DuPont 2005 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2005 DuPont annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

Part II
Item 7A. Quantitative and Qualitative Disclosures About Market Risk–Continued
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 on a daily basis. 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 dis-
persed, 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, 2005,
no one individual customer balance represents 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 associ-
ated 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 and cash flow 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, commitments
and cash flows.
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, 2005, 2004 and 2003.
(Dollars in millions) 2005 2004 2003
Pretax exchange gain/(loss) $445 $(411) $(190)
Tax (expense)/benefit (483) 360 187
After-tax loss $ (38) $ (51) $ (3)
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.
In addition, option and forward exchange contracts are used to hedge a portion of certain anticipated foreign currency raw
material purchases from vendors outside of the U.S. gains and losses on these contracts offset changes in the related foreign
currency-denominated costs.
From time to time, the company will enter into forward exchange contracts to establish with certainty the USD amount of
future firm commitments denominated in a foreign currency. Decisions regarding whether or not to hedge a given commitment
are made on a case-by-case basis taking into consideration the amount and duration of the exposure, market volatility and
52