Edgar Filing: DUPONT E I DE NEMOURS & CO

DD-2011.9.30-10Q

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, 2011



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 Filero

Non-Accelerated Filer o		Smaller reporting companyo

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

The Registrant had 923,919,000 shares (excludes 87,041,000 shares of treasury stock) of common stock, $0.30 par value, outstanding at October 15, 2011.

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E. I. DU PONT DE NEMOURS AND COMPANY

Table of Contents

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
	Note 1.	Summary of Significant Accounting Policies	6
	Note 2.	Danisco Acquisition	6
	Note 3.	Other Income, Net	8
	Note 4.	Employee Separation / Asset Related Charges, Net	8
	Note 5.	Provision for Income Taxes	9
	Note 6.	Earnings Per Share of Common Stock	10
	Note 7.	Fair Value Measurements	10
	Note 8.	Inventories	11
	Note 9.	Goodwill and Other Intangible Assets	11
	Note 10.	Debt	12
	Note 11.	Commitments and Contingent Liabilities	13
	Note 12.	Stockholders’ Equity	17
	Note 13.	Derivatives and Other Hedging Instruments	20
	Note 14.	Long-Term Employee Benefits	25
	Note 15.	Segment Information	26

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	Cautionary Statements About Forward-Looking Statements		28
	Results of Operations		28
	Recent Accounting Pronouncements		31
	Segment Reviews		32
	Liquidity & Capital Resources		35
	Contractual Obligations		37
	PFOA		37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		37

Part II	Other Information

Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 5.	Other Information		39
Item 6.	Exhibits		39
Signature			40
Exhibit Index			41

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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					Nine Months Ended
	September 30,					September 30,
	2011		2010			2011		2010
Net sales	$	9,238	$	7,001		$	29,536	$	24,101
Other income, net	161		66			415		890
Total	9,399		7,067			29,951		24,991

Cost of goods sold and other operating charges	7,107		5,443			21,129		17,223
Selling, general and administrative expenses	1,014		782			3,177		2,796
Research and development expense	557		409			1,418		1,178
Interest expense	116		103			331		309
Employee separation / asset related charges, net	36		—			36		—
Total	8,830		6,737			26,091		21,506

Income before income taxes	569		330			3,860		3,485
Provision for (benefit from) income taxes	109		(39		)	727		811
Net income	460		369			3,133		2,674
Less: Net income attributable to noncontrolling interests	8		2			32		19
Net income attributable to DuPont	$	452	$	367		$	3,101	$	2,655

Basic earnings per share of common stock	$	0.48	$	0.40		$	3.33	$	2.92
Diluted earnings per share of common stock	$	0.48	$	0.40		$	3.28	$	2.89
Dividends per share of common stock	$	0.41	$	0.41		$	1.23	$	1.23

See Notes to the Consolidated Financial Statements beginning on page 6.

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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, 2011			December 31, 2010
Assets
Current assets
Cash and cash equivalents	$	2,750		$	4,263
Marketable securities	229			2,538
Accounts and notes receivable, net	8,544			5,635
Inventories	6,413			5,967
Prepaid expenses	154			122
Deferred income taxes	705			534
Total current assets	18,795			19,059
Property, plant and equipment, net of accumulated depreciation (September 30, 2011 - $19,362; December 31, 2010 - $18,628)	13,235			11,339
Goodwill	5,493			2,617
Other intangible assets	5,550			2,704
Investment in affiliates	1,079			1,041
Other assets	3,642			3,650
Total	$	47,794		$	40,410

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,981		$	4,230
Short-term borrowings and capital lease obligations	3,301			133
Income taxes	520			225
Other accrued liabilities	3,568			4,801
Total current liabilities	11,370			9,389
Long-term borrowings and capital lease obligations	12,200			10,137
Other liabilities	11,065			11,026
Deferred income taxes	1,135			115
Total liabilities	35,770			30,667

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, 2011 - 1,010,894,000; December 31, 2010 - 1,004,351,000	303			301
Additional paid-in capital	9,983			9,227
Reinvested earnings	13,432			12,030
Accumulated other comprehensive loss	(5,684		)	(5,790		)
Common stock held in treasury, at cost (87,041,000 shares at September 30, 2011 and December 31, 2010)	(6,727		)	(6,727		)
Total DuPont stockholders’ equity	11,544			9,278
Noncontrolling interests	480			465
Total equity	12,024			9,743
Total	$	47,794		$	40,410

See Notes to the Consolidated Financial Statements beginning on page 6.

