Dow Chemical 2011 Annual Report Download - page 213

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NOTE O – TRANSFERS OF FINANCIAL ASSETS
Sale of Trade Accounts Receivable in North America and Europe
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 Company
maintains servicing responsibilities and the related costs are insignificant. 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, 2011, the Company recognized a loss of $24 million on the sale of these receivables
($26 million loss for the year ended December 31, 2010), 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
Carrying value of interests held
Percentage of anticipated credit losses (1)
Impact to carrying value - 10% adverse change (1)
Impact to carrying value - 20% adverse change (1)
2011
$ 1,141
1.22%
$ 2
$ 4
2010
$ 1,267
1.42%
$ 2
$ 5
(1) Applies to North America only as there are no anticipated credit losses in Europe.
Credit losses, net of any recoveries, were $8 million for the period ending December 31, 2011 ($2 million for the period
December 31, 2010).
Following is an analysis of certain cash flows between the Company and the conduits:
Cash Proceeds
In millions
Sale of receivables
Collections reinvested in revolving receivables
Interests in conduits (1)
2011
$ 16
$ 28,609
$ 1,737
2010
$ 818
$ 22,866
$ 1,038
(1) Presented in "Operating Activities" in the consolidated statements of cash flows.
Following is additional information related to the sale of receivables under these facilities:
Trade Accounts Receivable Sold at December 31
In millions
Delinquencies on sold receivables still outstanding
Trade accounts receivable outstanding and derecognized
2011
$ 155
$ 2,385
2010
$ 169
$ 2,335
In September 2011, the Company repurchased $71 million of previously sold receivables related to a divestiture
($13 million related to a divestiture in May 2010).