Dow Chemical 2012 Annual Report Download - page 149

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NOTE 18 – 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.
Rental expenses under operating leases, net of sublease rental income, were $476 million in 2012, $437 million in 2011
and $404 million in 2010. 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, 2012
In millions
2013 $ 223
2014 216
2015 177
2016 150
2017 121
2018 and thereafter 1,322
Total $ 2,209
NOTE 19 – VARIABLE INTEREST ENTITIES
Consolidated Variable Interest Entities
The Company holds a variable interest in eight 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.
A fourth 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
arrangement. The joint venture is expected to begin operations in mid-2013.
The fifth 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.
The sixth joint venture is an ethylene storage joint venture located in Alberta, Canada. Previously accounted for as an
equity method investment, the Company became the primary beneficiary upon execution of new storage cavern agreements in
2011. The Company's variable interests relate to arrangements involving a majority of the joint venture's storage capacity on
take-or-pay terms with pricing ensuring a guaranteed return to the joint venture; and favorably priced leases provided to the
joint venture. The Company provides the joint venture with operation and maintenance services and utilities.
The seventh joint venture is a development-stage enterprise located in Brazil that will initially produce ethanol from
sugarcane. The Company owned 100 percent of this entity until November 2011, when the Company sold a 50 percent interest
to a third party. The Company's variable interests in this joint venture relate to an equity option between the partners and
contractual arrangements limiting the partner's initial participation in the economics of certain assets and liabilities. Terms of
the equity option require the Company to purchase the partner's equity investment at a fixed price if the partner elects to