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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,
	2011			2010
Operating activities
Net income	$	3,133		$	2,674
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	944			904
Amortization of intangible assets	195			142
Contributions to pension plans	(272		)	(704		)
Other noncash charges and credits - net	846			442
Change in operating assets and liabilities - net	(4,415		)	(3,423		)
Cash provided by operating activities	431			35

Investing activities
Purchases of property, plant and equipment	(1,211		)	(899		)
Investments in affiliates	(35		)	(71		)
Payments for businesses - net of cash acquired	(6,459		)	—
Proceeds from sales of assets - net of cash sold	62			173
Net decrease in short-term financial instruments	2,365			201
Forward exchange contract settlements	(299		)	396
Other investing activities - net	1			(94		)
Cash used for investing activities	(5,576		)	(294		)

Financing activities
Dividends paid to stockholders	(1,152		)	(1,122		)
Net increase in borrowings	4,503			1,327
Repurchase of common stock	(672		)	—
Proceeds from exercise of stock options	833			199
Other financing activities - net	52			(18		)
Cash provided by financing activities	3,564			386
Effect of exchange rate changes on cash	68			(60		)
(Decrease) increase in cash and cash equivalents	$	(1,513	)	$	67
Cash and cash equivalents at beginning of period	4,263			4,021
Cash and cash equivalents at end of period	$	2,750		$	4,088

See Notes to the Consolidated Financial Statements beginning on page 6.

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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 audited Consolidated Financial Statements and Notes thereto contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2010, collectively referred to as the ‘2010 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 for which DuPont is the primary beneficiary. Certain reclassifications of prior year’s data have been made to conform to current year classifications.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance on fair value measurements and disclosures which becomes effective for interim and annual periods beginning after December 15, 2011. The new guidance enhances disclosures and refines certain aspects of fair value measurement that primarily affect financial instruments. The adoption of this guidance is not expected to have a material effect on the company's financial position or results of operations.

In June 2011, the FASB issued amendments to the presentation of comprehensive income which become effective for interim and annual periods beginning after December 15, 2011. The amendments eliminate the current reporting option of displaying components of other comprehensive income within the statement of changes in stockholders' equity. Under the new guidance, the company will be required to present either a single continuous statement of comprehensive income or an income statement immediately followed by a statement of comprehensive income. The company is currently evaluating which of the two presentation methods it will adopt.

Note 2. Danisco Acquisition

In January 2011, DuPont and its wholly owned subsidiary, DuPont Denmark Holding ApS (DDHA), entered into a definitive agreement with Danisco A/S (Danisco), a global enzyme and specialty food ingredients company, for DDHA to make a public tender offer for all of Danisco's outstanding shares at a price of 665 Danish Kroner (DKK) in cash per share. On April 29, 2011, DDHA increased the price of its tender offer to acquire all of the outstanding shares of Danisco to DKK 700 in cash per share.

On May 19, 2011, the company acquired approximately 92.2 percent of Danisco's outstanding shares, excluding treasury shares, pursuant to the previously announced tender offer. As of September 30, 2011, DuPont had acquired all of Danisco's remaining outstanding shares. This acquisition has established DuPont as a leader in industrial biotechnology with science-intensive innovations that address global challenges in food production and reduced fossil fuel consumption. The Danisco acquisition is valued at $6,417, plus net debt assumed of $617.

As part of the acquisition, DuPont incurred $3 and $85 in transaction related costs in the third quarter 2011 and year-to-date 2011, respectively. These costs were recorded in cost of goods sold and other operating charges.

