U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
E.I. DU PONT DE NEMOURS & CO.
2. Name of person relying on exemption:
DUPONT SHAREHOLDERS FOR FAIR VALUE
3. Address of person relying on exemption:
P.O. Box 231, Amherst, Mass. 01004
(PHOTOGRAPH OF A STOCK CHART)
THE SHAREHOLDER'S RIGHT TO KNOW MORE
2007 Update
Dupont's Market and Liability Exposures
Continue from PFOA and Related Issues
Sanford Lewis, Strategic Counsel on Corporate Accountability
for DuPont Shareholders for Fair Value
(DUPONT SHAREHOLDERS FOR FAIR VALUE LOGO)
Dear Shareholder,
The enclosed report updates DuPont investors on important issues
of disclosure and potential financial impact on share value. As
you may know, perfluorooctanoic acid (PFOA) is the controversial
chemical intermediate involved in the production of numerous
DuPont products, including stain and grease resistant coatings
for consumer products such as carpets, textiles and food
packaging.
Following our 2005 correspondence with the Securities and
Exchange Commission regarding DuPont's reporting to shareholders,
Securities and Exchange Commission accountants wrote to DuPont
with guidance for conducting better disclosure on these matters.
Despite this guidance, in our opinion, the company is still
withholding disclosure of information relevant to the financial
risks associated with PFOA. For example:
- While the company has announced that it intends to end the
production and use of PFOA by 2015, it has not provided
shareholders with an assessment of the losses the company may
suffer in the marketplace by continuing to use PFOA in the
meantime. As shown in our report, numerous companies and
competitors are shifting to PFOA free alternatives and may not
stand by for the company's long timetable for elimination of PFOA
in its products.
- The company has failed to disclose that some experts believe
that its fluorotelomer products, which it intends to continue to
produce even after ending the use of PFOA, may break down to PFOA
in use or in the environment. Independent scientific assessment
is already underway to assess this.
- The company did not report to shareholders on the preliminary
findings released February 2007 from Johns Hopkins University
researchers in which newborn babies who had been exposed to low
levels of PFOA in utero had decreased birth weight and head
circumference - emblematic of developmental impacts.
- The company failed to note that more restrictive thresholds
related to drinking water limits on PFOA have been recommended by
regulators in Minnesota and New Jersey, and that Minnesota is now
intent on handling PFOA contaminated sites as Superfund sites.
DuPont Shareholders for Fair Value (DSFV), the issuer of this
report, is an informal group of DuPont shareholders organized by
the United Steelworkers (USW) and concerned with proper
disclosure and accountability on the issues relative to PFOA.
DSFV includes Amalgamated Bank, United Steelworkers, and Green
Century Capital Management.
We hope that after you read the report you will join with us in
pressing DuPont management for more expeditious action to
eliminate the production of PFOA and products that can break down
to PFOA, and for more complete disclosure on these matters.
Sincerely,
/s/
Sanford Lewis
DuPont Shareholders for Fair Value
UPDATE REPORT
DUPONT MARKET AND LIABILITY EXPOSURES
CONTINUE FROM PFOA AND RELATED ISSUES
DuPont Shareholders for Fair Value
April 2007
SYNOPSIS
PFOA (perfluorooctanoic acid) is a chemical used to help make
fluoropolymers and fluoroelastomers. E. I. du Pont de Nemours &
Co. (DuPont) is the only US producer of PFOA. Fluoropolymers are
used in architectural fabrics; chemical processing piping and
vessels; automotive fuel systems; telecommunications and
electronic wiring insulation; and computer chip processing
equipment and systems, and consumer products such as cookware and
apparel. PFOA is used as a processing aid in the manufacture of
fluoropolymers for use in non-stick surfaces such as Teflon
coated cookware. Fluoroelastomers are synthetic, rubber-like
materials used in gaskets, O-rings and hoses.
This report is an update of prior reports: THE SHAREHOLDER'S
RIGHT TO KNOW MORE: E.I. DU PONT DE NEMOURS AND THE GROWING
FINANCIAL CHALLENGES OF PFOA (April 2005) and THE SHAREHOLDER'S
RIGHT TO KNOW MORE: DESPITE DUPONT'S RECENT CONCESSIONS TO EPA,
SHAREHOLDER VALUE REMAINS AT RISK FROM PFOA (2006). The prior
reports are available on the internet at
www.DupontShareholdersAlert.org.
DUPONT'S DEFERRED ELIMINATION OF PFOA MAY CONTINUE TO JEOPARDIZE
DUPONT PRODUCT LINES AS CONSUMER AND INDUSTRIAL CUSTOMERS OPT FOR
PFOA-FREE PRODUCTS BEING OFFERED BY DUPONT COMPETITORS CURRENTLY
AND IN THE INTERVENING YEARS.
DUPONT PRODUCT REFORMULATION RESPONSES. A shareholder proposal
voted upon at the 2006 Annual General Meeting called on DuPont to
prepare and publish a plan for expeditiously ending the use and
production of PFOA and materials capable of breaking down to
PFOA. The resolution received 29% support of shareholders.
Nearly a year later, in February 2007, the company announced in
that it is continuing to reduce the trace content of PFOA in
products, and that it now intends to eliminate the use and
production of PFOA by 2015. However, it has no plans to
eliminate the production of fluorotelomers, despite the
expectation of some experts that over the long term these
products may break down to component alcohols, and then to PFOA
in use or in the environment. Further independent studies are
underway to assess the ability of fluorotelomer products to break
down to PFOA. Fluorotelomer products, which include stain and
grease repellant coatings,
constitute a substantial portion of the company's fluoride-based
business activities. An eight year timeline for elimination of
PFOA in products may also, as noted in this report, continue to
jeopardize DuPont product lines as consumer and industrial
customers opt for PFOA-free products being offered by DuPont
competitors currently and in the intervening years.
Assessment of Securities and Exchange Commission Disclosures
Some members of DuPont Shareholders for Fair Value have filed
letters of complaint with the Securities and Exchange Commission
requesting an investigation of DuPont management's failure to
disclose information material to investors regarding PFOA. The
correspondence with the SEC requested an evaluation of whether
the company should have disclosed to investors, or should now be
ordered to disclose, information including the following:
AFTER WE WROTE TO THE SEC, SEC ACCOUNTANTS TOLD DUPONT TO
DISCLOSE MORE INFO ON THE RISKS ASSOCIATED WITH PFOA, INCLUDING
EMERGING SCIENCE AND REGULATORY TRENDS. BUT IN OUR VIEW, THE
COMPANY'S REPORTING HAS SCARCELY CHANGED IN RESPONSE.
- Liability indicators such as environmental contamination and
blood tests associated with all DuPont facilities where PFOA is
used or produced;
- A more balanced description of the scientific evidence arrayed
against PFOA, which suggests that it is likely to be harmful to
human health despite the company's reiterated denials of such
effects;
- Regulatory and market trends, including regulatory developments
in Canada, Europe and Australia, and consumer and retail
developments that may restrict markets for DuPont products.
Subsequent to the shareholder letters, accountants at the
Securities and Exchange Commission wrote to DuPont with a series
of inquiries on how it discloses liabilities, expenses and
science regarding PFOA. The correspondence resulted in
disclosure to the SEC of $11 million in legal fees, research and
communications costs associated with PFOA during 2005, not
limited to the Parkersburg area issues. The company also
acknowledged that it viewed it as "reasonably possible" that
DuPont could incur additional liabilities at other facilities
relative to PFOA releases, but said that it was unable to
quantify such liabilities.
After those disclosures SEC wrote to the company April 21, 2006,
after review of the 2005 10-K (issued February 2006) with
specific instructions and remarks regarding the company's duty to
disclose in future reports, such as this year's 10-K:
In your most recent response you state that it is
reasonably possible that you will incur losses related to
exposure to PFOA from sources other than Washington Works,
but because you are not aware of any particular source
that may cause such loss, a range of loss, if any, cannot
be reasonably estimated at this time. However, because
losses are reasonably possible we urge you to carefully
consider the following areas when you determine the
probability of loss, estimates of amounts, and other
disclosures related to risks and uncertainties. In future
filings, where appropriate, should address the following
in better detail:
- current and probable findings from the EPA, the
Science Advisory Board, the independent science panel
and their evaluation in West Virginia;
- current and probable findings by any other government,
agency, or scientific study, either foreign or domestic;
- provide more detail concerning any findings you become
aware of concerning the possible health impact of PFOA;
- emerging trends, by both institutions and consumers,
concerning the safety of PFOA and any related products; and
- the amounts and underlying assumptions of any accruals
and reasonably possible ranges of loss.
It should be noted that the DuPont 10-K report for 2006, issued a
year after the SEC's correspondence providing guidance for future
disclosure, still failed to disclose many of the key
developments:
DUPONT HAS NOT INFORMED SHAREHOLDERS OF THE IMPORTANT THOUGH
PRELIMINARY FINDINGS OF JOHNS HOPKINS UNIVERSITY IN WHICH NEWBORN
HUMAN BABIES EXPOSED TO LOW LEVELS OF PFOA HAD DECREASED BIRTH
WEIGHT AND HEAD CIRCUMFERENCE - EMBLEMATIC OF DEVELOPMENTAL
IMPACTS.
