DuPont 2007 Annual Report Download - page 40

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Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, continued
amounts accrued, due to the nature of indemnified items, it is not possible to make a reasonable estimate of the
maximum potential loss or range of loss. No assets are held as collateral and no specific recourse provisions exist.
In connection with the sale of INVISTA, the company indemnified the purchasers, subsidiaries of Koch, against
certain liabilities primarily related to taxes, legal and environmental matters and other representations and
warranties under the Purchase and Sale Agreement. Koch has presented claims under these indemnities which
the companies are discussing; however, DuPont disagrees with Koch’s presentation. The estimated fair value of the
indemnity obligations under the Purchase and Sale Agreement is $70 million and is included in the indemnifications
balance of $101 million at December 31, 2007. The fair value was based on management’s best estimate of the
value expected to be required to issue the indemnifications in a standalone, arm’s length transaction with an
unrelated party and, where appropriate, by the utilization of probability weighted discounted net cash flow models.
The company does not believe that these indemnities will have a material impact on the future liquidity of the
company (see Note 19 to the Consolidated Financial Statements.)
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 affiliated and unaffiliated companies. At December 31, 2007, the company
had directly guaranteed $583 million of such obligations, plus $121 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. At December 31, 2007, a current
liability of $135 million had been recorded for these obligations, principally related to obligations of the company’s
polyester films joint venture which are guaranteed by the company. No additional material loss is anticipated by
reason of such agreements and guarantees.
Existing guarantees for customers, suppliers and other unaffiliated companies arose as part of contractual
agreements. Existing guarantees for equity affiliates and other affiliated companies 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, 2007, the company had no liabilities recorded for
these obligations.
Additional information with respect to the company’s guarantees is included in Note 19 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.
Master Operating Leases
At December 31, 2007, the company has one master operating lease program relating to miscellaneous short-lived
equipment valued at approximately $119 million. Lease payments for these assets totaled $59 million in 2007,
$58 million in 2006 and $51 million in 2005, and were reported as operating expenses in the Consolidated Income
Statements. The leases under this program are considered operating leases and accordingly the related assets and
liabilities are not recorded on the Consolidated Balance Sheets. 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 $104 million at December 31, 2007.
38
Part II