Karen A. Fletcher - Vice President of Investor Relations Ellen J. Kullman - Chairman, Chief Executive Officer and Chairman of Strategic Direction Committee Nicholas C. Fanandakis - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Alina Khaykin David L. Begleiter - Deutsche Bank AG, Research Division Robert Koort - Goldman Sachs Group Inc., Research Division Laurence Alexander - Jefferies & Company, Inc., Research Division Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division Mike J. Ritzenthaler - Piper Jaffray Companies, Research Division Donald Carson - Susquehanna Financial Group, LLLP, Research Division Mark R. Gulley - Ticonderoga Securities LLC, Research Division Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Andrew W. Cash - UBS Investment Bank, Research Division Duffy Fischer - Barclays Capital, Research Division Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Good morning. My name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont Quarterly Investor Call. [Operator Instructions] To listen to the webcast, please go to www.dupont.com. Thank you. It is now my pleasure to turn the floor over to your host, Karen Fletcher, Vice President of Investor Relations. Karen, you may begin your conference.

Okay, thank you, John. Good morning, and welcome, everyone. With me this morning are Ellen Kullman, Chair and CEO; and Nick Fanandakis, EVP and CFO. The slides for today's call can be found on our website at dupont.com, along with the news release that was issued earlier today. During the course of this conference call, we will make forward-looking statements, and I direct you to Slide 2 for our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risk and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We will also refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statements provided with the earnings news release and on our website. And finally, we've posted supplemental information on the website that we hope is helpful to your understanding of our company's performance. It's now my pleasure to turn the call over to Ellen.

Great. Thank you, Karen. Good morning, everyone. Let's turn to Slide 3 for highlights on our 2011 performance. Full year sales were up 20%, including 5 percentage points from the Danisco acquisition. Segments with the largest organic sales growth in 2011, net of acquisitions, were Performance Chemicals and Agriculture. Sales in developing markets were up 27%, and that represents 34% of company sales. Market-driven science is critical to our success, and we expect to have about 30% of 2011 sales come from products that were introduced in the past 4 years, and we'll be finalizing that data in February. Fixed cost and working capital productivity surpassed the targets we set for the year. Fixed cost productivity exceeded our target by $100 million, and working capital productivity beat the target by $200 million. Variable cost productivity programs, they also delivered comparable results. DuPont delivered a record $3.93 per share in 2011 on an underlying basis, which is up 20% versus 2010, capping off a very strong year with broad-based contributions. We ended the year with $3.3 billion in free cash flow compared to $3.1 billion last year, an improvement of 8%. During the fourth quarter, we faced several headwinds. When we updated our full year guidance on December 9, we pointed to market softness in electronics and customers' conservative year-end cash management with further destocking in polymer and industrial supply chain. We have also made clear that the photovoltaic inventory correction continued through the quarter. These factors combined to press volume down 10%. Despite these difficult conditions, underlying earnings were up in the fourth quarter when adjusted for the differences in tax rate year-over-year. Our earnings performance demonstrates an ability to execute extremely well in volatile and uncertain markets. It is our view that fourth quarter volume performance was strongly impacted…

Thank you, Ellen, and good morning, everyone. In spite of volatile market conditions, DuPont delivered a record year in 2011, with underlying earnings of $3.93 per share, which, as Ellen already mentioned, was a 20% improvement over 2010. Our exceptional performance continues to demonstrate our ability to successfully focus on innovation, productivity and differential management. Ellen's already given you a sense of the dynamic market conditions that we faced during the fourth quarter, so I'll go straight to the financial details of the quarter, which played out as expected and consistent with our updated guidance in December. Let's start with Slide 4, which is a summary of earnings and sales results. Fourth quarter total segment PTOI increased over $100 million or 16%. Earnings per share were $0.35 on an underlying basis compared to $0.50 in the prior year. The decrease here was due to the significantly higher tax rate, which was a negative $0.23 per share impact year-over-year. Consolidated net sales of $8.4 billion were up 14% versus the prior year. Local selling prices were up 14%, with double-digit increases in all regions, reflecting our continued strong discipline of pricing for value. The Danisco acquisition was the primary driver for the 10% benefit from portfolio changes. Volume was down 10%, primarily reflecting supply chain destocking that Ellen has already covered. Now, let's turn to a corporate view of the fourth quarter, looking at earnings per share variance analysis on Slide 5. Starting with price and variable cost, the quarter showed a net benefit of $0.43 per share. This reflects the difference between price and variable cost, excluding the impact of currency and volume. Driven by our innovation and pricing discipline, we continue to successfully implement price increases, pricing our new products for the enhanced value that they deliver. On a…

