DuPont 2014 Annual Report Download - page 36

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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, continued
35
Within the U.S., the company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant
asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in other countries are
selected in accordance with the laws and practices of those countries. Where appropriate, asset-liability studies are also taken into
consideration. The long-term expected return on plan assets in the U.S. is based upon historical real returns (net of inflation) for
the asset classes covered by the investment policy, expected performance, and projections of inflation and interest rates over the
long-term period during which benefits are payable to plan participants. Consistent with prior years, the long-term expected return
on plan assets in the U.S. reflects the asset allocation of the plan and the effect of the company's active management of the plans'
assets.
In determining annual expense for the principal U.S. pension plan, the company uses a market-related value of assets rather than
its fair value. The market-related value of assets is calculated by averaging market returns over 36 months. Accordingly, there
may be a lag in recognition of changes in market valuation. As a result, changes in the fair value of assets are not immediately
reflected in the company's calculation of net periodic pension cost. The following table shows the market-related value and fair
value of plan assets for the principal U.S. pension plan:
(Dollars in billions) 2014 2013 2012
Market-related value of assets $ 15.9 $ 15.5 $ 14.8
Fair value of plan assets 15.8 16.1 15.1
For plans other than the principal U.S. pension plan, pension expense is determined using the fair value of assets.
The following table highlights the potential impact on the company's pre-tax earnings due to changes in certain key assumptions
with respect to the company's pension and other long-term employee benefit plans, based on assets and liabilities at December 31,
2014:
Pre-tax Earnings Benefit (Charge)
(Dollars in millions)
1/2 Percentage
Point
Increase
1/2 Percentage
Point
Decrease
Discount rate $ 112 $ (119)
Expected rate of return on plan assets 100 (100)
In October 2014, the Society of Actuaries released final reports of new mortality tables and a mortality improvement scale for
measurement of retirement program obligations in the U.S. The company has adopted these tables in measuring the 2014 long-
term employee benefit obligations. This adoption has increased the benefit obligation at December 31, 2014 by approximately
$1.7 billion. The effect of this adoption will be amortized into net periodic benefit cost beginning in 2015 as disclosed in Note 17
to the Consolidated Financial Statements.
Additional information with respect to pension and other long-term employee benefits expenses, liabilities and assumptions is
discussed under "Long-term Employee Benefits" beginning on page 39 and in Note 17 to the Consolidated Financial Statements.
Environmental Matters
DuPont accrues for remediation activities when it is probable that a liability has been incurred and a reasonable estimate of the
liability can be made. The company has recorded a liability of $478 million as of December 31, 2014; these accrued liabilities
exclude claims against third parties and are not discounted. As remediation activities vary substantially in duration and cost from
site to site, it is difficult to develop precise estimates of future site remediation costs. The company's estimates are based on a
number of factors, including the complexity of the geology, the nature and extent of contamination, the type of remedy, the outcome
of discussions with regulatory agencies and other Potentially Responsible Parties (PRPs) at multi-party sites and the number of
and financial viability of other PRPs. Therefore, considerable uncertainty exists with respect to environmental remediation costs
and, under adverse changes in circumstances, the potential liability may range up to $1.1 billion above the amount accrued as of
December 31, 2014.