2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) | ||
ý | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2011 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
____________________________________________________________________________
Commission file number 1-815
E. I. DU PONT DE NEMOURS AND COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE (State or Other Jurisdiction of Incorporation or Organization) | 51-0014090 (I.R.S. Employer Identification No.) | |
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 ($.30 par value)
Preferred Stock
(without par value-cumulative)
$4.50 Series
$3.50 Series
No securities are registered pursuant to Section 12(g) of the Act.
_____________________________________________________
Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes ý No o
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of voting stock held by nonaffiliates of the registrant (excludes outstanding shares beneficially owned by directors and officers and treasury shares) as of June 30, 2011, was approximately $50.3 billion.
As of January 31, 2012, 932,253,000 shares (excludes 87,041,000 shares of treasury stock) of the company's common stock, $0.30 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 Proxy Statement in connection with the Annual Meeting of Stockholders to be held on April 25, 2012 | III | |
E. I. du Pont de Nemours and Company
Form 10-K
Table of Contents
The terms "DuPont" or the "company" as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries, or to E. I. du Pont de Nemours and Company, as the context may indicate.
Page | |||
Note on Incorporation by Reference
Information pertaining to certain Items in Part III of this report is incorporated by reference to portions of the company's definitive 2012 Annual Meeting Proxy Statement to be filed within 120 days after the end of the year covered by this Annual Report on Form 10-K, pursuant to Regulation 14A (the Proxy).
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Part I
ITEM 1. BUSINESS
DuPont was founded in 1802 and was incorporated in Delaware in 1915. DuPont brings world-class science and engineering to the global marketplace in the form of innovative products, materials and services. The company believes that by collaborating with customers, governments, non-governmental organizations and thought leaders it can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment. Total worldwide employment at December 31, 2011, was approximately 70,000 people. The company has operations in more than 90 countries worldwide and about 65 percent of consolidated net sales are made to customers outside the United States of America (U.S.).
Subsidiaries and affiliates of DuPont conduct manufacturing, seed production or selling activities and some are distributors of products manufactured by the company. As a science and technology based company, DuPont competes on a variety of factors such as product quality and performance or specifications, continuity of supply, price, customer service and breadth of product line, depending on the characteristics of the particular market involved and the product or service provided. Most products are marketed primarily through DuPont's sales force, although in some regions, more emphasis is placed on sales through distributors. The company utilizes numerous suppliers as well as internal sources to supply a wide range of raw materials, energy, supplies, services and equipment. To ensure availability, the company maintains multiple sources for fuels and many raw materials, including hydrocarbon feedstocks. Large volume purchases are generally procured under competitively priced supply contracts.
In 2011, DuPont acquired Danisco A/S (Danisco), a global enzyme and specialty food ingredients company. This acquisition was valued at $6.4 billion, plus net debt assumed of $0.6 billion.
Business Segments
The company consists of 14 businesses which are aggregated into nine reportable segments based on similar economic characteristics, the nature of the products and production processes, end-use markets, channels of distribution and regulatory environment. The company's reportable segments are Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection and Pharmaceuticals. The company includes certain embryonic businesses not included in the reportable segments, such as pre-commercial programs, and nonaligned businesses in Other.
Agriculture
Agriculture businesses, Pioneer Hi-Bred International, Inc. (Pioneer) and DuPont Crop Protection, leverage the company's technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply and the global production agriculture industry. Land available for worldwide agricultural production is increasingly limited so production growth will need to be achieved principally through improving crop yields and productivity rather than through increases in planted area. The segment's businesses deliver a broad portfolio of products and services that are specifically targeted to achieve gains in crop yields and productivity, including Pioneer® brand seed products and well-established brands of insecticides, fungicides and herbicides. Research and development focuses on leveraging technology to increase grower productivity and enhance the value of grains and soy through improved seed traits, superior seed germplasm and effective use of insecticides, herbicides and fungicides. Agriculture accounted for approximately 50 percent of the company's total research and development expense in 2011.
Sales of the company's products in the segment are affected by seasonal cropping and weather patterns. Sales and earnings performance in the Agriculture segment are strongest in the first half of the year reflecting the northern hemisphere planting season. The segment generally operates at a loss during the third and fourth quarters of the year. As a result of the seasonal nature of its business, Agriculture's inventory is at its highest level at the end of the calendar year and is sold down in the first and second quarters. Trade receivables in the Agriculture segment are at a low point at year-end and increase through the selling season to peak at the end of the second quarter.
Pioneer is a world leader in developing, producing and marketing corn hybrid and soybean varieties which improve the productivity and profitability of its customers. Additionally, Pioneer sells canola, sunflower, sorghum, inoculants, wheat and rice. As the world's population grows and the middle class expands, the need for crops for animal feed, food, biofuels and industrial uses continues to increase. The business competes with other seed and plant biotechnology companies. Pioneer seed sales amounted to 16 percent, 17 percent and 18 percent of the company's total consolidated net sales for the years ended December 31, 2011, 2010 and 2009, respectively.
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Pioneer's research and development focuses on integrating high yielding germplasm with value added proprietary and/or licensed native and biotechnology traits with local environment and service expertise. Pioneer uniquely develops integrated products for specific regional application based on local product advancement and testing of the product concepts. Research and development in this arena requires long-term commitment of resources, extensive regulatory efforts and collaborations, partnerships and business arrangements to successfully bring products to market. Pioneer licenses biotechnology traits from third parties as a normal course of business. To protect its investment, the business employs the use of patents covering germplasm and native and biotechnology traits in accordance with country laws.
Pioneer is actively pursuing the development of innovations for corn hybrid, soybean varieties, canola, sunflower, wheat and rice based on market assessments of the most valuable opportunities. In corn hybrids, programs include innovations for drought and nitrogen efficiency, insect protection and herbicide tolerance. In soybean varieties, programs include products with high oleic content, multiple herbicide tolerance and insect protection.
Pioneer has seed production facilities located throughout the world. Seed production is performed directly by the business or contracted with independent growers and conditioners. Pioneer's ability to produce seeds primarily depends upon weather conditions and availability of reliable contract growers.
Pioneer markets and sells seed product primarily under the Pioneer® brand but also sells and distributes products utilizing additional brand names. Pioneer promotes its products through multiple marketing channels around the world. In the corn and soybean markets of the U.S. Corn Belt, Pioneer® brand products are sold through a specialized force of independent sales representatives. Outside of North America Pioneer's products are marketed through a network of subsidiaries, joint ventures and independent producer-distributors.
DuPont Crop Protection serves the global production agriculture industry with crop protection products for field crops such as wheat, corn, soybean and rice; specialty crops such as fruit, nut, vine and vegetables; and non-crop segments, including forestry and land management. Principal crop protection products are weed control, disease control and insect control products. Crop Protection products are marketed and sold to growers and other end users through a network of wholesale distributors and crop input retailers. The sales growth of the business' insect control portfolio is led by DuPontTM Rynaxypyr® insecticide, a product registered for sale in over 80 countries and sold under four key brands for use across a broad range of core agricultural crops.
The major commodities, raw materials and supplies for the Agriculture segment include: corn and soybean seeds, benzene and carbamic acid related intermediates, copper, insect control products, natural gas, soybeans and sulfonamides.
Agriculture segment sales outside the U.S. accounted for 54 percent of the segment's total sales in 2011.
Electronics & Communications
Electronics & Communications (E&C) is a leading supplier of differentiated materials and systems for photovoltaics, consumer electronics, displays and advanced printing that enable superior performance and lower total cost of ownership for customers. The segment leverages DuPont's strong materials and technology base to target attractive growth opportunities in photovoltaic materials, circuit and semiconductor fabrication and packaging materials, display materials, packaging graphics, and ink-jet printing. In the growing photovoltaics market, E&C continues to be a leading supplier of metalization pastes and backsheet materials for use in solar cells and modules. In 2011, the segment completed the acquisition of Innovalight, Inc., a company specializing in advanced silicon inks and process technologies that increase the efficiency of crystalline silicon solar cells. The acquisition further strengthens the segment's position as a leader in materials for the solar energy market, enabling a broader and more integrated photovoltaic materials and technology offering from the business. The segment completed a $295 million expansion to support the DuPontTM Tedlar® polyvinyl fluoride films business. This included a $120 million investment in capacity expansion to produce the raw materials that make the film, which was completed in 2010, and a multi-phase $175 million investment of high-performance Tedlar® PV2001 series oriented film production completed in 2011. Tedlar® films serve as the critical component of photovoltaic module backsheets, providing long-term durability and performance in all weather conditions.
In the displays market, E&C continues to be a leading materials supplier for plasma displays. In 2011, the segment signed a technology licensing agreement with a leading Asian manufacturer of active matrix organic light emitting diode (AMOLED) display products that will enable solution-process technology developed by the manufacturer to be used in the segment's production of large AMOLED television displays.
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The segment is expanding its broad portfolio of materials for semiconductor fabrication and packaging, as well as innovative materials for circuit applications, to address critical needs of electronic component and device manufacturers. In packaging graphics, E&C is a leading supplier of flexographic printing systems, including Cyrel® photopolymer plates. The segment is investing in new products such as Cyrel® FAST Round to strengthen its market leadership position in advanced printing markets. The segment is also expanding its leadership position in black-pigmented inks and developing new color-pigmented inks for network printing applications.
The major commodities, raw materials and supplies for E&C include: block co-polymers, copper, hydroxylamine, oxydianiline, polyester film, precious metals, difluoroethane and pyromellitic dianhydride.
E&C segment sales outside the U.S. accounted for 86 percent of the segment's total sales in 2011.
Industrial Biosciences
Industrial Biosciences is comprised of Danisco's enzyme business acquired in 2011, as well as the DuPontTM Sorona® renewably sourced polymer and BioPDOTM 1,3 propanediol businesses, previously reported in Other. Industrial Biosciences leverages DuPont's unique combination of biotechnology, chemical, materials science and process engineering capabilities to deliver customer-driven, superior-performing, sustainable solutions. Industrial Biosciences is a leader in developing and manufacturing a wide range of enzymes, which are biocatalysts that enable chemical reactions, on a large scale. The segment's enzymes add value and functionality to a broad range of products and processes such as animal nutrition, detergents, food manufacturing, ethanol production and industrial applications resulting in cost and process benefits, better product performance and improved environmental outcomes.
The segment includes a joint venture with Tate & Lyle PLC, DuPont Tate and Lyle Bio Products LLC, to produce BioPDOTM using a proprietary fermentation and purification process. BioPDOTM is the key building block for DuPontTM Sorona®, which is used primarily in carpet and apparel fibers.
The major commodities, raw materials and supplies for the Industrial Biosciences segment include: grain products, such as dextrose and glucose, glucoamylase, purified terephthalic acid and glycols.
Industrial Biosciences segment sales outside the U.S. accounted for 53 percent of the segment's total sales in 2011.
Nutrition & Health
Nutrition & Health is comprised of Danisco's world leading specialty food ingredients business and Solae, a majority-owned venture with Bunge Limited, which is a world leader in developing soy based technologies. The segment is the premier provider of innovative solutions for specialty food ingredients, health and safety. The segment's products, which include cultures, emulsifiers, gums, natural sweeteners and soy-based food ingredients, hold leading market positions based on industry leading innovation, relevant product portfolio and close-partnering with the world's food manufacturers. Nutrition & Health serves various end markets within the food industry including meat, dairy, beverages and bakery segments. Nutrition & Health has research, production and distribution operations around the world.
Nutrition & Health products are marketed and sold under a variety of brand names and are distributed primarily through its direct route to market. The direct route to market focuses on strong customer collaborations and insights with multinational customers and regional customers alike.
The major commodities, raw materials and supplies for the Nutrition & Health segment include: soybean, oils and fats, grain products, locust bean gum, glycerin, seaweed, acetyls, sugar, yeast and citrus peels.
Nutrition & Health segment sales outside the U.S. accounted for 69 percent of the segment's total sales in 2011.
Performance Chemicals
Performance Chemicals businesses, DuPont Titanium Technologies and DuPont Chemicals and Fluoroproducts, deliver customized solutions with a wide range of industrial and specialty chemical products for markets including plastics and coatings, textiles, mining, pulp and paper, water treatment and healthcare.
DuPont Titanium Technologies is the world's largest manufacturer of titanium dioxide, and is dedicated to creating greater value for the coatings, paper, plastics, specialties and minerals markets through service, brand and product. The business' main products include its broad line of DuPontTM Ti-Pure® titanium dioxide products. In 2011, the business announced a global expansion to
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support increased customer demand for titanium dioxide, including a $500 million investment in new production facilities at the company's Altamira, Mexico site scheduled for completion in 2014. In addition, the business is investing in facility upgrades to improve productivity at its other global manufacturing sites over the next three years.
DuPont Chemicals and Fluoroproducts is a leading global manufacturer of industrial and specialty fluorochemicals, fluoropolymers and performance chemicals. The business' broad line of products that include refrigerants, lubricants, propellants, solvents, fire extinguishants and electronic gases, cover a wide range of industries and markets. Key brands include DuPont™ Teflon®, Capstone®, Dymel®, OpteonTM yf, Isceon®, Suva®, Vertrel®, Zyron®, Vazo® and Virkon®.
The major commodities, raw materials and supplies for the Performance Chemicals segment include: ammonia, benzene, chlorine, chloroform, fluorspar, hydrofluoric acid, industrial gases, methanol, natural gas, perchloroethylene, sulfur, petroleum coke and titanium ore.
Performance Chemicals segment sales outside the U.S. accounted for 60 percent of the segment's total sales in 2011.
Performance Coatings
Performance Coatings is one of the world's leading motor vehicle coatings suppliers. Products offered include high performance liquid and powder coatings for motor vehicle original equipment manufacturers (OEMs), the motor vehicle after-market, and general industrial applications, such as coatings for heavy equipment, pipes and appliances and electrical insulation. After-market coatings products are marketed using the DuPontTM Standox®, Spies Hecker®, Cromax Pro® and Nason® brand names. Standox®, Spies Hecker® and Cromax Pro® are focused on the high-end motor vehicle after-markets, while Nason® is primarily focused on economy coating applications. The segment has several large customers, primarily in the motor vehicle OEM industry supply chain. The company has long-standing relationships with these customers and they are considered to be important to the segments' operating results.
The major commodities, raw materials and supplies for the Performance Coatings segment include: isocyanates, pigments, resins and solvents.
Performance Coatings segment sales outside the U.S. accounted for 75 percent of the segment's total sales in 2011.
