Dow Chemical 2012 Annual Report Download - page 136

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Dow has a well-established global process to identify, approve and track the demolition of retired or to-be-retired facilities; and
no assets are retired from service until this process has been followed. Dow typically forecasts demolition projects based on the
usefulness of the assets; environmental, health and safety concerns; and other similar considerations. Under this process, as
demolition projects are identified and approved, reasonable estimates are determined for the time frames during which any
related asset retirement obligations are expected to be settled. For those assets where a range of potential settlement dates may
be reasonably estimated, obligations are recorded. Dow routinely reviews all changes to items under consideration for
demolition to determine if an adjustment to the value of the asset retirement obligation is required.
The Company has recognized asset retirement obligations for the following activities: demolition and remediation
activities at manufacturing sites in the United States, Canada, Brazil, China, Argentina and Europe; and capping activities at
landfill sites in the United States, Canada, Brazil and Europe. The Company has also recognized conditional asset retirement
obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and
administrative sites in the United States, Canada, Brazil, China, Argentina and Europe. The aggregate carrying amount of
conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown
below) was $34 million at December 31, 2012 ($31 million at December 31, 2011).
The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for
the years ended December 31, 2012 and 2011:
Asset Retirement Obligations
In millions 2012 2011
Balance at January 1 $ 88 $ 99
Additional accruals 24
Liabilities settled (6) (15)
Accretion expense 11
Revisions in estimated cash flows 7—
Other — (1)
Balance at December 31 $ 92 $ 88
The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2012 was 0.87 percent
(1.96 percent at December 31, 2011). These obligations are included in the consolidated balance sheets as "Accrued and other
current liabilities" and "Other noncurrent obligations."
The Company has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably
estimated in its consolidated financial statements. Assets that have not been submitted/reviewed for potential demolition
activities are considered to have continued usefulness and are generally still operating normally. Therefore, without a plan to
demolish the assets or the expectation of a plan, such as shortening the useful life of assets for depreciation purposes in
accordance with the accounting guidance related to property, plant and equipment, the Company is unable to reasonably
forecast a time frame to use for present value calculations. As such, the Company has not recognized obligations for individual
plants/buildings at its manufacturing sites where estimates of potential settlement dates cannot be reasonably made. In addition,
the Company has not recognized conditional asset retirement obligations for the capping of its approximately 48 underground
storage wells and 142 underground brine mining and other wells at Dow-owned sites when there are no plans or expectations of
plans to exit the sites. It is the opinion of the Company’s management that the possibility is remote that such conditional asset
retirement obligations, when estimable, will have a material impact on the Company’s consolidated financial statements based
on current costs.
Gain Contingency
Matters Involving the Formation of K-Dow Petrochemicals
Introduction
On December 13, 2007, the Company and Petrochemical Industries Company (K.S.C.) ("PIC") of Kuwait, a wholly owned
subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 global petrochemicals joint venture. The
proposed joint venture, K-Dow Petrochemicals ("K-Dow"), was expected to have revenues of more than $11 billion and
employ more than 5,000 people worldwide.
On November 28, 2008, the Company entered into a Joint Venture Formation Agreement (the "JVFA") with PIC that
provided for the establishment of K-Dow. To form the joint venture, the Company would transfer by way of contribution and
sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene,
polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and