DuPont 2013 Annual Report Download - page 32

Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, continued
31
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) 2013 2012 2011
Market-related value of assets $ 15.5 $ 14.8 $ 13.9
Fair value of plan assets 16.1 15.1 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,
2013:
Pre-tax Earnings Benefit (Charge)
(Dollars in millions)
1/2 Percentage
Point
Increase
1/2 Percentage
Point
Decrease
Discount rate $ 89 $ 94
Expected rate of return on plan assets 97 (97)
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 34 and in Note 18 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 $458 million as of December 31, 2013; 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 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
probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of significant litigation
matters is contained in Note 16 to the Consolidated Financial Statements.