DUPONT E I DE NEMOURS & CO - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005

( ) 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	51-0014090
(State or other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

1007 Market Street, Wilmington, Delaware 19898
(Address of Principal Executive Offices)

(302) 774-1000
(Registrant's Telephone Number)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes

996,091,258 shares (excludes 87,041,427 shares of treasury stock) of common stock, $0.30 par value, were outstanding at April 15, 2005.

Form 10-Q

E. I. DU PONT DE NEMOURS AND COMPANY

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(s)
Part I	Financial Information

Item 1.	Consolidated Financial Statements
	Consolidated Income Statements			3
	Consolidated Balance Sheets			4
	Consolidated Statements of Cash Flows			5
	Notes to Consolidated Financial Statements			6-23
		Note 1.	Summary of Significant Accounting Policies	6-7
		Note 2.	Other Income	8
		Note 3.	Employee Separation Costs and Asset Impairment Charges	8
		Note 4.	Separation Activities - Textiles & Interiors	9
		Note 5.	Earnings Per Share of Common Stock	9
		Note 6.	Inventories	10
		Note 7.	Assets and Liabilities Held for Sale - Ethylene and
			Chlorinated Elastomers	10
		Note 8.	Goodwill and Other Intangible Assets	11-12
		Note 9.	Commitments and Contingent Liabilities	12-19
		Note 10.	Comprehensive Income	20
		Note 11.	Variable Interest Entities (VIEs)	20-21
		Note 12.	Derivatives and Other Hedging Activities	21
		Note 13.	Employee Benefits	22
		Note 14.	Segment Information	23

Item 2.	Management's Discussion and Analysis of Financial Condition and
	Results of Operations Forward-Looking Statements
	Results of Operations Forward-Looking Statements			24-25
	Results of Operations			25-28
	Segment Reviews			28-29
	Liquidity & Capital Resources			29-31

Item 4.	Controls and Procedures			32

Part II	Other Information

Item 1.	Legal Proceedings			32-33
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer
	Purchases of Equity Securities			33
Item 4.	Submission of Matters to a Vote of Security Holders			34
Item 6.	Exhibits			34

Signature				35

Exhibit Index				36-38

Form 10-Q

Part I. Financial Information

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES

Consolidated Income Statements
(Dollars in millions, except per share)

	Three Months Ended
	March 31,
	2005	2004

Net sales	$7,431	$ 8,073
Other income	395	132

Total	7,826	8,205

Cost of goods sold and other operating charges	5,051	5,757
Selling, general and administrative expenses	807	820
Amortization of intangible assets	57	54
Research and development expense	313	337
Interest expense	104	85
Separation charges - Textiles & Interiors	-	345

Total	6,332	7,398

Income before income taxes and minority interests	1,494	807
Provision for income taxes	509	126
Minority interests in earnings of consolidated
subsidiaries	18	13

Net income	$ 967	$ 668

Basic earnings per share of common stock	$ 0.97	$ 0.67

Diluted earnings per share of common stock	$ 0.96	$ 0.66

Dividends per share of common stock	$ 0.35	$ 0.35

See pages 6-23 for Notes to Consolidated Financial Statements.

Form 10-Q

Consolidated Balance Sheets
(Dollars in millions, except per share)

March 31,

December 31,

2005

2004

Assets

Current assets

Cash and cash equivalents

$ 4,437

$ 3,369

Marketable debt securities

214

167

Accounts and notes receivable, net

6,299

4,889

Inventories

4,502

4,489

Prepaid expenses

233

209

Income taxes

1,099

1,557

Assets held for sale

458

531

Total current assets

17,242

15,211

Property, plant and equipment, net of accumulated depreciation

(March 31, 2005 - $13,994; December 31, 2004 - $13,754)

