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E.I. Du Pont De Nemours & Company (NYSE:DD)

2009 Business Update Call

December 4, 2008 10:00 am ET

Executives

Karen A. Fletcher - Vice President of Investor Relations

Charles O. Holliday, Jr. - Chairman of the Board, Chief Executive Officer

Jeffrey L. Keefer - Chief Financial Officer, Executive Vice President

Ellen J. Kullman - President, Chief Executive Officer Designate, Director

James C. Borel - Group Vice President of Production Agriculture

Analysts

Robert Koort - Goldman Sachs

David Begleiter - Deutsche Bank Securities

Chris Shaw - UBS

Jeffrey Zekauskas - J.P. Morgan

Sergey Vasnetsov - Barclays Capital

Mark Connelly - Credit Suisse

Prashant Juvekar - Citigroup

Michael Judd - Greenwich Consultants

Donald Carson - Merrill Lynch

Frank Mitsch - BB&T Capital Markets

Peter Butler - Glenn Hill

Kevin McCarthy - Banc of America Securities

Mark Gulley - Soleil-Gulley & Associates

Edward Yang - Oppenheimer & Co.

John Roberts - Buckingham Research

Operator

My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to the DuPont 2009 investor update call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. (Operator Instructions) To listen to the webcast please go to www.dupont.com.

It is now my pleasure to turn the floor over to your host Karen Fletcher, Vice President of Investor Relations.

Karen A. Fletcher

Welcome. We scheduled this call to update you on actions we’re taking to position the company in response to the increasing severity of the global recession. You will hear about our focus on cash generation and we will also elaborate on actions we’re taking to improve our competitiveness and growth in 2009 and beyond including details on the restructuring plan we announced this morning.

With me today are Chad Holliday, Chairman and CEO, Ellen Kullman, President and CEO Designate, Jeff Keefer, Chief Financial Officer, and Jim Borel, Group Vice President of DuPont’s Production Agriculture Businesses.

Before we begin I’d like to remind you that we are webcasting this call and you can access it through our website www.dupont.com. The slide deck and this morning’s press release are posted on the website. A separate call is scheduled for 11:45 Eastern Time to respond to questions from the media.

Please turn to slide 2. During the course of this conference call we will make forward-looking statements. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks and assumptions. We urge you to review DuPont’s SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We will also refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statements provided with our news release.

With that I’ll turn the call over to our Chairman and CEO, Chad Holliday.

Charles O. Holliday, Jr.

Why don’t you turn to slide 3? Six weeks ago we appropriately focused our organization on increasing free cash flow. Since then automotive and industrial markets have declined significantly and many customers have dramatically curtailed production to drawdown inventories. In making our previous fourth quarter guidance we cautioned you not to extrapolate fourth quarter into 2009. I want to reinforce that again today. Clearly we have much more destocking in many of our value chains, not just motor vehicles and construction, and therefore the fourth quarter is disproportionately affected versus the decline in demand.

In the face of these conditions we are focused on what we can control; costs, capital spending and working capital; in order to maximize cash flow. With the major exceptions of pharmaceuticals and agriculture we are facing revenue declines in industrial and consumer markets in all regions. For the short term we have deployed additional actions to optimize free cash flow. Jeff, Ellen and Jim will describe steps we’re taking to generate higher free cash flow in fourth quarter ’08 and looking forward to 2009 $1 billion higher free cash flow than we had in 2008.

We can’t control the markets but we can control our costs, working capital and capital expenditures to be in line with the market realities while we continue to invest in high probability growth opportunities and position our company for even stronger growth when the recovery returns. Our actions are and will continue to be timely, aggressive and in line with the environment.

I also want to emphasize that the long-term value proposition for DuPont is fully intact. Based on the groundwork we’ve laid in the past few years in cost productivity, growth in emerging markets, selective investments in very strong long-term megatrends like agricultural productivity, alternative energy and safety and protection, we’re extremely well positioned for the eventual recovery. In fact, the trends that emerge from this recession will favor our new fleet of products and technologies.

With that let me turn it over to Jeff.

Jeffrey L. Keefer

This is a very challenging environment and we’re managing real uncertainty. Let me confirm that there is no change in our liquidity or low cost of borrowing. Our balance sheet remains strong and continues to be a competitive advantage. In these uncertain times we are maximizing cash generation. Our priority is to be transparent and provide you with as much detail as possible on the fourth quarter and the 2009 plan. We are mindful that the macro conditions are changing rapidly and we will adjust our actions as the business environment warrants.

Please turn to slide 4. Fourth quarter reported earnings is expected to be a loss of $0.60 to $0.70 per share and includes a restructuring charge of about $500 million pre-tax or $0.40 per share. Excluding the significant item for restructuring, we expect earnings to range from a $0.20 to $0.30 loss per share.

