the ICP Plan(s). Anything to the contrary notwithstanding, all members of the Retirement Plan who would otherwise be entitled to benefits from this Plan pursuant to the preceding sentence, shall be paid such benefits only to the extent that compensation, as defined in Section 1(9)(a) of the Retirement Plan, does not include the annual awards (or in the case of Members who do not have an Hour of Service under the Retirement Plan on or after August 1, 1994, one- half of the annual awards) granted to members on or after January 1, 1981, under the ICP Plan(s). (b) In an amount equal to the amount of benefits which would have been paid to the member pursuant to: (i) Section 16 of the Retirement Plan if annual compensation, as defined in Section 16(1)(l) of the Retirement Plan, included the annual awards - 2 - (or in the case of Members who do not have an Hour of Service under the Retirement Plan on or after August 1, 1994, one-half of the annual awards) granted to members on or after January 1, 1981, under the ICP Plan; or (ii) Section 20 of the Retirement Plan if basic earnings, as defined in Section 20(1)(b) of the Retirement Plan, included the annual awards (or in the case of Members who do not have an Hour of Service under the Retirement Plan on or after August 1, 1994, one-half of the annual awards) granted to members on or after January 1, 1981, under the ICP Plan. C. Retirement Restoration Enhancement feature: Each member of the Retirement Plan, who was not eligible for benefits under the Temporary Retirement/Termination Incentive Program due to salary grade and who is approved for Retirement Enhancement by the President of Conoco Inc. or his delegee, shall be paid benefits under this feature that would have been paid pursuant to the Retirement Plan, the Retirement Restoration Benefit feature of this Plan, and the Retirement Restoration Compensation feature of this Plan, enhanced under the terms of the Temporary Retirement/Termination Incentive Program, but without the limitations on salary grade and election date, less any benefit payable under the Retirement Plan, the Retirement Restoration Benefit feature of this Plan, and the Retirement Restoration Compensation feature of this Plan. SECTION 4. PAYMENT OF BENEFITS A. This Plan shall be an unfunded plan, and payments of benefits pursuant to this Plan shall be made from the general assets of Conoco Inc. B. Benefits paid under this Plan to a participant or designated beneficiary shall be paid in the form of a single life annuity, or in any of the forms detailed in Section 4(3)(a) or 4(3)(b) of the Retirement Plan in an amount actuarially equivalent to such single life annuity. The receipt of benefits may be deferred in accordance with procedures established by the Employee Benefit Plans Board. Elections regarding the form and payment of benefits shall be made independent of any election under the Retirement Plan and in such manner and at such time as the Employee Benefit Plans Board prescribes. - 3 - SECTION 4. PAYMENT OF BENEFITS C. Benefits payable under this Plan shall begin to be paid within a reasonable time after the amount of a participant's benefits pursuant to this Plan has been established. Notwithstanding the preceding sentence, participants who retire pursuant to Section 4(2)(d) of the Retirement Plan cannot begin to receive the benefits payable under this Plan until the end of the first full calendar month following age 50. SECTION 5. BENEFICIARIES A. Beneficiaries under this Plan shall be named in accordance with procedures established by the Employee Benefit Plans Board. B. Notwithstanding anything to the contrary contained herein or in the Retirement Plan, a participant or beneficiary who is awaiting payment pursuant to a lump sum election may, until death, change the beneficiary designated to receive benefits under this Plan. C. In no event shall any change in beneficiary pursuant to Section 5(b) affect the amount of benefits payable under this Plan. SECTION 6. AMENDMENT, SUSPENSION, TERMINATION The Board of Directors of Conoco Inc. may, at any time, amend, suspend, or terminate this Plan. - 4 - EMPLOYEE BENEFIT PLANS BOARD OF CONOCO INC. RULES FOR THE ELECTION OF PAYMENTS FROM THE PLANS 1. An election of the type of payment the employee wants to receive from the Retirement Restoration Benefit Plan of Conoco Inc., the Retirement Restoration Compensation Plan of Conoco Inc., and/or the Retirement Restoration Enhancement Plan of Conoco Inc. (the Plans) may be made at any time up to 30 days prior to the date of retirement and becomes irrevocable 30 days prior to the date of retirement. Employees who have not made an election 30 days prior to the date of retirement may make an election only with the approval of the Employee Benefit Plans Board. Such election shall be irrevocable. 2. In the event an employee fails to make an election 30 days prior to retirement, such employee shall be deemed to have elected one lump sum payment (without deferral) unless authorized by the Employee Benefit Plans Board to do otherwise in accordance with Rule No. 1 above. 3. If any employee elects lump sum payment, the employee may, up to 30 days before the date of retirement, elect to defer such lump sum and receive it in annual installments (1 to 15) beginning in the month after the effective retirement date or beginning the first day of any January within five years after the effective retirement date. If an employee has elected to defer receipt of a lump sum in accordance with the first sentence of this paragraph, he may, by November 30 preceding delivery of any remaining install- ments, make one final irrevocable election to further defer any undelivered amounts, provided that the total number of annual installments after retirement from all elections does not exceed 15, and all payments are made by the end of the 20th year after retirement. 4. Deferred lump sum amounts paid after the month following retirement will earn interest at a rate corresponding to the average of Moody's AAA ten-year Municipal Bond Rate for the 13 weeks preceding the beginning of each new quarter. The interest will be compounded quarterly and will be deferred. If the rate changes, the new rate will apply to all amounts beginning with the following quarter. 5. Each installment will equal the amount of the remaining lump sum and accumulated interest divided by the number of annual installments remaining (including the payment being determined). - 1 - 6. As in the Retirement Plan of Conoco Inc., if an employee elects a joint and survivor annuity, the amount of such annuity shall be actuarially determined based on the ages of the employee and survivor designated under the Plans and the actuarial assumptions included in such Retirement Plan. 7. All benefit payments shall be made, or begin to be made, no later than the month following the employee's date of retirement (or the month following the employee's fiftieth birthday, if later) unless the employee has elected otherwise in accordance with Rule No. 3 above. 8. If benefits under the Plan (lump sum, retiree annuity, or survivor annuity) are increased as a result of incentive compensation award(s) granted after retirement, the increase shall be effective the first day of the month following the date of the grant. The payment option elected at retirement shall apply to such additional benefit. In determining the actuarial factor for payment options other than straight life annuity for the additional benefit, the ages of the retiree and designated survivor and the applicable interest rates shall be determined as of the date the increase is effective. If a retiree dies after having retired with a joint and survivor annuity, but prior to the granting of the award, the increased benefit to the survivor shall be determined assuming that the retiree died just after the award was granted. 9. The primary retirement plan is defined as the qualified retirement plan of which the employee/retiree is/was a member. If the employee/retiree is/was a member of more than one qualified retirement plan of the corporate employer, it shall mean the plan which provides the largest benefit to the retiree or beneficiary(ies). 10. A retiree who has elected a lump sum (or who has made no election) may make or change a beneficiary designation in writing on the current Restoration Plans retirement application form at any time prior to the earlier of death or receipt of the full lump sum distribution. If a retiree who has designated a beneficiary(ies) under this Rule No. 10 dies after his date of retirement but prior to full distribution of the lump sum, the balance of the distribution shall be paid in one lump sum to the designated beneficiary(ies) named under the Plans. If the deceased retiree made no beneficiary designation under the Plans, such lump sum shall be paid to the retiree's beneficiary(ies) as named under the primary retirement plan, or, if there is no beneficiary so named under the primary retirement plan, to the retiree's estate. - 2 - 11. A beneficiary designated pursuant to Rule No. 10 who is entitled to receive a lump sum because a retiree who had elected a lump sum (or made no election) died subsequent to the retiree's date of retirement may make or change a beneficiary designation on the current Restoration Plan retirement application form at any time prior to the earlier of death or receipt of the full lump sum distribution. If a beneficiary who has designated a beneficiary(ies) dies prior to full distribution of the lump sum, the balance of the distribution shall be paid in one lump sum to the beneficiary so designated under this Rule No. 11. If the deceased beneficiary made no beneficiary designation under the Plans, but designated a beneficiary under the primary retirement plan, such lump sum shall be paid to the beneficiary so designated. If the beneficiary designated no beneficiaries under either the Plans or the primary retirement plan, such lump sum shall be paid to the beneficiary's estate. 12. If a married employee who is eligible for preretirement surviving spouse coverage under Title Two of the Pension and Retirement Plan dies, the surviving spouse benefits shall be restored under the Plans in the same manner as the primary retirement benefits, except that the payments shall be converted to a lump sum based on the spouse's age and the actuarial assumptions included in the qualified retirement plan. Such lump sums may not be deferred. 13. For benefit determination purposes under the Plans, it shall be assumed that all employees elect to receive (or begin to receive) payment under the qualified retirement plan at the earliest possible date. 14. In the event of changes in the relevant laws or circumstances, the Employee Benefit Plans Board may, in its sole discretion, accelerate or change the manner of payment of any deferred lump sum benefit from the Restoration Plans. - 3 - EX-11 4 EARNINGS PER SHARE Exhibit 11 E. I. DU PONT DE NEMOURS AND COMPANY EARNINGS PER SHARE - ASSUMING FULL DILUTION (Dollars in millions, except per share)
Years Ended December 31 1994 1993 1992 1991 1990 Earnings (loss) on common stock .............. $2,717 $545 $(3,937) $1,393 $2,300 Adjustments required for dividend equivalent payments and stock appreciation rights (net of tax) ............................... - - - 1 (2) Adjustments required for interest on convertible debt(a) ........................ - - - - 15 Adjusted earnings (loss) on common stock ..... $2,717 $545 $(3,937) $1,394 $2,313 =========== =========== =========== =========== =========== Average number of shares outstanding (excludes shares in treasury) .............. 679,999,916 676,622,115 673,454,935 670,743,786 675,960,751 Adjustments required for awarded but undelivered shares under the Variable Compensation Plan (average), stock options, and stock appreciation rights(b) ........... 4,542,903 3,785,582 - 4,740,453 1,951,293 Adjustments required for convertible debt(a) . - - - - 5,404,509 Adjusted average number of common shares ..... 684,542,819 680,407,697 673,454,935 675,484,239 683,316,553 =========== =========== =========== =========== =========== Earnings (loss) per share - assuming full dilution ................................... $ 3.97 $.80 $ (5.85) $ 2.06 $ 3.38 =========== =========== =========== =========== =========== Earnings (loss) per share - as published ..... $ 4.00 $.81 $ (5.85) $ 2.08 $ 3.40 =========== =========== =========== =========== ===========
(a) The Zero Coupon Convertible Subordinated Notes were retired during 1992. 1991 versus 1990 convertible debt was outstanding for the entire year; as a result, conversion was antidilutive, and no adjustment was required in 1991. (b) In 1992, these adjustments are not considered for the fully diluted earnings per share calculation due to their antidilutive effect. EX-12 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 E. I. DU PONT DE NEMOURS AND COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Years Ended December 31 1994 1993 1992 1991 1990 Net Income ............................................ $2,727 $ 566(a) $ 975(a) $1,403 $2,310 Provision for Income Taxes ............................ 1,655 392 836 1,415 1,844 Minority Interests in Earnings of Consolidated Subsidiaries ........................................ 18 5 10 6 3 Adjustment for Companies Accounted for by the Equity Method ................................ 18 41 6 35 29 Capitalized Interest .................................. (143) (194) (194) (197) (161) Amortization of Capitalized Interest .................. 154 144 101 94 84 ------ ------ ------ ------ ------ 4,429 954 1,734 2,756 4,109 ------ ------ ------ ------ ------ Fixed Charges: Interest and Debt Expense - Borrowings(b)............ 559 594 643 752 773 Adjustment for Companies Accounted for by the Equity Method - Interest and Debt Expense ..... 55 42 62 11 9 Capitalized Interest ................................ 143 194 194 197 161 Rental Expense Representative of Interest Factor .... 118 143 151 162 163 ------ ------ ------ ------ ------ 875 973 1,050 1,122 1,106 ------ ------ ------ ------ ------ Total Adjusted Earnings Available for Payment of Fixed Charges ....................................... $5,304 $1,927 $2,784 $3,878 $5,215 ====== ====== ====== ====== ====== Number of Times Fixed Charges Are Earned .............. 6.1 2.0 2.7 3.5 4.7 ====== ====== ====== ====== ======
(a) Income Before Extraordinary Item and Transition Effect of Accounting Changes. (b) The weighted average interest rate on short term borrowings outstanding at December 31, 1994 and 1993 was 5.85% and 4.91%, respectively. Average dollar amount of borrowings outstanding for the years ending December 31, 1994, 1993, and 1992, was $9,140, $11,390, and $10,770 respectively, based on month-end balance during this period, and the average interest rate for such borrowings was 7.24%, 6.56%, and 7.37%, respectively. EX-13 6 ANNUAL REPORT Exhibit 13 Last year was an excellent year for DuPont, in which the commitment of our people and our focus on customers and productivity resulted in a striking success. The transformation of our company during the last three years has taken us from the position of an average performer to that of a very strong performer. We believe we have developed the competitive strength in terms of cost and customer focus that will allow us to compete effectively in the future, even when economic conditions are less favorable than in 1994. At the beginning of 1994 we saw that the transformation initiated in 1991 was reaping benefits, and the world economy finally seemed to be in our favor. We expected a good year; we had a terrific year. Our people around the world deserve the credit for outstanding accomplishments in the marketplace and in our operations. Long-term competitive advantage requires committed employees determined to build healthy businesses. The results of 1994 demonstrate that commitment. Financially, 1994 was a year of record earnings. Excluding non-recurring items, earnings rose 65 percent compared to the prior year. Net income for 1994 was $2.7 billion or $4.00 per share compared to $555 million or $.81 per share in 1993. Return on equity was 22.6 percent. Total 1994 sales were $39.3 billion, up 6 percent over 1993. We ended 1994 in excellent shape financially, reducing borrowings by $1.7 billion. We are in a good position to grow our businesses globally. While most of our businesses had a good year, some performances were especially noteworthy. Several of our polymer-based businesses showed excellent results, in particular automotive, engineering polymers, packaging and industrial polymers and nonwovens. Agricultural products also performed strongly. Our energy business did well in 1994 with Conoco performing competitively opposite other companies in the petroleum industry. Overall, we have a solid portfolio of businesses, and we are targeting to have all our businesses earn our cost of capital (12 percent) by the end of 1995. Regionally, a highlight was the performance of our European operations, which tripled earnings on strong volume growth and a multi-year $500 million cost reduction program that contributed cost savings of about $200 million in 1994. Last year was also a good year for DuPont shareholders, with a total return of 20 percent. However, we don't focus on performance in any one year, but aspire to deliver superior results over time. As the chart* on page 3 indicates, DuPont stock has outperformed the S&P 500 Stock Index during the past 10 years with an average total return of 17.5 percent annually compared to 14.3 percent for the S&P. When you look at the strong results of the past year, it is readily apparent that we have been on the right track with the changes we put in place. The biggest changes of the past few years have been customer focus and cost control. We had customers in mind when we eliminated the old, large department organizations and reorganized the company into many separate strategic business units. Many of our customers are telling us that they've seen in DuPont a dramatic shift from an internal focus to a focus on being successful for and with our customers. * This information is not incorporated by reference in this Report. 2 The second major change we have made is in reducing costs by changing attitudes about how we spend money. In 1991, we started with a goal to reduce our fixed cost base by $1 billion; we've exceeded that goal. After adjusting for inflation, our 1994 fixed costs are more than $2.5 billion lower than in 1991. Undeniably, cost reductions have made the last several years a painful time. But these actions were vital to our competitive success. We now are focused on providing only the products and services that customers will pay for, and more and more customers see partnership with DuPont as a key element in their own success. We are becoming the preferred supplier to many customers because we have the products, innovation, technology and capable people long associated with DuPont, and now we can also compete on price. Our improved cost position also allows us to compete in many new growth markets around the world. We will be able to take advantage of those new opportunities because of another big accomplishment of the past three years--we stayed the course with globalizing our businesses. Even as we reduced costs and restructured the company, we continued to expand around the world. We intend to be the leading chemical and energy company in every region where we operate, and at the moment we are focused in a special way on Asia. We had a very successful start-up of a new titanium dioxide plant in Taiwan, which complements other chemical plants recently built in Singapore, Korea and four new operations in China. We are evaluating at least 20 other new initiatives in Asia. Elsewhere, Conoco began pumping oil in Russia in 1994, and our Polar Lights project there is becoming the technological and environmental standard against which all other petroleum development projects in ecologically sensitive areas will be judged. If there was one disappointment during the year, it was in safety, where our performance was well below DuPont's rigorous standards. Even though we still lead industry in the most important statistical categories of safety performance, we are determined to return to and exceed our previous standards. During 1994, we adopted a new Safety, Health and Environment Commitment. Historically, we have maintained that the only acceptable standard for injuries and illnesses is zero, and this has served us well. Our new commitment extends that same philosophy to environmental incidents, wastes and emissions. We can adopt this commitment because of the confidence we have in our technological strength. Science and technology are the 3 historical bedrock of DuPont's competitive advantage and remain so. In recent years, the attention surrounding change and transformation at the company has sometimes eclipsed the ongoing achievements of our scientists and engineers. They continue to provide discoveries that are renewing our product lines and making our operations more efficient, more productive and more environmentally sound. Looking ahead to 1995, we will now seek to move from our present position of a very strong company into that small group of companies that are universally acknowledged as the best in the world because of their ability to sustain top performance regardless of the business climate. A characteristic shared by such companies is that every employee has a connection to customers and feels that her or his personal growth and career development are closely tied to profitable business and company growth. During 1994, I spoke to employees at plant or business sites around the world on 30 occasions and had extensive informal discussions throughout the organization. I am convinced that employee commitment is vital to achieving higher levels of sustained performance. Most of our people can and want to achieve more. I have challenged our managers to create work environments and business practices that will enable DuPonters to do so. This will help us to consolidate DuPont's distinctive strengths in world markets. I am often asked what makes DuPont different from the many other major companies that have also been going through cost reductions, re-engineering and various types of change. I respond that DuPont starts with strengths others don't have, and then we build on them. We have a broad range of outstanding products, a superb reputation for market-driven innovation and outstanding people. These all contribute to the power of the DuPont brand which benefits from generations of credibility, trust and quality few others can match. We are proud of our unique strengths and heritage, and we are enthusiastic about the opportunities for profitable global growth and continued success that stretch before us. /s/ E. S. Woolard Jr. E. S. Woolard, Jr., Chairman March 1, 1995 4 Chemicals manufactures a wide range of commodity and specialty products, including titanium dioxide, fluorochemicals and polymer intermediates, used in the paper, plastics, chemical processing, refrigeration, textile and environmental management industries. Improving conditions in most economies around the world and strategic reorganization helped increase the global presence and business success for "Ti-Pure" titanium dioxide and specialty chemicals businesses. Building on its position as the world's leading titanium dioxide producer, DuPont began full production from its 60,000-ton plant in Kuan Yin, Taiwan, and became a premier local supplier to Asia Pacific customers. The new plant brings total DuPont capacity of the white pigment to 770,000 tons a year. Titanium dioxide is used in paper, paint and plastic, and DuPont has long been a leading supplier to these industries, offering products specific to customer needs, such as "Ti-Pure" RPS rutile paper slurry supplied to the paper industry (see above*). DuPont Fluorochemicals has spent more than $500 million to develop and commercialize alternatives to the ozone-depleting chlorofluorocarbons (CFCs) and is now producing the broadest range of CFC alternatives with product families including "Suva" refrigerants, "Formacel" foam expansion agents, "Dymel" propellants and "Vertrel" cleaning agents. Early in 1995, DuPont commercialized non-ozone-depleting "Suva" 9000 for applications that include home air conditioners and heat pumps. * This information is not incorporated by reference in this Report. 16 Specialty Chemicals continued to undergo changes to become more globally competitive. Employment dropped from 8,500 four years ago to 5,500 in 1994, and $350 million in costs have been trimmed, in total, during the past three years. While this group of businesses includes specialty chemicals and materials and environmental services, more than 60 percent of sales comes from industrial chemicals such as ammonia, cyanide and peroxygen products. Proprietary strengths continue in chemical specialties such as "Teflon" fabric protectors for apparel and home furnishings. 1994 Versus 1993 Sales of $3.8 billion were up 6 percent, reflecting higher sales volume, with most of the gains attributable to markets outside the United States. While prices were trending upward during the second half of this year, average selling prices were slightly less than last year's. After-tax operating income (ATOI) was $386 million, up 133 percent from last year's results, which included $116 million in nonrecurring charges, principally for asset write-downs and facility shutdowns. Excluding nonrecurring charges from both years, earnings were $391 million, up 39 percent. 1993 Versus 1992 Sales were down 2 percent, primarily reflecting lower U.S. volume. Additional sales volume from acquisitions outside the United States was offset by lower prices, largely due to the currency effects of a stronger dollar. ATOI was 27 percent lower, due to higher charges for facility shutdowns and employee separation costs. Excluding nonrecurring charges, ATOI was $282 million, up 2 percent, reflecting improvement in specialty chemicals and fluorochemicals, partly offset by lower results from "Ti-Pure" titanium dioxide. Chemicals* [CHART APPEARS HERE]
Sales ($ in Billions) 1992 3.6 1993 3.5 1994 3.8 ATOI ($ in Millions) 1992 226 1993 166 1994 386
