MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements About Forward-Looking Statements This report 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. For 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 see the Risk Factors discussion set forth under Part II, Item 1A beginning on page 27. Additional risks and uncertainties not presently known to the company or that the company currently believes to be immaterial also could affect its businesses. Results of Operations
Overview
The company's growth strategies successfully generated a 9 percent sales and 26 percent net income growth. A significant portion of these increases are attributable to the Agriculture & Nutrition segment, which increased its segment sales 18 percent and pre-tax operating income 21 percent, and the Electronic & Communication Technologies segment, which increased segment sales 12 percent and pre-tax operating income 41 percent. Sales outside of the United States (U.S.) increased 16 percent, with double digit growth in all regions outside the U.S. Sales in the U.S. remained flat, as a 6 percent increase in local selling prices was offset by a 6 percent decrease in volume, principally reflecting the lower demand for the company's products related to the construction and motor vehicle production markets.
Net Sales
Net sales for the first quarter 2008 were $8.6 billion versus $7.8 billion in the prior year, up 9 percent. The growth in sales was primarily due to a 16 percent increase in sales outside of the U.S., reflecting in part the benefit of a weaker U.S. dollar (USD), which added 5 percent to worldwide sales. Worldwide local selling prices increased 6 percent. Worldwide volumes declined 2 percent, primarily due to a 6 percent decrease in U.S. sales volume, which reflects lower demand for the company's products related to the construction and motor vehicle production markets and a net reduction from portfolio changes. The table below shows a regional breakdown of net sales based on location of customers and percentage variances from the prior year:

Three Months Ended March 31, 2008 Percent Change Versus 2007 2008 Percent Net Sales Change Local Currency ($ Billions) vs. 2007 Price Effect Volume Worldwide $ 8.6 9 6 5 (2 ) U.S. 3.3 - 6 - (6 ) Europe 2.9 18 5 9 4 Asia Pacific 1.3 11 4 4 3 Canada & Latin America 1.1 15 5 11 (1 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Other Income, Net
First quarter 2008 other income, net, totaled $195 million as compared to $316 million in the prior year, a decrease of $121 million. The decrease is largely attributable to an increase in net pretax exchange losses of $114 primarily due to an increase in the foreign currency-denominated monetary asset position combined with a shift in remeasurement rates.
Additional information related to the company's other income, net, is included in Note 3 to the interim Consolidated Financial Statements. Cost of Goods Sold and Other Operating Charges (COGS) COGS totaled $6.0 billion in the first quarter 2008 versus $5.6 billion in the prior year, an increase of 6 percent. COGS as a percent of net sales was 69 percent versus 71 percent for the first quarter 2007. The 2 percentage point reduction principally reflects the absence of a prior-year litigation charge and a current year benefit from the weaker U.S. dollar. Partly offsetting these factors were increases in energy, raw material and finished product distribution costs.
Selling, General and Administrative Expenses (SG&A) SG&A totaled $934 million for the first quarter 2008 versus $846 million in the prior year. The increase in SG&A was primarily due to increased global commissions and selling and marketing investments related to the company's seed business. As a percent of net sales, SG&A for the quarter was 11 percent, essentially unchanged from the prior year. Research and Development Expense (R&D)
R&D totaled $330 million and $310 million for the first quarter of 2008 and 2007, respectively. The company's expectation is for R&D to increase modestly in 2008 reflecting the growth investment in the seed business within the Agriculture & Nutrition segment. R&D was approximately 4 percent of net sales for the three-month periods in 2008 and 2007. Interest Expense
Interest expense totaled $80 million in the first quarter of 2008 compared to $99 million in 2007. The decrease is due to lower average interest rates, partially offset by higher average borrowings. Provision for Income Taxes
The company's effective tax rate for the first quarter 2008 was 18.6 percent as compared to 27.8 percent in 2007. The lower effective tax rate in 2008 versus 2007 principally relates to the impact of tax associated with the company's policy of hedging the foreign currency-denominated monetary assets and liabilities of its operations of $141 and $10, respectively. Net Income
First quarter 2008 net income was $1,191 million compared to $945 million in the first quarter of 2007, a 26 percent increase. This increase reflects 9 percent revenue growth, principally from significantly higher seed sales, fixed cost productivity gains, a favorable foreign currency exchange impact, a lower effective income tax rate and the absence of a prior year $52 million litigation related charge. These increases were partially offset by a decrease in other income, net.