Now let’s go through the details starting with the market. As Chad mentioned our demand reflects swiftly deteriorating conditions in global markets causing a significant decline in our volumes. This reflects the convergence of many factors including a chart slowdown of base demand, destocking of inventory as customers conserve cash and finally to some extent a delay in ordering in anticipation of deflation.

We estimate October and November volumes are down more than 15% versus last year. This compares to the 4% decline in the third quarter results from last year’s same period. Importantly November’s decline was steeper than October. The bottom line is that the decline in volume has been accelerating and is broad based.

From a regional perspective US volumes are down substantially from the same period a year ago. In addition to the retrenchment of the auto industry and historic low housing starts, this now reflects weaker demand across almost every end market including refinished paint, refrigerants and electronic materials.

Regions outside of the US are reflecting the same dynamic of quickly weakening conditions across a broad range of markets. Europe volumes are down significantly with emerging Europe slowing sharply. Asia volume is down significantly versus last year reflecting double-digit volume declines in China.

From a business perspective we expect fourth quarter sales to be down significantly in coatings and color and performance materials, and down moderately in electronics and communications as well as safety and protection. Ag and nutrition sales are anticipated to be up slightly.

Regarding other business factors our pricing performance continues to be a benefit as expected. Raw material assumptions are also in line with our expectation running about 15% higher year-over-year. Currency impact will be a little greater headwind than we expected.

As we communicated during the third quarter call and Chad reiterated at the start of this call, our priority in this environment is to maximize cash generation and our objective has been and will continue to be to end the year with free cash flow in the range of $1.3 billion and net debt of about $6.3 billion.

We are reducing working capital and cap ex in order to offset earnings decline. We are paying very high attention to managing our accounts receivable as well as inventory. Our past dues are being tightly controlled. Under Ellen’s leadership we set a fourth quarter target to reduce past dues by 50% or about $250 million. We are on track to achieve that goal.

On inventory management, production has been curtailed at over 100 of our manufacturing facilities around the world and most raw material purchases are executed only with the approval of plant managers.

Moving on to costs. The actions we are taking to curtail spending now will contribute to our ongoing cost productivity work. We therefore now expect to exceed our full-year 2008 goal of $400 million in fixed cost reductions.

Moving to slide 5. In addition to the immediate cost and capital controls we have put into place we are also announcing a plan to restructure certain businesses. We have concluded that taking these actions will enable our businesses to succeed now and when the markets rebound.

The restructuring will have an estimated pre-tax charge in the fourth quarter of about $500 million, 40% of which is a noncash charge. The expected cash payback period is about 1.5 years. We expect the restructuring plan to be essentially complete in about 12 months. When complete the annual rate of cost savings is expected to be about $250 million pre-tax or about $0.20 per share with about $130 million pre-tax or about $0.10 per share benefit in 2009.

The restructure actions are primarily targeted to enhance our competitive position in motor vehicle and construction related businesses but also include repositioning actions related to underperforming businesses. In the short term our plans will maximize cash and in the long term correctly align resources, new technologies, products and capacity of our businesses with future market opportunities.

The actions will eliminate about 2,500 employee positions from both manufacturing and non-manufacturing roles. The regions most impacted are Western Europe and the United States. Until the work is complete with local government and works council officials, we will refrain from specifically identifying the sites being impacted.

Turning to slide 6. Let me now turn to a comprehensive discussion about the basis of our 2009 guidance but again emphasize that our focus is flawless execution over the next 16 weeks with cash as our top priority.

We expect 2009 to be a very challenging year with the lower demand reflecting developing markets in recession and emerging markets slowing. From an end market perspective we expect global motor vehicle production to decline versus 2008 and we expect North American housing to find bottom. We expect solid growth in agriculture and Jim will talk about why we are very confident about 2009. We expect pharmaceutical earnings to be about flat versus 2008.

Regarding the cost of raw materials, energy and transportation we are assuming a decrease between 4% to 6% in 2009 with some additional upside possible. If you peel that estimate back, we are expecting a moderate increase for Ag and nutrition inputs which offset the larger decrease we are expecting for the remaining businesses.

Our 2008 pricing actions put us in a solid position. Even in these challenging times we will ensure we capture the value of our product innovation and maintain our pricing discipline. Our planning assumptions are for the US dollar to be about 12% to 15% stronger and create an earnings headwind in 2009.

Now let’s turn to 2009 fixed costs starting with our expected noncash charge from pension re-measurement. Due to the significant decline in equity markets we have included a year-on-year pre-tax pension charge of between $550 million to $700 million or $0.40 to $0.50 per share in our 2009 guidance. Excluding the pension charge we estimate our fixed costs will be down about $1 billion. Let me give you the pieces of that $1 billion.