*See Industry Segment Information (Note 30 to Financial Statements.) Outlook Solid growth from global expansion in 1994 is expected to continue in 1995. The European and Asia Pacific regions remain particularly strong. Increased demand for "Ti-Pure" titanium dioxide as well as gains in market share should further improve overall results. The pricing environment is also expected to improve, and competitive profit margins will be maintained as raw material costs increase. By year-end 1994 DuPont had ceased CFC production for sale in developed countries except the United States. The U.S. government has requested that DuPont continue production of CFCs through 1995 to service existing refrigeration and air conditioning equipment. CFC production in 1995 will be based on customer purchase commitments. While the consumer transition to CFC alternatives has been slower than anticipated, DuPont expects to maintain its key role in this process and is well-positioned to be the premier supplier of CFC alternatives. 17 A diversified mix of specialty fibers is produced to serve end uses ranging from protective apparel, active sportswear and packaging to high-strength composites in aerospace. High-volume fibers are produced for apparel and home fabrics, carpeting and industrial applications and sold directly to the textile and other industries for processing into products used in consumer and industrial markets. Fibers businesses continued to focus on quality and service to increase market share, participating in new high-growth markets worldwide, and developing high- technology fiber and resin products to replace traditional materials. Nonwovens grew revenues 15 percent in 1994. Growth performance was broad based, with contributions coming from all market areas and regions. Nonwovens' portfolio of flexible sheet structure technologies--"Tyvek", "Sontara", "Typar"- - -serves diverse markets in packaging (see above*), construction, medical and safety apparel, reinforcing backings and absorbents. New product development milestones include expanding the use of post-consumer recycle (PCR) in "Tyvek" from secure envelopes to protective apparel. This technology advancement was recognized in the United States by the National Recycle Coalition's Buy Recycled Business Alliance award for most innovative new product. The "Sontara" business introduced a new family of antimicrobial wiping cloths and commercialized an insulating windbarrier for outdoor apparel. Concrete formliners, derived from "Typar" technology, are used in building water spillways, sewers and bridge beams in Europe and North America. Helped by high worldwide brand recognition, "Lycra" spandex continues to lead the thrust into established and new markets. The "Lycra" strategy is to offer the highest-value product, supported by strong research and development, marketing and manufacturing in all growth areas. DuPont and China World Best Development agreed to form a joint * This information is not incorporated by reference in this Report. 18 venture to manufacture and market "Lycra" in China. There is substantial commitment to growth in other parts of Asia, supported by world-scale manufacturing facilities in Japan and Singapore. The nylon business continues to meet customer needs through improved productivity and efficiency. Re-engineering of all facets of nylon over the next three years will improve competitiveness, principally in the United Kingdom, Germany and the Netherlands. DuPont and Fibra, a member of the Vicunha group in Brazil, initiated a joint venture to serve the South American textile nylon market. A joint venture with Far Eastern Textile Ltd. has been established to construct a nylon 6,6 plant in Taiwan and to market textile nylon in Taiwan and China. And as part of its strategy to serve an expanding global tire cord market, DuPont and Ballapur Industries Ltd. formed a venture to build the first nylon 6,6 plant in India. The "Dacron" polyester business completed an aggressive modernization program in 1994. This included start-up of two new filament yarn lines in Kinston, North Carolina, which quickly established new standards for quality and uniformity. The Cape Fear, North Carolina, plant completed upgrading its polyester ingredients operation to lower cost and improve quality. The additional capacity comes at a time of tight supply in the polyester market. DuPont Advanced Fibers Systems' "Nomex" heat-resistant and "Kevlar" high- strength aramid fibers businesses benefited from increased demand in the industrial economies. The new "Nomex" fiber plant in Asturias, Spain, became fully commercial. DuPont and Teijin Ltd. of Japan established joint ventures to produce and sell "Nomex" aramid papers in Asia Pacific. 1994 Versus 1993 Fibers segment sales of $6.8 billion were up 9 percent, principally reflecting the acquisition of ICI's nylon business. Fibers* [CHART APPEARS HERE]
Sales ($ in Billions) 1992 6.1 1993 6.2 1994 6.8 ATOI ($ in Millions) 1992 409 1993 169 1994 701
*See Industry Segment Information (Note 30 to Financial Statements.) Excluding this acquisition, sales were up 5 percent, reflecting 6 percent higher volume, principally from outside the United States, partly offset by 1 percent lower average selling prices. Fibers segment after-tax operating income (ATOI) of $701 million was 315 percent above the $169 million earned in 1993. Excluding nonrecurring items, earnings were $676 million versus $425 million mainly due to improved results for nylon, nonwovens and aramids. 1993 Versus 1992 Sales, including the additional sales from the ICI nylon business, were 2 percent above the prior year. Worldwide sales volume was up 5 percent, while prices were lower largely due to the exchange effects of a stronger dollar. ATOI was down $240 million from the prior year principally due to higher restructuring charges. Excluding nonrecurring items from both years, earnings were $425 million, down 11 percent from 1992, reflecting lower results for "Lycra", "Dacron" and nylon, particularly in Europe. Outlook DuPont will continue to reduce costs and enter joint ventures to better compete in global markets. Fibers businesses will benefit from superior value products, aggressive marketing and strong brand recognition. 19 Engineering polymers, elastomers, fluoropolymers, ethylene polymers, finishes and performance films are produced to serve industries including packaging, construction, chemical processing, electrical, paper, textiles and transportation. This group also includes the automotive businesses, which are engaged in manufacturing and marketing more than 100 DuPont product lines used by the automotive industry. Polymers had a very successful year with record results and continues on track with its strategy of focusing on core strengths and customer needs. Polymers businesses achieved strong leadership positions in high-growth end-use markets such as automotive, electrical components and packaging. DuPont Packaging & Industrial Polymers continued growth through technological innovation and partnering with customers (see above*). For DuPont Engineering Polymers, several factors contributed to excellent results including cost reduction, faster-than-expected economic recovery in Europe, increased automobile manufacturing in the Americas and new products to meet customer needs for higher performance materials. New capacity for nylon 6,6, polybutylene terephthalate (PBT) polyester and liquid crystal polymers supports customers' growth objectives around the globe. A new $100 million plant in Singapore will begin producing "Zytel" nylon 6,6 resins in mid-1995. When production begins in Singapore, DuPont will become the first nylon supplier to manufacture and compound nylon 6,6 resins in all three major regions of the world. The resurgence of the U.S. auto industry was the key factor in the success of the Polymers businesses linked to that industry. DuPont Automotive revenue and earnings increased for the third straight year. Commercial sales began from the new "Butacite" polyvinyl butyral plant, located in Korea, and purchase was completed of ICI's 50 percent share of IDAC, an automotive coatings joint venture. New "Spectramaster" * This information is not incorporated by reference in this Report. 20 and "Chromavision" color systems expanded the automotive refinishes offerings. "Bexloy" W automotive engineering resin won the prestigious Society of Plastics Engineers Award for the Dodge and Plymouth "Neon" fascia in the automotive exterior body category. "Sentryglas" composites, made with "Butacite" sheeting, are the first and only glass systems that meet building codes for minimizing hurricane damage. Early in 1995, DuPont and Dow Chemical signed a letter of intent to explore forming a joint enterprise for the discovery, development, production and sale of thermoset and thermoplastic elastomer products used primarily in the automotive, general rubber, wire and cable, construction, molded goods, durable adhesives and oil and polymer modification markets. DuPont is planning a $150 million global expansion program to increase its fluoropolymer resin capacity for copolymer resins by 75 percent. These increases are in response to rapidly growing demands, particularly in the U.S. wire and cable market. Plans for completion of capacity increases in late 1997 involve products sold under the company's "Teflon" trademark. Demand for high- performance Category 5 wire insulation, which is typically specified in local area network (LAN) installations in U.S. markets, is driving a substantial portion of the growth. "Teflon" offers superior electrical properties for use in LAN insulation. 1994 Versus 1993 Segment sales of $6.3 billion increased 8 percent from 1993 and, after adjusting for businesses divested in 1993, were up 12 percent. This results from 13 percent higher sales volume, with increases in all regions, partly offset by 1 percent lower selling prices. After-tax operating income (ATOI) was $717 million, up 305 percent. This reflects significantly improved results for engineering polymers, packaging and industrial polymers, elastomers, fluoroproducts and automotive products. Excluding nonrecurring items from both years, earnings were $706 million, up 108 percent from $340 million Polymers* [CHART APPEARS HERE]
Sales ($ in Billions) 1992 5.9 1993 5.9 1994 6.3 ATOI ($ in Millions) 1992 318 1993 177 1994 717
* See Industry Segment Information (Note 30 to Financial Statements.) earned in 1993. This reflects higher sales volume and lower costs among most businesses, with earnings from the European region nearly four times greater than in the prior year. 1993 Versus 1992 Sales increased less than 1 percent, as a 5 percent worldwide volume increase was nearly offset by lower prices, principally resulting from currency exchange effects of the stronger dollar. ATOI was down 44 percent, reflecting higher restructuring costs. Excluding nonrecurring items, 1993 ATOI was $340 million, even with 1992. This reflected earnings gains in the United States, principally from automotive businesses, offset by lower earnings in Europe and Canada. Outlook Future success for Polymers will depend on continued growth, improved productivity and reduction of fixed costs. Profitability has improved over the last three years and earnings have grown fivefold since 1991, while revenue increased 14 percent in the same period. The primary growth region will be Asia Pacific, and Polymers businesses are well-positioned to be major players in that growth. It is expected that North American automobile markets will grow at a slower rate than experienced over the last few years, making it critical to achieve success in regions outside the United States. 21 Petroleum operations are carried out through Conoco, and range from exploring for crude oil and natural gas to marketing finished products. The "upstream" part of the business finds, develops and produces oil and gas, and processes natural gas to recover higher-value liquids that are sold separately. The "downstream" part of the business refines crude oil and other feedstocks to produce high-quality fuels, lubricants and other products. These are sold to customers primarily in the United States and Europe, and more recently in the Asia Pacific region. Downstream also produces intermediates for use as chemical feedstocks, and a wide range of specialty products such as petroleum coke and lubricating oils for commercial and industrial customers worldwide. Within an environment that is highly competitive, Conoco is focusing on three basic strategies: maintaining healthy core businesses while reducing operating costs; selectively expanding its existing businesses; and developing new businesses where it sees opportunities for profitable growth. More than ever before, it is pursuing these strategies through productive linkages with partners, customers and suppliers. During 1994, Conoco further directed its existing operations to concentrate on core geographic areas where it can maintain a competitive cost position. In exploration and production operations, an aggressive ongoing portfolio optimization program resulted in the sale or exchange of interests in a number of nonstrategic producing properties worldwide, including the declining Hutton and Murchison oil fields and the Anglia gas field in the North Sea. In return, Conoco increased access to future production in highly desirable oil and gas producing areas. Significant acquisitions included additional interests in two giant North Sea fields--the undeveloped Britannia gas and condensate field and the Anglo-Norwegian Statfjord field--and in the Elk Basin oil field in Wyoming. Concentrating activities within strategic core areas also helped Conoco lower its upstream overhead and operating costs more than 7 percent during the year. Since 1991, it has 22 increased upstream earnings per barrel by 14 percent, despite a $4.00-per-barrel drop in average crude oil prices during the period. New production also contributed to the company's earnings. Offshore Indonesia, the third platform in the Belida development came onstream on schedule and under budget in August. In the U.K. North Sea, the partner-operated Alba oil field and Galleon gas field both came onstream during the year. Overall, refining operations processed record volumes of feedstock while responding to increasingly stringent environmental requirements. New products, including reformulated gasoline, were introduced to meet U.S. Clean Air Act Amendment provisions effective January 1995. In U.S. marketing, focused strategies enabled Conoco to increase higher-margin branded sales 9 percent during 1994--triple the industry's average volume growth. Conoco also took important steps to expand its businesses. During the year it announced a joint venture with Pennzoil to produce high-quality base oils, the feedstock from which finished lubricating oils are made. Construction is under way adjacent to Conoco's Lake Charles, Louisiana, refinery on a $500 million lube oil hydrocracker that will enable the company to process low-cost sour crude into a base oil of higher quality than that obtained through traditional solvent extraction processes. When the venture begins production in 1997, it is projected to be the lowest-cost manufacturer of base oils in the United States. In western Europe, Conoco continues to expand its highly efficient retail operations, which include over 2,400 stations in 13 countries. During 1994 Conoco partnered with Saras, an Italian refining company, to open the first "Jet" stations in Spain. Plans are to build a network of 100 stations across northern Spain by the year 2000. In Germany, Conoco has extended operations into the eastern part of the country with 43 "Jet" stations, predominantly high- quality, high-volume sites that offer a rapid payback on the original investment. We are also building new markets in the Czech Republic, Poland and Hungary. At the end of 1994, the company had a total of 32 retail stations in these three countries, and sales volumes are expected to double during 1995. Conoco is currently negotiating to acquire refining capacity in the Czech Republic. As Conoco strengthened its position in existing markets, the company invested for growth in additional areas of the world. In Russia, the joint venture with Arkhangelskgeologia celebrated first oil in August from the Ardalin field inside the Arctic Circle. This history-making event, the first new field development by a Russian-Western partnership, has opened opportunities for further investment in Russia's oil-rich northern areas. Off the coast of Norway, construction of the massive Heidrun oil platform is nearing completion. This $3.5 billion project, of which the Norwegian state oil company is the majority interest holder, is a monumental technological undertaking, involving the development by Conoco of the world's first tension leg platform constructed from concrete. Operations are on schedule for first oil in August 1995. At its peak, the Heidrun field will produce more than 200,000 barrels of oil per day. Also in 1995, production will begin from the Ganymede and Callisto gas fields offshore the United Kingdom. Conoco has significantly increased its emphasis on the growing natural gas market in both Europe and North America. In the North Sea, it raised its interest in the giant Britannia gas field to more than 42 percent. Britannia, with estimated recoverable reserves of 2.5 trillion cubic feet of natural gas and 140 million barrels of condensate and natural gas liquids, is the largest known undeveloped field in the U.K. North Sea. In December, the U.K. government granted approval 23 for joint development of the Britannia field to Conoco and Chevron in a unique partnership agreement (see page 22*). Production is scheduled to begin in 1998. Also in December, Conoco signed an agreement to participate in Interconnector, a natural gas pipeline linking the U.K. market with continental Europe. When it is completed, this pipeline will allow Conoco to export gas produced offshore the United Kingdom to continental European gas markets, creating attractive opportunities for further growth. In North America, 80 percent of Conoco's exploratory wells now have natural gas objectives. During 1994, successful discoveries were made in the Val Verde Basin of West Texas, the San Juan Basin of New Mexico and the Basing field in Alberta, Canada. Conoco also obtained interests in gas properties in Wyoming's Green River Basin. The company has also been highly successful in identifying new natural gas reserves associated with coal fields. Conoco is one of the few companies with the expertise and resources to produce coalbed methane on a global basis. Building on experience in the United States, where Conoco has partnered with the company's coal joint venture, CONSOL Energy Inc., to extract coalbed methane in the Appalachian Mountains, in 1994 the company began exploration in France, Germany, and Australia. Downstream, Conoco is rapidly building a presence in the fast-growing Asia Pacific market. It has opened 27 retail outlets in Thailand in less than two years, and plans to continue expanding at a rate of up to 25 new stations a year. Over the next 10 years, Conoco expects the Asia Pacific market will become a major region for its downstream business. To support this growth, in November Conoco signed an agreement for a joint venture with Petronas, the Malaysian national oil company, to construct and operate a 100,000-barrel-per-day high- conversion refinery, which will be complete in late 1997. 1994 Versus 1993 Sales of $16.8 billion for the year were up 7 percent compared to 1993 due to increased U.S. refinery production and higher excise taxes, which are included in revenues. Lower worldwide crude oil prices and natural gas prices in the United States held down this increase. Earnings of $680 million were down 16 percent from $812 million in the prior year. 1994 earnings included a net charge of $26 million as a result of a $127 million international tax benefit offset by a $95 million write-down of North Sea oil properties to be sold, and $58 million for employee separation costs. 1993 earnings included a $230 million benefit due to tax law changes, partly offset by property dispositions and restructuring charges of $161 million. After adjusting for these nonrecurring items, earnings were $706 million in 1994, down 5 percent from $743 million in 1993. Upstream earnings were $483 million, down $26 million or 5 percent from $509 million in 1993. After adjusting for nonrecurring items, 1994 earnings were a record $471 million, up 7 percent from the previous year, despite lower worldwide crude oil prices. Lower costs, net benefits associated with portfolio restructuring programs and higher natural gas liquid margins all contributed to these record results. Worldwide crude oil, condensate and natural gas liquids production was 436,000 barrels per day for the year compared with 434,000 barrels per day in 1993. The net realized crude oil price averaged $15.10 per barrel, down 5 percent compared with $15.96 in 1993. Worldwide natural * This information is not incorporated by reference in this Report. 24 gas production for the year was 1,347 million cubic feet per day, up 3 percent from 1993. Natural gas prices averaged $2.11 per million cubic feet in 1994, down 3 percent from the prior year. Downstream earnings were $197 million compared with $303 million in 1993. Excluding nonrecurring items, 1994 earnings of $235 million were $67 million or 22 percent below 1993, primarily due to the fourth quarter's performance, which was $84 million below last year. The weaker fourth quarter results were mainly due to low downstream margins in the United States and Europe and downtime at our three largest refineries related to maintenance programs in the United Kingdom and Oklahoma and a major accident in Lake Charles, Louisiana. All producing units at these refineries were fully operational by year end. Despite the equipment downtime, U.S. refinery production was up from the prior year. Total feedstocks processed increased 3 percent in 1994 to 696,000 barrels per day, while worldwide product sales of 931,000 barrels per day were up 6 percent from the prior year. 1993 Versus 1992 Sales were down slightly from 1992 while earnings were up 141 percent on lower costs, higher production volumes and a lower overall effective tax rate. 1993 operating Petroleum* [CHART APPEARS HERE]
Sales ($ in Billions) 1992 16.1 1993 15.8 1994 16.8 ATOI ($ in Millions) 1992 337 1993 812 1994 680
*See Industry Segment Information (Note 30 to Financial Statements.) income included a net benefit of $230 million due to tax law changes partly offset by property dispositions and restructuring charges of $161 million, while 1992 income included a restructuring charge of $96 million. Excluding these nonrecurring items, 1993 earnings of $743 million were up 72 percent from $433 million in the prior year. Outlook Worldwide demand for energy is projected to grow slowly over the near term. This will limit upward movement in prices and margins, although both are expected to remain subject to considerable volatility. Conoco's focus on improving the profitability of its core businesses while investing in strategic areas for growth should position the company well for continued earnings improvement in this highly competitive environment. 25 Agricultural Products Sales growth continued across all regions, particularly in the United States, where use of "Accent" post-emergent corn herbicide gained broad acceptance. In Europe, "Titus" corn herbicide and "Classic" herbicide for soybeans were also widely used. Late in the year, U.S. registration for the post-emergent corn herbicide "Basis" was received. "Basis" is yet another product in a wide array of high-value new products which are developed for specific agricultural applications. Innovation in packaging also continues with the objective of reducing exposure to the farmer or applicator. There is an ongoing effort to improve the convenience, safety and environmental capability of products. Water soluble packets made of new polyvinyl alcohol film, a package that dissolves completely in about a minute when placed in water, reduces worker exposures and simplifies disposal. Electronic Materials Electronic Materials performance improved with market share gains and increased demand for products. Both sales and earnings were at record levels. DuPont was one of only two U.S. companies selected to participate in the NHK (Japan Broadcasting Co.) consortium, which will design and develop high-definition television. Commercial introduction of this TV will coincide with the 1998 Winter Olympics scheduled in Nagano, Japan. DuPont will partner with Shanghai Precision Photomask Corporation Ltd. in a 26 joint venture to manufacture advanced photomasks that are an essential element in the production of semi-conductor devices used in high-technology electronic equipment. The new venture will contribute to the rapid growth of China's electronics industry. The new plant is expected to begin operations in 1996. In printed circuit materials, "Riston" photoresists are in record demand. Also, "Pyralux" PC, a one-of-a-kind photo imagable coverlay for flexible circuit board manufacture, was introduced. Films Films performance was strong in all major markets and regions. In revenue growth, Asia Pacific was more than 20 percent better. All businesses are driven by excellent customer satisfaction results. Fifteen percent of revenue was from new products introduced over the past three years. Late in the year the "Mylar" polyester film line in Circleville, Ohio, was converted to a new product development facility to accelerate growth opportunities in polyester films. Capacity utilization was high for "Mylar" and PET Resins and Chemicals. Teijin- DuPont Films, a 50/50 joint venture, successfully started up polyester polymer and audio/video film facilities in the United States. Medical Products Medical Products focused on programs to maximize sales in a soft worldwide health care market, while continuing to reduce costs. We continued to expand our share among U.S. hospital groups by leveraging a unique combination of DuPont resources and core competencies to help customers reduce total operating costs. Product introductions included the new "LINX" remote review diagnostic imaging system, the "aca" Star and the "Dimension" XL blood chemistry analyzers, and a variety of new centrifuge and detection products for life science research. The DuPont Merck Pharmaceutical Company experienced another year of significant earnings growth and recently received FDA clearance to market "ReVia" for the treatment of alcoholism (see page 26*), and "Neurolite" for brain imaging. Printing and Publishing Printing and Publishing continued to focus on manufacturing and product revitalization while continuing to drive for sales growth and reduced cost. Significant sales gains were recorded in the proofing and packaging product lines and in particular the Latin American and Asia Pacific markets. Graphic arts operations benefited from consolidation at Neu Isenburg, Germany, and world-class manufacturing facilities were completed at Leeds, England, for offset plates and at Towanda, Pennsylvania, for proofing products. Key products introduced were new "Crosfield" workstations for electronic imaging, "Waterproof" proofing systems and "Silverlith" direct-to-plate systems. Advertising, direct marketing and promotional materials, which are the lifeblood of the printing and publishing industry, were cut substantially during the economic downturn. Now with economic recovery, printing and publishing is seeing an upturn in its business. CONSOL CONSOL Energy Inc., a coal operations joint venture owned 50 percent by DuPont, showed substantially improved results in 1994. Although high-sulfur coal continued to be depressed, overall coal demand was strong following strikes by the United Mine Workers which affected results in much of 1993. Improved demand and the effects of a full year of operation of mines acquired from Island Creek Coal Inc. resulted in record production and sales for coal operations. 1994 Versus 1993 Sales of $5.7 billion were 5 percent over 1993 after adjusting for the absence of the sporting goods business which was sold last year. Sales volume was up 7 percent, while average prices were down about 2 percent. Sales were up across all regions with the largest percentage gain coming from South America, where sales improved 27 percent. After-tax operating income (ATOI) was $623 million as compared with a loss of $407 million in 1993. * This information is not incorporated by reference in this Report. 27 1993 results included significant nonrecurring charges principally for restructuring costs which were partly offset by gains from the sale of the Remington Arms Company. Costs were incurred for reorganization of plant operations, write-off of intangibles in printing and publishing and additional charges taken for product liability and legal expenses related to the "Benlate" DF 50 fungicide recall. Excluding nonrecurring items from both years, ATOI was $676 million versus $238 million earned last year. This reflects higher sales and lower costs in agricultural products, better pharmaceutical results and significantly higher coal earnings compared to last year, which were adversely affected by strikes. 1993 Versus 1992 Sales were 7 percent lower, reflecting the absence of sales from the divested connectors business. Selling prices were 2 percent lower, reflecting higher prices in the United States more than offset by lower prices in other regions, reflecting the stronger dollar. Excluding nonrecurring items and the coal results from both years, earnings were up 146 percent attributable to increases in agricultural products earnings and better results from films and printing and publishing. Diversified Businesses* [CHART APPEARS HERE]