In the second and third quarters 2011, the businesses acquired from Danisco contributed net sales of $1,000 and net income attributable to DuPont of $(50), which excludes $20 after-tax ($26 pre-tax) of additional interest expense related to the debt issued to finance the acquisition. These contributions included a $125 after-tax ($175 pre-tax) charge related to the fair value step-up of inventories acquired and sold during this time period.

The following unaudited pro forma summary presents DuPont's consolidated results of operations as if Danisco had been acquired on January 1, 2010. These amounts were calculated after conversion from International Financial Reporting Standards to GAAP and adjusting Danisco's results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2010, together with the consequential tax effects. These adjustments also reflect the additional interest expense

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

incurred on the debt to finance the purchase. The 2011 pro forma earnings were adjusted to exclude the acquisition related costs incurred in 2011 and the nonrecurring expense related to the fair value inventory step-up adjustment. The 2010 pro forma earnings were adjusted to include these charges. The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and borrowings undertaken to finance the acquisition had taken place at the beginning of 2010.



	Pro forma for the Three Months Ended September 30,				Pro forma for the Nine Months Ended September 30,
	2011		2010		2011		2010
Net sales	$	9,238	$	7,678	$	30,757	$	26,110
Net income attributable to DuPont	544		400		3,344		2,531

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:



Fair value of assets acquired
Cash and cash equivalents	$	48
Accounts and notes receivable ¹	522
Inventories ²	709
Property, plant and equipment	1,720
Goodwill ³	2,900
Other intangible assets ⁴	2,859
Other current and non-current assets	79
Total assets acquired	$	8,837

Fair value of liabilities assumed
Accounts payable and other accrued liabilities	$	482
Short-term borrowings	342
Long-term borrowings	323
Other liabilities	219
Deferred income taxes ⁵	1,054
Total liabilities assumed	$	2,420

_______________________________


¹	The gross amount of accounts and notes receivable acquired was $531, of which $9 was expected to be uncollectible.


²	The fair value of inventories acquired included a step-up in the value of $175, of which $132 and $175 was expensed to cost of goods sold and other operating charges for the three and nine month periods ended September 30, 2011, respectively.


³	Goodwill will not be deductible for statutory tax purposes. Goodwill is attributable to Danisco's workforce and the synergies in technology, operations and market access that are expected from the acquisition. Approximately $900 and $2,000 of goodwill was allocated to the Industrial Biosciences and Nutrition & Health segments, respectively.


⁴	Other intangible assets acquired of $1,002 are indefinite-lived (see Note 9).


⁵	The deferred income tax liabilities assumed represent the adjustments for the tax impact of fair value adjustments, primarily relating to definite-lived intangible assets.

The above amounts represent the preliminary allocation of purchase price. Final determination of the fair values may result in further adjustments to the values presented above.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 3. Other Income, Net



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Cozaar^®/Hyzaar^® income	$	68		$	109		$	195		$	397
Royalty income	30			36			96			89
Interest income	28			28			88			68
Equity in earnings of affiliates, excluding exchange gains/losses	34			33			117			119
Net (losses) gains on sales of assets	(1		)	1			38			96
Net exchange losses ¹	(6		)	(160		)	(145		)	(25		)
Miscellaneous income and expenses, net ²	8			19			26			146
Total	$	161		$	66		$	415		$	890

__________________________________

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, generally includes interest items, insurance recoveries, litigation settlements and other items.

Note 4. Employee Separation / Asset Related Charges, Net

During the third quarter 2011, the company initiated a restructuring program as a result of the integration of Danisco as described below. A complete discussion of the prior restructuring initiatives is included in the company's 2010 Annual Report in Note 4, “Employee Separation / Asset Related Charges, Net.” At September 30, 2011, total liabilities relating to current and prior restructuring activities were $52.

2011 Restructuring Program

During the third quarter 2011, the company initiated a series of actions to achieve the expected cost synergies associated with the Danisco acquisition. As a result, the company recorded a $36 charge in employee separation / asset related charges, net, primarily for employee separation costs in the United States of America (U.S.) and Europe. This charge reduced segment earnings as follows: Industrial Biosciences - $8, Nutrition & Health - $10, and Other - $18. The company expects this initiative and all related payments to be substantially complete in 2013.

