DuPont 2006 Annual Report Download - page 33

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
Sales for refinish products grew in all regions, most notably in the U.S., Europe and Latin America. While the
OEM market realized growth in Latin America and Asia Pacific, it was more than offset by declines in the
U.S., Canada and Europe. This reflects the flat or lower 2006 North American and European builds of
automobiles and light trucks. Powder coatings sales grew in all regions, more significantly in Asia Pacific,
U.S. and Europe, while demand in Latin America showed improvement. Worldwide sales in electrical
insulation and metal coatings markets continued to improve.
2006 versus 2005 Sales of $6.3 billion were up 4 percent, reflecting about 2 percent higher USD selling
prices for the segment. An additional 2 percent increase from volume was primarily realized in the pigments
business, reflecting strong global demand as well as the first quarter startup of the DeLisle plant following
Hurricane Katrina. Higher selling prices reflect concerted efforts within the segment to increase prices for the
majority of its products as part of its efforts to offset the impact of higher raw material costs and the impact
of lower global OEM automotive volumes. During the year approximately 390 new products and product
applications were introduced.
PTOI in 2006 of $795 million increased from $528 million in the prior year. Lower fixed costs in both years
and higher volumes in pigments contributed to the improved 2006 earnings. PTOI in 2006 includes a net
charge of $132 million for restructuring and $30 million primarily for accelerated depreciation related to the
transformation plan that was initiated in first quarter 2006 (see Note 5 to the Consolidated Financial
Statements). 2006 PTOI also includes $142 million in insurance proceeds, primarily related to the hurricane
damages suffered in 2005. 2005 PTOI included charges of $116 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
hurricanes.
2005 versus 2004 Sales of $6.1 billion were up 3 percent, reflecting 6 percent higher USD selling prices,
partly offset by 3 percent lower volumes. Higher selling prices reflect concerted efforts within the segment to
increase prices for the majority of its products as part of its efforts to offset the impact of higher raw material
costs. Sales volumes were lower due to the DeLisle plant outage and the impact of lower global OEM
automotive volumes. During the year approximately 360 new products and product applications were
introduced.
PTOI in 2005 of $528 million decreased from $698 million in the prior year. Higher raw material costs and
lower sales volumes negatively affected 2005 earnings. PTOI in 2005 includes a $116 million hurricane charge
while 2004 included charges of $96 million for employee separation costs and an automotive refinish litigation
settlement.
Outlook The segment expects sales in 2007 to increase slightly, while taking actions to reduce costs and
improve profitability. Industry demand for titanium dioxide is expected to moderate in 2007, in line with more
moderate global economic growth of about 2 percent. Competitive conditions in the global coatings industry
will continue to provide a challenging operating environment in 2007. Modest growth is expected for refinish
markets in mature economies while strong growth is expected to continue in emerging markets. Profitability of
coatings sold to automotive OEM producers is highly dependent upon volume at specific plants the company
services. North American and European 2007 automotive builds are expected to be essentially flat with 2006
levels, with moderate growth in Asia Pacific.
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Part II