Sales ($ in Billions) 1992 6.2 1993 5.7 1994 5.7 ATOI ($ in Millions) 1992 (49) 1993 (407) 1994 623
*See Industry Segment Information (Note 30 to Financial Statements). Outlook The outlook for Diversified Businesses will continue to largely depend on the success of agricultural products, which itself depends to some extent on weather and other variable conditions around the world. Agricultural Products is positioned to serve growing market needs with a broad array of products which are becoming increasingly widely accepted. Other businesses in this segment continue with plans to increase market share and improve productivity while paying attention to holding the line on cost increases. The pricing environment continues to be more favorable and pricing increases are expected to be a positive factor in results for 1995. 28 __ Financial Information 30 Management's Discussion and Analysis 37 Responsibilities for Financial Reporting 38 Report of Independent Accountants Financial Statements: 39 Consolidated Income Statement 40 Consolidated Balance Sheet 41 Consolidated Statement of Stockholders' Equity 42 Consolidated Statement of Cash Flows 43 Notes to Financial Statements 64 Supplemental Petroleum Data 71 Quarterly Financial Data 72 Consolidated Geographic Data 73 Five-Year Financial Review 29 Management's Discussion and Analysis This review and discussion of financial performance should be read in conjunction with the letter to stockholders (pages 1-4),business reviews (pages 16-28) and the consolidated financial statements (pages 39-63). Analysis of Operations Sales Sales in 1994 were $39.3 billion, up 6 percent from 1993. Petroleum segment sales increased 7 percent, while the combined chemicals and specialties segments of Chemicals, Fibers, Polymers and Diversified Businesses were up 6 percent. The chemicals and specialties segments sales increase was 8 percent after adjusting for businesses acquired and divested, reflecting 9 percent higher sales volume, with improvements in every region. Europe was particularly strong, with sales volume up 14 percent, reflecting the economic recovery in that region. Selling prices, while trending upward in 1994, still averaged 1 percent below average 1993 levels. Full-year currency effect on 1994 average prices versus 1993 was negligible. Sales in 1993 were $37.1 billion, 2 percent below 1992, reflecting 2 percent reductions for the combined chemicals and specialties segments and for the petroleum segment. Lower sales were principally due to lower prices, largely the result of adverse exchange effects from a stronger dollar, partly offset by higher volume. Earnings Net income in 1994 was $2,727 million, or $4.00 per share, compared to $555 million, or $.81 per share, in 1993. Results in 1993 included nonrecurring items--principally for restructuring, write-down of intangible assets, product liability charges, asset sales and benefits from tax law changes--which totaled a net charge of $1.65 per share. For similar nonrecurring items in 1994, the total net charge was $.07 per share. Excluding these charges from both years, 1994 net income was $2,775 million, or $4.07 per share, versus $1,677 million, or $2.46 per share, in 1993, up 65 percent. This increase principally reflects improvements in the chemicals and specialties segments from higher sales volume, lower fixed costs and a slightly lower tax rate. The coal business improved, reflecting a full year of normal operations, as compared to prior year results, which had been adversely affected by United Mine Workers strikes. Petroleum segment earnings were lower, principally reflecting reduced downstream worldwide refined product margins and the adverse impact of refinery downtime, partly offset by better results in upstream operations. Net income in 1993 was $555 million, or $.81 per share, compared with a loss of $3,927 million, or $(5.85) per share, in 1992. Excluding tax benefits in 1993, nonrecurring and extraordinary items from both years and one-time charges in 1992 for the adoption of new accounting standards, 1993 earnings were $1,677 million, or $2.46 per share, 25 percent higher than the $1,341 million, or $1.98 per share, earned in 1992. The improvement principally resulted from higher petroleum segment earnings from lower costs and increased production outside the United States, partly offset by lower coal results, which were impaired by strikes.
Taxes ($ in millions) - -------------------------------------------------------------------------------- 1994 1993 1992 --------------------------------------- Income tax expense $1,655 $392 $836 Effective income tax rate (EITR) 37.8% 40.9% 46.2%
================================================================================ Over the last three years, the company's EITR exceeded the U.S. statutory rate of 35 percent in 1994 and 1993 and 34 percent in 1992, principally because of the higher tax rates associated with petroleum production operations outside the United States. The 1994 EITR decreased about 3 percentage points from the prior year, reflecting a lower EITR for the chemicals and specialties segments and a lower proportion of higher-taxed petroleum earnings to total company earnings. The decrease in the 1993 EITR versus 1992 reflected a lower effective tax rate in Petroleum operations and a $265 million tax benefit, principally arising from U.K. Petroleum Revenue Tax law revisions, partly offset by an increased proportion of higher-taxed petroleum earnings. The company paid total taxes of $7.5 billion in 1994, compared to $6.4 billion in 1993 and $6.6 billion in 1992. 1994 total tax payments were higher than 1993, reflecting higher taxes on income and higher gas and oil excise taxes. Tax payments in 1993 were less than 1992, reflecting lower income taxes. 30 Management's Discussion and Analysis Restructuring In 1993, restructuring was aimed at improving competitiveness in global markets and focus on the customer. This included plans to eliminate approximately 10,900 positions worldwide and to reduce large internal business sectors in favor of smaller, more responsive, strategic business units. The 1993 pretax charge to earnings for these business restructuring activities was $1.6 billion. At year-end 1994, restructuring reserve balances are about $300 million, approximately two-thirds of which will be paid during 1995. As this program is concluded, these future cash payments are not expected to have a material impact on the company's liquidity. Additional details on these restructuring charges are set forth in Note 6 to the financial statements. It is estimated that 1994 operating results included about $450 million in pretax savings related to restructuring activities that have been completed. Evaluation of the need for additional restructuring is ongoing and is made in conjunction with corporate strategies to build and maintain globally competitive businesses. However, requisite across-the-board downsizing is believed to be complete, and no additional restructuring costs of the magnitude experienced in recent years are anticipated. Cash Flows and Financial Condition During the past three years, cash provided by operations was the primary source of funding for the company's capital investment programs and dividends. Cash flow in excess of these needs was used to reduce borrowings. Cash Provided by Operations Cash provided by operations totaled $5.7 billion in 1994, about $300 million more than in 1993. In substance, the increase was the result of higher net income partly offset by higher cash payments for restructuring. As shown on the Consolidated Statement of Cash Flows, net income in 1994, adjusted for noncash charges and credits, was up $1.3 billion over that of 1993. Noncash charges in 1993 included asset write-downs and write-offs as part of that year's restructuring program. In 1993, the net change in operating assets and liabilities resulted in an inflow of more than $900 million, reflecting higher current liabilities, principally due to restructuring charges and reduced inventories and accounts receivable. Cash provided by operations in 1993 totaled $5.4 billion, up $1.0 billion from 1992, reflecting higher net income, excluding restructuring charges, and lower working capital. Capital Expenditures Capital expenditures of $3.1 billion in 1994, including investments in affiliates, were 15 percent below the prior year's level. Capital expenditures of $3.7 billion in 1993 were 19 percent lower than in 1992. Lower capital expenditures in recent years result from a more focused and rigorous approach to spending capital, combined with the implementation of engineering and design practices that have significantly improved capital productivity. In the Petroleum segment, capital expenditures were $1.6 billion, essentially equal to the 1993 level. The most significant Petroleum expenditures in 1994 were for the continued development of the Heidrun field in Norway and the Belida field in Indonesia, the acquisition of an additional interest in the Britannia field in the United Kingdom and for an improvement at the Billings refinery to comply with the U.S. Clean Air Act. For other segments, capital spending in 1994 continued to concentrate on strengthening and growing strategic businesses outside the United States. This included projects for "Adi-Pure" adipic acid and "Zytel" engineering polymers in Singapore, THF/"Terathane" polyether glycol in Spain and "Tyvek" spun-bonded products in Luxembourg. In the United States, significant expenditures were also made for commercialization of CFC alternatives and for modernization of "Dacron" polyester and "Tyvek" spunbonded products facilities. Improvement projects mainly concentrated on enhancing the efficiency and yields of existing refineries and manufacturing facilities. Capital expenditures are expected to increase to $3.6 billion in 1995, to take advantage of growth opportunities. 31 Management's Discussion and Analysis Proceeds From Sales of Assets Proceeds from sales of assets were $432 million in 1994, versus $1.2 billion in 1993 and $179 million in 1992. In 1994, $212 million came from the sale of petroleum properties, none individually significant, and the balance principally from sales of the "Sclair," Petroleum Additives and "Selar" businesses. Principal proceeds in 1993 were $270 million from connector systems, $280 million from acrylics and $300 million from the sale of the Remington Arms Company. Dividends Dividends per share of common stock in 1994 were $1.82, versus $1.76 in 1993 and $1.74 in 1992. The regular quarterly dividend was increased from $.44 per share to $.47 per share in the third quarter of 1994. The common stock dividend payout in relation to cash provided by operations was 22 percent in 1994 and 1993, as compared to 27 percent in 1992. Borrowings Borrowings at year-end 1994 were $7.6 billion, as compared to $9.3 billion and $10.9 billion in 1993 and 1992, respectively. Improved cash flow during 1994, principally due to higher cash flow provided by operations and lower capital expenditures, was used to reduce borrowings by $1.7 billion. As a result, the debt ratio* at year-end 1994 was 37 percent, versus 45 percent in 1993. Working Capital Investment Working capital investment (excluding cash and cash equivalents, marketable securities, short-term borrowings and capital lease obligations) increased about $700 million in 1994, principally due to accounts receivable and inventory increases related to the exchange effect of a weaker dollar and a decrease in other accrued liabilities resulting from cash payments for "Benlate" DF 50 fungicide settlements and restructuring. These increases in investment were partially offset by higher accounts payable and a decrease in deferred tax asset balances as tax benefits were realized during the year. In 1993, working capital investment decreased $1.1 billion, reflecting lower inventories and accounts receivable and higher current liabilities, which increased principally due to the 1993 restructuring charge. The ratio of current assets to current liabilities, including cash and cash equivalents, marketable securties, short-term borrowings and capital lease obligations, at year-end 1994 was 1.5:1, as compared to 1.2:1 in 1993 and 1992. Financial Instruments Derivatives and Other Hedging Instruments The company enters into contractual arrangements (derivatives) in the ordinary course of business to hedge its exposure to foreign currency, interest rate and commodity price risks. The counterparties to these contractual arrangements are major financial institutions. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company manages this exposure to credit loss through credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. The company does not anticipate nonperformance by counterparties to these contracts, and no material loss would be expected from any such nonperformance. Procedures are in place to regularly monitor and report to management the market and counterparty credit risks associated with these instruments. Foreign Currency The company routinely uses forward exchange contracts to hedge its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. - ------------------------- *Total short- and long-term borrowings and capital lease obligations divided by the sum of these amounts plus stockholders' equity and minority interests in consolidated subsidiaries. 32 Management's Discussion and Analysis In addition, from time to time, the company will enter into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis taking into consideration the amount and duration of the exposure, market volatility and economic trends. Forward exchange contracts are also used to manage near-term foreign currency cash requirements and to place foreign currency deposits and marketable securities investments into currencies offering favorable returns. Interest Rates The company uses a combination of financial instruments, including interest rate swaps, interest and principal currency swaps and structured medium-term financings, as part of its program to manage the fixed and floating interest rate mix of the total debt portfolio and related overall cost of borrowing. Interest rate swaps involve the exchange of fixed for floating rate interest payments to effectively convert fixed rate debt into floating rate debt based on LIBOR or commercial paper rates. Interest rate swaps also involve the exchange of floating for fixed rate interest payments to effectively convert floating rate debt into fixed rate debt. Interest rate swaps allow the company to maintain a target range of floating rate debt. Under interest and principal currency swaps, the company receives predetermined foreign currency-denominated payments corresponding, both as to timing and amount, to the fixed or floating interest rate and fixed principal amounts to be paid by the company under concurrently issued foreign currency-denominated bonds. In return, the company pays U.S. dollar interest and a fixed U.S. dollar principal amount to the counterparty, thereby effectively converting the foreign currency-denominated bonds into U.S. dollar-denominated obligations for both interest and principal. Interest and principal currency swaps allow the company to be fully hedged against fluctuations in currency exchange rates and foreign interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. Structured medium-term financings consist of a structured medium-term note and a concurrently executed structured medium-term swap that, for any and all calculations of the note's interest and/or principal payments over the term of the note, provides a fully hedged transaction such that the note is effectively converted to a U.S. dollar-denominated fixed or floating interest rate payment. Structured medium-term swaps allow the company to be fully hedged against fluctuations in exchange rates and interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. Commodity Hedges and Trading The company enters into exchange-traded and over-the-counter commodity futures contracts to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Commodity trading in petroleum futures contracts is a natural extension of cash market trading and is used to physically acquire about 15 percent of North America refining crude supply requirements. The commodity futures market has underlying principles of increased liquidity and longer trading periods than the cash market and is one method of reducing exposure to the price risk inherent in the petroleum business. Typically, trading is conducted to manage price risk around near-term (30-60 days) supply requirements. Occasionally, as market views and conditions allow, longer-term positions will be taken to manage price risk for the company's equity production (crude and natural gas) or net supply requirements. The company's use of futures contracts reduces the effects of price volatility, thereby protecting against adverse short-term price movements, while limiting, somewhat, the benefits of favorable short-term price movements. 33 Management's Discussion and Analysis From time to time, on a limited basis, the company also purchases and sells petroleum-based futures contracts for trading purposes. After-tax gain/loss from such trading has not been material. Additional details on these and other financial instruments are set forth in Note 27 to the financial statements. Environmental Matters The company operates about 150 manufacturing facilities, five petroleum refineries, 20 natural gas processing plants and numerous product-handling and distribution facilities around the world, all of which are significantly affected by a broad array of laws and regulations relating to the protection of the environment. It is the company's policy to comply fully with or to exceed all legal requirements worldwide. In addition, since some risk to the environment is associated with the company's operations, as it is with other companies engaged in similar businesses, voluntary programs are in place to minimize that risk. These programs are designed to reduce air emissions, curtail the generation of hazardous waste, decrease the volume of wastewater discharges and improve the energy efficiency of operations. The cost of complying with increasingly complex environmental laws and regulations, as well as the company's own internal programs, is significant, and will continue to be so for the foreseeable future, but is not expected to have a material impact on the company's competitive or financial position. The enactment of broader or more stringent environmental laws or regulations in the future, however, could lead to an upward reassessment of the potential environmental costs provided below. New waste treatment facilities and pollution control and other equipment are routinely installed to satisfy both legal requirements and the company's waste elimination and pollution prevention goals. About $400 million was spent for capital projects related to environmental requirements and company goals in 1994. The company currently estimates expenditures for environmental-related capital projects will total about the same in 1995. The company anticipates significant capital expenditures may be required over the next decade for treatment, storage and disposal facilities for solid and hazardous waste and for compliance with the 1990 Amendments to the Clean Air Act (CAA). For example, environmental capital costs in 1993 and 1994 related to the CAA Amendments included expenditures in the Petroleum segment to meet federal requirements for reformulated gasoline/clean fuels, and additional environmental capital expenditures are anticipated for plant air emission controls, primarily in the Chemicals and Petroleum segments. Although considerable uncertainty will remain with regard to future estimates of capital expenditures until all new CAA regulatory requirements are known, related capital costs over the next two years are currently estimated to total approximately $20 million. Estimated pretax environmental expenses charged to current operations totaled about $950 million in 1994, as compared to $1 billion in 1993 and $900 million in 1992. These expenses included the remediation accruals discussed below, operating, maintenance and depreciation costs for solid waste, air and water pollution control facilities and costs incurred in conducting environmental research activities. The largest of these expenses resulted from the operation of water pollution control facilities and solid waste management facilities, each of which accounted for about $200 million. About 75 percent of total annual expenses resulted from the operations of the company's Chemicals, Fibers, Polymers and Diversified Businesses segments in the United States, primarily the Chemicals and Polymers segments. Expenses are expected to increase over the next several years as a result of additional operating costs associated with new pollution prevention and control equipment. Remediation Accruals The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as Superfund) and the Resource Conservation and Recovery Act (RCRA) both require that the company undertake certain remediation activities at sites where the company conducts or once conducted operations or 34 Management's Discussion and Analysis at sites where company-generated waste was disposed. DuPont accrues for those remediation activities when it is probable that a liability has been incurred and reasonable estimates can be made. Accrued liabilities are exclusive of claims against third parties and are not discounted. During 1994 the company accrued $185 million for environmental remediation activities, compared to $183 million and $160 million in 1993 and 1992, respectively. At December 31, 1994, the company's balance sheet included an accrued liability of $616 million as compared to $522 million and $465 million at year-end 1993 and 1992, respectively. Approximately 75 percent of the company's environmental accrual is attributable to RCRA and similar remediation liabilities and 25 percent to CERCLA liabilities. Expenditures for such previously accrued remediation activities were $91 million in 1994, $126 million in 1993 and $121 million in 1992. The company's assessment of the potential impact of these two principal remediation statutes is subject to considerable uncertainty due to the complex, ongoing and evolving process of generating estimates of remediation costs. The various stages of remediation include initial broad-based analysis of a site, on-site investigation, feasibility studies to select from among various remediation methods, approval by applicable authorities and, finally, the actual implementation of the remediation plan. Remediation activities occur over a relatively long period of time and vary in cost substantially from site to site depending on the mix of unique site characteristics, the development of new remediation technologies and the evolving regulatory framework. The company's assessment of those costs is a continuous process which takes into account the factors affecting each specific site. DuPont Environmental Remediation Services, a wholly owned subsidiary, provides technical capability to address the company's remediation needs in a cost-effective manner, while protecting human health and the environment. RCRA, as amended in 1984, provides for extensive regulation of the treatment, storage and disposal of hazardous waste. The regulations currently provide that companies seeking to periodically renew RCRA permits, or close facilities with permits, must, as a condition of renewal or closure, undertake certain corrective measures to remediate contamination caused by prior operations. The RCRA corrective action program affects the company differently than the CERCLA program in that the cost of RCRA corrective action activities is typically borne solely by the company. The company anticipates that significant ongoing expenditures for RCRA corrective actions may be required over the next two decades. Annual expenditures for the near term are not expected to vary significantly from the range of such expenditures over the past few years. Longer term, expenditures are subject to considerable uncertainty and may fluctuate significantly, perhaps between $50 million and $300 million in any one year. The company's expenditures associated with RCRA and similar remediation activities were approximately $70 million in 1994, $90 million in 1993 and $103 million in 1992. The company from time to time receives requests for information or notices of potential liability from the Environmental Protection Agency (EPA) and state environmental agencies, alleging that the company is a "potentially responsible party" (PRP) under CERCLA or equivalent state legislation. In addition, the company has on occasion been made a party to cost recovery litigation by those agencies. These requests, notices and lawsuits assert potential liability for remediation costs of various waste treatment or disposal sites that are not company owned but allegedly contain wastes attributable to the company from past operations. As of December 31, 1994, the company was aware of potential liability under CERCLA or state laws at about 310 sites around the United States. The CERCLA or state remediation process is actively under way at one stage or another at about 145 of those sites. In addition, the company has resolved its liability at 48 sites, either by completing necessary remedial actions with other PRPs or by participating in "de minimis buyouts" with other PRPs whose waste, like the company's, only represented a small fraction of the total waste present at a site. 35 Management's Discussion and Analysis The company's expenditures associated with CERCLA or state remediation activities were approximately $21 million in 1994, $36 million in 1993 and $18 million in 1992. Over the next decade the company may incur significant costs under CERCLA. Considerable uncertainty exists with respect to these costs, and under the most adverse circumstances potential liability may exceed amounts accrued as of December 31, 1994. The company's share of the remediation cost at these sites in many instances cannot be precisely estimated due to the large number of PRPs involved, the scarcity of reliable data pertaining to many of these sites, uncertainty as to how the laws and regulations may be applied to these sites and the multiple choices and costs associated with diverse technologies that may be used in remediation. For most sites, the company's potential liability will be significantly less than the total site remediation costs because the percentage of material attributable to the company versus that attributable to other PRPs is relatively low. There are a few sites where the company is a major participant, but neither the cost to the company of remediation at those sites, nor at all CERCLA sites in the aggregate, is expected to have a material impact on the competitive or financial position of the company. The process of estimating CERCLA remediation costs, the financial viability of other PRPs and the PRPs' respective shares of liability is ongoing. Often these estimates are performed by third parties and, thus far, have not been subject to material uncertainty or dispute. Moreover, other PRPs at sites where the company is a party typically have the financial strength to meet their obligations and, where they do not, or where certain PRPs cannot be located, the company's own share of liability has not materially increased. The company's general experience has been that, in most cases, its share of estimated costs at any given site has trended downward as this process has matured. Although future remediation expenditures in excess of current reserves could be significant, the effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the cost and timing of expenditures. The company is actively pursuing claims against insurers with respect to RCRA and CERCLA liabilities. Potential recoveries in this litigation have not been offset against the accruals discussed above. 