Account balances and activity for the 2011 restructuring program are summarized below:



	Employee Separation Costs
Charges to income for three and nine months ended September 30, 2011	$	36
Payments	(1		)
Balance as of September 30, 2011	$	35

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

2009 Restructuring Program

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



	Employee Separation Costs			Other Non- personnel Charges¹			Total
Balance at December 31, 2010	$	46		$	1		$	47
Payments	(36		)	(1		)	(37		)
Net translation adjustment	2			—			2
Balance as of September 30, 2011	$	12		$	—		$	12

__________________________________


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

The actions related to the 2009 restructuring program were substantially completed by the end of 2010 with payments continuing into 2011, primarily in Europe.

Note 5. Provision for Income Taxes

In the third quarter 2011, the company recorded a tax provision of $109, including $41 of tax expense primarily associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations.

Year-to-date 2011, the company recorded a tax provision of $727, including $101 of tax benefit primarily associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations.

In the third quarter 2010, the company recorded a tax benefit of $39, including $157 of tax benefit primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations.

Year-to-date 2010, the company recorded a tax provision of $811, including $54 of tax expense primarily associated with the company’s policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations and $49 net tax benefit related to the adjustment of income tax accruals associated with settlements of tax contingencies related to prior years.

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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 6. 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						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Numerator:
Net income attributable to DuPont	$	452		$	367		$	3,101		$	2,655
Preferred dividends	(3		)	(3		)	(8		)	(8		)
Net income available to DuPont common stockholders	$	449		$	364		$	3,093		$	2,647

Denominator:
Weighted-average number of common shares - Basic	932,356,000			908,366,000			929,369,000			906,991,000
Dilutive effect of the company’s employee compensation plans	11,129,000			10,134,000			13,443,000			7,996,000
Weighted-average number of common shares - Diluted	943,485,000			918,500,000			942,812,000			914,987,000

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,
	2011	2010	2011	2010
Average number of stock options	8,678,000	47,108,000	2,904,000	56,845,000

The change in the average number of stock options that were antidilutive in the three and nine months ended September 30, 2011 compared to the same periods last year was primarily due to changes in the company’s average stock price.

Note 7. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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);

Level 3 —	Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

The company has determined that its financial assets and liabilities are level 1 and level 2 in the fair value hierarchy. At September 30, 2011 and December 31, 2010, the following financial assets and financial liabilities were measured at fair value on a recurring basis using the type of inputs shown:



			Fair Value Measurements at September 30, 2011 Using
	September 30, 2011		Level 1 Inputs		Level 2 Inputs
Financial assets
Derivatives	$	301	$	—	$	301
Available-for-sale securities	11		11		—
	$	312	$	11	$	301

Financial liabilities
Derivatives	$	101	$	—	$	101



			Fair Value Measurements at December 31, 2010 Using
	December 31, 2010		Level 1 Inputs		Level 2 Inputs
Financial assets
Derivatives	$	153	$	—	$	153
Available-for-sale securities	17		17		—
	$	170	$	17	$	153

Financial liabilities
Derivatives	$	132	$	—	$	132

See Note 10 for further information regarding the fair value of the company's outstanding debt. In addition, see Note 21, “Long-Term Employee Benefits”, to the company's 2010 Annual Report for information regarding the company's pension assets measured at fair value on a recurring basis.

Note 8. Inventories



	September 30, 2011			December 31, 2010
Finished products	$	3,773		$	3,191
Semifinished products	2,368			2,564
Raw materials, stores and supplies	1,099			855
	7,240			6,610
Adjustment of inventories to a last-in, first-out (LIFO) basis	(827		)	(643		)
Total	$	6,413		$	5,967

Note 9. Goodwill and Other Intangible Assets

The increase in goodwill from $2,617 at December 31, 2010 to $5,493 at September 30, 2011 primarily relates to the goodwill associated with the Danisco acquisition (see Note 2).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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



