DuPont 2014 Annual Report Download - page 20

Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Results Income from continuing operations after income taxes was $3.6 billion, up 26 percent from $2.9 billion in 2013, reflecting
higher segment PTOI, lower pension and OPEB costs, partly offset by Performance Chemicals separation transaction costs and
restructuring charges. Net sales were $34.7 billion, a 3 percent decrease from prior year, reflecting portfolio changes and a negative
impact from currency. Total segment PTOI was $6.4 billion, 18 percent above last year, principally due to gains on asset sales,
insurance recoveries, lower performance-based compensation, and the absence of prior-year charges for litigation and product
claims, partly offset by higher restructuring charges.
Analysis of Operations
Redesign Initiative and 2014 Restructuring Plan In June 2014, DuPont announced its global, multi-year initiative to redesign
its global organization and operating model to reduce costs and improve productivity and agility across all businesses and functions.
DuPont commenced a restructuring plan to realign and rebalance staff function support, enhance operational efficiency, and to
reduce residual costs associated with the separation of its Performance Chemicals segment. As a result, during the year ended
December 31, 2014 a pre-tax charge of $562 million was recorded, consisting of $497 million in employee separation / asset
related charges, net and $65 million in other income, net. The charges consisted of $319 million of employee separation charges,
$17 million of other non-personnel charges, and $226 million of asset related charges, including $65 million of charges associated
with the restructuring actions of a joint venture within the Performance Materials segment. The actions associated with this charge
and all related payments are expected to be substantially complete by mid-2016 and will result in future cash payments at December
31, 2014 of $268 million primarily related to severance and related benefits. The company anticipates that it will incur future
charges, which it cannot reasonably estimate at this time, related to this plan as it implements additional actions. Pre-tax cost
savings related to this charge are expected to be about $500 million in 2015 and approximately $625 million in subsequent years.
This, coupled with further cost savings initiatives and $375 million of costs directly associated with Chemours to be eliminated
upon separation, are expected to yield savings on a run-rate basis of approximately $1 billion at the end of fourth quarter 2015
and $1.3 billion by 2017. Additional details related to this plan can be found in Note 3 to the Consolidated Financial Statements.
Separation of Performance Chemicals In October 2013, DuPont announced that it intends to separate its Performance Chemicals
segment through a U.S. tax-free spin-off to shareholders, subject to customary closing conditions. In December 2014, the initial
Form 10 registration statement related to the spin-off was filed with the SEC for the new public company to be created following
completion of the pending separation of its Performance Chemicals segment. The new public company will be named The Chemours
Company (Chemours). The company expects to complete the separation about mid-2015.
As part of the separation, DuPont incurred $175 million in transaction costs, which were recorded in other operating charges in
the Consolidated Income Statement for the year ended December 31, 2014. The company expects to incur additional costs related
to the separation in 2015 estimated at about $350 million. These transaction costs primarily relate to professional fees associated
with preparation of regulatory filings and separation activities within finance, legal and information system functions. In addition,
the company expects to return all or substantially all of the one-time dividend proceeds from Chemours to DuPont shareholders
through share repurchases within the 12 to18 months following the separation of Chemours, with a portion returned in 2015.
As a result of the separation of its Performance Chemicals segment, coupled with the company’s redesign initiative, the functional
currency at certain of the company’s foreign entities is being re-evaluated and, in some cases, will result in a change in the foreign
entities’ functional currency. The re-evaluation will not impact the company's results of operations on the date of the change.
Divestiture of Performance Coatings In August 2012, the company entered into a definitive agreement with Flash Bermuda
Co. Ltd., a Bermuda exempted limited liability company formed by affiliates of The Carlyle Group (collectively referred to as
"Carlyle") in which Carlyle agreed to purchase certain subsidiaries and assets comprising the company's Performance Coatings
business. In February 2013, the sale was completed resulting in a pre-tax gain of approximately $2.7 billion ($2.0 billion net of
tax). The gain was recorded in income from discontinued operations after income taxes in the Consolidated Income Statement for
the year ended December 31, 2013.
In accordance with generally accepted accounting principles in the United States of America (GAAP), the results of Performance
Coatings are presented as discontinued operations and, as such, have been excluded from continuing operations and segment
results for all periods presented. See Note 2 to the Consolidated Financial Statements for additional information.