36 Responsibilities for Financial Reporting Management is responsible for the consolidated financial statements and the other financial information contained in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles considered by management to present fairly the company's financial position, results of operations and cash flows. The financial statements include some amounts that are based on management's best estimates and judgments. The company's system of internal controls is designed to provide reasonable assurance as to the protection of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The company's business ethics policy is the cornerstone of our internal control system. This policy sets forth management's commitment to conduct business worldwide with the highest ethical standards and in conformity with applicable laws. The business ethics policy also requires that the documents supporting all transactions clearly describe their true nature and that all transactions be properly reported and classified in the financial records. The system is monitored by an extensive program of internal audit, and management believes that the system of internal accounting controls at December 31, 1994 meets the objectives noted above. The financial statements have been audited by the company's independent accountants, Price Waterhouse LLP. The purpose of their audit is to independently affirm the fairness of management's reporting of financial position, results of operations and cash flows. To express the opinion set forth in their report, they study and evaluate the internal accounting controls to the extent they deem necessary. Their report is shown on page 38. The adequacy of the company's internal accounting controls and the accounting principles employed in financial reporting are under the general oversight of the Audit Committee of the Board of Directors. This Committee also has responsibility for employing the independent accountants, subject to stockholder ratification. No member of this Committee may be an officer or employee of the company or any subsidiary or affiliated company. The independent accountants and the internal auditors have direct access to the Audit Committee, and they meet with the Committee from time to time, with and without management present, to discuss accounting, auditing and financial reporting matters. /s/ Edgar S. Woolard, Jr. Edgar S. Woolard, Jr. Chairman of the Board and Chief Executive Officer /s/ Charles L. Henry Charles L. Henry Senior Vice President DuPont Finance and Chief Financial Officer February 16, 1995 37 Report of Independent Accountants To the Stockholders and the Board of Directors of E. I. du Pont de Nemours and Company In our opinion, the consolidated financial statements appearing on pages 39-63 of this Annual Report present fairly, in all material respects, the financial position of E. I. du Pont de Nemours and Company and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the company changed its method of accounting for postretirement benefits other than pensions and for income taxes in 1992. /s/ Price Waterhouse LLP Price Waterhouse LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 February 16, 1995 38 Financial Statements E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Income Statement (Dollars in millions, except per share) - ---------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 Sales* $39,333 $37,098 $37,799 Other Income (Note 2) 926 743 553 ----------------------------- Total 40,259 37,841 38,352 ----------------------------- Cost of Goods Sold and Other Operating Charges (Notes 3 and 12) 21,977 21,624 22,046 Selling, General and Administrative Expenses 2,888 3,081 3,553 Depreciation, Depletion and Amortization 2,976 2,833 2,655 Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties 357 361 416 Research and Development Expense 1,047 1,132 1,277 Interest and Debt Expense (Note 4) 559 594 643 Taxes Other Than on Income* (Note 5) 6,215 5,423 5,476 Restructuring (Note 6) (142) 1,621 475 Write-Down of Intangible Assets (Note 6) - 214 - ----------------------------- Total 35,877 36,883 36,541 ----------------------------- Earnings Before Income Taxes 4,382 958 1,811 Provision for Income Taxes (Note 7) 1,655 392 836 ----------------------------- Income Before Extraordinary Item and Transition Effect of Accounting Changes 2,727 566 975 Extraordinary Charge from Early Extinguishment of Debt (Note 8) - (11) (69) Transition Effect of Changes in Accounting Principles (Notes 1, 7 and 25) - - (4,833) ----------------------------- Net Income (Loss) $ 2,727 $ 555 $(3,927) - ----------------------------------------------------------------------------------------------------------------------------- Earnings Per Share of Common Stock (Note 9) Income Before Extraordinary Item and Transition Effect of Accounting Changes $ 4.00 $ .83 $ 1.43 Extraordinary Charge from Early Extinguishment of Debt (Note 8) - (.02) (.10) Transition Effect of Changes in Accounting Principles (Notes 1, 7 and 25) - - (7.18) ----------------------------- Net Income (Loss) $ 4.00 $ .81 $ (5.85) =============================================================================================================================
*Includes petroleum excise taxes of $5,291, $4,477 and $4,508 in 1994, 1993 and 1992, respectively. See pages 43-63 for Notes to Financial Statements. 39 Financial Statements E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Balance Sheet (Dollars in millions, except per share) - ------------------------------------------------------------------------------------------------------------------------------------ December 31 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current Assets Cash and Cash Equivalents (Note 10) $ 856 $ 1,109 Marketable Securities (Note 10) 253 85 Accounts and Notes Receivable (Note 11) 5,213 4,894 Inventories (Note 12) 3,969 3,818 Prepaid Expenses 259 231 Deferred Income Taxes (Note 7) 558 762 ---------------------- Total Current Assets 11,108 10,899 ---------------------- Property, Plant and Equipment (Note 13) 48,838 47,926 Less: Accumulated Depreciation, Depletion and Amortization 27,718 26,503 ---------------------- 21,120 21,423 ---------------------- Investment in Affiliates (Note 14) 1,662 1,607 Other Assets (Notes 7 and 15) 3,002 3,124 ---------------------- Total $36,892 $37,053 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current Liabilities Accounts Payable (Note 16) $ 2,734 $ 2,444 Short-Term Borrowings and Capital Lease Obligations (Note 17) 1,292 2,796 Income Taxes (Note 7) 409 321 Other Accrued Liabilities (Note 18) 3,130 3,878 ---------------------- Total Current Liabilities 7,565 9,439 Long-Term Borrowings and Capital Lease Obligations (Notes 19 and 20) 6,376 6,531 Other Liabilities (Note 21) 8,438 8,200 Deferred Income Taxes (Note 7) 1,494 1,466 ---------------------- Total Liabilities 23,873 25,636 ---------------------- Minority Interests in Consolidated Subsidiaries 197 187 ---------------------- Stockholders' Equity (see page 41) Preferred Stock 237 237 Common Stock, $.60 par value; 900,000,000 shares authorized; issued at December 31: 1994--681,004,944; 1993--677,577,437 408 407 Additional Paid-In Capital 4,771 4,660 Reinvested Earnings 7,406 5,926 ---------------------- Total Stockholders' Equity 12,822 11,230 ---------------------- Total $36,892 $37,053 ===================================================================================================================================
See pages 43-63 for Notes to Financial Statements. 40 Financial Statements E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Stockholders' Equity (Dollars in millions, except per share) - --------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ---------------------------- Preferred Stock, without par value--cumulative; 23,000,000 shares authorized; issued at December 31: $4.50 Series--1,672,594 shares (callable at $120) $ 167 $ 167 $ 167 $3.50 Series--700,000 shares (callable at $102) 70 70 70 ---------------------------- 237 237 237 ---------------------------- Common Stock (Notes 22 and 23), $.60 par value; 900,000,000 shares authorized; issued at December 31: 1994--681,004,944; 1993--677,577,437; 1992--675,008,236 408 407 405 Additional Paid-In Capital (Notes 22 and 23) ---------------------------- Balance at Beginning of Year 4,660 4,551 4,418 Common Stock Issued in Connection with Compensation Plans 111 109 133 ---------------------------- Balance at End of Year 4,771 4,660 4,551 ---------------------------- Reinvested Earnings Balance at Beginning of Year 5,926 6,572 11,681 Net Income (Loss) 2,727 555 (3,927) ---------------------------- 8,653 7,127 7,754 ---------------------------- Preferred Dividends (10) (10) (10) Common Dividends (1994--$1.82; 1993--$1.76; 1992--$1.74) (1,237) (1,191) (1,172) ---------------------------- Total Dividends (1,247) (1,201) (1,182) ---------------------------- Balance at End of Year 7,406 5,926 6,572 ---------------------------- Total Stockholders' Equity $ 12,822 $ 11,230 $11,765 =====================================================================================================================
See pages 43-63 for Notes to Financial Statements. 41 Financial Statements E. I. du Pont de Nemours and Company and Consolidated Subsidiaries
Consolidated Statement of Cash Flows (Dollars in millions) - --------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ---------------------------- Cash and Cash Equivalents at Beginning of Year $ 1,109 $ 1,640 $ 468 ---------------------------- Cash Provided by Operations Net Income (Loss) 2,727 555 (3,927) Adjustments to Reconcile Net Income to Cash Provided by Operations: Extraordinary Charge from Early Extinguishment of Debt (Note 8) - 11 69 Transition Effect of Accounting Changes (Notes 1, 7 and 25) - - 4,833 Depreciation, Depletion and Amortization 2,976 2,833 2,655 Dry Hole Costs and Impairment of Unproved Properties 152 201 185 Other Noncash Charges and Credits--Net (140) 843 (174) Decrease in Operating Assets: Accounts and Notes Receivable 30 103 104 Inventories and Other Operating Assets 19 664 219 Increase (Decrease) in Operating Liabilities: Accounts Payable and Other Operating Liabilities (432) 686 907 Accrued Interest and Income Taxes (Notes 4 and 7) 332 (516) (483) ---------------------------- Cash Provided by Operations 5,664 5,380 4,388 ---------------------------- Investment Activities (Note 24) Purchases of Property, Plant and Equipment (3,050) (3,621) (4,448) Investments in Affiliates (90) (70) (127) Payments for Businesses Acquired (5) (409) - Proceeds from Sales of Assets 432 1,160 179 Investments in Short-Term Financial Instruments--Net (379) (85) (70) Miscellaneous--Net (41) (53) (87) ---------------------------- Cash Used for Investment Activities (3,133) (3,078) (4,553) ---------------------------- Financing Activities Dividends Paid to Stockholders (1,247) (1,201) (1,182) Net Increase (Decrease) in Short-Term Borrowings (517) (2,024) 2,310 Long-Term and Other Borrowings: Receipts 824 1,806 2,976 Payments (2,032) (1,392) (2,711) Common Stock Issued in Connection with Compensation Plans 94 67 86 ---------------------------- Cash Provided by (Used for) Financing Activities (2,878) (2,744) 1,479 ---------------------------- Effect of Exchange Rate Changes on Cash 94 (89) (142) ---------------------------- Cash and Cash Equivalents at End of Year $ 856 $ 1,109 $ 1,640 ---------------------------- Increase (Decrease) in Cash and Cash Equivalents $ (253) $ (531) $ 1,172 =====================================================================================================================
See pages 43-63 for Notes to Financial Statements. 42 Notes to Financial Statements (Dollars in millions, except per share) 1. Summary of Significant Accounting Policies DuPont observes the generally accepted accounting principles described below. These, together with the other notes that follow, are an integral part of the consolidated financial statements. Accounting Changes In 1992, DuPont adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes." The company recorded charges to net income of $3,788 ($5.63 per share) and $1,045 ($1.55 per share), respectively, as of January 1, 1992 for the effects of transition to these two new standards. See also Notes 7 and 25. Basis of Consolidation The accounts of wholly owned and majority-owned subsidiaries are included in the consolidated financial statements. Investments in affiliates owned 20 percent or more and corporate joint ventures are accounted for under the equity method. Investments in noncorporate joint ventures of petroleum operations are consolidated on a pro rata basis. Other securities and investments, excluding marketable securities, are generally carried at cost. Inventories Substantially all inventories are valued at cost as determined by the last-in, first-out (LIFO) method; in the aggregate, such valuations are not in excess of market. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies are valued at cost or market, whichever is lower; cost is generally determined by the average cost method. Property, Plant and Equipment Property, plant and equipment (PP&E) is carried at cost and, except for petroleum, PP&E is generally classified in depreciable groups and depreciated under the sum-of-the-years' digits method and other substantially similar methods. Depreciation rates range from 4 percent to 12 percent per annum on direct manufacturing facilities and from 2 percent to 10 percent per annum on other facilities; in some instances appropriately higher or lower rates are used. Generally, for PP&E acquired prior to 1991, the gross carrying value of assets surrendered, retired, sold or otherwise disposed of is charged to accumulated depreciation and any salvage or other recovery therefrom is credited to accumulated depreciation. For disposals of PP&E acquired after 1990, the gross carrying value and related accumulated depreciation are removed from the accounts and included in determining gain or loss on such disposals. Beginning in 1995, nonpetroleum PP&E placed in service will be depreciated using the straight-line method. This change in accounting principle is being made to reflect management's belief that the productivity of such PP&E will not appreciably diminish in the early years of its useful life, and it will not be subject to significant additional maintenance in the later years of its useful life. In these circumstances, straight-line depreciation is preferable in that it provides a better matching of costs with revenues. Additionally, the change to the straight-line method will conform to predominant industry practice. Although the effect of this change on net income will be impacted by the level of future capital spending, the change is not expected to have a material effect on 1995 results. Petroleum PP&E, other than "Oil and Gas Properties" described below, is depreciated on the straight-line method at various rates calculated to extinguish carrying values over estimated useful lives. When petroleum PP&E is surrendered, retired, sold or otherwise disposed of, the nature of the assets involved determines if a gain or loss is recognized, or the gross carrying value is charged to accumulated depreciation, depletion and amortization and any salvage or other recovery therefrom is credited to accumulated depreciation, depletion and amortization. Maintenance and repairs are charged to operations; replacements and betterments are capitalized. Oil and Gas Properties The company's exploration and production activities are accounted for under the successful-efforts method. Costs of acquiring unproved properties are capitalized, and impairment of those properties, which are individually insignificant, is provided for by amortizing the cost thereof based on past experience and the estimated holding period. Geological, geophysical and delay rental costs are expensed as incurred. Costs of exploratory dry holes are expensed as the wells are determined to be dry. Costs of productive properties, production and support equipment and development costs are capitalized and amortized on a unit-of-production basis. 43 Notes to Financial Statements (Dollars in millions, except per share) Intangible Assets Identifiable intangible assets such as purchased patents and trademarks are amortized on a straight-line basis over their estimated useful lives. Goodwill is amortized over periods up to 40 years on the straight-line method. The company continually evaluates the reasonableness of its amortization for intangibles. In addition, if it becomes probable that expected future undiscounted cash flows associated with intangible assets are less than their carrying value, the assets are written down to their fair value. Environmental Liabilities and Expenditures Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities are exclusive of claims against third parties and are not discounted. In general, costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations. Income Taxes The provision for income taxes has been determined using the asset and liability approach to accounting for income taxes. Under that approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates, except in cases in which earnings of foreign subsidiaries are deemed to be permanently invested. Investment tax credits or grants are accounted for in the period earned (the flow-through method). Foreign Currency Translation The company has determined that the U.S. dollar is the "functional currency" of its worldwide operations. Foreign currency asset and liability amounts are translated into U.S. dollars at end-of-period exchange rates, except for inventories, prepaid expenses and property, plant and equipment, which are translated at historical rates. Income and expenses are translated at average exchange rates in effect during the year, except for expenses related to balance sheet amounts that are translated at historical exchange rates. The company routinely uses forward exchange contracts to hedge its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities of its operations. Exchange gains and losses, net of their related tax effects, are included in income in the period in which they occur. In addition, the company from time to time enters into forward exchange contracts and similar agreements to effectively convert firm foreign currency commitments to U.S. dollar-denominated transactions. Gains and losses on these specific commitment hedges are deferred and included in the measurement of the related foreign currency transactions. In the Consolidated Statement of Cash Flows, the company reports the cash flows resulting from its hedging activities in the same category as the related item that is being hedged. Interest Rate Swap Agreements The company enters into interest rate swap agreements as part of its program to manage the fixed and floating interest rate mix of its total debt portfolio and related overall cost of borrowing. The differential to be paid or received is accrued as interest rates change and is recognized in income over the life of the agreements. Commodity Hedges and Trading The company enters into commodity futures contracts to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Gains and losses on these hedge contracts are deferred and included in the measurement of the related transaction. From time to time, on a limited basis, the company also purchases and sells petroleum-based futures contracts for trading purposes. Changes in the market values of these trading contracts are reflected in income in the period the change occurs. Reclassifications Certain reclassifications of prior years' data have been made to conform to 1994 classifications. 44 Notes to Financial Statements (Dollars in millions, except per share) 2. Other Income
- -------------------------------------------------------------------------- 1994 1993 1992 ------------------------- Royalty income $ 95 $111 $118 Interest income, net of miscellaneous interest expense 111 160 178 Equity in earnings of affiliates (see Note 14) 361 121 216 Sales of assets 92 198 40 Miscellaneous income and expenses--net 267 153 1 ------------------------- $926 $743 $553 ==========================================================================
3. Fungicide Recall and Claims Provision During 1991, the company initiated a stop-sale and recall of "Benlate" DF 50 fungicide. The company accrued $175, $200 and $212 in 1994, 1993 and 1992, respectively, for estimated costs in excess of insurance coverage. The related liability included in the Consolidated Balance Sheet is not reduced by the amounts of any expected insurance recoveries. Adverse changes in estimates for such costs could result in additional future charges. 4. Interest and Debt Expense
- -------------------------------------------------------------------------- 1994 1993 1992 ------------------------- Interest and debt cost incurred $703 $825 $860 Less: Interest and debt cost capitalized 143 194 194 Foreign currency adjustments* 1 37 23 ------------------------- $559 $594 $643 ==========================================================================
* Represents exchange gains associated with local currency borrowings in hyperinflationary economies. These amounts effectively offset the related inflationary interest expense arising from currency devaluations. Interest paid (net of amounts capitalized) was $598 in 1994, $614 in 1993 and $611 in 1992. 5. Taxes Other Than on Income
- --------------------------------------------------------------------------- 1994 1993 1992 -------------------------- Petroleum excise taxes (also included in Sales): U.S. $1,049 $ 803 $ 709 Non-U.S. 4,242 3,674 3,799 Payroll taxes 424 443 459 Property taxes 202 201 201 Import duties 159 151 146 Production and other taxes 139 151 162 -------------------------- $6,215 $5,423 $5,476 ================================================================================
6. Restructuring Charges and Write-Down of Intangible Assets Restructuring charges are directly related to management decisions to reduce worldwide employment levels and realign worldwide production and support facilities in order to improve productivity and competitiveness. Charges principally reflect employee separation costs, costs of shutting down certain facilities and contract cancellation costs. In the third quarter of 1993, the company recorded a restructuring charge of $1,621. The principal component of this charge related to employee separation costs of $665. This charge was for the involuntary and voluntary termination of approximately 10,900 employees, and was based on plans that identified the number of employees to be terminated, their functions and their businesses. Substantially all of this charge was for estimated termination payments and enhanced benefit costs for terminated employees. As of December 31, 1994, almost 9,000 employees have been terminated under this program and about $420 has been settled and charged against the related $665 liability. In addition, during the fourth quarter 1994, the restructuring reserve balance was reduced by $45 principally to reflect lower estimates for employee separation costs and a reduction of about 500 in the number of employees to be terminated. As a result, about $200 remains as a liability in the company's Consolidated Balance Sheet at December 31, 1994. This $200 balance includes certain termination payments for former employees that extend beyond December 31, 1994 under the terms of various separation 45 Notes to Financial Statements (Dollars in millions, except per share) agreements, in addition to the liability for employees yet to be terminated. All restructuring plans have been announced, and most of the remaining 1,400 employee terminations will be in Europe. The majority of these employees will be terminated during 1995, and the program will be completed in 1997 concurrent with the last plant closing. The remaining portion of the restructuring charge, $956, is related to asset write-downs and facility shutdowns, principally: a) The decision to discontinue the manufacture of silver halide films in New Jersey and to consolidate manufacturing at existing facilities in Germany and North Carolina. A charge of $330 was recorded to fully reserve discontinued facilities and to cover other costs directly associated with manufacturing and product line rationalizations of the printing and publishing business; b) Write-downs of operating assets to be sold, specifically, certain North American petroleum-producing properties. The petroleum properties were written down by $233 to their estimated net realizable value, generally based on their respective estimated selling prices; c) The write-down of a polymers plant in Texas by $102 to its estimated net realizable value. This charge covered the net book value of the facilities and estimated dismantlement costs less estimated salvage proceeds since it was uncertain at that time whether an appropriate buyer could be identified. This plant was subsequently sold as discussed below; d) Charges of $108 related to restructuring by an equity affiliate, write-off of chlorofluorocarbon (CFC) manufacturing facilities in South America, and contract cancellations; and e) A write-off of $70 associated with rationalization of certain fibers facilities in the United States, Europe and South America. This portion of the restructuring, after 1994 adjustments described below, is expected to be essentially completed in 1995. The related reserve balances at year-end 1994 were about $100. In the fourth quarter 1992, the company recorded charges of $475 for termination incentives and payments, as well as certain other charges, related to business restructuring. During 1994, an additional $25 charge was recorded to reflect higher-than-projected employee termination costs. This restructuring is complete. Adjustments of 1993 Restructuring Charges 1994 earnings included a $167 benefit associated with several adjustments of restructuring provisions established in September 1993. Revisions related to asset write-downs and facility shutdowns totaled $122 and reflected higher-than-anticipated proceeds from the disposal of a portion of a plant previously written down, continuation of CFC operations in South America, at the request of local government, to allow for an orderly transition to alternative products, and further refinement of certain of the other items reflected in the 1993 restructuring charge. In addition, an adjustment of $45 was made to reflect lower estimates for employee separation costs. Write-Down of Intangible Assets A charge of $214 was recorded in the third quarter 1993 for the write-down of intangible assets (technology and goodwill) associated with a series of acquisitions made by the printing and publishing business in 1989. Such action was taken when it became probable that undiscounted future cash flows would not be adequate to support carrying values. (See Note 1, "Intangible Assets.") 46 Notes to Financial Statements (Dollars in millions, except per share) 7. Provision for Income Taxes Effective January 1, 1992, the company adopted SFAS No. 109, "Accounting for Income Taxes." On adoption, the company recorded an increase in deferred tax liabilities at January 1, 1992 and a charge to income of $1,045, principally to provide deferred taxes for purchase business combinations consummated prior to 1992 for which it was not practicable to adjust all remaining assets and liabilities to pretax amounts. Total income taxes paid worldwide were $1,344 in 1994, $896 in 1993 and $1,213 in 1992.