Corporate Outlook
The company's current 2008 earnings outlook is a range of $3.40 to $3.55 per share based on the expectation of continued revenue growth in emerging markets and earnings growth across all of the growth platforms. This outlook reflects continued weakness in the U.S. construction and North American motor vehicle markets and continued escalation of energy, ingredient and transportation costs which will offset new product acceleration, mix enrichment, pricing discipline and continued cost and capital productivity gains.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Accounting Standards Issued Not Yet Adopted See Note 1 to the interim Consolidated Financial Statements for a description of recent accounting pronouncements.
Segment Reviews
Summarized below are comments on individual segment sales and PTOI for the three-month period ended March 31, 2008 compared with the same period in 2007. Segment sales include transfers. Segment PTOI is defined as operating income before income taxes, minority interests, exchange gains/ (losses), corporate expenses and interest.
Agriculture & Nutrition - First quarter 2008 sales of $2.9 billion were 18 percent higher than the same period in 2007, reflecting 15 percent higher USD selling prices and 3 percent volume growth. The volume growth was driven by higher soybean seed sales in North America due to an increase in planted soybean acreage, higher corn seed sales in Europe, higher safrinha corn seed sales in Brazil and strong demand for corn herbicides and cereal fungicides in Europe. This volume growth was partially offset by a decrease in corn seed sales in North America due to a decrease in planted corn acreage. The higher USD selling prices reflect higher value corn seed product mix, as well as favorable currency impacts in Europe and Latin America. PTOI for the first quarter was $786 million, an increase of 21 percent compared to the same period in the prior year. The improvement in PTOI for the quarter was primarily due to the higher sales, partially offset by higher production costs across most of the segment and the growth investment in the seed business.
Coatings & Color Technologies - First quarter 2008 sales of $1.6 billion were up 6 percent compared to the same period in 2007, reflecting 8 percent higher USD selling prices, partially offset by a 2 percent volume decrease. The decrease in volume was primarily due to lower sales of products sold to automotive original equipment manufacturers in North America and Europe and lower sales of titanium dioxide in North America. First quarter PTOI of $190 million decreased from $194 million in the first quarter 2007, which included a $16 million insurance recovery relating to Hurricane Katrina.
Electronic & Communication Technologies - Sales in the first quarter of $1.0 billion increased 12 percent from the first quarter 2007, reflecting 9 percent higher USD selling prices and 3 percent volume growth. The volume growth reflects increased demand for fluoroproducts, particularly in Europe and North America, and higher sales of electronic materials in Europe and Asia Pacific. First quarter 2008 PTOI increased 41 percent to $175 million, driven by higher sales, better product mix and improved fixed cost productivity. Performance Materials - First quarter sales of $1.7 billion were up 8 percent compared to sales in the first quarter 2007, reflecting 12 percent higher USD selling prices, partially offset by a 4 percent volume decrease. The decrease in volume reflects lower sales of Neoprene due to the capacity reduction associated with the shutdown of the Louisville, Kentucky plant and lower sales of engineering polymer resins in North America due to the weak automotive market. First quarter 2008 PTOI was $219 million compared to $150 million in the first quarter 2007, which included a $52 million litigation related charge in connection with the elastomers antitrust matters. The improvement in PTOI was driven by higher sales and improved fixed cost productivity, partly offset by higher ingredient costs.
Safety & Protection - First quarter sales of $1.4 billion in 2008 were flat versus the same period in 2007, reflecting 7 percent higher USD selling prices offset by a 7 percent decline in volume. Lower volume primarily reflects lower sales of products for U.S. residential construction markets, as well as lower sales associated with a chemical business that was divested in 2007. First quarter 2008 PTOI was $272 million, a decrease of 7 percent compared to first quarter 2007. The decline in PTOI was primarily due to the impact of lower volumes related to U.S. residential construction markets, planned aramids growth investment, as well as the loss of PTOI associated with the divested chemical business.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Pharmaceuticals - First quarter 2008 PTOI was $235 million compared to $225 million in the first quarter 2007.