Performance Materials
Performance Materials businesses, Performance Polymers and Packaging & Industrial Polymers, provide productive, higher performance polymers, elastomers, films, parts, and systems and solutions which improve the uniqueness, functionality and profitability of its customers' offerings. The key markets served by the segment include the automotive OEM and associated after-market industries, as well as electrical, packaging, construction, oil, electronics, photovoltaics, aerospace, chemical processing and consumer durable goods. The segment has several large customers, primarily in the motor vehicle OEM industry supply chain. The company has long-standing relationships with these customers and they are considered to be important to the segments' operating results.
Performance Polymers delivers a broad range of polymer-based high performance materials in its product portfolio, including elastomers and thermoplastic and thermoset engineering polymers which are used by customers to fabricate components for mechanical, chemical and electrical systems. The main products include: DuPontTM Zytel® nylon resins, Delrin® acetal resins, Hytrel® polyester thermoplastic elastomer resins, Tynex® filaments, Vespel® parts and shapes, Vamac® ethylene acrylic elastomer, Kalrez® perfluoroelastomer and Viton® fluoroelastomers. Performance Polymers also includes the DuPont Teijin Films joint venture, whose primary products are Mylar® and Melinex® polyester films.
Packaging & Industrial Polymers specializes in resins and films used in packaging and industrial polymer applications, sealants and adhesives, sporting goods, and interlayers for laminated safety glass. Key brands include: DuPontTM Surlyn® ionomer resins, Bynel® coextrudable adhesive resins, Elvax® EVA resins, SentryGlas®, Butacite® laminate interlayers and Elvaloy® copolymer resins.
The major commodities, raw materials and supplies for the Performance Materials segment include: acrylic monomers, adipic acid, butadiene, butanediol, dimethyl terephthalate, ethane, fiberglass, hexamethylenediamine, methanol, natural gas and purified terephthalic acid.
Performance Materials segment sales outside the U.S. accounted for 68 percent of the segment's total sales in 2011.
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Safety & Protection
Safety & Protection businesses, Protection Technologies, Sustainable Solutions and Building Innovations, satisfy the growing global needs of businesses, governments and consumers for solutions that make life safer, healthier and more secure. By uniting market-driven science with the strength of highly regarded brands, the segment delivers products and services to a large number of markets, including construction, transportation, communications, industrial chemicals, oil and gas, electric utilities, automotive, manufacturing, defense, homeland security and safety consulting.
Protection Technologies is focused on finding solutions to protect people and the environment. With products like DuPont™ Kevlar® high strength material, Nomex® thermal resistant material and Tyvek® protective material, the business continues to hold strong positions in life protection markets and meet the continued demand for body armor and personal protective gear for the military, law enforcement personnel, firefighters and other first responders, as well as for workers in the oil and gas industry around the world. In 2011, the business announced the start up of its $500 million Cooper River Kevlar® facility near Charleston, South Carolina. The Cooper River Kevlar® plant uses state-of-the-art technology that will allow the business to meet increased customer demand for advanced protective materials in emerging industries around the world by expanding its portfolio of science-based innovations and boosting productivity. Commercial supply began at the end of 2011.
Sustainable Solutions continues to help organizations worldwide reduce workplace injuries and fatalities while improving operating costs, productivity and quality. Sustainable Solutions is a leader in the safety consulting field, selling training products, as well as consulting services. Additionally, Sustainable Solutions is dedicated to clean air, clean fuel and clean water with offerings that help reduce sulfur and other emissions, formulate cleaner fuels, or dispose of liquid waste. Its goal is to help maintain business continuity and environmental compliance for companies in the refining and petrochemical industries, as well as for government entities. In 2010, the business completed the acquisition of MECS, Inc. (MECS), which is a leading global provider of process technology, proprietary specialty equipment and technical services to the sulfuric acid industry.
Building Innovations is committed to the building science behind increasing the performance of building systems, helping reduce operating costs and creating more sustainable structures. The business is a market leader of solid surfaces through its DuPont™ Corian® and Montelli® lines of products which offer durable and versatile materials for residential and commercial purposes. Other products such as DuPont™ Tyvek® and Typar® offer leading solutions for the protection and energy efficiency of buildings.
The major commodities, raw materials and supplies for the Safety & Protection segment include: alumina hydroxide, benzene, high density polyethylene, isophthaloyl chloride, metaphenylenediamine, methyl methacrylate, paraphenylenediamine, polyester fiber, terephthaloyl chloride and wood pulp.
Safety & Protection segment sales outside the U.S. accounted for 63 percent of the segment's total sales in 2011.
Pharmaceuticals
On October 1, 2001, DuPont Pharmaceuticals was sold to the Bristol-Myers Squibb Company. DuPont retained its interest in Cozaar® (losartan potassium) and Hyzaar® (losartan potassium with hydrochlorothiazide), which are used in the treatment of hypertension. DuPont has exclusively licensed worldwide marketing and manufacturing rights for Cozaar® and Hyzaar® to Merck & Co., Inc. (Merck).
Pharmaceuticals' Cozaar®/Hyzaar® income is the sum of two parts: income related to a share of the profits from North American sales and certain markets in Europe, and royalty income derived from worldwide contract net sales linked to the exclusivity term in a particular country. Patents and exclusivity started to expire in prior years and the U.S. exclusivity for Cozaar® ended in April 2010. The worldwide agreement terminates when the following conditions are met: (i) the Canadian exclusivity ends (which occurred in January 2012), and (ii) North American sales fall below a certain level, which could occur by year end 2012. The company experienced its first significant step-down in income from Cozaar®/Hyzaar® in 2010 and expects a continued step-down to zero when the contract ends. In general, management expects a traditional earnings and cash decline for a drug going off patent in the pharmaceutical industry to continue until the contract ends.
Backlog
In general, the company does not manufacture its products against a backlog of orders and does not consider backlog to be a significant indicator of the level of future sales activity. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, the company believes that backlog information is not material to understanding its overall business and should not be considered a reliable indicator of the company's ability to achieve any particular level of revenue or financial performance.
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Intellectual Property
DuPont believes that its intellectual property estate provides it with an important competitive advantage. It has an established global network of attorneys, as well as branding, advertising and licensing professionals, to procure, maintain, protect, enhance and gain value from this estate.
The company has a large portfolio of and is licensed under various patents. These definite-lived patents cover many products, processes and product uses. These patents protect many aspects of the company's significant research programs and the goods and services it sells. The actual protection afforded by these patents varies from country to country and depends upon the scope of coverage of each individual patent as well as the availability of legal remedies in each country. DuPont owns about 19,000 worldwide patents and is awaiting action on about 18,000 worldwide patent applications. In 2011, the company was granted 910 U.S. patents, the highest number for a single year in the company's history, and about 2,100 international patents. DuPont's rights under its patents and licenses, as well as the products made and sold under them, are important to the company as a whole, and to varying degrees, important to each reportable segment.
Trade secrets are an important element of the company's intellectual property. Many of the processes used to make DuPont products are kept as trade secrets which, from time to time, may be licensed to third parties. DuPont vigilantly protects all of its intellectual property including its trade secrets. When the company discovers that its trade secrets have been unlawfully taken, it reports the matter to governmental authorities for investigation and potential criminal action, as appropriate. In addition, the company takes measures to mitigate any potential impact, which may include civil actions seeking redress, restitution and/or damages based on loss to the company and/or unjust enrichment.
Ownership of and access to intellectual property rights, particularly those relating to biotechnology and germplasm, will continue to be important to Pioneer and its competitors. The environment in which Pioneer competes is characterized by the use among competitors of intellectual property rights, including patent lawsuits, to gain advantage in commercial markets. In support of its business, Pioneer continues to build a large collection of intellectual property rights related to biotechnology and germplasm and to license technology from others, including competitors. Pioneer endeavors to obtain such licenses on commercially reasonable terms.
The company has about 2,450 unique trademarks for its products and services and approximately 22,500 registrations for these trademarks worldwide. Ownership rights in trademarks do not expire if the trademarks are continued in use and properly protected. The company has many trademarks that have significant recognition at the consumer retail level and/or business to business level.
Research and Development
The company conducts research at either dedicated research facilities or manufacturing plants. There are twelve major research locations in the U.S. & Canada, with the highest concentration of facilities being located in the Wilmington, Delaware area. Reflecting the company's global interests, five major research locations are located in both the Asia Pacific and Europe, Middle East and Africa (EMEA) regions. One major location is also located in Latin America.
The objectives of the company's research and development programs are to create new technologies, processes and business opportunities in relevant fields, as well as to improve existing products and processes. Each segment of the company funds research and development activities that support its business mission. The company is expanding its offerings addressing safety, environment, energy and climate challenges in the global marketplace by developing and commercializing renewable, bio-based materials; advanced biofuels; energy-efficient technologies; enhanced safety and protection products; and alternative energy products and technologies. The goals are tied directly to business growth, including increasing food production, increasing renewable sources for energy and raw materials, and providing greater safety and protection for people and the environment. All research and development activities are administered by senior research and development management to ensure consistency with the business and corporate strategy. The future of the company is not dependent upon the outcome of any single research program.
Additional information with respect to research and development, including the amount incurred during each of the last three fiscal years, is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 19 of this report.
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Environmental Matters
Information related to environmental matters is included in several areas of this report: (1) Environmental Proceedings beginning on page 12, (2) Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on pages 29, 33-34 and (3) Notes 1 and 15 to the Consolidated Financial Statements.
Available Information
The company is subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, the company is required to file reports and information with the Securities and Exchange Commission (SEC), including reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
The public may read and copy any materials the company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are also accessible on the company's website at http://www.dupont.com by clicking on the tab labeled "Investor Center", then on "Key Financials & Filings" and then on "SEC Filings." These reports are made available, without charge, as soon as is reasonably practicable after the company files or furnishes them electronically with the SEC.
Executive Officers of the Registrant
Information related to the company's Executive Officers is included in Item 10, Directors, Executive Officers and Corporate Governance, beginning on page 38 of this report.
ITEM 1A. RISK FACTORS
The company's operations could be affected by various risks, many of which are beyond its control. Based on current information, the company believes that the following identifies the most significant risk factors that could affect its businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
Price increases for energy and raw materials could have a significant impact on the company's ability to sustain and grow earnings.
The company's manufacturing processes consume significant amounts of energy and raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond the control of the company. Significant variations in the cost of energy, which primarily reflect market prices for oil and natural gas and raw materials affect the company's operating results from period to period. Legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. When possible, the company purchases raw materials through negotiated long-term contracts to minimize the impact of price fluctuations. Additionally, the company enters into over-the-counter and exchange traded derivative commodity instruments to hedge its exposure to price fluctuations on certain raw material purchases. The company takes actions to offset the effects of higher energy and raw material costs through selling price increases, productivity improvements and cost reduction programs. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If the company is not able to fully offset the effects of higher energy and raw material costs, it could have a significant impact on the company's financial results.
Failure to develop and market new products and manage product life cycles could impact the company's competitive position and have an adverse effect on the company's financial results.
Operating results are largely dependent on the company's assessment and management of its portfolio of current, new and developing products and services and its ability to bring those products and services to market. The company plans to grow earnings by focusing on developing markets and solutions to meet increasing demand for food productivity, decrease dependency on fossil fuels and protect people, assets and the environment. This ability could be adversely affected by difficulties or delays in product development such as the inability to identify viable new products, successfully complete research and development, obtain relevant regulatory approvals, obtain intellectual property protection, or gain market acceptance of new products and services. Because of the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the
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products the company is currently developing, or could begin to develop in the future, will achieve substantial commercial success. Sales of the company's new products could replace sales of some of its current products, offsetting the benefit of even a successful product introduction.
The company's results of operations could be adversely affected by litigation and other commitments and contingencies.
The company faces risks arising from various unasserted and asserted litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. The company has noted a nationwide trend in purported class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site remediation and punitive damages arising from alleged environmental torts without claiming present personal injuries. The company also has noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities and utilities alleging harm to the general public. Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development could result in future charges that could have a material adverse effect on the company. An adverse outcome in any one or more of these matters could be material to the company's financial results.
In the ordinary course of business, the company may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses and issue guarantees of third party obligations. If the company were required to make payments as a result, they could exceed the amounts accrued, thereby adversely affecting the company's results of operations.
The company's business, including its results of operations and reputation, could be adversely affected by process safety and product stewardship issues.
Failure to appropriately manage safety, human health, product liability and environmental risks associated with the company's products, product life cycles and production processes could adversely impact employees, communities, stakeholders, the company's reputation and its results of operations. Public perception of the risks associated with the company's products and production processes could impact product acceptance and influence the regulatory environment in which the company operates. While the company has procedures and controls to manage process safety risks, issues could be created by events outside of its control including natural disasters, severe weather events and acts of sabotage.
As a result of the company's current and past operations, including operations related to divested businesses, the company could incur significant environmental liabilities.
The company is subject to various laws and regulations around the world governing the environment, including the discharge of pollutants and the management and disposal of hazardous substances. As a result of its operations, including its past operations and operations of divested businesses, the company could incur substantial costs, including remediation and restoration costs. The costs of complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. The ultimate costs under environmental laws and the timing of these costs are difficult to predict. The company's accruals for such costs and liabilities may not be adequate because the estimates on which the accruals are based depend on a number of factors including the nature of the matter, the complexity of the site, site geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (PRPs) at multi-party sites and the number and financial viability of other PRPs.
Market acceptance, government policies, rules or regulations and competition could affect the company's ability to generate sales from genetically modified products.
The company is using biotechnology to create and improve products, particularly in its Agriculture segment. The use of biotechnology to characterize the genetic and performance characteristics of Pioneer seeds provides Pioneer with competitive advantages in the development of new products, and in the most effective placement of those products on customer acres. In addition, the company uses biotechnology to enhance the performance of its seed products through the addition of specific transgenes. The company's ability to generate sales from such products could be affected by market acceptance of genetically modified products as well as governmental policies, laws and regulations that affect the development, manufacture and distribution of products, including the testing and planting of seeds containing biotechnology traits and the import of commodity grain grown from those seeds.
The company competes with major global companies that have strong intellectual property estates supporting the use of biotechnology to enhance products, particularly in the agricultural products and production markets. Speed in discovering and protecting new technologies and bringing products based on them to market is a significant competitive advantage. Failure to predict and respond effectively to this competition could cause the company's existing or candidate products to become less
9
competitive, adversely affecting sales.
Changes in government policies and laws could adversely affect the company's financial results.
Sales outside the U.S. constitute approximately 65 percent of the company's 2011 revenue. The company anticipates that international sales will continue to represent a substantial portion of its total sales and that continued growth and profitability will require further international expansion, particularly in developing markets. Sales from developing markets represent 34 percent of the company's revenue in 2011 and the company's growth plans include focusing on expanding its presence in developing markets. The company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced sales and profitability.
