Edgar Filing: DUPONT E I DE NEMOURS & CO

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-815

E. I. du Pont de Nemours and Company

(Exact Name of Registrant as Specified in Its Charter)

Delaware		51-0014090
(State or other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1007 Market Street, Wilmington, Delaware 19898

(Address of Principal Executive Offices)

(302) 774-1000

(Registrant’s Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined by Rule12b-2 of the Exchange Act). Yes o No x

The Registrant had 903,730,000 shares (excludes 87,041,000 shares of treasury stock) of common stock, $0.30 par value, outstanding at October 15, 2009.

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E. I. DU PONT DE NEMOURS AND COMPANY

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The terms “DuPont” or the “company” as used herein refer to E. I. du Pont de Nemours and Company and its consolidated subsidiaries, or to E. I. du Pont de Nemours and Company, as the context may indicate.

			Page
Part I	Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Income Statements		3
	Condensed Consolidated Balance Sheets		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to the Consolidated Financial Statements		6
	Note 1.	Summary of Significant Accounting Policies	6
	Note 2.	Reporting of Noncontrolling Interests	7
	Note 3.	Fair Value Measurements	9
	Note 4.	Other Income, Net	10
	Note 5.	Employee Separation / Asset Related Charges, Net	10
	Note 6.	Provision for Income Taxes	11
	Note 7.	Earnings Per Share of Common Stock	12
	Note 8.	Inventories	13
	Note 9.	Goodwill and Other Intangible Assets	13
	Note 10.	Commitments and Contingent Liabilities	14
	Note 11.	Derivatives and Other Hedging Instruments	21
	Note 12.	Long-Term Employee Benefits	26
	Note 13.	Segment Information	27

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Cautionary Statements About Forward-Looking Statements		29
	Results of Operations		29
	Accounting Standards Issued Not Yet Adopted		32
	Segment Reviews		32
	Liquidity & Capital Resources		35
	Contractual Obligations		36
	PFOA		36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.	Controls and Procedures		39

Part II	Other Information
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 6.	Exhibits		44
Signature			45
Exhibit Index			46

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Part I. Financial Information

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

E. I. du Pont de Nemours and Company

Consolidated Income Statements (Unaudited)

(Dollars in millions, except per share)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009		2008

Net sales	$	5,961		$	7,297	$	19,690	$	24,709
Other income, net	195			420		824		1,057
Total	6,156			7,717		20,514		25,766
Cost of goods sold and other operating charges	4,560			5,916		14,752		18,298
Selling, general and administrative expenses	770			873		2,584		2,794
Research and development expense	335			360		989		1,050
Interest expense	100			98		312		272
Employee separation / asset related charges, net	—			—		265		—
Total	5,765			7,247		18,902		22,414
Income before income taxes	391			470		1,612		3,352
(Benefit from) provision for income taxes	(23		)	98		288		706
Net income	414			372		1,324		2,646
Less: Net income attributable to noncontrolling interests	5			5		10		10

Net income attributable to DuPont	$	409		$	367	$	1,314	$	2,636

Basic earnings per share of common stock	$	0.45		$	0.40	$	1.44	$	2.91

Diluted earnings per share of common stock	$	0.45		$	0.40	$	1.44	$	2.89

Dividends per share of common stock	$	0.41		$	0.41	$	1.23	$	1.23

See Notes to the Consolidated Financial Statements.

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E. I. du Pont de Nemours and Company

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in millions, except per share)

	September 30, 2009			December 31, 2008
Assets
Current assets
Cash and cash equivalents	$	2,249		$	3,645
Marketable securities	906			59
Accounts and notes receivable, net	7,126			5,140
Inventories	4,392			5,681
Prepaid expenses	125			143
Income taxes	558			643
Total current assets	15,356			15,311

Property, plant and equipment, net of accumulated depreciation (September 30, 2009 - $17,590; December 31, 2008 - $16,800)	11,080			11,154
Goodwill	2,138			2,135
Other intangible assets	2,582			2,710
Investment in affiliates	991			844
Other assets	4,021			4,055
Total	$	36,168		$	36,209

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,554		$	3,128
Short-term borrowings and capital lease obligations	3,525			2,012
Income taxes	138			110
Other accrued liabilities	3,345			4,460
Total current liabilities	9,562			9,710

Long-term borrowings and capital lease obligations	7,545			7,638
Other liabilities	10,830			11,169
Deferred income taxes	148			140
Total liabilities	28,085			28,657

Commitments and contingent liabilities

Stockholders’ equity
Preferred stock	237			237
Common stock, $0.30 par value; 1,800,000,000 shares authorized; Issued at September 30, 2009 - 990,770,000; December 31, 2008 - 989,415,000	297			297
Additional paid-in capital	8,463			8,380
Reinvested earnings	10,644			10,456
Accumulated other comprehensive loss	(5,267		)	(5,518		)
Common stock held in treasury, at cost (87,041,000 shares at September 30, 2009 and December 31, 2008)	(6,727		)	(6,727		)
Total DuPont stockholders’ equity	7,647			7,125
Noncontrolling interests	436			427
Total equity	8,083			7,552
Total	$	36,168		$	36,209

See Notes to the Consolidated Financial Statements.

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E. I. du Pont de Nemours and Company

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in millions)

	Nine Months Ended September 30,
	2009			2008
Operating activities
Net income attributable to DuPont	$	1,314		$	2,636
Adjustments to reconcile net income attributable to DuPont to cash provided by operating activities:
Depreciation	938			870
Amortization of intangible assets	219			226
Contributions to pension plans	(243		)	(210		)
Other noncash charges and credits - net	858			162
Change in operating assets and liabilities - net	(2,163		)	(3,190		)

Cash provided by operating activities	923			494

Investing activities
Purchases of property, plant and equipment	(990		)	(1,406		)
Investments in affiliates	(105		)	(53		)
Payments for businesses - net of cash acquired	(12		)	(72		)
Proceeds from sales of assets - net of cash sold	51			23
Net increase in short-term financial instruments	(800		)	(33		)
Forward exchange contract settlements	(757		)	(117		)
Other investing activities - net	(12		)	(24		)

