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: July 22, 2008
Reporting Period: Second Quarter ended June 30, 2008

DuPont reported consolidated financial results for the second quarter of 2008, highlighting strong growth in the Agriculture & Nutrition segment and emerging markets. The company navigated a challenging environment characterized by a 15% increase in energy, raw material, and freight costs, partially offset by a 7% increase in local selling prices.

Key Financial Metrics

Liquidity and Balance Sheet (as of June 30, 2008):

• Cash and Cash Equivalents: $1.3 billion
• Short-term Borrowings: $4.4 billion
• Long-term Borrowings: $5.4 billion
• Operating Cash Flow (6 months): $(433) million (outflow)

Material Changes vs. Prior Period

• Revenue Drivers: Sales growth was driven by a 7% increase in local selling prices, a 5% currency benefit, and 1% volume growth. International sales grew 18%, while U.S. sales grew 5% despite weakness in housing and automotive sectors.
• Cost Pressures: Variable costs increased significantly due to a 15% rise in energy, raw materials, and freight. This negatively impacted EPS by $0.51 per share.
• Segment Performance:
  • Agriculture & Nutrition: Sales up 23% and PTOI up 18%, driven by record seed revenue and strong global demand.
  • Coatings & Color Technologies: Sales up 10% and PTOI up 9%, offsetting weak auto/housing markets with price increases and emerging market volume.
  • Electronic & Communication Technologies: Sales up 10%, but PTOI declined 3% (excluding a $25M prior-year inventory benefit, PTOI actually grew 13%).
  • Performance Materials: Sales up 8%, but PTOI declined 2% due to higher ingredient costs and lower volumes.
  • Safety & Protection: Sales up 8%, but PTOI declined 5% due to lower U.S. housing volumes and higher raw material costs.
• One-Time Items: Q2 2008 EPS benefited $0.07 from a litigation settlement and a lower base tax rate. Q2 2007 included a $52 million pre-tax charge related to an elastomers antitrust matter.

Guidance, Outlook, and Risks

Updated 2008 Full-Year Outlook:

• EPS Range: Increased the lower end of the range to $3.45 to $3.55 per share (previously $3.40 to $3.55).
• Second Half Expectations: Management expects second-half 2008 EPS to be modestly lower than the prior year due to higher energy/ingredient costs, lower demand in developed markets, lower income from asset sales, and a higher base tax rate.

Management Commentary: CEO Charles O. Holliday, Jr. stated the company is executing well in a challenging environment, leveraging its strategic transformation to adapt to higher commodity costs while focusing on the 2010 Accelerated Growth Plan.

Risks and Contingencies:

• Volatility in raw material, energy, and freight costs.
• Weakness in U.S. housing and automotive markets.
• Foreign currency exchange rate fluctuations.
• Seasonality of agricultural sales.
• Severe weather events causing business interruptions.

Investor Verification Checklist

• Cost Pass-Through Ability: Verify if the 7% price increase is sustainable against the 15% rise in input costs in the second half of the year.
• Second Half Guidance: Confirm the drivers behind the expectation of lower second-half earnings compared to the first half, specifically regarding the "higher base tax rate."
• Cash Flow Position: Review the negative operating cash flow of $433 million for the first six months and the significant increase in short-term borrowings ($4.4 billion) to assess liquidity needs.
• Segment Mix: Monitor the Agriculture & Nutrition segment's performance, as it is seasonal and heavily weighted toward the first half of the year.
• Non-GAAP Reconciliations: Review Schedule D for the reconciliation of EBITDA and fixed costs to ensure understanding of management's cost productivity claims.