Economic factors, including inflation, deflation and fluctuations in currency exchange rates, interest rates and commodity prices could affect the company's financial results.
The company is exposed to fluctuations in currency exchange rates, interest rates and commodity prices. Because the company has significant international operations, there are a large number of currency transactions that result from international sales, purchases, investments and borrowings. The company actively manages currency exposures that are associated with net monetary asset positions, committed currency purchases and sales, foreign currency- denominated revenues and other assets and liabilities created in the normal course of business. Failure to successfully manage these risks could have an adverse impact on the company's financial position, results of operations and cash flows.
Conditions in the global economy and global capital markets may adversely affect the company's results of operations, financial condition, and cash flows.
The company's business and operating results may in the future be adversely affected by global economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, and other challenges that could affect the global economy. The company's customers may experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations in a timely fashion. Further, suppliers could experience similar conditions, which could impact their ability to fulfill their obligations to the company. Adversity within capital markets may impact future return on pension assets, thus resulting in greater future pension costs that impact the company's results. Future weakness in the global economy could adversely affect the company's results of operations, financial condition and cash flows in future periods.
The company's results of operations and financial condition could be seriously impacted by business disruptions and security threats.
Business disruptions, including supply disruptions, increasing costs for energy, temporary plant and/or power outages and information technology system and network disruptions, could seriously harm the company's operations as well as the operations of its customers and suppliers. Like many other multinational organizations, the company faces security threats to its facilities, data and information technology infrastructure. Although it is impossible to predict the occurrences or consequences of business disruptions or security threats, they could result in reduced demand for the company's products, make it difficult or impossible for the company to deliver products to its customers or to receive raw materials from suppliers, and create delays and inefficiencies in the supply chain. The company actively manages the risks within its control that could lead to business disruptions or security breaches in order to mitigate any potential impact from business disruptions regardless of cause including acts of sabotage, terrorism or war, weather events and natural disasters. Despite these efforts, the impact from business disruptions and security breaches could significantly increase the cost of doing business or otherwise adversely impact the company's financial performance.
Inability to protect and enforce the company's intellectual property rights could adversely affect the company's financial results.
Intellectual property rights, including patents, plant variety protection, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to the company's business. The company endeavors to protect its intellectual property rights in jurisdictions in which its products are produced or used and in jurisdictions into which its products are imported. However, the company may be unable to obtain protection for its intellectual property in key jurisdictions. The company has designed and implemented internal controls to restrict access to and distribution of its intellectual property. Despite these
10
precautions, the company's intellectual property is vulnerable to unauthorized access through cyber-attacks, theft, and other security breaches. When unauthorized access and use or counterfeit products are discovered, the company reports such situations to governmental authorities for investigation, as appropriate, and takes measures to mitigate any potential impact.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The company's corporate headquarters are located in Wilmington, Delaware. The company's manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers are located throughout the world.
Information regarding research and development facilities is incorporated by reference to Item 1, Business-Research and Development. Additional information with respect to the company's property, plant and equipment and leases is contained in Notes 9, 15 and 20 to the Consolidated Financial Statements.
The company has investments in property, plant and equipment related to global manufacturing operations. Collectively there are over 300 principal sites in total. The number of sites used by their applicable segment(s) by major geographic area around the world is as follows:
Number of Sites | ||||||||||||||||||
Agriculture | Electronics & Communications | Industrial Biosciences | Nutrition & Health | Performance Chemicals | Performance Coatings | Performance Materials | Safety & Protection | Total 1 | ||||||||||
Asia Pacific | 17 | 11 | 1 | 9 | 6 | 3 | 19 | 7 | 73 | |||||||||
EMEA | 17 | 4 | 7 | 20 | 4 | 8 | 12 | 5 | 77 | |||||||||
Latin America | 15 | — | 1 | 7 | 1 | 3 | 1 | 1 | 29 | |||||||||
U.S. & Canada | 56 | 18 | 4 | 14 | 29 | 5 | 20 | 10 | 156 | |||||||||
105 | 33 | 13 | 50 | 40 | 19 | 52 | 23 | 335 | ||||||||||
1. | Sites that are used by multiple segments are included more than once in the figures above. |
The company's plants and equipment are well maintained and in good operating condition. The company believes it has sufficient capacity to meet demand in 2012. Properties are primarily owned by the company; however, certain properties are leased. No title examination of the properties has been made for the purpose of this report and certain properties are shared with other tenants under long-term leases.
DuPont recognizes that the security and safety of its operations are critical to its employees, community and, indeed, to the future of the company. As such, the company has merged chemical site security into its safety core value where it serves as an integral part of its long standing safety culture. Physical security measures have been combined with process safety measures (including the use of inherently safer technology), administrative procedures and emergency response preparedness into an integrated security plan. The company has conducted vulnerability assessments at operating facilities in the U.S. and high priority sites worldwide and identified and implemented appropriate measures to protect these facilities from physical and cyber attacks. DuPont is partnering with carriers, including railroad, shipping and trucking companies, to secure chemicals in transit.
11
Part I
ITEM 3. LEGAL PROCEEDINGS
The company is subject to various litigation matters, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. Information regarding certain of these matters is set forth below and in Note 15 to the Consolidated Financial Statements.
Litigation
PFOA: Environmental and Litigation Proceedings
For purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including the ammonium salt and does not distinguish between the two forms. Information related to this matter is included in Note 15 to the Consolidated Financial Statements under the heading PFOA.
Environmental Proceedings
Belle Plant, West Virginia
The U.S. Environmental Protection Agency (EPA) is investigating three chemical releases at DuPont's Belle facility in West Virginia which occurred in January 2010. One of the releases involved the death of a DuPont employee after exposure to phosgene.
Chambers Works Plant, Deepwater, New Jersey
In 2010, the government initiated an enforcement action alleging that the facility violated recordkeeping requirements of certain provisions of the Clean Air Act (CAA) and the Federal Clean Air Act Regulations (FCAR) governing Leak Detection and Reporting and that it failed to report emissions of a compound from Chambers Works' waste water treatment facility under the Emergency Planning and Community Right-to-Know Act. The alleged non-compliance was identified by EPA in 2007 and 2009 following separate environmental audits. DuPont is in settlement negotiations with EPA and the Department of Justice (DOJ).
Yerkes Plant, Buffalo, New York
The government alleges that the facility violated recordkeeping requirements of certain provisions of the CAA and the FCAR governing Leak Detection and Reporting and that it failed to accurately report emissions under the Emergency Planning and Community Right-to-Know Act. The alleged non-compliance was identified by EPA in 2006 and 2010 following separate environmental audits. DuPont is in settlement negotiations with EPA and DOJ.
LaPorte Plant, LaPorte, Texas
EPA conducted a multimedia inspection at the LaPorte facility in January of 2008. DuPont, EPA and DOJ began discussions in the fall of 2011 relating primarily to the management of certain materials in the facility's wastewater treatment system. These negotiations continue.
ITEM 4. MINE SAFETY DISCLOSURES
Information regarding mine safety and other regulatory actions at the company's surface mine in Starke, Florida is included in Exhibit 95 to this report.
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for 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 approximately 77,000 at January 31, 2012.
Holders of the company's common stock are entitled to receive dividends when they are declared by the Board of Directors. While it is not a guarantee of future conduct, the company has continuously paid a quarterly dividend since the fourth quarter 1904. Dividends on common stock and preferred stock are usually declared in January, April, July and October. When dividends on common stock are declared, they are usually paid mid March, June, September and December. Preferred dividends are paid on or about the 25th of January, April, July and October. The Stock Transfer Agent and Registrar is Computershare Trust Company, N.A.
The company's quarterly high and low trading stock prices and dividends per common share for 2011 and 2010 are shown below.
Market Prices | |||||||||
2011 | High | Low | Per Share Dividend Declared | ||||||
Fourth Quarter | $ | 49.92 | $ | 37.10 | $ | 0.41 | |||
Third Quarter | 56.20 | 39.94 | 0.41 | ||||||
Second Quarter | 57.00 | 48.64 | 0.41 | ||||||
First Quarter | 56.19 | 47.22 | 0.41 | ||||||
2010 | |||||||||
Fourth Quarter | $ | 50.17 | $ | 44.21 | $ | 0.41 | |||
Third Quarter | 45.87 | 33.73 | 0.41 | ||||||
Second Quarter | 41.45 | 33.66 | 0.41 | ||||||
First Quarter | 39.04 | 31.88 | 0.41 | ||||||
Issuer Purchases of Equity Securities
There were no purchases of the company's common stock during the three months ended December 31, 2011.
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES, continued
Stock Performance Graph
The following graph presents the cumulative five-year total return for the company's common stock compared with the S&P 500 Stock Index and the Dow Jones Industrial Average. For 2011, the company replaced its self-constructed peer group with the Dow Jones Industrial Average. The total return for the company's old peer group consisting of 3M Company; Abbott Laboratories; Air Products & Chemicals, Inc.; Baxter International Inc.; The Boeing Company; Caterpillar Inc.; Eastman Kodak Company; Emerson Electric Co.; Hewlett-Packard Company; Honeywell International Inc.; Ingersoll-Rand plc; Johnson & Johnson; Johnson Controls, Inc.; Kimberly-Clark Corporation; Merck & Co. Inc.; Monsanto Company; Motorola Inc.; The Procter & Gamble Company; and United Technologies Corporation has also been included.
Stock Performance Graph
12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | |||||||||||||
DuPont | $ | 100 | $ | 93 | $ | 56 | $ | 79 | $ | 122 | $ | 116 | ||||||
S&P 500 Index | 100 | 105 | 66 | 84 | 97 | 99 | ||||||||||||
Dow Jones Industrial Average | 100 | 109 | 74 | 91 | 104 | 112 | ||||||||||||
Old Peer Group | 100 | 118 | 87 | 104 | 111 | 112 | ||||||||||||
The graph assumes that the values of DuPont Common Stock, the S&P 500 Stock Index, the Dow Jones Industrial Average and the old peer group of companies were each $100 on December 31, 2006 and that all dividends were reinvested. The old peer group is weighted by market capitalization.
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Part II
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in millions, except per share) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
Summary of operations | |||||||||||||||
Net sales | $ | 37,961 | $ | 31,505 | $ | 26,109 | $ | 30,529 | $ | 29,378 | |||||
Income before income taxes | $ | 4,282 | $ | 3,711 | $ | 2,184 | $ | 2,391 | $ | 3,743 | |||||
Provision for income taxes | $ | 772 | $ | 659 | $ | 415 | $ | 381 | $ | 748 | |||||
Net income attributable to DuPont | $ | 3,474 | $ | 3,031 | $ | 1,755 | $ | 2,007 | $ | 2,988 | |||||
Basic earnings per share of common stock | $ | 3.73 | $ | 3.32 | $ | 1.93 | $ | 2.21 | $ | 3.25 | |||||
Diluted earnings per share of common stock | $ | 3.68 | $ | 3.28 | $ | 1.92 | $ | 2.20 | $ | 3.22 | |||||
Financial position at year-end | |||||||||||||||
Working capital | $ | 6,873 | $ | 9,670 | $ | 7,898 | $ | 5,601 | $ | 4,619 | |||||
Total assets | $ | 48,492 | $ | 40,410 | $ | 38,185 | $ | 36,209 | $ | 34,131 | |||||
Borrowings and capital lease obligations | |||||||||||||||
Short-term | $ | 817 | $ | 133 | $ | 1,506 | $ | 2,012 | $ | 1,370 | |||||
Long-term | $ | 11,736 | $ | 10,137 | $ | 9,528 | $ | 7,638 | $ | 5,955 | |||||
Total equity | $ | 9,062 | $ | 9,743 | $ | 7,651 | $ | 7,552 | $ | 11,578 | |||||
General | |||||||||||||||
For the year | |||||||||||||||
Purchases of property, plant & equipment and investments in affiliates | $ | 1,910 | $ | 1,608 | $ | 1,432 | $ | 2,033 | $ | 1,698 | |||||
Depreciation | $ | 1,283 | $ | 1,204 | $ | 1,251 | $ | 1,169 | $ | 1,158 | |||||
Research and development expense | $ | 1,956 | $ | 1,651 | $ | 1,378 | $ | 1,393 | $ | 1,338 | |||||
Average number of common shares outstanding (millions) | |||||||||||||||
Basic | 928 | 909 | 904 | 902 | 917 | ||||||||||
Diluted | 941 | 922 | 909 | 907 | 925 | ||||||||||
Dividends per common share | $ | 1.64 | $ | 1.64 | $ | 1.64 | $ | 1.64 | $ | 1.52 | |||||
At year-end | |||||||||||||||
Employees (thousands) | 70 | 60 | 58 | 60 | 60 | ||||||||||
Closing stock price | $ | 45.78 | $ | 49.88 | $ | 33.67 | $ | 25.30 | $ | 44.09 | |||||
Common stockholders of record (thousands) | 78 | 81 | 85 | 88 | 92 | ||||||||||
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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENTS ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements which may be identified by their use of words like “plans,” “expects,” “will,” “anticipates,” "believes," “intends,” “projects,” “estimates” or other words of similar meaning. All statements that address expectations or projections about the future, including statements about the company's strategy for growth, product development, regulatory approval, market position, anticipated benefits of recent acquisitions, outcome of contingencies, such as litigation and environmental matters, expenditures and financial results, are forward-looking statements.
Forward-looking statements are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond the company's control. Some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements are:
• | Fluctuations in energy and raw material prices; |
• | Failure to develop and market new products and optimally manage product life cycles; |
• | Outcome of significant litigation and environmental matters, including those related to divested businesses; |
• | Failure to appropriately manage process safety and product stewardship issues; |
• | Effect of changes in tax, environmental and other laws and regulations or political conditions in the U.S. and other countries in which the company operates; |
• | Conditions in the global economy and global capital markets, including economic factors, such as inflation, deflation and fluctuations in currency exchange rates, interest rates and commodity prices, as well as regulatory requirements; |
• | Impact of business disruptions, including supply disruptions, and security threats, regardless of cause, including acts of sabotage, terrorism or war, weather events and natural disasters; |
• | Inability to protect and enforce the company's intellectual property rights; and |
• | Successful integration of acquired businesses and completion of divestitures of underperforming or non-strategic assets or businesses. |
For some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements, see the Risk Factors discussion set forth under Part I, Item 1A beginning on page 8.
Overview
Vision DuPont's vision is to be the world's most dynamic science company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere. The company is committed to growing shareholder and societal value while reducing its environmental footprint in the value chains in which it operates, over the long-term.