Cash used for investing activities	(2,625		)	(1,682		)

Financing activities
Dividends paid to stockholders	(1,119		)	(1,123		)
Net increase in borrowings	1,408			2,974
Proceeds from exercise of stock options	—			94
Other financing activities - net	(14		)	(37		)

Cash provided by financing activities	275			1,908

Effect of exchange rate changes on cash	31			(32		)

(Decrease) Increase in cash and cash equivalents	$	(1,396	)	$	688

Cash and cash equivalents at beginning of period	3,645			1,305

Cash and cash equivalents at end of period	$	2,249		$	1,993

See Notes to the Consolidated Financial Statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 1. Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2008, collectively referred to as the ‘2008 Annual Report’. The Consolidated Financial Statements include the accounts of the company and all of its subsidiaries in which a controlling interest is maintained, as well as variable interest entities in which DuPont is considered the primary beneficiary. Certain reclassifications of prior year’s data have been made to conform to current year classifications.

Subsequent Events

The company’s management has evaluated the period from October 1, 2009 through October 26, 2009, the date the financial statements herein were issued, for subsequent events requiring recognition or disclosure in the financial statements. Effective October 1, 2009, the company has redefined its external reporting to the following aggregated segments: Agriculture & Nutrition, Electronics & Communications, Performance Coatings, Performance Materials, Safety & Protection, Performance Chemicals and Pharmaceuticals. The company will begin reporting under the redefined structure in its 2009 Annual Report on Form 10-K. No additional material subsequent events were identified.

Accounting Standards Issued Not Yet Adopted

In December 2008, the Financial Accounting Standards Board (FASB) issued authoritative guidance on employer’s disclosures about postretirement benefit plan assets, which is effective for fiscal years ending after December 15, 2009. The new requirement expands disclosures for assets held by employer pension and other postretirement benefit plans. This requirement will not affect the company’s financial position or results of operations.

In June 2009, FASB issued authoritative guidance on accounting for transfers of financial assets, which is effective for reporting periods beginning after November 15, 2009. The new requirement limits the circumstances in which a financial asset may be de-recognized when the transferor has not transferred the entire financial asset or has continuing involvement with the transferred asset. The concept of a qualifying special-purpose entity, which had previously facilitated sale accounting for certain asset transfers, is removed by the new requirement. The company expects that this will not have a material effect on its financial position or results of operations.

In June 2009, FASB issued authoritative guidance on accounting for variable interest entities, which is effective for reporting periods beginning after November 15, 2009. The amendments change the process for how an enterprise determines which party consolidates a variable interest entity (VIE) to a primarily qualitative analysis. The party that consolidates the VIE (the primary beneficiary) is defined as the party with (1) the power to direct activities of the VIE that most significantly affect the VIE’s economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Upon adoption, reporting enterprises must reconsider their conclusions on whether an entity should be consolidated and should a change result, the effect on net assets will be recorded as a cumulative effect adjustment to retained earnings. The company expects that upon adoption this will not have a material effect on its financial position or results of operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 2. Reporting of Noncontrolling Interests

Effective January 1, 2009, the company implemented the provisions for the reporting of noncontrolling interests in the company’s Consolidated Financial Statements and accompanying notes. The provision changed the accounting and reporting of minority interests (now referred to as noncontrolling interests) in the company’s Consolidated Financial Statements. The following tables illustrate the changes in equity for the three and nine months ended September 30, 2009 and 2008, respectively:

Consolidated Changes in Equity for the Three Months Ended September 30, 2009	Total			Comprehensive Income		Preferred Stock		Common Stock		Additional Paid-in- Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests

Beginning balance	$	7,907				$	237	$	297	$	8,441	$	10,611		$	(5,385	)	$	(6,727	)	$	433
Comprehensive income:
Net income	414			414								409									5
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	55			55											55
Net revaluation and clearance of cash flow hedges to earnings	22			22											22
Pension benefit plans	50			50											50
Other benefit plans	(9		)	(9	)										(9		)
Net unrealized gain on securities	—			—
Other comprehensive income	118			118
Comprehensive income	532			532	(1)
Common dividends	(375		)									(373		)							(2		)
Preferred dividends	(3		)									(3		)
Common stock issued - compensation plans	22									22
Total Equity as of September 30, 2009	$	8,083				$	237	$	297	$	8,463	$	10,644		$	(5,267	)	$	(6,727	)	$	436

Consolidated Changes in Equity for the Three Months Ended September 30, 2008	Total			Comprehensive Income		Preferred Stock		Common Stock		Additional Paid-in- Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests

Beginning balance	$	13,344				$	237	$	297	$	8,336	$	11,466		$	(706	)	$	(6,727	)	$	441
Comprehensive income:
Net income	372			372								367									5
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	(102		)	(102	)										(101		)				(1		)
Net revaluation and clearance of cash flow hedges to earnings	(141		)	(141	)										(140		)				(1		)
Pension benefit plans	6			6											6
Other benefit plans	(12		)	(12	)										(12		)
Net unrealized loss on securities	(6		)	(6	)										(6		)
Other comprehensive loss	(255		)	(255	)
Comprehensive income	117			117	(1)
Common dividends	(373		)									(372		)							(1		)
Preferred dividends	(3		)									(3		)
Common stock issued - compensation plans	32									32
Total Equity as of September 30, 2008	$	13,117				$	237	$	297	$	8,368	$	11,458		$	(959	)	$	(6,727	)	$	443

(1) Includes comprehensive income attributable to noncontrolling interests of $5 and $3 for the three months ended September 30, 2009 and 2008, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Consolidated Changes in Equity for the Nine Months Ended September 30, 2009	Total			Comprehensive Income		Preferred Stock		Common Stock		Additional Paid-in- Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests

Beginning balance	$	7,552				$	237	$	297	$	8,380	$	10,456		$	(5,518	)	$	(6,727	)	$	427
Acquisition of a majority interest in a consolidated subsidiary	1																				1
Purchase of subsidiary shares from noncontrolling interest	(1		)																		(1		)
Comprehensive income:
Net income	1,324			1,324								1,314									10
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	80			80											80
Net revaluation and clearance of cash flow hedges to earnings	62			62											60						2
Pension benefit plans	137			137											137
Other benefit plans	(27		)	(27	)										(27		)
Net unrealized gain on securities	1			1											1
Other comprehensive income	253			253
Comprehensive income	1,577			1,577	(1)
Common dividends	(1,121		)									(1,118		)							(3		)
Preferred dividends	(8		)									(8		)
Common stock issued - compensation plans	83									83

Total Equity as of September 30, 2009	$	8,083				$	237	$	297	$	8,463	$	10,644		$	(5,267	)	$	(6,727	)	$	436

Consolidated Changes in Equity for the Nine Months Ended September 30, 2008	Total			Comprehensive Income		Preferred Stock		Common Stock		Additional Paid-in- Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests

Beginning balance	$	11,578				$	237	$	296	$	8,179	$	9,945		$	(794	)	$	(6,727	)	$	442
Comprehensive income:
Net income	2,646			2,646								2,636									10
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	(27		)	(27	)										(26		)				(1		)
Net revaluation and clearance of cash flow hedges to earnings	(120		)	(120	)										(118		)				(2		)
Pension benefit plans	31			31											31
Other benefit plans	(37		)	(37	)										(37		)
Net unrealized loss on securities	(15		)	(15	)										(15		)
Other comprehensive loss	(168		)	(168	)
Comprehensive income	2,478			2,478	(1)
Common dividends	(1,121		)									(1,115		)							(6		)
Preferred dividends	(8		)									(8		)
Common stock issued - compensation plans	190							1		189

Total Equity as of September 30, 2008	$	13,117				$	237	$	297	$	8,368	$	11,458		$	(959	)	$	(6,727	)	$	443

(1) Includes comprehensive income attributable to noncontrolling interests of $12 and $7 for the nine months ended September 30, 2009 and 2008, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 3. Fair Value Measurements

In 2008, the company implemented the accounting requirements for financial assets and financial liabilities reported at fair value and related disclosures. Effective January 1, 2009, the company prospectively implemented the accounting requirements for non-financial assets and non-financial liabilities reported or disclosed at fair value, except for non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

The requirement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The disclosures focus on the inputs used to measure fair value.

The company has determined that its financial assets and liabilities are level 1 and level 2 in the fair value hierarchy. The company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:

Level 1 - Quoted market prices in active markets for identical assets or liabilities

Level 2 - Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs)

At September 30, 2009, the following financial assets and financial liabilities were measured at fair value on a recurring basis using the type of inputs shown:

	September 30,		Fair Value Measurements at September 30, 2009 Using
	2009		Level 1 Inputs		Level 2 Inputs
Financial assets

Derivatives	$	83	$	—	$	83
Available-for-sale securities	22		22		—
	$	105	$	22	$	83

Financial liabilities

Derivatives	$	254	$	—	$	254

In accordance with the interim disclosure requirements for financial instruments, the estimated fair value of the company’s outstanding debt, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities, was $11,700 at September 30, 2009, as compared to a carrying value of approximately $11,100.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 4. Other Income, Net

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008

Cozaar®/Hyzaar® income	$	264		$	258	$	786		$	755
Royalty income	20			31		71			78
Interest income	22			36		68			103
Equity in earnings of affiliates	7			13		59			95
Net gains on sales of assets	2			1		43			15
Net exchange (losses) gains (1)	(120		)	52		(212		)	(127		)
Miscellaneous income and expenses, net (2)	—			29		9			138

Total	$	195		$	420	$	824		$	1,057

(1) The company routinely uses forward exchange contracts to offset its net exposures, by currency, related to its foreign currency-denominated monetary assets and liabilities. The objective of this program is to maintain an approximately balanced position in foreign currencies in order to minimize, on an after-tax basis, the effects of exchange rate changes on net monetary asset positions. The net pre-tax exchange gains and losses are partially offset by the associated tax impact.

(2) Miscellaneous income and expenses, net, includes interest items, litigation settlements, and other items.

Note 5. Employee Separation / Asset Related Charges, Net

At September 30, 2009, total liabilities relating to current year and prior years restructuring activities were $403.

2009 Activities

During the second quarter of 2009, in response to the protracted global economic recession, the company committed to an initiative to address the steep and extended downturn in motor vehicle and construction markets, and the extension of the downturn into industrial markets. The plan was designed to restructure asset and fixed cost bases in order to improve long-term competitiveness, simplify business processes, and maximize pre-tax operating income. Under the plan, the company will eliminate about 2,000 positions by severance principally located in the United States of America. As a result, a charge of $340 was recorded in employee separation / asset related charges, net which pertains to the following financial statement line items: cost of goods sold and other operating charges - 60%, selling, general and administrative expenses - 30%, and research and development expenses - 10%. This charge includes $212 of severance and related benefits costs, $24 of other non-personnel costs and $104 of asset-related charges, including $77 for asset shut downs and write-offs, $11 for asset impairments and $16 for accelerated depreciation. As of September 30, 2009, cash payments of $13 related to separation costs have been made, and approximately 800 employees have been separated. The company expects this initiative and all related payments to be substantially complete in 2010.

The 2009 program charge reduced segment earnings for the nine-months ended September 30, 2009 as follows: Coatings & Color Technologies - $70; Electronic & Communication Technologies - $73; Performance Materials - $110; Safety & Protection - $86; and Other - $1.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Account balances and activity for the 2009 restructuring program are summarized below:

	Employee Separation Costs			Other Non- personnel Charges (1)		Asset - Related			Total
Net charges to income for the nine-months ended September 30, 2009	$	212		$	24	$	104		$	340
Payments	(13		)	—		—			(13		)
Net translation adjustment	1			—		—			1
Asset write-offs and adjustments	—			—		(104		)	(104		)
Balance at September 30, 2009	$	200		$	24	$	—		$	224

(1) Other non-personnel charges consist of contractual obligation costs.

