Dow Chemical 2013 Annual Report Download - page 118

96
Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2012
In millions
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Counterparty
and Cash
Collateral
Netting (1) Total
Assets at fair value:
Cash equivalents (2) $ — $ 1,953 $ — $ — $ 1,953
Interests in trade accounts receivable
conduits (3) — — 1,057 — 1,057
Equity securities (4) 702 38 — — 740
Debt securities: (4)
Government debt (5) — 565 — — 565
Corporate bonds — 756 — — 756
Derivatives relating to: (6)
Interest rates — 1 — — 1
Commodities 9 22 — (5) 26
Foreign currency — 55 — (21) 34
Total assets at fair value $ 711 $ 3,390 $ 1,057 $ (26) $ 5,132
Liabilities at fair value:
Long-term debt (7) $ — $ 23,762 $ — $ — $ 23,762
Derivatives relating to: (6)
Interest Rates — 6 — — 6
Commodities 16 11 — (20) 7
Foreign currency — 41 — (21) 20
Total liabilities at fair value $ 16 $ 23,820 $ — $ (41) $ 23,795
(1) Cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master
netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with
the same counterparty.
(2) Treasury Bills and money market funds included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized
cost, which approximates fair value.
(3) Included in “Accounts and notes receivable – Other” in the consolidated balance sheets. See Note 15 for additional information on
transfers of financial assets.
(4) The Company’s investments in equity and debt securities are primarily classified as available-for-sale and are included in “Other
investments” in the consolidated balance sheets.
(5) U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
(6) See Note 10 for the classification of derivatives in the consolidated balance sheets.
(7) See Note 10 for information on fair value measurements of long-term debt.
Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or
exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are
netted with corresponding liabilities. The Company posted cash collateral of $5 million at December 31, 2013 ($20 million of
cash collateral at December 31, 2012).
For assets and liabilities classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is
either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on
which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without
consideration of transaction costs.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair
value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on
the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by
using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-
established and recognized vendors of market data and subjected to tolerance/quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial
instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates,
interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established
and recognized vendors of market data and subjected to tolerance/quality checks.