Dow Chemical 2011 Annual Report Download - page 178

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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.
Legal Costs
The Company expenses legal costs as incurred. Accruals for legal matters are recorded when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated.
Severance Costs
The Company routinely reviews its operations around the world in an effort to ensure competitiveness across its businesses and
geographic areas. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization
activities, severance benefits are provided to employees primarily under Dow’s ongoing benefit arrangements. These severance
costs are accrued once management commits to a plan of termination including the number of employees to be terminated, their
job classifications or functions, their locations and the expected completion date.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred tax assets is recognized in income in
the period that includes the enactment date.
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior
year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than
not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax
contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can
be reasonably estimated. The current portion of uncertain income tax positions is included in “Income taxes payable” and the
long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such
earnings are not deemed to be permanently invested.
Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the Company’s common shares
outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all dilutive
potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.
NOTE B – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
On September 30, 2011, the Company early adopted Accounting Standard Update (“ASU”) 2011-08, “Intangibles-Goodwill
and Other (Topic 350): Testing Goodwill for Impairment.” This ASU simplifies how entities test goodwill for impairment and
permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011, although early adoption is permitted. The Company has incorporated this guidance into its
goodwill testing for impairment. See Note I for additional information.
On January 1, 2011, the Company adopted ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable
Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force.” This ASU amended the criteria for when to
evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. The
adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
On January 1, 2010, the Company adopted ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements,” which added disclosure requirements about transfers in and out of
Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies existing disclosure