Du Pont to take $5 billion charge against earnings Cost of health care for retirees cited

January 05, 1993|By New York Times News Service

E. I. du Pont de Nemours & Co. said yesterday that it would take an after-tax charge of $5 billion against its 1992 earnings to cover the anticipated costs of providing health care for its retired employees and their survivors.

The accounting change, which is being made by many companies to conform with revised accounting standards, will apparently produce a loss for the year. Company profits for 1992 had been estimated by analysts at about $3 a share, or more than $2 billion.

A spokesman for Du Pont said the charges were being taken retroactively, rather than starting this year as previously announced, to get them "out of the way." As accounting changes, they affect reported earnings, but have no effect on the company's cash position. Company officials said they expected to report 1992 earnings by the end of this month.

The Du Pont charges were felt by Seagram Co., which owns 24.3 percent of Du Pont's stock. Seagram said yesterday that it would take a $1.4 billion accounting charge for the year, $1.2 billion of it attributable to Du Pont.

Wall Street seemed unconcerned by the charge. Du Pont's stock gained $1.125, to $48.25, yesterday on the New York Stock Exchange. Seagram closed unchanged, at $25.375.

Du Pont also announced that it was planning to shift more of the cost of health care to its employees and retirees. And it said it would take an additional charge of $275 million as a result of a program of closing plants and offering incentives for early retirement.

In a letter sent to employees on Dec. 31, Edgar S. Woolard Jr., the company's chairman, said rapidly rising costs for health care were "having a direct impact on the competitiveness of many companies in the United States, including Du Pont." He said the company's bill for health care totaled $500 million last year, which he said was double the amount five years previously.

He said the company would change over to a "managed health care" program starting Jan. 1, 1994, to hold down costs. And he said the company would increase to 20 percent the share of health bills paid by employees on the same date, up from the present level of 11 percent.

By Jan. 1, 1997, he said the company planned to split incremental health care cost increases on a 50-50 basis.

Bruce W. Karrh, a Du Pont vice president, said the company's bill for health care had risen 12 to 14 percent annually for the past five years.

He said the systems the company planned to use to limit health care costs, including managed care and an emphasis on prevention and wellness, had the potential for reducing spending by $500 million during the next five years.

Mr. Woolard said health care costs had risen much more quickly than the company's ability to absorb them. "There was a time when increased health care costs could be made up through increases in the prices of our products," he said. "This is now impossible."

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