Dow Chemical 2011 Annual Report Download - page 211

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triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party
triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s
guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to ten years,
and trade financing transactions in Latin America and Asia Pacific, which typically expire within one year of inception. The
Company’s current expectation is that future payment or performance related to the non-performance of others is considered
unlikely.
Residual Value Guarantees
The Company provides guarantees related to leased assets specifying the residual value that will be available to the lessor at
lease termination through sale of the assets to the lessee or third parties.
The following tables provide a summary of the final expiration, maximum future payments and recorded liability reflected
in the consolidated balance sheets for each type of guarantee:
Guarantees at December 31, 2011
In millions
Guarantees
Residual value guarantees (2)
Total guarantees
Final
Expiration
2020
2021
Maximum Future
Payments (1)
$ 587
526
$ 1,113
Recorded
Liability
$ 21
24
$ 45
(1) The Company was indemnified by a third party for $50 million if required to perform
under a $100 million guarantee.
(2) Does not include the residual value guarantee related to the Company's variable interest
in an owner trust that was consolidated in the first quarter of 2010 with the adoption of
ASU 2009-17; see Notes B and S.
Guarantees at December 31, 2010
In millions
Guarantees
Residual value guarantees (2)
Total guarantees
Final
Expiration
2020
2020
Maximum Future
Payments (1)
$ 445
391
$ 836
Recorded
Liability
$ 80
17
$ 97
(1) The Company was indemnified by a third party for $53 million if required to perform
under a $106 million guarantee.
(2) Does not include the residual value guarantee related to the Company's variable interest
in an owner trust that was consolidated in the first quarter of 2010 with the adoption of
ASU 2009-17; see Notes B and S.
Warranties
The Company provides warranty policies on certain products and accrues liabilities under warranty policies using historical
warranty claim experience. Adjustments are made to accruals as claim data and historical experience change. The following
table summarizes changes in the Company's warranty liability for the years ended December 31, 2011 and 2010:
Warranty Accrual
In millions
Balance at January 1
Accruals related to existing warranties (1)
Settlements made during the year
Balance at December 31
2011
$ 16
60
(14)
$ 62
2010
$ 27
—
(11)
$ 16
(1) The Company recorded a $60 million charge in the fourth quarter of 2011 related to an
exited business, included in "Cost of sales" in the consolidated statements of income and
reflected in Coatings and Infrastructure Solutions.
Asset Retirement Obligations
Dow has 197 manufacturing sites in 36 countries. Most of these sites contain numerous individual manufacturing operations,
particularly at the Company’s larger sites. Asset retirement obligations are recorded as incurred and reasonably estimable,
including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be
within the control of the Company. The retirement of assets may involve such efforts as remediation and treatment of asbestos,
contractually required demolition, and other related activities, depending on the nature and location of the assets; and
retirement obligations are typically realized only upon demolition of those facilities. In identifying asset retirement obligations,