DuPont 2007 Annual Report Download - page 48

Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instruments
Derivatives and Other Hedging Instruments
Under procedures and controls established by the company’s Financial Risk Management Framework, the company
enters into contractual arrangements (derivatives) in the ordinary course of business to hedge its exposure to foreign
currency, interest rate and commodity price risks. The counterparties to these contractual arrangements are major
financial institutions, petrochemical and petroleum companies and exchanges.
The company hedges foreign currency denominated monetary assets and liabilities, certain business-specific
foreign currency exposures and certain energy feedstock purchases. In addition, the company enters into exchange
traded agricultural commodity derivatives to hedge exposures relevant to agricultural feedstock purchases.
Concentration of Credit Risk
Financial instruments that potentially subject the company to significant concentrations of credit risk consist
principally of cash, investments, accounts receivable and derivatives.
As part of the company’s risk management processes, it continuously evaluates the relative credit standing of all of
the financial institutions that service DuPont and monitors actual exposures versus established limits. The company
has not sustained credit losses from instruments held at financial institutions.
The company maintains cash and cash equivalents, short- and long-term investments, derivatives and certain other
financial instruments with various financial institutions. These financial institutions are generally highly rated and
geographically dispersed and the company has a policy to limit the dollar amount of credit exposure with any one
institution.
The company’s sales are not materially dependent on a single customer or small group of customers. As of
December 31, 2007, no one individual customer balance represented more than 5 percent of the company’s total
outstanding receivables balance. Credit risk associated with its receivables balance is representative of the
geographic, industry and customer diversity associated with the company’s global businesses.
The company also maintains strong credit controls in evaluating and granting customer credit. As a result, it may
require that customers provide some type of financial guarantee in certain circumstances. Length of terms for
customer credit varies by industry and region.
Foreign Currency Risk
The company’s objective in managing exposure to foreign currency fluctuations is to reduce earnings volatility
associated with foreign currency rate changes. Accordingly, the company enters into various contracts that change
in value as foreign exchange rates change to protect the value of its existing foreign currency-denominated assets,
liabilities and commitments.
The company routinely uses forward exchange contracts to offset its net exposures, by currency, related to the
foreign currency-denominated monetary assets and liabilities of its operations. The primary business objective of
this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains
and losses resulting from exchange rate changes, net of related tax effects, are minimized.
The following table summarizes the impacts of this program on the company’s results of operations for the years
ended December 31, 2007, 2006 and 2005.
(Dollars in millions) 2007 2006 2005
Pretax exchange (loss)/gain $(85) $ (4) $ 445
Tax (expense)/benefit 54 (26) (483)
After-tax loss $(31) $(30) $ (38)
This table includes the company’s pro rata share of its equity affiliates’ exchange gains and losses and
corresponding gains and losses on forward exchange contracts.
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