DuPont 2007 Annual Report Download - page 23

Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, continued
Payments from operating cash flows to terminated employees as a result of the 2006 plans totaled $77 million during
2007 and $32 million during 2006. Annual pretax cost savings of about $125 million per year are associated with the
Coatings & Color Technologies program, approximately $53 million of which is reflected in COGS. Cumulative
savings of approximately 80 percent and 35 percent was realized in 2007 and 2006, respectively, with the remainder
expected to be realized in 2008.
2006 versus 2005 COGS for the year 2006 was $20.4 billion, versus $19.7 billion in 2005, up 4 percent. COGS
was 75 percent of sales in 2006 versus 74 percent in 2005. 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 above.
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, the company recorded charges 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 Hurricanes Katrina and Rita. Hurricane related charges reduced segment earnings as follows:
Coatings & Color Technologies – $116 million; Performance Materials – $17 million; and Safety &
Protection – $27 million.
The company recorded a net charge of $326 million in 2006 related to employee separation costs and asset
impairment charges as discussed above. In 2005, the company evaluated capital investment requirements at its
Louisville, Kentucky facility and the declining demand for the neoprene products produced at the facility. As a result,
the company has made plans to consolidate neoprene production at its upgraded facility in LaPlace, Louisiana. On
December 31, 2007, the company initiated the shutdown, abatement and dismantlement process at the Louisville
facility. A charge of $34 million was recorded in 2005 reflecting severance and related costs for approximately
275 employees, principally at the Louisville site. Additionally, a benefit of $13 million was recorded in 2005 to reflect
changes in estimates related to employee separations that were implemented in earlier years.
(Dollars in millions) 2007 2006 2005
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $3,364 $3,224 $3,223
As a percent of Net sales 11% 12% 12%
Selling, general and administrative (SG&A) expenses increased $140 million in 2007 as compared to 2006. The
increase is primarily due to increased global commissions, and selling and marketing infrastructure investments in
the Agriculture & Nutrition segment.
(Dollars in millions) 2007 2006 2005
RESEARCH AND DEVELOPMENT EXPENSE $1,338 $1,302 $1,336
As a percent of Net sales 5% 5% 5%
Research and development expense (R&D) as a percent of sales remained constant over the three-year period.
Higher R&D in 2007 for accelerated biotechnology trait research and development in the Agriculture & Nutrition
segment was partially offset by a decrease in R&D in the Coatings & Color Technologies segment as a result of
consolidating research facilities as a part of its 2006 business transformation plan. Expenditures in 2006 were
consistent with spending by segment in 2005 and reflect concentration in expansion of seed traits, breeding
advancement and product development within the Agriculture & Nutrition segment, as well as activities to support
the other growth platforms.
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Part II