DUPONT DETAILS DTI DIVISION
Byline: Scott Malone
WILMINGTON, Del. — When he took the stage at the Hotel DuPont on Wednesday, Chad Holliday Jr. had a big decision to explain to shareholders of his firm.
“Why are we separating our intermediates and fiber business units from the DuPont company?” the industrial giant’s chairman and chief executive officer asked rhetorically, anticipating the questions of many at the annual meeting.
“This industry is fundamentally restructuring and reinventing itself faster than anyone would have thought. If we don’t change fast with the industry, no one will like the results,” he said. “If we act fast enough, I am absolutely convinced we can stay the leader.”
While DuPont’s fibers portfolio — DuPont Textiles & Interiors, which it plans to spin off by the end of 2003 — was the largest of the company’s seven market segments by revenues last year, it was not the most profitable. As reported, DTI’s aftertax operating income in the first quarter was 2 percent of its $1.45 billion in sales. DTI revenues were $6.5 billion last year.
With the apparel market, which represents 35 percent of DTI’s sales, increasingly relying on foreign sources of supply, DuPont workers in the audience had questions about what the changes would mean for domestic jobs.
Carl Goodman, a DuPont employee from Louisville, Ky., and president of the International Brotherhood of DuPont Workers, told Holliday he was surprised at the revelation early this year that the company planned to sell “the very foundation business that you said [two years ago in an employee newsletter] is the company’s long-term future.”
He contended, “Employees of DuPont are not being heard at the level where they need to be heard the most,” and submitted a shareholder proposal that the company add one of its hourly rate employees to the board to ensure that blue collar workers’ needs are taken into account. That proposal, along with three others submitted by shareholders, was voted down.
Jim Flickinger of Waynesboro, Va., another union representative, was more direct in his concerns of what kinds of changes might be coming to the DTI segment. “Do you see any of the domestic [manufacturing] sites being shut down?” he asked Holliday.
The chairman responded that any specific plant closings would be announced to employees first, but contended that, when they do happen, closings are forced by market conditions.
“We have to be in a competitive position to supply our customers,” Holliday said. “That depends on the success of our customers in keeping market share here.”
In the wake of the Enron scandal, there were several questions about accounting practices at DuPont and its auditor, PricewaterhouseCoopers.
“Can the independent auditors assure the shareholders that the DuPont company doesn’t have off-the-books holding companies?” asked retiree Lloyd Falk, alluding to the shady network of companies top Enron officials are accused of using to artificially inflate profits.
Gary Pfeiffer, senior vice president and chief financial officer, responded that while current accounting standards cause most American companies to have some off-the-book assets — leases, for instance — he could say with certainty that DuPont had no complicated partnerships of the sort in which Enron was engaged.
In response to another question, Holliday said that while DuPont does buy services other than auditing from PricewaterhouseCoopers, “any work we do with them is always competitively bid.”
Shareholders voted to approve three proposals made by management: a new slate of directors, the retention of PricewaterhouseCoopers as auditors and a change in compensation plan for executives.
In an interview in downtown Wilmington after the shareholder parley, two top executives from DTI said they saw signs the apparel business is beginning to pick up.
Bill Ghitis, president of DuPont Global Apparel, said his first-quarter sales volume in the Asian region rose 30 percent, though North American sales were off 10 to 15 percent. He suggested the rising demand in Asia was a sign that U.S. retailers were building inventory in anticipation of a pickup in sales.
“If we don’t have a significant event to change consumer sentiment, we stand to be OK,” he said. “Business at retail in the second half stands to pick up.”
The uptick in demand has been enough to prompt DuPont to raise its prices on generic spandex in Asia in recent months and it is considering taking similar action on nylon. That comes after years of declining prices in that region.
Ghitis also noted that business in North America was better in March and the beginning of April than it had been in January and February, a sign that the domestic market is improving, as well. He contended that demand for stretch fabrics is growing and said that would help DTI boost its business in the year ahead.
“Stretch is here to stay,” he said. “The category is growing 8 percent a year and, at DTI, we plan to grow 50 percent faster than the market.”
While the company has largely pulled out of the generic polyester market, Ghitis said DuPont continues to work on new polyester-related fibers, including T400, a stretch fiber for which it is seeking a new generic designation. Polyester remains 10 percent of the company’s apparel fibers sales.
Steve McCracken, group vice president for DTI, said while the unit is looking for ways to cut costs in anticipation of its coming separation from DuPont, research would remain a major area of investment.
“The basis of keeping the brands strong is research,” he said.
At the meeting, Holliday pointed out that DTI and DuPont will likely enter into a contract agreeing to share research at the time of DTI’s spinoff. The DTI executives said it is likely the division will continue to use the DuPont name after the spinoff, as does DuPont Photomasks, an independent company in which DuPont retains a 20 percent stake. McCracken said he believes DTI would be better able to compete in the fibers market on its own.
“We’re committed,” he said. “Our career path is in DTI. Our opportunities are here.
“This is being set up to be a viable, standalone company,” he said. “It’s not going to be overloaded with debt. It’s going to have viable assets.”