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2004

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

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004                        Commission file number 1-815

E. I. DU PONT DE NEMOURS
AND COMPANY
(Exact name of registrant as specified in its charter)

1007 Market Street
Wilmington, Delaware 19898
(Address of principal executive offices)

Registrant's telephone number, including area code: 302 774-1000
Securities registered pursuant to Section 12(b) of the Act
(Each class is registered on the New York Stock Exchange, Inc.):

Title of Each Class

Common Stock ($.30 par value)
Preferred Stock
(without par value-cumulative)
$4.50 Series
$3.50 Series

No securities are registered pursuant to Section 12(g) of the Act.

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of voting stock held by nonaffiliates of the registrant (excludes outstanding shares beneficially owned by directors and officers and treasury shares) as of June 30, 2004, was approximately $44.0 billion.

        As of January 31, 2005, 997,000,766 shares (excludes 87,041,427 shares of treasury stock) of the company's common stock, $.30 par value, were outstanding.

Documents Incorporated by Reference
(Specific pages incorporated are indicated under the applicable Item herein):

E. I. du Pont de Nemours and Company

Form 10-K

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.

Note on Incorporation by Reference

            Information pertaining to certain Items in Part III of this report is incorporated by reference to portions of the company's definitive 2005 Annual Meeting Proxy Statement to be filed within 120 days after the end of the year covered by this Annual Report on Form 10-K, pursuant to Regulation 14A (the Proxy).

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Part I

CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Forward-Looking Statements

This report, including "Management's Discussion and Analysis" in Item 7, contains forward-looking statements which may be identified by their use of words like "plans," "expects," "will," "anticipates," "intends," "projects," "estimates" or other words of similar meaning. All statements that address expectations or projections about the future, including statements about the company's strategy for growth, product development, market position, expenditures, and financial results, are forward-looking statements.

Forward-looking statements are based on certain assumptions and expectations of future events. The company cannot guarantee that these assumptions and expectations are accurate or will be realized. In addition, the following are some of the important factors that could cause the company's actual results to differ materially from those projected in any such forward-looking statements:

•

Since the company conducts business throughout the world, governmental and quasi-governmental activities, including changes in the laws or policies of any country in which the company operates, could affect the company's business and profitability in that country. Also, the company's business and profitability in a particular country could be affected by political or economic repercussions on a domestic, country specific or global level from acts of terrorism or war (whether or not declared) and the response to such activities. In addition, economic factors (including cyclical economic growth, particularly in the United States, Europe and Asia Pacific, inflation or fluctuations in interest and currency exchange rates) and competitive factors (such as greater price competition or expiration of patent protection) could affect the company's financial results.

•

The company's growth objectives are largely dependent on its ability to renew its pipeline of new products and services and to bring those products and services to market. This ability may be adversely affected by difficulties or delays in product development such as the inability to: identify viable new products; successfully complete research and development; obtain relevant regulatory approvals; obtain adequate intellectual property protection; or gain market acceptance of the new products and services.

•

The company's ability to grow earnings is significantly affected by the cost of energy and energy-related raw materials. The company may not be able to fully offset the effects of higher raw material costs through price increases or productivity improvements.

•

As part of its strategy for growth, the company has made and may continue to make acquisitions and divestitures and form strategic alliances. There can be no assurance that these will be completed or beneficial to the company.

•

To a significant degree, results in Agriculture & Nutrition reflect changes in agricultural conditions, including weather and government programs. These results also reflect the seasonality of sales of agricultural products; highest sales in the Northern Hemisphere occur in the first half of the year. In addition, demand for products produced in this segment may be affected by market acceptance of genetically enhanced products.

•

The company has undertaken and may continue to undertake productivity initiatives, including cost reduction programs, organizational restructurings and Six Sigma productivity improvement projects, to improve performance and generate cost savings. There can be no assurance that these will be completed or beneficial to the company. Also, there can be no assurance that any estimated cost savings from such activities will be realized.

•

The company's facilities are subject to a broad array of environmental laws and regulations. The costs of complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. The company's accruals for such costs and liabilities may not be adequate since the estimates on which the accruals are based depend on a

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number of factors including the nature of the allegation, the complexity of the site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties (PRPs) at multi-party sites, and the number and financial viability of other PRPs.

•

The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement claims and antitrust claims.

The foregoing list of important factors is not all inclusive, or necessarily in order of importance.

Item 1. BUSINESS

  The company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are accessible on the company's website at www.dupont.com by clicking on the tab labeled "Investor Center" and then on "SEC filings." These reports are made available, without charge, as soon as is reasonably practicable after the company files or furnishes them electronically with the Securities and Exchange Commission.

DuPont was founded in 1802 and was incorporated in Delaware in 1915. DuPont is a world leader in science and technology in a range of disciplines, including biotechnology, electronics, materials science, safety and security, and synthetic fibers. The company operates globally, manufacturing a wide range of products for distribution and sale to many different markets, including the transportation, safety and protection, construction, motor vehicle, agricultural, home furnishings, medical, packaging, electronics, and the nutrition and health markets. Total worldwide employment at December 31, 2004 was approximately 60,000 people.

In 2002, the company strategically realigned its businesses into five market- and technology-focused growth platforms. The growth platforms are: Agriculture & Nutrition; Coatings & Color Technologies; Electronic & Communication Technologies; Performance Materials; and Safety & Protection. These growth platforms are designed to address large, attractive market spaces that allow the company to leverage its science and technology, products and brands, market access and global reach to bring innovative solutions to meet specific customer needs. A sixth platform, Textiles & Interiors, was also formed to prepare it for separation from the company.

On November 17, 2003, the company and Koch Industries, Inc. (Koch) reached a definitive agreement to sell the majority of the net assets of Textiles & Interiors to subsidiaries of Koch. These net assets and related businesses are referred to as INVISTA. On April 30, 2004, the company sold INVISTA to Koch.

The growth platforms, together with Textiles & Interiors and Pharmaceuticals, comprise the company's seven reportable segments. The company's nonaligned and embryonic businesses are grouped under Other.

Information describing the business of the company can be found on the indicated pages of this report:

The company has operations in approximately 75 countries worldwide and about 55 percent of consolidated Net sales are made to customers outside the United States. Subsidiaries and affiliates of DuPont conduct manufacturing, seed production, or selling activities, and some are distributors of products manufactured by the company.

SOURCES OF SUPPLY

The company utilizes numerous firms as well as internal sources to supply a wide range of raw materials, energy, supplies, services and equipment. To ensure availability, the company maintains multiple sources for fuels and most raw materials, including hydrocarbon feedstocks. Large volume purchases are generally procured under competitively priced supply contracts.

A substantial portion of the production and sales in Performance Materials is dependent upon the availability of

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hydrocarbon feedstocks. Current hydrocarbon feedstock requirements are met by purchases from major petrochemical companies. In addition, the company obtains adipic acid and hexamethylenediamine from Koch under a long-term supply contract.

Within Agriculture & Nutrition, the company's wholly-owned subsidiary, Pioneer Hi-Bred International, Inc. (Pioneer), which is in the hybrid seed industry, has seed production facilities located throughout the world, in both the Northern and Southern Hemispheres. In the production of its parent and commercial seed, Pioneer generally provides the seed stock, detasseling and roguing labor, and certain other production inputs. The balance of the labor, equipment, and inputs are supplied by independent growers. Pioneer believes the availability of growers, parent seed stock, and other inputs necessary to produce its commercial seed is adequate for planned production levels. The principal risk in the production of seed is the environment, with weather being the single largest variant. Pioneer lessens this risk by distributing production across many locations around the world. Due to its global presence, the company can engage in seed production year round. Production in the nutrition and health businesses is primarily dependent upon the availability of soy flake, which is readily available from many sources.

The major commodities, raw materials, and supplies for the company's reportable segments in 2004 include the following:

Agriculture & Nutrition:

carbamic acid related intermediates; polyethylene; soybeans; soy flake; 5-choroindanone; soy lecithin; sulfonamides

Coatings & Color Technologies:

butyl acetate; chlorine; HDI based poly alaphatic isocyanates; industrial gases (O₂/N₂); ore; petroleum coke; pigments

Electronic & Communication Technologies:

chloroform; fluorspar; hydrofluoric acid; kraton; oxydianiline; perchloroethylene; polyester; polyethylene; precious metals; pyromellitic dianhydride

Performance Materials:

adipic acid; butanediol; ethane; ethylene glycol; fiberglass; hexamethylenediamine; methacrylic acid; methanol; natural gas; paraxylene

Safety & Protection:

ammonia; aniline; benzene; high density polyethylene; isophthaloyl chloride; metaphenylenediamine; methyl methacrylate; natural gas; paraphenylenediamine; polyester fiber; polypropylene; propylene; terephthaloyl chloride; wood pulp

Textiles & Interiors:

acetylene; adipic acid; ammonia; butadiene; cyclohexane; natural gas; paraxylene; terephthalic acid

DuPont has contracted with Computer Sciences Corporation (CSC) and Accenture LLP to provide certain services for the company. CSC operates a majority of the company's global information systems and technology infrastructures and provides selected applications and software services. Accenture LLP provides enterprise resource planning solutions designed to enhance the company's manufacturing, marketing, distribution and customer service.

PATENTS AND TRADEMARKS

The company believes that its patent and trademark estate provides it with an important competitive advantage. It has established a global network of attorneys, as well as branding, advertising, and licensing professionals, to procure, maintain, protect, enhance, and gain value from this estate.

The company owns and is licensed under various patents, which expire from time to time, covering many products, processes and product uses. These patents protect many aspects of the company's significant research programs and the goods and services it sells. The actual protection afforded by these patents varies from country to country and depends upon the scope of coverage of each individual patent as well as the availability of legal remedies in each country. The company owns approximately 19,600 worldwide patents and approximately 13,600 worldwide patent applications. In 2004, the company was granted almost 490 U.S. patents and about 1,740 international patents. The company's rights under its patents and licenses, as well as the products made and sold under them, are important to

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the company as a whole, and to varying degrees, important to each reportable segment.

For a discussion of the importance of patents to Pharmaceuticals, see the segment discussion on page 33 of this report.

The environment in which Pioneer and the rest of the companies within the seed industry compete is increasingly affected by new patents, patent positions, patent lawsuits and the status of various intellectual property rights. Ownership of and access to intellectual property rights, particularly those relating to biotechnology, are important to Pioneer and its competitors. No single patent owned by Pioneer or its competitors is essential to Pioneer's ability to compete. However, Pioneer will continue to address freedom to operate issues by enforcing its own intellectual property rights, challenging claims made by others and, where appropriate, obtaining licenses to important technologies on commercially reasonable terms.

The company has approximately 1,800 unique trademarks for its products and services and approximately 17,900 worldwide registrations and applications for these trademarks. Ownership rights in trademarks do not expire if the trademarks are continued in use and properly protected. The company has many trademarks that have significant recognition at the consumer retail level and/or business to business level. Significant trademarks at the consumer retail level include the DuPont Oval and DuPont™ (the "DuPont Brand Trademarks"); Pioneer® brand seeds; Teflon® fluoropolymers, films, fabric protectors, fibers, and dispersions; Corian® surfaces; Kevlar® high strength material; and Tyvek® protective material. The company is actively pursuing licensing opportunities for selected trademarks at the retail level. For example, the DuPont Brand Trademarks have been licensed for hard surface flooring, automotive appearance products, air filtration, water filtration, and lubricants. In addition, the Teflon® trademark has been extended through brand licensing to personal care products, automotive car care products, automotive wiper blades, eye glass lenses, and home care products.

While the number of new patent applications filed by DuPont increased in 2004 compared to 2003, the overall size of the company's patent and trademark estate decreased in 2004, primarily as a result of the sale of INVISTA. As part of the sale, certain patents and patent applications as well as certain trademarks (including Lycra® brand premium stretch fibers, Stainmaster® carpets, Cordura® nylon, Coolmax® fibers and Tactel® nylon) and their related registrations and applications, were transferred to Koch. In addition to this transfer, the company and Koch have entered into agreements regarding intellectual property rights, including patent and trademark licenses.

SEASONALITY

Sales of the company's products in Agriculture & Nutrition are affected by seasonal patterns. Agriculture & Nutrition's performance is strongest in the first half of the year. Pioneer generally operates at a loss during the third and fourth quarters of the year, and due to the seasonal nature of the seed business, Pioneer's inventory is at its highest level at the end of the calendar year and is sold down in the first and second quarters. Trade receivables in Agriculture & Nutrition are at a low point at year-end and increase through the selling season to peak at the end of the second quarter.

In general, businesses in the remaining segments are not significantly affected by seasonal factors.