1994 1993 1992 - -------------------------------------------------------------------------------- Current tax expense: U.S. federal $ 337 $ 321 $ 34 U.S. state and local 47 21 5 Non-U.S. 1,023 758 857 ------------------------------- Total 1,407 1,100 896 ------------------------------- Deferred tax expense: U.S. federal 497 (486) (319) U.S. state and local (55) (53) (35) Non-U.S. (136) (198) 133 ------------------------------- Total 306 (737) (221) ------------------------------- Other/1/ (58) 29 161 ------------------------------- Provision for Income Taxes (Excluding Extraordinary Item and Transition Effect of Accounting Change) 1,655 392 836 Extraordinary Item - (7) (39) Transition Effect of Change in Accounting for Postretirement Benefits Other Than Pensions - - (2,130) Stockholders' Equity/2/ (26) (20) (11) ------------------------------- Total Provision $1,629 $ 365 $(1,344) ================================================================================
1 Represents exchange (gains)/losses associated with the company's hedged non- U.S. tax liabilities. These amounts offset the tax effect arising from related hedging activities. The 1992 amount also includes $97 representing exchange gains on unhedged non-U.S. deferred tax liabilities established in conjunction with the adoption of SFAS No. 109. Excluding this item, exchange gains and losses, net of their related tax effects, were not material in the periods presented. 2 Represents tax benefit of certain stock compensation amounts that are deductible for income tax purposes but do not affect net income. Deferred income taxes result from temporary differences between the financial and tax bases of the company's assets and liabilities. The tax effects of temporary differences and tax loss/tax credit carryforwards included in the deferred income tax provision (excluding extraordinary item and transition effect of accounting change) are as follows:
- --------------------------------------------------------------------------- 1994 1993 1992 -------------------------- Depreciation $ 144 $(105) $ 232 Accrued employee benefits (19) (69) (69) Other accrued expenses 185 (346) (67) Intangible drilling costs (48) (68) 10 Inventory (87) 109 (53) Unrealized exchange gains/(losses) 103 (22) (125) Investment in subsidiaries and affiliates (7) (4) - Other temporary differences 33 30 (55) Tax loss/tax credit carryforwards 90 4 (103) Valuation allowance change--net 17 8 9 Tax rate changes - (274) - Tax status changes (105) - - -------------------------- $ 306 $(737) $(221) ===========================================================================
The significant components of deferred tax assets and liabilities at December 31, 1994 and 1993 are as follows:
- ---------------------------------------------------------------------------- 1994 1993 - ---------------------------------------------------------------------------- Deferred Tax Asset Liability Asset Liability - ---------------------------------------------------------------------------- Depreciation $ - $2,940 $ - $2,808 Accrued employee benefits 2,873 630 2,875 651 Other accrued expenses 782 4 963 - Intangible drilling costs - 289 - 337 Inventory 174 310 107 330 Unrealized exchange gains - 19 85 - Tax loss/tax credit carryforwards 395 - 590 - Investment in subsidiaries and affiliates 37 125 34 130 Other 331 835 352 878 ------------------------------------- Total 4,592 $5,152 5,006 $5,134 ======= ======= Less: Valuation allowance (357) (445) ------- ------- Net $4,235 $4,561 ============================================================================
47 Notes to Financial Statements (Dollars in millions, except per share) Current deferred tax liabilities (included in the Consolidated Balance Sheet caption "Income Taxes") were $63 and $67 at December 31, 1994 and 1993, respectively. In addition, deferred tax assets of $82 and $198 were included in Other Assets at December 31, 1994 and 1993, respectively (see Note 15). An analysis of the company's effective income tax rate (excluding extraordinary item and transition effect of accounting changes) follows:
- -------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 34.0% Higher effective tax rate on non-U.S. operations (principally Petroleum) 9.9 51.9 20.5 Lower effective tax rate on operations within U.S. possessions (1.1) (5.6) (2.4) Alternative fuels credit (2.1) (6.9) (2.0) Tax rate changes - (28.6)/1/ - Tax status changes (2.4)/2/ - - Other--net (1.5) (4.9) (3.9) ------------------------------- Effective income tax rate 37.8% 40.9% 46.2% ================================================================================
1 Reflects a net tax benefit of $265, arising principally from U.K. Petroleum Revenue Tax law revisions. 2 Reflects a tax valuation allowance benefit of $105 related to a change in tax status resulting from a transfer of properties among certain North Sea affiliates. Earnings before income taxes shown below are based on the location of the corporate unit to which such earnings are attributable. However, since such earnings are often subject to taxation in more than one country, the income tax provision shown above as U.S. or non-U.S. does not correspond to the earnings set forth below.
- -------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------- U.S. (including exports) $2,651 $ (167) $ 136 Other regions 1,731 1,125 1,675 ------------------------------------------- $4,382 $ 958 $1,811 ================================================================================
At December 31, 1994, unremitted earnings of non-U.S. subsidiaries totaling $4,333 were deemed to be permanently invested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States. Under the tax laws of various jurisdictions in which the company operates, deductions or credits that cannot be fully utilized for tax purposes during the current year may be carried forward, subject to statutory limitations, to reduce taxable income or taxes payable in a future year. At December 31, 1994, the tax effect of such carryforwards approximated $395. Of this amount, $176 has no expiration date, $20 expires in 1995, $139 expires after 1995 but before 2001 and $60 expires between 2001 and 2010. 8. Extraordinary Charge from Early Extinguishment of Debt In 1993, there was a charge of $11, net of a tax benefit of $7, for the redemption of $285 of outstanding debentures. In 1992, outstanding debt of $603 was redeemed with a resulting charge of $69, net of a tax benefit of $39. Charges principally represent call premium and unamortized discount, respectively. 9. Earnings Per Share of Common Stock Earnings per share are calculated on the basis of the following average number of common shares outstanding: 1994--679,999,916; 1993--676,622,115; and 1992-- 673,454,935. 10. Cash and Cash Equivalents and Marketable Securities Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value because of the short maturity of these instruments. Cash and cash equivalents are used in part to support a portion of the company's commercial paper program. Marketable securities represent investments in fixed and variable rate financial instruments classified as available-for-sale securities and reported at fair value. 11. Accounts and Notes Receivable
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Trade--net of allowances of $86 in 1994 and $97 in 1993 $4,244 $4,020 Miscellaneous 969 874 ------------------------- $5,213 $4,894 ================================================================================
Accounts and notes receivable are carried at amounts which approximate fair value. See Note 30 for a description of business segment markets and associated concentrations of credit risk. 48 Notes to Financial Statements (Dollars in millions, except per share) 12. Inventories
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Chemicals $ 237 $ 250 Fibers 677 571 Polymers 617 550 Petroleum 1,365 1,367 Diversified Businesses 1,073 1,080 --------------------------- $3,969 $3,818 ================================================================================
The excess of replacement or current cost over stated value of inventories for which cost has been determined under the LIFO method approximated $819 and $766 at December 31, 1994 and 1993, respectively. In the aggregate, the market value of the company's vertically integrated petroleum and petroleum-based chemical products exceeds cost. Inventories valued at LIFO comprised 88 percent and 87 percent of consolidated inventories before LIFO adjustment at December 31, 1994 and 1993, respectively. The liquidation of LIFO inventory quantities carried in the aggregate at lower costs prevailing in prior years increased 1993 net income by about $50 ($.07 per share). 13. Property, Plant and Equipment
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Chemicals $ 5,086 $ 4,984 Fibers 10,574 10,280 Polymers 7,827 7,742 Petroleum 17,999 17,698 Diversified Businesses 5,377 5,265 Corporate 1,975 1,957 --------------------------- $48,838 $47,926 ================================================================================
Property, plant and equipment includes gross assets acquired under capital leases of $148 and $72 at December 31, 1994 and 1993, respectively; related amounts included in accumulated depreciation, depletion and amortization were $88 and $57 at December 31, 1994 and 1993, respectively. 14. Summarized Financial Information for Affiliated Companies Summarized combined financial information for affiliated companies for which DuPont uses the equity method of accounting (see Note 1, "Basis of Consolidation") is shown below on a 100 percent basis. The most significant of these affiliates are CONSOL Energy Inc. and The DuPont Merck Pharmaceutical Company; DuPont has a 50 percent equity ownership in each of these companies. Dividends received from equity affiliates were $326 in 1994, $243 in 1993 and $124 in 1992.
- ------------------------------------------------------------------------------- Year Ended December 31 ---------------------------------- Results of operations 1994 1993 1992 - ------------------------------------------------------------------------------- Sales* $9,161 $8,030 $8,173 Earnings before income taxes 947 446 771 Net Income 732 252 568 DuPont's equity in earnings of affiliates (see Note 2) 361 121 216 ===============================================================================
* Includes sales to DuPont of $828 in 1994, $752 in 1993 and $803 in 1992.
- -------------------------------------------------------------------------------- December 31 ------------------------------ Financial position 1994 1993 - -------------------------------------------------------------------------------- Current assets $ 3,254 $ 2,703 Noncurrent assets 8,147 6,813 ------------------------------ Total assets $11,401 $ 9,516 ------------------------------ Short-term borrowings* $ 648 $ 475 Other current liabilities 2,065 1,820 Long-term borrowings* 2,590 2,220 Other long-term liabilities 2,934 2,847 ------------------------------ Total liabilities $ 8,237 $ 7,362 ------------------------------ DuPont's investment in affiliates (includes advances) $ 1,662 $ 1,607 - --------------------------------------------------------------------------------
* DuPont's pro rata interest in total borrowings was $1,220 in 1994 and $985 in 1993, of which $599 in 1994 and $388 in 1993 was guaranteed by the company. These amounts are included in the guarantees disclosed in Note 28. 49 Notes to Financial Statements (Dollars in millions, except per share) 15. Other Assets
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Prepaid pension cost (see Note 26) $1,502 $1,384 Intangible assets 225 278 Other securities and investments 508 474 Deferred income taxes (see Note 7) 82 198 Miscellaneous 685 790 --------------------------- $3,002 $3,124 ================================================================================
Other securities and investments includes $351 and $391 at December 31, 1994 and 1993, respectively, representing marketable securities classified as available for sale and reported at fair value. The remainder represents numerous small investments in securities for which there are no quoted market prices and for which it is not practicable to determine fair value. Such securities are reported at cost. 16. Accounts Payable
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Trade $1,847 $1,675 Payables to banks 321 264 Compensation awards 222 94 Other 344 411 ------------------------------- $2,734 $2,444 ================================================================================
Payables to banks represents checks issued on certain disbursement accounts but not presented to the banks for payment. The reported amounts approximate fair value because of the short maturity of these obligations. 17. Short-Term Borrowings and Capital Lease Obligations
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Commercial paper/1/ $ 450 $ 325 Bank borrowings: U.S. dollars -- 25 Other currencies/2/ 264 395 Master notes -- 495 Medium-term notes payable within one year 519 853 Long-term borrowings payable within one year/3/ -- 636 Industrial development bonds payable on demand 51 50 Capital lease obligations 8 17 ----------------------- $1,292 $2,796 ================================================================================
1 An interest rate swap effectively converted $50 of these floating rate borrowings to a fixed rate obligation at December 31, 1994 and 1993, as part of the program to manage the fixed and floating interest rate mix of total borrowings. The interest rate was 8.3 percent and the remaining maturity was 1.2 years at December 31, 1994. 2 1993 includes 1,173 million Norwegian krone borrowing ($158 at the December 31, 1993 exchange rate) with an average interest rate of 5.9 percent. 3 1993 includes notes denominated as 125 billion Italian lire with a 12.375 percent Italian lira fixed interest rate. Concurrent with the issuance of these notes, the company entered into interest and principal currency swaps that effectively established a $100 fixed principal amount with a 7.45 percent U.S. dollar fixed interest rate. The estimated fair value of the company's short-term borrowings, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, was $1,300 and $2,900 at December 31, 1994 and 1993, respectively. Unused short-term bank credit lines were approximately $1,360 and $2,100 at December 31, 1994 and 1993, respectively. These lines support short-term industrial development bonds, a portion of the company's commercial paper program and other borrowings. 50 Notes to Financial Statements (Dollars in millions, except per share) 18. Other Accrued Liabilities
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Payroll and other employee benefits $ 725 $ 694 Taxes other than on income 422 380 Postretirement benefits other than pensions (see Note 25) 333 343 Restructuring charges 219 810 Miscellaneous 1,431 1,651 ------------------------ $3,130 $3,878 ================================================================================
19. Long-Term Borrowings and Capital Lease Obligations
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- U.S. dollar: Industrial development bonds due 2001-2024 $ 295 $ 234 Medium-term notes due 1995-2005/1/ 592 837 8.50% notes due 1996 251 252 8.45% notes due 1996 300 300 8.65% notes due 1997 300 300 8.50% notes due 1998 302 302 7.50% notes due 1999 303 304 9.15% notes due 2000/2/ 306 307 6.00% debentures due 2001 ($660 face value, 13.95% yield to maturity) 430 411 6.75% notes due 2002/3/ 299 299 8.00% notes due 2002 253 254 8.50% notes due 2003/2/ 300 300 8.13% notes due 2004 331 349 8.25% notes due 2006 282 299 8.25% debentures due 2022 372 399 7.95% debentures due 2023/3/ 299 299 7.50% debentures due 2033/3/ 247 247 6.25% Swiss franc notes due 2000/4/ 103 103 Other loans (various currencies) due 1995-2005/5/ 725 701 Capital lease obligations 86 34 ----------------------- $6,376 $6,531 ================================================================================
1 Average interest rates at December 31, 1994 and 1993 were 7.5 percent and 6.8 percent, respectively. 2 The company entered into an interest rate swaption agreement for each of these notes as part of the program to manage the fixed and floating interest rate mix of total borrowings. Each agreement gives the swaption counterparty the one-time option to put the company into an interest rate swap with a notional amount of $300, whereby the company would, over the remaining term of the notes, receive fixed rate payments essentially equivalent to the fixed interest rate of the underlying notes, and pay the counterparty a floating rate of interest essentially equivalent to the rate the company pays on its commercial paper. If exercised, the swaptions would effectively convert the notes to a floating rate obligation over the remaining maturity of the notes. The premium received from the counterparties for these swaptions is being amortized to income, using the effective interest method, over the remaining maturity of the notes. The fair value and carrying value of these swaptions at December 31, 1994 and 1993 were not material. 3 Interest rate swaps effectively converted $775 of these notes and debentures to a floating rate obligation as part of the program to manage the fixed and floating interest rate mix of total borrowings. The remaining average maturity of these swaps was 2.2 years at December 31, 1994. 4 Represents notes denominated as 150 million Swiss francs with a 6.25 percent Swiss franc fixed interest rate. Concurrent with the issuance of these notes, the company entered into an interest and principal currency swap that effectively established a $103 fixed principal amount with a 6.9 percent U.S. dollar fixed interest rate. 5 Includes notes denominated as 160 million Australian dollars with a 16.5 percent Australian dollar fixed interest rate issued by the company's majority-owned Canadian subsidiary, which were effectively converted to a Canadian dollar borrowing with an implicit 12.43 percent Canadian dollar fixed interest rate. Also includes a loan of 190 million pounds sterling ($296 and $292 at the respective 1994 and 1993 year-end exchange rates) with a floating money market-based interest rate. 51 Notes to Financial Statements (Dollars in millions, except per share) Average interest rates on industrial development bonds and on other loans (various currencies) were 6.1 percent and 7.3 percent at December 31, 1994, and 6.0 percent and 7.4 percent at December 31, 1993. Maturities of long-term borrowings, together with sinking fund requirements in each of the four years after December 31, 1995, are as follows: 1996--$908 1998--$407 1997--$798 1999--$443
The estimated fair value of the company's long-term borrowings, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities was $6,600 and $7,500 at December 31, 1994 and 1993, respectively. 20. Leases The company uses various leased facilities and equipment in its operations. The company's future minimum lease payments under operating and capital leases, together with the present value of the net minimum capital lease payments at December 31, 1994, are as follows:
- -------------------------------------------------------------------------------- Capital Operating Leases Leases* ----------------------------- Minimum lease payments for years ending December 31: 1995 $ 20 $ 290 1996 16 224 1997 11 182 1998 11 156 1999 11 124 Remainder 104 673 ------------------------- 173 $1,649 ------ Less: Estimated executory costs 7 ------ Net minimum lease payments 166 Less: Imputed interest 72 ------ Present value of net minimum lease payments 94 Due in 1995 8 ------ Due after 1995 $ 86 ================================================================================
* Minimum lease payments have not been reduced by minimum sublease rentals due in the future under noncancelable subleases related to operating leases in the amount of $102. Rental expense under operating leases was $355 in 1994, $429 in 1993 and $453 in 1992. 21. Other Liabilities
- -------------------------------------------------------------------------------- December 31 1994 1993 - -------------------------------------------------------------------------------- Accrued postretirement benefits cost (see Note 25) $6,058 $5,998 Reserves for employee-related costs 937 989 Miscellaneous 1,443 1,213 --------------------- $8,438 $8,200 ================================================================================
22. Stockholders' Equity Shares of new common stock issued in connection with employee compensation and benefit plans were 3,427,507 in 1994, 2,569,201 in 1993 and 3,766,099 in 1992. 52 Notes to Financial Statements (Dollars in millions, except per share) 23. Compensation Plans In 1990, the Board of Directors approved the adoption of a worldwide Corporate Sharing Program. Under the program, in February 1991, essentially all employees each received a one-time grant of options to acquire 100 shares of DuPont common stock at the fair market value ($38.25 per share) at date of grant. Common shares subject to option under this Plan are as follows:
- -------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------ Outstanding at January 1 8,916,709 10,525,892 12,693,600 Options: Exercised 2,199,142 1,534,403 1,960,028 Terminated 43,215 74,780 207,680 Outstanding at December 31 6,674,352 8,916,709 10,525,892 ================================================================================
In January 1995, the Board of Directors approved the worldwide 1995 Corporate Sharing Program and awarded to essentially all employees a one-time grant of options to acquire 100 shares of DuPont common stock at the fair market value ($57 per share) on the date of grant. Awards for 1994 under the DuPont Stock Performance Plan (granted to key employees in 1995) consisted of 3,133,091 options to acquire DuPont common stock at fair market value of $55.50 per share. Payment of the purchase price must be made in cash or in DuPont common stock (at fair market value on the date of exercise). Common shares subject to option under this Plan are as follows:
- -------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------ Outstanding at January 1 14,553,921 13,594,606 13,822,375 Options granted 2,324,720 2,160,360 2,425,130 Average price $52.50 $46.01 $49.21 Options exercised 1,954,064 1,092,473 2,456,592 Average price $32.46 $27.77 $26.78 Options expired or terminated 229,677 108,572 196,307 At December 31: Participants 1,318 1,226 1,188 Options outstanding 14,694,900 14,553,921 13,594,606 Average price $40.83 $37.62 $35.47 Options exercisable 12,384,780 12,418,711 11,202,016 Shares available for option 27,527,631 26,215,426 25,092,886 ================================================================================
At December 31, 1994, there were 559,463 stock appreciation rights (SARs) outstanding, at an average option price of $32.51 per share. SARs may be exercised only in tandem with the exercise of an accompanying stock option. As each SAR is exercised, one additional stock option is cancelled. Expiration dates for outstanding options and SARs ranged from February 17, 1995 to September 20, 2004. Awards under the Variable Compensation Plan may be granted in stock and/or cash to employees who have contributed most in a general way to the company's success, consideration being given to ability to succeed to more important managerial responsibility. Such awards were $208 for 1994, $87 for 1993 and $87 for 1992. Amounts credited to the Variable Compensation Fund are dependent on company earnings, and are subject to maximum limits as defined by the Plan. The amounts credited to the fund were $220 in 1994, $89 in 1993 and $85 in 1992. In accordance with the terms of the Variable Compensation Plan and similar plans of subsidiaries, 1,326,922 shares of common stock were awaiting delivery from awards for 1994 and prior years. 24. Investment Activities Payments for businesses acquired in 1993 include $380 as part of the third quarter acquisition of Imperial Chemical Industries P.L.C.'s worldwide nylon business. In addition to the cash payment, a deferred payment of $93 was reflected in Other Liabilities. Of the total purchase price, $259 and $170 were reflected in property, plant and equipment and inventories, respectively. In 1994, there were no individually material items included in Proceeds from Sales of Assets. Proceeds from sales in 1993 principally include $270 from the sale of the connector systems business, $280 from the sale of the acrylics business and $300 from the sale of the Remington Arms Company. Assets sold in connection with these sales amounted to $656, of which $336 was property, plant and equipment with the remainder divided about equally between inventories and other current assets. 53 Notes to Financial Statements (Dollars in millions, except per share) 25. Other Postretirement Benefits The parent company and certain subsidiaries provide medical, dental and life insurance benefits to pensioners and survivors. The associated plans are unfunded, and approved claims are paid from company funds. Under the terms of the benefit plans, the company reserves the right to change, modify or discontinue the plans. In 1992, the company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Medical, dental and life insurance costs for these plans and related disclosures are determined under the provisions of SFAS No. 106. Cash expenditures are not affected by this accounting change. At January 1, 1992, the accumulated postretirement benefit obligation was $5,990, and related accrued liabilities were $68, resulting in a transition charge of $5,922. Other postretirement benefits cost includes the following components:
