DuPont 2006 Annual Report Download - page 22

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
In 2006, the company recorded $76 million of insurance recoveries in Other income from its insurance
carriers. Of this amount, $61 million related to costs, including outside counsel fees and expenses and
settlements paid over the past twenty years as part of asbestos litigation matters. During this twenty year
period, DuPont has been served with thousands of lawsuits alleging injury from exposure to asbestos on
DuPont premises. Most of these claims have been disposed of through trial, dismissal or settlement.
Management believes it is remote that the outcome of remaining or future asbestos litigation matters will have
material adverse effect on the company’s consolidated financial position or liquidity. These asbestos related
insurance recoveries are reflected in Cash provided by operating activities within the company’s Statements of
Cash Flows. The remaining $15 million is part of a total recovery of $143 million relating to insurance
recoveries associated with damages to the company’s facilities suffered as a result of Hurricane Katrina in
2005. The majority of the Hurricane Katrina recovery is included in Cost of goods sold and other operating
charges in the Consolidated Income Statement; additional recoveries are not expected to be material. No
amounts are expected to be received from insurance carriers for damages suffered by the company as a result
of Hurricane Rita.
2005 versus 2004 Other income increased $1,197 million versus 2004. The increase is primarily due to net
pretax exchange gains in 2005 of $423 million compared to losses in 2004 of $391 million (see page 54 for a
discussion of the company’s program to manage currency risk and Note 3 to the Consolidated Financial
Statements). Royalty income related to the licenses for Cozaar»/Hyzaar»was $747 million and $675 million
in 2005 and 2004, respectively. Equity in the earnings of affiliates increased $147 million over 2004, primarily
due to the absence of a $150 million elastomers antitrust litigation charge in the DuPont Dow Elastomers LLC
(DDE) joint venture recorded in 2004 (discussed in detail in Note 20 to the Consolidated Financial
Statements).
(Dollars in millions) 2006 2005 2004
COST OF GOODS SOLD AND OTHER OPERATING CHARGES $20,440 $19,683 $20,827
As a percent of Net sales 75% 74% 76%
2006 versus 2005 Cost of goods sold and other operating charges (COGS) for the year 2006 were
$20.4 billion, versus $19.7 billion in 2005, up 4 percent. COGS was 75 percent of sales versus 74 percent in
the prior year. The 1 percentage point increase in COGS as a percent of sales principally reflects higher raw
material costs not entirely covered by selling price increases and higher costs for restructuring plans discussed
below.
In 2006, the company recorded a benefit to COGS for $128 million for insurance recoveries related to the
property damage suffered as a result of Hurricane Katrina in 2005. In 2005, the company recorded a charge of
$160 million related to the clean-up and restoration of manufacturing operations, as well as the write-off of
inventory and plant assets that were destroyed by two major hurricanes in the U.S. Hurricane charges reduced
segment earnings as follows: Coatings & Color Technologies — $116 million; Performance Materials —
$17 million; and Safety & Protection — $27 million.
In 2006, restructuring plans were introduced within the Coatings & Color Technologies and the Agriculture &
Nutrition segments. These programs include the elimination of approximately 3,200 positions and
redeployment of about 400 employees in excess positions to the extent possible. The company recorded a net
charge of $326 million in 2006 related to employee separation costs and asset impairment charges. This
included $184 million to provide severance benefits for approximately 2,800 employees involved in
manufacturing, marketing and sales, administrative and technical activities. The company also recorded a
benefit of $6 million in 2006 resulting from changes in estimates for prior years’ restructuring programs.
Additional details related to these programs are contained in the individual segment reviews and in Note 5 to
the Consolidated Financial Statements.
22
Part II