MARKETING

With the exception of Pioneer® brand seeds and Solae® soy proteins, most products are marketed primarily through DuPont's sales force, although in some regions, more emphasis is placed on sales through distributors. In North America, the majority of Pioneer® brand seed is marketed through a sales force of more than 2,000 independent sales representatives. In areas outside the traditional corn belt, seed products are often marketed through dealers and distributors who handle other agricultural supplies. Pioneer products are marketed outside North America through a network of subsidiaries, joint ventures, and independent producer-distributors. Solae® isolated and functional soy proteins are marketed using a combination of independent sales representatives, outside distributors and joint ventures.

MAJOR CUSTOMERS

The company's sales are not materially dependent on a single customer or small group of customers. Coatings &

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Color Technologies, however, has several large customers that are important to its operating results.

COMPETITION

The company's businesses compete on a variety of factors such as price, product quality and performance or specifications, continuity of supply, customer service and breadth of product line, depending on the characteristics of the particular market involved and the product or service provided.

Major competitors include diversified industrial companies principally based in the United States, Western Europe, Japan, China and Korea. In the aggregate, these competitors offer a wide range of products from agricultural, commodity and specialty chemicals to plastics, fibers, and advanced materials. The company also competes in certain markets with smaller, more specialized firms who offer a narrow range of products or converted products that functionally compete with the company's offerings.

Agriculture & Nutrition sells advanced plant genetics through Pioneer, principally for the global production of corn and soybeans, and thus directly competes with other seed and plant biotechnology companies. Agriculture & Nutrition also provides food safety equipment and soy-based food ingredients in competition with other major grain and food processors.

RESEARCH AND DEVELOPMENT

The company conducts research in the United States at over 30 sites in 14 states at either dedicated research facilities or manufacturing plants. The highest concentration of research is in the Wilmington, Delaware area at several large research centers. Among these, the Experimental Station laboratories engage in investigative and applied research, the Chestnut Run laboratories focus on applications research, and the Stine-Haskell Research Center conducts agricultural product research and toxicological research to assure the safe manufacture, handling and use of products.

Other major research locations in the United States include Marshall Lab in Philadelphia, Pennsylvania and Troy Lab in Troy, Michigan, both dedicated to coatings research; Pioneer research facilities in Johnston, Iowa; The Solae Company facilities in St. Louis, Missouri; polymer research facilities in Richmond, Virginia and Parkersburg, West Virginia; and electronic technology research facilities in Research Triangle Park, North Carolina, Towanda, Pennsylvania and Santa Barbara, California.

DuPont, reflecting the company's global interests, operates a number of additional research and development facilities at locations outside the United States in countries such as Belgium, Canada, France, Germany, Japan, Luxembourg, Mexico, the Netherlands, Spain, and Switzerland. Consistent with plans announced in late 2003, the company expects to complete a new research and development facility in China in 2005.

The objectives of the company's research and development programs are to create new technologies, processes and business opportunities in relevant fields, as well as to improve existing products and processes. Each segment of the company funds research and development activities that support its business mission. The future of the company is not dependent upon the outcome of any specific research program.

The corporate research laboratories are responsible for conducting research programs aligned with corporate strategy as provided by the growth platforms. All research and development activities are administered by senior research and development management to ensure consistency with the business and corporate strategy.

Additional information with respect to research and development, including the amount spent during each of the last three fiscal years, is included in Item 7, Management's Discussion and Analysis, on page 18 of this report.

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ENVIRONMENTAL MATTERS

Information related to environmental matters is included in several areas of this report: (1) Environmental Proceedings on pages 9-11, (2) Management's Discussion and Analysis on pages 24 and 43-45, and (3) Notes 1 and 25 to the Consolidated Financial Statements.

Item 2. PROPERTIES

 DuPont's corporate headquarters are located in Wilmington, Delaware. In addition, the company owns and operates manufacturing, processing, marketing, and research and development facilities, as well as regional purchasing offices and distribution centers.

Information regarding research and development facilities is incorporated by reference to Item 1, Business – Research and Development. Additional information with respect to the company's property, plant and equipment, and leases is contained in Notes 15 and 25 to the company's Consolidated Financial Statements.

The company's investment in property, plant and equipment in the United States and Puerto Rico related to operations is located at over 100 sites. Some of the sites and their applicable segment(s) are set forth below:

(1)

Agriculture & Nutrition

(2)

Coatings & Color Technologies

(3)

Electronic & Communication Technologies

(4)

Performance Materials

(5)

Safety & Protection

(6)

Corporate administrative offices

Property, plant and equipment outside the United States and Puerto Rico is also located at over 100 sites, principally in the United Kingdom, Canada, Germany, Taiwan, Singapore, France, Mexico, Brazil, China, Argentina, Japan and Korea.

The company's plants and equipment are well maintained and in good operating condition. Sales as a percent of capacity were 84 percent in 2004, 80 percent in 2003 and 81 percent in 2002. Properties are primarily directly owned by the company; however, certain properties are leased. Although no title examination of the properties has been made for the purpose of this report, the company knows of no material defects in title to any of these properties.

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Item 3. LEGAL PROCEEDINGS

LITIGATION

Benlate®

Information related to this matter is included in Note 25 to the company's Consolidated Financial Statements under the heading Benlate®.

PFOA: U.S. Environmental Protection Agency and Class Action

Information related to this matter is included in Note 25 to the company's Consolidated Financial Statements under the heading PFOA.

DuPont Dow Elastomers LLC (DDE)

Information related to this matter is included in Note 25 to the company's Consolidated Financial Statements under the heading DuPont Dow Elastomers LLC.

ENVIRONMENTAL PROCEEDINGS

PFOA: West Virginia and Ohio Departments of Environmental Protection

For purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including ammonium salt, and does not distinguish between the two forms. DuPont uses PFOA as a processing aid to manufacture fluoropolymer resins and dispersions at its Washington Works plant in Wood County, West Virginia. Currently, DuPont recovers or destroys 98 percent of the PFOA that potentially could be emitted or discharged during the manufacturing process at the Washington Works plant.

In November 2001, the West Virginia Department of Environmental Protection (WVDEP) and DuPont signed a multi-media Consent Order (the WV Order) that requires environmental sampling and analyses and the development of screening levels for PFOA that is used or managed by the Washington Works plant. As a result of this process, WVDEP issued its Final Ammonium Perfluorooctanoate Assessment of Toxicity Team Report in August 2002. In the report, the WVDEP established a screening level of 150 micrograms of PFOA per liter screening level for drinking water and a soil screening level of 240 parts per million. None of the local sources for drinking water has tested at or above the screening level. The report established a screening level of 1 microgram per cubic meter for air. DuPont submitted to the WVDEP its initial air dispersion modeling results for the period September 2002 through August 2003 which demonstrated that the air screening level was not exceeded during the time period.

Unless DuPont violates its terms, the WV Order does not call for sanctions. DuPont has completed all major activities currently required by the WV Order and has spent approximately $3.9 million through December 31, 2004, in connection with these activities. DuPont committed to conduct additional environmental monitoring in and around the Washington Works Plant. As recommended by WVDEP, the testing began in 2004 and will end in 2006.

Environmental sampling of the PFOA levels in the groundwater and drinking water has been conducted across the Ohio River pursuant to a Memorandum of Understanding among DuPont, the Ohio Environmental Protection Agency (Ohio EPA), the WVDEP, and the Division of Health and Human Resources (the MOU). Under the MOU, these results were shared with the Ohio EPA. Also, DuPont is funding investigations of ground and drinking water in Ohio comparable to the studies in West Virginia, pursuant to the MOU. In addition, DuPont signed a Safe Drinking Water Consent (SDWC) Order with U.S. Environmental Protection Agency Region III (which includes West Virginia) and Region V (which includes Ohio) in March 2002 to assure provision of alternative drinking water if supplies are found to exceed screening levels established under the WV Order. Since the PFOA concentrations in drinking water tested to date are significantly below the screening level, it is unlikely that DuPont will be required to provide alternative drinking water under the SDWC Order. Pursuant to discussions with and recommendations from the Ohio EPA, DuPont is conducting additional environmental monitoring in Ohio, starting in 2004 and ending in 2006.

New Johnsonville, Tennessee

The U.S. Environmental Protection Agency (EPA) conducted a multi-media audit of DuPont's titanium dioxide plant in New Johnsonville, Tennessee in the summer of 2001. In December 2002, the EPA alleged certain potential violations by DuPont and its contractor under Section 608 of the Clean Air Act (CAA) regarding refrigerant emissions.

The EPA requested substantial information and documents regarding the repair, charging and maintenance of the

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refrigerant machines at the New Johnsonville plant from DuPont's contractor responsible for the repair and maintenance of certain refrigeration machines at the plant. A substantial number of documents were provided to the EPA.

In February 2005, DuPont signed a Consent Decree to resolve this matter whereby DuPont will pay a civil penalty of $250,000 and commit to conducting a Supplemental Environmental Project (SEP) involving the retrofit of industrial refrigeration machines with non-ozone depleting materials. The company expects that the Consent Decree will be entered by the court in the first half of 2005.

Grand Cal/Indiana Harbor System

The Indiana Departments of Natural Resources and Environmental Management and the United States Department of Interior (the Departments) have conducted a natural resource damage assessment of the Grand Calumet River and the Indiana Harbor Canal System under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and the Oil Pollution Act. The company's plant in East Chicago, Indiana, which had discharged industrial wastewater into these waterways, was identified as one of seventeen PRPs for the cost of the assessment and any determined natural resource damages. DuPont and eight other PRPs will enter a Consent Decree to resolve this matter. DuPont will (i) reimburse about $500,000 of assessment costs incurred by the Departments, (ii) pay $10,000,000 over a five-year period into a Department of Natural Resources restoration fund, and (iii) place approximately 172 acres of natural dune and swale land along the Grand Calumet into a conservation easement. The company expects that the Consent Decree will be entered by the court in the first quarter of 2005.

Acid Plants New Source Review Enforcement Action

In 2003, the EPA issued a "Notice of Violation and Finding of Violation" for the DuPont Fort Hill sulfuric acid plant in North Bend, Ohio. The EPA conducted a review of capital projects at the plant over the past twenty years. Based on its review, the EPA believes that two of the projects triggered a requirement to meet the New Source Performance Standards for sulfuric acid plants and that DuPont should have sought a permit under the New Source Review requirements of the CAA. In July 2004, the EPA issued a Notice of Violation for the James River Acid Plant with similar allegations. DuPont vigorously disagrees with the EPA's findings because the EPA continues to change its interpretation of these rules and requirements without going through the required process to amend them. The courts are split on these interpretations. The company has a total of four sulfuric acid plants that use similar technology.

The EPA has invited the company to engage in settlement negotiations, but insists that all four sulfuric acid plants be included. Since there can be no assurance that the company will prevail if it litigates this matter, DuPont has accepted the EPA's invitation. If the negotiations are successful, the resulting settlement would include capital expenditures as well as a penalty. However, the company cannot reasonably estimate the amount of such costs at this time.

Sabine River Works, Orange, Texas

On November 19, 2004, DuPont received a Notice of Enforcement Action (Notice) from the Texas Commission on Environmental Quality (TCEQ) regarding its Sabine River Works facility located in Orange, Texas. The Notice contains 45 allegations relating to reportable and non-reportable emission events from 2002 through 2004 and assesses an administrative penalty of $134,852. DuPont will contest the allegations in the event that negotiations with TCEQ are unsuccessful.

Chambers Works, Deepwater, New Jersey

In 2002, the EPA initiated an enforcement action against Chambers Works under the CAA for excess emissions of fugitive volatile hazardous air pollutants from the waste water treatment plant for the last three months of 2000. After extensive negotiations, the EPA and DuPont have agreed upon a penalty of $322,000. The company expects a settlement agreement will be signed in 2005.

Gibson City, Illinois

The EPA has alleged that The Solae Company violated the CAA's New Source Review Regulations and certain Prevention of Significant Deterioration requirements at its plant in Gibson City, Illinois. The Solae Company, a majority-owned venture with Bunge Limited, was formed in 2003. The EPA has proposed a settlement of this matter that would

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include sites located in Indiana, Ohio, Oklahoma and Tennessee, some of which are wholly-owned by DuPont, in addition to the Gibson City site. The EPA's proposed settlement includes a penalty of $350,000 and SEPs involving expenditures of at least $500,000. The company and The Solae Company are negotiating with the EPA and the DOJ.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list, as of March 1, 2005, of the company's executive officers.

The company's executive officers are elected or appointed for the ensuing year or for an indefinite term, and until their successors are elected or appointed.

Charles O. Holliday, Jr. joined DuPont in 1970, and has advanced through various manufacturing and supervisory assignments in product planning and marketing. He is a former president, executive vice president, president and chairman–DuPont Asia Pacific. Mr. Holliday became an executive officer in 1992 when he was appointed senior vice president. He became Chief Executive Officer on February 1, 1998, and Chairman of the Board of Directors on January 1, 1999.

