Dow Chemical 2012 Annual Report Download - page 135

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years, and trade financing transactions in Latin America, 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, 2012
In millions
Final
Expiration
Maximum Future
Payments (1)
Recorded
Liability
Guarantees 2021 $ 1,544 $ 48
Residual value guarantees (2) 2021 637 31
Total guarantees $ 2,181 $ 79
(1) The Company was indemnified by a third party for $49 million if required to perform
under a $98 million guarantee.
(2) Does not include the residual value guarantee related to the Company's variable interest
in an owner trust; see Note 19.
Guarantees at December 31, 2011
In millions
Final
Expiration
Maximum Future
Payments (1)
Recorded
Liability
Guarantees 2020 $ 587 $ 21
Residual value guarantees (2) 2021 526 24
Total guarantees $ 1,113 $ 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; see Note 19.
The increase in the value of the outstanding guarantees during 2012 is primarily related to debt obligations of Sadara
Chemical Company, a nonconsolidated affiliate, which are guaranteed by the Company, in proportion to the Company's
ownership interest.
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, 2012 and 2011:
Warranty Accrual
In millions 2012 2011
Balance at January 1 $ 62 $ 16
Accruals related to existing warranties (1) 3 60
Settlements made during the year (21) (14)
Balance at December 31 $ 44 $ 62
(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 188 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,
the Company considers identification of legally enforceable obligations, changes in existing law, estimates of potential
settlement dates and the calculation of an appropriate discount rate to be used in calculating the fair value of the obligations.