Thanks, Nick. We'll start with our segment review with Agriculture on Slide 8. Fourth quarter sales of $1.3 billion increased 8%, with volume gains of 3% and price gains of 5%. The seasonal PTOI loss of $116 million was lower than previous year losses due to increased sales. Fourth quarter does not reflect the majority of any single season since much of the impact of Latin America's summer season is captured in our third quarter results. Most of Brazil's Safrinha season is captured in our first quarter results, and most of northern hemisphere sales are captured in our first and second quarter results. Our full year performance clearly shows the power of the businesses. Our teams delivered 17% sales growth with 10% volume gains, 6% higher price and 1% impact from portfolio. 30% earnings growth, coupled with industry-leading sales performance, translated into 19% PTOI margins for the segment. The combination of our global infrastructure and the businesses' ability to respond and win in every major market with an intense focus on the customer, demonstrate the power of our business model. This discipline of service and momentum of innovation are the foundation for growth in 2012 and beyond. Taking a closer look within the segment, seed fourth quarter sales of $621 million increased 7% based on the close of an exceptional Latin America summer season. Latin America's sales in the second half were up more than 40%, driven by over 55% growth in Brazil's summer corn sales excluding currency, as our L.A. teams mobilized quickly and responded well to the increase in corn hectares. The quarter also captured improved sales in the Philippines and Indonesia, reflecting improved weather conditions and increased planting acres, with our teams capturing more than their share of that increase. For the full year 2011, the Pioneer…

Great. Thank you, Karen. So as we look ahead to 2012, we expect modest sales growth and reaffirmed our earnings outlook for 7% to 12% growth. After a challenging fourth quarter, we anticipate conditions will improve in many of our industrial businesses as the year plays out. Our growth outlook varies by region and by business. We see Asia demand recovering from the slowdown we saw on the fourth quarter. We continue to expect slow, sequential recovery in the U.S. and weak demand in many European markets. We're poised for a very strong year ahead in Agriculture. Our order books for seeds is at a historic pace, it's ahead of last year and consistent with our expectations for strong underlying growth. In crop protection, product expansions will contribute to 2012 results. We have an important milestone with the initial launch of Cyazypyr in the second half, which, over time, when coupled with Rynaxypyr, we expect to hit $1 billion in sales. With respect to TiO2, we expect markets to tighten by midyear, with the North American economy supporting a coating season comparable to last year, along with restocking of the value chain in Asia. For the full year, we expect TiO2 sales volume to meet or exceed 2011 levels. Our expectation for company volume in the first quarter are cautious. We expect volumes for many of our industrial businesses to be up sequentially versus the fourth quarter but down year-over-year against strong comps in the first quarter of 2011. At this point, many of our supply chain inventories are low, and we expect demand to pick up slowly, starting late in the first quarter or early in the second quarter. One exception where destocking continues in the first quarter is photovoltaics. We're seeing some positive signs that production will pick up again by midyear and expect PV installations to grow about 10% this year. At today's exchange rates, currency will be a headwind for our businesses, and Nick mentioned this. We have the entire year ahead of us to manage contingency to compensate. We'll continue to be disciplined in our execution, whether it's in the advancement of one of our R&D pipelines, a customer collaboration at one of our innovation centers or a productivity initiative. We are well positioned for recovery in growth through differentiated offerings and a global footprint. And we look ahead with confidence in our ability to execute well and deliver growth in 2012. Karen, back to you.

Okay, John. Let's open up the lines for questions.

[Operator Instructions] Our first question comes from Laurence Alexander from Jefferies. Laurence Alexander - Jefferies & Company, Inc., Research Division: I guess, could you give a little bit more detail on your views on end-market trends for 2012, particularly for construction-related end markets, perhaps breaking it down by region?

Yes, construction was a disappointment in '11, being about flat with 2010 from a start standpoint, so -- I'm talking U.S., initially. So we're -- although if you talk to people in the marketplace, they'll tell you that the starts are going to grow this year in the U.S. maybe about 10%. I'm being very cautious about that. So I don't see very big changes from a U.S. standpoint. If you really take a look at Europe, commercial has been holding up a little bit there, but that really has -- is offering, really, no great hope in 2012. We do believe there'll be a rebound in infrastructure investment in Asia, so we'll see some positive signs out of Asia. But by and large, as I add up the world, we're not expecting much of a volume increase from construction for 2012.

