Dow Chemical 2012 Annual Report Download - page 123

97
Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2011
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) $ — $ 2,926 $ — $ — $ 2,926
Interests in trade accounts receivable
conduits (3) — — 1,141 — 1,141
Equity securities (4) 634 33 — — 667
Debt securities: (4)
Government debt (5) — 618 — — 618
Corporate bonds — 723 — — 723
Derivatives relating to: (6)
Commodities 10 14 — (8) 16
Foreign currency — 75 — (44) 31
Total assets at fair value $ 644 $ 4,389 $ 1,141 $ (52) $ 6,122
Liabilities at fair value:
Long-term debt (7) $ — $ 23,789 $ — $ — $ 23,789
Derivatives relating to: (6)
Commodities 13 7 — (19) 1
Foreign currency — 61 — (44) 17
Total liabilities at fair value $ 13 $ 23,857 $ — $ (63) $ 23,807
(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) Primarily Treasury Bills 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 adjustments to long-term debt, included at cost in the consolidated balance sheets.
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 $20 million at December 31, 2012 ($11 million of
cash collateral at December 31, 2011).
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.
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 10 for further information on the
types of instruments used by the Company for risk management.