DuPont 2009 Annual Report Download - page 67

E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
Fair Value Measurements
Under the accounting for fair value measurements and disclosures, a fair value hierarchy was established that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest
priority to unobservable inputs (level 3 measurements). A financial instrument’s level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement.
The company uses the following valuation techniques to measure fair value for its assets and liabilities:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Significant other observable inputs (e.g. quoted prices for similar items in active markets,
quoted prices for identical or similar items in markets that are not active, inputs other than
quoted prices that are observable such as interest rate and yield curves, and market-
corroborated inputs);
Level 3 – Unobservable inputs for the asset or liability, which are valued based on management’s
estimates of assumptions that market participants would use in pricing the asset or liability.
Inventories
The majority of the company’s inventories are valued at cost, as determined by the last-in, first-out (LIFO) method; in
the aggregate, such valuations are not in excess of market. Seed inventories are valued at the lower of cost, as
determined by the first-in, first-out (FIFO) method, or market.
Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Stores and supplies
are valued at cost or market, whichever is lower; cost is generally determined by the average cost method.
Property, Plant and Equipment
Property, plant and equipment (PP&E) is carried at cost and is depreciated using the straight-line method. PP&E placed
in service prior to 1995 is depreciated under the sum-of-the-years’ digits method or other substantially similar methods.
Substantially all equipment and buildings are depreciated over useful lives ranging from 15 to 25 years. Capitalizable
costs associated with computer software for internal use are amortized on a straight-line basis over 5 to 7 years. When
assets are surrendered, retired, sold or otherwise disposed of, their gross carrying values and related accumulated
depreciation are removed from the accounts and included in determining gain or loss on such disposals.
Maintenance and repairs are charged to operations; replacements and improvements are capitalized.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are
performed more frequently when events or changes in circumstances indicate the carrying value may not be
recoverable. The company’s fair value methodology is based on quoted market prices, if available. If quoted market
prices are not available, an estimate of fair market value is made based on prices of similar assets or other valuation
methodologies including present value techniques. Impairment losses are included in cost of goods sold and other
operating charges.
Definite-lived intangible assets, such as purchased and licensed technology, patents and customer lists are amortized
over their estimated useful lives, generally for periods ranging from 5 to 20 years. The company continually evaluates
the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the
Consolidated Balance Sheets.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and used when events or changes in
circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is
considered impaired when the total projected undiscounted cash flows from the asset are separately identifiable and
are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value
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