Our next question comes from John McNulty from Credit Suisse.

This is actually Alina Khaykin in for John. Just a quick question on pharma. You saw a big pickup sequentially in earnings. How should we think about that business for 2012?

Nick, you want to take pharma?

Sure. So as you mentioned, pharma was at about $290 million for the year. In 2012, we're anticipating pharma to contribute about $50 million of pretax earnings. When you think about what's going on from the patent side, Japan comes off in December -- came off December in 2011. And that's nearly half of the pharma impact that we saw this year. So you can see the reason for the decline going down to $50 million is because of Japan that came off in December. And Canada's going to be coming off this month. So between the 2 of those, that's the primary reason for going down to the $50 million we anticipate in '12.

Our next question comes from Jeff Zekauskas from JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: I have a 2-part question. Ellen, when you describe TiO2, sometimes you say it's a commodity business and sometimes, the profitability is good and sometimes the profitability is bad, and that's the way it always is. Yet, your TiO2 expansion is probably your largest capital project. So can you explain why you expect to get very good returns on capital from that investment when you describe it as a quality business -- as a commodity business? And then secondly, can you talk about pricing in photovoltaics, excluding metals pass-through?

Sure. The first part of the question, I would maybe upgrade your language, Jeff. I would suggest that it's a good business at the depth of it, and it's a fantastic business at the peak. And over the cycle, we get very strong segment returns for this business. And that's driven by our competitive advantage from our manufacturing process technology. And as you see, it isn't just a great cash generator for us. So when you have a pure cyclical commodity and at the depths of the cycle, you're still making a great return for the company, it is worthy of investment. And so that's where it hits. The other thing is we haven't put a new line, a major line into that business. The last one that opened up was in Kuan Yin in Taiwan, and that was 1994, maybe. And so it's been a while and -- from that standpoint. On PV, we've seen, obviously, the metal pass-through. If you take that away, it's all about the efficiency of the cell and what it delivers. We were seeing PV module prices come down as commensurate with the increases in efficiency in the modules themselves. And that's when you saw some of the support from some of the governments kind of go away. The economics largely remain the same. The margins are holding. And I do believe it's because things like army Solamet paste, which offers higher efficiency, enables that equation to work.

Our next question comes from Mark Gulley from Ticonderoga.

You had a great year in Latin America this year given the higher planted acres and good trends, but how do you think growers are going to react to the drought conditions that they're experiencing as they approach harvest? How will that affect your results the next growing season?

Well, thank you for the recognition of the great season that we had last year, especially in Latin America, where we made great progress. Are you talking about North America planting, Mark, or are you talking about Latin America? Oh, you're talking about the drought. Must be Latin America then because you're silent. I think that we've seen great penetration with -- especially in Brazil corn. Depending on what they have, obviously, our product position will adjust accordingly. And I think if you look at North American planting, they're going to take that into consideration. We have the new AQUAmax technology out in 2012. We're very excited about what that means. It looks like it's about a 5-bushel per unit positive on the impact. So we're very excited about that. But the current corn soy prices these days does favor corn. So there's a lot that's going on in the marketplace and a lot to take into account. With our product portfolio, that Right Product, Right Acre and what we've done, I think that if there is drought in the region, we'll be able to handle it.

Our next question comes from David Begleiter from Deutsche Bank.

Ellen, on TiO2, you mentioned volume as being flat to up this year. What are your expectations for pricing and, more importantly, earnings? Will it be up year-over-year, flat or down?

Yes, I think that we're going to see, sequentially, improvements in volume, led by North America. I think the fundamentals there will speak to a environment that will allow us to continue some of the momentum we've seen, maybe go sideways a little bit. But I don't think that there's going to be a negative repercussion there. So Investor Day, we talked about Performance Chemicals margins, near-term projected at 22% to 24%. Maybe in '12, they'll be flat between that volume and price trade-off. But I think it will depend on how the year plays out. As lunar new year completes and Asia gets back to work in a few weeks, I think we're going to see a lot about what's going to happen, not only in TiO2 but in other industries as well.

Our next question comes from Bob Koort from Goldman Sachs.

Ellen, I thought I heard you say -- or maybe it was Karen in the prepared remarks -- mid-single digit earnings growth in ag. I guess that seems a little below your trend line targets, and I would guess acres are up, your new products are up, prices are up. So why isn't the growth a little bit more robust?

