Dow Chemical 2015 Annual Report Download - page 108

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The Company had open interest rate derivatives designated as cash flow hedges at December 31, 2015 with a net loss of
$3 million after tax and a notional U.S. dollar equivalent of $338 million (net loss of $8 million after tax and a notional U.S.
dollar equivalent of $434 million at December 31, 2014).
Current open foreign currency forward contracts hedge the currency risk of forecasted feedstock purchase transactions until
July 2016. The effective portion of the mark-to-market effects of the foreign currency forward contracts is recorded in AOCL;
it is reclassified to income in the same period or periods that the underlying feedstock purchase affects income. The net gain
from the foreign currency hedges included in AOCL at December 31, 2015 was $4 million after tax (net gain of $31 million
after tax at December 31, 2014). During 2015, 2014 and 2013, there was no material impact on the consolidated financial
statements due to foreign currency hedge ineffectiveness. At December 31, 2015, the Company had open forward contracts
with various expiration dates to buy, sell or exchange foreign currencies with a notional U.S. dollar equivalent of $398 million
($374 million at December 31, 2014).
Commodity swaps, futures and option contracts with maturities of not more than 48 months are utilized and designated as cash
flow hedges of forecasted commodity purchases. Current open contracts hedge forecasted transactions until December 2020.
The effective portion of the mark-to-market effect of the cash flow hedge instrument is recorded in AOCL; it is reclassified to
income in the same period or periods that the underlying commodity purchase affects income. The net loss from commodity
hedges included in AOCL at December 31, 2015 was $180 million after tax ($96 million after tax loss at December 31, 2014).
During 2015, 2014 and 2013, there was no material impact on the consolidated financial statements due to commodity hedge
ineffectiveness. At December 31, 2015 and 2014, the Company had the following gross aggregate notionals of outstanding
commodity forward, options and futures contracts to hedge forecasted purchases:
Commodity
Dec 31,
2015
Dec 31,
2014 Notional Volume Unit
Corn 1.0 1.3 million bushels
Crude Oil 0.4 0.5 million barrels
Ethane — 0.9 million barrels
Natural Gas 257.4 192.5 million million British thermal units
Soybeans 1.4 1.2 million bushels
The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $27 million loss for
commodity contracts, a $4 million gain for foreign currency contracts and a $2 million loss for interest rate 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. During 2015, the Company entered into and subsequently terminated an interest rate swap designated
as a fair value hedge of an underlying fixed rate debt obligation with a maturity date of May 2019. The fair value adjustments
resulting from this swap were a gain on the derivative of less than $1 million. At December 31, 2015 and 2014, 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 AOCL. At December 31, 2015 and 2014, 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, 2015, the Company had outstanding foreign-currency denominated debt
designated as a hedge of net foreign investment of $166 million ($167 million at December 31, 2014). The results of hedges of
the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net gain
of $1 million after tax for the period ended December 31, 2015 (net gain of $15 million after tax for the period ended
December 31, 2014). During 2015, 2014 and 2013 there was no material impact on the consolidated financial statements due to
hedge ineffectiveness. See Note 24 for further detail on changes in AOCL.