DuPont 2009 Annual Report Download - page 50

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Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, continued
The following table summarizes the impacts of this program on the company’s results of operations for the years ended
December 31, 2009, 2008 and 2007, and includes the company’s pro rata share of its equity affiliates’ exchange gains
and losses and corresponding gains and losses on foreign currency exchange contracts.
(Dollars in millions) 2009 2008 2007
Pre-tax exchange loss $(205) $(255) $(85)
Tax (expense)/benefit 91 83 54
After-tax loss $(114) $(172) $(31)
From time to time, the company will enter into foreign currency 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. Foreign currency exchange contracts are also used, from time to
time, to manage near-term foreign currency cash requirements.
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 or 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 certain energy feedstock purchases are hedged to reduce price volatility using fixed price swaps and
options.
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 during the
contract period. Derivative instruments having a high correlation to the underlying commodity are used to hedge the
commodity price risk involved in compensating growers.
The company utilizes derivatives 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 24 to the Consolidated Financial
Statements.
Sensitivity Analysis
The following table illustrates the fair values of outstanding derivative contracts at December 31, 2009 and 2008, and
the effect on fair values of a hypothetical adverse change in the market prices or rates that existed at December 31,
49