CTA-PB

Business Context and Reporting Period

Company: E. I. du Pont de Nemours and Company (DuPont)
Filing Type: Form 8-K (Current Report)
Report Date: October 21, 2008
Reporting Period: Third Quarter ended September 30, 2008 (and nine months ended September 30, 2008)

DuPont reported consolidated financial results for the third quarter of 2008. The company highlighted solid performance despite global economic slowdowns and significant weather-related disruptions from hurricanes affecting operations in Orange, Texas.

Key Financial Metrics

Debt and Liquidity: Total borrowings (short-term and long-term) increased to $10.4 billion ($2.95 billion short-term + $7.4 billion long-term) as of September 30, 2008, compared to $7.3 billion at year-end 2007. Cash and cash equivalents rose to $1.99 billion.

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 9% year-over-year, driven by a 9% increase in local selling prices and a 4% currency benefit, which offset a 4% decline in volume. Emerging markets sales grew 25%.
• Profitability Decline: Net income decreased 30% to $367 million. This was primarily due to a one-time pre-tax hurricane charge of $227 million ($0.16 per share) and higher raw material, energy, and freight costs (up 16%).
• Adjusted Performance: Excluding significant items, earnings per share were $0.56, a 5% decline from $0.59 in Q3 2007. The decline reflects higher variable costs and lower volumes.
• Segment Variance: The Performance Materials segment reported a pre-tax operating loss of $91 million, largely due to a $216 million hurricane charge. Excluding this charge, the segment's operating income declined 36% due to weak markets and rising costs.

Guidance, Outlook, and Risks

• Q4 2008 Guidance: DuPont expects earnings of $0.20 to $0.25 per share, excluding significant items. This outlook includes an estimated $0.10 per share negative impact from hurricane-related business interruptions.
• Full Year 2008 Outlook: Revised to $3.25 to $3.30 per share (excluding significant items), down from the previous range of $3.45 to $3.55. This reflects weakening demand in North American and Western European markets.
• Management Commentary: CEO Charles O. Holliday, Jr. noted that businesses performed well despite hurricanes and slower economies, citing strong positions in agriculture, photovoltaics, and emerging markets. Management emphasized a strong cash position and balance sheet.
• Risks and Contingencies:
  • Weather Events: Hurricanes caused significant damage to the Orange, Texas plant, resulting in "force majeure" declarations for ethylene copolymers and ongoing business interruption impacts.
  • Economic Conditions: Weak demand in motor vehicle, construction, and housing markets in North America and Europe.
  • Cost Pressures: Continued high costs for raw materials, energy, and freight.

Investor Verification Checklist

• Hurricane Impact Duration: Verify the timeline for the full restoration of the Orange, Texas plant and the accuracy of the estimated $0.10 per share Q4 business interruption impact.
• Cost Pass-Through: Assess the sustainability of the 9% price increase in offsetting the 16% rise in raw material and energy costs in the coming quarters.
• Volume Trends: Monitor the 4% volume decline to determine if it is a temporary weather-related issue or a structural shift due to the global economic slowdown.
• Debt Levels: Review the increase in short-term borrowings (from $1.37 billion to $2.95 billion) and its impact on liquidity and interest expense.
• Emerging Markets Resilience: Confirm the 25% sales growth in emerging markets remains robust as a counterbalance to weakness in developed markets.