"Current and probable findings." It failed to disclose the highly
notable preliminary findings of Johns Hopkins University
regarding potential developmental toxicity impacts on humans. In
early 2007 Johns Hopkins University researchers revealed a study
of which found that that newborn human babies that had been
exposed to low levels of PFOA had decreased birth weight and head
circumference. While the research is considered preliminary, it
could represent a dramatic new piece of evidence of actual
developmental effects in humans.
It also failed to disclose that the second phase of the company's
study of Washington Works employees, completed in October 2006,
found a possible correlation between PFOA exposure and coronary
heart disease mortality, a "statistically non-significant
increase in kidney cancer mortality and a statistically
significant increase in diabetes mortality" when the workers
examined were compared to employee peers. The company has said
to researchers that "These associations did not appear to be
related to PFOA exposure, but there were too few cases to make
definitive conclusions." (Note that in prior laboratory studies,
PFOA was found to affect test animals' kidneys.) The 10-K report
only reported on this mortality study that "No overall increase
in deaths related to heart disease was found." The company also
has not disclosed the development of more stringent water
standards or recommendations that may be costly to the company,
in Minnesota and New Jersey, as described below. These stringent
new standards are particularly notable in that their health based
rationales may
yet be applied by other states, wherever DuPont or its customers
are emitting PFOA or PFOS.
The company did not disclose the extent to which customers and
markets are demanding, and shifting to, PFOA-free products at
present. As detailed in this report, numerous companies and
sectors are committing to PFOA free products, and there is no
certainty that the company's elimination of PFOA over the next
decade will be fast enough to preserve its customer base.
Finally and perhaps most significantly, the current decision to
eliminate the use and production of PFOA does not include the
elimination of fluorotelomers, and we believe the company has not
given sufficient disclosure of the fact that assessment is
underway in the scientific community, outside of DuPont, to
assess whether fluorotelomers will break down to constituent
telomer alcohols and then to PFOA in use or in the environment.
HEALTH HAZARDS. In February 2006, the EPA's scientific advisory
board, a panel of independent experts convened by the EPA,
announced its determination that PFOA should be declared a
"likely human carcinogen." Numerous new studies during the year
documented the prevalence of PFOA in the human environment, and
in bodily tissues. This included a Johns Hopkins study showing
the presence of PFOA in infants' umbilical cord blood, in 298 of
300 babies tested.
REGULATORY ACTION. Based on the latest scientific information,
Minnesota Department of Health has lowered its Health Based
Values (HBVs) for perfluorooctanoic acid (PFOA) and
perfluorooctane sulfonate (PFOS). The new HBVs are 0.5 parts per
billion (ppb) for PFOA and 0.3 ppb for PFOS. The guidelines
previously used were 1 ppb and 0.6 ppb respectively. A Health
Based Value is the concentration of a groundwater contaminant, or
a mixture of contaminants, that poses little or no risk to
health, even if consumed daily over a lifetime. Minnesota
officials have also stated their intention to declare that PFOS
and PFOA are hazardous substances so that sites are subject to
cleanup under the state Superfund law. Officials in the state of
New Jersey recommended a level of .04 ppb for PFOA, even lower
than the Minnesota value.
MINNESOTA ADOPTED TIGHTER CRITERIA FOR PFOA IN DRINKING WATER AND
INTENDS TO REQUIRE SUPERFUND CLEANUPS. NEW JERSEY OFFICIALS
PROPOSED EVEN TIGHTER CRITERIA.
New European Union legislation (REACH) requires companies to
register and test nearly every chemical produced and used.
Companies may have to phase out or find alternatives for
chemicals considered highly dangerous to humans and animals.
On March 7, 2006, the USEPA published a Federal Register notice
asserting that it can no longer presume that long chain polymers
similar to PFOA 'will not present an unreasonable risk to human
health or the environment.' The agency proposed withdrawing a
longstanding exemption to pre-manufacture notice under the Toxic
Substance Control Act for those seeking to manufacture or import
new substances of this kind.
CONSUMER LIABILITY. Potential liability related to consumer and
environmental exposures to PFOA at DuPont and other companies
continues. The $5 billion consumer lawsuit over alleged hazards
of Teflon continued to proceed during the last year. In May
2006, a judicial panel ruled that lawyers in 13 national cases
involving 16 lawyers representing more than 73 clients should
meet. DuPont's attorney maintained that Teflon could not be
proven toxic in court because "not one study has shown that there
is any harm to consumers," but the plaintiffs assert that the
actionable harm involved was the lack of disclosure of risk
information known to the company, rather than a claim for
physical injury.
ENVIRONMENTAL LIABILITY. Contamination of water and soil with
PFOA was disclosed or alleged at several additional DuPont sites
during the past year. PFOA discharges into the James River from
the DuPont Spruance plant in Richmond, Virginia were found. A
class action lawsuit was filed in Deepwater, NJ over PFOA-
contaminated water in the Delaware River from the Chambers Works
plant. The suit seeks medical monitoring for residents, a
community-wide water filtration system and punitive damages. PFOA
was found in drinking water samples, and in streams, near
DuPont's Parlin, NJ plant. PFOA was found in monitoring wells at
DuPont's plant in Fayetteville, NC, in the blood of DuPont
workers and in a drinking well one mile from the plant site.
Residents of Pascagoula, MS opposed a permit for DuPont to
dispose of PFOA in public waters at its First Chemical facility
after PFOA contamination of groundwater under the plant was found
in the company's own investigation.
The company reported incurring additional unanticipated costs of
over $20 million relative to implementing the settlement of
litigation at its Washington Works facility in Parkersburg West
Virginia, including costs of water treatment and supplies and
studying of potential health impacts. This is on top of
previously reported settlement costs of $107 million.
MARKETPLACE CHANGES. DuPont competitors and suppliers continue to
migrate from PFOA-containing products. During the year, food
company ConAgra and carpet company Mohawk joined with other
companies such as Wal-Mart and McDonalds in searching for
alternatives to products that contain PFOA. The search for
alternatives is driving DuPont's competitors, who are bringing
PFOA-free products to market. In September 2006, 3M announced it
would relaunch its Scotchgard fabric protector without PFOA or
PFOS chemistry./1/
DUPONT IS STILL UNDER CRIMINAL INVESTIGATION BY THE DEPARTMENT OF
JUSTICE FOR FAILURE TO DISCLOSE INFO ON PFOA TO THE EPA.
CRIMINAL AND SEC INVESTIGATIONS. DuPont reported in its latest
10K report that criminal investigation of the company for failure
to disclose alleged hazards of PFOA are still underway by the US
Justice Department. In addition, inquiries by the US Securities
and Exchange Commission led to disclosures by the company that it
incurred $11 million in legal fees, research and communications
costs associated with PFOA during 2005, not limited to the
Parkersburg area. It also acknowledged that it
viewed it as "reasonably possible" that the company could incur
additional liabilities at other facilities relative to PFOA
releases, but said that it was unable to quantify such
liabilities.
Despite the recent progress, shareholder value remains at risk.
To date, DuPont has failed to detail any actual impacts on
shareholder value or company earnings resulting from consumers
concerns, reputational damage or market fluctuations related to
PFOA. This document describes threats to shareholder value that
may have imminent impact.
BACKGROUND ON DSFV
DuPont Shareholders for Fair Value (DSFV), the publisher of this
report, is an informal group of DuPont shareholders organized by
the United Steelworkers (USW) and concerned with proper
disclosure and accountability on the issues relative to PFOA.
USW is a DuPont shareholder, and also represents approximately
1,800 DuPont employees in New York, New Jersey, Delaware and
Kentucky. DSFV includes Amalgamated Bank, United Steelworkers,
and Green Century Capital Management. Collectively this group
holds over 411,000 shares of DuPont stock.
Some members of DuPont Shareholders for Fair Value have filed
complaints with the Securities and Exchange Commission regarding
the failure of DuPont management to disclose information
historically and recently known to the company regarding the
financial, health and environmental risks associated with
PFOA. Disclosure of such information may have better informed
shareholders regarding the extent to which the management's
adherence to PFOA chemistry has harmed shareholder value. Some
members of DSFV have also filed shareholder resolutions for
annual meetings in 2005 and 2006 related to disclosure of issues
related to PFOA.
AUTHOR BACKGROUND
Sanford Lewis, the author of this report, is an attorney and
expert on corporate environmental disclosure issues, including
requirements for disclosure under the securities laws. The author
wishes to acknowledge the assistance of Kate Casa, Efan Hsieh and
Nathaniel Johnson in the preparation of this document.
BACKGROUND ON DUPONT & PFOA
PFOA (perfluorooctanoic acid) is a surfactant, a water-soluble
chemical that can emulsify oils or liquids in water, suspend
small particles in water or act as a wetting agent. APFO
(sometimes referred to as C-8) is the ammonium salt of PFOA and
the chemical form used in fluoropolymer manufacturing. In this
document, we will refer to PFOA generally to include
interchangeably the salts (APFO and C-8) as well as its other
formulations. E. I. du Pont de Nemours & Co. (DuPont) is the only
current U.S. producer of PFOA.
PFOA is used to help make fluoropolymers and fluoroelastomers.
Fluoropolymers are used in architectural fabrics; chemical
processing piping and vessels; automotive fuel systems;
telecommunications and electronic wiring insulation; and computer
chip processing equipment and systems, and consumer products such
as cookware and apparel./2/ PFOA is used as a processing aid in
the manufacture of fluoropolymers for use in non-stick surfaces
such as Teflon coated cookware. Fluoroelastomers are synthetic,
rubber-like materials used in gaskets, O-rings and hoses.