	September 30, 2011							December 31, 2010
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived):
Customer lists	$	1,927	$	(219	)	$	1,708	$	525	$	(160	)	$	365
Patents	529		(65		)	464		118		(44		)	74
Purchased and licensed technology	1,815		(859		)	956		1,617		(765		)	852
Trademarks	57		(24		)	33		57		(22		)	35
Other ¹	377		(183		)	194		333		(163		)	170
	4,705		(1,350		)	3,355		2,650		(1,154		)	1,496

Intangible assets not subject to amortization (Indefinite-lived):
In-process research and development	71		—			71		—		—			—
Microbial cell factories ²	306		—			306		—		—			—
Pioneer germplasm ³	975		—			975		975		—			975
Trademarks/tradenames	843		—			843		233		—			233
	2,195		—			2,195		1,208		—			1,208
Total	$	6,900	$	(1,350	)	$	5,550	$	3,858	$	(1,154	)	$	2,704

_________________________________


¹	Primarily consists of sales and grower networks, marketing and manufacturing alliances and noncompetition agreements.

Microbial cell factories, derived from natural microbes, are used to sustainably produce enzymes, peptides and chemicals using natural metabolic processes. The company recognized the microbial cell factories as an intangible asset upon the acquisition of Danisco. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life.

Pioneer germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. The company recognized germplasm as an intangible asset upon the acquisition of Pioneer. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life.

The aggregate pre-tax amortization expense for definite-lived intangible assets was $58 and $195 for the three and nine month periods ended September 30, 2011, respectively, and $32 and $142 for the three and nine month periods ended September 30, 2010, respectively. The estimated aggregate pre-tax amortization expense for 2011 and each of the next five years is approximately $284, $334, $333, $322, $290 and $202. Estimated aggregate pre-tax amortization expense includes approximately $115 of amortization expense in each of the next five years related to definite-lived intangible assets acquired as part of the Danisco transaction.

Note 10. Debt

The carrying value of the company's outstanding debt was approximately $15,500 and $10,300 as of September 30, 2011 and December 31, 2010, respectively. 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 approximately $16,700 and $10,900 as of September 30, 2011 and December 31, 2010, respectively. The increase in the carrying value and fair value of debt was primarily due to the financing of the Danisco acquisition, the assumption of Danisco's debt and the increase in borrowings used to fund normal seasonal working capital needs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Short-Term Borrowings

In April 2011, the company issued a total of $1,000 in commercial paper as part of financing the Danisco acquisition. In addition, the company assumed $342 of Danisco's short-term debt, which was refinanced through the issuance of commercial paper in June 2011.

Long-Term Borrowings

In March 2011, the company issued $400 of 1.75% Senior Notes due 2014, $600 of Floating Rate Senior Notes due 2014, $500 of 2.75% Senior Notes due 2016 and $500 of 4.25% Senior Notes due 2021 (collectively referred to as the “Notes”). The Floating Rate Notes bear interest at three-month USD LIBOR (London Interbank Offered Rate) plus 0.42%. The net proceeds of $1,991 from the issuance of the Notes were used as part of financing the Danisco acquisition.

In addition, the company assumed $323 of floating rate DKK denominated long-term debt from Danisco. The floating rate long-term debt bears interest at the Copenhagen Interbank Offered Rate plus a weighted-average margin of 0.85%. The weighted-average remaining maturity of the assumed debt is 10 years. In third quarter 2011, the company refinanced $269 of long-term debt assumed from Danisco through the issuance of commercial paper.

In January 2011, the company entered into a $4,000 bridge loan facility and a $2,000 bridge loan facility in connection with the acquisition of Danisco. When the company completed the $3,000 financing for the acquisition, the $4,000 bridge loan facility was reduced by an equal amount. The remaining commitments under these facilities terminated on May 19, 2011, when the company acquired approximately 92.2 percent of Danisco's outstanding shares.

Note 11. Commitments and Contingent Liabilities

Guarantees

Product Warranty Liability

The company warrants that its products meet standard specifications. The company’s product warranty liability was $19 and $20 as of September 30, 2011 and December 31, 2010, 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 amounts recorded for all indemnifications as of September 30, 2011 and December 31, 2010 was $106 and $100, 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 $106 at September 30, 2011. 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, that 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. A 2012 trial date has been set.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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 companies. At September 30, 2011 and December 31, 2010, the company had directly guaranteed $550 and $544, respectively, of such obligations. In addition, the company had $16 relating to guarantees of historical obligations for divested subsidiaries as of September 30, 2011 and December 31, 2010. These amounts represent 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, 2011 and December 31, 2010, a liability of $120 and $109, 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.

