Dow Chemical 2009 Annual Report Download - page 118

Table of Contents
Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying
amount, the asset is written down to its fair value.
Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of. Long-lived assets to be disposed of by sale
are classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased.
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. The Company primarily utilizes a discounted cash flow
methodology to calculate the fair value of its reporting units.
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 from three to twenty years. Finite-lived intangible assets are reviewed for
impairment or obsolescence annually, or more frequently if 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 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 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 has been earned. Approximately 98 percent of the Company’s sales are related to sales of
product. The remaining 2 percent are related to the Company’s service offerings, insurance operations, and licensing of patents and technology. 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. Substantially all of the
Company’s products are sold FOB (free on board) shipping point or, with respect to countries other than the United States, an equivalent basis. 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.
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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.
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