Strategy The company's strategy for growth is to apply its science and technology to address three challenges driven by global population growth: feeding the world, reducing our dependence on fossil fuels and keeping people and the environment safe. Critical areas for the company's growth are innovation, differential management and productivity. Applying science to deliver innovative solutions and new products in the marketplace generates shareholder value and profitable growth. Differential management is a disciplined process to prioritize and allocate resources across businesses and geographies aligned with growth opportunities. The company continues to achieve fixed cost, working capital and variable cost productivity through disciplined business processes called DuPont Integrated Business Management (DIBM) and DuPont Production System (DPS). DIBM focuses on the business supply chain to maximize efficiency and optimize working capital, while DPS focuses on productivity outcomes to eliminate operational inefficiencies and improve lead time, cycle time and quality.
Goals The company's long-term plan includes compound annual growth targets of 7 percent for sales and 12 percent for earnings per share. In 2011, sales were up 20 percent with strong contributions across most segments with earnings per share increasing 12 percent. Sales in developing markets, which include China, India, and the countries located in Latin America, Eastern and Central Europe, Middle East, Africa, and Southeast Asia, are targeted to make up 40 percent of the company's sales by 2015, a 6 percentage point increase from 2011. In 2011, sales of new products introduced in the last four years were in line with the company's long-term target of 30 percent of total sales. Additionally, the company exceeded its 2011 goals for fixed cost and working capital productivity. The company remains on-track to exceed its three-year 2010-2012 plan of $1 billion fixed cost productivity actions and has already exceeded its three-year 2010-2012 plan of $1 billion working capital productivity. The company is committed to maintain a strong balance sheet and to return excess cash to shareholders unless there is a compelling opportunity to invest for growth.
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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Analysis of Operations
Acquisition of Danisco In 2011, the company acquired Danisco in a transaction valued at $6.4 billion, plus net debt assumed of $0.6 billion. As part of this acquisition, DuPont incurred $85 million in transaction related costs during 2011, which were recorded in costs of goods sold and other operating charges. In 2011, the businesses acquired from Danisco contributed net sales of $1.7 billion and net income attributable to DuPont of $(7) million, which excludes $30 million after-tax ($39 million pre-tax) of additional interest expense related to the debt issued to finance the acquisition. Danisco's contributions included a $125 million after-tax ($175 million pre-tax) charge related to the fair value step-up of inventories acquired and sold during 2011.
In 2011, the company initiated a series of actions to achieve the expected cost and revenue synergies associated with the Danisco acquisition. As part of these actions, the company incurred restructuring charges totaling $53 million. Additionally, the company expects to incur about $50 million of other costs to achieve synergies through 2013, including operating enhancements, consulting fees and relocation related costs, which will be expensed as incurred. These actions are expected to produce pre-tax annual cost savings of at least $130 million beginning in 2012, a full year ahead of the original schedule.
See Note 2 to the Consolidated Financial Statements for additional information.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
NET SALES | $ | 37,961 | $ | 31,505 | $ | 26,109 | |||
2011 versus 2010 The table below shows a regional breakdown of 2011 consolidated net sales based on location of customers and percentage variances from prior year:
Percent Change Due to: | |||||||||||||
(Dollars in billions) | 2011 Net Sales | Percent Change vs. 2010 | Local Price | Currency Effect | Volume | Portfolio | |||||||
Worldwide | $ | 38.0 | 20 | 11 | 2 | 1 | 6 | ||||||
U.S. & Canada | 14.3 | 16 | 10 | — | 1 | 5 | |||||||
Europe, Middle East and Africa (EMEA) | 10.0 | 23 | 10 | 4 | — | 9 | |||||||
Asia Pacific | 8.9 | 22 | 16 | 3 | (3 | ) | 6 | ||||||
Latin America | 4.8 | 29 | 13 | 2 | 10 | 4 | |||||||
Sales increased 20 percent, principally reflecting higher local selling prices and the sales added from businesses acquired from Danisco. Local selling prices were significantly higher for titanium dioxide, seeds, fluoroproducts and electronic products, with the latter reflecting pass through pricing for higher precious metals costs. Worldwide sales volume increased 1 percent as strong volume growth in Agriculture was largely offset by declines in Electronic & Communications, Performance Chemicals and Performance Materials. The declines occurred primarily during the fourth quarter, resulting from destocking in photovoltaics, polymer and industrial supply chains, as well as weaker demand for company products supplying consumer electronics and construction. Volume growth in Latin America was driven by Agriculture, Safety & Protection and Performance Coatings. Sales in developing markets of $13.0 billion improved 27 percent from 2010, and the percentage of total company sales in these markets increased to 34 percent from 32 percent in 2010.
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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2010 versus 2009 The table below shows a regional breakdown of 2010 consolidated net sales based on location of customers and percentage variances from 2009:
Percent Change Due to: | |||||||||||||
(Dollars in billions) | 2010 Net Sales | Percent Change vs. 2009 | Local Price | Currency Effect | Volume | Portfolio | |||||||
Worldwide | $ | 31.5 | 21 | 5 | — | 17 | (1 | ) | |||||
U.S. & Canada | 12.4 | 17 | 5 | 1 | 12 | (1 | ) | ||||||
EMEA | 8.1 | 14 | 4 | (3 | ) | 13 | — | ||||||
Asia Pacific | 7.3 | 40 | 6 | 2 | 33 | (1 | ) | ||||||
Latin America | 3.7 | 17 | 4 | 2 | 13 | (2 | ) | ||||||
Sales increased 21 percent, due principally to higher volume as demand recovered in most markets from prior-year levels that were depressed from a global economic recession. Volume was higher across all segments, with the largest dollar increases in Performance Materials, Performance Chemicals, and Electronics & Communications. Volume grew double digits in all regions, led by a rebound in demand in the Asia Pacific region. Sales in developing markets of $10.2 billion improved 27 percent from 2009, and the percentage of total company sales in these markets increased to 32 percent from 31 percent in 2009.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
OTHER INCOME, NET | $ | 758 | $ | 1,228 | $ | 1,219 | |||
2011 versus 2010 The $470 million decrease was largely attributable to a $201 million reduction of Cozaar®/Hyzaar® income, an increase of $150 million in net pre-tax exchange losses, the absence of a benefit of $59 million recorded in 2010 related to accrued interest associated with settlements of income tax contingencies related to prior years, the absence of $41 million in insurance recoveries and a $37 million decrease in net gains on sales of assets.
2010 versus 2009 Other income, net, was essentially flat compared to 2009, despite a decrease of $549 million of Cozaar®/Hyzaar® income due to the expiration of certain patents. Offsetting the reduction of Cozaar®/Hyzaar® income was a decrease in net pre-tax exchange losses of $192 million combined with higher income from equity affiliates of $93 million, an increase in net gains on sales of assets of $64 million, a benefit of $59 million in 2010 related to accrued interest associated with settlements of income tax contingencies related to prior years, an increase in insurance recoveries of $41 million and a $31 million combined benefit from an acquisition and an early termination of a supply agreement.
Additional information related to the company's other income, net is included in Note 3 to the Consolidated Financial Statements.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
COST OF GOODS SOLD AND OTHER OPERATING CHARGES | $ | 27,814 | $ | 23,146 | $ | 19,708 | |||
As a percent of net sales | 73 | % | 73 | % | 75 | % | |||
2011 versus 2010 Cost of goods sold and other operating charges (COGS) increased 20 percent. COGS as a percentage of net sales was 73 percent, unchanged from prior year, as selling price increases of $3.6 billion were offset by $2.0 billion of inflation in raw material, energy and freight costs, and $0.7 billion of higher plant operating costs, including capacity expansions. 2011 COGS also included $175 million of additional costs related to the fair value step-up of inventory acquired from Danisco, $85 million of Danisco transaction related fees and $175 million for charges related to Imprelis® herbicide claims.
2010 versus 2009 COGS increased 17 percent, while COGS as a percent of net sales decreased 2 percentage points from 2009. The improvement principally reflects increased manufacturing utilization and higher selling prices that more than offset increases in raw material costs. Higher selling prices increased sales $1.3 billion, while raw material, energy and freight costs, adjusted for volume and currency, were up 6 percent, or $0.7 billion.
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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | $ | 4,170 | $ | 3,669 | $ | 3,440 | |||
As a percent of net sales | 11 | % | 12 | % | 13 | % | |||
2011 versus 2010 The 2011 increase of $501 million was due to the additional selling expense of acquired companies and increased global commissions and selling and marketing investments, primarily in the Agriculture segment.
2010 versus 2009 The 2010 increase of $229 million was due to higher selling expenses, primarily in the Agriculture segment as a result of increased global commissions and selling and marketing investments related to the company's seed products, and higher non-cash pension expenses.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
RESEARCH AND DEVELOPMENT EXPENSE | $ | 1,956 | $ | 1,651 | $ | 1,378 | |||
As a percent of net sales | 5 | % | 5 | % | 5 | % | |||
2011 versus 2010 The $305 million increase was primarily attributable to research and development expense from acquired companies and continued growth investment in the Agriculture segment. Both periods include a $50 million charge for payments related to a Pioneer licensing agreement prior to the business receiving regulatory approval in the third quarter 2011.
2010 versus 2009 The $273 million increase was due to continued growth investment aligned with the company's global trends, including resources to support agriculture productivity, alternative fuels and energy efficient materials, and safety and protection. In addition, research and development expense increased due to higher non-cash pension expenses and a $50 million charge for an upfront payment related to a Pioneer licensing agreement.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
INTEREST EXPENSE | $ | 447 | $ | 590 | $ | 408 | |||
The $143 million decrease in 2011 was due primarily to the absence of a $179 million pre-tax charge on the early extinguishment of debt and lower interest rates, partially offset by higher average debt resulting from financing for the Danisco acquisition. The $182 million increase in 2010 was primarily due to a $179 million pre-tax charge on the early extinguishment of debt in the fourth quarter 2010.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
EMPLOYEE SEPARATION/ASSET RELATED CHARGES, NET | $ | 50 | $ | (34 | ) | $ | 210 | ||
2011 versus 2010 The $84 million change in 2011 was due to a net $50 million restructuring charge in 2011, primarily related to restructuring charges associated with the Danisco acquisition and the absence of a $34 million net reduction in the estimated costs for prior years restructuring programs.
2010 versus 2009 The $244 million change in 2010 was due to the absence of a net $210 million restructuring charge in 2009 and a $34 million net reduction in the estimated costs for prior years restructuring programs in 2010. The $34 million net reduction resulted from lower than estimated individual severance costs and work force reductions through non-severance programs.
Additional information related to the company's employee separation/asset related charges, net is included in Note 4 to the Consolidated Financial Statements.
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Below is a summary of the net impact to each segment related to current and prior years restructuring activities:
(Dollars in millions) | 2011 (Charges) and Credits | 2010 (Charges) and Credits | 2009 (Charges) and Credits | ||||||
Electronics & Communications | $ | — | $ | 8 | $ | (37 | ) | ||
Industrial Biosciences | (9 | ) | — | — | |||||
Nutrition & Health | (14 | ) | — | 1 | |||||
Performance Chemicals | — | 10 | (54 | ) | |||||
Performance Coatings | 3 | (6 | ) | (15 | ) | ||||
Performance Materials | (2 | ) | 16 | (58 | ) | ||||
Safety & Protection | — | 5 | (45 | ) | |||||
Other | (28 | ) | 1 | (2 | ) | ||||
Total (Charges) Credits | $ | (50 | ) | $ | 34 | $ | (210 | ) | |
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
PROVISION FOR INCOME TAXES | $ | 772 | $ | 659 | $ | 415 | |||
Effective income tax rate | 18.0 | % | 17.8 | % | 19.0 | % | |||
In 2011, the company recorded a tax provision of $772 million, reflecting an increase from 2010 largely due to pre-tax earnings growth, which was partially offset by the impact associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations.
The $244 million increase in 2010 from 2009 was largely due to an increase in pre-tax earnings and the impact associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations. These were partially offset by net tax benefits of $49 million related to the adjustment of income tax accruals associated with settlements of tax contingencies related to prior years and $39 million for reversal of tax valuation allowance related to the net deferred tax assets of a foreign subsidiary. The decrease in the 2010 effective tax rate compared to 2009 was primarily due to favorable geographic mix of pre-tax earnings in low tax rate jurisdictions and the net tax benefits noted above.
See Note 5 to the Consolidated Financial Statements for additional details related to the provision for income taxes, as well as items that significantly impact the company's effective income tax rate.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
NET INCOME ATTRIBUTABLE TO DUPONT | $ | 3,474 | $ | 3,031 | $ | 1,755 | |||
2011 versus 2010 Net income attributable to DuPont (earnings) for 2011 increased $443 million, or 15 percent versus 2010. The increase in earnings principally reflects higher local selling prices, higher sales volume and currency benefits, partly offset by higher raw material, energy and freight costs, increased spending for growth initiatives, and lower Pharmaceuticals income. See additional information above related to changes in earnings.
2010 versus 2009 Earnings for 2010 increased $1.3 billion, or 73 percent versus 2009. The increase principally reflects higher sales volume and selling prices and the absence of a prior year restructuring charge, partly offset by higher non-cash pension costs and lower Pharmaceuticals income. See additional information above related to changes in earnings.
Corporate Outlook
DuPont's full-year 2012 sales and earnings are expected to benefit from a strong agriculture economy, market-driven innovation and ongoing productivity, partially offset by headwinds created by a stronger dollar and a higher tax rate. The company expects higher operating costs including an increase in raw material, energy and freight costs, and plans to partly offset the impact of these increases with productivity programs for fixed costs reduction totaling $300 million.
The company plans to continue a differential level of capital expenditures and funding for research and development for businesses expected to have above-average growth rates and margins. For 2012, targets have been set for capital expenditures totaling about
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$2.1 billion, and working capital productivity improvements totaling $300 million.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a description of recent accounting pronouncements.
Segment Reviews
Segment sales include transfers to another business segment. Products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. Segment pre-tax operating income (loss) (PTOI) is defined as operating income before income taxes, exchange gains (losses), corporate expenses and interest. All references to selling prices are on a U.S. dollar (USD) basis, including the impact of currency. A reconciliation of segment sales to consolidated net sales and segment PTOI to income before income taxes for 2011, 2010 and 2009 is included in Note 21 to the Consolidated Financial Statements.
AGRICULTURE
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 9,166 | $ | 7,845 | $ | 7,069 | |||
PTOI | $ | 1,527 | $ | 1,293 | $ | 1,160 | |||
PTOI margin | 17 | % | 16 | % | 16 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 6 | % | 4 | % |
Volume | 10 | % | 8 | % |
Portfolio / Other | 1 | % | (1 | )% |
Total change | 17 | % | 11 | % |
2011 versus 2010 Pioneer seed sales reflect growth primarily in corn and soybean seeds. Volume increases in all regions were underpinned by increased acres and market position. Pricing gains in all regions reflect the introduction and penetration of new products including Optimum® AcreMax® 1 into the North America corn lineup. Crop Protection sales growth reflects both volume and price gains with increases in insect control, weed control and fungicides product sales, particularly continued strong demand for Rynaxypyr® insecticide and continued expansion of picoxystrobin fungicides. Sales grew in all regions, particularly Latin America and Europe.