2008 Activities

In the second quarter 2009, the company achieved work force reductions related to the 2008 program through non-severance programs and redeployments within the company. As a result, the company recorded a $75 net reduction in the estimated costs associated with the 2008 program. The $75 net reduction impacted segment earnings for the nine-months ended September 30, 2009 as follows: Agriculture & Nutrition - $(1); Coatings & Color Technologies - $43; Electronic & Communication Technologies - $1; Performance Materials - $28; Safety & Protection - $2; and Other - $2. A complete discussion of all restructuring initiatives is included in the company’s 2008 Annual Report in Note 5, “Restructuring Activities.” The account balances and activity for the company’s 2008 global restructuring program are as follows:

	Employee Separation Costs			Other Non- personnel Charges (1)			Total
Balance at December 31, 2008	$	309		$	17		$	326
Payments	(84		)	(2		)	(86		)
Net translation adjustment	4			1			5
Net credits to income	(75		)	—			(75		)
Other	—			—			—
Balance at September 30, 2009	$	154		$	16		$	170

(1) Other non-personnel charges consist of contractual obligation costs.

As of September 30, 2009, approximately 1,600 employees were separated relating to the 2008 global restructuring program.

Note 6. Provision for Income Taxes

In the third quarter 2009, the company recorded a tax benefit of $23, including $117 of tax benefit primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations.

For year-to-date 2009, the tax provision is $288, which includes $117 of tax benefit primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations, $91 net tax benefit related to 2008 and 2009 restructuring and $17 net tax expense related to the hurricane adjustments.

In the third quarter 2008, the company recorded a tax provision of $98, including $85 of tax expense primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations, $81 tax benefit related to the hurricane-related charge and $18 tax benefit related to favorable tax settlements.

For year-to-date 2008, the tax provision was $706, which includes $81 tax benefit related to the hurricane-related charge, $48 of tax benefit primarily related to exchange losses on foreign currency-

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

denominated monetary assets and liabilities of its operations and $44 tax benefit related to favorable tax settlements.

Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. It is reasonably possible that changes to the company’s global unrecognized tax benefits could be significant, however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.

Note 7. Earnings Per Share of Common Stock

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Numerator:
Net income attributable to DuPont	$	409		$	367		$	1,314		$	2,636
Preferred dividends	(3		)	(3		)	(8		)	(8		)

Net income available to DuPont common stockholders	$	406		$	364		$	1,306		$	2,628

Denominator:
Weighted-average number of common shares - Basic	904,615,000			903,134,000			904,350,000			902,131,000

Dilutive effect of the company’s employee compensation plans	5,676,000			4,816,000			3,646,000			5,942,000

Weighted-average number of common shares - Diluted	910,291,000			907,950,000			907,996,000			908,073,000

The following average number of stock options were antidilutive, and therefore, were not included in the diluted earnings per share calculations:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2009	2008	2009	2008
Average Number of Stock Options	70,137,000	43,028,000	73,949,000	29,066,000

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 8. Inventories

	September 30, 2009			December 31, 2008

Finished products	$	2,972		$	3,156
Semifinished products	1,319			2,234
Raw materials and supplies	811			1,199

	5,102			6,589
Adjustment of inventories to a last-in, first-out (LIFO) basis	(710		)	(908		)
Total	$	4,392		$	5,681

Note 9. Goodwill and Other Intangible Assets

There were no significant changes in goodwill for the nine-month period ended September 30, 2009.

The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows:

	September 30, 2009							December 31, 2008
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived):
Purchased and licensed technology	$	1,628	$	(699	)	$	929	$	2,420	$	(1,356	)	$	1,064
Patents	169		(54		)	115		128		(45		)	83
Trademarks	61		(21		)	40		61		(19		)	42
Other	635		(291		)	344		627		(260		)	367

	2,493		(1,065		)	1,428		3,236		(1,680		)	1,556
Intangible assets not subject to amortization (Indefinite-lived):
Trademarks / tradenames	179		—			179		179		—			179
Pioneer germplasm	975		—			975		975		—			975

	1,154		—			1,154		1,154		—			1,154

Total	$	3,647	$	(1,065	)	$	2,582	$	4,390	$	(1,680	)	$	2,710

The aggregate amortization expense for definitive-lived intangible assets was $52 and $219 for the three- and nine-month periods ended September 30, 2009, respectively, and $54 and $226 for the three- and nine-month periods ended September 30, 2008, respectively. The estimated aggregate amortization expense for 2009 and each of the next five years is approximately $250, $180, $190, $190, $190 and $190.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 10. Commitments and Contingent Liabilities

Guarantees

Product Warranty Liability

The company warrants that its products meet standard specifications. The company’s product warranty liability was $22 and $24 as of September 30, 2009 and December 31, 2008, respectively. Estimates for warranty costs are based on historical claims experience.

Indemnifications

In connection with acquisitions and divestitures, the company has indemnified respective parties against certain liabilities that may arise in connection with these transactions and business activities prior to the completion of the transaction. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. In addition, the company indemnifies its duly elected or appointed directors and officers to the fullest extent permitted by Delaware law, against liabilities incurred as a result of their activities for the company, such as adverse judgments relating to litigation matters. If the indemnified party were to incur a liability or have a liability increase as a result of a successful claim, pursuant to the terms of the indemnification, the company would be required to reimburse the indemnified party. The maximum amount of potential future payments is generally unlimited. The carrying amount recorded for all indemnifications as of September 30, 2009 and December 31, 2008 was $97 and $110, respectively. Although it is reasonably possible that future payments may exceed amounts accrued, due to the nature of indemnified items, it is not possible to make a reasonable estimate of the maximum potential loss or range of loss. No assets are held as collateral and no specific recourse provisions exist.

In connection with the 2004 sale of the majority of the net assets of Textiles and Interiors, the company indemnified the purchasers, subsidiaries of Koch Industries, Inc. (INVISTA), against certain liabilities primarily related to taxes, legal and environmental matters and other representations and warranties under the Purchase and Sale Agreement. The estimated fair value of the indemnity obligations under the Purchase and Sale Agreement was $70 and was included in the indemnifications balance of $97 at September 30, 2009. Under the Purchase and Sale Agreement, the company’s total indemnification obligation for the majority of the representations and warranties cannot exceed $1,400. The other indemnities are not subject to this limit. In March 2008, INVISTA filed suit in the Southern District of New York alleging that certain representations and warranties in the Purchase and Sale Agreement were breached and, therefore, DuPont is obligated to indemnify it. DuPont disagrees with the extent and value of INVISTA’s claims. DuPont has not changed its estimate of its total indemnification obligation under the Purchase and Sale Agreement as a result of the lawsuit.

