DuPont 2006 Annual Report Download - page 72

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Basis of Consolidation
The Consolidated Financial Statements include the accounts of the company, subsidiaries in which a
controlling interest is maintained and variable interest entities (VIE) for which DuPont is the primary
beneficiary. For those consolidated subsidiaries in which the company’s ownership is less than 100 percent, the
outside stockholders’ interests are shown as Minority interests. Investments in affiliates over which the
company has significant influence but not a controlling interest are carried on the equity basis. This includes
majority-owned entities for which the company does not consolidate because a minority investor holds
substantive participating rights. Investments in affiliates over which the company does not have significant
influence are accounted for by the cost method.
Revenue Recognition
The company recognizes revenue when the earnings process is complete. The majority of the company’s
revenues are from the sale of a wide range of products to a diversified base of customers around the world.
Revenue for product sales is recognized upon delivery, when title and risk of loss have been transferred,
collectibility is reasonably assured and pricing is fixed or determinable. Substantially all product sales are sold
FOB (free on board) shipping point or, with respect to non-U.S. customers, an equivalent basis. Accruals are
made for sales returns and other allowances based on the company’s experience. The company accounts for
cash sales incentives as a reduction in sales and noncash sales incentives as a charge to cost of goods sold or
selling expense, depending on the nature of the incentive. Amounts billed to customers for shipping and
handling fees are included in Net sales and costs incurred by the company for the delivery of goods are
classified as Cost of goods sold and other operating charges in the Consolidated Income Statements. Taxes on
revenue-producing transactions are excluded from net sales.
The company periodically enters into prepayment contracts with customers in the Agriculture & Nutrition
segment and receives advance payments for product to be delivered in future periods. These advance payments
are recorded as deferred revenue and are included in Other accrued liabilities on the Consolidated Balance
Sheet. Revenue associated with advance payments is recognized as shipments are made and title, ownership
and risk of loss pass to the customer.
Licensing and royalty income is recognized in accordance with agreed upon terms, when performance
obligations are satisfied, the amount is fixed or determinable and collectibility is reasonably assured.
The company adopted a dual approach to quantifying materiality and elected to refine the accounting related
to the following existing cutoff practices. For certain of the company’s sales transactions, ownership title
transfers when goods are received by the customers. Historically, the company recorded these sales when
shipped and monitored the impact of this difference. Additionally, some accruals were historically recorded on
a month-lag basis. The impacts of these sales and accrual cutoff practices were considered to be immaterial in
every interim and annual period. During the fourth quarter of 2006, the company chose to change its practices
to record these sales when received by customers and to record certain accruals without a lag. As a result,
sales of $107 were not recorded as of December 31, 2006 that historically would have been. If the company
had applied this new practice throughout 2006, sales would have been $81 higher than reported. Incremental
accruals of $24 were also recorded at December 31, 2006, that would not have been recorded under prior
practices. The after-tax impact on the 2006 income statement of these changes was $39.
Affiliate and Subsidiary Stock Transactions
Gains or losses arising from issuances by an affiliate or a subsidiary of its own stock are recorded as
nonoperating items.
F-9
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)