2011 PTOI and PTOI margin increased on continued new product penetration and leverage on volume growth, partially offset by a $175 million charge related to Imprelis® claims. Additionally, aligned with the segment's long-term plan, research and development expense increased 15 percent to support continued growth in breeding, biotechnology and crop chemistry. 2011 and 2010 PTOI each included a licensing agreement charge of $50 million.
2010 versus 2009 Higher sales volume was primarily due to higher Pioneer seed sales in North America with market share gains for corn and soybeans. Higher global sales of Crop Protection products were led by broad-based recovery across most regions and strong demand for Rynaxypyr® in Asia Pacific and Latin America. The higher selling prices reflect higher value product mix and pricing actions to offset the increase in raw material costs, along with a favorable currency impact.
2010 PTOI increased primarily due to the higher sales volume, partially offset by higher spending for growth investments and a $50 million charge for an upfront payment associated with a Pioneer licensing agreement. PTOI margin was flat compared to 2009.
Outlook Pioneer anticipates continued global growth in corn and soybean markets, as well as pricing gains reflecting innovative technology and the business' differentiated route to market. Specific innovations include continued penetration of the Optimum® AcreMaxTM 1 products in corn coupled with new corn hybrids, many of which include AquaMax® technology and new soybean varieties with leading disease packages developed for local needs. Pioneer anticipates earnings growth in 2012 reflecting strong sales performance, partially offset by higher input costs resulting from commodity price increases and the weather related impact
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on production yields, as well as additional research and development expense as programs advance towards commercialization.
In the Crop Protection business, sales and earnings growth in 2012 is expected in all regions, particularly in Latin America and U.S. & Canada, and for all market segments, primarily in insecticides and fungicides. In 2012, new product introductions are expected to include Cyazypyr® insecticide and Penthiopyrad® fungicide.
ELECTRONICS & COMMUNICATIONS
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 3,173 | $ | 2,764 | $ | 1,918 | |||
PTOI | $ | 355 | $ | 445 | $ | 87 | |||
PTOI margin | 11 | % | 16 | % | 5 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 23 | % | 7 | % |
Volume | (8 | )% | 37 | % |
Portfolio / Other | — | % | — | % |
Total change | 15 | % | 44 | % |
2011 versus 2010 Sales growth reflects higher selling prices, primarily pass-through of metals prices. Lower sales volume primarily reflects destocking in photovoltaics and softness in consumer electronics in the second half 2011, which more than offset strong demand in all market segments in the first half 2011.
2011 PTOI decreased primarily due to lower volume in the second half 2011. PTOI margin decreased primarily reflecting higher metal prices, as well as weaker product mix.
2010 versus 2009 Higher sales volume was driven by strong growth in all regions, particularly in Asia Pacific and Europe, and strong demand across most market segments, particularly in photovoltaics. Higher selling prices were primarily due to pass-through of higher metals prices.
2010 PTOI and PTOI margin increases reflect substantially higher volume, particularly in photovoltaics, as well as improved productivity and the absence of a net $37 million restructuring charge in 2009.
Outlook For 2012, sales are expected to increase with photovoltaics and consumer electronics demand recovering in the second half 2012. Volume growth is expected through new and innovative products, as well as capacity investments in Tedlar® completed in 2011 to meet global demand. Earnings are expected to increase reflecting the impact of higher volume, new product introductions and productivity initiatives.
INDUSTRIAL BIOSCIENCES
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 705 | $ | — | $ | — | |||
PTOI | $ | (1 | ) | $ | — | $ | — | ||
PTOI margin | — | % | — | % | — | % | |||
Sales and PTOI primarily reflects the acquisition of Danisco's enzyme business. PTOI included a $70 million charge for the fair value step-up of inventories that were acquired as part of the acquisition and a $9 million restructuring charge. PTOI also included $12 million of amortization expense associated with the fair value step-up of the acquired intangible assets.
Outlook 2012 sales and earnings will reflect a full year of results from the enzyme business acquired from Danisco in 2011. Science-based innovation growth, cost synergies derived from integration, productivity gains and the absence of charges for transaction and integration related costs in 2011 are expected to contribute to earnings. Volume growth is supported by expansion
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in developing markets and the introduction of new products. Additionally, the segment intends to increase spending on programs to drive future growth.
NUTRITION & HEALTH
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 2,460 | $ | 1,240 | $ | 1,218 | |||
PTOI | $ | 44 | $ | 62 | $ | 64 | |||
PTOI margin | 2 | % | 5 | % | 5 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 5 | % | — | % |
Volume | 1 | % | 2 | % |
Portfolio / Other | 92 | % | — | % |
Total change | 98 | % | 2 | % |
2011 versus 2010 Sales were up primarily due to the Danisco acquisition. For Solae, higher selling prices and volume reflect strong demand for specialty soy products.
2011 PTOI and PTOI margin decreased as higher sales were more than offset by a $112 million charge for transaction related costs and the fair value step-up of inventories that were acquired and a $14 million restructuring charge. PTOI also included $49 million of amortization expense associated with the fair value step-up of the acquired intangible assets.
2010 versus 2009 Higher sales volume was led by strong demand for Solae® soy products, particularly in Latin America. 2010 PTOI and PTOI margin were essentially flat compared to 2009 as unfavorable currency impact coupled with increased manufacturing costs offset volume growth.
Outlook 2012 sales and earnings will reflect a full year of results from the specialty food ingredients business acquired from Danisco in 2011. Science-based innovation growth, cost synergies derived from integration, productivity gains and the absence of charges for transaction and integration related costs in 2011 are expected to contribute to earnings and margin expansion. Volume growth reflecting specialty soy product expansion is anticipated to support earnings and PTOI margin improvement.
PERFORMANCE CHEMICALS
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 7,794 | $ | 6,322 | $ | 4,964 | |||
PTOI | $ | 1,923 | $ | 1,081 | $ | 547 | |||
PTOI margin | 25 | % | 17 | % | 11 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 26 | % | 10 | % |
Volume | (3 | )% | 18 | % |
Portfolio / Other | — | % | (1 | )% |
Total change | 23 | % | 27 | % |
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2011 versus 2010 Sales increased across all regions and market segments. The increase in sales reflects favorable pricing for titanium dioxide and fluoropolymers, as well as pass-through pricing of higher raw material costs for fluorochemicals and industrial chemicals.
2011 PTOI and PTOI margin improved driven by the higher selling prices and fixed cost productivity.
2010 versus 2009 Broad-based market recovery led to sales increases in all markets and all regions, most significant in Asia Pacific, reflecting strong demand for titanium dioxide, fluoropolymers and refrigerants, with continuing adoption of ISCEON® as a preferred retrofit to R22 refrigerant. Higher selling prices reflect favorable pricing for titanium dioxide, fluorochemicals and fluoropolymers and pass-through of higher raw material costs for industrial chemicals.
2010 PTOI and PTOI margin increases were driven by higher volume, higher selling prices, improved productivity and the absence of a net $54 million restructuring charge in 2009.
Outlook Sales are expected to increase in 2012 as a result of the continued demand for titanium dioxide, fluoropolymers and industrial chemicals and higher selling prices. Segment earnings are also expected to increase consistent with the higher sales volume, higher selling prices and continued productivity actions.
PERFORMANCE COATINGS
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 4,281 | $ | 3,806 | $ | 3,429 | |||
PTOI | $ | 271 | $ | 249 | $ | 69 | |||
PTOI margin | 6 | % | 7 | % | 2 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 10 | % | 2 | % |
Volume | 2 | % | 9 | % |
Portfolio / Other | — | % | — | % |
Total change | 12 | % | 11 | % |
2011 versus 2010 The segment experienced continued recovery with auto builds across the globe increasing 3 percent in 2011, primarily driven by an improvement of 9 percent in North America. Higher selling prices reflect pricing actions across all regions and market segments to offset higher raw material costs, along with a favorable currency impact. Volume growth primarily reflects increased demand for OEM motor vehicle coatings and industrial coatings, particularly in the North American heavy duty truck market.
2011 PTOI increase primarily reflects the impact of higher selling prices along with a favorable currency impact. PTOI margin compression resulted from raw material costs increasing at a higher rate than selling prices which offset fixed cost productivity actions.
2010 versus 2009 The segment experienced strong recovery across most markets and regions from the global economic recession in the automotive industry in 2009, most significant in North America and Europe. Higher sales volume reflects recovery in global automotive OEM markets and strong demand in industrial coatings, particularly in the North American and European heavy duty truck markets. Higher selling prices primarily reflect pricing actions taken to offset the increase in raw material costs.
2010 PTOI and PTOI margin increases primarily reflect the impact of higher volume, particularly in industrial coatings and the OEM market, improved productivity and higher selling prices, which were partially offset by higher raw material costs.
Outlook For 2012, the segment expects sales to increase with continued recovery in the global automotive and heavy duty truck markets. The industry production forecast for automotive builds in 2012 is a 4 percent global increase, reflecting continued recovery in North America and continued growth in Asia Pacific. PTOI is expected to improve due to continued productivity efforts and pricing actions in all regions and market segments.
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PERFORMANCE MATERIALS
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 6,815 | $ | 6,287 | $ | 4,768 | |||
PTOI | $ | 971 | $ | 994 | $ | 287 | |||
PTOI margin | 14 | % | 16 | % | 6 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 13 | % | 7 | % |
Volume | (4 | )% | 27 | % |
Portfolio / Other | (1 | )% | (2 | )% |
Total change | 8 | % | 32 | % |
2011 versus 2010 Higher selling prices reflects pricing actions which offset higher feedstock costs. Lower sales volume reflects broad-based channel destocking with softening in consumer and industrial markets in the second half 2011, and production-related supply issues in ethylene-based polymers.
2011 PTOI was essentially flat. 2011 PTOI included a $49 million benefit from the gain on the sale of a business. 2010 PTOI included a combined $58 million gain on an asset purchase due to the acquisition and early termination of a supply agreement, a gain on the sale of a business and an insurance recovery. Lower PTOI margin primarily reflects feedstock costs increasing at a higher rate than selling prices.
2010 versus 2009 Higher sales volume was led by broad-based demand across all markets, particularly in automotive and electronics markets, with strong volume recovery in all regions, led by Asia Pacific. Higher selling prices were a combination of stronger product sales mix and higher selling prices in response to higher feedstock costs.
2010 PTOI and PTOI margin increases were primarily driven by higher sales volume, particularly in automotive, electronic and packaging markets, as well as higher selling prices and improved productivity.
Outlook 2012 sales are expected to grow due to anticipated increases in global motor vehicle OEM builds. The segment is expected to benefit in the second half 2012 from broader recovery in industrial markets, while demand in the packaging market is expected to continue to be stable. PTOI is also expected to improve due to the impact of higher sales, improved fixed cost productivity and science-based innovations for products and processes.
SAFETY & PROTECTION
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | 3,934 | $ | 3,364 | $ | 2,811 | |||
PTOI | $ | 500 | $ | 454 | $ | 260 | |||
PTOI margin | 13 | % | 13 | % | 9 | % | |||
2011 | 2010 | |||
Change in segment sales from prior period due to: | ||||
Selling price | 6 | % | — | % |
Volume | 4 | % | 20 | % |
Portfolio / Other | 7 | % | — | % |
Total change | 17 | % | 20 | % |
2011 versus 2010 Sales growth occurred in all regions. Sales growth primarily reflects the impact of the MECS acquisition and higher selling prices, including a favorable currency impact. Higher volume primarily reflects increased demand for aramid and nonwoven products primarily in the industrial markets in the first half 2011, with slower growth rates in the second half 2011.
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2011 PTOI increased as the impact of the MECS acquisition and a favorable currency impact more than offset higher spending for growth initiatives and higher raw material costs. The Kevlar® expansion at Cooper River, South Carolina was completed and began commercial supply at the end of 2011.
2010 versus 2009 The increase in sales volume reflects strong recovery and increased demand across all regions, led by EMEA and Asia Pacific, and all markets, particularly in aramid and nonwoven products. Further penetration in the U.S. commercial construction markets led to higher sales as recovery in global construction markets remained weak. Sales for consulting and training services improved modestly across most regions, led by Asia Pacific and EMEA.
2010 PTOI and PTOI margin increases were primarily due to higher volume, particularly aramid and nonwoven products, and the absence of a net $45 million restructuring charge in 2009, partially offset by higher spending for growth initiatives and higher raw material costs.
Outlook For 2012, sales are expected to benefit from improved global market conditions which are anticipated to recover in the second half 2012 with demand for Kevlar®, Nomex® and Tyvek® products expected to increase across all regions and market segments. Sales related to the Sustainable Solutions business are expected to increase due to clean technologies businesses and consulting growth in the areas of process safety management and sustainable operations. Sales related to the Building Innovations business are expected to increase due to further penetration in commercial construction applications. Earnings are expected to improve due to higher sales reflecting innovative growth through products such as Kevlar® AP, as well as continued productivity actions.
PHARMACEUTICALS
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Segment sales | $ | — | $ | — | $ | — | |||
PTOI | $ | 289 | $ | 489 | $ | 1,037 | |||
Decreases in PTOI reflect the expiration of certain patents related to Cozaar®/Hyzaar®.
Outlook Earnings contributions to the company from the collaboration with Merck are expected to decline in 2012 to about $50 million.
Liquidity & Capital Resources
December 31, | ||||||
(Dollars in millions) | 2011 | 2010 | ||||
Cash, cash equivalents and marketable securities | $ | 4,019 | $ | 6,801 | ||
Total debt | 12,553 | 10,270 | ||||
The company believes its ability to generate cash from operations and access to capital markets will be adequate to meet anticipated cash requirements to fund working capital, capital spending, dividend payments, debt maturities and other cash needs. The company's liquidity needs can be met through a variety of sources, including: cash provided by operating activities, cash and cash equivalents, marketable securities, commercial paper, syndicated credit lines, bilateral credit lines, equity and long-term debt markets and asset sales. The company's current strong financial position, liquidity and credit ratings provide excellent access to the capital markets. In addition, spending and capital productivity actions have been implemented. The company will continue to monitor the financial markets in order to respond to changing conditions. Depending on these conditions, the proceeds of commercial paper may be invested in cash equivalents or marketable securities.