Obligations for Equity Affiliates & Others

The company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, customers, suppliers and other affiliated and unaffiliated companies. At September 30, 2009, the company had directly guaranteed $570 of such obligations, and $121 relating to guarantees of historical obligations for divested subsidiaries. This represents the maximum potential amount of future (undiscounted) payments that the company could be required to make under the guarantees. The company would be required to perform on these guarantees in the event of default by the guaranteed party.

The company assesses the payment/performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned based on the external credit rating of the counterparty or through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.

At September 30, 2009 and December 31, 2008, a liability of $149 and $121, respectively, was recorded for these obligations, representing the amount of payment/performance risk for which the company deems probable. This liability is principally related to obligations of the company’s polyester films joint venture, which are guaranteed by the company.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

In certain cases, the company has recourse to assets held as collateral, as well as personal guarantees from customers and suppliers. Assuming liquidation, these assets are estimated to cover approximately 36 percent of the $245 of guaranteed obligations of customers and suppliers. Set forth below are the company’s guaranteed obligations at September 30, 2009:

	Short- Term		Long- Term		Total
Obligations for customers, suppliers and other affiliated and unaffiliated companies(1), (2):
Bank borrowings (terms up to 6 years)	$	372	$	152	$	524
Leases on equipment and facilities (terms less than 3 years)	12		1		13
Obligations for equity affiliates(2):
Bank borrowings (terms up to 4 years)	8		21		29
Leases on equipment and facilities (terms up to 1 year)	—		4		4
Total obligations for customers, suppliers, other affiliated and unaffiliated companies and equity affiliates	$	392	$	178	$	570
Obligations for divested subsidiaries and affiliates(3):
Conoco (terms up to 17 years)	2		16		18
Consolidation Coal Sales Company (terms up to 2 years)	—		103		103
Total obligations for divested subsidiaries and affiliates	2		119		121

	$	394	$	297	$	691

(1) Existing guarantees for customers, suppliers, and other unaffiliated companies arose as part of contractual agreements.

(2) Existing guarantees for equity affiliates and other affiliated companies arose for liquidity needs in normal operations.

(3) The company has guaranteed certain obligations and liabilities related to divested subsidiaries Conoco and Consolidation Coal Sales Company. Conoco and Consolidation Coal Sales Company have indemnified the company for any liabilities the company may incur pursuant to these guarantees.

Master Operating Leases

At September 30, 2009, the company has one master operating lease program relating to miscellaneous short-lived equipment with an unamortized value of approximately $69. The leases under this program are considered operating leases and accordingly the related assets and liabilities are not recorded on the Consolidated Balance Sheets. Furthermore, the lease payments associated with this program vary based on one month USD LIBOR. In November 2008, the lessor notified the company that the program will terminate by November 2009. Prior to that time, the company may either purchase the assets for their unamortized value or arrange for the sale of the assets and remit the proceeds to the lessor. If the assets are sold and the proceeds are less than the unamortized value, the company must pay to the lessor the difference between the proceeds and the unamortized value, up to the residual value guarantee, which totaled $60 at September 30, 2009.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Litigation

PFOA

Regulatory and Environmental Actions

In January 2009, the U.S. Environmental Protection Agency (EPA) issued a national Provisional Health Advisory for PFOA of 0.4 parts per billion (ppb) in drinking water. In March 2009, EPA and DuPont entered an Order on Consent under the Safe Drinking Water Act (SDWA) reflecting an action level of 0.40 ppb. Under the terms of the 2009 consent order, DuPont will conduct surveys, sampling and analytical testing in the area around its Washington Works site located in Parkersburg, West Virginia. If tests indicate the presence of PFOA, (collectively, perfluorooctanoic acids and its salts, including the ammonium salt), in drinking water at 0.40 ppb or greater, the company will offer treatment or an alternative supply of drinking water. The 2009 consent order supersedes the November 2006 Order on Consent between DuPont and EPA which established a precautionary interim screening level for PFOA of 0.50 ppb in drinking water sources in the area around the Washington Works site. All of DuPont’s remaining obligations under the 2006 consent order have been incorporated into the 2009 consent order.

In late 2005 DuPont and the EPA entered into a Memorandum of Understanding (EPA MOU) that required DuPont to monitor PFOA in the soil, air, water and biota around the Washington Works site. The required third party peer review of the data generated in the monitoring process has been completed. The final report was issued in September 2009 and DuPont’s response is due in the fourth quarter 2009.

As agreed with the New Jersey Department of Environmental Protection (NJDEP), DuPont began voluntarily sampling private wells within a two-mile radius of its Chambers Works site in Deepwater, New Jersey for the presence of PFOA in the second quarter 2009.

At September 30, 2009, DuPont has accruals of about $0.6 to fund its activities under the 2009 consent order and EPA MOU and to fund its voluntary activities under the NJDEP agreement.

EPA Administrative Complaints

In July and December 2004, the EPA filed administrative complaints against DuPont alleging that the company failed to comply with the technical reporting requirements of the Toxic Substances Control Act (TSCA) and the Resource Conservation and Recovery Act (RCRA) regarding PFOA. Under a 2005 agreement settling the matter, the company paid civil fines of $10.25 and will complete two Supplemental Environmental Projects at a total cost of $6.25.

Actions: Drinking Water

In August 2001, a class action, captioned Leach v. DuPont, was filed in West Virginia state court against DuPont and the Lubeck Public Service District. DuPont uses PFOA as a processing aid to manufacture fluoropolymer resins and dispersions at various sites around the world including its Washington Works plant in West Virginia. The complaint alleged that residents living near the Washington Works facility had suffered, or may suffer, deleterious health effects from exposure to PFOA in drinking water. The relief sought included damages for medical monitoring, diminution of property values and punitive damages plus injunctive relief to stop releases of PFOA. DuPont and attorneys for the class reached a settlement agreement in 2004 and as a result, the company established accruals of $108 in 2004. The agreement was approved by the Wood County Circuit Court on February 28, 2005 after a fairness hearing. The settlement binds a class of approximately 80,000 residents. As defined by the court, the class includes those individuals who have consumed, for at least one year, water containing 0.05 ppb or greater of PFOA from any of six designated public water sources or from sole source private wells.