Animal and human studies have found a likely association of PFOA
with a wide array of health harms, ranging from elevated
cholesterol, to liver damage, birth defects, and cancer. As a
result of these studies, most involving animal testing, PFOA has
come under increasing scrutiny in regulatory, consumer and
judicial forums.
VOLUNTARY CAPPING OF PFOA IN PRODUCTS
In 2005, DuPont management announced a commitment to reduce the
presence of PFOA in certain products. DuPont announced that it
had developed a new technology to reduce the presence of PFOA in
aqueous fluoropolymers applications, thereby reducing the
emissions of PFOA that could occur at processors by 90%. However,
this reduction in direct emissions of PFOA still left the company
vulnerable due to the continued presence of PFOA in DuPont
products. In addition, even though a product may contain no PFOA,
available evidence suggests that various DuPont products may
break down into PFOA in the environment or in the human body.
On January 25, 2006, EPA invited DuPont and several other
companies to participate in the "2010/15 PFOA Stewardship
Program" involving a voluntary commitment to goals set by
EPA. The EPA program sets interim goals for 2010 of 95% reduction
of PFOA emissions and PFOA precursors in product content. It also
calls for companies to commit to working toward the elimination
of PFOA, PFOA precursors, and related higher homologue chemicals
from emissions and products by five years thereafter, or no later
than 2015.
In order to commit to the program, companies were required to
submit a letter describing their commitment. The DuPont letter
talked about reducing PFOA emissions and residual product content
over the next decade. In the letter, the company did not commit
to eliminate the use and production of PFOA and its precursors by
2015. Instead, the company discussed emissions reduction measures
and caps on the amount of PFOA and its precursors in company
products.
In February 2007, DuPont said ongoing manufacturing modifications
have resulted in a 94 percent reduction in PFOA emissions as of
year-end 2006. The company projected it
would achieve reductions of 97 percent by the end of 2007. The
company also stated that it was on track to eliminate the use and
production of PFOA by 2015. However, this reduction in direct
emissions of PFOA still left the company vulnerable the risk of
loss of customers due to the continued presence of PFOA in DuPont
products. In addition, even though a product may contain no PFOA,
available evidence suggests that various DuPont products may
break down into PFOA in the environment or in the human body.
This paper will review DuPont's vulnerability under this timeline
- the formidable impacts of market and regulatory trends, and of
potential liability associated with the use or emission of PFOA.
CIVIL SETTLEMENT
On December 14, 2005, DuPont signed a $16.5 million settlement of
a civil case by the EPA. The civil case alleged DuPont's failure
to disclose information to the EPA regarding potential risks of
perfluorooctanoic acid (PFOA) to health and the
environment. Under the terms of the settlement, DuPont admitted
to no legal liability
The agreement reached between DuPont and the EPA resulted from
multiple allegations of violations of section 8(e) of the Toxic
Substances Control Act (TSCA), which states that:
THE EPA HAS STATED THAT IT CAN NO LONGER PRESUME THAT SUBSTANCES
RELATED TO PFOA ARE SAFE UNDER THE TOXIC SUBSTANCES CONTROL ACT.
"Any person who manufactures (includes imports), processes or
distributes in commerce a chemical substance or mixture and who
obtains information which reasonably supports the conclusion that
such substance or mixture presents a substantial risk of injury
to health or the environment shall immediately inform the (EPA)
Administrator of such information unless such person has actual
knowledge that the (EPA) Administrator has been adequately
informed of such information."
EPA alleged that among other things, the following information
was not reported by DuPont as required by law:
- In 1981, the 3M Company, DuPont's supplier of PFOA,
advised DuPont about the potential for PFOA to cause birth
defects in rats. Specifically, 3M advised DuPont that
researchers observed what appeared to be treatment related
damage to the eye lenses of some rat pups.
- In 1981, the company observed PFOA in blood samples taken
from pregnant workers at the Washington Works facility, in
West Virginia where Teflon is manufactured, and at least
one woman had transferred the chemical to her fetus.
- DuPont detected the chemical in public water supplies as
early as the mid-1980s in West Virginia and Ohio communities
in the vicinity of the Washington Works facility. By 1991,
DuPont had information that the chemical was in water
supplies at a greater level than the company's exposure
guidelines indicated would cause no effect to members of the
community.
- In 2004, DuPont had data concerning human serum sampling of
twelve members of the general population living near the
Washington Works facility after it had obtained this information
from its contractor, Exygen. The study shows that on average,
Teflon chemical serum levels in this group - all of whom had
consumed tap water contaminated with the Teflon chemical from
DuPont's Washington Works operations and only one of whom had
ever worked at the facility - were 12 times higher than levels
measured previously from the general population (67 ppb versus 5
ppb)./3/
Although DuPont denied that it had a duty to disclose this
information, it settled the claims for $16.5 million, the largest
civil administrative penalty settlement the EPA has obtained to
date. The amount included a $10.25 million penalty and a
commitment by DuPont to spend an additional $6.25 million on
environmental projects./4/
ONGOING CRIMINAL INVESTIGATION RELATED TO DISCLOSURE
The EPA civil settlement may not resolve all claims against
DuPont regarding its concealment of information on this
matter. DuPont is also the subject of a PFOA-related Department
of Justice grand jury probe. In May 2005, DuPont was served with
a grand jury subpoena from the U.S. District Court for the
District of Columbia. The subpoena ordered DuPont to release
documents related to PFOA, its salts, C8, ammonium
perfluorooctanoate, and FC-143. This investigation is apparently
still ongoing as this paper goes to press, and could ultimately
result in separate criminal charges being brought against DuPont
or its officers. THE COMPANY HAS REPORTED IN ITS CURRENT ANNUAL
REPORT THAT EMPLOYEES ARE STILL IN THE PROCESS OF RESPONDING TO
SUBPOENAS FROM THE DEPARTMENT OF JUSTICE ON THIS MATTER.
SEC STAFF WROTE TO DUPONT FOLLOWING UP ON OUR CORRESPONDENCE WITH
THE SEC. THEY PROPOSED CRITERIA FOR BETTER DISCLOSURE FOR THIS
YEAR'S 10-K. HOWEVER IN OUR OPINION, THE COMPANY'S DISCLOSURES
ARE LARGELY UNCHANGED.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In addition, some members of DuPont Shareholders for Fair Value
have filed letters of complaint with the Securities and Exchange
Commission requesting an investigation of DuPont management's
failure to disclose information material to investors regarding
PFOA. The correspondence with the SEC requested an evaluation of
whether the company should have disclosed to investors, or should
now be ordered to disclose, information including the following:
- Liability indicators such as environmental contamination and
blood tests associated with all DuPont facilities where PFOA is
used or produced;
- A more balanced description of the scientific evidence arrayed
against PFOA, which suggests that it is likely to be harmful to
human health despite the company's reiterated denials of such
effects;
- Regulatory and market trends, including regulatory developments
in Canada, Europe and Australia, and consumer and retail
developments that may restrict markets for DuPont products.
Subsequent to the shareholder letters, accountants at the
Securities and Exchange Commission wrote to DuPont with a series
of inquiries on how it discloses liabilities, expenses and
science regarding PFOA. The correspondence resulted in
disclosure to the SEC of $11 million in legal fees, research and
communications costs associated with PFOA during 2005, not
limited to the Parkersburg area issues. The company also
acknowledged that it viewed it as "reasonably possible" that
DuPont could incur additional liabilities at other facilities
relative to PFOA releases, but said that it was unable to
quantify such liabilities.
The SEC also wrote to the company April 21, 2006, after review
of the 2005 10-K (issued February 2006). This letter included
specific instructions and remarks to the company:
It is your belief that it is remote that you will incur
additional losses related to the West Virginia Class
Action. You, as management, are in the best position to
make this determination. We are not in a position to assess
the safety of PFOA, however in the past your company has had
contingent liabilities related to products that, although
you believed they were safe, they nevertheless resulted in
substantial material losses related to litigation,
administrative costs and settlements. Please note that a
statement that a contingency is not expected to be material
does not satisfy the requirements of SFAS 5 if there is at
least a reasonable possibility that a loss exceeding amounts
already recognized may have been incurred and the amount of
that additional loss would be material to a decision to buy
or sell your securities. We also note that the $63 million
you recorded in the 3rd quarter of 2004 was a substantial
amount relative to the pre-tax income of $225 million.
In your most recent response you state that it is reasonably
possible that you will incur losses related to exposure to
PFOA from sources other than Washington Works, but because
you are not aware of any particular source that may cause
such loss, a range of loss, if any, cannot be reasonably
estimated at this time. However, because losses are
reasonably possible we urge you to carefully consider the
following areas when you determine the probability of loss,
estimates of amounts, and other disclosures related to risks
and uncertainties. In future filings, where appropriate,
should address the following in better detail:
- current and probable findings from the EPA, the Science
Advisory Board, the independent science panel and their
evaluation in West Virginia;
- current and probable findings by any other government,
agency, or scientific study, either foreign or domestic;
- provide more detail concerning any findings you become
aware of concerning the possible health impact of PFOA;
- emerging trends, by both institutions and consumers,
concerning the safety of PFOA and any related products; and
- the amounts and underlying assumptions of any accruals and
reasonably possible ranges of loss.