James C. Borel joined DuPont in 1978, and held a variety of product and sales management positions for Agricultural Products. In 1993, he transferred to Tokyo, Japan with Agricultural Products as regional manager, North Asia, and was appointed regional director, Asia Pacific in 1994. In 1997, he was appointed regional director, North America and was appointed vice president and general manager–DuPont Crop Protection later that year. In January 2004, he was named to his current position, Senior Vice President–DuPont Global Human Resources.

Thomas M. Connelly, Jr. joined DuPont in 1977 as a research engineer. Since then, Mr. Connelly has served in various research and plant technical leadership roles, as well as product management and business director roles. Mr. Connelly served as vice president and general manager–DuPont Fluoroproducts from 1999 until September 1, 2000, when he was named to his current position, Senior Vice President and Chief Science and Technology Officer.

Richard R. Goodmanson joined DuPont in 1999 as Executive Vice President and Chief Operating Officer. Prior to joining DuPont, Mr. Goodmanson was president and chief executive officer of America West Airlines from 1996 to 1999. He was senior vice president of operations for Frito-Lay Inc. from 1992 to 1996, and he was a principal at McKinsey & Company, Inc. from 1980 to 1992.

John C. Hodgson joined DuPont in 1966. Since then, Mr. Hodgson has held various sales and product management positions and has served in several business director roles. In 1996, he was named vice president and general manager of Photopolymer & Electronic Materials. Mr. Hodgson served as group vice president and general manager–DuPont iTechnologies from February 2000 until February 2002, when he was appointed an executive vice

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president. In 2004, his title was changed to Senior Vice President.

W. Donald Johnson joined DuPont in 1974, and has advanced through a variety of technical, manufacturing, corporate strategy and business assignments, including global business director for Kevlar®. In 1999, he became group vice president, Nylon Worldwide, and later group vice president–DuPont Operations & Services in 2001. In January 2004, he was named to his current position, Group Vice President–Global Operations.

Stacey J. Mobley joined DuPont's legal department in 1972. He was named director of Federal Affairs in the company's Washington, D.C. office in 1983, and was promoted to vice president–Federal Affairs in 1986. He returned to the company's Wilmington, Delaware headquarters in March 1992 as vice president–Communications in External Affairs, and was promoted to Senior Vice President in May 1992. He was named Chief Administrative Officer in May 1999, and General Counsel in November 1999.

Gary M. Pfeiffer joined DuPont in 1974, and has held a succession of tax, financial and business analysis positions, and served in several director roles. Mr. Pfeiffer served as vice president and general manager, DuPont Nylon–North America from 1994 until October 1997, when he was appointed Senior Vice President and Chief Financial Officer.

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Part II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrant's Common Equity and Related Stockholder Matters

The company's common stock is listed on the New York Stock Exchange, Inc. (symbol DD) and certain non-U.S. exchanges. The number of record holders of common stock was 105,736 at December 31, 2004, and 105,399 at January 31, 2005.

Holders of the company's common stock are entitled to receive dividends when they are declared by the Board of Directors. While it is not a guarantee of future conduct, the company has continuously paid a quarterly dividend since the fourth quarter 1904. Dividends on common stock and preferred stock are usually declared in January, April, July and October. When dividends on common stock are declared, they are usually paid on or about the 12th of March, June, September and December. Preferred dividends are paid on or about the 25th of January, April, July and October. The Stock Transfer Agent and Registrar is EquiServe Trust Company N.A.

The company's quarterly high and low trading stock prices and dividends for 2004 and 2003 are shown below.

Issuer Purchases of Equity Securities

The following table provides information with respect to the company's purchases of its common stock during 2004.

1

Includes 56,825 shares related to net option exercises to pay the exercise price of options.

2

In June 2001, the Board of Directors authorized up to $2 billion for repurchases of the company's common stock. There is no expiration date on the current authorization and during the period covered by the table, no determination has been made by the company to suspend or cancel purchases under the program.

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Item 6. SELECTED FINANCIAL DATA

1

See Management's Discussion and Analysis in Item 7 and the Consolidated Financial Statements on pages F-1 through F-50, including the quarterly financial data in Note 33, for information relating to significant items affecting the results of operations and financial position.

2

Includes a cumulative effect of a change in accounting principle charge of $29 and $0.03 basic and diluted per share. See Note 10 to the Consolidated Financial Statements.

3

Includes a cumulative effect of a change in accounting principle charge of $2,944 and $2.96 (basic) and $2.95 (diluted) per share. See Note 10 to the Consolidated Financial Statements.

4

Includes a cumulative effect of a change in accounting principle benefit of $11 and $0.01 per share, basic and diluted.

5

Reflects pro forma effects relating to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 in 2002 and the resulting nonamortization of goodwill and indefinite-lived intangible assets.

6

Includes borrowings and capital lease obligations classified as liabilities held for sale within the Consolidated Balance Sheets.

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Part II

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  Overview

DuPont has seven segments. Five of the segments constitute the company's growth platforms: Agriculture & Nutrition, Coatings & Color Technologies, Electronic & Communication Technologies, Performance Materials, and Safety & Protection. The Pharmaceuticals segment includes income from the company's interest in two Angiotensin II Antagonist (AIIA) drugs, Cozaar® and Hyzaar®. The seventh segment is Textiles & Interiors.

On April 30, 2004, DuPont sold the majority of the net assets of Textiles & Interiors, referred to as INVISTA, to Koch (see page 20 and Note 5 to the company's Consolidated Financial Statements). The sale of INVISTA was an important milestone in reducing the company's exposure to the volatility of oil and natural gas prices and better positioning the company for long-term profitable growth.

The company has set sustainable annual financial targets of 6 percent revenue growth, 10 percent earnings growth, and one percentage point improvement in Return on Invested Capital (ROIC). In 2004, earnings per share improved 84 percent, and ROIC increased by 3 percentage points. While consolidated Net sales increased 1 percent, Net sales of the five growth platforms increased $3.9 billion, more than offsetting a $3.8 billion reduction in Net sales following the sale of INVISTA.

The company's 2004 performance reflected the strength of the five growth platforms and successful execution of the company's three key strategies: Putting Science to Work, Harnessing the Power of One DuPont, and Going Where the Growth Is.

Putting Science to Work:    Science helps form the capabilities, offerings and competitive advantages of all of the company's businesses. The company is not focused on a single blockbuster innovation, but seeks growth by generating dozens of new products with $20 million to $200 million in annual sales. Market-driven innovation, which relies on the voice of the customer and concrete market opportunities, has been central to the revitalization of the company's research efforts. The result is an increased percentage of sales from new products. The company has set a goal of deriving 35 percent of revenues from products less than five years old by 2007.

Power of One DuPont:    The company's strategy is to increase productivity and leverage market access, capabilities and customers, with a single entity focus, thereby creating wider opportunities for the numerous business units across the entire company. Productivity initiatives include revitalizing the company's research and development program, improving the effectiveness of its sales efforts, implementing various pricing initiatives, improving working capital efficiency, and pursuing a $900 million cost improvement program. In 2004, the company's strategic pricing initiative supported a 3 percent average increase in local-currency pricing for the growth platforms, and total company U.S. dollar (USD) pricing increased 5 percent, aided in part by currency impact of the weaker USD and a more favorable pricing environment in many global markets. Pricing momentum improved through 2004, with local prices more than offsetting the impact of higher raw material costs in the second half of the year.

Through continued focus on its working capital efficiency, the company improved its days sales outstanding metric by 1 day and its inventory days supply metric by 8 days. Cost improvements, including substantial workforce reductions during 2004, procurement initiatives, and targeted spending reductions, have all contributed to a 2 percentage point reduction in Cost of goods sold and other operating charges as a percentage of Net sales.

Going Where the Growth Is:    The company seeks significant growth opportunities by increasing its presence in emerging markets and extending the company's science, products, brands and market position into new applications and uses, thereby creating new addressable market spaces. The company has a strong presence in most of the fastest- growing emerging markets and continues to leverage its presence and market position to realize new growth. In the five growth platforms, segment sales in China (PRC), Taiwan and Hong Kong, grew 32 percent collectively, while segment sales in Eastern Europe, including Turkey and the countries of the former Soviet Union, grew 35 percent. Another opportunity for growth is in expanding

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the company's addressable markets. One example is Tyvek® nonwoven sheet structures, the longstanding leader in house wrap. It is now also being used for roofing systems and window seal applications in an expanding building innovations market. Other examples include Kevlar® and Nomex® aramids, which are finding new and varied applications in the personal protection market.

Financial Discipline:    The company seeks to execute these strategies in a financially prudent manner and plans to continue its cash discipline policy. The current policy is first, to maintain a strong balance sheet and second, to return excess cash to shareholders unless the opportunity to invest for growth is compelling. The company's cash discipline policy and strong liquidity profile are important to its long-term growth. Cash and cash equivalents and Marketable debt securities balances of $3.5 billion and bank credit lines of $3.3 billion as of December 31, 2004, provide primary liquidity to support all short-term obligations. Secondary liquidity, sufficient to meet upcoming debt maturities, comes from excellent access to capital markets, strong cash flow generation and the ability to sell assets.

Analysis of Operations

2004 vs. 2003    Consolidated net sales for 2004 were $27.3 billion, up one percent. Portfolio changes, principally the sale of INVISTA partly offset by the consolidation of DDE as a variable interest entity (VIE) and the benefit of small acquisitions, resulted in a $2.6 billion or 10 percent reduction in Net sales. The combination of higher sales volumes and USD selling prices increased sales 11 percent.

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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations–Continued

The tables below show a regional breakdown of 2004 and 2003 consolidated net sales based on location of customers and percentage variances from prior year:

*

Includes the reduction in sales following the sale of INVISTA, and additions to sales resulting from small acquisitions and the consolidation of DDE.

In 2004, the company saw strength in its major markets including motor vehicle production and related after-markets, production agriculture and construction. Growth in these key markets, particularly in Asia Pacific, as well as increased market share, contributed to a 6 percent increase in worldwide sales volumes, which helped offset a $3.8 billion reduction in sales following the sale of INVISTA.

2003 vs. 2002    Consolidated net sales for 2003 increased $3 billion or 12 percent, reflecting 5 percent higher volume, 4 percent higher U.S. dollar selling prices, and 3 percent resulting from acquisitions, principally the formation of The Solae Company and the purchase of the remaining interest in Griffin LLC in 2003, as well as the purchase of ChemFirst, Inc. and Liqui-Box Corporation which occurred during 2002.

*

Includes impacts from the sale of the Clysar® business, acquisitions of Liqui-Box and ChemFirst, Inc., purchases of the remaining interests in Griffin LLC and Renpar S.A., and the formation of The Solae Company.

Higher worldwide USD selling prices, primarily reflecting the beneficial currency impact of the weaker dollar, increased worldwide sales by 4 percent. Volume growth was largely attributable to double-digit growth in Asia Pacific, reflecting increased sales of electronics-related materials and polymers, agricultural products, and engineering polymers.

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2004 vs. 2003    Other income decreased $79 million in 2004. This reduction is primarily due to a $257 million increase in net exchange losses (see page 46 for a discussion of the company's program to manage foreign currency risk and Note 2 to the Consolidated Financial Statements) and a loss of $49 million for equity affiliates as a result of the $150 million charge to provide for the company's share of anticipated losses associated with DDE litigation (discussed in detail in Note 25 to the Consolidated Financial Statements). These losses were largely offset by a $118 million increase in interest income, $50 million of which was attributable to the reversal of accrued interest related to certain prior year tax contingencies, and a $102 million increase in income associated with Cozaar®/Hyzaar® antihypertensive drugs.

2003 vs. 2002    Other income increased $218 million in 2003. This improvement is primarily attributable to $160 million in lower exchange losses (see Note 2 to the Consolidated Financial Statements), and a $104 million increase in income associated with Cozaar®/Hyzaar® antihypertensive drugs (including a $23 million benefit from favorable arbitration). Other income also benefited from a $16 million favorable settlement related to the Unifi manufacturing alliance. These increases were partly offset by lower earnings in equity affiliates and lower interest income.

2004 vs. 2003    Cost of goods sold and other operating charges (COGS) declined $343 million. As a percent of Net sales, COGS was down 2 percentage points. The decrease relative to sales reflects a significant benefit from portfolio changes, principally the sale of INVISTA, which had higher COGS in relation to sales than the rest of the company. COGS as a percent of sales also improved due to higher local selling prices and increased sales volumes with higher gross margins due to improved operating rates, lower plant operating costs, and higher manufacturing yields. The currency impact from the weaker USD also had a positive impact as its benefit to sales exceeded its concurrent increase in COGS. The positive factors discussed above were partly offset by increased litigation charges (see Note 25) and significantly higher raw material costs.