About $300 million of the decline is a combination of four things: Anticipated currency and volume benefits, selective growth investments, and modest inflation. Of course the volume and currency can move around based on business conditions and exchange rates. Another $730 million in savings comes from two pieces. First is the $600 million from driving our fixed costs productivity programs. These include among other things DuPont production systems, savings from leveraged sourcing and reducing company infrastructure costs. The remaining $130 million is from our restructuring program.

If you do the math, we expect total fixed costs to be down in 2009 by $300 million to $450 million including the pension charge.

With all of this as a backdrop we expect to deliver full-year 2009 earnings in the range of $2.25 to $2.75 per share.

Please turn to slide 7. Given the challenging environment our primary focus as we enter 2009 is delivering cash. Our cash goal is to offset earnings decline with working capital and capital expenditure reductions. We expect our free cash flow to be about $2.5 billion, up substantially versus 2008. Let me give you the pieces.

We have plans in place to accelerate our working capital goals and expect to have a net decrease in working capital of about $1 billion in 2009. We have reset our capital expenditure spend in the first quarter run rate at about $1.6 billion for 2009 which is about 20% lower versus 2008 spend. We are adhering to two primary principles. First, we will not compromise on safety or the environment and second, we intend to keep critical projects necessary for the inevitable recovery and we are proceeding at the right pace. We will increase the run rate only if the environment improves.

Finally we view our dividend yield which is now about 7% as the cornerstone to attract investors in the short term in addition to a very attractive cost basis for our longer-term earnings potential. I reiterate the long history of more than 100 years of dividend payments to reinforce the company commitment to its shareholders.

I’ll conclude by saying we have a very well positioned company. Our managing process is tight and is very focused on execution over the next 16 weeks. All of the actions I have described today; delivering fixed cost savings, working capital productivity, tight capital expenditure controls; are all directed towards cash generation. This ensures we will be even stronger when the environment inevitably improves.

With that I’ll turn it over to Ellen.

Ellen J. Kullman

These are obviously challenging times and we have implemented a wave of actions focused on cash generation and getting our spending aligned with lower demand. As an organization our goals are clear. The actions we have been executing and will continue to focus on over the next 16 weeks will not only have a critical short-term impact but have been designed in a way that strengthens our company in the future.

Slide 8 frames our actions. Our immediate actions are focused on customers, costs and working capital improvements all in a way that maximizes cash. Starting with the market. We have intensified our focus on our customers making sure we understand their needs in these changing times and that we’re working to secure every order. Overall we are holding or gaining market share except in specific cases where we’ve made a strategic business decision to yield based on our long-term value creation plans.

There are immediate actions to cut costs. Actions include stopping all discretionary spending. In addition any increase in salaried and professional employee pay will be driven by unique needs. We are aggressively seeking reductions in raw material costs and slowing or stopping altogether projects that are not absolutely critical. We have curtailed production with over 100 manufacturing units temporarily idled.

We are monitoring inventories closely, taking actions to ensure that they are in line with the current demand outlook and nothing more. We are working with customers to ensure invoices are paid on time and to date. Accounts receivable remain in good shape. These extraordinary actions will ensure we control inventory and accounts receivable and meet our year-end net debt target.

The next waves of actions are related to the realignment of our workforce. The first thing we did was to take advantage of the flexibility we’ve built into our workforce over the past several years. Our workforce design has been the most critical and highly skilled positions staffed with DuPont employees and we use contractors for important but less critical operations.

So in a downturn we can retain highly skilled employees by temporarily displacing contractors and then moving them back as operations return to high gear. By the end of December about 4,000 contractors will have been released from service with more displacements likely to take place in 2009. Of those 4,000 1/3 have been replaced with DuPonters and the remainder will not be backfilled.

As for restructuring, our predominant focus is on the business units that serve motor vehicle and construction markets. Over the last two years we’ve been able to redeploy excess personnel into growth areas. As an example, employees from our [inaudible], New York site were moved from our surfaces business to our growing Tedlar business which serves the photo-voltaic market place. However with the latest downturn, more dramatic action is required. Ultimately our actions will position us extremely well as we come out of today’s recessionary environment.

Lastly we’re going to redirect about 400 people to different mega-projects. These projects are focused on cost productivity, supply chain and working capital. These are high gain opportunities and offer us a short-term vehicle for valued employees to contribute to the cost and cash opportunities of the company as an interim assignment until the market recovers and they can be redeployed.

So to summarize our resource redeployment actions, approximately 4,200 employees are directly affected or about 7% of DuPont’s employee base. Approximately 2,500 will be separated from the company, 1,300 employees will replace contractors, and about 400 employees will be redeployed to mega-projects. The net result is the best optimization of costs and cash for DuPont.

Finally we have actions related to productivity improvement. As Jeff mentioned we’re accelerating our previously announced cost and capital productivity targets to deliver $600 million in fixed costs and $1 billion in net working capital reductions in 2009.

At the same time, while we’ve aligned our spending with current demand, I want to be clear about our growth investments and opportunities.

Our Ag platform will deliver 30% of the total platform’s earnings in 2008 excluding farmer. Their market fundamentals and growth outlook remains outstanding. Our Ag R&D pipeline is rich and recent new product introductions, such as [renaxipure] and Y series soybeans, are finding tremendous acceptance with farmers. We intend to continue our growth investments in this space particularly in the seed business. We absolutely intend to continue other selective growth investments as well, such as photo-voltaics and bio-fuels.

In response to the current recession we’ve seen government stimulus packages and we expect to see more countries stimulate their economies with spending for projects. We believe that current and emerging DuPont businesses are well positioned for this. A few examples from our safety and protection platform include Nomex for installation in motors and transformers or Tedlar for geotextiles and road construction or even services from our latest acquisition, Coastal Training, to provide training for a large contract labor force.

In closing, our priorities for 2009 are very clear. We have taken and will continue to take aggressive action to get costs in line with new market realities; we have adjusted our 2009 business plans and are highly focused on execution; and we’re taking actions necessary to maximize cash and win in a challenging business environment.

What we have provided you with today are our plans through 2009 which we will adjust as market environments and business factors warrant. Right now we are focused on the next 16 weeks and clearly cash is our priority. We’ve set stretch targets for our business team and I am personally committed along with our leaders to deliver on these actions.

Now I’d like to turn the floor over to Jim Borel, who’s going to talk about our opportunities in production agriculture. We felt it was very important to give you more in-depth information on this segment because it has and will be a strong and stable source of growth going forward even in the current environment.

James C. Borel

Opportunity I think is a fitting way to describe our seed and crop protection products especially given the 2008 North America corn and soybean harvest results. We’re pleased to see our national competitive yield advantage increase to 2.9 bushels per acre across all corn products against all competitors and we’re even more excited about the total performance of our lineup.

We have a genetically diverse set of hybrids that brings with it not only yields but key agronomic strengths that are critical to the needs of our customers. This year’s growing season conditions and the late harvest really accentuated the protection that our superior agronomic traits provide for grain quality and stalk strength.

With that let’s turn to slide number 9. Breaking down the yield data by competitor and maturity you can see that we have indeed closed the yield gap with DeKalb that we talked with you about last December and we’re competitive on yield. Our lead triples performed very well in the vast majority of environments and across all key maturities. We’re competitive, we’re on the farm and we’re determined to further strengthen our position over time.

This slide reflects our top five leader products against the leading DeKalb products within the same maturities. Our top five leaders per maturity, there’d be 35 hybrids in total, consist of 14 triples, 20 doubles, one Lepidoptera and only hybrid so it’s a truly diverse product portfolio.

This product portfolio coupled with our direct to farmer sales approach which includes some best-in-class sales professionals provides farmers with the tools and the knowledge to manage a wide variety of soil conditions in refuge requirements. Our account managers, reps and promoters help growers select the right product from a strong and diverse lineup in order to maximize yield potential field-by-field.

Moving to slide 10. This overlay shows key Pioneer double and triple stack product yield comparisons versus DeKalb. For example, on the left center of the chart you can see that our 35F44 triple stack hybrid has over a 6 bushel per acre advantage versus DeKalb competitive products and you can see similar advantages with other key double and triple stack hybrids across the corn growing areas on this chart.

In the Appendix is another chart that shows a more comprehensive list of hybrids and their yield advantages that we’ve included for your reference.

If I talk more generally about areas within the business units, in Eastern Minnesota/Western Wisconsin we’ve reversed the trend and gained share in this heavy triple stack northern market where on average we’ve got a 3.1 bushel per acre advantage over DeKalb and about 25% market share.

In the Central Corn Belt we’ve positioned multiple genetically diverse hybrids, doubles and triples, to maximize the performance on each acre.

In Northwest Kansas/Northeast Colorado we have nearly 40% share and a continued performance advantage of 3.7 bushels per acre versus DeKalb. In this area doubles meet the customer needs in most situations and we also have triples that are performing very well where they’re needed. Despite increasing attention by the competition, we’ve gained share here.

In Canada where our market share is nearly 40% Pioneer brand double stack hybrids out-yielded hybrids with the yield guard VT triple trade by an average of 5.3 bushels per acre.

In parts of the Corn Belt like Illinois a farmer has to manage corn rootworm every year in order to prevent extensive damage. In Ontario however, corn rootworm damage is generally low to moderate and sporadic in corn-after-corn situations.

We have a unique advantage with our trained sales force and our strong product offerings to position racehorse hybrids in high yielding environments, stable products in variable situations and defensive products in stress environments. We’re the only company that can do this.

Online we will earn our market share gains by serving each customer on a field-by-field basis matching the products that bring the best genetic, trait and agronomic package to maximize overall productivity in any given environment. In other words, helping farmers put the right product on the right acre.

Turning to slide 11, the M and Y series delivered solid yield advantages and clearly demonstrate our continued leadership in soybeans. These results bode very well for our largest product launch in history, the launch of the Y series on 9 million acres in the 2009 season. The top products shown here accounted for more than 1/3 of our 2008 volume and you’ll note that three of these varieties are Y series products in their very first year of sales.

Our prelaunch technology trials, including Optimum AcreMax and Optimum GAT corn and soybean traits, all showed very promising results as well and we intend to update our production Ag R&D pipeline advancements early next year.

Moving to slide 12, you can see that we’re ahead of our original plan. We still expect to grow Ag and nutrition earnings by about 20% despite the currency headwind this quarter. Our Southern Hemisphere sales are coming along according to plan with expected market share gains and record revenue and earnings despite decreased corn plantings in Latin America due to lower commodity and higher fertilizer prices.

Aligned with our corporate focus on cash flow, our production agriculture businesses are strong cash generators already and we’re taking additional actions across the platform regarding collections, costs and inventory management as well as deferring some lower priority capital projects this quarter to generate additional cash flow, all while continuing to fully support growth.

Looking ahead to 2009 let me first set the stage by saying the fundamentals for agriculture are still very strong. Farm income remains historically high as do commodity prices even in light of the recent decline. Ending stocks are low and global demand for grain and oil seeds continues to be strong.

We’re off to a strong start for the 2009 season in North America. Our sales reps have already invoiced more than 75% of their ’09 corn unit goals and the average customer has increased their corn unit orders by more than 15% over 2008. While last year we faced supply challenges, this year we increased safety stock and we’ve got excellent supplies of high quality seed to meet customer demand and accelerate share gains in all segments.

Let me reiterate. We’ve got competitive triples, doubles and refuge hybrids; we’ve closed the yield gap versus the competition; and we’re poised to gain share with increased prices in all key markets globally. We’re also on track to deliver critical product ramp ups of our Y series soybean seed and the [renactipeer] insecticide, and we plan to exploit the synergy of our seed and crop protection products as the teams closely collaborate in advance of the Optimum GAT corn launch in 2010.

As Ellen mentioned, we will continue to increase our investment in seed R&D despite the difficult and rapidly changing macro environment and currency headwinds will be offset by price, volume and continued fixed cost productivity.

Let me wrap up today by affirming that our Ag and nutrition outlook is on track to achieve our 15% pre-tax earnings compounded annual growth rate through 2010 and we expect this growth to fuel significantly increased free cash flow in 2009 and beyond. We look forward to coming back to you with updates throughout the year.

Charles O. Holliday, Jr.

Great progress in 2008 and you’re set up for a powerful 2009/2010.

Let me summarize our message today. What Jeff and Ellen described is we’re taking aggressive actions to get ahead of a rapidly declining set of markets. The measure is free cash flow and our plans call for 2009 free cash flow to exceed 2008 by over $1 billion. We offer you this perspective today to be as transparent as possible but we are realistic about change. Our team is focused on staying ahead of the change curve and that’s our commitment to you.

Karen A. Fletcher

Chris, let’s open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Robert Koort - Goldman Sachs.

Robert Koort - Goldman Sachs

I wondered if you could give us a little more specificity particularly in the fourth quarter with the volume erosion in terms of geographic pressure? Secondly, what gives you the confidence that this is just a destocking or an inventory adjustment as opposed to some more profound longer-lasting demand problem?

Jeffrey L. Keefer

Let me take the question on what we’re seeing around the world. Basically in the combination of October and November, as we look at volume declines we’re seeing as I said greater than 15% volume down globally and it’s double-digit in most of the regions around the world.

Ellen J. Kullman

If you want to move on to your question about how do we know if it’s destocking or demand, our teams and our individual businesses are watching this very closely either with external benchmarks or with specifics down through their value chain.

And let me just give you a couple of examples there. If you look at the polymers units that supply in the automotive industry and you take a look, an external factor is the mix of car builds on an individual reaching basis versus their demand in that region. What we’ve seen coming through the last six to eight weeks is volume declines that are about twice what we’re seeing build declines. So if you take a look at that, let’s say that the decline is about 50% for that unit, destocking 50% real demand decline.

As I’ve been out and I’ve talked to our distributors and I’ve talked down our value chain to our larger customers and we get into this discussion, they are absolutely taking their inventory down sharply in line with their sales declines. If their sales are down 10%, their inventory at a minimum is coming down 10% and many of them we’ve seen come down even more sharply than that. As we go out in many of our industries we are not finding inventory down those chains so I think people are operating for cash all along the value chains as we are.

But again this is something that we watch very, very carefully because we have to at that same time as we see that demand signal use this information to drive our production and our inventory to the appropriate level.

Operator

Our next question comes from David Begleiter - Deutsche Bank Securities.

David Begleiter - Deutsche Bank Securities

Jim, what’s your expectation for North American corn seed market share in 2009? And Ellen, when would you expect the destocking to come to a conclusion and more normal recessionary type demand to occur?

James C. Borel

In terms of market share in North America we’re not ready to size that directly but I can tell you with the way the order books are filling up we’re very confident that share will be up.

Ellen J. Kullman

As far as when the destocking will settle out, I think it’s totally related to when demand settles out. We watch this daily in terms of our order books. We try to understand the moving average trends whether that’s weekly; monthly is too long a planning horizon at this point in time. What we saw in construction is it come down and then as demand got a little more predictable, granted at much slower levels, so did the destocking. That’s something that we’re watching very, very carefully and taking into account.

Operator

Our next question comes from Chris Shaw - UBS.

Chris Shaw - UBS

First I wanted to ask about the dividend. I think the top end of the range for 2009 would be close to a 60% payout ratio? Then on corn I’m just curious. That 15% average additional purchase that the average corn customer’s doing this year, what was the number last year? Do you have that number?

Jeffrey L. Keefer

Let me address the dividend question first. Our financial discipline principles are clear: Maintain a strong balance sheet, return excess cash to shareholders unless we have compelling growth opportunities. I think if you look at our history, we have really lived up to that commitment including over 100 years of dividend payment. I would point you to the fact that we’ve got $2.5 billion of free cash flow next year against that $1.5 billion of dividend.

James C. Borel

Regarding the unit orders we’re seeing so far from customers, I don’t have what it was last year at this point in terms of increase versus ’07. The 50% that I mentioned is same customers versus ’08 purchases. But I’m confident it was not as much. This is clearly an increase. We’re farther ahead with the percent of orders and we’re seeing bigger increases from the customers. But I’m sorry; I don’t have last year’s data to be able to give you a comp.

Operator

Our next question comes from Jeffrey Zekauskas - J.P. Morgan.

Jeffrey Zekauskas - J.P. Morgan

If I understand your presentation correctly, basically you believe that your volumes will be down in 2009 and if you exclude the pension charge or the incremental pension expenses of $0.40 to $0.50 a share, essentially your operating EPS will be up; that is, if your earning something like $2.80 this year and we take your guidance range, we take the midpoint which is $2.50 and we add $0.45, you get something close to $3. Is that what we’re supposed to take away from your approach to 2009 that you’ve got up earnings and down volumes excluding pension?

Jeffrey L. Keefer

Great question. Let me talk to the four key drivers for next year. Volume is the largest uncertainty. The four key drivers are: Number one, as we commented earlier, destocking will slow at some point; number two is aggressive work on fixed costs that’ll deliver fixed costs per productivity; number three is variable margin expansion; and the last key driver as Jim has just covered is a strong Ag and nutrition platform performance.

Jeffrey Zekauskas - J.P. Morgan

My follow up is on that Ag and nutrition performance. Jim was talking about some market share gains, a much better order pattern and crop chemical prices generally are up. So are you expecting order of magnitude low double-digit EBIT gains in Ag or flat or mid-single digits? Sort of what’s your operating assumption in your guidance for Ag next year in terms of PTOI?

Jeffrey L. Keefer

I would say that we’re looking at low double digits.

Operator

Our next question comes from Sergey Vasnetsov - Barclays Capital.

Sergey Vasnetsov - Barclays Capital

I wanted to focus a little bit on the fourth quarter and then from there transition to the first quarter. In the fourth quarter if I understand correctly, there’s no pension impact yet because you adjust those things just once a year? If you confirm that that’s the case, can you also help us to understand how much of plant shutdowns and demand volume declines contribute to the loss of $0.25 in the fourth quarter?

Jeffrey L. Keefer

Let me confirm that you are correct on the pension. That’s an annual re-measurement which we will do after December 31, 2009. I have provided you with our best estimate as of how we see things today.

Ellen J. Kullman

On the question around the earnings decline in the fourth quarter relative to volumes, we’ve seen large volume declines which are the primary driver. We have also seen continued, as Jeff pointed out, our raw material costs have not abated in the fourth quarter so that’s not providing any relief. Those are the main things that really are driving where our numbers are coming out in the fourth quarter.

Jeffrey L. Keefer

I would comment that again we have really ramped up our fixed cost productivity efforts under Ellen’s leadership. She talked about that and we do anticipate exceeding the $400 million target that we had for this year.

Operator

Our next question comes from Mark Connelly - Credit Suisse.

Mark Connelly - Credit Suisse

How much of the action that you’re taking in coating and color on the auto side is a response to what’s going on with the Big 3 versus auto generally? I just want to get a sense of how disproportionate it might be. And related to that, are you going to be idling Ti02 in this process?

Ellen J. Kullman

Automotive markets globally are down with impacts at all OEMs. Certainly there’s been a lot in the press today about what’s going on here in the United States but if you take a look at Asia, if you take a look at Europe and Eastern Europe and Central Europe, they are seeing the same types of declines that we’re seeing here, maybe at a little bit abated from the US decline. It is a global motor vehicle issue in terms of the number of builds. We have globalized our business and accordingly over the last four years have been driving for that. The restructuring is to get us in line with the new reality for that industry.

Jeffrey L. Keefer

With regards to your Ti02 question, we’re not going to discuss individual businesses here. I can assure you that we are watching each supply chain very carefully and we’re taking appropriate action to idle plants where that’s needed to make sure that we control inventories and meet our cash priorities.

Operator

Our next question comes from Prashant Juvekar - Citigroup.

Prashant Juvekar - Citigroup

Is there any high cost inventory that needs to be marked down and is that included in your noncash restructuring charge of the $500 million?

Jeffrey L. Keefer

The answer is no. We according to our financial principles and Generally Accepted Accounting Practices always have our inventories correctly valued.

Prashant Juvekar - Citigroup

The second question is on the bio platform. A year ago you showcased that when oil prices were much higher. Now that oil prices have come below $50 do you think earnings from that platform will get pushed out?

Charles O. Holliday, Jr.

There are two factors going on. Obviously there’s a short term drop in oil prices. Our view is they won’t stay at this level for too very long. Secondly what we see is governments around the world pushing very hard for infrastructure improvements and we believe new bio-fuels, our solar systems and a number of products we have will be key to the kind of government stimulus that we see coming. We’re as enthusiastic as ever about these programs and they are not being delayed.

Operator

Our next question comes from Michael Judd - Greenwich Consultants.

Michael Judd - Greenwich Consultants

If you look at some of the business segments on a PTOI basis, obviously pharmaceuticals should obviously be positive, but if you looked at safety and protection or coatings and color and electronics, based on your guidance one would assume that those segments will have negative PTOI in the December quarter. Obviously on a seasonal basis Ag and nutrition is typically negative in the December quarter so that’s not a surprise. But is that the right inference? Pharmaceuticals is positive which one would expect, Ag and nutrition is negative as you would expect, but all the other segments essentially are negative? Is that right?

Jeffrey L. Keefer

We’re not going to get into the specific segment detail for the fourth quarter. We’ll talk about the fourth quarter in the January timeframe. I think I gave you a pretty clear transparent picture about 2009 and we’ll update as appropriate there.

Operator

Our next question comes from Donald Carson - Merrill Lynch.

Donald Carson - Merrill Lynch

What impact is the ’09 global recession going to have on the accelerated growth plan you announced back in March where you were looking to get [PTWA] up by $900 million with about $500 million of that coming from Ag? Is there any change in that and is it still your expectation that come 2010 that growth plan can offset the reduction in royalty income from pharmaceuticals?

Ellen J. Kullman

Obviously we’re in a very turbulent time with demand still moving on us very quickly across many of our units. We are re-evaluating that plan. Jim gave you indications of where he was but we’ve got to relook at that and look at our long-term outlook and update as that becomes more clear to us in line with that.

Jeffrey L. Keefer

Clearly we’re really focused on the near term here; the cash generation and the next 16 weeks.

Operator

Our next question comes from Frank Mitsch - BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

If I’m not mistaken Chad, this may be your last conference call. So I wanted to wish you well on your pending retirement.

The question is kind of related to that. On the pension side you’re looking at $550 million to $700 million of a headwind in ’09. Can you rank the segments in terms of which ones we expect to see the greatest impact? And are you anticipating having to add to your pension plan in 2009?

Jeffrey L. Keefer

I’m not prepared today to give you a breakdown by platform. It does get allocated out so it will impact each, and based on what we see today in our current circumstances we’re not anticipating a cash call.

Operator

Our next question comes from Peter Butler - Glenn Hill.

Peter Butler - Glenn Hill

Following up on Mr. Mitsch’s question or assertion of wishing Chad well in his retirement, who is going to be the Chairman for all of next year? Chad, are you going to stay as Chairman semi-permanently or are you going to step down at some point?

Charles O. Holliday, Jr.

As we announced when we talked about the restructuring, I’ll stay as Chairman for a period of time into 2009. Then it’s the intent of the Board for Ellen to take the combined job of CEO and Chairman. We haven’t put a pinpoint time on that yet.

Operator

Our next question comes from Kevin McCarthy - Banc of America Securities.

Kevin McCarthy - Banc of America Securities

With regard to your capital expenditure plans of $1.6 billion to $1.8 billion next year, how much would you consider discretionary or growth oriented versus maintenance?

Ellen J. Kullman

We take a look at the $1.6 billion plan, about half of that is required in terms of maintaining and keeping our plants to standard. About half of that is for improvements and/or other growth projects that are critical for maintaining and enhancing our position in the market place.

Operator

Our next question comes from Mark Gulley - Soleil-Gulley & Associates.

Mark Gulley - Soleil-Gulley & Associates

If we’re going to take working capital by about $1 billion next year, that would imply that production volumes can be well below sales volumes. First, is the premise correct? Two, does that go away towards the back half of ’09?

Ellen J. Kullman

We’ve been working for the last year on pilots around working capital on understanding how to improve it. The current environment certainly gives us opportunities there. For instance, as we shift to cash we are certainly shifting our service levels. We are doing more made-to-order, things like cancelation charges to make sure we have the true demand picture, and that’s what we’re going to build against.

We are resourcing these pilots that we have come through in the last year and taking that out across all of our businesses. That’s one of the mega-projects I talked about in terms of making sure we have the right tools and frameworks and analysis on each one of our value chains to structurally take down the amount of working capital as required to support sales. So there is going to be some short-term improvement on working capital based on the volume environment but the end of next year we expect to be operating at a different level of structural working capital required for the sales level that we will have.

Operator

Our next question comes from Edward Yang - Oppenheimer & Co.

Edward Yang - Oppenheimer & Co.

My question is a follow up to the working capital question. The $1 billion improvement addition to the free cash flow for 2009 from working capital, in 2010 we won’t see another $1 billion improvement in working capital; is that correct? All things being equal with EBITDA similar in 2010 versus 2009, your free cash flow generation will be $1 billion lower than the $2.5 billion you’re looking for for 2009?

Jeffrey L. Keefer

I don’t think that’s the right conclusion. I think we can continue to grow our free cash flow. Again we’re not going to get into 2010 today. We’ll talk about that at a later date.

Operator

Our next question comes from John Roberts - Buckingham Research.

John Roberts - Buckingham Research

Andrew Liveris was on CNBC on Tuesday saying he thought the rate of decline was actually moderating so things were still declining but at a lower rate than earlier in the quarter. Are you saying things are still declining linearly down right now?

Jeffrey L. Keefer

What we’ve seen in November versus October is an acceleration. Obviously we’re just in the beginning of December and watching it very closely.

Operator

Our next question comes from Jeffrey Zekauskas - J.P. Morgan.

Jeffrey Zekauskas - J.P. Morgan

Does the large amount of the incremental pension expense reflect the effects of the headcount reductions you’re making or is it primarily other factors?

Jeffrey L. Keefer

Again the pension noncash charge when we re-measure at year-end there are several factors in there as you may know. One is the total value of assets as well as the amount of your liability and then some service costs and other things. The biggest factor that drives that is the value of assets. So given the equity markets that’s really what’s driving that noncash pension charge.

Karen A. Fletcher

I think we have time for one more question.

Operator

Our last question comes from Donald Carson - Merrill Lynch.

Donald Carson - Merrill Lynch

Jim, you talked about how you plan on gaining share and getting price increases globally, not just in US corn. You’ve got an improved mix but corn prices are down dramatically. ’09 harvest month future’s below $4. At what point do you see this putting pressure on your ability to get price increases in seed?

James C. Borel

If we just stay with North America for a second, the value that’s being delivered by both our corn and soybean lineup that we’ve got coming out is enough that we’re not having any issues getting the orders at the prices. We think the prices are holding from our point of view. I think we’ll see similar things around the world. We’re still confident about the growth and the price.

Karen A. Fletcher

I’d like to thank everybody for joining us today on this conference call. That concludes our call.

Operator

This does conclude today’s DuPont 2009 investor update conference call. You may now disconnect your lines at this time and have a wonderful day.

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Source: E.I. Du Pont De Nemours & Company 2009 Business Update Call Transcript
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