- -------------------------------------------------------------------------------- Health Life Care Insurance Total --------------------------------- 1994 Service cost--benefits allocated to current period $ 56 $ 17 $ 73 Interest cost on accumulated postretirement benefit obligation 288 77 365 Amortization of net gains and prior service credit (78) 8 (70) --------------------------------- Other postretirement benefits cost $266 $102 $368 ================================= 1993 Service cost--benefits allocated to current period $ 55 $ 12 $ 67 Interest cost on accumulated postretirement benefit obligation 305 69 374 Amortization of net gains and prior service credit (94) -- (94) --------------------------------- Other postretirement benefits cost $266 $ 81 $347 ================================= 1992 Service cost--benefits allocated to current period $ 82 $ 11 $ 93 Interest cost on accumulated postretirement benefit obligation 431 67 498 --------------------------------- Other postretirement benefits cost $513 $ 78 $591 ================================================================================
The lower health care costs in 1994 and 1993 versus 1992 were due to changes in the company's health care benefits programs in the United States, which were announced on December 31, 1992. These changes provide for increased cost control through prevention and managed care, and for increased cost sharing by employees and pensioners. The impact of these changes resulted in an unrecognized prior service credit of $1,219 at the beginning of 1993; the accumulated postretirement benefit obligation was reduced by a similar amount. The following provides a reconciliation of the accumulated postretirement benefit obligation to the liabilities reflected in the balance sheet at December 31, 1994 and 1993.
- -------------------------------------------------------------------------------- Health Life Care Insurance Total ---------------------------------- 1994 Accumulated postretirement benefit obligation for: Current pensioners and survivors $(2,366) $ (570) $(2,936) Fully eligible employees (139) -- (139) Other employees (674) (319) (993) ---------------------------------- (3,179) (889) (4,068) Unrecognized net loss/(gain) (1,267) 3 (1,264) Unrecognized prior service credit (1,059) -- (1,059) ---------------------------------- Accrued postretirement benefits cost $(5,505) $ (886) $(6,391) ================================== Amount included in Other Accrued Liabilities (see Note 18) $ 333 ======== Amount included in Other Liabilities (see Note 21) $ 6,058 ======== 1993 Accumulated postretirement benefit obligation for: Current pensioners and survivors $(2,993) $ (692) $(3,685) Fully eligible employees (146) -- (146) Other employees (934) (404) (1,338) ---------------------------------- (4,073) (1,096) (5,169) Unrecognized net loss/(gain) (285) 252 (33) Unrecognized prior service credit (1,139) -- (1,139) ---------------------------------- Accrued postretirement benefits cost $(5,497) $ (844) $(6,341) ================================== Amount included in Other Accrued Liabilities (see Note 18) $ 343 ======== Amount included in Other Liabilities (see Note 21) $ 5,998 ================================================================================
54 Notes to Financial Statements (Dollars in millions, except per share) The health care accumulated postretirement benefit obligation was determined at December 31, 1994 using a health care cost escalation rate of 8 percent decreasing to 5 percent over 8 years and at December 31, 1993 using a health care escalation rate of 10 percent decreasing to 5 percent over 10 years. The assumed long-term rate of compensation increase used for life insurance was 5 percent. The discount rate was 9 percent at December 31, 1994 and 7.25 percent at December 31, 1993. A one-percentage-point increase in the health care cost escalation rate would have increased the accumulated postretirement benefit obligation by $251 at December 31, 1994, and the 1994 other postretirement benefit cost would have increased by $44. 26. Pensions The company has noncontributory defined benefit plans covering substantially all U.S. employees. The benefits for these plans are based primarily on years of service and employees' pay near retirement. The company's funding policy is consistent with the funding requirements of federal law and regulations. Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. Net pension cost/(credit) for defined benefit plans includes the following components:
- ------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------------------- Service cost--benefits earned during the period $ 380 $ 301 $ 283 Interest cost on projected benefit obligation 1,079 1,038 980 Return on assets: Actual (gain)/loss $ 214 $(1,880) $(1,055) Deferred gain/(loss) (1,540) (1,326) 617 (1,263) (164) (1,219) ------- ------- ------- Amortization of net gains and prior service cost (91) (123) (127) ------- ------- ------- Net pension cost/(credit) $ 42 $ (47) $ (83) =============================================================================================================
The change in the annual pension cost/(credit) was primarily due to the discount rate used to determine the present value of future benefits and the return on pension trust assets. The funded status of these plans was as follows:
- --------------------------------------------------------------------------------------------------------- December 31 1994 1993 - --------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $(10,342) $(11,681) -------- -------- Accumulated benefit obligation $(10,744) $(12,177) -------- -------- Projected benefit obligation $(12,303) $(14,195) Plan assets at fair value 14,223 15,250 -------- -------- Excess of assets over projected benefit obligation 1,920 1,055 Unrecognized net (gains)/1/ (877) (35) Unrecognized prior service cost 459 364 -------- -------- Prepaid pension cost/2/ $ 1,502 $ 1,384 =========================================================================================================
1 Includes the unamortized balance of $(1,339) and $(1,513) at December 31, 1994 and 1993, respectively, of unrecognized net gain at January 1, 1985, the initial application date of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." 2 Excludes the pension liability for unfunded plans of $820 and $744 and the related projected benefit obligation of $1,213 and $1,228 at December 31, 1994 and 1993, respectively. 55 Notes to Financial Statements (Dollars in millions, except per share) For U.S. plans, the projected benefit obligation was determined using a discount rate of 9 percent at December 31, 1994 and 7.25 percent at December 31, 1993, and an assumed long-term rate of compensation increase of 5 percent. The assumed long-term rate of return on plan assets is 9 percent. Plan assets consist principally of common stocks and U.S. government obligations. For non- U.S. plans, no one of which was material, similar economic assumptions were used. The Omnibus Budget Reconciliation Act of 1990 permits employers to transfer some of the excess funds from an overfunded pension trust to pay the company portion of certain postretirement health care benefits. The company transferred $260 during 1993 to a special retiree health care account to be used toward the payment of these benefits. This transfer had no impact on earnings (see Note 25). 27. Derivatives and Other Hedging Instruments The company enters into contractual arrangements (derivatives) in the ordinary course of business to hedge its exposure to foreign currency, interest rate and commodity price risks. The counterparties to these contractual arrangements are major financial institutions. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company manages this exposure to credit loss through credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. The company does not anticipate nonperformance by counterparties to these contracts, and no material loss would be expected from any such nonperformance. Procedures are in place to regularly monitor and report to management the market and counterparty credit risks associated with these instruments. The company's accounting policies with respect to these financial instrument transactions are set forth in Note 1. Foreign Currency The company routinely uses forward exchange contracts to hedge its net exposures, by currency, related to the foreign currency-denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. Principal foreign currency exposures and related hedge positions at December 31, 1994 were as follows:
- ------------------------------------------------------------------------------------- Open Contracts To Buy/(Sell) Net Monetary Foreign Currency Net Asset/(Liability) ------------------------- After-Tax Currency Exposure Pretax After-Tax Exposure - ------------------------------------------------------------------------------------- British Pound $(1,428) $2,306 $1,427 $(1) German Mark $ (593) $ 955 $ 595 $ 2 Norwegian Krone $ (564) $ 914 $ 567 $ 3 French Franc $ 451 $ (620) $ (453) $(2) Italian Lira $ 205 $ (333) $ (206) $(1) Dutch Guilder $ 273 $ (355) $ (271) $ 2 Japanese Yen $ (205) $ 285 $ 204 $(1) =====================================================================================
56 Notes to Financial Statements (Dollars in millions, except per share) In addition, the company from time to time will enter into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. Decisions regarding whether or not to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility and economic trends. At December 31, 1994, no such commitments were hedged. Forward exchange contracts are also used to manage near-term foreign currency cash requirements and to place foreign currency deposits and marketable securities investments into currencies offering favorable returns. Net cash inflow/(outflow) from settlement of forward exchange contracts was $139, $(84) and $146 for the years 1994, 1993 and 1992, respectively. Interest Rates The company uses a combination of financial instruments, including interest rate swaps, interest and principal currency swaps and structured medium-term financings, as part of its program to manage the fixed and floating interest rate mix of the total debt portfolio and related overall cost of borrowing. Interest rate swaps involve the exchange of fixed for floating rate interest payments that are fully integrated with underlying fixed rate bonds or notes to effectively convert fixed rate debt into floating rate debt based on LIBOR or commercial paper rates. Interest rate swaps also involve the exchange of floating for fixed rate interest payments that are fully integrated with commercial paper or other floating rate borrowings to effectively convert floating rate debt into fixed rate debt. Both types of interest rate swaps are denominated in U.S. dollars. Interest rate swaps allow the company to maintain a target range of floating rate debt. Notional amounts do not represent the amounts exchanged by the counterparties, and thus are not a measure of market or credit exposure to the company. The amounts exchanged by the counterparties are calculated on the basis of the notional amounts and the fixed and floating interest rates. The following interest rate swaps were outstanding at December 31, 1994:
- -------------------------------------------------------------------------------- Weighted Weighted Average Notional Average Rate Type of Swap Amount Rate Paid Received - -------------------------------------------------------------------------------- Pay Fixed, Receive Floating $ 50 8.3% 4.5% Pay Floating, Receive Fixed $775 5.4% 5.8% ================================================================================
These interest rate swaps mature in 1 to 3 years, with a weighted average maturity of 2.1 years. Under interest and principal currency swaps, the company receives predetermined foreign currency-denominated payments corresponding, both as to timing and amount, to the fixed or floating interest rate and fixed principal amount to be paid by the company under concurrently issued foreign currency- denominated bonds. In return, the company pays a U.S. dollar-denominated fixed or floating interest rate and a U.S. dollar-denominated fixed principal amount to the counterparty, thereby effectively converting the foreign currency- denominated bonds into U.S. dollar-denominated obligations for both interest and principal. Interest and principal currency swaps allow the company to be fully hedged against fluctuations in currency exchange rates and foreign interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. One interest and principal currency swap was outstanding at December 31, 1994 that effectively converted a 150 million Swiss franc borrowing with a 6.25 percent Swiss franc fixed interest rate and a maturity of 2000 to a U.S. dollar fixed principal amount of $103 with a 6.9 percent U.S. dollar fixed interest rate. Structured medium-term financings consist of: a) A structured medium-term note with interest and/or principal payments (denominated in either U.S. dollars or foreign currencies) determined using a specified calculation incorporating changes in currency exchange rates or other financial indices; and 57 Notes to Financial Statements (Dollars in millions, except per share) b) A concurrently executed structured medium-term swap that, for any and all calculations of the note's interest and/or principal payments over the term of the note, provides a fully hedged transaction such that the note is effectively converted to a U.S. dollar-denominated fixed or floating interest rate with a U.S. dollar-denominated fixed principal amount. Structured medium-term swaps allow the company to be fully hedged against fluctuations in exchange rates and interest rates and to achieve U.S. dollar fixed or floating interest rate payments below the market interest rate, at the date of issuance, for borrowings of comparable maturity. The face amount of these structured medium-term financings outstanding at December 31, 1994 was $522, with a weighted average interest rate of 6.1 percent, and a weighted average maturity of 1.9 years. In addition, the company's majority-owned Canadian subsidiary had a structured medium-term financing outstanding at December 31, 1994 that effectively converted a 160 million Australian dollar borrowing, with a 16.5 percent Australian dollar fixed interest rate and a maturity of 1996, to a Canadian dollar borrowing with an implicit 12.43 percent Canadian dollar fixed interest rate. It is the company's policy that foreign currency bonds and structured medium-term notes will not be issued unless a hedge of the market risks inherent in such borrowings is executed simultaneously with a management-approved, highly credit-worthy counterparty to provide a fully hedged transaction. Interest rate financial instruments did not have a material effect on the company's overall cost of borrowing at December 31, 1994 and 1993. See also Notes 17 and 19 for additional descriptions of interest rate financial instruments. Summary of Outstanding Derivative Financial Instruments Set forth below is a summary of the notional amounts, estimated fair values and carrying amounts of outstanding financial instruments at December 31, 1994 and 1993. Notional amounts represent the face amount of the contractual arrangements and are not a measure of market or credit exposure. Estimated fair values represent a reasonable approximation of amounts the company would have received from/(paid to) a counterparty at December 31 to unwind the positions prior to maturity. Estimated fair value of forward exchange contracts is based on market prices for contracts of comparable time to maturity. Estimated fair value of swaps represents the present value of remaining net cash flows to maturity under swap agreements, discounted using market-implied future interest rates existing at December 31, 1994 and 1993, respectively. At December 31, 1994, the company had no plans to unwind these positions prior to maturity. Carrying amounts represent the receivable/(payable) recorded in the Consolidated Balance Sheet. See also Notes 10, 11, 15, 16, 17 and 19 for fair values and carrying amounts of other financial instruments. Notional Amount, Estimated Fair Value and Carrying Amount of Outstanding Derivative Financial Instruments
- -------------------------------------------------------------------------------- Notional Estimated Carrying Type of Instrument Amount Fair Value Amount - -------------------------------------------------------------------------------- Forward Exchange Contracts December 31, 1994 $7,978 $ 62 $ 73 1993 9,181 7 10 Interest Rate Swaps December 31, 1994 $ 825 $(47) $ (1) 1993 775 (3) 2 Interest and Principal Currency Swaps December 31, 1994 $ 103 $ 21 $ 11 1993 204 (24) (31) Structured Medium-Term Swaps December 31, 1994 $ 646 $ 23 $ 36 1993 1,172 30 38 - --------------------------------------------------------------------------------
Estimated fair values shown above only represent the value of the hedge or swap component of these transactions, and thus are not indicative of the fair value of the company's overall hedged position. The estimated fair value of the company's total debt portfolio, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, was $7,900 and $10,400 at December 31, 1994 and 1993, respectively. The improvement in fair value of $2,500 in 1994 was primarily due to lower borrowing levels and the change in the interest rate environment. As fully hedged transactions, the estimated fair values of the integrated debt and interest rate financial instruments do not affect income and are not recorded in the financial statements, but rather only represent the amount to unwind the debt and financial instruments at a specific point in time prior to maturity. 58 Notes to Financial Statements (Dollars in millions, except per share) Commodity Hedges and Trading The company enters into exchange-traded and over-the-counter commodity futures contracts to hedge its exposure to price fluctuations on anticipated crude oil, refined products and natural gas transactions and certain raw material purchases. Commodity trading in petroleum futures contracts is a natural extension of cash market trading and is used to physically acquire about 15 percent of North America refining crude supply requirements. The commodity futures market has underlying principles of increased liquidity and longer trading periods than the cash market and is one method of reducing exposure to the price risk inherent in the petroleum business. Typically, trading is conducted to manage price risk around near-term (30-60 days) supply requirements. Occasionally, as market views and conditions allow, longer-term positions will be taken to manage price risk for the company's equity production (crude and natural gas) or net supply requirements. These positions may not exceed anticipated equity production or net supply requirements for the hedge period. The company's use of futures contracts reduces the effects of price volatility, thereby protecting against adverse short-term price movements, while limiting, somewhat, the benefits of favorable short-term price movements. Open hedge positions and deferred gains/losses for petroleum futures contracts were immaterial at December 31, 1994 and 1993. From time to time, on a limited basis, the company also purchases and sells petroleum-based futures contracts for trading purposes. After-tax gain/loss from such trading has not been material. 28. Commitments and Contingent Liabilities The company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market. The company is subject to various lawsuits and claims with respect to such matters as product liabilities, governmental regulations and other actions arising out of the normal course of business. While the effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists, in the opinion of company counsel, the ultimate liabilities resulting from such lawsuits and claims will not materially affect the consolidated financial position of the company. The company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the company to take action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the company or other parties. The company has accrued for certain environmental remediation activities consistent with the policy set forth in Note 1. At December 31, 1994, such accrual amounted to $616 and, in management's opinion, was appropriate based on existing facts and circumstances. Under the most adverse circumstances, however, this potential liability could be significantly higher. In the event that future remediation expenditures are in excess of amounts accrued, management does not anticipate that they will have a material adverse effect on the consolidated financial position of the company. The company has indirectly guaranteed various debt obligations under agreements with certain affiliated and other companies to provide specified minimum revenues from shipments or purchases of products. At December 31, 1994, these indirect guarantees totaled $13. In addition, at December 31, 1994, the company had directly guaranteed $832 of the obligations of certain affiliated companies and others. No material loss is anticipated by reason of such agreements and guarantees. 59 Notes to Financial Statements (Dollars in millions, except per share) 29. Geographic Information
- ---------------------------------------------------------------------------------------------- United Other States Europe Regions Consolidated ------------------------------------------------- 1994 Sales to Unaffiliated Customers/1/ $20,769 $14,216 $ 4,348 $39,333 Transfers Between Geographic Areas/2/ 2,044 673 507 - ------------------------------------------------- Total $22,813 $14,889 $ 4,855 $39,333 ------------------------------------------------- After-Tax Operating Income $ 1,993 $ 874 $ 240 $ 3,107 Identifiable Assets at December 31 $16,933 $10,232 $ 3,857 $31,022 ------------------------------------------------- 1993 Sales to Unaffiliated Customers/1/ $20,342 $12,639 $ 4,117 $37,098 Transfers Between Geographic Areas/2/ 2,260 395 522 - ------------------------------------------------- Total $22,602 $13,034 $ 4,639 $37,098 ------------------------------------------------- After-Tax Operating Income $ 133 $ 721 $ 63 $ 917 Identifiable Assets at December 31 $17,117 $ 9,995 $ 3,812 $30,924 ------------------------------------------------- 1992 Sales to Unaffiliated Customers/1/ $20,331 $13,571 $ 3,897 $37,799 Transfers Between Geographic Areas/2/ 2,477 298 469 - ------------------------------------------------- Total $22,808 $13,869 $ 4,366 $37,799 ------------------------------------------------- After-Tax Operating Income $ 528 $ 624 $ 89 $ 1,241 Identifiable Assets at December 31 $19,197 $ 9,667 $ 3,827 $32,691 - ----------------------------------------------------------------------------------------------
1 Sales outside the United States of products manufactured in and exported from the United States totaled $3,625 in 1994, $3,500 in 1993 and $3,509 in 1992. 2 Products are transferred between geographic areas on a basis intended to reflect as nearly as practicable the "market value" of the products. 60 Notes to Financial Statements (Dollars in millions, except per share) 30. Industry Segment Information The company has five principal business segments that manufacture and sell a wide range of products to many different markets, including the energy, transportation, textile, construction, automotive, electronics, printing, health care, packaging and agricultural markets. The company's sales are not materially dependent on a single customer or small group of customers. The Fibers and Polymers segments, however, have several large customers in their respective industries that are important to these segments' operating results.
