Dow Chemical 2013 Annual Report Download - page 97

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Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated based on current law and existing technologies. These accruals are adjusted periodically as
assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for
environmental liabilities are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Other
noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for
environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated
balance sheets as “Accounts and notes receivable - Other.”
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent
contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement
obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to
environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations,
maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably
estimable.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of
purchase.
Financial Instruments
The Company calculates the fair value of financial instruments using quoted market prices whenever available. When quoted
market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company
uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows.
The Company utilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate
risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value
of these instruments are reported in income or AOCI, depending on the use of the derivative and whether it qualifies for hedge
accounting treatment.
Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCI, to the
extent the hedges are effective, until the underlying transactions are recognized in income. To the extent effective, gains and
losses on derivative and nonderivative instruments used as hedges of the Company’s net investment in foreign operations are
recorded in AOCI as part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and hedges of
net investment in foreign operations, if any, are recognized in income immediately.
Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and
gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging
instruments are marked-to-market at the end of each accounting period with the results included in income.
Inventories
Inventories are stated at the lower of cost or market. The method of determining cost for each subsidiary varies among last-in,
first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year.
The Company routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time,
freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.
Property
Land, buildings and equipment, including property under capital lease agreements, are carried at cost less accumulated
depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line
method, unless the asset was capitalized before 1997 when the declining balance method was used. Fully depreciated assets are
retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets
and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are
included in income.
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