It should be noted that the DuPont 10-K report for 2006, issued a
year after the SEC's correspondence providing guidance for future
disclosure, still failed to disclose many of the key developments
of the subsequent year as detailed in this report. For instance,
it failed to disclose the highly notable preliminary findings of
Johns Hopkins University regarding potential developmental
toxicity impacts on humans. It failed to disclose that the second
phase of the company's study of Washington Works employees,
completed in October 2006, found a possible correlation between
PFOA exposure and coronary heart disease mortality, a
"statistically non-significant increase in kidney cancer
mortality and a statistically significant increase in diabetes
mortality" when the workers examined were compared to employee
peers. The company has said to researchers that "These
associations did not appear to be related to PFOA exposure, but
there were too few cases to make definitive conclusions." The
company also has not disclosed the development of more stringent
water standards recommendations that may be costly to the
company, in Minnesota and New Jersey, as described above.
PREVALENCE AND HAZARDS OF PFOA.
HEALTH HAZARDS TO HUMANS. Evidence of health harm in humans from
PFOA began to mount during the year. A study of newborn human
babies conducted by Johns Hopkins University found that babies
exposed to low levels of PFOA had decreased birth weight and head
circumference. While the research is considered preliminary by
the Johns Hopkins University researchers, if confirmed, it could
represent a dramatic new piece of evidence - actual developmental
effects in humans - about the potential dangers of C8 and similar
chemicals. Dr. Lynn Goldman, formerly the director of the USEPA
toxicology lab, headed the study and presented the preliminary
findings at a workshop of the Society of Toxicology in February
2007. Prior disclosed research (February 2006) found PFOA
present in umbilical cord blood samples from 298 of 300 babies
tested.
PFOA WAS FOUND PRESENT IN UMBILICAL CORD BLOOD SAMPLES FROM 298
OF 300 BABIES TESTED.
In addition, information in an on-going study leaked from the
West Virginia Bureau of Public Health indicates that residents of
communities polluted with PFOA have higher levels of several
cancers, including prostate cancer and non Hodgkin's lymphoma.
This study does not conclude that the chemical caused these
illnesses, only that there are more cases in areas where the
chemical PFOA is present. The state says more research is needed
to determine if other factors could be the cause./5/
On February 16, 2006, the EPA's scientific advisory board, a
panel of independent experts convened by the EPA, announced the
board's determination that PFOA be declared a "likely human
carcinogen." The advisory board's determination that PFOA is a
"likely human carcinogen" went beyond EPA's prior assessment that
PFOA should be listed as a "suggested human carcinogen."/6/
Despite these recent findings, as well as a groundswell of animal
evidence supporting the existence of human health hazards, the
company continues to maintain the following position: "Based on
health and toxicological studies conducted by DuPont and other
researchers, DuPont believes the weight of evidence indicates
that PFOA does not pose a health risk to the general public."
NEW STUDIES IN ANIMALS. A Swedish study in mice found that early-
life exposure to PFOS and PFOA can rewire the brain in ways that
dramatically affect behavior./7/
In a study published in the January 2006 issue of Toxicological
Sciences, scientists at Japan's National Institute of Animal
Health found that PFOA exposure in lab rats altered the way the
liver transports and metabolizes lipids, especially fatty acids.
The researchers are starting to look at how PFOA affects the
kidneys, and they have expanded their research to chickens.
PREVALENCE OF HUMAN EXPOSURES. A number of recent scientific
studies have expanded current understanding regarding the
widespread prevalence of PFOA exposures in humans.
NEW TESTS OF HOUSEHOLD DUST AND HUMAN TISSUE CONTINUED TO SHOW
ELEVATED LEVELS OF PFOA AND PFOS.
In June 2006, a study of lab tests of mothers and their daughters
showed that industrial chemicals including PFOA can be passed
down across generations, according to a report from the
Environmental Working Group. Chemicals that persist in the body
were found at higher levels in mothers than daughters, showing
how chemicals can build up in the body over a lifetime. Mothers
had an average of 1.5 to 5.2 times more pollution than their
daughters for lead, methyl mercury, brominated flame retardants,
and PFOA and PFOS.
PFOA contaminates the blood of white Americans at three times the
level of Mexican Americans and twice the level of African
Americans, according to a study by the Centers of Disease Control
and Prevention published in the April 2006 edition of
Environmental Science and Technology. Women had lower
concentrations than men, according to the study. White males
averaged seven parts per billion of PFOA in their blood, while
white women averaged four ppb. While no conclusive reason for the
different concentrations is known, genetics and environmental
factors may play a role, researchers said./8/
In 2005, Toxic-Free Legacy Coalition, an alliance of more than 50
health care and advocacy groups, collected blood, hair and urine
samples from 10 prominent Washington state residents to see which
toxic chemicals were getting into their bodies. The results,
released in May 2006, showed that all 10 people tested positive
for perfluorinated chemicals.
In a June 2006 Canadian study ("Polluted Children, Toxic Nation,"
released by Toronto watchdog group Environmental Defense), five
Canadian families - six adults and seven
children - were tested for 68 toxic chemicals. While the parents
had greater exposures and higher concentrations of the chemicals,
the children as a group were more polluted with several
chemicals, including PFOA.
IMPACT ANALYSIS
CONCERN OVER PFOA IS ALREADY DRIVING CHANGE IN MARKETS
VULNERABLE DOMESTIC FOOD PACKAGING MARKET
Companies who use food packaging containing DuPont products with
PFOA or PFOA precursors are facing pressure to eliminate these
materials in their packaging.
In November 2005, a former DuPont chemical engineer named Glenn
Evers made national news when he disclosed information and
documents related to DuPont's Zonyl paper coating products. Evers
appeared on ABC World News Tonight and in the Washington Post,
among other outlets, discussing how popcorn products, fast food,
pizza boxes, and various other food packaging products expose
consumers to fluorotelomers that are believed to break down to
PFOA in the body. The whistle-blower also brought to light his
knowledge that the company had been developing alternatives to
PFOA decades ago, but that those have apparently not been widely
deployed to substitute for PFOA.
In a January 30, 2006, Wall Street Journal article a
representative of McDonald's corporation reported the company's
intention to reduce its use of PFOA-related products./9/ On
February 2, 2006, the Toronto Globe & Mail reported that
McDonald's Canada said its packaging suppliers had begun a phase-
out, and that McDonald's Canada will be using alternatives that
are PFOA-free./10/
The pressure to curtail or outright eliminate PFOA content in
food packaging and product lines is also being felt by major
retailers such as Wal-Mart. Wal-Mart is the current subject of a
campaign by the consumer-rights group, Ohio Citizen Action, which
is urging its members to contact Wal-Mart to request the
retailer: ". . . use its considerable clout to ensure that the first
order of business in the phase-out is to remove these chemicals
from food packaging, such as microwave popcorn, candy wrappers,
and frozen foods."/11/ Matt Kistler, Wal-Mart's vice president
for product development and private brands, told Ohio Citizen
Action in spring 2006 that Wal-Mart is working with suppliers to
eliminate PFOA in products and packaging. He said Wal-Mart's
regular meetings with suppliers include discussions about Teflon
chemicals and the suppliers' ability to switch to different
materials. Kistler reported that Wal-Mart's suppliers have been
responsive, and said Wal-Mart is learning that some suppliers can
make this switch faster than others./12/ In addition to
requesting action from Wal-Mart and food retailer Kroger and
numerous local grocery retailers, consumers have addressed their
concerns directly to DuPont as part of Ohio Citizen Action's
campaign. As of February 15, 2006, a total of 15,090 people had
sent handwritten letters and petitions to DuPont demanding the
company take Teflon (PFOA)
chemicals off the food packaging market. In addition, 13,437
people have sent handwritten letters and petitions to local
grocery stores urging them not to carry products with the PFOA-
related chemicals in the packaging/13/
A shareholder resolution filed at Mohawk, the large carpet
company, by the United Methodist Church, led to a dialogue with
the top management of the company, then a withdrawal of the
shareholder resolution. The company's management expressed a
clear commitment to avoid the use of PFOA in all carpet
treatments as soon as possible - and had expressed a commitment
to suppliers. Previously, in response to a shareholder
resolution, ConAgra Foods agreed to prioritize efforts to replace
fluorocarbon chemicals used in the packaging of its microwave
popcorn products. ConAgra expected to complete its studies no
later than May 2007.
NONSTICK COOKWARE
The potential health risks that may be associated with the use of
Teflon non-stick cookware products continue to receive the bulk
of PFOA-related scrutiny in the major media and lifestyle
publications. In a growing number of cases, concerns over
potential health risks associated with Teflon are finding a
receptive audience in America's kitchens and altering consumer
behaviors. Home cooks like Janeen Cunningham of Seal Beach,
California have stopped using Teflon pans altogether and returned
to using stainless steel cookware. Cunningham told Los Angeles
Times reporter Jerry Hirsch that "I stopped using those pans
because of what I have heard about Teflon and carcinogen
properties over the past few months."/14/ Such actions are
proving alarming to major cookware manufacturers. T-Fal, a New
Jersey based subsidiary of French Cookware SEB, recently launched
a line of uncoated pans as a diversification move." The concern
is that there is a steady drip-drip about this and it will become
part of the common knowledge about cookware even though people
won't get PFOA from cookware," said Scott Meyer, President of T-
Fal./15/ (Note, however, that some experts assert that trace
residues of PFOA can escape from some Teflon cookware heated to
between 600 and 752 degrees Fahrenheit. According to the
Environmental Working Group, a Teflon pan can reach 600 degrees
on high heat in two to five minutes.)
