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E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DuPont follows generally accepted accounting principles in the United States of America (GAAP). The
significant accounting policies described below, together with the other notes that follow, are an integral part
of the Consolidated Financial Statements.
Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Changes
Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards (SFAS) No. 123
(Revised 2004), “Share Based Payments” (SFAS 123R) using the modified prospective application transition
method and began expensing new stock-based compensation awards using a non-substantive approach whereby
compensation costs are recognized over at least six months for awards granted to employees who are
retirement eligible at the date of grant or would become retirement eligible during the vesting period of the
grant. In addition, the company began reporting tax benefits resulting from tax deductions in excess of the
compensation cost recognized for stock-based compensation awards as financing cash flows. For years prior to
adoption of SFAS 123R, the company used the nominal vesting approach for all awards and reported the tax
benefit of option exercises as operating cash flows. Adoption of SFAS 123R did not have a material impact on
the company’s financial position or results of operations (see Note 23).
Effective December 31, 2006, the company prospectively adopted SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Post Retirement Plans, an amendment of SFAS 87, 88, 106 and 132R”
(SFAS 158). Upon adoption, the company recognized in its statement of financial position the funded status of
its defined benefit postretirement plans and included in Accumulated other comprehensive loss, net of tax, the
pretax gains and losses and prior service costs and credits that, pursuant to SFAS No. 87 and 106 prior to
amendment by SFAS 158, had been included in the assets and liabilities reported for these plans. Adoption of
SFAS 158 will not affect the company’s future costs for its defined benefit postretirement plans nor the
December 31 measurement date for these plan (see Note 22).
In the fourth quarter 2006, the company early adopted FASB Staff Position No. AUG AIR-1 (FSP AUG AIR-1),
“Accounting for Planned Major Maintenance Activities”, which limits the accounting methods that may be
used for planned major maintenance activities. Prior to the adoption of FSP AUG AIR-1, the company had
principally used the accrue-in-advance method to account for planned major maintenance activities. This
method is not permitted by FSP AUG AIR-1. Adoption of FSP AUG AIR-1 was accomplished by retrospective
application of the defer-and-amortize method effective January 1, 2005 and resulted in a $30 decrease in Other
accrued liabilities, a $49 increase in Other assets, a $10 decrease in deferred tax assets, a $17 increase in
Deferred income taxes and $52 increase in Reinvested earnings at January 1, 2005. The effects of this
accounting change on the company’s financial position and results of operations after January 1, 2005 were
not material. Retrospective application prior to January 1, 2005 was impracticable due to the 2004 sale of
Textiles and Interiors assets (see Note 6).
In 2004, the company adopted FIN 46, “Consolidation of Variable Interest Entities” (revised December 2003).
The company has entities identified and consolidated as variable interest entities where DuPont is considered
the primary beneficiary. At December 31, 2006 and 2005, the assets and liabilities of these entities are
immaterial to the Consolidated Financial Statements of the company.
F-8