Dow Chemical 2012 Annual Report Download - page 120

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The net after-tax amounts to be reclassified from AOCI to income within the next 12 months are a $20 million gain for
commodity contracts and a $14 million loss for foreign currency contracts.
Fair Value Hedges
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current period income and reflected
as “Interest expense and amortization of debt discount” in the consolidated statements of income. The short-cut method is used
when the criteria are met. At December 31, 2012 and 2011, the Company had no open interest rate swaps designated as fair
value hedges of underlying fixed rate debt obligations.
Net Foreign Investment Hedges
For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or
loss on the derivative is included in “Cumulative Translation Adjustments” in AOCI. At December 31, 2012 and 2011, the
Company had no open forward contracts or outstanding options to buy, sell or exchange foreign currencies designated as net
foreign investment hedges. At December 31, 2012, the Company had outstanding foreign-currency denominated debt
designated as a hedge of net foreign investment of $233 million ($585 million at December 31, 2011). The results of hedges of
the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCI was a net gain
of $22 million after tax at December 31, 2012 (net loss of $48 million after tax at December 31, 2011). During 2012, 2011 and
2010 there was no material impact on the consolidated financial statements due to hedge ineffectiveness. See Note 23 for
further detail on changes in AOCI.
Other Derivative Instruments
The Company utilizes futures, options and swap instruments that are effective as economic hedges of commodity price
exposures, but do not the meet hedge accounting criteria for derivatives and hedging. At December 31, 2012 and 2011, the
Company had the following gross notionals of outstanding commodity contracts:
Commodity
Dec 31,
2012
Dec 31,
2011 Notional Volume Unit
Ethane 1.0 2.1 million barrels
Naphtha — 82.5 kilotons
Natural Gas 33.0 4.6 million million British thermal units
The Company also uses foreign exchange forward contracts, options, and cross-currency swaps that are not designated as
hedging instruments primarily to manage foreign currency exposure. The Company had open foreign exchange contracts with
various expiration dates to buy, sell or exchange foreign currencies with a gross notional U.S. dollar equivalent of
$17,637 million at December 31, 2012 ($14,002 million at December 31, 2011) and open interest rate swaps with a notional
U.S. dollar equivalent of $472 million at December 31, 2012 (no open interest rate swaps at December 31, 2011).