THOUGH THE COMPANY DENIES THAT NONSTOCK PANS EMIT PFOA, THE
CONTROVERSY CONTINUES TO STICK TO TEFLON.
There have been hundreds of articles in the U.S. media covering
DuPont and PFOA, with a number of those articles focusing on
concerns related to Teflon coated cookware. In early February
2006, DuPont attempted to respond to domestic consumer concerns
arising from PFOA-related publicity with full-page ads in The New
York Times and other major papers./16/
PFOA ALTERNATIVES ENTERING MARKETPLACE
The search for product alternatives to replace PFOA is driving
research and product development among DuPont's competitors, who
are bringing PFOA-free products to the market. In September 2006,
3M announced it would relaunch its Scotchgard fabric protector
without PFOA or PFOS. Mitch Culbreath, business development
manager for 3M's Protective Materials & Consumer Health division,
said "3M's reformulated
Scotchgard Protector provides all the performance benefits
consumers expect from the brand - stain resistance, stain
repellency, and stain release - with products that are not based
on PFOA or PFOS chemistry."/17/
Air Products has developed Airflex EF9100 emulsion as an
alternative to fluorochemicals used in grease-resistant
packaging. Airflex EF9100 emulsion provides an environmentally
friendly alternative and exhibits all the key performance
measures of fluorochemicals, with the added benefits of being a
water-based polymer emulsion. Likewise, Dynol 607 surfactant is
an alternative for fluorosurfactants for high-performance coating
applications. The surfactant is biodegradable, fluoro-free and
may provide a more cost effective, non-persistent alternative to
fluorosurfactant technology, HOME TEXTILES TODAY reported in
September 2006.
In February 2006, Asahi Glass announced the introduction of
AsahiGuard E-series, a line of telomer chemicals that serve as
fluorinated water and oil repellents for textile and paper. Asahi
Glass claims that these products are free of PFOA and PFOA
precursors. The company has commenced production of AsahiGuard E-
series products at a dedicated large scale manufacturing facility
which at capacity will equal 1/4 of AsahiGuard's current
manufacturing capacity./18/
COMPETITORS CONTINUE TO BRING NON-PFOA ALTERNATIVES TO MARKET.
Much of the research and development currently underway
concerns the development of products which utilize short-chain
fluorosurfactants instead of long-chain fluorosurfactants. Long-
chain fluorosurfactants enter the body more readily, stick to
blood proteins, and can break down to PFOA./19/ The 3M Company
replaced a long-chain with a short-chain fluorosurfactant, known
as C4 when it reformulated Scotchgard in June of 2003./20
According Dr. Scott Mabury of the University of Toronto, a
leading expert in the study of the environmental effects of PFOA,
the key to controlling the problem is to reduce: ". . . chain
lengths to avoid bioaccumulation, and prudently select linkage
chemistry for stable non-releasing materials."/21/
At least one company, Omnova Solutions of Fairlawn, Ohio has
aggressively pursued product development of these more
environmentally friendly short-chain fluorosurfactants, which it
asserts can deliver comparable product performance in many
applications. Omnova has obtained new chemical regulatory
approval in the U.S. and Europe, and has achieved partial
approval in Japan. The company is pursuing regulatory approval in
China, Korea, and Australia./22/ Bill Beers, Global Chemical
Regulatory Manager for Omnova, states that: Omnova Solutions has:
". . . tailored structures that meet both the demands of our customers
for performance and the demands of the global regulatory
authorities to assure that there are no environmental
issues."/23/
Alternatives to PFOA are entering the market from numerous firms
and researchers.
Omnova's Polyfox surfactants are now commercially available
products utilized as alternatives to PFOA in a range of
applications such as varnishes and stains, automotive clear
coats, electronic coatings, powder pigment dispersions, and
adhesives./24/ In conjunction with partners, Omnova Solutions is
pursuing stain-resistant treatments for textile, carpet, and
paper industries, among others./25/
Interest in developing non-stick cookware alternatives to non-
stick cookware utilizing DuPont's Teflon brand has also been
driving product development. Ferro Corporation, a world leader in
the ceramic glaze coating business, has announced that it has
developed RealEase(TM), a ceramic-based, nonstick coating. Ferro
claims it has developed a non-stick surface that delivers the
ease of cleaning commonly associated with Teflon-based nonstick
cookware combined with the improved heat resistance and abrasion
and scratch-resistance of enamel./26/
CONSUMER TEFLON PANIC IN CHINA
Consumer responsiveness to concerns over potential threats to
health posed by the presence of PFOA in Teflon non-stick cookware
is by no means limited to domestic markets. The international
press has also shown a marked readiness to cover PFOA-related
stories with hundreds of PFOA-related articles published
internationally. Consumers in important international markets
such as China have demonstrated intense concern over the
potential presence of PFOA in Teflon non-stick cookware with
important consequences for future growth and the DuPont brand's
international reputation. Concern about Teflon-coated cookware
caused widespread panic in China beginning in July of 2004. A
December 9, 2004 report from the Financial Times global newswire
reported that Chinese manufacturers of non-stick cookware
suffered 90% drops in sales in August and September as Chinese
consumers shunned Teflon in favor of iron woks and ceramic rice
makers./27/ In the July-August 2004 period Chinese department
stores reportedly began removing Teflon-coated cookware from
their shelves and Guangdong-based Elecpro Electrical Appliance Co
Ltd reportedly stopped selling its Teflon-coated rice cookers and
was planning to seek $10 million in compensation./28/
A July 22, 2004 article in The Standard reported on the reactions
of Chinese consumers and retailers during the period:
"After some news reports saying a substance in Teflon-coated
pans potentially poses health risks, we started to remove the
related non-stick frying pans from our shelves,'' an official at
a ParknShop in Guangzhou's Tianhe District said.
Some individual homewares stores in Guangzhou's Tianhe and
Wangfujing shopping centers also said they started to send
Teflon-coated cookware back to warehouses as a temporary measure
until the concern abates.
Although some large retail chains including Wanjie, Trust-
Mart and Carrefour stores in Guangzhou still sell non-stick
frying pans, their sales dropped more than 60 per cent in the
past week, store employees said.
An official with one of the Wanjie stores in Guangzhou said
sales of China-made brands of Teflon-coated cookware fell by more
than 60 percent over the past week.
"Today, no one shows any interest in non-stick cookware," he
said. This is because the worries that using Teflon-coated pans
might increase the risks of cancer have not been dispersed."
Safety concerns have also delayed China cookware makers' new-
product promotions.
An official with Aishida, one of the largest cookware
producers in China, said the company suspended the promotion of
its new non-stick frying pans amid the increasing worries on non-
stick cookware.
But the official, who declined to be named, said the Teflon
controversy did not seriously affect its non-stick cookware sales
because 90 per cent of its production is exported./29/
While widespread concern may have subsided after the Chinese
Academy of Inspection and Quarantine (CAIQ) declared that it
found no PFOA in any of the non-stick cookware examined/30/ the
listing of PFOA as a likely human carcinogen may fuel renewed
concerns over the safety of non-stick cookware in China and in
other parts of the world.
The awareness and sensitivity of Chinese consumers to risks
associated with DuPont products may be counter to DuPont's
interest in investing and growing in China. Further analysis is
needed to assess the extent to which DuPont's reputation has been
undermined with Chinese consumers, and how this may affect
expansion of demand in that crucial growth market.
ADDITIONAL REGULATORY ACTION IS LIKELY IN U.S. AND ABROAD
DuPont disclosed in its November 2005 quarterly report filed with
the U.S. Securities and Exchange Commission (SEC) that $1 billion
in annual company revenues could be jeopardized by regulatory
restraints on PFOA and fluorotelomers. The report marked the
first time that DuPont had put a value on its PFOA and PFCA
activities./31/
In its 10K report to shareholders, published February 23, 2007,
DuPont notes:
. . there can be no assurance that the EPA or any
other regulatory entity will not in the future choose to
regulate or prohibit the production or use of PFOA.
Products currently manufactured by the company representing
approximately $1 billion of 2006 revenues could be affected
by any such regulation or prohibition.
Though the U.S. Environmental Protection Agency has so far set
the voluntary ten-year "Stewardship" program as discussed above,
neither the EPA nor other regulators may wait for more
expeditious, mandatory and restrictive action.
On March 7, 2006, the USEPA proposed one such restriction --
a new rule under the Toxics Substances Control Act which would
require any person who intends to manufacture (or import) certain
new long chain substances related to PFOA to file a
premanufacture notice with the EPA./32/ EPA published a Federal
Register notice stating that it can no longer presume that long
chain polymers similar to PFOA will not present an unreasonable
risk to health and environment.
Any such substance "not already on the TSCA Inventory would have
to complete the TSCA premanufacture review process prior to
commencing the manufacture or import of such polymers. EPA
believes this proposed change to the current regulation is
necessary because, based on recent information, EPA can no longer
conclude that these polymers 'will not present an unreasonable
risk to human health or the environment,' which is the
determination necessary to support an exemption under TSCA. .