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 39 percent of the $313 of guaranteed obligations of customers and suppliers. Set forth below are the company’s guaranteed obligations at September 30, 2011:



	Short-Term		Long-Term		Total
Obligations for customers and suppliers¹:
Bank borrowings (terms up to 5 years)	$	142	$	170	$	312
Leases on equipment and facilities (terms up to 4 years)	—		1		1
Obligations for other affiliated companies²:
Bank borrowings (terms less than 1 year)	195		—		195
Obligations for equity affiliates²:
Bank borrowings (terms up to 2 years)	13		6		19
Revenue bonds (terms up to 4 years)	—		23		23
Total obligations for customers, suppliers, other affiliated companies, and equity affiliates	350		200		550
Obligations for divested subsidiaries³:
Conoco (terms up to 15 years)	—		16		16
Total obligations for divested subsidiaries	—		16		16
Total	$	350	$	216	$	566

________________________________


1	Existing guarantees for customers and suppliers 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 a divested subsidiary, Conoco, which has indemnified the company for any liabilities the company may incur pursuant to these guarantees.

Imprelis^®

The company has received claims and been served with multiple lawsuits seeking class action status alleging that the use of Imprelis^® herbicide caused damage to certain trees. In August 2011, the company suspended sales of Imprelis^®. In September 2011, the company began a process to fairly resolve claims associated with the use of Imprelis^®. The deadline for property owners to file claims is November 30, 2011. In connection with this claims process, the company recorded a charge of $75 in cost of goods sold and other operating charges in the third quarter 2011. The company will continue to evaluate reported claim damage as additional information becomes available, which could result in future charges that cannot be reasonably estimated at this time; the company intends to seek recovery from its insurance carriers for costs associated with this matter in excess of $100.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Litigation

The company is subject to various legal proceedings arising out of the normal course of its business including product liability, intellectual property, commercial, environmental and antitrust lawsuits. It is not possible to predict the outcome of these various proceedings. Except as otherwise noted, management does not anticipate their resolution will have a materially adverse effect on the company's consolidated financial position or liquidity. However, the ultimate liabilities could be significant to results of operations in the period recognized.

PFOA

DuPont uses PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt), as a processing aid to manufacture fluoropolymer resins and dispersions at various sites around the world including its Washington Works plant in West Virginia. At September 30, 2011, DuPont has accruals of $21 related to the PFOA matters discussed below.

The accrual includes charges related to DuPont's obligations under agreements with the U.S. Environmental Protection Agency and the New Jersey Department of Environmental Protection. These obligations include surveying, sampling and testing drinking water in and around the company's Washington Works site and offer treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the national Provisional Health Advisory.

Drinking Water Actions

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 alleging that residents living near the Washington Works facility had suffered, or may suffer, deleterious health effects from exposure to PFOA in drinking water.

DuPont and attorneys for the class reached a settlement in 2004 that binds about 80,000 residents. In 2005, DuPont paid the plaintiffs’ attorneys’ fees and expenses of $23 and made a payment of $70, which class counsel 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 complete these health studies through July 2012 at a total estimated cost of $33. 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 no probable link exists between PFOA and human disease or until applicable water standards can be met without such treatment. All of the water treatment systems are operating.

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, 2011, the company has 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.

At September 30, 2011, there were four other actions pending brought by or on behalf of water district customers. These cases generally claim PFOA contamination of drinking water and seek a variety of relief including compensatory and punitive damages, testing, treatment, remediation and monitoring. In addition, the Ohio action, which was brought by the LHWA and is currently in discovery, claims “imminent and substantial endangerment to health and or the environment” under the Resource Conservation and Recovery Act (RCRA). In the West Virginia action, the court entered judgment for DuPont in the first quarter 2010 which was affirmed by the Fourth Circuit Court of Appeals in April 2011. Plaintiffs are seeking U.S. Supreme Court review. In the third quarter 2011, the court approved an $8.3 class action settlement for two consolidated actions in New Jersey, which the company paid in October 2011. DuPont denies the claims alleged in these civil drinking water actions and is defending itself vigorously.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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.

