Dow Chemical 2015 Annual Report Download - page 88

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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 termination 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 tax rates. The effect of a change in tax rates on deferred tax assets or liabilities 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 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
During the fourth quarter of 2014, the Company adopted Accounting Standards Update ("ASU") 2014-08, "Presentation of
Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be
presented as discontinued operations and modifies related disclosure requirements. This ASU was effective for fiscal years
beginning on or after December 15, 2014, and interim periods within those years. Early adoption was permitted, but only for
disposals (or classifications as held for sale) that had not been reported in the financial statements previously issued or available
for issuance. See Notes 5 and 6 for disclosures related to this adoption.
During the fourth quarter of 2015, the Company adopted ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented in the balance sheet as
a direct deduction from the carrying value of the associated debt liability, and amortization of those costs should be reported as
interest expense. This ASU is effective for annual and interim periods beginning after December 15, 2015, and early adoption is
permitted for financial statements that have not been previously issued. The new guidance should be applied on a retrospective
basis for each period presented in the balance sheet. This change is reflected in "Other current assets," "Deferred charges and
other assets," Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets on a retrospective
basis and did not have a material impact on the consolidated financial statements.