DuPont 2011 Annual Report Download - page 59

Table of Contents E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Environmental
Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. Accrued liabilities do not include claims against third parties and are not discounted.
Costs related to environmental remediation and restoration are charged to expense. Other environmental costs are also charged to expense unless they increase
the value of the property or reduce or prevent contamination from future operations, in which case, they are capitalized.
Asset Retirement Obligations
The company records asset retirement obligations at fair value at the time the liability is incurred. Accretion expense is recognized as an operating expense
using the credit-adjusted risk-free interest rate in effect when the liability was recognized. The associated asset retirement obligations are capitalized as part of
the carrying amount of the long-lived asset and depreciated over the estimated remaining useful life of the asset, generally for periods ranging from 1 to
25 years.
Litigation
The company accrues for liabilities related to litigation matters when the information available indicates that it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the period
incurred.
Insurance/Self-Insurance
The company self-insures certain risks where permitted by law or regulation, including workers' compensation, vehicle liability and employee related benefits.
Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors and other actuarial assumptions.
For other risks, the company uses a combination of insurance and self-insurance, reflecting comprehensive reviews of relevant risks. A receivable for an
insurance recovery is generally recognized when the loss has occurred and collection is considered probable.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income
taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences
between the financial and tax basis of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made
for income taxes on unremitted earnings of subsidiaries and affiliates, except for subsidiaries in which earnings are deemed to be indefinitely invested.
Investment tax credits or grants are accounted for in the period earned (the flow-through method). Interest accrued related to unrecognized tax benefits is
included in miscellaneous income and expenses, net, under other income, net. Income tax related penalties are included in the provision for income taxes.
Foreign Currency Translation
The U.S. dollar (USD) is the functional currency of most of the company's worldwide operations. For subsidiaries where the USD is the functional currency,
all foreign currency asset and liability amounts are remeasured into USD at end-of-period exchange rates, except for inventories, prepaid expenses, property,
plant and equipment, goodwill and other intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at
average exchange rates in effect during the year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange
gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which
they occur.
For subsidiaries where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-
period exchange rates and the resultant translation adjustments are reported, net of their related tax effects, as a component of accumulated other
comprehensive income (loss) in equity. Assets and liabilities denominated in other than the local currency are remeasured into the local currency prior to
translation into USD and the resultant exchange gains or losses are included in income in the period in which they occur. Income and expenses are translated
into USD at average exchange rates in effect during the period.
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