Other - The company includes embryonic businesses not included in growth platforms, such as applied biosciences and nonaligned businesses in Other. Sales in the first quarter 2008 of $40 million decreased 7 percent from the first quarter 2007. Pretax operating loss for the first quarter 2008 was $26 million compared to a loss of $56 million in the first quarter 2007, which included litigation charges for divested businesses of $29 million. Liquidity & Capital Resources
Management believes that the company's ability to generate cash and access the capital markets will be adequate to meet anticipated future cash requirements to fund working capital, capital spending, dividend payments and other cash needs for the foreseeable future. The company's liquidity needs can be met through a variety of sources, including: cash provided by operating activities, cash and cash equivalents, marketable securities, commercial paper, syndicated credit lines, bilateral credit lines, equity and long-term debt markets and asset sales. The company's current strong financial position, liquidity and credit ratings provide excellent access to the capital markets.
Pursuant to its cash discipline policy, the company seeks first to maintain a strong balance sheet and second, to return excess cash to shareholders unless the opportunity to invest for growth is compelling. Cash and cash equivalents and marketable securities balances of $1.1 billion as of March 31, 2008, provide primary liquidity to support all short-term obligations. In the unlikely event that the company would not be able to meet its short-term liquidity needs, the company has access to approximately $4.3 billion in credit lines with several major financial institutions. These credit lines are primarily multi-year facilities.
The company continually reviews its debt portfolio for appropriateness and occasionally may rebalance it to ensure adequate liquidity and an optimum maturity debt schedule.
On April 29, 2008, Moody's Investors Service changed the company's credit outlook to "Stable" from "Negative", as previously reported in the company's 2007 Annual Report.
Cash used for operating activities was $951 million for the three months ended March 31, 2008 versus $240 million for the same period ended in 2007. The $711 million increase was primarily due to an increase in the cash used to fund working capital needs, primarily in the Agriculture & Nutrition segment, which was partially offset by higher earnings.
Cash used for investing activities was $520 million for the three months ended March 31, 2008 compared to $269 million for the same period last year. The $251 million increase was mainly due to increased capital expenditures and the impacts of a weakening U.S. dollar on forward exchange contract settlements. These increases were partially offset by a net increase in the sale of short-term financial instruments.
Purchases of property, plant and equipment for the three months ended March 31, 2008 totaled $410 million, an increase of $137 million compared to the prior year. The company expects full-year purchases of plant, property and equipment to be higher than the $1.6 billion spent in 2007.
Cash provided by financing activities was $1,262 million for the three months ended March 31, 2008 compared to cash used for financing activities of $425 million in the prior year. The $1,687 million difference was primarily due to the increase in the net proceeds from borrowings and the absence of the purchase of common stock, which were partly offset by the decrease in the proceeds from the exercise of stock options.
Dividends paid to shareholders during three months ended March 31, 2008 totaled $372 million. In January 2008, the company's Board of Directors declared a first quarter common stock dividend of $0.41 per share. The first quarter dividend was the company's 414th consecutive quarterly dividend since the company's first dividend in the fourth quarter 1904.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Cash and Cash Equivalents and Marketable Securities Cash and cash equivalents and marketable securities were $1.1 billion at March 31, 2008 versus $1.4 billion at December 31, 2007. The $0.3 billion decrease, along with a $1.7 billion increase in total debt, was used to fund normal seasonal working capital needs, principally in the Agriculture & Nutrition segment.
Debt
Total debt at March 31, 2008 was $9.0 billion, an increase of $1.7 billion from the $7.3 billion at December 31, 2007. The proceeds from the increased borrowings were primarily used to fund normal seasonal working capital needs, principally in the Agriculture & Nutrition segment. Guarantees and Off-Balance Sheet Arrangements For detailed information related to Guarantees, Indemnifications, Obligations for Equity Affiliates and Others, Certain Derivative Instruments, and Master Operating Leases, see page 37 to the company's 2007 Annual Report, and Note 9 to the interim Consolidated Financial Statements. Contractual Obligations
Information related to the company's contractual obligations at December 31, 2007 can be found on page 39 of the company's 2007 Annual Report. There have been no significant changes to the company's contractual obligations during the three months ended March 31, 2008.
PFOA
Information related to PFOA can be found on pages 44 and 45 in the company's 2007 Annual Report and Note 9 to the company's interim Consolidated Financial Statements under the heading PFOA.