...." EPA notes that:
Biological sampling recently revealed the presence of
PFOS and PFOA in fish, birds, and mammals, including humans
across the United States and in other countries. The
widespread distribution
of the chemicals suggests that PFOS and PFOA may
bioaccumulate. PFOS and PFOA have a high level of toxicity
and have shown liver, developmental, and reproductive
toxicity at very low dose levels in exposed laboratory
animals. (Emphasis added)
If the rule takes effect, EPA would require each company making
or importing the affected fluoropolymers to submit a
premanufacture notice the same as any businesses do for new
chemicals other than exempted polymers. EPA reviews exposure and
toxicity information on each chemical and can ask companies for
more data, can require protective equipment for workers, or can
restrict the uses of the target substances.
CURRENT REGULATORY DELIBERATIONS THREATEN TO TIGHTEN CONTROLS ON
PFOA IN THE ENVIRONMENT IN MINNESOTA AND NEW JERSEY AND IN
PRODUCTS SOLD IN CALIFORNIA.
The Food and Drug Administration, state governments, and the
governments of other countries may set more stringent and
mandatory timelines for restriction or elimination of PFOA
exposures or products.
STATE LEVEL REGULATORY ACTIVITIES
MINNESOTA. Based on the latest scientific information, the
Minnesota Department of Health has lowered its Health Based
Values (HBVs) for perfluorooctanoic acid (PFOA) and
perfluorooctane sulfonate (PFOS), two members of PFC group of
chemicals that have been found at low levels in groundwater in
southern Washington County. The new HBVs are 0.5 parts per
billion (ppb) for PFOA and 0.3 ppb for PFOS. The guidelines
previously used were 1 ppb and 0.6 ppb respectively.
A Health Based Value is the concentration of a groundwater
contaminant, or a mixture of contaminants, that poses little or
no risk to health, even if consumed daily over a lifetime. The
updated HBVs for PFOA and PFOS take into consideration the
potential for health impacts during fetal and other developmental
life stages. A clearer understanding of how long these chemicals
stay in the human body is also reflected in the revised HBVs.
NEW JERSEY. In 2007, New Jersey regulators, based on their
assessment of the potential human health risk, recommended
lowering the amount of PFOA allowable in drinking water to .04
ppb - substantially below the federal allowable limit of .5 ppb
established for the Parkersburg, WV area.
MISSISSIPPI. The Mississippi House Conservation Committee held a
hearing to consider legislation to place a moratorium on PFOA
permits in the state, affecting DuPont's operations of First
Chemical.
INTERNATIONAL REGULATORY ACTIVITIES
In June 2007, a tough new EU law called REACH (Registration,
Evaluation and Authorization of Chemicals) is expected to take
effect. Under the law, each manufacturer or company that uses
chemicals in Europe will have to register nearly each chemical
and test it for safety. Companies also may have to phase out or
find alternatives for chemicals that are considered dangerous to
humans and animals.
DuPont, the world's third-largest chemical maker, has 37
manufacturing plants in Europe and a large network of suppliers.
REACH is expected to have a significant effect
"Whether we support it or not, we are living with it," Linda
Fisher, vice president and chief sustainability officer at DuPont
in Washington, told the [Wilmington, Delaware] News Journal.
"It's going to require a lot of work for the chemical companies,
and it's going to require a lot of work for the European
regulators." Fisher also has stated "It's going to be hard to
explain to our markets and our public in the U.S. or in Asia why
the Europeans don't think it's safe for them, but we're going to
continue to expose you."
VIEWING EVER TIGHTER CHEMICAL CONTROLS IN EUROPE, A DUPONT VP HAS
STATED: "IT'S GOING TO BE HARD TO EXPLAIN TO OUR MARKETS AND OUR
PUBLIC IN THE U.S. OR IN ASIA WHY THE EUROPEANS DON'T THINK IT'S
SAFE FOR THEM, BUT WE'RE GOING TO CONTINUE TO EXPOSE YOU." (LINDA
FISHER, VICE PRESIDENT, DUPONT)
Some consumer and environmental advocates see REACH as the
beginning of a new era in global environmental regulations that
will hold the industry accountable for the risks posed by its
products. "The EU also sees itself as creating a new gold
standard that others, including the United States, should
emulate," the article stated.
In 2004, Canada's environmental protection agency temporarily
banned three fluorotelomer chemicals used as stain
repellents. This was the first time any government had banned
such chemicals. PFOA and its relatives are now under increasing
scrutiny by the environmental authorities in USA, UK, Norway,
Sweden and Denmark. Further consideration of permanent regulatory
restrictions is underway in Canada. In Norway, the Pollution
Control Authority announced that in the course of 2006 it would
obtain more information about the health and environmental
effects of PFOA in order to evaluate regulation of its use. The
agency will also ask the Norwegian Institute of Public Health and
the Norwegian Institute for Water Research to provide an overview
of the available information on the health and environmental
effects of related compounds and use this information as a basis
for evaluating whether it is necessary to introduce regulatory
measures for other substances belonging to this group.
POLLUTION, LIABILITY AND PUBLIC PRESSURE TO END PFOA PRODUCTION
DUPONT'S NC PFOA PRODUCTION SITE
DuPont's Fayetteville Works production facility in Fayetteville,
North Carolina is the only site in the U.S. where PFOA is
produced. Despite the $7 million DuPont spent on environmental
controls to contain PFOA when it opened the plant in 2002, on-
site testing at DuPont's 2,200 acre property detected PFOA in
more than 25 monitoring wells, as have tests of residential wells
up to a mile from the facility. Samples taken from the nearby
Cape Fear River have also been found to contain PFOA./33/
DuPont's testing of its workforce at the facility shows that the
average concentrations of PFOA in blood samples
rose from an average of 11 parts per billion per worker in 17
workers in 2002 to an average of 450 parts per billion in 37
workers in 2005.
AT DUPONT'S FAYETTEVILLE WORKS PRODUCTION FACILITY IN NORTH
CAROLINA WHERE PFOA IS PRODUCED, PFOA IS DETECTED IN MORE THAN 25
MONITORING WELLS, AND RESIDENTIAL WELLS UP TO A MILE FROM THE
FACILITY.
DENR's Regional Office in Fayetteville first learned of the C-8
contamination when the Plant manager was questioned about
groundwater contamination during a September 24, 2004 plant
inspection by DENR. The DENR's Inspector noted in his report
(page 4) that this information was "quite surprising." DENR did
not receive written notification of PFOA contamination until
mid-2006. DuPont's June 6, 2003 letter and "Notification of
Newly Discovered Released Chemical" was addressed to NCDENR
Division of Waste Management and identified the results of
DuPont's January 27, 2003 sampling for C8 (PFOA). DuPont's
letter did not mention that PFOA had also been found at trace
levels in the plant's wastewater discharges to the James River.
Although DuPont's January 13, 2004 Revised Phase I RCRA Facility
Investigation Report to DENR stated on page 9 that annual
sampling results for 2003 were "forwarded to DENR in a report
dated March 2003," no such report could be located in DENR's
files. DuPont later admitted to DENR's Division of Waste
Management that the March 2003 Report, which reflected the
results of samples taken in January 2003, had not been sent to
DENR.
At the request of the local citizens' "C-8 Coalition," the DENR
asked DuPont to expand its PFOA monitoring. On November 18, 2005
DuPont informed DENR that October groundwater monitoring next to
its PFOA Plant had revealed PFOA contamination. Two of the four
monitoring wells placed near the PFOA Plant showed levels up to
147 part per billion, much higher than levels found in other
areas of DuPont's massive facility. The two remaining wells
placed near the PFOA plant were not deep enough to reach
groundwater. A total of 24 out of the 28 groundwater and surface
water locations sampled in Sept/October of 2005 revealed PFOA
contamination.
PFOA was found in wastewater discharges to the Cape Fear River,
a drainage ditch leading toward the Caper Fear River, seepage
from the ground on the plant, a private water well near the
plant, and a private lake near the plant. Company reports
identify PFOA air emissions and a air PFOA monitoring program.
In April of 2006 DuPont refused to share air monitoring results
with the NC C8 Coalition or the news media.
ADDITIONAL ENVIRONMENTAL LIABILITIES?
DuPont has already experienced over a hundred million in
liabilities due to environmental releases of PFOA, and this may
be just the start.
DuPont's Washington Works facility in West Virginia where Teflon
is manufactured has been a source of extensive groundwater
contamination from PFOA. Since at least 1984, DuPont was aware
that PFOA was being discharged from its Washington Works
facility. The company conducted, but at the time did not publicly
disclose testing of drinking
water supplies in communities near the facility. These tests
revealed elevated levels of PFOA. Ground and drinking water
contamination from the Washington Works facility resulted in a
2001 class-action lawsuit brought on behalf of 80,000 West
Virginia residents. A court approved settlement of this case in
February of 2005./34/
The 2004 settlement of that West Virginia lawsuit required the
company to spend at least $107 million to ensure that homes in
the area are supplied with water uncontaminated with PFOA. The
settlement includes PFOA water treatment facilities for six area
water utilities, and initiation of a court-ordered C-8 Health
Project, a five-year study correlating PFOA blood-serum levels in
more than 60,000 area residents with the incidence of nine types
of medical conditions, including cancer, heart disease and birth
defects. As of January 2006, more than 43,000 people had signed
up for the health study, with more than 17,000 having been tested
since August. There was waiting list of about 26,000 people. In
December 2006, the C8 panel asked thousands of study participants
to participants in a follow-up study. The company reported in
its 2006 10-K that additional expenses were incurred pursuant to
the settlement - including water systems that cost $19 million
($9 million more than originally set aside) an additional $3
million for bottled water for another district until another
water treatment plant is built; and added costs of studying
health effects, for a total of $15 million ($10 million more than
originally expected.)