10,179

10,224

Goodwill

2,096

2,082

Other intangible assets

2,806

2,848

Investment in affiliates

1,063

1,034

Other assets

4,059

4,233

Total

$37,445

$35,632

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable

$ 2,626

$ 2,753

Short-term borrowings and capital lease obligations

3,455

936

Income taxes

238

192

Other accrued liabilities

2,960

3,962

Liabilities held for sale

20

96

Total current liabilities

9,299

7,939

Long-term borrowings and capital lease obligations

5,484

5,548

Other liabilities

8,632

8,692

Deferred income taxes

1,021

966

Total liabilities

24,436

23,145

Minority interests

1,109

1,110

Commitments and contingent liabilities

Stockholders' equity

Preferred stock

237

237

Common stock, $0.30 par value; 1,800,000,000 shares authorized;

Issued at March 31, 2005 - 1,082,864,631;

December 31, 2004 - 1,081,382,048

325

324

Additional paid-in capital

8,080

7,784

Reinvested earnings

10,451

10,182

Accumulated other comprehensive loss

(466)

(423)

Common stock held in treasury, at cost (Shares: March 31, 2005

and December 31, 2004 - 87,041,427)

(6,727)

(6,727)

Total stockholders' equity

11,900

11,377

Total

$37,445

$35,632

See pages 6-23 for Notes to Consolidated Financial Statements.

Form 10-Q

Consolidated Statements of Cash Flows
(Dollars in millions)

	Three Months Ended
	March 31,
	2005	2004

Operating activities
Net income	$ 967	$ 668
Adjustments to reconcile net income to cash used for operating activities:
Depreciation	283	265
Amortization of intangible assets	57	54
Separation charges - Textiles & Interiors	-	345
Other operating activities - net	(103)	174
Change in operating assets and liabilities - net	(1,210)	(1,788)

Cash used for operating activities	(6)	(282)

Investing activities
Purchases of property, plant and equipment	(251)	(254)
Investments in affiliates	(12)	(11)
Payments for businesses - net of cash acquired	(11)	(23)
Proceeds from sales of assets	18	2
Net increase in short-term financial instruments	(49)	(13)
Forward exchange contract settlements	(315)	(129)
Other investing activities - net	(52)	11

Cash used for investing activities	(672)	(417)

Financing activities
Dividends paid to stockholders	(351)	(352)
Net increase in borrowings	2,518	1,409
Acquisition of treasury stock	(405)	-
Proceeds from exercise of stock options	305	47
Other financing activities - net	(39)	(51)

Cash provided by financing activities	2,028	1,053

Effect of exchange rate changes on cash	(282)	106

Increase in cash and cash equivalents	$ 1,068	$ 460

Cash and cash equivalents at beginning of period	3,369	3,348(a)

Cash and cash equivalents at end of period	$ 4,437	$ 3,808(a)

(a)	Includes cash classified as assets held for sale within the Consolidated Balance Sheet.

See pages 6-23 for Notes to Consolidated Financial Statements.

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)

Note 1. Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in the company's Annual Report on Form 10-K for the year ended December 31, 2004. The Consolidated Financial Statements include the accounts of the company and all of its subsidiaries in which a controlling interest is maintained, as well as variable interest entities in which DuPont is considered the primary be neficiary. Certain reclassifications of prior year's data have been made to conform to current year classifications.

Stock-Based Compensation

The company has stock-based employee compensation plans which are described more fully in Note 27 to the company's Consolidated Financial Statements included in the company's Annual Report on
Form 10-K for the year ended December 31, 2004. Prior to January 1, 2003, the company accounted for these plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, no compensation expense had been recognized for fixed options granted to employees.

Effective January 1, 2003, the company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," prospectively for all awards granted to employees on or after January 1, 2003. Most awards under the company's plans vest over a three-year period. Therefore, the cost related to stock-based employee compensation included in the determination of Net income for the three-month periods ended March 31,

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

2005 and 2004, is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. The following table illustrates the effect on Net income and Earnings per share as if the fair value based method had been applied in each period.