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.

At September 30, 2011, there were nine cases in Florida courts alleging that Benlate^® caused crop damage. The 2006 trial of two cases, involving twenty-seven Costa Rican fern growers, resulted in a verdict against the company. In 2009, the judgment was reversed on appeal and individual trials were ordered. In December 2010, the appellate court affirmed the order for separate trials and the dismissal of the verdicts for seven of the fern growers on grounds that their claims were barred by the statute of limitations. In August 2011, the Florida Supreme Court declined to hear plaintiffs' appeal. Plaintiffs have filed motions to strike DuPont's pleadings in these two cases. On January 19, 2011, the court entered an order in five of the other crop cases striking DuPont's pleadings for alleged discovery abuse. In the damages trial of one of these cases held in June 2011, the jury awarded $0.2 in compensatory damages plus interest and $0.8 in punitive damages. DuPont will appeal the pre-trial order and the verdict.

The 2010 jury trial of a personal injury case claiming that exposure to Benlate^® caused plaintiff's kidney, pancreatic and brain cancer resulted in a unanimous defense verdict. Plaintiff has appealed.

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. At September 30, 2011, the company has accruals of about $0.1 related to Benlate^®. The company does not expect losses in excess of the accruals, if any, to be material.

Spelter, West Virginia

In September 2006, a West Virginia state court certified a class action captioned Perrine v DuPont, against DuPont that sought 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 sought medical monitoring for an undetermined number of residents in the class area. In November 2010, plaintiffs and DuPont reached an agreement to settle this matter for $70 which the company paid in the first quarter 2011. In addition, the agreement requires DuPont to fund a medical monitoring program. The initial set-up costs associated with the program were included in the $70. As of September 30, 2011, the company has accruals of $6 related to funding medical monitoring services under the program. The company expects that future costs or charges, if any, associated with the program will not be material.

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 2010 Annual Report. Much of this liability results from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as Superfund), RCRA and similar state and global 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 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, 2011, the Condensed Consolidated Balance Sheets included a liability of $427, 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, 2011.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

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.

Note 12. Stockholders’ Equity

The company’s Board of Directors authorized a $2,000 share buyback plan in June 2001. During the three months ended September 30, 2011, the company purchased and retired 8.8 million shares at a total cost of $400 under this plan. During the nine months ended September 30, 2011, the company purchased and retired 13.8 million shares at a total cost of $672 under this plan. During the three and nine months ended September 30, 2010, there were no purchases of stock under this plan. As of September 30, 2011, the company has purchased 39.7 million shares at a total cost of $1,884. In April 2011, the company's Board of Directors authorized a $2,000 share buyback plan. This plan will not commence until the plan authorized in June 2001 is completed. There is no expiration date on the current authorizations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

A summary of the changes in equity for the three and nine months ended September 30, 2011 and 2010 is provided below:



Consolidated Changes in Equity for the Three Months Ended September 30, 2011	Total			Comprehensive Income				Preferred Stock		Common Stock			Additional Paid-in Capital			Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests
Beginning balance	$	12,502		—				$	237	$	305		$	9,978		$	13,683		$	(5,453	)	$	(6,727	)	$	479
Comprehensive income:
Sale of a majority interest in a consolidated subsidiary	(3		)																						(3		)
Net income	460			$	460											452									8
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	(348		)	(348		)													(348		)
Net revaluation and clearance of cash flow hedges to earnings	22			22															24						(2		)
Pension benefit plans	103			103															103
Other benefit plans	(10		)	(10		)													(10		)
Other comprehensive income (loss), net of tax:	(233		)	(233		)
Comprehensive income	227			$	227		¹
Common dividends	(384		)													(382		)							(2		)
Preferred dividends	(3		)													(3		)
Common stock issued - compensation plans	85												85
Common stock repurchased	(400		)																			(400		)
Common stock retired	—									(2		)	(80		)	(318		)				400
Total Equity as of September 30, 2011	$	12,024						$	237	$	303		$	9,983		$	13,432		$	(5,684	)	$	(6,727	)	$	480



