DuPont 2011 Annual Report Download - page 32

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Table of Contents
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
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 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) 2011 2010 2009
Market-related value of assets $ 13.9 $ 13.9 $ 14.0
Fair value of plan assets 13.9 14.8 13.9
For plans other than the principal U.S. pension plan, pension expense is typically 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, 2011 :
Pre-tax Earnings Benefit (Charge)
(Dollars in millions) 1/2 Percentage
Point
Increase
1/2 Percentage
Point
Decrease
Discount rate $ 97 $ (101)
Expected rate of return on plan assets 88 (88)
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 32 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 $416 million in the Consolidated Balance Sheet as of December 31, 2011; 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 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 three times the amount accrued.
Legal Contingencies
The company's results of operations could be affected by significant litigation adverse to the company, including product liability claims, patent infringement
and antitrust claims, and claims for third party property damage or personal injury stemming from alleged environmental torts. The company records accruals
for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other
information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure
involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation
matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the
company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving
the matter through alternative dispute resolution mechanisms and the matter's current status. Considerable judgment is required in determining whether to
establish a litigation accrual when an adverse judgment is rendered against the company in a court proceeding. In such situations, the company will not
recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is
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