In July 2005, the company paid the plaintiffs’ attorneys’ fees and expenses of $23 and made a payment of $70, which class counsel has designated to fund a community health project. The company is also funding a series of health studies by an independent science panel of experts in the communities exposed to PFOA to evaluate available scientific evidence on whether any probable link exists between exposure to PFOA and human disease. The company expects the independent science panel to

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

complete these health studies between 2009 and year-end 2011 at a total estimated cost of $26, of which $5 was originally placed in an interest-bearing escrow account. In addition, the company is providing state-of-the art water treatment systems designed to reduce the level of PFOA in water to six area water districts, including the Little Hocking Water Association (LHWA), until the science panel determines that PFOA does not cause disease or until applicable water standards can be met without such treatment. All of the water treatment systems are operating. The estimated cost of constructing, operating and maintaining these systems is about $22 of which $10 was originally placed in an interest-bearing escrow account. At September 30, 2009, the accrual balance relating to the funding of the independent science panel health study and the water treatment systems was $12, including $6 in interest bearing escrow accounts.

The settlement resulted in the dismissal of all claims asserted in the lawsuit except for personal injury claims. If the independent science panel concludes that no probable link exists between exposure to PFOA and any diseases, then the settlement would also resolve personal injury claims. If it concludes that a probable link does exist between exposure to PFOA and any diseases, then DuPont would also fund up to $235 for a medical monitoring program to pay for such medical testing. In this event, plaintiffs would retain their right to pursue personal injury claims. All other claims in the lawsuit would remain dismissed by the settlement. DuPont believes that it is remote that the panel will find a probable link. Therefore, at September 30, 2009, the company had not established any accruals related to medical monitoring or personal injury claims. However, there can be no assurance as to what the independent science panel will conclude.

In June 2007 and again in August 2009, the LHWA notified DuPont that it intends to file suit under RCRA alleging “imminent and substantial endangerment to health and or the environment” based on detection of PFOA in its wells. DuPont received in February 2009, two additional letters of intent to file suit under RCRA alleging “imminent and substantial endangerment to health and or the environment” based on detection of PFOA in public and private water wells in Parkersburg, West Virginia and Penns Grove, New Jersey. DuPont denies any such endangerment exists at any of these locations and intends to vigorously defend itself if a lawsuit is filed.

In September 2007, LHWA refiled the suit it originally filed in Ohio state court and voluntarily dismissed in 2006. The suit claims that perfluorinated compounds, including PFOA, allegedly released from the Washington Works plant contaminated LHWA’s well fields and underlying aquifer. LHWA’s complaint seeks a variety of relief including compensatory and punitive damages, and an injunction requiring DuPont to provide a new “pristine” well field and the infrastructure to deliver it.

In the third quarter 2009, Emerald Coast Utilities Authority, owner and operator of public drinking water systems in Pensacola, Florida and nearby areas, filed suit in state court against several defendants including the company alleging water contamination from PFOA and perfluorooctane sulfonate (PFOS). DuPont does not have any facilities in the water district served by the Emerald Coast Utilities Authority that manufacture or use PFOA. DuPont does not and has not manufactured PFOS and does not use the compound in its processes. The complaint seeks testing, treatment, remediation and monitoring.

In the second quarter 2006, three purported class actions were filed alleging that drinking water had been contaminated by PFOA in excess of 0.05 ppb due to alleged releases from certain DuPont plants. One of these cases was filed in West Virginia state court by three individual plaintiffs on behalf of customers of the Parkersburg City Water District, but was removed on DuPont’s motion to the U.S. District Court for the Southern District of West Virginia. In September 2008, the U.S. District Court ruled that the case could not proceed as a class action. Plaintiffs’ appeal of the ruling was denied. In the second quarter 2009, the plaintiffs added a claim based on public nuisance and again moved for class certification. In the third quarter 2009, the Court granted summary judgment in DuPont’s favor dismissing all claims brought by the three plaintiffs, including public nuisance and class certification, except for medical monitoring.

The other two purported class actions were filed in New Jersey. One was filed in federal court on behalf of individuals who allegedly drank water contaminated by releases from DuPont’s Chambers Works plant in Deepwater, New Jersey. The second was filed in state court on behalf of customers serviced primarily by the Pennsville Township Water Department and was removed to New Jersey federal district court on

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

DuPont’s motion. The New Jersey cases have been combined for purposes of discovery and the complaints have been amended to allege that drinking water had been contaminated by PFOA in excess of 0.04 ppb. In December 2008, the court denied class action status in both cases, but ordered additional briefing on certain issues. In October 2009, the court granted class certification for certain sub-classes regarding public and private nuisance claims, while denying class certification for all other claims. The court also certified a legal question related to strict liability.

The company is defending itself vigorously against these lawsuits alleging contamination of drinking water sources.

While DuPont believes that it is reasonably possible that it could incur losses related to PFOA matters in addition to those matters discussed above for which it has established accruals, a range of such losses, if any, cannot be reasonably estimated at this time.

Consumer Products Class Actions

		Number of Cases

Balance at December 31, 2008		22
Filed		—
Resolved		—
Balance at March 31, 2009		22
Filed		—
Dismissed		(22)
Balance at June 30, 2009		—
Filed		—
Resolved		—
Balance at September 30, 2009		—

In the second quarter 2009, plaintiffs’ counsel dismissed all twenty-two purported class actions that were filed against DuPont on behalf of consumers who purchased cookware with Teflon® non-stick coating in federal district courts.

In December 2005, a motion was filed by a single named plaintiff in the Superior Court for the Province of Quebec, Canada seeking authorization to institute a class action on behalf of all Quebec consumers who have purchased or used kitchen items, household appliances or food-packaging containing Teflon® or Zonyl® non-stick coatings. This matter has been inactive since filing. In the third quarter 2009, the Court dismissed the motion.