Pursuant to its cash discipline policy, the company seeks first to maintain a strong balance sheet and second, to return excess cash to shareholders unless the opportunity to invest for growth is compelling. Cash, cash equivalents and marketable securities provide primary liquidity to support all short-term obligations. A substantial majority of the company's cash, cash equivalents and marketable securities is held by foreign subsidiaries and is considered to be indefinitely reinvested and expected to be utilized to fund local operating activities and capital expenditure requirements. The company believes that it has sufficient sources of domestic liquidity to further support its assumption that undistributed earnings at December 31, 2011 can be considered reinvested indefinitely. The company has access to approximately $4.4 billion in unused credit lines with several major financial institutions,
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
as additional support to meet short-term liquidity needs and general corporate purposes, including letters of credit.
The company continually reviews its debt portfolio and occasionally may rebalance it to ensure adequate liquidity and an optimum debt maturity schedule. In 2011, the company issued $2.0 billion in Senior Notes and $1.0 billion in commercial paper to finance the acquisition of Danisco. Additionally, the company assumed $0.7 billion in debt as part of the acquisition, which was refinanced through the issuance of commercial paper.
The company's credit ratings impact its access to the debt capital market and cost of capital. The company remains committed to a strong financial position and strong investment-grade rating. The company's long-term and short-term credit ratings are as follows:
Long-term | Short-term | Outlook | |
Standard & Poor's | A | A-1 | Stable |
Moody’s Investors Service | A2 | P-1 | Stable |
Fitch Ratings | A | F1 | Stable |
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Cash provided by operating activities | $ | 5,152 | $ | 4,559 | $ | 4,741 | |||
Cash provided by operating activities increased $593 million in 2011 compared to 2010. The increase was driven by higher earnings, lower contributions to pension plans and the weaker dollar, which was hedged with forward exchange contracts reflected in investing activities. These increases were partially offset by changes in operating assets and liabilities, mainly due to higher inventory.
Cash provided by operating activities decreased $182 million in 2010 compared to 2009. Higher earnings were offset by changes in operating assets and liabilities, mainly due to higher sales and inventory; the stronger dollar, which was hedged with forward exchange contracts reflected in investing activities; and a contribution to the principal U.S. pension plan.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Cash used for investing activities | $ | (6,238 | ) | $ | (2,439 | ) | $ | (4,298 | ) |
The $3.8 billion increase in 2011 was mainly due to the payment for the Danisco acquisition, higher expenditures for the purchases of property, plant and equipment, and a net increase in payments for forward exchange contract settlements; partially offset by changes in investments in short-term financial instruments.
The $1.9 billion decrease in 2010 was mainly due to changes in investments in short-term financial instruments and a net increase in proceeds from forward exchange contract settlements, partially offset by an increase in payments for businesses and higher expenditures for the purchases of property, plant and equipment.
Purchases of property, plant and equipment totaled $1.8 billion, $1.5 billion and $1.3 billion in 2011, 2010 and 2009, respectively. Higher spending in 2011 and 2010 reflects the company's continued investment in capacity expansion to support areas of growth. The company expects 2012 purchases of plant, property and equipment to be about $2.1 billion, an increase of $0.3 billion over 2011, driven by continued growth investments aligned with the company's global trends.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Cash provided by (used for) financing activities | $ | 403 | $ | (1,829 | ) | $ | (97 | ) | |
The $2.2 billion change in 2011 was primarily due to an increase in borrowings in 2011 to finance the Danisco acquisition as compared to a decrease in borrowings in 2010.
The $1.7 billion increase in cash used for financing activities in 2010 was primarily due to a decrease in borrowings in 2010 as compared to an increase in borrowings in 2009. This was partially offset by an increase in the proceeds from the exercise of stock options net of cash used to repurchase common stock.
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Dividends paid to common and preferred shareholders were $1.5 billion in 2011, 2010 and 2009. Dividends per share of common stock were $1.64 in 2011, 2010 and 2009. The common dividend declared in the first quarter 2012 was the company's 430th consecutive dividend since the company's first dividend in the fourth quarter 1904.
The company's Board of Directors authorized a $2 billion share buyback plan in June 2001. During 2011, the company purchased and retired 13.8 million shares at a total cost of $672 million under this plan. During 2010, the company purchased and retired 5.4 million shares at a total cost of $250 million under this plan. During 2009, there were no purchases of stock under this plan. As of December 31, 2011, the company has purchased 39.7 million shares at a total cost of $1.9 billion. In April 2011, the company's Board of Directors authorized a $2 billion share buyback plan. This plan will not commence until the plan authorized in June 2001 is completed. There is no expiration date on the current authorizations.
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Cash provided by operating activities | $ | 5,152 | $ | 4,559 | $ | 4,741 | |||
Purchases of property, plant and equipment | (1,843 | ) | (1,508 | ) | (1,308 | ) | |||
Free cash flow | $ | 3,309 | $ | 3,051 | $ | 3,433 | |||
Free cash flow is a measurement not recognized in accordance with generally accepted accounting principles in the U.S. (GAAP) and should not be viewed as an alternative to GAAP measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the company's free cash flow definition may not be consistent with the methodologies used by other companies. The company defines free cash flow as cash provided by operating activities less purchases of property, plant and equipment, and therefore indicates operating cash flow available for payment of dividends, other investing activities and other financing activities. Free cash flow is useful to investors and management to evaluate the company's cash flow and financial performance, and is an integral financial measure used in the company's financial planning process.
Critical Accounting Estimates
The company's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the company to provide the users of the financial statements with useful and reliable information about the company's operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental matters and litigation. Management's estimates are based on historical experience, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. The company reviews these matters and reflects changes in estimates as appropriate. Management believes that the following represents some of the more critical judgment areas in the application of the company's accounting policies which could have a material effect on the company's financial position, liquidity or results of operations.
Long-term Employee Benefits
Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan assets are two critical assumptions in measuring the cost and benefit obligation of the company's pension and other long-term employee benefit plans. Management reviews these two key assumptions annually as of December 31st. These and other assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate. As permitted by GAAP, actual results that differ from the assumptions are accumulated on a plan by plan basis and to the extent that such differences exceed 10 percent of the greater of the plan obligations or the applicable plan assets, the excess is amortized over the average remaining service period of active employees.
About 80 percent of the company's benefit obligation for pensions and essentially all of the company's other long-term employee benefit obligations are attributable to the benefit plans in the U.S. The company utilizes published long-term high quality corporate bond indices to determine the discount rate at measurement date. Where commonly available, the company considers indices of various durations to reflect the timing of future benefit payments.
Within the U.S., the company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of those countries. Where appropriate, asset-liability studies are also taken into
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
consideration. The long-term expected return on plan assets in the U.S. is based upon historical real returns (net of inflation) for the asset classes covered by the investment policy, expected performance, and projections of inflation over the long-term period during which benefits are payable to plan participants. Consistent with prior years, the long-term expected return on plan assets in the U.S. reflects the asset allocation of the plan and the effect of the company's active management of the plans' assets.
In determining annual expense for the principal U.S. pension plan, the company uses a market-related value of assets rather than its fair value. The market-related value of assets is calculated by averaging market returns over 36 months. Accordingly, there may be a lag in recognition of changes in market valuation. As a result, changes in the fair value of assets are not immediately reflected in the company's calculation of net periodic pension cost. The following table shows the market-related value and fair value of plan assets for the principal U.S. pension plan:
(Dollars in billions) | 2011 | 2010 | 2009 | ||||||
Market-related value of assets | $ | 13.9 | $ | 13.9 | $ | 14.0 | |||
Fair value of plan assets | 13.9 | 14.8 | 13.9 | ||||||
For plans other than the principal U.S. pension plan, pension expense is typically determined using the fair value of assets.
The following table highlights the potential impact on the company's pre-tax earnings due to changes in certain key assumptions with respect to the company's pension and other long-term employee benefit plans, based on assets and liabilities at December 31, 2011:
Pre-tax Earnings Benefit (Charge) (Dollars in millions) | 1/2 Percentage Point Increase | 1/2 Percentage Point Decrease | ||||
Discount rate | $ | 97 | $ | (101 | ) | |
Expected rate of return on plan assets | 88 | (88 | ) | |||
Additional information with respect to pension and other long-term employee benefits expenses, liabilities and assumptions is discussed under "Long-term Employee Benefits" beginning on page 32 and in Note 17 to the Consolidated Financial Statements.
Environmental Matters
DuPont accrues for remediation activities when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. The company has recorded a liability of $416 million in the Consolidated Balance Sheet as of December 31, 2011; these accrued liabilities exclude claims against third parties and are not discounted. As remediation activities vary substantially in duration and cost from site to site, it is difficult to develop precise estimates of future site remediation costs. The company's estimates are based on a number of factors, including the complexity of the geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites and the number of and financial viability of other PRPs. Therefore, considerable uncertainty exists with respect to environmental remediation costs and, under adverse changes in circumstances, the potential liability may range up to three times the amount accrued.
Legal Contingencies
The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement and antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. The company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter's current status. Considerable judgment is required in determining whether to establish a litigation accrual when an adverse judgment is rendered against the company in a court proceeding. In such situations, the company will not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of significant litigation matters is contained in Note 15 to the Consolidated Financial Statements.
Income Taxes
The breadth of the company's operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes the company will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. The resolution of these uncertainties may result in adjustments to the company's tax assets and tax liabilities. It is reasonably possible that changes to the company's global unrecognized tax benefits could be significant, however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.
Deferred income taxes result from differences between the financial and tax basis 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. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. For example, changes in facts and circumstances that alter the probability that the company will realize deferred tax assets could result in recording a valuation allowance, thereby reducing the deferred tax asset and generating a deferred tax expense in the relevant period. In some situations these changes could be material.
At December 31, 2011, the company had a deferred tax asset balance of $8.0 billion, net of valuation allowance of $2.0 billion. Realization of these assets is expected to occur over an extended period of time. As a result, changes in tax laws, assumptions with respect to future taxable income, and tax planning strategies could result in adjustments to these assets. See Note 5 to the Consolidated Financial Statements for additional details related to the deferred tax asset balance.
Valuation of Assets
The assets and liabilities of acquired businesses are measured at their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired, including identified intangibles, is recorded as goodwill. The determination and allocation of fair value to the assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, including estimates based on historical information, current market data and future expectations. The principal assumptions utilized in the company's valuation methodologies include revenue growth rates, operating margin estimates and discount rates. Although the estimates were deemed reasonable by management based on information available at the dates of acquisition, those estimates are inherently uncertain.
Assessment of the potential impairment of property, plant and equipment, goodwill, other intangible assets and investments in affiliates is an integral part of the company's normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management's best estimates at a particular point in time. The dynamic economic environments in which the company's diversified businesses operate, and key economic and business assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.
Based on the results of the company's annual goodwill impairment test in 2011, no impairments exist at this time. The company's methodology for estimating the fair value of its reporting units is using the income approach based on the present value of future cash flows. The income approach has been generally supported by additional market transaction analyses. There can be no assurance that the company's estimates and assumptions regarding forecasted cash flow and revenue and operating income growth rates made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. The company believes the current assumptions and estimates utilized are both reasonable and appropriate.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Off-Balance Sheet Arrangements
Certain Guarantee Contracts
Information with respect to the company's guarantees is included in Note 15 to the Consolidated Financial Statements. Historically, the company has not had to make significant payments to satisfy guarantee obligations; however, the company believes it has the financial resources to satisfy these guarantees.
Contractual Obligations
Information related to the company's significant contractual obligations is summarized in the following table:
Payments Due In | |||||||||||||||
(Dollars in millions) | Total at December 31, 2011 | 2012 | 2013 – 2014 | 2015 – 2016 | 2017 and beyond | ||||||||||
Long-term debt obligations1 | $ | 12,123 | $ | 410 | $ | 2,914 | $ | 3,059 | $ | 5,740 | |||||
Expected cumulative cash requirements for interest payments through maturity | 3,731 | 481 | 793 | 642 | 1,815 | ||||||||||
Capital leases1 | 25 | 2 | 6 | 6 | 11 | ||||||||||
Operating leases | 1,247 | 293 | 445 | 279 | 230 | ||||||||||
Purchase obligations2 | |||||||||||||||
Information technology infrastructure & services | 107 | 42 | 61 | 3 | 1 | ||||||||||
Raw material obligations | 422 | 248 | 112 | 44 | 18 | ||||||||||
Utility obligations | 182 | 54 | 60 | 20 | 48 | ||||||||||
INVISTA-related obligations3 | 1,409 | 116 | 329 | 328 | 636 | ||||||||||
Human resource services | 37 | 37 | — | — | — | ||||||||||
Other | 82 | 50 | 23 | 8 | 1 | ||||||||||
Total purchase obligations | 2,239 | 547 | 585 | 403 | 704 | ||||||||||
Other liabilities1,4 | |||||||||||||||
Workers' compensation | 83 | 13 | 37 | 15 | 18 | ||||||||||
Asset retirement obligations | 59 | 1 | 20 | 4 | 34 | ||||||||||
Environmental remediation | 416 | 100 | 160 | 53 | 103 | ||||||||||
Legal settlements | 143 | 130 | 5 | 4 | 4 | ||||||||||
License agreements5 | 706 | 155 | 308 | 243 | — | ||||||||||
Other6 | 197 | 68 | 37 | 28 | 64 | ||||||||||
Total other long-term liabilities | 1,604 | 467 | 567 | 347 | 223 | ||||||||||
Total contractual obligations7 | $ | 20,969 | $ | 2,200 | $ | 5,310 | $ | 4,736 | $ | 8,723 | |||||
1. | Included in the Consolidated Financial Statements. |
2. | Represents enforceable and legally binding agreements in excess of $1 million to purchase goods or services that specify fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the agreement. |
3. | Primarily represents raw material supply obligations. |
4. | Pension and other long-term employee benefit obligations have been excluded from the table as they are discussed below within Long-term Employee Benefits. |
5. | Primarily represents remaining expected payments under Pioneer license agreements. |
6. | Primarily represents employee-related benefits other than pensions and other long-term employee benefits. |
7. | Due to uncertainty regarding the completion of tax audits and possible outcomes, the estimate of obligations related to unrecognized tax benefits cannot be made. See Note 5 to the Consolidated Financial Statements for additional detail. |
The company expects to meet its contractual obligations through its normal sources of liquidity and believes it has the financial resources to satisfy these contractual obligations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Long-term Employee Benefits
The company has various obligations to its employees and retirees. The company maintains retirement-related programs in many countries that have a long-term impact on the company's earnings and cash flows. These plans are typically defined benefit pension plans, as well as medical, dental and life insurance benefits for pensioners and survivors and disability and life insurance protection for employees (other long-term employee benefits). Approximately 80 percent of the company's worldwide benefit obligation for pensions and essentially all of the company's worldwide other long-term employee benefit obligations are attributable to the U.S. benefit plans. Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans. The company regularly explores alternative solutions to meet its global pension obligations in the most cost effective manner possible as demographics, life expectancy and country-specific pension funding rules change. Where permitted by applicable law, the company reserves the right to change, modify or discontinue its plans that provide pension, medical, dental, life insurance and disability benefits.