I think if you take a look at the current currency projections, especially in the first half of the year where we do a majority of our business, that that's entirely reflective of that currency -- our operating, if you look at a local currency basis, our operating results are going to be absolutely solid. So we'll be sharing more on that as we go out, but we wanted to give you the current look. Volume's going to be up, price is going to be up, currency is going to be a headwind.

Our next question comes from Don Carson from Susquehanna Financial.

Ellen, a question on Latin America, where you had very strong growth. Last year, in Latin -- 2010, Latin America was 17% of your sales. Just wondering what that grew to this year, what percentage it is of your PTOI and, more importantly, what did it contribute to growth and how do you see that going forward?

Boy, we did have a tremendous run in Latin America. If you look at our seed business, our market shares, 2010 season was 27%, and while the hectares are fine, we're positive that we're going to see some growth there. But we'll wait until the hectares come in to really -- to look at that. Latin America itself, ag was up 40%, and our total sales for the company were up 17%. So you can see the real impact that Agriculture has had on Latin America. So we're very bullish on it. I think, really, exporting our Right Product, Right Acre or hectare strategy to Latin America, I think getting very close to the customers down there has been a huge benefit in our penetration. We've seen it in Brazil, we've seen it in Argentina, and I think we'll continue to -- Latin America will continue to be a very important sector for us.

Our next question comes from Duffy Fischer from Barclays Capital.

Just to go back to the guidance for this year kind of relative to what you originally thought, you talked about $0.17 of headwind. Has there actually been stuff since that original guidance that has been a tailwind for you? And then how should we think about share count and the pension effect within that guidance for this year?

Nick?

So a lot of things are moving, and that's why I say even with those headwinds that we talked about, Duffy, it'd be too soon in the year to make any kind of a change in our guidance on our outlook. So that's why we're reaffirming. When you think about the pension piece, we had talked to you about $250 million of headwinds year-over-year in 2012 versus that in '11. That's going to be about where it's coming out, maybe just slightly better than that. But on a cents per share basis, it's going to hold about the same. On a dilution basis, on an EPS basis, number of shares, I think the work we've been doing in that area is pretty evident in the fourth quarter. We bought back $0.25 million first quarter of '11, we bought back another $0.25 million in the third quarter. Another quarter -- so if you look over a period of time there, we brought -- bought back close to $1 billion worth of shares, which is looking to control the dilution over that 18-month period. And we'll continue to -- that practice as we go forward. As you know, we have plans in place that have already been authorized by the board, $2 billion in the newest, which was authorized in 2011, and we still have $100 million from the prior plan available to us. So we'll continue to do buybacks to deal with dilution from a compensation perspective that might occur.

Our next question comes from Andy Cash from UBS.

Yes, just a couple of quick questions here. First of all, in corn seed, what is your expectation for the cost of producing corn seed in 2012 versus what it was in 2011? And then secondly, back over to TiO2, Ellen, it sounds like you're looking forward to sort of a flat gross profit margin in TiO2. I'm just curious if you're getting any pushback on some of your price increases for the first quarter.

Nick, why don't you take the input cost of that question?

Sure. So Andy, when you look at input costs on ag and you look at the fact that the commodity market and the dynamics that we've seen there, the '11 cost impact on '12 sales is going to be there. It's going to be a higher cost for us. Couple that with weather problems that occurred in 2011, again, that would impact 2012 costs. However, the work we do around the innovation, the value we're bringing to the marketplace, we believe, will allow us to maintain our plan and the growth that we're projecting from an earnings perspective. And so we feel very confident around our pricing capabilities relation to that increase in cost that we're anticipating in 2012.

Yes, on TiO2, the market fundamentals are supportive in the environment. We don't normally talk about price payment, but I'll just give you an example, though, of the mood in the marketplace, is that customers who historically only purchase on a quarterly basis are now looking for long-term relationships and security of supply. And I think that in itself gives -- reinforces the market fundamentals that I've been talking about.

Our next question comes from Kevin McCarthy from Bank of America Merrill Lynch.

A couple of quick questions on Asia. Your volume pressure there was more pronounced than it was in Europe and the U.S. Was destocking more acute in Asia in your judgment? And then looking ahead to 1Q, I recognize it's sometimes difficult with Chinese new year, but would you elaborate on what you're seeing in terms of your order books across your key product lines to start the year in Asia?