Consolidated Changes in Equity for the Three Months Ended September 30, 2010	Total			Comprehensive Income				Preferred Stock		Common Stock		Additional Paid-in Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests
Beginning balance	$	9,276						$	237	$	298	$	8,569	$	12,245		$	(5,796	)	$	(6,727	)	$	450
Comprehensive income:
Net income	369			$	369									367									2
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	108			108													106						2
Net revaluation and clearance of cash flow hedges to earnings	1			1													1
Pension benefit plans	86			86													86
Other benefit plans	(8		)	(8		)											(8		)
Net unrealized gain on securities	1			1													1
Other comprehensive income (loss), net of tax:	188			188
Comprehensive income	557			$	557		¹
Common dividends	(374		)											(374		)
Preferred dividends	(3		)											(3		)
Common stock issued - compensation plans	195									1		194
Total Equity as of September 30, 2010	$	9,651						$	237	$	299	$	8,763	$	12,235		$	(5,610	)	$	(6,727	)	$	454

_________________________________


1	Includes comprehensive income attributable to noncontrolling interests of $6 and $4 for the three months ended September 30, 2011 and 2010, 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, 2011	Total			Comprehensive Income				Preferred Stock		Common Stock			Additional Paid-in Capital			Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests
Beginning balance	$	9,743						$	237	$	301		$	9,227		$	12,030		$	(5,790	)	$	(6,727	)	$	465
Comprehensive income:
Sale of a majority interest in a consolidated subsidiary	(3		)																						(3		)
Net income	3,133			$	3,133											3,101									32
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	(231		)	(231		)													(231		)
Net revaluation and clearance of cash flow hedges to earnings	56			56															61						(5		)
Pension benefit plans	305			305															305
Other benefit plans	(29		)	(29		)													(29		)
Other comprehensive income (loss), net of tax:	101			101
Comprehensive income	3,234			$	3,234		²
Common dividends	(1,159		)													(1,150		)							(9		)
Preferred dividends	(8		)													(8		)
Common stock issued - compensation plans	889									6			883
Common stock repurchased	(672		)																			(672		)
Common stock retired	—									(4		)	(127		)	(541		)				672
Total Equity as of September 30, 2011	$	12,024						$	237	$	303		$	9,983		$	13,432		$	(5,684	)	$	(6,727	)	$	480



Consolidated Changes in Equity for the Nine Months Ended September 30, 2010	Total			Comprehensive Income				Preferred Stock		Common Stock		Additional Paid-in Capital		Reinvested Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interests
Beginning balance	$	7,651						$	237	$	297	$	8,469	$	10,710		$	(5,771	)	$	(6,727	)	$	436
Comprehensive income:
Net income	2,674			$	2,674									2,655									19
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	(43		)	(43		)											(44		)				1
Net revaluation and clearance of cash flow hedges to earnings	(11		)	(11		)											(11		)
Pension benefit plans	253			253													253
Other benefit plans	(35		)	(35		)											(35		)
Net unrealized loss on securities	(2		)	(2		)											(2		)
Other comprehensive income (loss), net of tax:	162			162
Comprehensive income	2,836			$	2,836		²
Common dividends	(1,124		)											(1,122		)							(2		)
Preferred dividends	(8		)											(8		)
Common stock issued - compensation plans	296									2		294
Total Equity as of September 30, 2010	$	9,651						$	237	$	299	$	8,763	$	12,235		$	(5,610	)	$	(6,727	)	$	454

_________________________________


2	Includes comprehensive income attributable to noncontrolling interests of $27 and $20 for the nine months ended September 30, 2011 and 2010, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share)

Note 13. Derivatives and Other Hedging Instruments

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 financial 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 company established a financial risk management framework that incorporated the Corporate Financial Risk Management Committee and established financial risk management policies and 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.

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 agricultural commodity derivatives to hedge exposures relevant to agricultural feedstocks.

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