DuPont 2012 Annual Report Download - page 39

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In the ordinary course of business, the company enters into contractual arrangements (derivatives) to hedge its exposure to foreign currency, interest rate and
commodity price risks under established procedures and controls. For additional information on these derivatives and related exposures, see Note 20 to the
Consolidated Financial Statements.
The following table summarizes the impacts of the company's foreign currency hedging program on the company's results of operations for the years ended
December 31, 2012, 2011, and 2010, 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)   
Pre-tax exchange loss $ (215) $ (146) $ (11)
Tax benefit (expense) 73 81 (69)
After-tax exchange loss $(142) $ (65) $ (80)
In addition to the contracts disclosed in Note 20 to the Consolidated Financial Statements, 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.
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The following table illustrates the fair values of outstanding derivative contracts at December 31, 2012 and 2011, and the effect on fair values of a
hypothetical adverse change in the market prices or rates that existed at December 31, 2012 and 2011. The sensitivity for interest rate swaps is based on a one
percent change in the market interest rate. Foreign currency and commodity contracts sensitivities are based on a 10 percent change in market rates.
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(Dollars in millions)    
Interest rate swaps $55 $66 $ (29) $ (40)
Foreign currency contracts 9 154 (659)(541)
Commodity contracts (1)(3)(3)(103)
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.
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The company maintains cash and cash equivalents, marketable securities, derivatives and certain other financial instruments with various financial
institutions. These financial institutions are generally highly rated and geographically dispersed and the company has a policy to limit the dollar amount of
credit exposure with any one institution.
As part of the company's financial 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. The company has not sustained credit losses from instruments held at financial
institutions.
The company's sales are not materially dependent on any single customer. As of December 31, 2012, no one individual customer balance represented 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 associated 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.
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