- -------------------------------------------------------------------------------------------------------------------------- Diversified Chemicals Fibers Polymers Petroleum Businesses Consolidated ---------------------------------------------------------------------------- 1994 Sales to Unaffiliated Customers/1/ $ 3,760 $ 6,767 $ 6,318 $16,815/2/ $ 5,673 $39,333 Transfers Between Segments 208 44 181 388 36 - ---------------------------------------------------------------------------- Total $ 3,968 $ 6,811 $ 6,499 $17,203 $ 5,709 $39,333 ---------------------------------------------------------------------------- Operating Profit $ 536 $ 1,083 $ 1,084 $ 1,141 $ 595 $ 4,439 Provision for Income Taxes (208) (412) (423) (486) (191) (1,720) Equity in Earnings of Affiliates 58 30 56 25 219 388 ---------------------------------------------------------------------------- After-Tax Operating Income/3/ $ 386 $ 701 $ 717 $ 680 $ 623 $ 3,107/4/ ---------------------------------------------------------------------------- Identifiable Assets at December 31 $ 2,880 $ 6,020 $ 5,160 $11,961 $ 5,001 $31,022/5/ ---------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 412 $ 512 $ 403 $ 1,191 $ 434 $ 3,106/6/ Capital Expenditures $ 298 $ 541 $ 310 $ 1,576 $ 283 $ 3,151/7/ - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Diversified Chemicals Fibers Polymers Petroleum Businesses Consolidated ---------------------------------------------------------------------------- 1993 Sales to Unaffiliated Customers/1/ $ 3,546 $ 6,188 $ 5,869 $15,771/2/ $ 5,724 $37,098 Transfers Between Segments 475 14 23 428 1 - ---------------------------------------------------------------------------- Total $ 4,021 $ 6,202 $ 5,892 $16,199 $ 5,725 $37,098 ---------------------------------------------------------------------------- Operating Profit $ 237 $ 258 $ 255 $ 1,195 $ (495) $ 1,450 Provision for Income Taxes (99) (144) (108) (428) 162 (617) Equity in Earnings of Affiliates 28 55 30 45 (74) 84 ---------------------------------------------------------------------------- After-Tax Operating Income/8/,/9/,/10/ $ 166 $ 169 $ 177 $ 812/11/ $ (407)/12/ $ 917/4/ ---------------------------------------------------------------------------- Identifiable Assets at December 31 $ 2,960 $ 5,771 $ 5,226 $11,938 $ 5,029 $30,924/5/ ---------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 303 $ 658 $ 527 $ 1,379 $ 460 $ 3,451/6/ Capital Expenditures $ 294 $ 751 $ 428 $ 1,659 $ 329 $ 3,655/7/ - --------------------------------------------------------------------------------------------------------------------------
61 Notes to Financial Statements (Dollars in millions, except per share)
- -------------------------------------------------------------------------------------------------------------------------- Diversified Chemicals Fibers Polymers Petroleum Businesses Consolidated ---------------------------------------------------------------------------- 1992 Sales to Unaffiliated Customers/1/ $ 3,617 $ 6,074 $ 5,856 $16,065/2/ $ 6,187 $37,799 Transfers Between Segments 187 6 51 414 5 - ---------------------------------------------------------------------------- Total $ 3,804 $ 6,080 $ 5,907 $16,479 $ 6,192 $37,799 ---------------------------------------------------------------------------- Operating Profit $ 324 $ 591 $ 471 $ 1,008 $ (182) $ 2,212 Provision for Income Taxes (128) (246) (185) (707) 101 (1,165) Equity in Earnings of Affiliates 30 64 32 36 32 194 ---------------------------------------------------------------------------- After-Tax Operating Income/13/ $ 226 $ 409 $ 318 $ 337 $ (49)/14/ $ 1,241/4/ ---------------------------------------------------------------------------- Identifiable Assets at December 31 $ 3,201 $ 5,738 $ 5,412 $12,307 $ 6,033 $32,691/5/ ---------------------------------------------------------------------------- Depreciation, Depletion and Amortization $ 317 $ 592 $ 409 $ 1,006 $ 410 $ 2,839/6/ Capital Expenditures $ 366 $ 856 $ 642 $ 1,781 $ 558 $ 4,397/7/ - --------------------------------------------------------------------------------------------------------------------------
1 Sales of refined petroleum products of $12,853 in 1994, $12,403 in 1993 and $12,681 in 1992 exceeded 10 percent of consolidated sales. 2 Excludes crude oil and refined product exchanges and trading transactions totaling $2,254 in 1994, $3,808 in 1993 and $3,881 in 1992. 3 Includes the following (charges)/benefits/a/: - -------------------------------------------------------------------------------- Chemicals/b/ $ (5) Fibers 25 Polymers 11 Petroleum/c/ (26) Diversified Businesses/d/ (53) ---- $(48) - --------------------------------------------------------------------------------
a Reflects a net benefit of $112 from adjustments in estimates associated with the third quarter 1993 restructuring charge of which $88 relates to adjustments for other than employee separation costs. The $112 is reflected in Chemicals $22; Fibers $25; Polymers $11; and Diversified Businesses $54. b Includes a charge of $27 associated with the discontinuation of certain products, asset sales and write-downs. c Includes a charge of $58 for employee separation costs, a loss of $95 from the write-down of certain North Sea oil properties to be sold and a benefit of $127 principally related to a favorable change in tax status resulting from a transfer of properties among certain North Sea affiliates. d Includes charges of $110 associated with the "Benlate" DF 50 fungicide recall and $27 for the write-down of assets and discontinuation of certain products, and a benefit of $30 from an adjustment of prior-year tax provisions. 4 The following reconciles After-Tax Operating Income to Net Income:
- -------------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------- After-Tax Operating Income $3,107 $ 917 $1,241 Interest and Other Corporate Expenses Net of Tax/a/ (380) (351) (266) ----------------------------------- Net Income/b/ $2,727 $ 566 $ 975 - --------------------------------------------------------------------------------
a Includes interest and debt expense and other corporate expenses such as exchange gains and losses (including the company's share of equity affiliates' exchange gains and losses), minority interests in earnings of consolidated subsidiaries and amortization of capitalized interest. The year 1992 includes an exchange gain of $97 related to unhedged non-U.S. deferred tax liabilities, which were established on the adoption of SFAS No. 109. b Before extraordinary item and transition effect of accounting changes. See the Consolidated Income Statement on page 39. 62 Notes to Financial Statements (Dollars in millions, except per share) 5 The following reconciles Identifiable Assets to Total Assets:
- -------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------- Identifiable Assets at December 31 $31,022 $30,924 $32,691 Investment in Affiliates 1,662 1,607 1,746 Corporate Assets 4,208 4,522 4,433 ------------------------------------- Total Assets at December 31 $36,892 $37,053 $38,870 - --------------------------------------------------------------------------------
6 Includes depreciation on research and development facilities, impairment of unproved properties and depreciation reflected in 1993 and 1992 restructuring charges. 7 Excludes investments in affiliates. 8 Includes the following third-quarter charges for asset write-downs, employee separation costs, facility shutdowns and other restructuring costs (see Note 6): - -------------------------------------------------------------------------------- Chemicals/a/ $ 112 Fibers/b/ 266 Polymers/c/ 148 Petroleum/d/ 172 Diversified Businesses/e/ 413 ------ $1,111 - --------------------------------------------------------------------------------
a Includes $59 for asset write-downs and facility shutdowns for the fluorochemicals and specialty chemicals businesses. b Includes $46 for facility shutdowns and asset write-downs, primarily for the nylon business. c Includes $64 for shutdown of a portion of a polymers plant in LaPorte, Texas. d Includes $147 for asset write-downs, primarily for certain North American petroleum-producing properties sold in the fourth quarter. e Includes $264 for asset write-downs, principally facilities for the printing and publishing business. 9 Includes a net benefit of $265 resulting from tax law changes. The Petroleum segment reflects $230, primarily due to a reduction in deferred U.K. petroleum revenue taxes, and $35 is reflected in the remaining segments (Chemicals $6; Fibers $10; Polymers $10; and Diversified Businesses $9). 10 Includes a net charge of $92 related to certain product liability claims and litigation costs ($144, of which $126 is associated with the "Benlate" DF 50 fungicide recall) and a loss on the sale of a polyethylene business ($17), partly offset by a gain from the sale of the Remington Arms Company ($69). The foregoing amounts are reflected in the Chemicals ($10), Polymers ($25) and Diversified Businesses ($57) segments. 11 Includes a $21 loss from sale of petroleum-producing properties and a $32 gain from exchange of several proved and unproved North Sea petroleum properties for an interest in a Norwegian offshore pipeline and cash; since these are not "similar productive assets" as defined under Accounting Principles Board Opinion No. 29, a gain was recognized on the exchange. 12 Includes a charge of $184 for the write-down of intangible assets (technology and goodwill) associated with the printing and publishing business. 13 Includes the following fourth-quarter charges for termination incentives and payments, as well as other charges, related to business restructurings (see Note 6): - -------------------------------------------------------------------------------- Chemicals/a/ $ 51 Fibers/b/ 69 Polymers 22 Petroleum/c/ 96 Diversified Businesses/d/ 91 ---- $329 - --------------------------------------------------------------------------------
a Includes $38 charge for project and facility shutdowns. b Includes $38 charge principally for shutdown of fire-damaged facilities. c Includes $17 charge for shutdown of refinery facilities. d Includes $42 charge principally for withdrawal from certain printing and publishing business lines. 14 Includes charge of $134 associated with "Benlate" DF 50 fungicide recall. See segment discussions on pages 16-28 for a description of each industry segment. Products are transferred between segments on a basis intended to reflect as nearly as practicable the "market value" of the products. 63 Supplemental Petroleum Data (Dollars in millions) Oil and Gas Producing Activities The disclosures on pages 64-70 are presented in accordance with the provisions of Statement of Financial Accounting Standards No. 69. Accordingly, volumes of reserves and production exclude royalty interests of others, and royalty payments are reflected as reductions in revenues. In January 1989, the U.S. Treasury Department was authorized by the President to modify the sanctions levied against Libya in 1986. In June 1989, Conoco was granted a license by the Treasury Department to resume its activities in Libya, and commenced negotiations with the Libyan government's national oil company. Although negotiations are continuing, Conoco has not resumed its participation in Libyan operations. Accordingly, disclosures for 1994 continue to exclude petroleum reserve data applicable to the company's petroleum assets in Libya. Results of Operations for Oil and Gas Producing Activities
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Consolidated Companies Revenues: Sales to unaffiliated customers $ 2,196 $ 2,177 $ 1,990 $ 552 $ 538 $ 535 $ 1,015 $ 1,000 $ 874 Transfers to other company operations 733 930 1,003 401 558 583 332 372 407 Exploration, including dry hole costs (323) (329) (347) (130) (107) (82) (110) (109) (165) Production (786) (868) (1,039) (327) (424) (492) (377) (363) (473) Depreciation, depletion, amortization and valuation provisions (957) (1,140) (786) (334) (591)/2/ (433) (533)/3/ (468) (296) Other/4/ 67 (20) (55) 38 (17) (8) 25 9 (28) Income taxes (463) (281) (626) 7 84 2 (122)/5/ (16)/6/ (219) ----------------------------------------------------------------------------------------------- Total consolidated companies 467 469 140 207 41 105 230 425 100 ----------------------------------------------------------------------------------------------- Equity Affiliates Results of operations of equity affiliates (16) (13) (13) 1 (1) (1) (17) (12) (12) ----------------------------------------------------------------------------------------------- Total $ 451 $ 456 $ 127 $ 208 $ 40 $ 104 $ 213 $ 413 $ 88 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions/1/ ----------------------------- 1994 1993 1992 ----------------------------- Consolidated Companies Revenues: Sales to unaffiliated customers $ 629 $ 639 $ 581 Transfers to other company operations - - 13 Exploration, including dry hole costs (83) (113) (100) Production (82) (81) (74) Depreciation, depletion, amortization and valuation provisions (90) (81) (57) Other/4/ 4 (12) (19) Income taxes (348) (349) (409) ----------------------------- Total consolidated companies 30 3 (65) ----------------------------- Equity Affiliates Results of operations of equity affiliates - - - ----------------------------- Total $ 30 $ 3 $ (65) - -----------------------------------------------------------------
1 Comprises exploration costs in all areas outside the United States and Europe and production operations primarily in Canada, Dubai and Indonesia. 2 Includes a charge of $219 ($137 after taxes) for impairment of certain U.S. petroleum-producing properties to be sold. 3 Includes a charge of $115 ($95 after taxes) for impairment of certain North Sea oil properties to be sold. 4 Includes gain/(loss) on disposal of fixed assets and other miscellaneous revenues and expenses. 5 Includes a tax benefit of $127 principally related to a favorable change in tax status resulting from a transfer of properties among certain North Sea affiliates. 6 Includes a benefit of $241 resulting from tax law changes in the United Kingdom. 64 Supplemental Petroleum Data (Dollars in millions) Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities/1/
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Consolidated Companies Property acquisitions: Proved/3/ $ 139 $ 111 $ 16 $ 14 $ 93 $ 16 $ 115 $ 5 $ - Unproved 36 11 23 18 8 7 5 - - Exploration 403 352 432 151 83 99 136 158 221 Development 713 864 806 174 195 206 466 567 498 ----------------------------------------------------------------------------------------------- Total consolidated companies 1,291 1,338 1,277 357 379 328 722 730 719 ----------------------------------------------------------------------------------------------- Equity Affiliates Property acquisitions: Proved - 43 - - 43 - - - - Development 75 70 38 12 16 19 63 54 19 ----------------------------------------------------------------------------------------------- Total equity affiliates 75 113 38 12 59 19 63 54 19 ----------------------------------------------------------------------------------------------- Total $ 1,366 $ 1,451 $ 1,315 $ 369 $ 438 $ 347 $ 785 $ 784 $ 738 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions/2/ ----------------------------- 1994 1993 1992 ----------------------------- Consolidated Companies Property acquisitions: Proved/3/ $ 10 $ 13 $ - Unproved 13 3 16 Exploration 116 111 112 Development 73 102 102 ----------------------------- Total consolidated companies 212 229 230 ----------------------------- Equity Affiliates Property acquisitions: Proved - - - Development - - - ----------------------------- Total equity affiliates - - - ----------------------------- Total $ 212 $ 229 $ 230 - -----------------------------------------------------------------
1 These data comprise all costs incurred in the activities shown, whether capitalized or charged to expense at the time they were incurred. 2 Includes Canada, Dubai and Indonesia. 3 Does not include properties acquired through property exchanges. Capitalized Costs Relating to Oil and Gas Producing Activities
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Consolidated Companies Gross costs: Proved properties $11,057 $11,663 $11,356 $ 4,806 $ 4,934 $ 5,587 $ 4,950 $ 5,582 $ 4,732 Unproved properties 790 701 1,152 291 321 471 323 218 461 Accumulated depreciation, depletion, amortization and valuation allowances: Proved properties 6,173 6,467 6,171 3,073 3,023 3,244 2,122 2,604 2,169 Unproved properties 185 261 347 110 162 235 6 13 13 ----------------------------------------------------------------------------------------------- Total net costs of consolidated companies 5,489 5,636 5,990 1,914 2,070 2,579 3,145 3,183 3,011 ----------------------------------------------------------------------------------------------- Equity Affiliates Net costs of equity affiliates: Proved properties 253 177 66 93 92 36 160 85 30 ----------------------------------------------------------------------------------------------- Total $ 5,742 $ 5,813 $ 6,056 $ 2,007 $ 2,162 $ 2,615 $ 3,305 $ 3,268 $ 3,041 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions* ----------------------------- 1994 1993 1992 ----------------------------- Consolidated Companies Gross costs: Proved properties $ 1,301 $ 1,147 $ 1,037 Unproved properties 176 162 220 Accumulated depreciation, depletion, amortization and valuation allowances: Proved properties 978 840 758 Unproved properties 69 86 99 ----------------------------- Total net costs of consolidated companies 430 383 400 ----------------------------- Equity Affiliates Net costs of equity affiliates: Proved properties - - - ----------------------------- Total $ 430 $ 383 $ 400 - -----------------------------------------------------------------
* Includes Canada, Dubai and Indonesia. 65 Supplemental Petroleum Data (In millions of barrels) Estimated Proved Reserves of Oil/1/
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 964 1,034 1,112 344 421 470 390 391 392 Revisions and other changes 51 14 26 14 (6) (13) 26 13 37 Extensions and discoveries 50 83 23 8 19 9 21 41 10 Improved recovery 10 7 3 9 5 3 - - - Purchase of reserves/3/ 43 25 5 14 7 5 29 2 - Sale of reserves/4/ (33) (64) (12) (20) (62) (12) (13) (2) - Production (132) (135) (123) (33) (40) (41) (59) (55) (48) ----------------------------------------------------------------------------------------------- End of year 953 964 1,034 336 344 421 394 390 391 ----------------------------------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year 19 19 - - - - 19 19 - Revisions and other changes 6 - - - - - 6 - - Extensions and discoveries 11 - 19 - - - 11 - 19 Production (1) - - - - - (1) - - ----------------------------------------------------------------------------------------------- End of year 35 19 19 - - - 35 19 19 ----------------------------------------------------------------------------------------------- Total 988 983 1,053 336 344 421 429 409 410 ----------------------------------------------------------------------------------------------- Proved Developed Reserves of Consolidated Companies Beginning of year 708 750 778 332 397 441 160 153 118 End of year 706 708 750 324 332 397 171 160 153 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions/2/ ----------------------------- 1994 1993 1992 ----------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 230 222 250 Revisions and other changes 11 7 2 Extensions and discoveries 21 23 4 Improved recovery 1 2 - Purchase of reserves/3/ - 16 - Sale of reserves/4/ - - - Production (40) (40) (34) ----------------------------- End of year 223 230 222 ----------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year - - - Revisions and other changes - - - Extensions and discoveries - - - Production - - - ----------------------------- End of year - - - ----------------------------- Total 223 230 222 ----------------------------- Proved Developed Reserves of Consolidated Companies Beginning of year 216 200 219 End of year 211 216 200 - -----------------------------------------------------------------
1 Oil reserves comprise crude oil and condensate and natural gas liquids (NGL) expected to be removed for the company's account from its natural gas deliveries. 2 Includes Canada, Dubai and Indonesia. 3 Includes reserves acquired through property exchanges. 4 Includes reserves disposed of through property exchanges. 66 Supplemental Petroleum Data (In billion cubic feet) Estimated Proved Reserves of Gas