A court-appointed panel of three prominent epidemiologists
assigned to analyze and interpret the C-8 Health Project data
requested permission in fall 2006 to study the effects of PFOA on
nearly 5,000 Washington Works employees, many of whom have
extremely high blood PFOA levels. DuPont is fighting to keep its
employees out of the study.
In December 2006, the United Steelworkers harshly condemned
DuPont for denying workers information on the harmful effects of
PFOA and for refusing to hand over to the C-8 project data the
company collected on employees West Virginia. The Steelworkers
eventually received data through USEPA.
In November 2006, DuPont informed its employees in Deepwater, New
Jersey, that levels of PFOA in their blood were as high as 6,330
parts per billion (ppb), thousands of times higher than the
average level of 5 ppb in the general population.
On Nov. 20, 2006, the EPA forced DuPont to agree to pay for water
treatment or an alternative water supply if the water supply of
any household near Washington Works showed a PFOA concentration
above 0.5 ppb.
In 2002, DuPont began producing a salt of PFOA at its
Fayetteville Works plant in North Carolina after 3M, its former
supplier, halted manufacture of the chemical in response to
public pressure. Since 2003, small amounts of PFOA have been
detected in groundwater and entering the Cape Fear River near the
plant. In 2005, water in a well close to the plant showed an
extremely high PFOA level of 765 parts per billion (ppb).
In April 2006, residents near DuPont's Chamber Works plant in
Salem County, New Jersey sued DuPont, claiming the company had
known for years that the plant had
contaminated their water supply with PFCs./35/
Sites where PFOA has been discharged, but where environmental
liability and remediation litigation has not yet commenced, may
represent a significant future liability for the company.
PENDING CONSUMER/PRODUCTS LIABILITY CASE REGARDING TEFLON
A lawsuit filed against DuPont filed in 2005 seeks $5 billion in
damages due to the company's alleged failure to warn consumers of
health risks associated with Teflon cookware. In May 2006, a
judicial panel ruled that lawyers in 13 national cases involving
16 lawyers representing more than 73 clients should meet.
DuPont's attorney maintained that Teflon could not be proven
toxic in court because "not one study has shown that there is any
harm to consumers," but the plaintiffs assert that the actionable
harm involved was the lack of disclosure of risk information
known to the company, rather than a claim for physical injury.
POTENTIAL ENVIRONMENTAL LIABILITY FOR USERS OF DUPONT PFOA AND
RELATED PRODUCTS
In addition, sites where DuPont's PFOA products are used by other
manufacturers may represent an even larger liability pool, not
only for those manufacturers, but also for DuPont. For example,
fluorotelomer based carpet coating products are reported to be
widely used in Dalton, Georgia, the carpet production "capital"
of the U.S.
IN OUR OPINION, ADDITIONAL CONSUMER AND ENVIRONMENTAL LIABILITY
CASES APPEAR LIKELY.
Dr. Paul Rosenfeld, an adjunct professor at the UCLA School of
Public Health who toured carpet facilities in that area, has
described extraordinarily lenient practices for managing
Stainmaster exposures and wastes. In public comments made at the
Mealey's C8/PFOA Science, Risk & Litigation Conference in October
2005, he described how the carpets are dipped in open vats of
stain repellants containing chemicals that may contain or break
down into PFOA. These carpet facilities attempt to dry the
Stainmaster coating by lifting carpets from the vats, which
results in contaminating the air space of workers. Massive
volumes of wasted (or colored) Stainmaster were then dumped down
the sewers./36/
Some purchasers of PFOA-related products from DuPont have also
suffered negative publicity and environmental scrutiny due to
releases of PFOA from their production processes. A small
Delaware factory, PTFE Compounds, Inc., which ran a Teflon baking
operation, quietly dispersed unknown quantities of Teflon-related
pollutants for years without catching the attention of
regulators. In 1997, state regulators finally caught up with PTFE
Compounds, Inc., when they learned the company had exceeded
annual pollution limits in each of the previous four years. Paul
Foster, an environmental engineer with the Delaware Department of
Natural Resources and Environmental Control (DNREC), estimates
that the plant would have released about 75 lbs of PFOA-related
pollution per year. In 2003, DNREC took actions aimed at reducing
PFOA-related pollution by requiring additional pollution control
measures targeting these emissions. Regulators say only rough
estimates are available for the quantity of Teflon-related
pollutants released by the company into the environment over the
years. Nor is
information available on the levels of worker exposure to Teflon-
related pollutants, which is monitored at larger facilities with
similar operations./37/
DuPont supplies companies of various sizes, both small ones
similar to PTFE Compounds, Inc. as well as larger ones. Any of
these companies may have released similar pollutants into the
environment with little or no notice from regulators until
recently. Now, regulatory scrutiny on these companies is growing,
with concomitant pressure to eliminate emissions of PFOA and PFOA
precursors.
POTENTIAL CONSUMER LIABILITY: CLASS ACTION AND "DUTY TO WARN"
NOTICES
Companies receiving notices of a potential legal duty to warn
consumers of PFOA exposure included Rug Doctor, Stanley Steemer,
Conagra Foods, McDonalds, Taco Bell, Levi Strauss, GAP, W.L.
Gore, Wal-Mart, Sears, Mannington, Mohawk Industries, and Shaw
Industries.
Retailers and manufacturer purchasers of PFOA-containing products
are being made aware of potential liabilities associated with
sales of those products. Consumer protection laws in many states,
including statutory and common law, provide that sellers of
products may have a duty to warn consumers if they are exposing
them to products that pose an unreasonable risk to health or
safety.
In addition, consumer-related liability notices have been spread
throughout the array of consumer-oriented markets where PFOA-
related products are sold. On August 9, 2005, the United
Steelworkers (USW) union released a statement saying they had
sent letters to major carpet cleaning retailers and wholesalers,
fast food chains, and major retail clothing companies, informing
them that they may have "a legal duty to warn" their customers
about potential health risks associated with exposure to products
that contain PFOA. These letters informed recipients that they
could face legal liability in the event that consumers sue and
prove harm to their health./38/
On December 21, 2005, the United Steelworkers released another
statement, reporting that they had mailed advisory information on
potential PFOA-related health hazards to over 4,500 retail carpet
dealers and to the CEOs of 35 carpet manufacturing companies. "We
sincerely hope that our efforts will encourage carpet
manufacturers and retailers to provide warnings and thereby
protect the public," said Ken Test, Chair of the USW DuPont
Council, a coordinating body for 1,800 USW members at
DuPont. "Carpet company employees who may have the highest
exposure to PFOA must also be warned and protected."/39/ USW
reports that it has sent about 40,000 "duty to warn" letters to
various firms that may be buying PFOA-containing products.
The companies who have received duty to warn notices from USW
read like a Who's Who of household consumer products. According
to USW press releases, some of the thousands of companies
receiving the notices included Rug Doctor, Stanley Steemer,
McDonalds, Taco Bell, Papa John's, Pizza Hut, KFC, California
Pizza Kitchen, Levi Strauss, Conagra Foods, GAP, W.L. Gore, Eddie
Bauer, J. Crew, Wal-Mart, Sears, Nordstrom, Dillard's, Dalton
Carpet Outlet, Carpet Giant, Carpet Land, Mannington, Mohawk
Industries, and Shaw Industries.
PFOA, SHAREHOLDER VALUE AND DUPONT FINANCIAL REPORTING
In November 2006, Amalgamated Bank's LongView Funds refiled a
proposal to be voted at DuPont's 2007 annual meeting urging the
board of directors to set forth options for an expedited phase-
out of PFOA. The same proposal won 29 percent of the votes cast
in 2006.
DUPONT IS NOT INTENT ON ENDING ITS PRODUCTION OF FLUOROTELOMERS,
THOUGH STUDIES ALREADY UNDERWAY MAY SHOW THAT THOSE PRODUCTS CAN
DEGRADE TO PFOA IN USE OR IN THE ENVIRONMENT. THE COMPANY'S PFOA
PROBLEMS MAY ONLY BE BEGINNING.
POTENTIAL DEGRADATION OF FLUOROTELOMERS
While DuPont has announced its intent to end the production and
use of PFOA by 2015, it has not declared an intent to end the
production or use of fluorotelomers. Yet some experts expect that
that fluorotelomers may break down to PFOA in use or in the
environment. Thus, despite the progress made on its commitment to
reduce PFOA content in products sold by DuPont, it is unclear
whether the current plan of action will actually free DuPont from
its PFOA problem eight years from now. Even if the alcohol
monomers have been removed from fluorotelomers, some experts
believe that over time fluorotelomers may break down in use or in
the environment to the constituent alcohols and then to PFOA.
Numerous studies confirm the breakdown of fluorotelomer alcohols
to PFOA.
3M found that after the Zonyl BA-type mixture of telomer alcohols
was exposed to activated sewage sludge for 16 days, the mixture
of fluorotelomers had largely decomposed to perfluorinated
carboxylic acids containing between 5 and 12 carbon atoms.
