Dow Chemical 2009 Annual Report Download - page 147

Table of Contents
For assets and liabilities classified as Level 2, the 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. Market inputs are obtained from well established and recognized vendors of market data and subjected to
tolerance/quality checks. For derivative assets and liabilities, the fair value is calculated using standard industry models 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.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted
cash flow model or other standard pricing models. See Note J for further information on the types of instruments used by the Company for risk management.
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 assets and liabilities. The Company
borrowed $3 million of cash collateral against $5 million of unrealized gains at December 31, 2009. The net $2 million was classified as “Accounts and notes
receivable – Other” in the consolidated balance sheets.
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a nonrecurring basis:
Basis of Fair Value
Measurements on a
Nonrecurring Basis in 2009
In millions
Significant
Other
Observable
Inputs
(Level 2)
Significant Other
Unobservable
Inputs
(Level 3) Total
Total Losses
2009
Assets at fair value:
Long-lived and other assets - $ 30 $ 30 $ (464)
Net assets held for sale $ 1,657 - 1,657 -
Goodwill - - - (7)
Total assets at fair value $ 1,657 $ 30 $ 1,687 $ (471)
As part of the restructuring plan that was approved on June 30, 2009, the Company will shut down a number of manufacturing facilities during the next
two years. Long-lived assets with a carrying value of $425 million were written down to the fair value of $26 million, resulting in an impairment charge of
$399 million, which was included in the second quarter of 2009 restructuring charge (see Note C). In the fourth quarter of 2009, the Company recognized an
impairment loss of $65 million related to its investment in Equipolymers with a remaining fair value of the investment of $4 million. The long-lived assets
were valued based on bids received from third parties and using discounted cash flow analysis based on assumptions that market participants would use.
Key inputs included anticipated revenues, associated manufacturing costs, capital expenditures and discount, growth and tax rates.
On April 1, 2009, the Company announced the entry into a definitive agreement to sell the newly acquired stock of Morton International, Inc., the Salt
business of Rohm and Haas, to K+S Aktiengesellschaft. The assets were classified as held for sale with a net carrying value of $1,657 million at
September 30, 2009. The held for sale assets were valued based on the definitive agreement with K+S Aktiengesellschaft, less estimated cost to sell. The assets
were sold on October 1, 2009 (see Note E).
During the fourth quarter of 2009, the Company performed its annual impairment tests for goodwill. As a result of this review, it was determined that the
goodwill associated with the Dow Haltermann reporting unit was impaired. The impairment was based on a review of the Dow Haltermann reporting unit
performed by management, in which discounted cash flows did not support the carrying value of the goodwill due to poor future projections for the business.
As a result, an impairment loss of $7 million was recognized in the fourth quarter of 2009 against the Performance Products segment.
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