DuPont 2007 Annual Report Download - page 49

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk continued
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 economic trends. Forward exchange contracts are also used, from time to time, to
manage near-term foreign currency cash requirements and to place foreign currency deposits and marketable
securities investments.
Interest Rate Risk
The company uses interest rate swaps to manage the interest rate mix of the total debt portfolio and related overall
cost of borrowing.
Interest rate swaps involve the exchange of fixed for floating rate interest payments to effectively convert fixed rate
debt into floating rate debt based on USD LIBOR. Interest rate swaps allow the company to maintain a target range
of floating rate debt.
Commodity Price Risk
The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge its
exposure to price fluctuations on certain raw material purchases.
A portion of energy feedstock purchases are hedged to reduce price volatility using fixed price swaps and options.
Hedged feedstock purchases include natural gas and ethane.
The company contracts with independent growers to produce finished seed inventory. Under these contracts,
growers are compensated with bushel equivalents that are marketed to the company for the market price of grain for
a period of time following harvest. Derivative instruments, such as commodity futures that have a high correlation to
the underlying commodity, are used to hedge the commodity price risk involved in compensating growers.
The company utilizes agricultural commodity futures to manage the price volatility of soybean meal. These derivative
instruments have a high correlation to the underlying commodity exposure and are deemed effective in offsetting
soybean meal feedstock price risk.
Additional details on these and other financial instruments are set forth in Note 23 to the Consolidated Financial
Statements.
Sensitivity Analysis
The following table illustrates the fair values of outstanding derivative contracts at December 31, 2007 and 2006, and
the effect on fair values of a hypothetical adverse change in the market prices or rates that existed at December 31,
2007 and 2006. The sensitivity for interest rate swaps is based on a one percent change in the market interest rate.
Foreign currency, agricultural and energy derivative sensitivities are based on a 10 percent change in market rates.
(Dollars in millions) 2007 2006 2007 2006
Fair Value
Asset/ (Liability)
Fair Value
Sensitivity
Interest rate swaps $19 $(24) $ (26) $ (42)
Foreign currency contracts 20 (5) (536) (322)
Agricultural feedstocks 31 27 5(1)
Energy feedstocks -(2) -(1)
Since the company’s risk management programs are highly effective, the potential loss in value for each risk
management portfolio described above would be largely offset by changes in the value of the underlying exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are included herein, commencing on
page F-1 of this report.
47
Part II