The majority of employees hired in the U.S. on or after January 1, 2007 are not eligible to participate in the pension and post-retirement medical, dental and life insurance plans, but receive benefits in the defined contribution plans.
Benefits under defined benefit pension plans are based primarily on years of service and employees' pay near retirement. Pension benefits are paid primarily from trust funds established to comply with applicable laws and regulations. Unless required by law, the company does not make contributions that are in excess of tax deductible limits. The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable assurance that there will be adequate funds for the payment of benefits. The company made a contribution of $500 million in 2010 to its principal U.S. pension plan and no contributions were made in 2011. In January 2012, the company contributed $500 million to its principal U.S. pension plan. The company expects to make contributions to its principal U.S. pension plan beyond 2012; however, the amount of any contributions is heavily dependent on the future economic environment and investment returns on pension trust assets. U.S. pension benefits that exceed federal limitations are covered by separate unfunded plans and these benefits are paid to pensioners and survivors from operating cash flows.
Funding for each pension plan is governed by the rules of the sovereign country in which it operates. Thus, there is not necessarily a direct correlation between pension funding and pension expense. In general, however, improvements in plans funded status tends to moderate subsequent funding needs. The company contributed $341 million to its pension plans in 2011 and anticipates that it will make approximately $345 million in contributions in 2012 to pension plans other than the principal U.S. pension plan.
The company's other long-term employee benefits are unfunded and the cost of the approved claims is paid from operating cash flows. Pre-tax cash requirements to cover actual net claims costs and related administrative expenses were $312 million, $321 million and $323 million for 2011, 2010 and 2009, respectively. This amount is expected to be about $315 million in 2012. Changes in cash requirements reflect the net impact of higher per capita health care costs, demographic changes and changes in participant premiums, co-pays and deductibles.
The company's income can be significantly affected by pension and defined contribution benefits as well as other long-term employee benefits. The following table summarizes the extent to which the company's income over each of the last 3 years was affected by pre-tax charges related to long-term employee benefits:
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Defined benefit plan charges | $ | 656 | $ | 557 | $ | 155 | |||
Defined contribution plan charges | 294 | 254 | 245 | ||||||
Other long-term employee benefit plan charges | 184 | 219 | 220 | ||||||
$ | 1,134 | $ | 1,030 | $ | 620 | ||||
The above charges for pension and other long-term employee benefits are determined as of the beginning of each year. The increase in pension expense in 2011 is primarily related to the decrease in discount rates and the increase in pension expense in 2010 is primarily related to decreases in the market-related value of the assets in the principal U.S. pension plan. See "Long-term Employee Benefits" under the Critical Accounting Estimates section beginning on page 28 of this report for additional information on determining annual expense for the principal U.S. pension plan.
The company's key assumptions used in calculating its pension and other long-term employee benefits are the expected return on plan assets, the rate of compensation increases and the discount rate (see Note 17 to the Consolidated Financial Statements). For
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
2012, long-term employee benefits expense is expected to increase by about $225 million, primarily due to lower discount rates.
Environmental Matters
The company operates global manufacturing, product handling and distribution facilities that are subject to a broad array of environmental laws and regulations. Such rules are subject to change by the implementing governmental agency, and the company monitors these changes closely. Company policy requires that all operations fully meet or exceed legal and regulatory requirements. In addition, the company implements voluntary programs to reduce air emissions, minimize the generation of hazardous waste, decrease the volume of water use and discharges, increase the efficiency of energy use and reduce the generation of persistent, bioaccumulative and toxic materials. Management has noted a global upward trend in the amount and complexity of proposed chemicals regulation. The costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, are significant and will continue to be significant for the foreseeable future.
Pre-tax environmental expenses charged to current operations are summarized below:
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Environmental operating costs | $ | 587 | $ | 551 | $ | 528 | |||
Increase in remediation accrual | 92 | 93 | 89 | ||||||
$ | 679 | $ | 644 | $ | 617 | ||||
About 75 percent of total pre-tax environmental expenses charged to current operations in 2011 resulted from operations in the U.S. The increases in total pre-tax environmental expenses charged to operations were due primarily to acquired businesses and increased environmental research activities. Based on existing facts and circumstances, management does not believe that year over year changes, if any, in environmental expenses charged to current operations will have a material impact on the company's financial position, liquidity or results of operations.
Environmental Operating Costs
As a result of its operations, the company incurs costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewater treatment, emissions testing and monitoring, and obtaining permits. The company also incurs costs related to environmental related research and development activities including environmental field and treatment studies as well as toxicity and degradation testing to evaluate the environmental impact of products and raw materials.
Remediation Accrual
Changes in the remediation accrual balance are summarized below:
(Dollars in millions) | |||
Balance at December 31, 2009 | $ | 396 | |
Remediation payments | (82 | ) | |
Increase in remediation accrual | 93 | ||
Balance at December 31, 2010 | $ | 407 | |
Remediation payments | (83 | ) | |
Increase in remediation accrual | 92 | ||
Balance at December 31, 2011 | $ | 416 | |
Annual expenditures are expected to continue to increase in the near future; however, they are not expected to vary significantly from the range of such expenditures experienced in the past few years. Longer term, expenditures are subject to considerable uncertainty and may fluctuate significantly.
As of December 31, 2011, the company has been notified of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state laws at about 410 sites around the U.S., with active remediation under way at approximately 160 of these sites. In addition, the company has resolved its liability at approximately 170 sites, either by completing remedial actions with other PRPs or by participating in "de minimis buyouts" with other PRPs whose waste, like the company's, represented only a small fraction of the total waste present at a site. The company received notice of potential liability at six new sites during 2011 compared with ten and three similar notices in 2010 and 2009, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Considerable uncertainty exists with respect to environmental remediation costs, and, under adverse changes in circumstances, potential liability may range up to three times the amount accrued as of December 31, 2011. However, based on existing facts and circumstances, management does not believe that any loss, in excess of amounts accrued, related to remediation activities at any individual site will have a material impact on the financial position, liquidity or results of operations of the company.
Environmental Capital Expenditures
In 2011, the company spent approximately $85 million on environmental capital projects either required by law or necessary to meet the company's internal environmental goals. The company currently estimates expenditures for environmental-related capital projects to be approximately $110 million in 2012. In the U.S., additional capital expenditures are expected to be required over the next decade for treatment, storage and disposal facilities for solid and hazardous waste and for compliance with the Clean Air Act (CAA). Until all CAA regulatory requirements are established and known, considerable uncertainty will remain regarding estimates for future capital expenditures. However, management does not believe that the costs to comply with these requirements will have a material impact on the financial position or liquidity of the company.
Climate Change
The company believes that climate change is an important global issue that presents risks and opportunities. The company has made its overall portfolio less energy and emissions intensive, reducing 2010 absolute energy use by 6 percent since 1990 while significantly increasing production. In addition, the company sourced 6 percent of 2010 total energy use from renewable resources. The company continuously evaluates opportunities for existing and new product and service offerings in light of the anticipated demands of a low-carbon economy. About $1.6 billion of the company's 2010 revenue was generated from sales of products that help direct and downstream customers reduce greenhouse gas (GHG) emissions.
The company has achieved major global reductions in GHG emissions since it began taking action in the early 1990's. The company is actively engaged in the effort to develop constructive public policies to reduce GHG emissions and encourage lower carbon forms of energy. Proposed and existing legislative efforts to control or limit GHG emissions could affect the company's energy source and supply choices as well as increase the cost of energy and raw materials derived from fossil fuels. Such efforts are also anticipated to provide the business community with greater certainty for the regulatory future, help guide investment decisions, and drive growth in demand for low-carbon and energy-efficient products, technologies, and services.
At the national and regional level, there are existing efforts to address climate change. Several of the company's facilities in the European Union (EU) are regulated under the EU Emissions Trading Scheme. In other countries, including the U.S., policy debate continues. The current unsettled policy environment in the U.S. adds an element of uncertainty to business decisions particularly those relating to long-term capital investments. If in the absence of federal legislation, states were to implement programs mandating GHG emissions reductions, the company, its suppliers and customers could be competitively disadvantaged by the added administrative costs of complying with a variety of state-specific requirements.
In 2010, EPA launched a phased-in scheme to regulate GHG emissions first from large stationary sources under CAA permitting requirements administered by state and local authorities. As a result, large capital investments may be required to install Best Available Control Technology on major new or modified sources of GHG emissions. This type of GHG emissions regulation by EPA, in the absence of or in addition to federal legislation, could result in more costly, less efficient facility-by-facility controls versus a federal, market-based cap and trade program. Differences in regional or national legislation could present challenges in a global marketplace highlighting the need for coordinated global policy action.
Registration
The European Union's regulatory framework concerning the Registration, Evaluation and Authorization of Chemicals (REACH) entered into force in 2007 and requires manufacturers and importers to gather and register information on the properties of their substances that meet certain volume or toxicological criteria. The company has successfully integrated REACH registration requirements into its safety, health & environment processes and timely met all such requirements to date. REACH also contains a mechanism for the progressive substitution of the most dangerous chemicals when suitable alternatives have been identified. Depending on which chemicals are identified, the requirement to use safer alternatives could necessitate changes in production processes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
PFOA
The Performance Chemicals segment uses a form of PFOA (collectively, perfluorooctanoic acid and its salts, including the ammonium salt) as a processing aid to manufacture fluoropolymer resins and dispersions. The Performance Materials segment uses PFOA in the manufacture of raw materials for perfluoroelastomer parts and some fluoroelastomers. In the fall of 2002, DuPont began producing rather than purchasing PFOA to support these manufacturing processes. PFOA is not used in the manufacture of fluorotelomers; however, it is an unintended by-product present at trace levels in some fluorotelomer-based products.
PFOA is bio-persistent and has been detected at very low levels in the blood of the general population. As a result, EPA initiated a process to enhance its understanding of the sources of PFOA in the environment and the pathways through which human exposure to PFOA is occurring. In 2005, EPA issued a draft risk assessment on PFOA stating that the cancer data for PFOA may be best described as "suggestive evidence of carcinogenicity, but not sufficient to assess human carcinogenic potential" under EPA's Guidelines for Carcinogen Risk Assessment. The EPA risk assessment is ongoing. Although EPA has stated that there remains considerable scientific uncertainty regarding potential risks associated with PFOA, it also stated that it does not believe that there is any reason for consumers to stop using any products because of concerns about PFOA.
DuPont respects EPA's position raising questions about exposure routes and the potential toxicity of PFOA and DuPont and other companies have outlined plans to continue research, emission reduction and product stewardship activities to help address EPA's questions. In January 2006, DuPont pledged its commitment to EPA's 2010/15 PFOA Stewardship Program. The EPA program asks participants (1) to commit to achieve, no later than 2010, a 95 percent reduction in both facility emissions and product content levels of PFOA, PFOA precursors and related higher homologue chemicals and (2) to commit to working toward the elimination of PFOA, PFOA precursors and related higher homologue chemicals from emissions and products by no later than 2015. DuPont has exceeded the EPA's 2010 objective. In February 2007, DuPont announced its commitment to no longer make, use or buy PFOA by 2015, or sooner if possible. To achieve this goal, DuPont developed PFOA replacement technology and is converting customers to fluoropolymer resins and dispersions manufactured using the replacement technology. DuPont has been introducing its next generation fluorotelomers products and converting customers to their use.
In 2009, EPA issued a national Provisional Health Advisory for PFOA of 0.4 parts per billion (ppb) in drinking water. In 2007, NJDEP identified a preliminary drinking-water guidance level for PFOA of 0.04 ppb as part of the first phase of an ongoing process to establish a state drinking-water standard.
For additional information regarding PFOA matters, see Note 15 to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivatives and Other Hedging Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives) to hedge its exposure to foreign currency, interest rate and commodity price risks under established procedures and controls. For additional information on these derivatives and related exposures, see Note 19 to the Consolidated Financial Statements.
The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations for the years ended December 31, 2011, 2010 and 2009, and includes the company's pro rata share of its equity affiliates' exchange gains and losses and corresponding gains and losses on foreign currency exchange contracts:
(Dollars in millions) | 2011 | 2010 | 2009 | ||||||
Pre-tax exchange loss | $ | (163 | ) | $ | (13 | ) | $ | (205 | ) |
Tax benefit (expense) | 82 | (71 | ) | 91 | |||||
After-tax exchange loss | $ | (81 | ) | $ | (84 | ) | $ | (114 | ) |
In addition to the contracts disclosed in Note 19 to the Consolidated Financial Statements, from time to time, the company will enter into foreign currency exchange contracts to establish with certainty the USD 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. Foreign currency exchange contracts are also used, from time to time, to manage near-term foreign currency cash requirements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, continued
Sensitivity Analysis
The following table illustrates the fair values of outstanding derivative contracts at December 31, 2011 and 2010, and the effect on fair values of a hypothetical adverse change in the market prices or rates that existed at December 31, 2011 and 2010. The sensitivity for interest rate swaps is based on a one percent change in the market interest rate. Foreign currency and commodity contracts sensitivities are based on a 10 percent change in market rates.
Fair Value Asset/(Liability) | Fair Value Sensitivity | |||||||||||
(Dollars in millions) | 2011 | 2010 | 2011 | 2010 | ||||||||
Interest rate swaps | $ | 66 | $ | 40 | $ | (40 | ) | $ | (51 | ) | ||
Foreign currency contracts | 154 | 53 | (541 | ) | (697 | ) | ||||||
Commodity contracts | (3 | ) | (72 | ) | (103 | ) | (79 | ) | ||||
Since the company's risk management programs are highly effective, the potential loss in value for each risk management portfolio described above would be largely offset by changes in the value of the underlying exposure.
Concentration of Credit Risk
The company maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed and the company has a policy to limit the dollar amount of credit exposure with any one institution.
As part of the company's financial risk management processes, it continuously evaluates the relative credit standing of all of the financial institutions that service DuPont and monitors actual exposures versus established limits. The company has not sustained credit losses from instruments held at financial institutions.
The company's sales are not materially dependent on any single customer. As of December 31, 2011, no one individual customer balance represented more than 5 percent of the company's total outstanding receivables balance. Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with the company's global businesses.
The company also maintains strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by industry and region.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are included herein, commencing on page F-1 of this report.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the company's reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of December 31, 2011, the company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), together with management, conducted an evaluation of the effectiveness of the company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures are effective.
