DuPont 2005 Annual Report Download - page 46

Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Continued
years of service and employees’ pay near retirement. Pension benefits are paid primarily from trust funds established to
comply with applicable laws and regulations. Unless required by law, the company does not make contributions that are in
excess of tax deductible limits. The actuarial assumptions and procedures utilized are reviewed periodically by the plans’
actuaries to provide reasonable assurance that there will be adequate funds for the payment of benefits. By law, no contribu-
tions are currently required to be made to the principal U.S. pension plan in 2006 and no contributions are currently antici-
pated. The company will monitor the pension funding legislation in the U.S., but the company does not anticipate it will have a
material near term impact on required or voluntary contributions. Contributions beyond 2006 are not determinable since the
amount of any contribution is heavily dependent on the future economic environment and investment returns on pension trust
assets. U.S. pension benefits that exceed federal limitations are covered by separate unfunded plans and these benefits are
paid to pensioners and survivors from operating cash flows. Pension coverage for employees of the company’s non-U.S.
consolidated subsidiaries is provided, to the extent deemed appropriate, through separate plans.
Funding for each pension plan is governed by the rules of the sovereign country in which it operates. Thus, there is not
necessarily a direct correlation between pension funding and pension expense. In general, however, reduced asset valuations
tend to result in higher contributions to pension plans. In 2005, the company contributed $1,253 million to its pension plans,
including $1,000 million to its principal U.S. pension plan. The company anticipates that it will make approximately $280 million
in contributions in 2006 to pension plans other than the principal U.S. pension plan.
GAAP requires the full reflection of the amount of pension under-funding, if any, defined as the amount of the accumulated
benefit obligation in excess of the amount of pension assets as of the measurement date. To the extent this amount has not
already been fully reflected, the company is required to reflect an additional minimum pension liability, and any adjustment is
reflected in Accumulated other comprehensive income in Stockholders’ equity. For this purpose, each of the company’s pension
plans must be tested individually. At year-end 2002, a non-cash after-tax charge of $2.5 billion to Stockholders’ equity was
recorded in response to lower asset valuations and somewhat higher benefit obligations as of that date. In 2005, 2004 and
2003, $27 million, $1,245 million and $858 million, respectively, of this charge was reversed, reflecting the net effect of
recovering asset values, company contributions, and changes in discount rates.
Medical, dental and life insurance plans are unfunded and the cost of the approved claims is paid from operating cash flows.
Pretax cash requirements to cover actual net claims costs and related administrative expenses were $395 million, $435 million,
and $410 million for 2005, 2004, and 2003, respectively. This amount is expected to be about $350 million in 2006. Changes in
cash requirements during this period reflect higher per capita health care costs, demographic changes, and changes in
participant premiums, co-pays and deductibles. In addition, lower cash requirements for 2006 reflect the commencement of the
government sponsored prescription drug coverage under the U.S. medical program.
The company’s income can be significantly affected by pension benefits as well as retiree medical, dental and life insurance
benefits. The following table summarizes the extent to which the company’s income over each of the last three years was
affected by pretax charges and credits related to long-term employee benefits.
Pretax (Dollars in millions) 2005 2004 2003
Pension charges $432 $ 997 $554
Other postretirement benefit charges (credits) 218 (241) 290
Net charge $650 $ 756 $844
The decrease in 2005 pension cost is primarily attributable to the absence of $446 million net settlement and curtailment
charges recorded in 2004 in connection with the sale of INVISTA. In addition, the lower expense in 2005 reflects favorable
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