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 3,680 3,445 3,619 1,802 1,928 2,149 1,752 1,417 1,321 Revisions and other changes 317 72 (36) 121 (22) (55) 187 54 56 Extensions and discoveries 514 712 307 139 196 127 356 507 172 Improved recovery - 1 - - 1 - - - - Purchase of reserves/2/ 375 53 37 42 53 37 321 - - Sale of reserves/3/ (71) (122) (51) (37) (49) (51) (34) (68) - Production (485) (481) (431) (318) (305) (279) (151) (158) (132) ----------------------------------------------------------------------------------------------- End of year 4,330 3,680 3,445 1,749 1,802 1,928 2,431 1,752 1,417 ----------------------------------------------------------------------------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year 586 368 128 586 368 128 - - - Revisions and other changes 255 72 167 255 72 167 - - - Extensions and discoveries - - 75 - - 75 - - - Purchase of reserves 2 151 - 2 151 - - - - Production (13) (5) (2) (13) (5) (2) - - - ----------------------------------------------------------------------------------------------- End of year 830 586 368 830 586 368 - - - ----------------------------------------------------------------------------------------------- Total 5,160 4,266 3,813 2,579 2,388 2,296 2,431 1,752 1,417 ----------------------------------------------------------------------------------------------- Proved Developed Reserves of Consolidated Companies Beginning of year 2,570 2,539 2,750 1,717 1,837 2,013 738 618 602 End of year 2,496 2,570 2,539 1,687 1,717 1,837 683 738 618 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions/1/ ----------------------------- 1994 1993 1992 ----------------------------- Proved Developed and Undeveloped Reserves of Consolidated Companies Beginning of year 126 100 149 Revisions and other changes 9 40 (37) Extensions and discoveries 19 9 8 Improved recovery - - - Purchase of reserves/2/ 12 - - Sale of reserves/3/ - (5) - Production (16) (18) (20) ----------------------------- End of year 150 126 100 ----------------------------- Proved Developed and Undeveloped Reserves of Equity Affiliates Beginning of year - - - Revisions and other changes - - - Extensions and discoveries - - - Purchase of reserves - - - Production - - - ----------------------------- End of year - - - ----------------------------- Total 150 126 100 ----------------------------- Proved Developed Reserves of Consolidated Companies Beginning of year 115 84 135 End of year 126 115 84 - -----------------------------------------------------------------
1 Includes Canada, Dubai and Indonesia. 2 Includes reserves acquired through property exchanges. 3 Includes reserves disposed of through property exchanges. 67 Supplemental Petroleum Data Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves The information on the following page has been prepared in accordance with Statement of Financial Accounting Standards No. 69, which requires the standardized measure of discounted future net cash flows to be based on year-end sales prices, costs and statutory income tax rates and a 10 percent annual discount rate. Specifically, the per-barrel oil sales prices used to calculate the December 31, 1994 data averaged $14.38 for the United States, $15.81 for Europe and $16.08 for Other Regions, and the gas prices per thousand cubic feet averaged approximately $1.59 for the United States, $2.87 for Europe and $1.34 for Other Regions. Because prices used in the calculation are as of December 31, the standardized measure could vary significantly from year to year based on market conditions at that specific date. The projections should not be viewed as realistic estimates of future cash flows nor should the "standardized measure" be interpreted as representing current value to the company. Material revisions to estimates of proved reserves may occur in the future, development and production of the reserves may not occur in the periods assumed, actual prices realized are expected to vary significantly from those used and actual costs may also vary. The company's investment and operating decisions are not based on the information presented on the following page, but on a wide range of reserve estimates that includes probable as well as proved reserves, and on different price and cost assumptions from those reflected in this information. Beyond the above considerations, the "standardized measure" is also not directly comparable with asset balances appearing elsewhere in the financial statements because any such comparison would require reconciling adjustments, including reduction of the asset balances for related deferred income taxes. 68 Supplemental Petroleum Data (Dollars in millions) Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
- ----------------------------------------------------------------------------------------------------------------------------------- Total Worldwide United States Europe ----------------------------- ----------------------------- ----------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------------------------------------------------------------------------- Consolidated Companies Future cash flows: Revenues $23,836 $19,558 $24,439 $ 7,201 $ 7,199 $10,027 $12,945 $ 9,380 $10,785 Production costs (8,967) (9,117) (10,011) (3,411) (4,361) (5,228) (4,719) (4,005) (4,119) Development costs (1,693) (1,802) (1,719) (184) (515) (534) (1,439) (1,143) (1,001) Income tax expense (6,084) (3,607) (6,022) (873) (414) (1,060) (2,893) (1,514) (2,585) ----------------------------------------------------------------------------------------------- Future net cash flows 7,092 5,032 6,687 2,733 1,909 3,205 3,894 2,718 3,080 Discounted to present value at a 10% annual rate (2,817) (1,818) (2,379) (1,154) (655) (1,239) (1,522) (1,021) (1,000) ----------------------------------------------------------------------------------------------- Total consolidated companies 4,275 3,214 4,308 1,579 1,254 1,966 2,372 1,697 2,080 ----------------------------------------------------------------------------------------------- Equity Affiliates Standardized measure of discounted future net cash flows of equity affiliates 211 99 70 102 96 55 109 3 15 ----------------------------------------------------------------------------------------------- Total $ 4,486 $ 3,313 $ 4,378 $ 1,681 $ 1,350 $ 2,021 $ 2,481 $ 1,700 $ 2,095 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------- Other Regions* ----------------------------- 1994 1993 1992 ----------------------------- Consolidated Companies Future cash flows: Revenues $ 3,690 $ 2,979 $ 3,627 Production costs (837) (751) (664) Development costs (70) (144) (184) Income tax expense (2,318) (1,679) (2,377) ----------------------------- Future net cash flows 465 405 402 Discounted to present value at a 10% annual rate (141) (142) (140) ----------------------------- Total consolidated companies 324 263 262 ----------------------------- Equity Affiliates Standardized measure of discounted future net cash flows of equity affiliates - - - ----------------------------- Total $ 324 $ 263 $ 262 - -----------------------------------------------------------------
* Includes Canada, Dubai and Indonesia. 69 Supplemental Petroleum Data (Dollars in millions) Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves for Fully Consolidated Companies
- ------------------------------------------------------------------------------------------------------------------------ 1994 1993 1992 ---------------------------------------- Balance at January 1 $ 3,214 $ 4,308 $ 3,558 Sales and transfers of oil and gas produced, net of production costs (2,143) (2,239) (2,053) Development costs incurred during the period 713 864 833 Net changes in prices and in development and production costs 1,275 (3,017) 765 Extensions, discoveries and improved recovery, less related costs 775 915 453 Revisions of previous quantity estimates 796 130 178 Purchases (sales) of reserves in place--net 333 (120) (42) Accretion of discount 529 791 689 Net change in income taxes (1,174) 1,493 (369) Other (43) 89 296 ---------------------------------------- Balance at December 31 $ 4,275 $ 3,214 $ 4,308 - ------------------------------------------------------------------------------------------------------------------------
70 Quarterly Financial Data (Dollars in millions, except per share)
- ----------------------------------------------------------------------------------------------------------------- Quarter Ended March 31 June 30 September 30 December 31 - ----------------------------------------------------------------------------------------------------------------- 1994 Sales $ 9,190 $10,161 $ 9,845 $10,137 Cost of Goods Sold and Other Expenses/1/ 8,101 8,924 8,958 9,335 Net Income 642 792/2/ 647/3/ 646/4/ Earnings Per Share of Common Stock .94 1.16 .95 .95 Dividends Per Share of Common Stock .44 .44 .47 .47 Market Price of Common Stock/5/: High 59 7/8 62 3/8 61 3/8 60 1/2 Low 48 1/4 51 1/2 56 7/8 50 3/4 - ----------------------------------------------------------------------------------------------------------------- 1993 Sales $ 9,070 $ 9,546 $ 9,231 $ 9,251 Cost of Goods Sold and Other Expenses/1/ 8,247 8,684 10,375 8,983 Net Income (Loss) 493/6/ 516/7/ (680)/8/ 237/9/,/10/ Earnings (Loss) Per Share of Common Stock .73 .76 (1.01) .35/9/ Dividends Per Share of Common Stock .44 .44 .44 .44 Market Price of Common Stock/5/: High 50 53 7/8 49 5/8 50 1/2 Low 44 1/2 46 1/2 45 7/8 44 1/2 - -----------------------------------------------------------------------------------------------------------------
1 Excludes interest and debt expense and provision for income taxes. 2 Includes a charge of $47 ($.07 per share) associated with "Benlate" DF 50 fungicide recall. 3 Includes a net charge of $3 reflecting: a benefit of $50 from adjustments in estimates associated with the third quarter 1993 restructuring charge; a charge of $58 for employee separation costs; a loss of $95 from the write- down of certain North Sea oil properties to be sold; a charge of $27 associated with the discontinuation of certain products, assets sales and write-downs and a benefit of $127 principally related to a favorable change in tax status resulting from a transfer of properties among certain North Sea affiliates. 4 Includes a net benefit of $2 reflecting: a benefit of $62 from adjustments in estimates associated with the third quarter 1993 restructuring charge; a charge of $63 associated with the "Benlate" DF 50 fungicide recall; a charge of $27 for the write-down of assets and discontinuation of certain products; and a benefit of $30 from an adjustment of prior-year tax provisions. 5 As reported on the New York Stock Exchange, Inc. Composite Transactions Tape. 6 Includes a gain of $32 ($.05 per share) from exchange of North Sea properties (see footnote 11 to Note 30 on page 63). 7 Includes a loss of $21 ($.03 per share) from sale of petroleum-producing properties. 8 Includes restructuring charges of $1,111 ($1.64 per share) and write-down of intangible assets of $184 ($.27 per share), partially offset by a net tax benefit of $265 ($.39 per share). 9 Before extraordinary item. 10 Includes net charge of $92 ($.13 per share) related to certain product liability claims and litigation costs ($144, of which $126 is associated with the "Benlate" DF 50 fungicide recall) and a loss on the sale of a polyethylene business ($17), partly offset by a gain from the sale of the Remington Arms Company ($69). Also includes a benefit of about $50 ($.07 per share) as a result of the liquidation of certain LIFO inventory quantities. 71 Consolidated Geographic Data (Dollars in millions)
- ----------------------------------------------------------------------------------------------- Capital Total Assets Average Expenditures December 31 Employment ------------------------------------------------------------------------ 1994 1993 1994 1993 1994 1993 ------------------------------------------------------------------------ United States $ 1,520 $ 1,842 $19,857 $20,610 73,507 81,587 Europe 1,317 1,277 11,957 11,315 22,624 22,427 Other Regions 404 606 5,078 5,128 14,376 15,395 ------------------------------------------------------------------------ Total $ 3,241 $ 3,725 $36,892 $37,053 110,507 119,409 - -----------------------------------------------------------------------------------------------
Capital expenditures, total assets and average employment are assigned to geographic areas, generally based on physical location. 72 Five-Year Financial Review/1/ (Dollars in millions, except per share)
- -------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 --------------------------------------------------------------- Summary of Operations Sales $39,333 $37,098 $37,799 $38,695 $40,047 Earnings Before Income Taxes $ 4,382 $ 958 $ 1,811 $ 2,818 $ 4,154 Provision for Income Taxes $ 1,655 $ 392 $ 836 $ 1,415 $ 1,844 Net Income/2/ $ 2,727 $ 566 $ 975 $ 1,403 $ 2,310 As Percent of Average Stockholders' Equity/2/ 22.6% 4.8% 8.1% 8.3% 14.3% Earnings Per Share of Common Stock/2/,/3/ $ 4.00 $ .83 $ 1.43 $ 2.08 $ 3.40 --------------------------------------------------------------- Financial Position at Year End Working Capital $ 3,543 $ 1,460 $ 2,002 $ 3,381 $ 2,210 Total Assets $36,892 $37,053 $38,870 $36,559 $38,128 Borrowings and Capital Lease Obligations: Short Term $ 1,292 $ 2,796 $ 3,799 $ 1,841 $ 3,928 Long Term $ 6,376 $ 6,531 $ 7,193 $ 6,456 $ 5,663 Stockholders' Equity $12,822 $11,230 $11,765 $16,739 $16,418 Total Debt as Percent of Total Capitalization 37% 45% 48% 33% 37% --------------------------------------------------------------- General For the Year: Capital Expenditures $ 3,241 $ 3,725 $ 4,524 $ 5,246 $ 5,513 Depreciation, Depletion and Amortization $ 2,976 $ 2,833 $ 2,655 $ 2,640 $ 2,625 Research and Development Expense $ 1,047 $ 1,132 $ 1,277 $ 1,298 $ 1,428 As Percent of Combined Segment Sales for: Chemicals, Fibers, Polymers and Diversified Businesses 4.5% 5.1% 5.6% 5.8% 6.2% Petroleum 0.3% 0.3% 0.4% 0.4% 0.3% Average Number of Shares Outstanding (millions) 680 677 673 671 676 Dividends Per Common Share $ 1.82 $ 1.76 $ 1.74 $ 1.68 $ 1.62 Dividends as Percent of Earnings on Common Stock/2/ 46% 212% 122% 81% 48% Common Stock Prices: High $ 62 3/8 $ 53 7/8 $ 54 7/8 $ 50 $ 42 3/8 Low $ 48 1/4 $ 44 1/2 $ 43 1/2 $ 32 3/4 $ 31 3/8 Year-End Close $ 56 1/8 $ 48 1/4 $ 47 1/8 $ 46 5/8 $ 36 3/4 At Year End: Employees (thousands) 107 114 125 133 144 Common Stockholders of Record (thousands) 172 181 188 195 199 Book Value Per Common Share $ 18.48 $ 16.22 $ 17.08 $ 24.58 $ 24.16 - --------------------------------------------------------------------------------------------------------------------------
1 See Management's Discussion and Analysis on pages 30-36, Consolidated Income Statement on page 39, Notes to Financial Statements on pages 43-63 and Quarterly Financial Data on page 71 for information relating to significant items affecting the results of operations and financial position. 2 Before effect on income of extraordinary item (1993 and 1992) and transition effect of accounting changes (1992). See the Consolidated Income Statement on page 39. 3 Based on the average number of common shares outstanding. 73 EX-21 7 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name Organized Under Laws of ---- ----------------------- Conoco Canada Limited ............................. Canada Conoco Developments Ltd. .......................... England Conoco Inc. ....................................... Delaware Conoco Indonesia Inc. ............................. Delaware Conoco International, Inc. ........................ Delaware Conoco Investments Norge A/S ...................... Norway Conoco Ireland Ltd. ............................... Delaware Conoco Limited .................................... England Conoco Mineraloel GmbH ............................ Germany Conoco Norway Inc. ................................ Delaware Conoco Petroleum Limited .......................... England Conoco Petroleum Norge A/S ........................ Norway Conoco Pipe Line Company .......................... Delaware Conoco Specialty Products, Inc. ................... Delaware Conoco Timan-Pechora Ltd. ......................... Bermuda Conoco (U.K.) Limited ............................. England Consol Energy Inc. (50% owned) .................... Delaware Continental Oil Company of Libya .................. Delaware Danube Insurance Ltd. ............................. Bermuda Douglas Oil Company of California ................. California Dubai Petroleum Company ........................... Delaware DuPont Agrichemicals Caribe, Inc. ................. Delaware DuPont Argentina S.A. ............................. Argentina DuPont Asia Pacific, Ltd. ......................... Delaware DuPont (Australia) Limited ........................ Australia DuPont Canada Inc. (76.79% owned) ................. Canada DuPont Chemical and Energy Operations, Inc. ....... Delaware DuPont Delaware, Inc. ............................. Delaware DuPont Diagnostics, Inc. .......................... Delaware DuPont de Colombia, S.A. .......................... Colombia DuPont de Nemours (Belgium) N.V. .................. Belgium DuPont de Nemours (Deutschland) GmbH .............. Germany DuPont de Nemours (Flandre), S.A. ................. France DuPont de Nemours (France) S.A. ................... France DuPont de Nemours International S.A. .............. Switzerland DuPont de Nemours Italiana S.p.A. ................. Italy DuPont de Nemours (Luxembourg) S.A. ............... Luxembourg DuPont de Nemours (Nederland) B.V. ................ The Netherlands DuPont do Brasil S.A. ............................. Brazil DuPont Electronic Materials, Inc. ................. Delaware DuPont Energy Company ............................. Delaware DuPont Engineering Products, S.A. ................. Luxembourg DuPont Feedstocks Company ......................... Delaware DuPont Foreign Sales Corporation .................. Virgin Islands DuPont Iberica, S.A. .............................. Spain Name Organized Under Laws of ---- ----------------------- DuPont (K.K.) ..................................... Delaware DuPont Korea, Ltd. ................................ Republic of Korea DuPont Merck Pharmaceutical Company (Delaware Partnership) (50% owned) ........................ Delaware DuPont Merck Pharma (Puerto Rico Partnership) (50% owned) ..................................... Puerto Rico DuPont (New Zealand) Ltd. ......................... New Zealand DuPont Photomasks, Inc. ........................... Texas DuPont, S.A. de C.V. .............................. Mexico DuPont Scandanavia A.B. ........................... Sweden DuPont (Singapore) Pte. Ltd. ...................... Singapore DuPont (Singapore) Fibres Pte. Ltd. (90% owned) ... Singapore DuPont Taiwan Ltd. ................................ Taiwan DuPont (Thailand) Co. Ltd. ........................ Thailand DuPont Treasury Ltd. .............................. England DuPont (U.K.) Limited ............................. England Kayo Oil Company .................................. Delaware Societe Europeene Des Carburants .................. Belgium World Wide Transport, Inc. ........................ Liberia Subsidiaries not listed would not, if considered in the aggregate as a single subsidiary, constitute a significant subsidiary. 2 EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (No. 33-48128 and No. 33-53327) and Form S-8 (No. 33-51817, No. 33-43918, No. 2-74004, No. 33-51821 and No. 33-36339) of E. I. du Pont de Nemours and Company of our report dated February 16, 1995 appearing on page 38 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 March 20, 1995 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 856 253 5,213 86 3,969 11,108 48,838 27,718 36,892 7,565 6,376 408 0 237 12,177 36,892 39,333 40,259 21,977 35,318 0 0 559 4,382 1,655 2,727 0 0 0 2,727 4.00 0 Includes Other Accounts In Addition To Notes and Accounts Receivable-Trade. Includes Other Operating Charges. Cost of Goods Sold and Other Operating Charges; Selling, General and Administrative Expenses; Depreciation, Depletion and Amortization; Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties; Research and Development Expense; Taxes Other Than On Income; and Restructuring.
-----END PRIVACY-ENHANCED MESSAGE-----