Degradation of the longer chain fluorotelomers (16 carbons in
length) was too slow to measure./40/
In 1981, a 3M study found fluorinated telomer alcohols fed to lab
rats metabolized into PFOA. The study was published in the
journal ANALYTICAL BIOCHEMISTRY./41/
A 2004 study by University of Toronto confirmed that Telomer
alcohols degrade into PFOA through oxidation./42/
Already some companies have begun to avoid telomers, not just
PFOA contaminated items. Burger King, for example, stopped
selling food in telomer-coated boxes in 2002. McDonald's has said
it uses such boxes, but would not say whether it still does./43/
DuPont management's position is that once it removes alcohol
impurities from fluorotelomers PFOA will not form in degradation
of fluorotelomer products. Further scientific research is
underway to assess whether fluorotelomers, once treated as
planned by DuPont, may nevertheless break down to telomer
alcohols and then to PFOA.
LACK OF DISCLOSURE RELATED TO PFOA IMPACTS ON EARNINGS
DuPont has not disaggregated the impact on shareholder value, or
company earnings, resulting from concerns related to PFOA other
than to say that if PFOA were banned it could cost the company
approximately $1 billion per year.
There is no reporting in DuPont shareholder reports as to the
extent of drop in U.S. sales of Teflon or other PFOA-related
products as negative publicity has mounted. What we do know from
public reports is that company mounted a PR campaign in attempt
to quell public concern, both posting full-page ads in national
media, and corresponding directly with sellers of products that
may be affected, or are raising these concerns with DuPont.
We believe shareholder value remains at risk as long as PFOA is
used in manufacture, or can be a breakdown byproduct, of DuPont
products.
Despite DuPont's growing realization that it must eventually quit
PFOA chemistry, we believe the evidence contained in this report
shows that shareholder value remains at risk from the company's
decisions, past and present, to rely on PFOA chemistry in its
product lines. Althought DuPont has announced its intent to move
out of PFOA use and production by 2015, consumers and DuPont
industrial customers are not bound by DuPont's long term PFOA-
elimination timeline. They are already demanding and securing
PFOA-free products, jeopardizing segments of DuPont's Billion
dollar per year PFC product lines. Moreover, DuPont currently
intends to continue production and use of fluorotelomers. These
products may also break down to PFOA in use or in the
environment, as independent scientific testing is currently
assessing.
Based on the company's disclosures, the product lines
involved represent at least $1 billion dollars in annual
revenues. Shareholders should press the management for a more
expeditious phase-out of the use of PFOA and of any substances
that can break down to PFOA, for better disclosure of the
financial impacts the current issues are having and of the
options for expediting DuPont's movement out of PFOA chemistry.
----------
/1/ "Quaker Fabric launches safer Scotchgard fabric," Home
Textiles Today, September 18, 2006.
/2/ WHAT IS PFOA? From DuPont website online:
http://www1.DuPont.com/DuPontglobal/corp/documents/US/en_US/news/
releases/pdf/WhatisPFOA.pdf
/3/ Letter from Kenneth A. Cook, President, Environmental Working
Group to Michael Leavitt, Administrator, U.S. Environmental
Protection Agency (November 17, 2004) (Citations omitted).
/4/ Juliet Eilperin, "DuPont, EPA settle chemical
complaint," WASHINGTON POST, December 15, 2005. $5 million
of the $6.25 million committed to environmental projects
will fund the Fluorotelomer-based Product Biodegradation
Testing Supplemental Environmental Project(SEP). The EPA
states that this initiative: "will help the public to
better understand the inherent degradation potential of
fluorotelomer-based products to form PFOA and the behavior
of such products when released to the environment."
www.epa.gov/compliance/resources/cases/civil/tsca/DuPont121
405.html 2/14/2005
/5/ "Cancer rates a high in C8 areas: Year-old study by state
released inadvertently," Charleston Gazette, March 22, 2007
---------------------------------------------------------------
/6/ Randall Chase, "Teflon chemical likely a carcinogen,
panel says," ASSOCIATED PRESS, February 16, 2006
/7/ Nonstock chemicals upset behavior, Science News 169.12: p.
190(1). March 25, 2006
/8/ Douglas Fischer, "Possible carcinogen may play favorites,"
OAKLAND TRIBUNE, March 9, 2006
/9/ Sara Schaeffer Munoz, "EPA probes safety of key
chemical in Teflon," WALL STREET JOURNAL , January 31, 2006
/10/ Martin Middlestaedt, "U.S. acts against chemical in
non-stick pans," Globe & Mail, February 4, 2006
/11/ Ohio Citizen Action,
http://www.ohiocitizen.org/campaigns/DuPont_c8/kro_mart.htm
/12/ "Wal-Mart's action on chemicals in packaging to take a
year," Ohio Citizen Action press release,
http://www.ohiocitizen.org/campaigns/DuPont_c8/wal-
mart%20statement.doc
/13/ Ohio Citizen Action,
http://www.ohiocitizen.org/campaigns/DuPont_c8/DuPont_c8.html
/14/ Jerry Hirsch, Los Angeles Times
/15/ Ibid.
/16/ Marian Burros, "As Teflon troubles pile up, DuPont
responds with ads," NEW YORK TIMES, February 8, 2006
/17/ "Quaker Fabric launches safer Scotchgard fabric," HOME
TEXTILES TODAY, September 18, 2006
/18/ PR Newswire, Europe, New York, February 9, 2006
/19/ Rebecca Renner, "Clean & Green," SCIENTIFIC AMERICAN,
January 2006
/20/ Rebecca Renner, "The Long and the Short of
Perfluorinated Replacements," ENVIRONMENTAL SCIENCE &
TECHNOLOGY Vol. 40 Issue 1, Jan 1, 2006
/21/ Barry Rosenbaum, "Rocket Science Gives Surfactants a
Boost," POLYMERS PAINT COLOR JOURNAL 194, vol. 4483 (Dec.
2004)
/22/ Rebecca Renner, "Technology Solutions: The Long and
the Short of Perfluorinated Replacements," ENVIRONMENTAL
SCIENCE & TECHNOLOGY Vol. 40, Issue No, 1
/23/ Ibid
/24/ Polyfox Factsheet.pdf
http://www.omnova.com/products/chemicals/documents/polyfoxF
actSheetFinal_2_06.pdf, 2/21/06
/25/ Ibid.
/26/ Charles Baldwin et al "A Novel Nonstick Porcelain
Enamel, Appliance Vol.61, No. 11, November 2004
/27/ Financial Times Information, Global Newswire Asia-
Africa Intelligence Wire, December 9, 2005
/28/ Financial Times Information, Global Newswire Asia-
Africa Intelligence Wire, August 23, 2004
/29/ Olivia Chung, "Teflon Comes Unstuck in China Mass
Panic," Global News Wire - Asia Africa Intelligence Wire,
July 22, 2004
/30/ AFX European Focus October 14, 2004
/31/ Environmental Science and Technology Outline, Issue 1/(32-
410, January 4, 2006
/32/ Wade Rawlins, "Emission in ground water add to
DuPont's tasks," The News & Observer (North Carolina),
February 12, 2006
/33/ Clean Water for North Carolina press release, January
30, 2006
/34/ Associated Press, "Court Clears Settlement in DuPont
Case," February 28, 2005
/35/ Stan Cox, "Toxic Teflon: Compounds from household products
found in human blood," ALTERNET.ORG, January 2, 2007
/36/ Paul Rosenfeld, public comments at Mealey's C-8/PFOA
Science, Risk & Litigation Conference October 24-25, 2005.
By contrast it should be noted that some carpets, notably
Shaw Ecoworks' Carpet, have distinguished themselves by
avoiding the use of PFOA related products. Healthy
Building News, February 23, 2006.
/37/ Jeff Montgomery, "Delaware plant releases C8-type
chemicals," THE NEWS JOURNAL (Wilmington, Delaware),
February 4, 2006
/38/ United Steelworkers Press Release, August, 9, 2005
/39/ United Steelworkers Press Release, December 21, 2005
/40/ Lange, Cleston C., "Biodegradation Screen Study for Telomer-
Type Alcohols," November 6, 2002.
http://www.ewg.org/reports/pfcworld/pdf/sludge_full.pdf
Lange, Cleston C. "The Aerobic Biodegradation of N-EtFOSE Alcohol
by the Microbial Activity Present in Municipal Wastewater
Treatment Sludge." November 02, 2000.
http://www.ewg.org/reports/pfcworld/pdf/226-1030a078.pdf
-----------------------------------------------------------------
/41/ Fred Biddle and Jennifer Goldblatt. "Dupont's troubled
chemical C-8 is widespread in the environment. How did it get
there, and should we be worried?" The News Journal (Delaware),
February 23, 2003.
/42/ Dinglasan, Mary J. A., Yun Ye, Elizabeth A. Edwards and
Scott A. Mabury. 2004. "Fluorotelomer Alcohol Biodegradation
Yields Poly- and Perfluorinated Acids." ENVIRONMENTAL SCIENCE AND
TECHNOLOGY 38(10):2857-2863.
/43/ Tom Avril, "Chemical in Teflon, other goods is turning up in
disturbing places," Seattle Times, October 1, 2004.
http://seattletimes.nwsource.com/html/health/2002050937_teflon01.
html