DuPont 2014 Annual Report Download - page 35

Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, continued
34
During 2012, the company purchased and retired 7.8 million shares at a total cost of $400 million. These purchases completed
the 2001 $2 billion share buyback plan and began purchases under a $2 billion share buyback plan authorized by the company's
Board of Directors in April 2011. Under the completed 2001 plan, the company purchased a total of 42.0 million shares. Under
the 2011 plan, the company has purchased 5.5 million shares at a total cost of $284 million as of December 31, 2013.
See Note 16 Consolidated Financial Statements for additional information relating to the above share buyback plans.
(Dollars in millions) 2014 2013 2012
Cash provided by operating activities $ 3,712 $ 3,179 $ 4,849
Purchases of property, plant and equipment (2,020)(1,882)(1,793)
Free cash flow $ 1,692 $ 1,297 $ 3,056
Free cash flow is a measurement not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP
measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the
company's free cash flow definition may not be consistent with the methodologies used by other companies. The company defines
free cash flow as cash provided by operating activities less purchases of property, plant and equipment, and therefore indicates
operating cash flow available for payment of dividends, other investing activities and other financing activities. Free cash flow is
useful to investors and management to evaluate the company's cash flow and financial performance, and is an integral financial
measure used in the company's financial planning process.
For further information relating to the change in cash provided by operating activities, see discussion above under cash provided
by operating activities.
Critical Accounting Estimates
The company's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.
Management believes that the application of these policies on a consistent basis enables the company to provide the users of the
financial statements with useful and reliable information about the company's operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of
tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental
matters and litigation. Management's estimates are based on historical experience, facts and circumstances available at the time
and various other assumptions that are believed to be reasonable. The company reviews these matters and reflects changes in
estimates as appropriate. Management believes that the following represents some of the more critical judgment areas in the
application of the company's accounting policies which could have a material effect on the company's financial position, liquidity
or results of operations.
Long-term Employee Benefits
Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan
assets are two critical assumptions in measuring the cost and benefit obligation of the company's pension and other long-term
employee benefit plans. Management reviews these two key assumptions annually as of December 31st. These and other
assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate. As
permitted by GAAP, actual results that differ from the assumptions are accumulated on a plan by plan basis and to the extent that
such differences exceed 10 percent of the greater of the plan's benefit obligation or the applicable plan assets, the excess is amortized
over the average remaining service period of active employees.
About 79 percent of the company's benefit obligation for pensions and essentially all of the company's other long-term employee
benefit obligations are attributable to the benefit plans in the U.S. In the U.S. the discount rate is developed by matching the
expected cash flow of the benefit plans to a yield curve constructed from a portfolio of high quality fixed-income instruments
provided by the plan's actuary as of the measurement date. For non-U.S. benefit plans, the company utilizes prevailing long-term
high quality corporate bond indices to determine the discount rate, applicable to each country, at the measurement date.