Yes, Kevin. Thanks for the question. If you take a look at Asia Pacific, it's really a tale of what we've been seeing in Electronics & Communications and in TiO2 and polymers. So, I mean, those 3 businesses really saw tremendous destocking in the fourth quarter, and we've talked about that. Ag & Nutrition & Health continued to have very strong quarters in Asia Pacific. And we're -- we, like everyone else, are kind of waiting to see what happens after the Chinese new year, which started yesterday, I guess. Sequentially, if you take a look at GDP in China, for instance, it's gone from 9% to 8%, 8% still pretty good if you look around the world. If you look at auto builds in 2012, they're going to have a slow start to the year, probably down in the first quarter, but all in all, auto builds for the year in China are going to be up 7%. And then -- so we do see that it's going to probably, because of the lunar new year, because of the uncertainty in the supply chain -- we're starting with very little inventory, though, in most of these areas. And so I think that bodes well to an improving picture, but sequentially, I think you'll see that play out month-by-month.

Our next question comes from Mike Ritzenthaler from Piper Jaffray.

Just back on Agriculture purchases. My question is around can we get some sort of qualitative review of the extent of the prepays that we'll see in the first half of '12? And I guess in -- some of the growers we've spoken to in both Brazil and North America have mentioned seed charges in the U.S. It seems like that might be more noise than anything else, isolated to a few newer lead hybrids. But in Brazil, we've heard that some growers have had to buy seed from Pioneer's competitors just to get the summer crop in the ground. And I was wondering if this is an artifact of whether -- or where products are in the launch cycle, pricing, maybe pricing would be a little more aggressive or some other factor.

So our order book's ahead of last year, and it's really aligned with our growth targets, prepays versus whatever, I don't have that breakdown. But I think it's been really -- the best predicter that we have of the season is that order book, and it's full. In Brazil, our corn sales were up 55%, x currency. So we had a very, very strong season. So whether some people maybe -- I don't know. But we had a phenomenally strong season, a tremendous position there. So we here -- I don't think we have any issues with supply. We've gone out. Our direct-to-farmer model enables us to be very specific with what the needs are. And Nick talked about the winter production and things like that we're doing to assure that we have adequate supply. So we think that the season will work through just great.

Our next question comes from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: So when you guided down on December 9, it seemed like the big reason was destocking. But as we look at the results, it doesn't feel like destocking hurt you as much in the quarter and that it's mostly stuff like taxes. I'm just curious if you think that's fair and how the last 3 weeks of December actually played out versus your own expectations.

Well, I think that part of -- I did think it was destocking in markets. If you look at our volume number alone, down 10%, that was what changed appreciably from when we talked about -- talked to you at the end of the third quarter to the December timeframe, so -- but it wasn't macros. I mean, our economist will tell you that the GDP growth is there, but the supply chains are destocking. It's -- conservatism just reigned. And so we came out in December, gave you the best knowledge of what we thought would happen. Yes, tax certainly was an issue, but we understood that. We understood that we got the R&D credit, 100% of it in the fourth quarter in '10, and we've been accruing that all year in 2011. So the mix of business was a little different, so maybe that was a couple of cents off from a tax rate impact. But all in all, I would suggest the reason we did come out and talk to you in December was volume.

Our next question comes from P.J. Juvekar from Citi.

John, I think -- why don't we just take one more question?

Our last question comes from Frank Mitsch from Wells Fargo.

Six weeks ago, you guys were talking about the full year outlook for 2012, and you were looking at auto builds to be up 6%. And then in the presentation today, you're looking at auto builds to be up 4%. I'm wondering if you can talk about where geographically -- or why that change was made. It seems like a rather large change. And then on the topic of autos, I was wondering if you could offer any comments with respect to where Performance Coatings -- where you think Performance Coatings fits into your portfolio in the future?

So global builds were reduced from 6% to 4% in the last 6 weeks. A lot of that came out of Europe, where Europe is expected to -- build to be down 8% for the year and down even more than that in the first quarter, down 11% in the first quarter. And so, yes, there a little bit of changes, but I think the majority of the impact was really the outlook around Europe. And China was down maybe, I don't know, 8%, 9% to 7%, but it's still noisy. And this is all third-party data, and they update it monthly. And we've looked at that versus our book of business, so. Second question was around coatings. I think that they finished the year well. Our pricing in terms of the products that we're delivering and the differentiation, the pricing was well seen. We had a little volume decline in the fourth quarter based on some refinish destocking that we've seen. But all in all, I think they had a solid year. Their productivity plans continue to deliver on those, and I think that they're in an improving environment. So they're gaining some momentum. So thank you, all. Great to talk to you today, and we look forward to catching up with you soon.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.