Dow Chemical 2009 Annual Report Download - page 168

Table of Contents
NOTE Q – LEASED PROPERTY
Leased Property
The Company routinely leases premises for use as sales and administrative offices, warehouses and tanks for product storage, motor vehicles, railcars,
computers, office machines, and equipment under operating leases. In addition, the Company leases a gas turbine and aircraft in the United States, and an
ethylene plant in The Netherlands. At the termination of the leases, the Company has the option to purchase the ethylene plant and certain other leased
equipment and buildings based on a fair market value determination. In 2009, the Company purchased a previously leased ethylene plant in Canada for
$713 million.
Rental expenses under operating leases, net of sublease rental income, were $459 million in 2009, $439 million in 2008 and $445 million in 2007. Future
minimum rental payments under operating leases with remaining noncancelable terms in excess of one year are as follows:
Minimum Operating Lease Commitments at December
31, 2009
In millions
2010 $ 245
2011 168
2012 132
2013 111
2014 85
2015 and thereafter 1,225
Total $ 1,966
NOTE R – VARIABLE INTEREST ENTITIES
Nonconsolidated Variable Interest Entities
The Company leases an ethylene facility in The Netherlands from an owner trust that is a variable interest entity (“VIE”). Dow is not the primary beneficiary
of the owner trust and is, therefore, not required to consolidate the owner trust. Based on a valuation completed in mid-2003 when Dow entered into the lease,
the facility was valued at $394 million. Upon expiration of the lease, which matures in 2014, Dow may purchase the facility for an amount based on a fair
market value determination. At December 31, 2009, Dow had provided to the owner trust a residual value guarantee of $363 million, which represents Dow’s
maximum exposure to loss under the lease. Given the productive nature of the facility, it is probable that the facility will have continuing value to Dow or the
owner trust in excess of the residual value guarantee. See Note B for information regarding the anticipated impact of adopting ASU 2009-17, “Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” on January 1, 2010.
The Company holds a variable interest in a joint venture accounted for under the equity method of accounting, acquired through the acquisition of Rohm
and Haas on April 1, 2009. The joint venture manufactures crude acrylic acid in the United States and Germany on behalf of the Company and the other joint
venture partner. The variable interest relates to a cost-plus arrangement between the joint venture and each joint venture partner. The Company is not the
primary beneficiary, as a majority of the joint venture’s output is sold to the other joint venture partner, and therefore the entity is not consolidated. At
December 31, 2009, the Company’s investment in the joint venture was $161 million, classified as “Investment in nonconsolidated affiliates” in the
consolidated balance sheet, representing the Company’s maximum exposure to loss.
Consolidated Variable Interest Entities
The Company holds a variable interest in two joint ventures for which the Company is the primary beneficiary. One joint venture is in the early stages of
constructing a manufacturing facility to produce propylene oxide in Thailand. The Company’s variable interest in this joint venture relates to a cost-plus
arrangement between the joint venture and the Company that involves a majority of the output and ensures a guaranteed return to the joint venture.
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