	Three Months Ended
	March 31,
	2005	2004

Net income, as reported	$ 967	$ 668

Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects	14	10

Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects	16	19

Pro forma net income	$ 965	$ 659

Earnings per share:
Basic - as reported	$ 0.97	$0.67

Basic - pro forma	$ 0.97	$0.66

Diluted - as reported	$ 0.96	$0.66

Diluted - pro forma	$ 0.95	$0.66

Accounting Standards Issued Not Yet Adopted

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation." As noted above, DuPont voluntarily adopted the SFAS 123 fair value based method of accounting for share-based payment transactions with employees in 2003. SFAS 123R amends some aspects of the fair value measurement of the equity instruments granted to employees. The Securities and Exchange Commission has postponed the date on which this statement becomes effective, and accordingly, the company plans to adopt SFAS 123R in the first quarter of 2006. The company is assessing the provisions of the amendment, and does not currently expect its adoption in 2006 to materially impact its financial position, liquidity or results of operations.

In March 2005, the FASB issued Interpretation No. (FIN) 47, "Accounting for Conditional Asset Retirement Obligations." FIN 47 defines the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations." In addition, FIN 47 clarifies when an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when uncertainty exists about the timing and/or method of settlement. This statement becomes effective for the company beginning in the fourth quarter of 2005. The company is evaluating the Interpretation and does not currently expect its adoption to materially impact its financial position, liquidity or results of operations.

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

Note 2. Other Income

	Three Months Ended
	March 31,
	2005	2004

CozaarÒ /HyzaarÒ income	$158	$148
Royalty income	23	45
Interest income, net of miscellaneous
interest expense	40	21
Equity in earnings (losses) of affiliates	36	(91)¹
Net gains on sales of assets	4	-
Net exchange gains (losses)	102²	(9)
Miscellaneous income and expenses - net	32	18

	$395	$132

¹	Includes charge of $150 to establish a reserve associated with the DuPont Dow Elastomers LLC (DDE) antitrust litigation matters (see Note 9).
²	Includes net exchange gains resulting from the company's policy to hedge foreign currency-denominated net monetary assets. Such gains are offset by associated tax expense of $149.

In April 2005, the company sold its remaining ownership interest in DuPont Photomasks for $98. As a result of this transaction, the company expects to record a pretax gain of approximately $45 in the second quarter of 2005.

Note 3. Employee Separation Costs and Asset Impairment Charges

Account balances and activity for the company's restructuring programs are as follows:


	2004	2002	2001
	Program	Programs	Program	Total

Balance - December 31, 2004	$173	$35	$12	$220

Employee separation settlements	(62)	(7)	(2)	(71)

Balance - March 31, 2005	$111	$28	$10	$149

As of March 31, 2005, approximately 2,500 of the 2,700 employees identified as part of the company's 2004 program have been terminated. A complete discussion of the prior years' activities is included in Note 4 of the company's Annual Report on Form 10-K for the year ended December 31, 2004.

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

Note 4. Separation Activities - Textiles & Interiors

In the first quarter of 2004, the company recorded charges of $345 related to the separation of Textiles & Interiors. Further details related to these activities can be found in Note 5 to the company's Annual Report on Form 10-K for the year ended December 31, 2004.

In April 2005, the company completed the previously delayed transfer of its interest in an equity affiliate to Koch Industries and/or its subsidiaries (Koch). As a result of this transfer, the company expects to record a pretax gain of approximately $40 in the second quarter of 2005. The company previously received cash proceeds for this sale.

In connection with its plans to sell the remaining assets of Textiles & Interiors not purchased by Koch, the company completed the sale of its investment in an affiliated company to its equity partner in April 2005 for $110 and expects to record a pretax gain of approximately $25 in the second quarter of 2005.

