DuPont 2015 Annual Report Download - page 42

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Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, continued
41
The company changed the method it used to estimate the 2016 service cost and interest cost components of net periodic benefit
cost for the U.S. benefit plans. For these plans, the company has historically estimated these service and interest cost components
utilizing a single weighted-average discount rate derived from the yield curve and cash flow for measurement of the benefit
obligation at the beginning of the period. The company will utilize a full yield curve approach in the estimation of these 2016
components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the
relevant projected cash flows. The company made this change as it believes it is a more precise measurement of service and
interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The
company considers this a change in estimate, and, accordingly, will account for it prospectively starting in 2016. This change
does not affect the measure of the total benefit obligation. See information with the respect to the impact of the change in method
on 2016 pension expense under "Long-term Employee Benefits" beginning on page 45.
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,
2015:
Pre-tax Earnings Benefit (Charge)
(Dollars in millions)
1/2 Percentage
Point
Increase
1/2 Percentage
Point
Decrease
Discount rate $ 72 $ (74)
Expected rate of return on plan assets 88 (88)
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 adopted these tables in measuring the 2014 long-term
employee benefit obligations. This adoption increased the benefit obligation at December 31, 2014 by approximately $1.7 billion.
The effect of this adoption was amortized into net periodic benefit cost beginning in 2015. In October 2015, the Society of Actuaries
released an updated mortality improvement scale reflecting a decline in longevity projection from the October 2014 release. This
release was adopted by the company in measuring the 2015 long-term employee benefit obligations in the U.S. This adoption
decreased the benefit obligation at December 31, 2015 by approximately $0.4 billion. The effect of this adoption will be amortized
into net periodic benefit cost beginning in 2016.
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 45 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 $492 million as of December 31, 2015; 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 $1.0 billion above the amount accrued as of
December 31, 2015.