DuPont 2010 Annual Report Download - page 49

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Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, continued
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 U.S. dollar value of its existing foreign currency-
denominated assets, liabilities, commitments, and cash flows.
The company uses foreign currency 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 company also uses foreign
currency exchange contracts to offset a portion of the company’s exposure to certain foreign currency-denominated
revenues so that gains and losses on these contracts offset changes in the U.S. dollar value of the related foreign
currency-denominated revenues. The objective of the hedge program is to reduce earnings and cash flow volatility
related to changes in foreign currency exchange rates.
The following table summarizes the impacts of this program on the company’s results of operations for the years ended
December 31, 2010, 2009 and 2008, 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) 2010 2009 2008
Pre-tax exchange loss $(13) $(205) $(255)
Tax (expense) benefit (71) 91 83
After-tax loss $(84) $(114) $(172)
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
48