DuPont 2007 Annual Report Download - page 43

Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, continued
reduction of approximately $40 million in combined pension and defined contribution plans expense. This estimate is
composed of a reduction in pension expense of about $190 million, partially offset by an increase in defined
contribution plan expense of approximately $150 million. Actual cash contributions for the savings plan will increase
less than $130 million in 2008. Additional information related to these changes in the plans noted above is included in
Note 21 to the Consolidated Financial Statements.
On December 31, 2006, the company adopted SFAS 158 and recorded a $1,555 million after-tax charge to
stockholder’s equity primarily due to reclassifying unrecognized actuarial losses and prior service costs related to
the pension plans.
Medical, dental, life insurance and disability 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 $315 million, $335 million and $408 million for 2007, 2006 and 2005, respectively. This amount is expected to
be about $315 million in 2008. Changes in cash requirements reflect the net impact of higher per capita health care
costs, demographic changes and changes in participant premiums, co-pays and deductibles.
The company’s income can be significantly affected by pension and defined contribution 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 3 years was affected by pretax charges and credits related to long-term employee
benefits.
(Dollars in millions) 2007 2006 2005
Defined benefit pension charges $ (54) $191 $432
Company contributions to defined contribution plans 99 86 81
Other long-term employee benefit charges 192 155 237
Net amount $237 $432 $750
The above charges for pension and other long-term employee benefits are determined as of the beginning of each
year. The decrease in pension expense in 2007 reflects favorable returns on pension assets, plan amendments and
changes in demographics and discount rates. The increase in 2007 other long-term employee benefit charges
principally reflects changes in demographics, discount rates and higher than expected health care costs. The
decrease in pension expense in 2006 reflects favorable returns on pension assets, plan amendments and changes
in discount rates. The decrease in 2006 other long-term employee benefit charges principally reflects the favorable
medical trends in 2005 and refinements in estimates to reflect the anticipated commencement of the Medicare
prescription drug program.
The company’s key assumptions used in calculating its pension and other long-term employee benefits are the
expected return on plan assets, the rate of compensation increases and the discount rate (see Note 21 to the
Consolidated Financial Statements). For 2008, lower than anticipated medical trends, the net impact of the
U.S. retirement plan amendments, changes in demographics and discount rates, and the expiration of a prior
service cost amortization credit in 2007 are expected to result in a reduction in pension and other long-term
employee benefit pretax expenses of about $170 million.
Environmental Matters
DuPont operates global manufacturing, product handling and distribution facilities that are subject to a broad array of
environmental laws and regulations. Company policy requires that all operations fully meet or exceed legal and
regulatory requirements. In addition, DuPont implements voluntary programs to reduce air emissions, eliminate the
generation of hazardous waste, decrease the volume of waste water discharges, increase the efficiency of energy
use and reduce the generation of persistent, bioaccumulative and toxic materials. The costs to comply with complex
environmental laws and regulations, as well as internal voluntary programs and goals, are significant and will
continue for the foreseeable future. While these costs may increase in the future, they are not expected to have a
material impact on the company’s financial position, liquidity or results of operations.
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Part II