2003 vs. 2002    Cost of goods sold and other operating charges increased $3.2 billion. As a percent of Net sales, COGS was up 4 percentage points. This increase relative to sales reflects a $1.0 billion increase in raw material costs, principally those related to oil and natural gas, as well as a $400 million increase in pension and stock option expenses. 2003 also included net charges of $78 million related to Benlate® litigation.

2004 vs. 2003    Selling, general and administrative expenses increased $74 million or 2 percent. The increase principally reflects higher spending for strategic growth initiatives, particularly in Agriculture & Nutrition, the impact of currency translation, and the impact of consolidating DDE. These increases were partly offset by cost reduction programs and the sale of INVISTA.

2003 vs. 2002    Selling, general and administrative expenses in 2003 increased $304 million over 2002. This increase reflects higher non-cash pension expenses, the impact of currency translation and the net impact of portfolio changes.

2004 vs. 2003    Research and development expense in 2004 remained stable as a percentage of Net sales. 2004 spending reflects increases across most segments offset by the absence of spending in Textiles & Interiors after April 30, 2004.

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2003 vs. 2002    The increase in Research and development expense in 2003 is primarily attributable to higher non-cash pension expenses.

The company continues to support a strong commitment to research and development as a source of sustainable growth, and expects research and development funding to remain at about the same level in 2005. Because of its broad array of businesses and research projects, the company's future financial performance is not materially dependent on the success or failure of any single research or development project.

2004 vs. 2003    2004 Interest expense was $15 million higher than 2003. This increase reflects the impact of higher average debt levels, partly offset by lower average interest rates.

2003 vs. 2002    Interest expense was $12 million lower than 2002. The decrease reflects lower average interest rates, partly offset by higher debt levels.

2004 Activities

The company initiated aggressive actions in 2004 to ensure its global competitiveness as a more focused, science-based company. The company recorded a net charge of $411 million related to employee separation costs and asset impairment charges. This includes $312 million to provide severance benefits for approximately 2,700 employees involved in manufacturing, marketing and sales, administrative and technical activities. These staff reductions affected essentially all segments. Approximately 2,400 employees were separated as of December 31, 2004. The company also recorded a benefit of $22 million in 2004 resulting from changes in estimates for current and prior years' restructuring programs. In addition, the company recorded impairment charges of $121 million in 2004 which included: $27 million to reflect an other than temporary decline in the value of an investment security; $23 million related to the shutdown of U.S. manufacturing assets; $42 million related to the write down of certain European manufacturing assets; and $29 million to write off abandoned technology. Additional details related to these employee separation costs and asset impairment charges are contained in Note 4 to the Consolidated Financial Statements.

In the aggregate, payments from operating cash flows to terminated employees are expected to total about $302 million. Over 40 percent of these cash outlays were made in 2004, over 50 percent are expected to be paid in 2005, and the remainder thereafter. As a result of these activities, the company expects annual pretax cost savings of about $225 million per year of which about 40 percent were realized in 2004 and essentially all the remaining savings are expected to be realized in 2005. Over 50 percent of these savings will result in reduced Selling, general and administrative expenses, over 30 percent in reduced Cost of goods sold and other operating charges, and the balance in reduced Research and development expense. The impact of these workforce reductions represents a key component of the company's previously announced $900 million cost improvement program.

2002 Programs

Restructuring programs instituted in 2002 further aligned resources consistent with the specific missions of the segments, thereby improving competitiveness, accelerating progress toward sustainable growth and addressing weakening economic conditions. These programs are discussed below. Additional details are contained in Note 4 to the Consolidated Financial Statements.

2002 Coatings & Color Technologies

A restructuring program was instituted within Coatings & Color Technologies in the fourth quarter 2002. Under the program, costs to terminate approximately 775 employees involved in technical, manufacturing, marketing and administrative activities reduced 2002 Income before income taxes and minority interests by $69 million. Essentially all employees had been terminated as of December 31, 2003 thereby completing this portion of the program. In addition, the company shut down operating facilities during 2003 due to transferring production to more cost effective facilities.

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In the aggregate, payments from operating cash flows to terminated employees and to third parties, principally for dismantlement and removal activities, are expected to total about $75 million. Over 50 percent of these cash outlays were made in 2003, 30 percent in 2004, and the remaining payments will be made over the next several years. As a result of these activities, the company realized annual pretax cost savings of about $55 million per year, with about 60 percent realized in 2003 and essentially all of the remaining savings realized in 2004. About 70 percent of these savings resulted in reduced Cost of goods sold and other operating charges, with the remaining 30 percent divided about evenly between Selling, general and administrative expenses and Research and development expense.

2002 Textiles & Interiors

A restructuring program was instituted within Textiles & Interiors in the second quarter 2002. Under the program, the cost to terminate approximately 2,000 employees involved in technical, manufacturing, marketing and administrative activities and to shut down operating facilities, principally due to transferring production to more cost effective facilities, reduced 2002 Income before taxes and minority interest by $208 million. Essentially all employees had been terminated as of December 31, 2003, thereby completing this portion of the program.

In the aggregate, payments from operating cash flows to terminated employees and third parties for dismantlement and removal activities are expected to total about $154 million. About 30 percent of the cash outlays were made in 2002, 40 percent in 2003, 10 percent in 2004, and the remainder will be made over the next several years. The company realized annual pretax cost savings of about $120 million per year from this restructuring program. About 20 percent of these savings were realized in 2002, and essentially all of the remaining savings were realized in 2003. About 80 percent of these savings resulted in reduced Cost of goods sold and other operating charges, with the remaining 20 percent divided evenly between Selling, general and administrative expenses and Research and development expense.

On April 30, 2004, the company completed the sale of INVISTA to Koch for $3,844 million, except for the transfer of the company's interest in certain equity affiliates. The transfer of these affiliates will be delayed until the company receives approval from its equity partners. Upon the transfer of these equity affiliates, DuPont expects to realize a gain of approximately $77 million, subject to adjustments related to the timing of the transfer. If the company's interest in these equity affiliates were not to be transferred, final cash proceeds would be reduced by $168 million, of which DuPont received $138 million as an advance payment at closing on April 30, 2004.

In 2004, the company recorded a charge of $667 million as a result of the INVISTA sale and other Textiles & Interiors separation activities. The INVISTA related portion of this charge was $626 million and included the following: a reduction of the original sales price of $240 million, a charge of $77 million related to the delayed transfer of certain equity affiliates (discussed above), $118 million related to changes in the book value of net assets sold, $37 million related to final settlement of working capital balances and other separation charges of $154 million which consisted primarily of incremental legal, accounting and other advisory fees, other employee related separation costs, and the early termination of a long-term supply contract. Additional charges and credits could occur when the company finalizes its 2004 tax returns.

The company also has plans underway to sell the remaining assets of Textiles & Interiors not purchased by Koch. As part of the company's plans to sell these assets, the company recorded a $41 million impairment charge to write down its investment in an equity affiliate to fair market value. The company completed the sale of this investment in an affiliate on November 30, 2004 for $108 million which included $68 million in cash proceeds and a $40 million receivable secured by a bank letter of credit. The impact of separating the remaining Textiles & Interiors businesses is not expected to be significant to the company's financial position, liquidity or results of operations.

20

Part II

  The following table summarizes 2004 cash proceeds related to the sale of Textiles & Interiors assets:

In 2003, the company recorded a charge of $1,620 million related to the planned separation of Textiles & Interiors. The company wrote down the assets to be sold to estimated fair value and recorded separation charges as follows: Property, plant and equipment of $1,168 million, intangible assets of $57 million (excluding goodwill, see Note 6), equity affiliates of $293 million, a pension curtailment loss of $78 million, and other separation charges of $24 million. The write-downs were based on estimated fair values as determined through a combination of negotiations to sell the assets and cash flow projections.

At September 30, 2003 the company reclassified to assets held for sale the INVISTA related assets. Upon reclassification the company ceased depreciation and amortization of these assets which improved earnings per share by approximately $0.10 in 2004 and $0.07 in 2003. The company will have significant continuing involvement with INVISTA as a result of long-term purchase and supply contracts. In addition, the company has entered into a long-term contract manufacturing agreement in which INVISTA will manufacture and supply certain products for the company.

In 2003, in connection with the pending sale of INVISTA, the company was required to test the related goodwill for recoverability. This test indicated that the carrying value of goodwill exceeded fair value, and accordingly, the company recorded an impairment charge of $295 million to write off all of the goodwill associated with INVISTA. This write-off was based on an estimate of fair value as determined by the negotiated sales price of the INVISTA net assets.

In 2003, the company recognized a $62 million gain associated with the formation of a majority-owned venture, The Solae Company, with Bunge Limited. See Note 7 to the Consolidated Financial Statements for additional information.

In 2002, DuPont recognized a $25 million gain related to the 2001 sale of substantially all the net assets of DuPont Pharmaceuticals to Bristol-Myers Squibb Company. DuPont retains its interest in the collaboration relating to Cozaar®/Hyzaar® antihypertensive drugs.

In 2004, the company recorded significant tax benefits which principally included $360 million on exchange losses in connection with the company's policy of hedging the foreign currency denominated monetary assets and liabilities of its operations, $320 million related to the separation of Textiles & Interiors, $160 million primarily related to agreement on certain prior year audit issues previously reserved, and $137 million resulting from recording deferred tax assets in two European subsidiaries for tax basis investment losses recognized on local tax returns. These tax benefits were partly offset by net tax expense on other operating results.

In 2003, the company also recorded significant tax benefits which principally included $669 million related to recording deferred tax assets in two European subsidiaries for tax basis investment losses recognized on local tax returns, $544 million

21

related to the separation of Textiles & Interiors, and $187 million on exchange losses in connection with the company's foreign currency hedging program. These tax benefits were partly offset by net tax expense on other operating results.

The tax provision in 2002 reflects net tax expense on operating results, including a tax benefit of $235 million on exchange losses in connection with the company's foreign currency hedging program. For additional information with respect to the company's effective income tax rates for 2004, 2003 and 2002, see Note 9 to the Consolidated Financial Statements.

The company's current estimate of the 2005 effective income tax rate is about 27 percent, excluding any tax effects of exchange gains and losses or special items, neither of which can be reasonably estimated at this time.

Minority interests in losses of consolidated subsidiaries in 2004 reflect the consolidation of DDE as a VIE. Prior years include expenses associated with corporate minority interest structures which were redeemed in 2003.

On January 1, 2003, the company adopted Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations," which requires companies to record an asset and related liability for the costs associated with the retirement of a long-lived tangible asset if a legal liability to retire the asset exists. The adoption of this standard resulted in a cumulative effect of a change in accounting principle after-tax charge to income of $29 million.

The company's adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," resulted in a cumulative effect after-tax charge to income of $2,944 million, effective January 1, 2002. This charge was attributable to goodwill impairments of $2,866 million in Agriculture & Nutrition and $78 million in Textiles & Interiors.

2004 vs. 2003    Net income for 2004 was $1,780 million compared to $973 million for 2003. Higher Net income reflects higher sales volumes, higher local currency prices and currency benefit from the weaker USD. In addition, cost improvement efforts made as part of the company's $900 million cost reduction program helped to offset general inflation in operating costs and higher planned spending for growth initiatives.

Net income increased despite significantly higher raw material costs. Higher hydrocarbon prices, the single largest component of the company's raw material cost increase, escalated to historical highs during the year, driving up total variable costs by about $400 million, after-tax.

Net after-tax charges for special items were $613 million, compared to net after-tax charges of $667 million in 2003. See the table appearing on page 23 for additional details.

2003 vs. 2002    Net income for the year 2003 was $973 million versus a net loss of $1,103 million in 2002. Income before the cumulative effect of changes in accounting principles was $1,002 million in 2003 versus $1,841 million in 2002, a decrease of $839 million or 46 percent. In 2003, special items totaled a net after-tax charge of $667 million, representing an increase of $499 million versus 2002, principally the result of 2003 charges taken in connection with the sale of INVISTA.

In addition to the impact of increased special items, the reduction in 2003 Income before cumulative effect of changes in accounting principles versus 2002 reflects a $650 million after-tax increase in raw material costs and a $400 million after-tax increase in pension, other postretirement benefits, and stock option expenses. The remaining operating variances totaled a benefit of about $700 million, principally the result of higher sales volumes, other income, and more favorable currency translation and income tax rates.

Earnings per share on a diluted basis were $1.77 in 2004, $0.96 in 2003 and a loss of $1.11 in 2002.

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1

The segment impact of these special items is included in Note 32 to the Consolidated Financial Statements.

2

Includes deferred tax benefits related to two European subsidiaries of $137, or $0.13 per share in 2004, and $669, or $0.67 per share in 2003.