Elastomers Antitrust Matters

Since 2002, the U.S., European Union (EU) and Canadian antitrust authorities have investigated the synthetic rubber markets for possible violations. These investigations included DuPont Dow Elastomers, LLC (DDE), as a result of its participation in the polychloroprene (PCP) and ethylene propylene diene monomer (EPDM) markets. DDE was a joint venture between The Dow Chemical Company (Dow) and DuPont.

In April 2004, DuPont and Dow entered into a series of agreements under which DuPont obtained complete control over directing DDE’s response to these investigations and the related litigation and DuPont agreed to a disproportionate share of the venture’s liabilities and costs related to these matters. Consequently, DuPont bears any potential liabilities and costs up to the initial $150. Dow is obligated to indemnify DuPont for up to $72.5 by paying 15 to 30 percent toward liabilities and costs in excess of $150. On June 30, 2005, DDE became a wholly owned subsidiary of DuPont and was renamed DuPont Performance Elastomers, LLC (DPE).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

In July 2007, DPE pled guilty to conspiring to fix prices and paid a fine of CDN $4, approximately $3.8 USD, resolving all criminal antitrust allegations against it related to PCP in Canada.

In late March 2007, the EU antitrust authorities issued a Statement of Objections that made antitrust allegations regarding the PCP market against DPE, relating to the joint venture’s activities, and DuPont, to which both responded. In December 2007, the EU antitrust authorities issued their decision, including the imposition of fines against DPE, Dow and DuPont totaling EURO 59.25. In February 2008, DuPont appealed the decision to the EU’s Court of First Instance which has jurisdiction to review the findings and adjust the fine. It is very unlikely that the fine would be increased as a result of the review. In March 2008, the company provisionally paid the fine of EURO 59.25 ($90.9 USD); a portion of the payment may be refunded if the appeal is successful. While a decision on the February 2008 appeal has not been issued, the EU antitrust authorities revised the December 2007 decision by imposing an incremental fine on Dow of EURO 4.425 ($6.5 USD). Dow provisionally paid the incremental fine in the third quarter of 2008 which DuPont reimbursed under the agreements between the companies.

DDE resolved all criminal antitrust allegations against it related to PCP in the U.S. through a plea agreement with the Department of Justice (DOJ) in January 2005 which was approved by the court on March 29, 2005. The agreement requires the subsidiary to pay a fine of $84 which, at its election, is being paid in six equal, annual installments. The last remaining installment is due in 2010. The agreement also requires the subsidiary to provide ongoing cooperation with the DOJ’s investigation.

At September 30, 2009, the company has accruals of approximately $14 related to this matter and a receivable of $1.7 for the remaining amount that it expects to be reimbursed by Dow.

Benlate®

In 1991, DuPont began receiving claims by growers that use of Benlate® 50 DF fungicide had caused crop damage. DuPont has since been served with thousands of lawsuits, most of which have been disposed of through trial, dismissal or settlement. The status of Benlate® cases is indicated in the table below:

		Number of Cases

Balance at December 31, 2008		11
Filed		1
Resolved		—
Balance at March 31, 2009		12
Filed		—
Resolved		—
Balance at June 30, 2009		12
Filed		1
Resolved		—
Balance at September 30, 2009		13

At September 30, 2009, there were ten cases pending in Florida state court, involving allegations that Benlate® caused crop damage. One attorney represents the plaintiffs in 6 out of the 10 cases. Another attorney represents the plaintiffs in 3 of the 10 cases including 2 cases involving twenty-seven Costa Rican fern growers. During the second quarter 2006 trial of these 2 cases, the plaintiffs sought damages in the range of $270 to $400. A $56 judgment was rendered against the company, but was reduced to $24 on DuPont’s motion. DuPont believes that the appeal will be resolved in its favor and, therefore, has not established an accrual relating to the judgment. In the third quarter 2009, a case alleging crop damage was filed for the third time having been dismissed twice before on DuPont’s motion. It has been, and continues to be, the company’s position that the plaintiff does not own the property allegedly damaged.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

In two other cases pending in Florida, plaintiffs allege damage to shrimping operations. These cases had been decided in DuPont’s favor, but in September 2007, the judge granted plaintiffs’ motion for new trial thus reinstating the cases. Previously, these plaintiffs had been awarded unspecified attorneys’ fees as sanctions for alleged discovery abuses by DuPont. In June 2009, the Judge issued an order striking DuPont’s pleadings and entering a default judgment against the company as to liability and causation. DuPont will appeal the order after the trial on damages which is expected to occur in the first quarter of 2010.

In January 2009, a case was filed in Florida state court claiming that plaintiff’s exposure to Benlate® allegedly contaminated with atrazine caused plaintiff’s kidney and brain cancer. The case has been removed to federal court.

The company does not believe that Benlate® caused the damages alleged in each of these cases and denies the allegations of fraud and misconduct. The company continues to defend itself in ongoing matters. As of September 30, 2009, the company has incurred costs and expenses of approximately $2,000 associated with these matters, but does not expect additional significant costs or expenses associated with the remaining 13 cases. The company has recovered approximately $275 of its costs and expenses through insurance and does not expect additional insurance recoveries, if any, to be significant. At September 30, 2009, the company has accruals of $0.1 related to Benlate®.

