Dow Chemical 2011 Annual Report Download - page 225

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NOTE R – 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
aircraft in the United States. At the termination of the leases, the Company has the option to purchase certain 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 $437 million in 2011, $404 million in 2010
and $459 million in 2009. 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, 2011
In millions
2012
2013
2014
2015
2016
2017 and thereafter
Total
$ 223
209
176
146
126
1,269
$ 2,149
NOTE S – VARIABLE INTEREST ENTITIES
On January 1, 2010, the Company adopted ASU 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities.” ASU 2009-17 amended the consolidation guidance applicable to
variable interest entities (“VIEs”) and requires additional disclosures concerning an enterprise’s continuing involvement with
VIEs. The adoption of this guidance resulted in the January 1, 2010 consolidation of two additional joint ventures, an owner
trust and an entity that is used to monetize accounts receivable. The Company elected prospective application of this guidance
at adoption.
Consolidated Variable Interest Entities
The Company holds a variable interest in seven joint ventures for which the Company is the primary beneficiary.
Three of the joint ventures own and operate manufacturing and logistics facilities, which produce chemicals and provide
services in Asia Pacific. The Company’s variable interest in these joint ventures relates to arrangements between the joint
ventures and the Company, involving the majority of the output on take-or-pay terms with pricing ensuring a guaranteed return
to the joint ventures. In the third quarter of 2011, one of the joint ventures converted a note payable into cumulative perpetual
preferred shares, which is included in "Noncontrolling interests" in the consolidated balance sheets and "Conversion of note
payable to preferred shares of a subsidiary" in the consolidated statements of equity.
Another joint venture will construct, own and operate a membrane chlor-alkali facility to be located at the Company’s
Freeport, Texas integrated manufacturing complex. The Company’s variable interests in this joint venture relate to equity
options between the partners and a cost-plus off-take arrangement between the joint venture and the Company, involving
proportional purchase commitments on take-or-pay terms and ensuring a guaranteed return to the joint venture. The Company
will provide the joint venture with operation and maintenance services, utilities and raw materials; market the joint venture’s
co-products; and convert the other partner’s proportional purchase commitments into ethylene dichloride under a tolling
agreement. The joint venture is expected to begin operations in mid-2013.
The fifth joint venture was acquired through the acquisition of Rohm and Haas on April 1, 2009. This joint venture
manufactures products in Japan for the semiconductor industry. Each joint venture partner holds several equivalent variable
interests, with the exception of a royalty agreement held exclusively between the joint venture and the Company. In addition,
the entire output of the joint venture is sold to the Company for resale to third-party customers.