23

Accounting Standards Issued Not Yet Adopted

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaced SFAS No. 123, "Accounting for Stock-Based Compensation." DuPont voluntarily adopted the SFAS 123 fair value based method of accounting for share-based payment transactions with employees in 2003. SFAS 123R amends some aspects of the fair value measurement of the equity instruments granted to employees. This statement becomes effective for the company beginning in the third quarter of 2005. The company is assessing the provisions of the amendment, and does not currently expect its adoption in 2005 to materially impact its financial position, liquidity or results of operations.

Critical Accounting Estimates

The company's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.

Management believes that the application of these policies on a consistent basis enables the company to provide the users of the financial statements with useful and reliable information about the company's operating results and financial condition.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, postretirement employee benefit obligations, income taxes, restructuring reserves, environmental matters, and litigation. Management's estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable. The company reviews these matters and reflects changes in estimates as appropriate. Management believes that the following represent some of the more critical judgment areas in the application of the company's accounting policies which could have a material effect on the company's financial position, liquidity or results of operations.

PENSION AND OTHER POSTRETIREMENT BENEFITS

In connection with the company's postretirement benefit plans, the fair value of assets in all pension plans was $18 billion at December 31, 2004, and the related benefit obligations were $22 billion. In addition, obligations under the company's unfunded other postretirement benefit plans were $5 billion at December 31, 2004. Expected return on plan assets and discount rate assumptions are particularly important when determining the company's benefit obligations and net periodic benefit costs associated with postretirement benefits. The following table highlights the potential impact on the company's pretax earnings due to changes in these assumptions with respect to the company's pension and other postretirement benefit plans, based on assets and liabilities at December 31, 2004:

Additional information with respect to pension and other postretirement employee expenses and liabilities is discussed under Long-Term Employee Benefits beginning on page 42.

ENVIRONMENTAL MATTERS

DuPont accrues for remediation activities when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. The company's estimates are based on a number of factors, including the complexity of the site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties (PRPs) at multiparty sites, and the number of and financial viability of other PRPs. The company has recorded a liability of $359 million on the Consolidated Balance Sheet as of December 31, 2004; these accrued liabilities exclude claims against third parties and are not discounted.

24

Considerable uncertainty exists with respect to environmental remediation costs and, under adverse changes in circumstances, the potential liability may range up to two to three times the amount accrued. Much of this liability results from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, often referred to as the Superfund), the Resource Conservation and Recovery Act (RCRA) and similar state laws. These laws require the company to undertake certain investigative and remedial activities at sites where the company conducts or once conducted operations or at sites where company-generated waste was disposed. The accrual also includes a number of sites identified by the company for which it is probable that environmental remediation will be required, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations, and could, among other things, impose liability on the company for cleaning up the damage resulting from company-generated waste disposal. Over the next two decades, the company may incur significant costs under both CERCLA and RCRA.

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 PRPs. Therefore, it is difficult to develop accurate estimates of future site remediation costs. A detailed discussion of environmental matters is contained in Management's Discussion and Analysis, beginning on page 43.

LEGAL CONTINGENCIES

The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement claims and antitrust claims. The company records reserves for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these reserves to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits, and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter's current status. Considerable judgment is required in determining whether to establish a litigation reserve when an adverse judgment is rendered against the company in a court proceeding. In such situations, the company will not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of significant litigation matters is contained in Note 25 to the Consolidated Financial Statements.

INCOME TAXES

The breadth of the company's operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the ultimate taxes the company will pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state, and international tax audits. The resolution of these uncertainties may result in adjustments to the company's tax assets and tax liabilities.

Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies. For example, changes in facts and circumstances that alter the probability that the company will realize deferred tax assets would result in recording a valuation allowance, thereby reducing the net deferred tax asset. In some situations these changes could be material.

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In 2004 and 2003, DuPont recorded $137 million and $669 million, respectively, in deferred tax assets associated with two European subsidiaries for their tax basis investment losses recognized on local tax returns. Realization of these assets is expected to occur over an extended period of time. As a result, changes in tax laws, assumptions with respect to future taxable income and tax planning strategies could result in adjustments to these assets.

VALUATION OF ASSETS

Assessment of the potential impairment of property, plant and equipment, goodwill, other purchased intangible assets, and investments in affiliates is an integral part of the company's normal ongoing review of operations. Testing for potential impairment of long-lived assets is significantly dependent on numerous assumptions and reflects management's best estimates at a particular point in time. The dynamic economic environments in which the company's businesses operate and key economic and business assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on both the existence and magnitude of impairments, as well as the time at which such impairments are recognized. Future changes in the environment and the economic outlook for the assets being evaluated could also result in additional impairment charges. Information with respect to the company's significant accounting policies on long-lived assets is included in Note 1 to the Consolidated Financial Statements.

Corporate Outlook

DuPont expects 2005 earnings per share to be between $2.65 and $2.85. Continued success in executing the company's growth strategies, productivity initiatives, and its cash discipline principles is expected to improve earnings per share and cash flow versus 2004.

The company's agriculture businesses are highly seasonal. About two-thirds of the company's annual revenues have historically been realized in the first half of the calendar year. As a result, the company expects that approximately 70 percent of 2005 earnings per share will be realized within the first half of the year. Based on historic patterns of seasonality, first half earnings per share are expected to be about evenly split between the first and second quarters.

Key expectations underlying this outlook are:

Global economy:

•

Worldwide industrial economic growth is expected to be close to its 10-year historical trend line rate of 3 percent, with stronger growth in Eastern Europe, China and Latin America, and growth slightly below this trend in North America, Western Europe, and Japan.

•

Raw material costs are expected to increase above 2004, as oil and U.S. natural gas prices persist at current levels.

Revenue growth:

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Revenues from new products are expected to increase to 33 percent of total revenue as the company continues to introduce new products and realizes the full advantage of hundreds of new products introduced in the previous four years.

•

The pricing momentum created in 2004 is expected to continue.

•

Emerging market growth is expected to continue to outpace global GDP growth of about 3 percent, as the company increases its penetration into those markets.

Productivity improvements:

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The application of Six Sigma methodologies to global sourcing, energy reduction, yield improvements, increases in manufacturing uptime and other supply chain efficiencies will intensify in 2005.

•

The company expects to improve operating margins by realizing the full-year savings from the 2004 cost improvement program, coupled with increases in plant operating rates, sales and marketing effectiveness, and improved pricing.

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Part II

  Segment Reviews

Segment sales include transfers and a pro rata share of equity affiliate sales. Segment pretax operating income (PTOI) is defined as operating income before income taxes, minority interests, exchange gains (losses), corporate expenses, interest, and the cumulative effect of changes in accounting principles. A reconciliation of segment sales to consolidated Net sales and segment PTOI to Income before income taxes and minority interests for 2004, 2003 and 2002 is included in Note 32 to the Consolidated Financial Statements.

AGRICULTURE & NUTRITION

Agriculture & Nutrition leverages DuPont technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply. Global land area that can be used in agricultural production is increasingly limited. Therefore, increases in production will need to be achieved principally through improving crop yields and productivity rather than through increases in planted acreage. Agriculture & Nutrition delivers a broad portfolio of products and services that are specifically targeted to achieve gains in crop yields and productivity, including Pioneer® brand seed products and well-established brands of insecticides, fungicides and herbicides. The segment operates across the food value chain from inputs for production agriculture to global production and distribution of soy-based food ingredients, food quality diagnostic testing equipment and services, and liquid food packaging systems. Research and development focuses on leveraging technology to increase grower productivity and enhance the value of grains and soy through improved seed traits, superior germplasm, and the effective use of insecticides, herbicides and fungicides.

Agriculture & Nutrition includes the company's wholly owned subsidiary, Pioneer Hi-Bred International, Inc. (Pioneer). Pioneer is the world's largest seed producer and the world leader in improving crop yields with hybrid and varietal seeds that improve grower yields and provide insect protection and herbicide tolerance. The principal products of Pioneer are hybrid seed corn and soybean seed. Pioneer benefited in 2004 from the successful launch of its largest technology offering in its history with 18 new soybean varieties and 74 new Pioneer® brand corn hybrids that include new options for corn borer control, corn rootworm control and weed management. While the commercial seed industry for major crops remained stable in 2004, sales for Pioneer grew 15 percent. Sales growth was driven by increased market share in key segments of the corn and soybean markets, as well as strong product performance and price increases in most markets. Herbicide and insect resistant traits, along with high yielding genetics, also supported 2004 sales. The purchase of Verdia during the third quarter of 2004 will provide Pioneer the opportunity to improve its trait discovery capabilities through the use of gene shuffling technology.

Agriculture & Nutrition also serves the global production agriculture industry with crop protection products in the grain and specialty crop sectors, forestry, and vegetation management. Principal crop protection products are herbicides, fungicides, insect control products and plant growth regulators. Sales of crop protection products increased 10 percent, with the most significant market share growth in insecticides, specifically in specialty crops in Asia Pacific. The segment strengthened its global position in products for cotton due to its broad array of offerings. The November 2003 acquisition of the remaining 50 percent ownership interest in Griffin LLC strengthened the segment's product sales and manufacturing resources to better serve customers. The segment also expanded its presence in fruit and vegetable specialty markets and entered the professional pest control market with the launch of several new product offerings.

Agriculture & Nutrition also serves the specialty food ingredients market, including soy proteins and lecithins through its majority-owned venture with Bunge Limited, The Solae Company. In addition, the segment offers systems for the aseptic packaging of beverages, dairy products and

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pumpable foods in retail and institutional applications. Sales of specialty foods grew 25 percent in 2004, of which 14 percent resulted from the formation of The Solae Company in 2003. Soy crush sales growth was driven by higher commodity prices.

2004 versus 2003    Sales of $6.2 billion increased 14 percent reflecting 7 percent higher USD selling prices, 4 percent higher volumes, and a 3 percent benefit resulting from the formation of The Solae Company and the acquisition of the remaining interest in Griffin LLC. Higher selling prices were driven by a richer mix in corn and soybean seed, reflecting the success of the 2004 technology offering. Volume growth was driven by higher corn sales throughout all regions as well as increased soybean sales in the Northern Hemisphere, higher sales of insecticides in Asia Pacific and higher worldwide sales of soy-based products.

2004 PTOI was $766 million versus $669 million in 2003, up 14 percent. The improvement in 2004 PTOI reflects higher USD selling prices and higher sales volumes, partly offset by higher raw material costs. 2004 results also included restructuring charges of $34 million, whereas 2003 included a benefit of $64 million, principally related to the formation of The Solae Company.

2003 versus 2002    Sales of $5.5 billion were 21 percent higher as both USD selling prices and volumes increased 6 percent. The 21 percent increase also includes 9 percent due to additional sales resulting from the formation of The Solae Company and the acquisition of the remaining interest of Griffin LLC. Higher USD selling prices resulted principally from currency translation, reflecting the weaker dollar. Volume growth principally reflects increased corn seed sales in markets outside of North America, higher sales of herbicides in North America, a significant increase in insecticide sales in Asia Pacific, and higher worldwide sales of soy-based products.

2003 PTOI was $669 million, including a benefit of $64 million principally attributable to the formation of The Solae Company. This compares to PTOI of $462 million in 2002, which included a benefit of $40 million related to revisions in post-employment costs for Pioneer, a $37 million charge to reflect an expected loss on the sale of a manufacturing facility in Europe, and a $47 million charge to write off inventories of discontinued herbicide products. The improvement in 2003 PTOI also reflected the benefits of higher volumes and favorable currency exchange rates, which were partly offset by higher non-cash pension expense and raw material costs.

Outlook    The value of world commodity agricultural production (excluding horticulture and forestry) was at record levels in 2004 except in the Middle East, Africa, and the former Soviet Union. The 2005 global level is forecast to decline 6 percent from the 2004 high. Despite this forecast, 2005 is expected to exceed the 1995-2004 average by 14 percent and still suggests a relatively positive environment.

The economic outlook for North American production agriculture (the largest market for the segment) is positive for 2005 despite lower commodity grain prices. Farm income is up primarily due to higher production resulting from higher yields. Demand from the livestock and industrial sectors in 2005 is expected to increase for commodity grains and oilseeds. North American production agriculture is expected to remain stable as net farm income reached record levels in 2004, grain storage is at historically low levels, and the growers' debt-to-equity and debt-to-asset ratios will be at their lowest levels since the early 1960s. Because of the positive economic environment, crop production in the U.S. and Canada is expected to continue at historically high levels.

