DuPont 2012 Annual Report Download - page 31

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The company's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. Management believes that the
application of these policies on a consistent basis enables the company to provide the users of the financial statements with useful and reliable information
about the company's operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit
obligations, income taxes, restructuring liabilities, environmental matters and litigation. Management's estimates are based on historical experience, facts and
circumstances available at the time and various other assumptions that are believed to be reasonable. The company reviews these matters and reflects changes
in estimates as appropriate. Management believes that the following represents some of the more critical judgment areas in the application of the company's
accounting policies which could have a material effect on the company's financial position, liquidity or results of operations.
Long-term Employee Benefits
Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan assets are two critical
assumptions in measuring the cost and benefit obligation of the company's pension and other long-term employee benefit plans. Management reviews these two
key assumptions annually as of December 31 st. These and other assumptions are updated periodically to reflect the actual experience and expectations on a
plan specific basis as appropriate. As permitted by GAAP, actual results that differ from the assumptions are accumulated on a plan by plan basis and to the
extent that such differences exceed 10 percent of the greater of the plan's benefit obligation or the applicable plan assets, the excess is amortized over the average
remaining service period of active employees.
About 76 percent of the company's benefit obligation for pensions and essentially all of the company's other long-term employee benefit obligations are
attributable to the benefit plans in the U.S. In the U.S. the discount rate is developed by matching the expected cash flow of the benefit plans to a yield curve
constructed from a portfolio of high quality fixed-income instruments provided by the plan's actuary as of the measurement date. For non-U.S. benefit plans,
the company utilizes prevailing long-term high quality corporate bond indices to determine the discount rate, applicable to each country, at the measurement
date.
Within the U.S., the company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of
achieving a prudent balance between return and risk. Strategic asset allocations in other countries are selected in accordance with the laws and practices of
those countries. Where appropriate, asset-liability studies are also taken into considerat ion. The long-term expected return on plan assets in the U.S. is based
upon historical real returns (net of inflation) for the asset classes covered by the investment policy, expected performance, and projections of inflation over the
long-term period during which benefits are payable to plan participants. Consistent with prior years, the long-term expected r eturn on plan assets in the U.S.
reflects the asset allocation of the plan and the effect of the company's active management of the plans' assets.
In determining annual expense for the principal U.S. pension plan, the company uses a market-related value of assets rather than its fair value. The market-
related value of assets is calculated by averaging market returns over 36 months. Accordingly, there may be a lag in recognition of changes in market
valuation. As a result, changes in the fair value of assets are not immediately reflected in the company's calculation of net periodic pension cost. The following
table shows the market-related value and fair value of plan assets for the principal U.S. pension plan:
(Dollars in billions)   
Market-related value of assets $14.8 $ 13.9 $ 13.9
Fair value of plan assets 15.1 13.9 14.8
For plans other than the principal U.S. pension plan, pension expense is typically determined using the fair value of assets.
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