DuPont 2005 Annual Report Download - page 25

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Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Continued
(Dollars in millions) 2005 2004 2003
NET INCOME $2,053 $1,780 $973
2005 versus 2004 Net income for 2005 increased 15 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
from lower shares outstanding resulting from the accelerated share repurchase program.
2004 versus 2003 Net income for 2004 was $1,780 million compared to $973 million for 2003. Higher Net income reflects higher
sales volumes, higher local currency prices and currency benefit from the weaker USD. In addition, cost improvement efforts
helped to offset general inflation in operating costs and higher planned spending for growth initiatives. Net income increased
despite significantly higher raw material costs. Earnings per share were $1.77 in 2004 versus $0.96 in 2003.
Corporate Outlook
The company anticipates record-high energy costs and increasing competitive pressures in 2006. Accordingly, the company
plans to accelerate execution of its growth strategies by intensifying market-driven research and development efforts,
expanding in higher-growth markets, and implementing numerous productivity measures. Management believes that raw mate-
rial costs will be higher than those of 2005, as oil and U.S. natural gas prices are expected to be above 2005 average levels.
While the 2006 rate of global GDP and industrial production growth is forecast to continue at or near 2005 levels, growth by
industry will be mixed, with flat to slower growth expected in motor vehicle and residential construction related markets, and
somewhat stronger growth in commercial construction. In addition, the value of the USD is forecast to be stronger than the
2005 average, adversely affecting the results of the company’s operations outside of the U.S. On the positive side, the company
expects that its 2006 costs for pensions and other postretirement benefits will be lower than those for 2005. Based on these
expectations, management estimates that earnings per share will be about $2.60 in 2006, with Net sales of about $28 billion.
Accounting Standards Issued Not Yet Adopted
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123R, which replaces SFAS No. 123, ‘‘Accounting for Stock-Based Compensation.’’ DuPont voluntarily adopted the
SFAS No. 123 fair value based method of accounting on January 1, 2003, for share-based payment transactions with employ-
ees. SFAS No. 123R amends some aspects of the fair value measurement of the equity instruments granted to employees. This
statement becomes effective for the company beginning in the first quarter of 2006. The company will use the modified
prospective method and will continue to use the Black-Scholes option-pricing model as the most appropriate fair-value method
for its awards. Based on the company’s evaluation, the adoption of SFAS No. 123R is not expected to have a material effect on
the company’s financial position, liquidity or results of operations.
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