Due to these market factors and a number of company specific actions, the segment expects double-digit growth again in 2005. Pioneer expects to increase profitability through corn value offerings and seed treatments in North America, and through volume gains in international markets. Profitability is also expected to be driven by a continued market share gain in the North American soybean market. The segment's introduction of new crop protection products is projected to drive both volume and price gains. Technology will continue to play an important role for Agriculture & Nutrition. Pioneer will build on the unprecedented technology launch that benefited the North American 2004 planting season by offering 21 new soybean varieties and 40 new Pioneer® brand corn hybrids. The segment will also undertake its largest crop protection product launch in 15 years including sulfonylurea blends

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Affinity™ and Absolute™; flusilazole for Asian soybean rust; Advion™ and Avaunt® insecticides for professional pest control; and Talendo™ and Talius™ fungicides for grapes. In addition, the segment will continue to develop new mainstream products utilizing Solae® soy protein and seek to generate new opportunities, including low linolenic oil. Planned 2005 product introductions with Solae® soy protein include soy products with improved flavor, 8^th Continent™* smoothies and low cost emulsified meat products.

*

8^th Continent™ is a trademark of General Mills, Inc.

COATINGS & COLOR TECHNOLOGIES

Coatings & Color Technologies is the world's leading automotive coatings supplier and the world's largest manufacturer of titanium dioxide white pigments. Products offered include high performance liquid and powder coatings for automotive original equipment manufacturers (OEM), the automotive aftermarket (known as refinish), and general industrial applications, which include coatings for plastics, bridges, windmills, pipes and appliances. The company markets its refinish products using the DuPont™, Standox®, Spies Hecker®, and Nason® brand names. Standox® and Spies Hecker® are focused on the high-end refinish markets, while Nason® is primarily focused on economy coating applications. In addition, a broad line of DuPont™ Ti-Pure® titanium dioxide products in both slurry and powder form serve the coatings, plastic, and paper industries. The segment also offers specialty products for ink jet digital printing including pigment and dye based inks and the DuPont™ Artistri™ printing systems for textiles. Specialty products include adhesive bonding and electrical insulation.

The key markets in which Coatings & Color Technologies operates showed slight growth over 2003, with more significant growth in South America, Asia Pacific, and Europe. Industry demand for titanium dioxide white pigment was strong globally in 2004, particularly in the second half, with the industry operating at close to capacity. Demand grew in all regions, although growth in Asia Pacific, particularly China, moderated in the second half of the year as the result of actions by the Chinese government to tighten credit. The segment ended 2004 with record shipments of titanium dioxide through increased marketing efforts and supply chain improvements despite 4 percent higher USD selling prices.

The OEM market realized growth in South America and Asia Pacific and was essentially flat in North America. North American light vehicle builds, which include automobiles and light trucks, were up 1 percent, while European builds were down about 2 percent. Although the collision market is declining, the segment's worldwide refinish volumes were flat with 2003, indicating share gain in the developed markets. Worldwide sales in the specialty coatings, electrical insulation and metal coatings markets showed improvement, while adhesives remained flat, and demand for protective and plastic coatings remained depressed. Powder coatings demand in Europe continued to be depressed, while demand in the Americas showed some improvement.

2004 versus 2003    Sales of $6.0 billion increased 10 percent, principally reflecting a 5 percent benefit from the weaker dollar, 3 percent higher sales volumes, and 2 percent higher local prices. The increase in volumes is primarily related to titanium dioxide as capacity utilization for global titanium dioxide producers grew throughout the year, with all major producers essentially sold out beginning late in third quarter 2004. OEM coatings volume growth moderated in the second half as major auto producers, particularly in the U.S., announced production cutbacks to reduce new car inventories.

PTOI was $718 million in 2004, down slightly from $735 million in 2003. Higher sales volumes and local selling price increases essentially offset net charges totaling $60 million for employee separation costs and $36 million related to the automotive refinishes litigation settlement (see Note 25 to the Consolidated Financial Statements). Higher raw material, energy, and product distribution costs reduced PTOI by approximately $35 million. Higher fixed costs were largely driven by currency translation rates in the coatings

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businesses, and by spending for growth initiatives in the titanium dioxide business.

2003 versus 2002    Sales of $5.5 billion increased 9 percent, principally due to 8 percent higher USD selling prices, which benefited from currency translation reflecting the stronger Euro and slightly higher prices on a local currency basis. Increased ownership interest in Renpar SA, a South American venture, increased sales 1 percent. Sales volumes were essentially flat, as higher worldwide sales of OEM and refinish coatings were offset by lower titanium dioxide volumes, the latter reflecting weak demand in North America during much of the year.

PTOI was $735 million in 2003 versus $760 million in 2002. Results in 2003 were adversely affected by higher prices for raw materials and increased fixed costs, principally non-cash pension expense, which more than offset the benefits of higher revenue and more favorable currency translation. 2002 includes net charges of $66 million for employee separation costs.

Outlook    The segment expects to continue to increase sales in 2005, while reversing the decline in profitability which has been experienced the past three years. The global coatings industry will continue to provide a challenging operating environment in 2005 as competitive conditions are expected to remain intense. North American and Western Europe 2005 automotive builds are expected to be about flat versus 2004 levels, with continued, although less robust, growth expected in Asia Pacific. Continued growth is expected in China and Taiwan for coatings solution products serving the communication and computer markets, and in Japan for collision and ink products. Industry demand for titanium dioxide is expected to remain strong given continued moderate growth. This growth in demand, along with continued high capacity utilization, should result in a favorable business environment. Assuming moderate market growth, anticipated cost improvements, and the successful implementation of planned price increases, earnings growth is anticipated in 2005.

ELECTRONIC & COMMUNICATION TECHNOLOGIES

Electronic & Communication Technologies provides a broad range of advanced materials for the electronics industry, flexographic printing and color communication systems, and a wide range of fluoropolymer and fluorochemical products. The segment also continues to pursue development activities related to displays and fuel cells.

In the electronics industry, markets served include display materials, integrated circuit fabrication materials and packaging solutions, and printed wire board fabrication materials. The segment meets the rapidly changing market needs for smaller, more portable and powerful electronic devices by building on its strength as a leading supplier of organic, flexible, and ceramic circuit materials. Major product lines include DuPont™ Kapton® polyimide film, Pyralux® flexible laminates, Riston® dry film photoresists, Green Tape™ low temperature co-fired ceramics, Fodel® photoimageable composites, and Posistrip® photoresist removers. During 2004, construction of a new Kapton® polyimide film production line to serve the rapidly growing flexible circuit industry in Asia Pacific was completed by a 50/50 joint venture in Japan. In addition, a 50/50 joint venture was formed in Korea to manufacture Pyralux® adhesiveless, flexible copper-clad laminate composites.

Electronic & Communication Technologies is the market leader in flexographic printing and color communication serving the packaging and commercial printing industries. Its offerings include DuPont™ Cyrel® and Cyrel®FAST™ flexographic printing systems, as well as color communication systems, including DuPont™ WaterProof®, Cromalin®, and Dylux®. Cyrel®FAST™ is the only solvent-free thermal flexographic platemaking technology commercially available. During 2004, Electronic & Communication Technologies increased the number of locations using its Cromalin® digital proofing technology. DuPont is one of four companies offering thermal proofing technology, one of the fastest growing technologies in the market. This technology is

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helping to offset the rapid decline in the analog proofing technology market.

The segment also includes a portfolio of industrial and specialty fluorochemicals and fluoropolymers which are sold into the refrigeration, insulation, aerosol packaging, telecommunications, aerospace, automotive, electronics, chemical processing, and housewares industries. As the largest global manufacturer of fluoroproducts, the company's offerings include DuPont™ Suva® refrigerants, Teflon® and Tefzel® fluoropolymer resins, Autograph® and Teflon® non-stick finishes, and Teflon® and Tedlar® fluoropolymer films.

Electronic & Communication Technologies leverages DuPont's strong materials and technology base to target growth opportunities in electronics, fluoropolymers, fluorochemicals, packaging graphics, and color communication. In semiconductor fabrication, packaging, and interconnect, the segment is extending and broadening its portfolio of materials to address critical needs in the industry, e.g., chemical mechanical planarization and embedded passives. In the rapidly growing market for flat panel displays, the segment continues to be a leading materials supplier for plasma displays. In addition, the segment is developing new innovative technologies for liquid crystal displays, such as thermal color filters, while continuing to invest in developing technologies such as organic light-emitting diode (OLED) displays and field emission displays. In packaging graphics, products such as Cyrel®FAST™ have rapidly grown, solidifying the segment's market leadership position. In fluoropolymers and fluorochemicals, the segment continues to pursue product renewal innovations such as next generation refrigerants, while broadening the scope of applications into high growth areas such as limited combustible cable. The company's research efforts on long-term growth opportunities such as fuel cells are showing solid technical progress, although commercial applications in transportation and portable power devices are not expected to advance for several years.

2004 versus 2003    Sales of $3.3 billion increased 13 percent on 10 percent higher volumes and 3 percent higher USD selling prices. Higher volumes reflect a significant increase in demand for electronic materials, fluoropolymers, and refrigerants. Sales outside the U.S. grew 24 percent with sales in Asia Pacific up 36 percent.

PTOI in 2004 was $192 million versus $183 million in 2003. The current year includes net charges of $67 million for employee separation costs and asset impairment charges, and $108 million for PFOA litigation (see Note 25 to the Consolidated Financial Statements). These charges were offset by earnings improvements resulting principally from higher volumes, productivity improvements, and targeted pricing actions throughout 2004.

2003 versus 2002    Sales of $2.9 billion were 14 percent higher than 2002, reflecting 10 percent volume growth as well as an increase of 4 percent attributable to the acquisition of ChemFirst, Inc.'s integrated circuit fabrication materials businesses in November 2002. Increased volumes reflect higher sales of electronic materials and fluoroproducts, including refrigerants and specialty gases, particularly in Asia Pacific. Increased sales volumes also reflect higher worldwide sales of flexographic printing products. These improvements were partly offset by continuing declines in the sales of older analog proofing products.

PTOI was $183 million in 2003 versus $287 million in 2002. The decline in PTOI principally resulted from significantly higher expenditures for the development of OLEDs and increased selling, general and administrative expenses, reflecting, in part, higher non-cash pension costs. The benefit to PTOI from higher revenue was reduced somewhat by slightly higher raw material costs and a shift in fluoroproducts sales mix to lower margin products.

Outlook    In 2005, moderate revenue growth is expected to continue in the markets served by the segment, as year-over-year growth rates in electronics markets slow due to cyclical inventory adjustments, and other markets return to normal growth rates. 2004 results were adversely affected by charges for PFOA litigation. Apart from the impact of these charges, profitability is expected to improve through targeted pricing actions, continued focus on fixed cost control and new product introductions.

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PERFORMANCE MATERIALS

Performance Materials provides customers with more productive, higher performance polymer materials, systems and solutions to improve the uniqueness, functionality and profitability of their product offerings. Performance Materials delivers a broad polymer-based materials product portfolio, including engineering polymers that are primarily used by customers to fabricate components for mechanical and electrical systems, as well as specialized resins and films used in various packaging and industrial applications. These applications include food packaging, sealants and adhesives, sporting goods, and interlayers for laminated safety glass. Key brands include DuPont™ Zytel® nylon resins, Delrin® acetal resins, Hytrel® polyester thermoplastic elastomer resins, Tynex® filaments, Surlyn® resins, SentryGlas® Plus and Butacite® laminate interlayers, Mylar® and Melinex® polyester films, and Viton® fluoroelastomers.

The key markets served by the segment include the automotive original equipment manufacturing and associated after-market industries, as well as electrical, electronics, packaging, construction, and consumer durable goods.

The segment's core competency is applied materials science, focusing on substituting traditional materials with new materials that offer advantages such as performance, durability, aesthetics, and weight reduction. New applications and processing materials into innovative parts and systems are also areas of focus. A recent example of this core innovation capability is SentryGlas® Expressions™, which links DuPont™ polymer materials with ink jet technologies to develop specialty decorative interlayers for architectural applications.

In 2003, the segment announced the rationalization of its engineering polymers compounding facilities, which includes realignment of its operations in Mexico, expansion of its operations in China, the shutdown of one of its production facilities in the Netherlands, and relocation of some of those assets to higher growth regions. The Netherlands shutdown was completed in the second half of 2004 and the relocated assets are scheduled to be in operation in early 2005. Additional compounding capacity was installed in both Shenzhen and Shanghai, China during 2004.

2004 versus 2003    Sales of $6.6 billion were 23 percent higher than 2003, reflecting 9 percent volume growth driven by strong demand in the automotive, electronics, packaging, and construction markets. In addition, 2004 results reflect higher sales of films in Asia Pacific and packaging polymers in Europe, as well as an 8 percentage point benefit from the consolidation of DDE in April 2004 (see Note 1 to the Consolidated Financial Statments) and an increase in USD selling prices of 6 percent.

PTOI was $295 million, down 28 percent from $410 million in 2003. The reduction in earnings reflects, in part, $268 million for DDE litigation (see Note 25 to the Consolidated Financial Statements), $67 million for employee separation costs and asset impairment charges, and about $325 million in higher costs for raw materials, principally those derived from oil and natural gas. These cost increases were largely offset by the benefit from higher sales volumes and USD selling prices.