There has been no change in the company's internal control over financial reporting that occurred during the fourth quarter of 2011 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. The company has completed its evaluation of its internal controls and has concluded that the company's system of internal controls over financial reporting was effective as of December 31, 2011 (see page F-2).
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this Item is incorporated herein by reference to the Proxy. Information related to directors is included within the section entitled, "Election of Directors." The company has not made any material changes to the procedures by which security holders may recommend nominees to its Board of Directors since these procedures were communicated in the company's 2011 Proxy Statement for the Annual Meeting of Stockholders held on April 27, 2011. Information related to the Audit Committee is incorporated herein by reference to the Proxy and is included within the sections entitled "Committees of the Board" and "Committee Membership." Information regarding executive officers is contained in the Proxy section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and as set forth below.
The company has adopted a Code of Ethics for its CEO, CFO and Controller that may be accessed from the company's website at www.dupont.com by clicking on "Investor Center" and then "Corporate Governance". Any amendments to, or waiver from, any provision of the code will be posted on the company's website at the above address.
Executive Officers of the Registrant
The following is a list, as of February 8, 2012, of the company's Executive Officers:
Age | Executive Officer Since | |
Chair of the Board of Directors and Chief Executive Officer: | ||
Ellen J. Kullman | 56 | 2006 |
Other Executive Officers: | ||
James C. Borel | 56 | 2004 |
Executive Vice President | ||
Benito Cachinero-Sánchez | 53 | 2011 |
Senior Vice President - Human Resources | ||
Thomas M. Connelly, Jr. | 59 | 2000 |
Executive Vice President and Chief Innovation Officer | ||
Nicholas C. Fanandakis | 55 | 2009 |
Executive Vice President and Chief Financial Officer | ||
Thomas L. Sager | 61 | 2008 |
Senior Vice President and General Counsel | ||
Mark P. Vergnano | 54 | 2009 |
Executive Vice President | ||
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.
Ellen J. Kullman joined DuPont in 1988 as marketing manager and progressed through various roles as global business director and was named Vice President and General Manager of White Pigment & Mineral Products in 1995. In 2000, Mrs. Kullman was named Group Vice President and General Manager of several businesses and new business development. She became Group Vice President-DuPont Safety & Protection in 2002. In June 2006, Mrs. Kullman was named Executive Vice President and assumed leadership of Marketing & Sales along with Safety and Sustainability. She was appointed President on October 1, 2008 and became Chief Executive Officer on January 1, 2009. On December 31, 2009, she became Chair of the Board of Directors.
James C. Borel joined DuPont in 1978, and held a variety of product and sales management positions for Agricultural Products. In 1993, he transferred to Tokyo, Japan with Agricultural Products as regional manager, North Asia and was appointed regional director, Asia Pacific in 1994. In 1997, he was appointed regional director, North America and was appointed Vice President and General Manager-DuPont Crop Protection later that year. In January 2004, he was named Senior Vice President-DuPont Global Human Resources. He became Group Vice President in 2008 and was named Executive Vice President with responsibility for DuPont Crop Protection and Pioneer in October 2009. In 2011, he assumed responsibility for DuPont Nutrition & Health.
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Benito Cachinero-Sánchez joined DuPont in April 2011 as Senior Vice President - Human Resources. Prior to joining DuPont, he was Corporate Vice President of Human Resources at Automatic Data Processing (ADP). Prior to ADP, he was Vice President, Human Resources for the Medical Devices & Diagnostics Group of Johnson & Johnson.
Thomas M. Connelly, Jr. joined DuPont in 1977 as a research engineer. Since then, Mr. Connelly has served in various research and plant technical leadership roles, as well as product management and business director roles. Mr. Connelly served as Vice President and General Manager-DuPont Fluoroproducts from 1999 until September 2000, when he was named Senior Vice President and Chief Science and Technology Officer. In June 2006, Mr. Connelly was named Executive Vice President and Chief Innovation Officer. In October 2009, responsibility for DuPont Performance Polymers, Packaging & Industrial Polymers as well as integrated operations was added. In 2011, he assumed responsibility for DuPont Industrial Biosciences and Performance Coatings.
Nicholas C. Fanandakis joined DuPont in 1979 as an accounting and business analyst. Since then, Mr. Fanandakis served in a variety of plant, marketing, and product management and business director roles. Mr. Fanandakis served as Vice President and General Manager—DuPont Chemical Solutions Enterprise from 2003 until February 2007 when he was named Vice President—Corporate Plans. In January 2008, Mr. Fanandakis was named Group Vice President—DuPont Applied BioSciences. In November 2009, he was named Senior Vice President and Chief Financial Officer. In August 2010, he was named Executive Vice President and Chief Financial Officer.
Thomas L. Sager joined DuPont in 1976 as an attorney in the labor and security group. In 1998, he was named Chief Litigation Counsel and assumed oversight responsibility for all company litigation matters. He was named Vice President and Assistant General Counsel in 1999. In July 2008, he was appointed Senior Vice President and General Counsel.
Mark P. Vergnano joined DuPont in 1980 as a process engineer. He has had several assignments in manufacturing, technology, marketing, sales and business strategy. He has held assignments in various DuPont locations including Geneva, Switzerland. In February 2003 he was named Vice President and General Manager—Nonwovens and Vice President and General Manager—Surfaces and Building Innovations in October 2005. In June 2006, he was named Group Vice President of DuPont Safety & Protection. In October 2009, Mr. Vergnano was appointed Executive Vice President with responsibility for DuPont Protection Technologies, Building Innovations, Sustainable Solutions, Chemicals & Fluoroproducts, Titanium Technologies and Electronics & Communications. He also leads the company's sustainability, safety, communications, and sales and marketing functions.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this Item is incorporated herein by reference to the Proxy and is included in the sections "Compensation Discussion and Analysis," "2011 Summary Compensation Table," " 2011 Grants of Plan-Based Awards," "Outstanding Equity Awards," "2011 Option Exercises and Stock Vested," "Pension Benefits," "Nonqualified Deferred Compensation," "Potential Payments Upon Termination or Change in Control," and "Directors' Compensation." Information related to the Compensation Committee is included within the sections entitled "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report."
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Part III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to Beneficial Owners is incorporated herein by reference to the Proxy and is included in the section entitled "Ownership of Company Stock."
Securities authorized for issuance under equity compensation plans as of December 31, 2011
(Shares in thousands, except per share)
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights2 | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans3 | ||||||
Equity compensation plans approved by security holders | 44,784 | 1 | $ | 37.47 | 67,174 | ||||
Equity compensation plans not approved by security holders | 5,802 | 4 | $ | 44.53 | — | 5 | |||
Total | 50,586 | $ | 38.40 | 67,174 | |||||
1. | Includes stock-settled time-vested and performance-based restricted stock units granted and stock units deferred under the company's Equity and Incentive Plan, Stock Performance Plan, Variable Compensation Plan and the Stock Accumulation and Deferred Compensation Plan for Directors. Performance-based restricted stock units reflect the maximum number of shares to be awarded at the conclusion of the performance cycle (200 percent of the original grant). The actual award payouts can range from zero to 200 percent of the original grant. |
2. | Represents the weighted-average exercise price of the outstanding stock options only; the outstanding stock-settled time-vested and performance-based restricted stock units and deferred stock units are not included in this calculation. |
3. | Reflects shares available pursuant to the issuance of stock options, restricted stock, restricted stock units or other stock-based awards under the amended Equity and Incentive Plan approved by the shareholders in April 2011 (see Note 18 to the company's Consolidated Financial Statements). The maximum number of shares of stock reserved for the grant or settlement of awards under the Equity and Incentive Plan (Share Limit) shall be 110,000 and shall be subject to adjustment as provided therein; provided that each share in excess of 30,000 issued under the Equity and Incentive Plan pursuant to any award settled in stock, other than a stock option or stock appreciation right, shall be counted against the foregoing Share Limit as four and one-half shares for every one share actually issued in connection with such award. (For example, if 32,000 shares of restricted stock are granted under the Equity and Incentive Plan, 39,000 shall be charged against the Share Limit in connection with that award.) |
4. | Includes 12 deferred stock units resulting from base salary and short-term incentive (STIP) deferrals under the Management Deferred Compensation Plan (MDCP). Under the MDCP, a select group of management or highly compensated employees can elect to defer the receipt of their base salary, STIP or Long Term Incentive (LTI) award. LTI deferrals are included in footnote 1 to the above chart. The company does not match deferrals under the MDCP. There are seven core investment options under the MDCP for base salary and STIP deferrals, including deferred stock units with dividend equivalents credited as additional stock units. In general, deferred stock units are distributed in the form of DuPont common stock and may be made in the form of lump sum at a specified future date prior to retirement or a lump sum or annual installments after separation from service. Shareholder approval of the MDCP was not required under the rules of the New York Stock Exchange. This column also includes the following: (i) options totaling 5,416 granted under the company's 2002 Corporate Sharing Program (see Note 18 to the Consolidated Financial Statements); and (ii) 373 options from the conversion of DuPont Canada options to DuPont options in connection with the company's acquisition of the minority interest in DuPont Canada. |
5. | There is no limit on the number of shares that can be issued under the MDCP and no further shares are available for issuance under the other equity compensation arrangements described in footnote 4 to the above chart. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to the company's policy and procedures for the review, approval or ratification of transactions with related persons is incorporated by reference herein to the Proxy and is included in the section entitled "Review and Approval of Transactions with Related Persons." Information with respect to director independence is incorporated by reference herein to the Proxy and is included in the sections entitled "DuPont Board of Directors—Corporate Governance Guidelines," "Guidelines for Determining the Independence of DuPont Directors," "Committees of the Board" and "Committee Membership."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to this Item is incorporated herein by reference to the Proxy and is included in the sections entitled "Ratification of Independent Registered Public Accounting Firm."
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Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | Financial Statements, Financial Statement Schedules and Exhibits: |
1. | Financial Statements (See the Index to the Consolidated Financial Statements on page F-1 of this report). |
2. | Financial Statement Schedules |
Schedule II—Valuation and Qualifying Accounts
(Dollars in millions)
Year Ended December 31, | 2011 | 2010 | 2009 | ||||||
Accounts Receivable—Allowance for Doubtful Receivables | |||||||||
Balance at beginning of period | $ | 326 | $ | 322 | $ | 238 | |||
Additions charged to cost and expenses | 73 | 75 | 112 | ||||||
Deductions from reserves | (107 | ) | (71 | ) | (28 | ) | |||
Balance at end of period | $ | 292 | $ | 326 | $ | 322 | |||
Deferred Tax Assets—Valuation Allowance | |||||||||
Balance at beginning of period | $ | 1,666 | $ | 1,759 | $ | 1,693 | |||
Net charges (benefits) to income tax expense | 73 | (19 | ) | 55 | |||||
Additions charged to other comprehensive income (loss) | 236 | — | — | ||||||
Currency translation | (4 | ) | (74 | ) | 11 | ||||
Balance at end of period | $ | 1,971 | $ | 1,666 | $ | 1,759 | |||
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 Consolidated Financial Statements or notes thereto incorporated by reference.
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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 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the company’s Annual Report on Form 10-K for the year ended December 31, 2007). | |
3.2 | Company’s Bylaws, as last amended effective November 1, 2009 (incorporated by reference to Exhibit 3.2 to the company’s Annual Report on Form 10-K for the year ended December 31, 2009). | |
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* | The DuPont Stock Accumulation and Deferred Compensation Plan for Directors, as last amended effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the company’s Annual Report on Form 10-K for the year ended December 31, 2008). | |
10.2* | Company’s Supplemental Retirement Income Plan, as last amended effective June 4, 1996. | |
10.3* | Company’s Pension Restoration Plan, as restated effective July 17, 2006 (incorporated by reference to Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011). | |
10.4* | Company’s Rules for Lump Sum Payments, as last amended effective December 20, 2007 (incorporated by reference to Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011). | |
10.5* | Company’s Stock Performance Plan, as last amended effective January 25, 2007. | |
10.6* | Company’s Equity and Incentive Plan as amended and restated effective March 2, 2011 and approved by the company’s shareholders on April 27, 2011 (incorporated by reference to pages B1-B15 of the company’s Annual Meeting Proxy Statement dated March 18, 2011). | |
10.7* | Form of Award Terms under the company’s Equity and Incentive Plan (incorporated by reference to Exhibit 10.8 to the company’s Quarterly Report on Form 10-Q for the period ended March 31, 2009). | |
10.8* | Company’s Retirement Savings Restoration Plan, as last amended effective June 1, 2011 (incorporated by reference to Exhibit 10.8 to the company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011). | |
10.9* | Company’s Retirement Income Plan for Directors, as last amended August 1995. | |
10.11* | Company’s Management Deferred Compensation Plan, adopted on May 2, 2008, as last amended May 12, 2010 (incorporated by reference to Exhibit 10.11 to the company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010). | |
10.12* | Supplemental Deferral Terms for Deferred Long Term Incentive Awards and Deferred Variable Compensation Awards (incorporated by reference to Exhibit 10.15 to the company’s Annual Report on Form 10-K for the year ended December 31, 2008). | |
12 | Computation of Ratio of Earnings to Fixed Charges. | |
21 | Subsidiaries of the Registrant. | |
23 | Consent of Independent Registered Public Accounting Firm. | |
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Exhibit Number | Description | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of the company’s Principal Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of the company’s Principal Financial Officer. | |
32.1 | Section 1350 Certification of the company’s Principal Executive Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended. | |
32.2 | Section 1350 Certification of the company’s Principal Financial Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended. | |
95 | Mine Safety Disclosures. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. |
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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.
February 8, 2012 | ||
E. I. DU PONT DE NEMOURS AND COMPANY | ||
By: | /s/ Nicholas C. Fanandakis | |
Nicholas C. Fanandakis Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||
_____________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:
Signature | Title(s) | Date | ||
/s/ E. J. Kullman | Chair of the Board of Directors and Chief Executive Officer and Director (Principal Executive Officer) | February 8, 2012 | ||
E. J. Kullman | ||||
/s/ R. H. Brown | Director | February 8, 2012 | ||
R. H. Brown | ||||
/s/ R. A. Brown | Director | February 8, 2012 | ||
R. A. Brown | ||||
/s/ B. P. Collomb | Director | February 8, 2012 | ||
B. P. Collomb | ||||
/s/ C. J. Crawford | Director | February 8, 2012 | ||
C. J. Crawford | ||||
/s/ A. M. Cutler | Director | February 8, 2012 | ||
A. M. Cutler | ||||
/s/ E. I. du Pont, II | Director | February 8, 2012 | ||
E. I. du Pont, II | ||||