Dow Chemical 2011 Annual Report Download - page 155

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OTHER MATTERS
Recent Accounting Guidance
See Note B to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting Policies
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect
the amounts reported in the consolidated financial statements and accompanying notes. Note A to the Consolidated Financial
Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial
statements. Following are the Company’s critical accounting policies impacted by judgments, assumptions and estimates:
Litigation
The Company is subject to legal proceedings and claims arising out of the normal course of business. The Company
routinely assesses the likelihood of any adverse outcomes to these matters, as well as ranges of probable losses. A
determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of
each known claim. Dow has an active risk management program consisting of numerous insurance policies secured from
many carriers. These policies often provide coverage that is utilized to minimize the financial impact, if any, of the legal
proceedings. The required reserves may change in the future due to new developments in each matter. For further
discussion, see Note N to the Consolidated Financial Statements.
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, and a former Union Carbide
subsidiary, Amchem Products, Inc. (“Amchem”), are and have been involved in a large number of asbestos-related suits
filed primarily in state courts during the past three decades. Based on a study completed by Analysis, Research & Planning
Corporation (“ARPC”) in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for
pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing
costs. Union Carbide also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion
at December 31, 2002. Since then, Union Carbide has compared current asbestos claim and resolution activity to the
results of the most recent ARPC study at each balance sheet date to determine whether the asbestos-related liability
continues to be appropriate. In addition, Union Carbide has requested ARPC to review Union Carbide’s historical asbestos
claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent
ARPC study.
In November 2010, Union Carbide requested ARPC to review Union Carbide’s historical asbestos claim and
resolution activity and determine the appropriateness of updating its then most recent study completed in December 2008.
In response to that request, ARPC reviewed and analyzed data through October 31, 2010. The resulting study, completed
by ARPC in December 2010, stated that the undiscounted cost of resolving pending and future asbestos-related claims
against Union Carbide and Amchem, excluding future defense and processing costs, through 2025 was estimated to be
between $744 million and $835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its
December 2010 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than
those for longer periods of time.
In December 2010, based on ARPC’s December 2010 study and Union Carbide’s own review of asbestos claim and
resolution activity, Union Carbide decreased its asbestos-related liability for pending and future claims to $744 million.
The reduction was $54 million and was shown as “Asbestos-related credit” in the consolidated statements of income. At
December 31, 2010, the asbestos-related liability for pending and future claims was $728 million.
In November 2011, Union Carbide requested ARPC to review Union Carbide's 2011 asbestos claim and resolution
activity and determine the appropriateness of updating its December 2010 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2011. In January 2012, APRC stated that an update of its study would not
provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore,
the estimate in that study remained applicable. Based on Union Carbide's own review of the asbestos claim and resolution
activity and ARPC's response, Union Carbide determined that no change to the accrual was required. At December 31,
2011, Union Carbide's asbestos-related liability for pending and future claims was $668 million.