2003 versus 2002    Sales of $5.4 billion were 9 percent higher than 2002, reflecting 7 percent volume growth, largely due to increased sales of engineering and packaging polymers in Europe and Asia Pacific. In addition, sales improved from 3 percent higher USD selling prices, reflecting the currency benefit of the weaker USD, partly offset by lower local currency selling prices. The growth in volume and increase in USD selling prices was partially offset by a 1 percent decrease in sales from the divestiture of the Clysar® shrink film business in 2002.

PTOI was $410 million in 2003 compared with $771 million in 2002. The decrease in PTOI was primarily due to higher oil and natural gas-related raw material costs and recording transfers of nylon intermediates from Textiles & Interiors at market prices rather than cost in anticipation of the sale of INVISTA. PTOI in 2002 benefited from a $84 million gain on the sale of the Clysar® business.

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Outlook    North American and Western Europe 2005 automotive builds are expected to be flat versus 2004 levels, with continued, although less robust, growth expected in Asia Pacific. Global packaging market growth is projected to remain at current levels. The residential construction market is expected to remain strong, and it is anticipated that the electrical and electronics markets will continue to improve.

Performance Materials expects continued revenue growth despite the planned sale of certain DDE assets (see Note 14 to the Consolidated Financial Statements). Pretax profit margins are expected to increase, driven by a combination of price increases and customer-driven innovations for products and processes. Results in 2004 were adversely affected by significant charges for DDE litigation. Apart from the impact of these charges, the level of earnings improvement in 2005 will depend on offsetting continued high petroleum-related raw material costs with price increases and further productivity gains.

PHARMACEUTICALS

On October 1, 2001, DuPont Pharmaceuticals was sold to the Bristol-Myers Squibb Company. DuPont retained its interest in Cozaar® (losartan potassium) and Hyzaar® (losartan potassium with hydrochlorothiazide). These Angiotensin II Antagonist (AIIA) drugs were discovered by DuPont and developed in collaboration with Merck & Co. (Merck) and are used in the treatment of hypertension. The U.S. patents covering the compounds, pharmaceutical formulation and use for the treatment of hypertension, including approval for pediatric use, will expire in 2010. DuPont has exclusively licensed worldwide marketing and manufacturing rights for Cozaar® and Hyzaar® to Merck. Pharmaceuticals receives royalties and net proceeds as outlined in these licenses and related agreements. Merck is responsible for manufacturing, marketing and selling Cozaar® and Hyzaar®.

In September 2002, the U.S. Food & Drug Administration (FDA) approved Cozaar® to reduce the rate of progression of nephropathy (kidney disease) in Type 2 diabetic patients with hypertension and nephropathy (hereafter referred to as the RENAAL study). Through 2004, approvals based on the RENAAL study have been granted in 52 countries, with further approvals pending.

The Losartan Intervention For Endpoint reduction in hypertension study (LIFE) results were reported and published in March 2002 at the annual meeting of the American College of Cardiology. The study found that use of Cozaar® significantly reduced the combined risk of cardiovascular death, heart attack and stroke in patients with hypertension and left ventricular hypertrophy (LVH) compared to the beta-blocker atenolol. In March 2003, the FDA approved Cozaar® as the first and only hypertensive medicine to help prevent stroke in patients with hypertension and LVH. In total, 59 countries have granted regulatory licenses to Cozaar® based on the LIFE study.

In 2004, the FDA granted a new indication for Hyzaar® for initial use in appropriate patients with severe hypertension. This fixed dose combination is not indicated for initial therapy of hypertension, except when the hypertension is severe enough that the value of achieving prompt blood pressure control exceeds the risk of initiating combination therapy in these patients.

2004 versus 2003    Worldwide marketing and sales of Cozaar® and Hyzaar® are the responsibility of Merck. Pharmaceuticals receives royalties and net proceeds as outlined by the license agreements. 2004 PTOI was $681 million versus $571 million in 2003. 2003 included a $23 million benefit resulting from a favorable arbitration ruling.

2003 versus 2002    The 2003 PTOI was $571 million, including the benefit described above. The 2002 PTOI was $493 million, including $25 million of benefits primarily resulting from adjustments for the finalization of working capital, transfer of pension assets, and the settlement of tax liabilities related to the sale of DuPont Pharmaceuticals.

Outlook    Merck has identified Cozaar®/Hyzaar® as one of its key growth drivers. These AIIA drugs are the first of a new class of effective and well-tolerated blood pressure lowering medications, and are two of the leading treatments worldwide for hypertension.

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DuPont and Merck continue to support the growth of Cozaar® and Hyzaar® with clinical studies designed to identify additional therapeutic benefits for patients with hypertension and co-morbid conditions. The company expects the ongoing Cozaar®/Hyzaar® collaboration to continue to be an important contributor to earnings until the U.S. patents expire in 2010. Thereafter, earnings are expected to decline significantly.

SAFETY & PROTECTION

Safety & Protection builds on DuPont's 200-year history of being one of the safest industrial companies in the world and extends the company's knowledge and technology to deliver global solutions to protect people, property, operations and the environment. Safety & Protection applies a wide range of technologies, brands and know-how to expand its presence across a spectrum of industrial, service and residential markets. Highly recognized brands are included in its portfolio of product and service offerings, including DuPont™ Kevlar® and Nomex® aramid products; Tyvek® nonwoven sheet structures; Corian® solid surface materials; and safety consulting services, such as SafeReturns™ and the STOP™ family of training materials.

The segment serves a large number of markets that range from construction, industrial chemical, oil, gas, and manufacturing to U.S. defense, homeland security, and safety consulting. It offers innovative building products and services to the global construction market, capitalizing on the company's competency in weatherization systems, security windows and structural integrity. It also provides a broad array of products related to personal protection, including garments and other apparel for protection against chemical, particulate, biological, thermal and cut hazards.

Current offerings to the government include secure environmental treatment systems, specifications for use of DuPont™ SentryGlas® Plus interlayers in bomb-blast resistant windows, use of protective surfaces in military housing construction programs and expanded use of Kevlar®, focusing on military ballistic and other applications. Ongoing concerns with homeland security and the global war on terror led to order increases for military, law enforcement and fire fighting apparel.

In 2004, global Tyvek® sales experienced double-digit growth, driven by continued market penetration, new applications, and growth in the North American and European construction markets. In addition, solid surface products experienced significant growth as they were able to better compete in emerging and global markets due to the Montelli acquisition in China.

Global demand for products that prevent disease and improve productivity in the food, health care and industrial markets continue to create growth opportunities for the segment's clean and disinfect offerings, where revenue was 40 percent higher than 2003.

In the health care marketplace, the segment launched Suprel™ nonwoven medical fabrics and received positive feedback from major U.S. hospitals regarding comfort and protection. With the acquisitions of UK-based Antec International in 2003, and U.S. based BioSentry in 2004, the segment established a presence in the animal health industry.

The segment also expanded its environmental solutions offerings to the oil, gas, industrial and manufacturing markets. Overall revenue from environmental solutions offerings increased 29 percent compared to 2003. The segment experienced a 20 percent increase in global safety consulting revenues with substantial growth in emerging markets.

2004 versus 2003    Sales of $4.7 billion were up 15 percent, due in part to 8 percent higher USD selling prices, largely reflecting the pass-through of higher aniline and other raw material costs via supply contracts. In addition, sales growth reflects 6 percent higher volumes and a 1 percent benefit from small acquisitions. Volume growth was primarily driven by greater worldwide sales of Kevlar® and Nomex® aramids for new and existing applications. Sales of Tyvek® nonwovens and solid surface products experienced double-digit growth, resulting from the strong construction market worldwide.

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PTOI in 2004 was $840 million, up 4 percent from $807 million in the prior year. 2004 includes net charges of $70 million for employee separation costs and the impairment of certain European manufacturing assets. These charges were more than offset by improvements resulting from higher volumes and the weaker dollar. Higher local selling prices were offset by the negative effect of higher raw material costs and ongoing investment and growth.

2003 versus 2002    Sales of $4.1 billion were 17 percent higher, with 6 percent due to higher volumes, 6 percent due to higher USD selling prices and 5 percent due to acquisitions, primarily the November 2002 purchase of ChemFirst, Inc., whose chemical intermediate units were integrated into this segment. Volume growth was primarily driven by greater worldwide sales of Kevlar® and Nomex® aramids, reflecting increased demand for military, law enforcement and protective apparel products. Higher volume is also attributable to increased sales of Tyvek® nonwovens and Corian® solid surfaces, reflecting strength in residential construction and home improvement markets. Higher USD selling prices reflect both higher local currency prices as well as the benefit of the weaker dollar.

PTOI in 2003 was $807 million compared to $757 million in 2002, reflecting the benefit of higher volumes and selling prices, partly offset by higher raw material and fixed costs, primarily non-cash pension expense.

Outlook    U.S. and global military and law enforcement demand for ballistic protection is expected to remain strong. Continued strong spending in emergency response markets through U.S. federal homeland security funding, as well as demand from the manufacturing sector in the U.S. and Europe, is expected to continue to support growth in personal protective systems.

The construction industry is expected to remain strong and general improvement in industrial production is also expected to support growth in electrical insulation (transformers and motors), filtration, oil and gas products. Although the industrial chemicals product lines are also expected to benefit from this general improvement, margins are likely to continue to be pressured by energy-related costs, pockets of overcapacity and increased competition from Asia Pacific.

Safety & Protection expects growth in revenue and earnings in 2005 based on continued market penetration and and the introduction of new technologies.

TEXTILES & INTERIORS

On April 30, 2004, the company sold INVISTA to Koch for $3,844 million. Additional details regarding Textiles & Interiors are contained on page 20 under Separation Charges – Textiles & Interiors and in Note 5 to the Consolidated Financial Statements. In 2005, any financial transactions relating to the remaining assets of Textiles & Interiors will be reported in Other.

2004 versus 2003    Sales of $3.3 billion were 53 percent lower than the prior year, principally due to the sale of INVISTA on April 30, 2004. PTOI was a loss of $515 million in 2004, including $667 million in separation charges. 2003 PTOI was a loss of $1,892 million, including a net charge of $1,891 million primarily associated with the planned separation of INVISTA.

2003 versus 2002    Sales of $6.9 billion were 12 percent higher than 2002. This includes an 8 percent increase due to including transfers of nylon intermediates to Performance Materials at market prices versus cost beginning in 2003 in anticipation of the separation. Sales increased 4 percent due to a benefit from the weaker USD and slightly higher volumes, partly offset by lower local selling prices.

PTOI was a loss of $1,892 million in 2003 versus earnings of $89 million in 2002. Results in 2003 include a net charge of $1,891 million, primarily associated with the planned sale of INVISTA. This charge reflects the write-down of various manufacturing assets, goodwill and other intangible assets, and investments in certain joint ventures, together with a

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pension curtailment loss and other separation costs. (Additional details are contained in Notes 5, 6, 9 and 32 to the Consolidated Financial Statements).

Results in 2003 also reflect higher costs for raw materials, principally those derived from petroleum, which reduced earnings by over $600 million. These raw material price increases, combined with higher non-cash pension expense, more than offset the favorable impact of higher sales, lower depreciation, and other cost reductions resulting from restructuring activities. PTOI in 2002 included a net charge of $204 million related to employee separation costs and asset impairments.

OTHER

The company combines the results of its nonaligned and embryonic businesses under Other. These businesses include bio-based materials and growth initiatives. Results related to the company's discontinued Benlate® fungicide business are also included (see Benlate® discussion in Note 25 to the Consolidated Financial Statements). In the aggregate, sales from these businesses represent significantly less than one percent of total segment sales.

2004 PTOI was a loss of $242 million versus a loss of $220 million in 2003. The 2004 loss includes $94 million for employee separation costs, a $29 million charge to write off abandoned technology, and a $20 million benefit from insurance proceeds related to Benlate® litigation. Pretax operating losses also reflect spending for bio-based materials and growth initiatives, as well as other costs, principally for discontinued businesses.

2003 PTOI was a loss of $220 million versus a loss of $265 million in 2002. The 2003 loss includes $78 million in charges associated with Benlate® litigation, as well as spending for bio-based materials and growth initiatives, and other costs, principally related to discontinued businesses. 2002 included $130 million for litigation costs.

Liquidity & Capital Resources

The company considers its strong financial position and financial flexibility to be a competitive advantage. The company's credit ratings of AA- and Aa3 from Standard & Poor's (S&P) and Moody's Investors Services (Moody's), respectively, and its commercial paper rating of A-1+ by S&P and Prime 1 by Moody's are evidence of that strength. This advantage is based on strong business operating cash flows over an economic cycle, and a commitment to cash discipline regarding working capital, capital expenditures and acquisitions.