Note 5. Earnings Per Share of Common Stock

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:

	Three Months Ended
	March 31,
	2005	2004
Numerator:
Net Income	$967.0	$668.0
Preferred dividends	(2.5)	(2.5)

Net income available to common stockholders	$964.5	$665.5

Denominator:
Weighted-average number of common shares - Basic	996,304,498	999,242,763
Dilutive effect of the company's employee compensation plans	9,692,879	4,158,258

Weighted-average number of common shares - Diluted	1,005,997,377	1,003,401,021

The following average stock options are antidilutive, and therefore, are not included in the diluted earnings per share calculations:

	Three Months Ended
	March 31,
	2005	2004

Average Stock Options	31,244,655	41,958,446

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

Note 6. Inventories

	March 31,	December 31,
	2005	2004

Finished products	$3,210	$2,773
Semifinished products	906	1,355
Raw materials and supplies	805	743

	4,921	4,871

Adjustment of inventories to a
Last-In, First-Out (LIFO) basis	(419)	(382)

	$4,502	$4,489

Note 7. Assets and Liabilities Held for Sale - Ethylene and Chlorinated Elastomers

On December 31, 2004, The Dow Chemical Company (Dow) exercised its option to acquire from DDE certain assets related to the ethylene and chlorinated elastomers businesses, including assets of the EngageÒ , NordelÒ , and TyrinÒ businesses (see Note 9). Further detail related to this transaction can be found in Note 14 to the company's Annual Report on Form 10-K for the year ended December 31, 2004.

The net assets of the ethylene and chlorinated elastomers businesses included in the Consolidated Balance Sheet consisted of the following:

	March 31,	December 31,
	2005	2004

Accounts and notes receivable*	$ -	$ 96
Inventories	151	136
Property, plant and equipment (net)	302	298
Prepaid expense and other assets	5	1

Assets held for sale	$458	$531

Accounts payable*	$ 2	$ 69
Borrowings and capital lease obligations	-	1
Deferred tax liability	1	2
Other liabilities	17	24

Liabilities held for sale	$ 20	$ 96

An agreement is expected to be reached which provides that at closing DDE will purchase Dow's interest in nearly all the accounts receivable, net of accounts payable related to the ethylene and chlorinated elastomers businesses. At March 31, 2005, these net assets are no longer classified as held for sale.

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

Note 8. Goodwill and Other Intangible Assets

Changes in goodwill for the period ended March 31, 2005 are summarized in the table below.

Balance as of

Adjustments

Balance as of

December 31,

and

March 31,

Segment

2004

Acquisitions

2005

Agriculture & Nutrition

$ 611

$ (1)

$ 610

Coatings & Color Technologies

816

3

819

Electronic & Communication Technologies

168

-

168

Performance Materials

325

3

328

Safety & Protection

148

11

159

Other

14

(2)

12

Total

$2,082

$14

$2,096

The gross carrying amounts and accumulated amortization in total and by major class of other intangible assets are as follows:

	March 31, 2005
		Accumulated
	Gross	Amortization	Net

Intangible assets subject to amortization (Definite-lived):
Purchased technology	$2,178	$(1,093)	$1,085
Patents	163	(36)	127
Trademarks	72	(19)	53
Other	557	(174)	383

	2,970	(1,322)	1,648

Intangible assets not subject to amortization
(Indefinite-lived):
Trademarks / Tradenames	183	-	183
Pioneer Germplasm	975	-	975

	1,158	-	1,158

	$4,128	$(1,322)	$2,806

Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(continued)

		December 31, 2004
				Accumulated
		Gross

	Balance as of	Adjustments	Balance as of
	December 31,	and	March 31,
Segment	2004	Acquisitions	2005

Agriculture & Nutrition	$ 611	$ (1)	$ 610
Coatings & Color Technologies	816	3	819
Electronic & Communication Technologies	168	-	168
Performance Materials	325	3	328
Safety & Protection	148	11	159
Other	14	(2)	12

Total	$2,082	$14	$2,096