Dow Chemical 2014 Annual Report Download - page 131

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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 44 underground storage wells and
138 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.
K-Dow Arbitration
In February 2009, the Company initiated arbitration proceedings against Petrochemical Industries Company (K.S.C.) ("PIC")
alleging that PIC breached the Joint Venture Formation Agreement related to the establishment of K-Dow, a proposed 50:50
global petrochemicals joint venture with PIC, by failing to close the transaction. On May 6, 2013, the Company and PIC
entered into a Deed providing for payment and resolution of the Company's claims against PIC under the K-Dow arbitration.
On May 7, 2013, the Company confirmed the receipt of a $2.195 billion cash payment from PIC, which included damages
awarded of $2.161 billion as well as recovery of Dow's costs incurred in the arbitration, including legal fees. In the second
quarter of 2013, the Company recorded a pretax gain of $2.195 billion, of which $2.161 billion is included in "Sundry income
(expense) - net" and $34 million is included in "Cost of sales" in the consolidated statements of income and reflected in
Corporate. The K-Dow arbitration is considered final and settled in full.
NOTE 15 – TRANSFERS OF FINANCIAL ASSETS
The Company sells trade accounts receivable of select North America entities and qualifying trade accounts receivable of select
European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). The proceeds
received are comprised of cash and interests in specified assets of the conduits (the receivables sold by the Company) that
entitle the Company to the residual cash flows of such specified assets in the conduits after the commercial paper has been
repaid. Neither the conduits nor the investors in those entities have recourse to other assets of the Company in the event of
nonpayment by the debtors.
During the year ended December 31, 2014, the Company recognized a loss of $16 million on the sale of these receivables
($17 million loss for the years ended December 31, 2013 and December 31, 2012), which is included in “Interest expense and
amortization of debt discount” in the consolidated statements of income.
The Company's interests in the conduits are carried at fair value and included in “Accounts and notes receivable – Other” in the
consolidated balance sheets. Fair value of the interests is determined by calculating the expected amount of cash to be received
and is based on unobservable inputs (a Level 3 measurement). The key input in the valuation is the percentage of anticipated
credit losses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the underlying
receivables, discount rates and prepayments are not factors in determining the fair value of the interests.
The following table summarizes the carrying value of interests held, which represents the Company's maximum exposure to
loss related to the receivables sold, and the percentage of anticipated credit losses related to the trade accounts receivable sold.
Also provided is the sensitivity of the fair value of the interests held to hypothetical adverse changes in the anticipated credit
losses; amounts shown below are the corresponding hypothetical decreases in the carrying value of interests.
Interests Held at December 31
In millions 2014 2013
Carrying value of interests held $ 1,328 $ 1,227
Percentage of anticipated credit losses 0.35% 0.71%
Impact to carrying value - 10% adverse change $ 1 $ 1
Impact to carrying value - 20% adverse change $ 2 $ 2
Credit losses, net of any recoveries, were $7 million for the year ended December 31, 2014 ($1 million for the year ended
December 31, 2013, and $1 million for the year ended December 31, 2012).