SOURCES OF LIQUIDITY

The company's liquidity needs can be met through a variety of independent sources, including: Cash provided by operating activities, Cash and cash equivalents, Marketable debt securities, commercial paper markets, syndicated credit lines, bilateral credit lines, equity and long-term debt markets, and asset sales.

The company's Cash provided by operating activities was $3.2 billion in 2004, a $600 million increase from the $2.6 billion generated in 2003. The year-over-year increase is primarily the result of higher earnings. The improvement reflects higher selling prices, volume growth, and favorable currency exchange rates, partly offset by higher energy and raw material costs. The company's Cash provided by operating activities was $2.6 billion in 2003, a $150 million increase from the $2.4 billion generated in 2002. The year-over-year increase is a result of lower income tax payments, partially offset by higher raw material costs, termination of the accounts receivable securitization program and funding of the DuPont Canada pension fund in preparation for the separation of INVISTA.

Cash and cash equivalents, and Marketable debt securities totaled $3.5 billion, $3.4 billion and $4.1 billion at December 31, 2004, 2003 and 2002, respectively. The decrease from 2002 to 2003 is primarily attributable to the $1.1 billion of cash used to purchase the shares of DuPont Canada from the minority owners in connection with the sale of INVISTA, and the redemption of corporate minority interest structures.

The commercial paper market is a source of "same day" cash for the company. Given the company's strong credit rating, it has excellent access to this market at preferred rates. The weighted-average interest rates before taxes on commercial paper borrowings for 2004, 2003 and 2002, were 1.4, 1.1 and 1.7 percent, respectively. At December 31, DuPont's commercial paper balance was $600 million,

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$4.4 billion and $700 million for 2004, 2003 and 2002, respectively. The $3.8 billion decrease from 2003 to 2004 was primarily attributable to the use of proceeds from the sale of INVISTA to pay down commercial paper. The $3.7 billion increase from 2002 to 2003 was primarily related to activities to support INVISTA related items and the redemption of corporate minority interest structures.

In the unlikely event that the company would not be able to meet its short-term liquidity needs, the company has access to approximately $3.3 billion in "same day" credit lines with several major financial institutions. These credit lines are split about equally between 364-day and multi-year facilities.

DuPont also has access to equity markets and to long-term debt capital markets. The company's current relatively low long-term borrowing level, strong financial position and credit ratings provide excellent access to these markets. In April 2004, the company extended its long-term debt maturites with the issuance of $1.4 billion of six- and ten-year notes at very competitive rates. These notes essentially refinanced the $1.3 billion of maturing long-term notes due in 2004 and extended the company's maturity profile.

In 2004, proceeds from asset sales were primarily related to the separation of Textiles & Interiors for $3,840 million (see Note 5 to the Consolidated Financial Statements). There were no material asset sales in 2003. In 2002, proceeds from sales of assets were $196 million, primarily reflecting $143 million received from the sale of the Clysar® shrink film business. In addition, there were $122 million of settlement payments to Bristol-Myers Squibb relating to the 2001 sale of DuPont Pharmaceuticals.

USES OF CASH

The company's cash discipline policy guides the use of cash. The tenets of the policy are first, to maintain a strong balance sheet and second, to return excess cash to shareholders unless the opportunity to invest for growth is compelling.

Purchases of property, plant and equipment, and investments in affiliates were $1.3 billion in 2004, compared with $1.8 billion in 2003, including $334 million in synthetic leases, and $1.4 billion in 2002. The company expects purchases of property, plant and equipment in 2005 to be between $1.3 and $1.4 billion.

There were no major acquisitions in 2004. Payments for businesses acquired in 2003 totaled $1.5 billion, primarily consisting of two acquisitions. In June and July 2003, the company acquired 66,704,465 shares in DuPont Canada from the minority owners for $1.1 billion. In May 2003, The Solae Company, a majority-owned subsidiary of the company, acquired 82 percent of Bunge Limited's Brazilian ingredients operation for $256 million, with the additional 18 percent acquired in the fourth quarter of 2003 for $44 million. Payments for businesses acquired in 2002 amounted to $697 million which includes the acquisition of ChemFirst, Inc. for $357 million, net of cash acquired, and the acquisition of all of the outstanding common shares of Liqui-Box Corporation for $272 million, net of cash acquired. Additional details related to the acquisitions are provided in Note 28 to the Consolidated Financial Statements.

The settlements of forward exchange contracts issued to hedge the company's net exposure, by currency, related to monetary assets and liabilities resulted in cash payments of $509 million in 2004, $631 million in 2003 and $264 million in 2002. The payments were primarily attributable to the weaker USD versus the Euro and larger net monetary asset positions. These settlements were largely offset by revaluations of the items being hedged, which are reflected in the appropriate categories in the Consolidated Statements of Cash Flows.

Dividends paid to common and preferred shareholders were $1,404 million, $1,407 million and $1,401 million in 2004, 2003 and 2002, respectively. Dividends per share of common stock were $1.40 in each year.

During 2004, the company initiated purchases of shares under the $2 billion share buyback plan authorized by the Board of Directors in June 2001. As of December 31, 2004, 10.6 million shares at a cost of $457 million were purchased under this program. Management expects to continue purchasing stock under the buyback plan to offset dilution from shares issued under employee compensation plans. However, management has not established a timeline for the buyback of the remaining stock under this plan.

In 2002, the company purchased 10.8 million shares for $470 million under a program previously authorized by the

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Board. See Note 26 to the Consolidated Financial Statements for a reconciliation of shares activity.

New Legislation

On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 (the "Act"). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan. Some of the options for reinvestment permitted in the Act include hiring and training workers, infrastructure and capital investments, research and development, debt repayment and funding of qualified benefit plan obligations. Uncertainty remains as to how to interpret numerous provisions of the Act. The passage of statutory technical corrections and the issuance of other U.S. Treasury guidance with respect to certain provisions in the Act may determine what amounts, if any, the company will repatriate. DuPont is not yet in a position to determine whether, and to what extent, foreign earnings that have not yet been remitted to the United States may be repatriated. Under the Act, the company could repatriate up to $10 billion. However, no determination has been made as to how much, if any, will be repatriated. Furthermore, the related income tax effects cannot be reasonably estimated at this time. DuPont expects to be in a position to finalize its assessment by mid-year 2005. Because the unremitted earnings of subsidiaries are deemed to be permanently reinvested as of December 31, 2004, no deferred tax liability has been recognized in the company's financial statements.

FINANCIAL CONDITION

Total debt at December 31, 2004 was $6.5 billion, a decrease of $3.7 billion from December 31, 2003, primarily due to the use of proceeds from the sale of INVISTA to pay down commercial paper. In addition to the level of debt, the mix of the company's debt also changed. Commercial paper decreased $3.8 billion and in April 2004 the company issued $1.4 billion of six- and ten-year notes. These notes essentially refinanced the $1.3 billion of maturing long-term notes due in 2004 and extended the company's maturity profile.

Total debt at the end of 2003 was $10.2 billion, a $3.4 billion increase from the $6.8 billion level at the end of 2002. Total debt increased in 2003 as a result of the redemption of the corporate minority interest structures, acquisition of the minority shares held in DuPont Canada, termination of the accounts receivable securitization and synthetic lease programs that were financed by the commercial paper conduit and buyout of certain synthetic leases (not covered under the commercial paper conduit). In addition, the company's debt increased $147 million, reflecting debt balances assumed as a result of acquiring the remaining interest in Griffin LLC. Additional information regarding the termination of the corporate minority interest structures is described below. The company's commercial paper increased $3.7 billion essentially for the reasons described above.

The company's average interest rate at December 31 was 4.2%, 3.0% and 5.0% in 2004, 2003 and 2002, respectively. The change in the rates is due primarily to the level of lower rate commercial paper at year-end.

Cash and cash equivalents and Marketable debt securities were $3.5 billion, $3.3 billion and $4.1 billion at December 31, 2004, 2003 and 2002, respectively.

At December 31, 2004, net debt was $2.9 billion, compared to $7.1 billion and $2.7 billion at year-end 2003 and 2002, respectively. The company defines net debt as total debt less Cash and cash equivalents and Marketable debt securities. Management believes that net debt is meaningful because it provides the investor with a more realistic view of the company's liquidity and debt position since the company's cash balance is available to meet operating and capital needs, as well as to provide liquidity around the world. Net debt also allows the investor to more easily compare cash flow between periods without adjusting for changes in cash and debt.

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The following table reconciles the differences from Total debt to net debt.

The following table summarizes changes in net debt throughout 2004, 2003 and 2002.

MINORITY INTEREST STRUCTURES

In 2003, the company redeemed two minority interest structures for $2 billion and recorded a charge of $28 million primarily to write off the remaining unamortized costs associated with these transactions. These corporate structures had been established in 2001 and the associated costs were being amortized on a straight-line basis over a five-year period.

CERTAIN GUARANTEE CONTRACTS

Indemnifications

The company has indemnified respective parties against certain liabilities that may arise in connection with acquisitions and divestitures, and related business activities prior to the completion of the transactions. The terms of these indemnifications, which typically pertain to environmental, tax and product liabilities, are 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 December 31, 2004 and 2003 is $99 million and $31 million, 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 sale of INVISTA, the company indemnified Koch against certain liabilities primarily related to taxes, legal and environmental matters, and other representations and warranties. The estimated fair value of these obligations of $74 million is included in the indemnifications balance of $99 million at December 31, 2004. The fair value was based on management's best estimate of the value expected to be required to issue the indemnifications in a stand-alone, arm's length transaction with an unrelated party and, where appropriate, by the utilization of probability-weighted discounted net cash flow models. The company does not believe that these indemnities will have a material impact on the future liquidity of the company (see Note 5 to the Consolidated Financial Statements).

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Part II

  Obligations for Equity Affiliates and Others

The company has directly guaranteed various debt obligations under agreements with third parties related to equity affiliates, customers, suppliers and other unaffiliated companies. At December 31, 2004, the company had directly guaranteed $655 million of such obligations, plus $333 million relating to guarantees of obligations for divested subsidiaries. This represents the maximum potential amount of future (undiscounted) payments that the company could be required to make under the guarantees. The company would be required to perform on these guarantees in the event of default by the guaranteed party. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2004, the liabilities recorded for these obligations were not material.

Existing guarantees for customers and suppliers arose as part of contractual agreements. Existing guarantees for equity affiliates arose for liquidity needs in normal operations. In certain cases, the company has recourse to assets held as collateral as well as personal guarantees from customers and suppliers.

The company has historically guaranteed certain obligations and liabilities related to divested subsidiaries including Conoco and its subsidiaries and affiliates, INVISTA entities sold to Koch, and Consolidation Coal Sales Company. The Restructuring, Transfer and Separation Agreement between DuPont and Conoco requires Conoco to use its best efforts to have Conoco, or any of its subsidiaries, substitute for DuPont. Conoco, Koch and Consolidation Coal Sales Company have indemnified the company for any liabilities the company may incur pursuant to these guarantees. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2004, the company has no liabilities recorded for these obligations.

Additional information with respect to the company's guarantees is included in Note 25 to the Consolidated Financial Statements.

Historically, the company has not had to make significant payments to satisfy guarantee obligations; however, the company believes it has the financial resources to satisfy these guarantees should unforeseen circumstances arise.

OFF-BALANCE SHEET ARRANGEMENTS

Commercial Paper Facility

In 2002, the company implemented a commercial paper conduit program to reduce the financing costs of the company's accounts receivable securitization and synthetic lease programs by gaining direct access to the asset-backed commercial paper market. The conduit issued notes to third parties secured by the receivable interests and the equipment and real estate under synthetic leases. In 2003, the company terminated its accounts receivable securitization and synthetic lease programs that were financed by the commercial paper conduit. This required the company to purchase an ownership interest in the trade accounts receivable being held under the accounts receivable securitization program for $445 million and assets under synthetic leases for $144 million. The trade accounts receivable were collected in 2003.

Other Synthetic Leases

During 2003, the company purchased the assets under its synthetic leases related to manufacturing and warehousing facilities under construction (which were not covered under the commercial paper conduit) for $210 million.

As of December 31, 2004, the company has one remaining synthetic lease program relating to miscellaneous short-lived equipment valued at approximately $123 million. Lease payments for these assets totaled $54 million in 2004, $43 million in 2003, and $28 million in 2002, and were reported as operating expenses in the Consolidated Income Statement. The leases under this program are considered operating leases and accordingly the related assets and liabilities are not recorded on the company's Consolidated Balance Sheet. Furthermore, the lease payments associated with this program vary based on one month LIBOR. The company may terminate the program at any time by purchasing the assets. Should the company decide neither to renew the leases nor to exercise its purchase option, it must pay the owner a residual value guarantee amount, which may be recovered from a sale of the property to a third party. Residual value guarantees totaled $107 million at December 31, 2004.

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CONTRACTUAL OBLIGATIONS

Information related to the company's significant contractual obligations is summarized in the following table: