DuPont 2006 Annual Report Download - page 41

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
Liquidity & Capital Resources
The company’s liquidity needs can be met through a variety of independent sources, including: Cash provided
by operating activities, Cash and cash equivalents, Marketable debt securities, commercial paper, syndicated
credit lines, bilateral credit lines, equity and long-term debt markets and asset sales. The company’s relatively
low long-term borrowing level, strong financial position and credit ratings provide excellent access to these
markets.
Management considers its strong liquidity, financial position and flexibility to be a competitive advantage.
This advantage is based on strong business operating cash flows over an economic cycle and a commitment to
cash discipline regarding working capital, capital expenditures and acquisitions. Pursuant to its cash discipline
policy, the company seeks first, to maintain a strong balance sheet and second, to return excess cash to
shareholders unless the opportunity to invest for growth is compelling. Cash and cash equivalents and
Marketable debt securities balances of $1.9 billion as of December 31, 2006, provide primary liquidity to
support all short-term obligations. Secondary liquidity, sufficient to meet upcoming debt maturities, comes
from excellent access to capital markets and strong cash flow generation. Management believes that the
company’s ability to generate cash and access the capital markets will be adequate to meet anticipated future
cash requirements to fund working capital, capital spending, dividend payments and other cash needs for the
foreseeable future. In the unlikely event that the company would not be able to meet its short-term liquidity
needs, the company has access to approximately $3.5 billion in “same day” credit lines with several major
financial institutions. These credit lines are primarily multi-year facilities.
In October 2005, Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s) and Fitch Ratings (Fitch)
downgraded the company’s long-term debt credit rating following the company’s announced $5 billion share
buyback program. Management expected the revision and it had minimal impact on the company’s borrowing
costs and ability to access capital markets. The credit rating agencies left the company’s short-term credit
ratings at or near the highest rating levels. The company’s long-term (LT) and short-term (ST) rating history at
year end over the last three years follows:
2006
LT/ST/Outlook
2005
LT/ST/Outlook
2004
LT/ST/Outlook
S&P A/A-1/Stable A/A-1/Stable AA-/A-1+/Negative
Moody’s A2/P-1/Negative A2/P-1/Negative Aa3/P-1/Stable
Fitch A/F1/Stable A/F1/Stable AA-/F1+/Stable
(Dollars in millions) 2006 2005 2004
Cash provided by operating activities $3,736 $2,542 $3,231
The company’s Cash provided by operating activities was $3.7 billion in 2006, a $1.2 billion increase from the
$2.5 billion generated in 2005. The increase is primarily due to higher net income in 2006 and a reduction in
contributions made to pension plans, partially offset by the timing of tax payments. Working capital
productivity measures of days sales outstanding and inventory days supply were essentially flat in 2006 versus
2005, while days payable outstanding slightly decreased.
The company’s Cash provided by operating activities was $2.5 billion in 2005, a $689 million decrease from
the $3.2 billion generated in 2004. The year-over-year decrease principally reflects higher contributions to
pension plans, primarily a $1 billion contribution to the principal U.S. pension plan. Changes in accounts
receivable and inventories were modest. Working capital productivity measures of days sales outstanding,
inventory days supply and days payable outstanding in 2005 were essentially flat versus 2004.
41
Part II