Dow Chemical 2015 Annual Report Download - page 123

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113
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.
In 2014, the Company entered into a residual value guarantee as part of a sale-leaseback transaction for a significant portion of
its North American railcar fleet. The sale transaction resulted in a deferred gain of $102 million, which was recorded as a
liability due to the guarantee and will be deferred until expiration of the ten-year lease unless otherwise terminated. The
maximum value of the guarantee was $236 million at December 31, 2015 ($229 million at December 31, 2014).
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, 2015 and 2014:
Warranty Accrual
In millions 2015 2014
Balance at January 1 $ 107 $ 24
Accruals related to existing warranties (1) 5 104
Settlements made during the year (19) (21)
Balance at December 31 $ 93 $ 107
(1) In the fourth quarter of 2014, the Company recorded a pretax charge of
$100 million for a warranty accrual adjustment related to an exited business. The
charge was included in "Cost of sales" in the consolidated statements of income
and reflected in Infrastructure Solutions.
Asset Retirement Obligations
Dow has 179 manufacturing sites in 35 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. 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 primarily in the United States, Canada, Brazil, Argentina and Europe; and capping activities at landfill sites
in the United States, Canada, Brazil and Italy. 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
primarily in the United States, Canada, 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 $33 million at
December 31, 2015 ($28 million at December 31, 2014).