DuPont 2005 Annual Report Download - page 39

Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Continued
2004 PTOI was a loss of $242 million versus a loss of $220 million in 2003. The 2004 loss includes $94 million for employee
separation activities, a $29 million charge to write off abandoned technology, and a $20 million benefit from insurance proceeds
related to Benlate litigation. The 2003 loss includes $78 million in charges associated with Benlate litigation net of insurance
proceeds.
Liquidity & Capital Resources
The company’s liquidity needs can be met through a variety of independent sources, including: Cash provided by operating
activities, Cash and cash equivalents, Marketable debt securities, commercial paper, syndicated credit lines, bilateral credit
lines, equity and long-term debt markets, and asset sales. The company’s relatively low long-term borrowing level, strong
financial position and credit ratings provide excellent access to these markets.
In October 2005, Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch) downgraded the
company’s long-term debt credit rating following the company’s announced $5 billion share buyback program. The company’s
management expected this revision and believes that it will have a minimal impact on the company’s borrowing costs and
ability to access capital markets. The credit rating agencies left the company’s short-term credit ratings at or near the highest
rating levels. The company’s long term (LT) and short term (ST) rating history at year end over the last three years follows:
2005 2004 2003
LT/ST/Outlook LT/ST/Outlook LT/ST/Outlook
S&P A/A-1/Stable AA-/A-1+/Negative AA-/A-1+/Negative
Moody’s A2/P-1/Negative Aa3/P-1/Stable Aa3/P-1/Stable
Fitch A/F1/Stable AA-/F1+/Stable Not Rated
The company’s liquidity, financial position and flexibility remain strong and management considers this strength to be a
competitive advantage. This advantage is based on strong business operating cash flows over an economic cycle, and a
commitment to cash discipline regarding working capital, capital expenditures, and acquisitions. Pursuant to its cash discipline
policy, the company seeks first, to maintain a strong balance sheet and second, to return excess cash to shareholders unless
the opportunity to invest for growth is compelling. Cash and cash equivalents and Marketable debt securities balances of
$1.9 billion and bank credit lines of $3.5 billion as of December 31, 2005, provide primary liquidity to support all short-term
obligations. Secondary liquidity, sufficient to meet upcoming debt maturities, comes from excellent access to capital markets,
strong cash flow generation and the ability to sell assets. Management believes that the company’s ability to generate cash
and access the capital markets will be adequate to meet anticipated future cash requirements to fund working capital, capital
spending, dividend payments and other cash needs for the foreseeable future. In the unlikely event that the company would
not be able to meet its short-term liquidity needs, the company has access to approximately $3.5 billion in ‘‘same day’’ credit
lines with several major financial institutions. These credit lines are primarily multi-year facilities.
(Dollars in millions) 2005 2004 2003
Cash provided by Operating Activities $2,542 $3,231 $2,589
The company’s Cash provided by operating activities was $2.5 billion in 2005, a $700 million decrease from the $3.2 billion
generated in 2004. The year-over-year decrease principally reflects higher contributions to pension plans, primarily a $1 billion
contribution to the principal U.S. pension plan. Changes in accounts receivable and inventories were modest. Working capital
productivity measures of days sales outstanding, inventory days supply and days payable outstanding in 2005 were essentially
flat versus 2004.
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