Dow Chemical 2015 Annual Report Download - page 69

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Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved
in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits
principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both
actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past,
alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s
responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. Each year,
Analysis, Research and Planning Corporation ("ARPC") performs a review for Union Carbide based upon historical
asbestos claims and resolution activity. Union Carbide compares 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.
It is the opinion of Dow’s management that it is reasonably possible that the cost of Union Carbide disposing of its
asbestos-related claims, including future defense costs, could have a material impact on the Company’s results of
operations and cash flows for a particular period and on the consolidated financial position of the Company.
For additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters of Union Carbide
Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Note 15
to the Consolidated Financial Statements.
Environmental Matters
The Company determines the costs of environmental remediation of its facilities and formerly owned facilities based
on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due
to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and
emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress,
or as additional technical or legal information becomes available. In the case of landfills and other active waste
management facilities, Dow recognizes the costs over the useful life of the facility. At December 31, 2015, the
Company had accrued obligations of $670 million for probable environmental remediation and restoration costs,
including $74 million for the remediation of Superfund sites. This is management’s best estimate of the costs for
remediation and restoration with respect to environmental matters for which the Company has accrued liabilities,
although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to
approximately two and a half times that amount. For further discussion, see Environmental Matters in Management’s
Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 15 to the Consolidated
Financial Statements.
Goodwill
The Company assesses goodwill recoverability through business financial performance reviews, enterprise valuation
analysis and impairment tests. Annual goodwill impairment tests are completed by the Company during the fourth
quarter of the year in accordance with the measurement provisions of the accounting guidance for goodwill. The tests
are performed at the reporting unit level which is defined as one level below operating segment with the exception of
Agricultural Sciences, which is both an operating segment and a reporting unit. Reporting units are the level at which
discrete financial information is available and reviewed by business management on a regular basis. At December 31,
2015, the Company has defined five operating segments and 16 reporting units; goodwill is carried by 12 of these
reporting units.
In addition to the annual goodwill impairment tests, the Company reviews the financial performance of its reporting
units over the course of the year to assess whether circumstances have changed that would indicate it is more likely
than not that the fair value of a reporting unit has declined below its carrying value. In cases where an indication of
impairment is determined to exist, the Company completes an interim goodwill impairment test specifically for that
reporting unit.
As part of its annual goodwill impairment testing, the Company has the option 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 value. The
qualitative assessment is also used as a basis for determining whether it is necessary to perform the quantitative test.
Qualitative factors assessed at the Company level include, but are not limited to, GDP growth rates, long-term
hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall
financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in
industry and market structure, competitive environments, planned capacity and new product launches, cost factors
such as raw material prices, and financial performance of the reporting unit. If the Company chooses to not complete a