Spelter, West Virginia

In September 2006, a West Virginia state court certified a class action against DuPont that seeks relief including the provision of remediation services and property value diminution damages for 7,000 residential properties in the vicinity of a closed zinc smelter in Spelter, West Virginia. The action also seeks medical monitoring for an undetermined number of residents in the class area. The smelter was owned and operated by at least three companies between 1910 and 2001, including DuPont between 1928 and 1950. DuPont performed remedial measures at the request of the EPA in the late 1990s and in 2001 repurchased the site to facilitate and complete the remediation. The fall 2007 trial was conducted in four phases: liability, medical monitoring, property and punitive damages. The jury found against DuPont in all four phases awarding $55.5 for property remediation and $196.2 in punitive damages. In post trial motions, the court adopted the plaintiffs’ forty-year medical monitoring plan estimated by plaintiffs to cost $130 and granted plaintiffs’ attorneys legal fees of $127 plus $8 in expenses based on and included in the total jury award. In June 2008, DuPont filed its petitions for appeal with the West Virginia Supreme Court seeking review of a number of issues associated with the trial court’s decisions before, during and after the trial. On September 25, 2008, the Court decided to accept the case and consider the parties’ appeal on the merits. The oral argument was heard on April 7, 2009. The Court recessed on June 25, 2009 without ruling on the appeal and reconvened in September 2009. A decision is expected in due course. Effective with DuPont posting a bond, the execution of judgment against the company is stayed pending final disposition of DuPont’s appeal to the West Virginia Supreme Court of Appeals. As of September 30, 2009, the company had recorded accruals of $55, although given the uncertainties inherent in litigation, there can be no assurance as to the final outcome.

General

The company is subject to various lawsuits and claims arising out of the normal course of its business. These lawsuits and claims include actions based on alleged exposures to products, intellectual property and environmental matters and contract and antitrust claims. Management has noted a nationwide trend in purported class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site remediation and punitive damages arising from alleged environmental torts without claiming present personal injuries. Such cases may allege contamination from unregulated substances or remediated sites. Although it is not possible to predict the outcome of these various lawsuits and claims, management does not anticipate they will have a materially adverse effect on the company’s consolidated financial position or liquidity. However, the ultimate liabilities may be significant to results of operations in the period recognized. The company accrues for contingencies when the information available indicates that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Environmental

The company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the company or other parties. The company accrues for environmental remediation activities consistent with the policy set forth in Note 1 in the company’s 2008 Annual Report. Much of this liability results from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as Superfund), the Resource Conservation and Recovery Act (RCRA) and similar state laws. These laws require the company to undertake certain investigative and remedial activities at sites where the company conducts or once conducted operations or at sites where company-generated waste was disposed. The accrual also includes estimated costs related to a number of sites identified by the company for which it is probable that environmental remediation will be required, but which are not currently the subject of CERCLA, RCRA or state enforcement activities.

Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, as well as the presence or absence of potentially responsible parties. At September 30, 2009, the Condensed Consolidated Balance Sheets included a liability of $396, relating to these matters and, in management’s opinion, is appropriate based on existing facts and circumstances. The average time frame, over which the accrued or presently unrecognized amounts may be paid, based on past history, is estimated to be 15-20 years. Considerable uncertainty exists with respect to these costs and, under adverse changes in circumstances, potential liability may range up to two to three times the amount accrued as of September 30, 2009.

Other

The company has various purchase commitments incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market nor are they significantly different than amounts disclosed in the company’s 2008 Annual Report.

Note 11. Derivatives and Other Hedging Instruments

Effective January 1, 2009, the company prospectively implemented the revised requirements for enhancing the disclosures of derivative and hedging instruments to provide users of financial statements with a better understanding of the objectives of a company’s derivative use and the risks managed.

Objectives and Strategies for Holding Derivative Instruments

In the ordinary course of business, the company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks under established procedures and controls. The company has established a variety of approved derivative instruments to be utilized in each risk management program, as well as varying levels of exposure coverage and time horizons based on an assessment of risk factors related to each hedging program. Derivative instruments utilized during the period include forwards, options, futures and swaps. The company has not designated any nonderivatives as hedging instruments.

The corporate financial risk management policy establishes an oversight committee and risk management guidelines that authorize the use of specific derivative instruments and further establishes procedures for control and valuation, counterparty credit approval and routine monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company manages this exposure to credit loss through the aforementioned credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. The company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

The company hedges foreign currency denominated revenue and monetary assets and liabilities, certain business specific foreign currency exposures and certain energy feedstock purchases. In addition, the company enters into exchange traded agricultural commodity derivatives to hedge exposures relevant to agricultural feedstock purchases.

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 value of its existing foreign currency-denominated assets, liabilities, commitments, and cash flows.

The company routinely uses forward 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.

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 for 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 achieve a target range of floating rate debt.

Commodity Price Risk

Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as natural gas, ethane, corn, soybeans and soybean meal.

The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with energy feedstock and agricultural commodity exposures.

Fair Value Hedges

During the quarter ended September 30, 2009, the company maintained a number of interest rate swaps, implemented at the time the debt instruments were issued, that involve the exchange of fixed for floating rate interest payments which allows the company to achieve a target range of floating rate debt. All interest rate swaps qualify for the shortcut method of hedge accounting, thus there is no ineffectiveness related to these hedges. The company maintains no other significant fair value hedges. At September 30, 2009, the company had interest rate swap agreements with gross notional amounts of approximately $1,150.

Cash Flow Hedges

The company maintains a number of cash flow hedging programs to reduce risks related to foreign currency and commodity price risk. While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two-year period.

The company 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. At September 30, 2009, the company had foreign currency exchange contracts with gross notional amounts of approximately $764.

A portion of natural gas purchases are hedged to reduce price volatility using fixed price swaps and options. At September 30, 2009, the company had energy feedstock contracts with gross notional amounts of approximately $307.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

The company contracts with independent growers to produce seed inventory. Under these contracts, growers are compensated with bushel equivalents that are sold to the company for the market price of grain for a period of time. Derivative instruments, such as commodity futures and options that have a high correlation to the underlying commodity, are used to hedge the commodity price risk involved in compensating growers.

The company utilizes agricultural commodity futures 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.

At September 30, 2009, the company had agricultural commodity contracts with gross notional amounts of approximately $251.

Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction will not materialize. The following table summarizes the effect of cash flow hedges on accumulated other comprehensive income (loss) for the periods shown:

	Three Months Ended September 30, 2009									Nine Months Ended September 30, 2009
	Pre-tax			Tax			After- Tax			Pre-tax			Tax			After- Tax

Beginning balance	$	(187	)	$	67		$	(120	)	$	(246	)	$	88		$	(158	)
Additions and revaluations of derivatives designated as cash flow hedges	(2		)	2			—			(75		)	27			(48		)

Clearance of hedge results to earnings	36			(14		)	22			168			(60		)	108