DuPont 2006 Annual Report Download - page 26

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
(Dollars in millions) 2006 2005 2004
NET INCOME $3,148 $2,056 $1,780
2006 versus 2005 Net income for 2006 increased 53 percent versus 2005, reflecting higher selling prices,
higher sales volumes, lower fixed costs and an increase in other income, partly offset by higher raw material
costs. Selling prices increased year over year in each quarter of 2006 and were higher for each region for the
full year. Net income also includes benefits from tax settlements, reversals of tax valuation allowances and
insurance recoveries. These benefits were partly offset by charges for restructuring and asset impairments.
2005 results include significant hurricane related charges as well as tax expenses associated with the
repatriation of cash under AJCA. Earnings per share were $3.38 in 2006 versus $2.07 in 2005, a 63 percent
increase. This increase includes a 10 percentage point benefit from lower shares outstanding resulting from
shares purchased by the company under its accelerated share repurchase program.
2005 versus 2004 Net income for 2005 increased 16 percent over 2004. 2005 Net income reflects higher
selling prices which essentially offset record increases in raw material costs and higher fixed costs. In
addition, 2005 results include significant hurricane related charges as well as tax expenses associated with the
repatriation of cash under the AJCA. In contrast, 2004 results were adversely affected by even greater charges
resulting from a corporate restructuring program, losses on the separation of Textiles & Interiors and charges
for certain elastomers antitrust matters and litigation related to PFOA. Earnings per share were $2.07 in 2005
versus $1.77 in 2004, a 17 percent increase. This includes a 2 percentage point benefit in 2006 from lower
shares outstanding resulting from the accelerated share repurchase program.
Corporate Outlook
Overall, economic conditions are expected to be less favorable in 2007 than in 2006, with growth expected to
slow in every region of the world. Gross Domestic Product (GDP) growth in developed countries is forecast to
slow to below-trend rates, while growth in the developing world will be near trend with about 5 percent
growth in South America to 9 percent in China. Global industrial production, which is considered a reliable
indicator of demand for the company’s products and services, is forecast to expand about 3 percent in 2007
versus about 4.5 percent in 2006 and will exhibit a regional trend similar to GDP. Sales volume is expected to
be up across the growth platforms, with the largest increases in Electronic & Communication Technologies,
Safety & Protection and Agriculture & Nutrition. The 2007 average value of the U.S. dollar is forecast to be
slightly weaker than the 2006 average. This should have a beneficial impact on sales and income from
operations outside of the U.S. and increase demand for the company’s exported products. Raw material costs
are expected to remain relatively consistent with 2006. While prices for both oil and natural gas moderated
somewhat during the second half of 2006, futures markets indicate increases in both during 2007 averaging
somewhat higher than 2006 prices. Fixed costs as a percent of sales are expected to be lower than in 2006,
reflecting the company’s continued strong productivity efforts. Other income is forecast to be lower in 2007
reflecting reduced income from Pharmaceuticals and lower licensing income in Agriculture & Nutrition. Based
on these expectations, management estimates that earnings per share will be about $3.15 in 2007, with Net
sales of about $29 billion.
Accounting Standards Issued Not Yet Adopted
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109 (SFAS 109),
“Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
financial statements and prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48
will be adopted by the company on January 1, 2007. Prior to the adoption of FIN 48, the company used a
26
Part II