DuPont 2006 Annual Report Download - page 45

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
Obligations for Equity Affiliates and Others
The company has directly guaranteed various debt obligations under agreements with third parties related to
equity affiliates, customers, suppliers and other unaffiliated companies. At December 31, 2006, the company
had directly guaranteed $551 million of such obligations, plus $262 million relating to guarantees of
obligations for divested subsidiaries and affiliates. This represents the maximum potential amount of future
(undiscounted) payments that the company could be required to make under the guarantees. The company
would be required to perform on these guarantees in the event of default by the guaranteed party. No material
loss is anticipated by reason of such agreements and guarantees. At December 31, 2006, the liabilities
recorded for these obligations were not material.
Existing guarantees for customers and suppliers arose as part of contractual agreements. Existing guarantees
for equity affiliates arose for liquidity needs in normal operations. In certain cases, the company has recourse
to assets held as collateral as well as personal guarantees from customers and suppliers.
The company has guaranteed certain obligations and liabilities related to divested subsidiaries including
Conoco and its subsidiaries and affiliates and Consolidation Coal Sales Company. The Restructuring, Transfer
and Separation Agreement between DuPont and Conoco requires Conoco to use its best efforts to have
Conoco, or any of its subsidiaries, substitute for DuPont. Conoco and Consolidation Coal Sales Company have
indemnified the company for any liabilities the company may incur pursuant to these guarantees. No material
loss is anticipated by reason of such agreements and guarantees. At December 31, 2006, the company has no
liabilities recorded for these obligations.
Additional information with respect to the company’s guarantees is included in Note 20 to the Consolidated
Financial Statements. Historically, the company has not had to make significant payments to satisfy guarantee
obligations; however, the company believes it has the financial resources to satisfy these guarantees should
unforeseen circumstances arise.
Certain Derivative Instruments
During 2005, the company entered into an accelerated share repurchase agreement with Goldman, Sachs & Co.
(Goldman Sachs) under which the company purchased and retired 75.7 million shares of DuPont’s outstanding
common stock from Goldman Sachs on October 27, 2005 at a price of $39.62 per share, with Goldman Sachs
purchasing an equivalent number of shares in the open market over the following nine-month period.
On July 27, 2006, Goldman Sachs completed its purchase of 75.7 million shares of DuPont’s common stock at
a volume weighted average price (VWAP) of $41.99 per share. Upon the conclusion of the agreement, the
company made a settlement payment to Goldman Sachs of $180 million, which the company elected to pay in
cash. The final settlement price was based upon the difference between the VWAP per share for the
nine-month period, which ended July 27, 2006, and the purchase price of $39.62 per share. The amount paid
to settle the contract was recorded as a reduction to Additional paid-in capital during the third quarter 2006.
Synthetic Leases
At December 31, 2006, the company has one synthetic lease program relating to miscellaneous short-lived
equipment valued at approximately $116 million. Lease payments for these assets totaled $58 million in 2006,
$51 million in 2005 and $54 million in 2004, and were reported as operating expenses in the Consolidated
Income Statement. The leases under this program are considered operating leases and accordingly the related
assets and liabilities are not recorded on the Consolidated Balance Sheet. Furthermore, the lease payments
associated with this program vary based on one month LIBOR. The company may terminate the program at
any time by purchasing the assets. Should the company decide neither to renew the leases nor to exercise its
purchase option, it must pay the owner a residual value guarantee amount, which may be recovered from a
sale of the property to a third party. Residual value guarantees totaled $101 million at December 31, 2006.
45
Part II