Dow Chemical 2013 Annual Report Download - page 98

76
are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on bids
received from third parties or a discounted cash flow analysis based on market participant assumptions.
Long-lived assets to be disposed of by sale are classified as held for sale and reported at the lower of carrying amount or fair
value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held
and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized
over the remaining useful life of the assets.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net
identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more
frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not
declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If
an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its
estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing
and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value
of goodwill is written down to fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the
fair value of its reporting units. See Note 9 for further information on goodwill.
Finite-lived intangible assets such as purchased customer lists, licenses, intellectual property, patents, trademarks and software,
are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from three to
twenty years. Finite-lived intangible assets are reviewed for impairment or obsolescence annually, or more frequently when
events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. If impaired,
intangible assets are written down to fair value based on discounted cash flows.
Asset Retirement Obligations
The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the
timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company.
The fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in
present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the
asset, generally for periods of 10 years or less.
Investments
Investments in debt and marketable equity securities (including warrants), primarily held by the Company’s insurance
operations, are classified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair
value with unrealized gains and losses related to mark-to-market adjustments included in income. Those classified as available-
for-sale are reported at fair value with unrealized gains and losses recorded in AOCI. Those classified as held-to-maturity are
recorded at amortized cost. The cost of investments sold is determined by FIFO or specific identification. The Company
routinely reviews available-for-sale and held-to-maturity securities for other-than-temporary declines in fair value below the
cost basis, and when events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the
security is written down to fair value, establishing a new cost basis.
Revenue
Sales are recognized when the revenue is realized or realizable, and the earnings process is complete. Approximately
99 percent of the Company’s sales in 2013 related to sales of product (99 percent in 2012 and 99 percent in 2011). The
remaining 1 percent in 2013 related to the Company’s service offerings, insurance operations, and licensing of patents and
technology (1 percent in 2012 and 1 percent in 2011). Revenue for product sales is recognized as risk and title to the product
transfer to the customer, which usually occurs at the time shipment is made. As such, title to the product passes when the
product is delivered to the freight carrier. Dow’s standard terms of delivery are included in its contracts of sale, order
confirmation documents and invoices. Freight costs and any directly related costs of transporting finished product to customers
are recorded as “Cost of sales” in the consolidated statements of income.
Revenue related to the Company’s insurance operations includes third-party insurance premiums, which are earned over the
terms of the related insurance policies and reinsurance contracts. Revenue related to the initial licensing of patents and
technology is recognized when earned; revenue related to running royalties is recognized according to licensee production
levels.