DuPont 2014 Annual Report Download - page 63

E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
F-10
Revenue Recognition
The company recognizes revenue when the earnings process is complete. 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, collectability is reasonably assured and pricing is fixed or determinable. A majority
of product sales are sold FOB (free on board) shipping point or, with respect to non United States of America (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 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 segment and receives advance
payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue (classified as
other accrued liabilities) or debt, depending on the nature of the program. 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 collectability is reasonably assured.
Cash and Cash Equivalents
Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost
plus accrued interest. The estimated fair value of the company's cash equivalents, which approximates carrying value as of
December 31, 2014 and 2013, was determined using level 1 and level 2 inputs within the fair value hierarchy, as described below.
Level 1 measurements were based on observed net asset values and level 2 measurements were based on current interest rates for
similar investments with comparable credit risk and time to maturity. The company held $1,436 and $5,116 of money market
funds (level 1 measurements) as of December 31, 2014 and 2013, respectively. The company held $3,293 and $2,256 of other
cash equivalents (level 2 measurements) as of December 31, 2014 and 2013, respectively.
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three
months and up to twelve months at time of purchase. They are classified as held-to-maturity and recorded at amortized cost. The
carrying value approximates fair value due to the short-term nature of the investments.
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.