10-Q 1 dow-q1x3312017.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2017

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number: 1-3433
THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
38-1285128
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 989-636-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ   Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
 
þ
 
Accelerated filer
 
¨
 
Non-accelerated filer
 
¨
(Do not check if a smaller reporting company)
Smaller reporting company
 
¨
 
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨  Yes    þ No

 
 
Outstanding at
Class
 
March 31, 2017
Common Stock, par value $2.50 per share
 
1,221,702,737 shares



The Dow Chemical Company
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2017
TABLE OF CONTENTS

 
 
PAGE
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2


The Dow Chemical Company and Subsidiaries

Throughout this Quarterly Report on Form 10-Q, except as otherwise noted by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report including, without limitation, the following sections: “Management's Discussion and Analysis” and “Risk Factors.” These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “should,” “strategy,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

This document also contains statements about Dow’s agreement to effect an all-stock, merger of equals strategic combination with E. I. du Pont de Nemours and Company (“DuPont”), resulting in a new combined company DowDuPont Inc. (“DowDuPont”). These and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Important risk factors that may cause such a difference include, but are not limited to, (i) the completion of the proposed transaction on anticipated terms and timing, including obtaining regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the ability of Dow and DuPont to integrate the business successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separations, including anticipated timing, any changes to the configuration of businesses included in the potential separations if implemented, (iii) the intended separation of the agricultural, materials science and specialty products businesses of the combined company post-mergers in one or more tax efficient transactions on anticipated terms and timing, including a number of conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances, disruptions in the financial markets or other potential barriers, (iv) potential litigation relating to the proposed transaction that could be instituted against Dow, DuPont or their respective directors, (v) the risk that disruptions from the proposed transaction will harm Dow’s or DuPont’s business, including current plans and operations, (vi) the ability of Dow or DuPont to retain and hire key personnel, (vii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, (viii) uncertainty as to the long-term value of DowDuPont common stock, (ix) continued availability of capital and financing and rating agency actions, (x) legislative, regulatory and economic developments, (xi) potential business uncertainty, including changes to existing business relationships, during the pendency of the merger that could affect Dow’s and/or DuPont’s financial performance, (xii) certain restrictions during the pendency of the merger that may impact Dow’s or DuPont’s ability to pursue certain business opportunities or strategic transactions and (xiii) unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus included in the Registration Statement on Form S-4 (File No. 333-209869) filed by DowDuPont with the U.S. Securities and Exchange Commission in connection with the proposed merger. While the list of factors presented here is, and the list of factors presented in the Registration Statement are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Dow nor DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
 


3


A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (see Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2016). The Dow Chemical Company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

4


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
 
 
Three Months Ended
In millions, except per share amounts (Unaudited)
Mar 31,
2017

 
Mar 31,
2016

Net Sales
$
13,230

 
$
10,703

Cost of sales
10,197

 
7,951

Research and development expenses
416

 
361

Selling, general and administrative expenses
867

 
742

Amortization of intangibles
155

 
103

Restructuring credits
(1
)
 
(2
)
Equity in earnings of nonconsolidated affiliates
196

 
39

Sundry income (expense) - net
(470
)
 
(1,241
)
Interest income
25

 
20

Interest expense and amortization of debt discount
219

 
201

Income Before Income Taxes
1,128

 
165

Provision (Credit) for income taxes
213

 
(110
)
Net Income
915

 
275

Net income attributable to noncontrolling interests
27

 
21

Net Income Attributable to The Dow Chemical Company
888

 
254

Preferred stock dividends

 
85

Net Income Available for The Dow Chemical Company Common Stockholders
$
888

 
$
169

 
 
 
 
Per Common Share Data:
 
 
 
Earnings per common share - basic
$
0.74

 
$
0.15

Earnings per common share - diluted
$
0.72

 
$
0.15

 
 
 


Dividends declared per share of common stock
$
0.46

 
$
0.46

Weighted-average common shares outstanding - basic
1,202.5

 
1,102.9

Weighted-average common shares outstanding - diluted
1,222.1

 
1,117.3

 
 
 


Depreciation
$
578

 
$
456

Capital Expenditures
$
754

 
$
820

See Notes to the Consolidated Financial Statements.


5


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Comprehensive Income
 
 
Three Months Ended
In millions (Unaudited)
Mar 31,
2017

 
Mar 31,
2016

Net Income
$
915

 
$
275

Other Comprehensive Income (Loss), Net of Tax
 
 
 
Unrealized gains on investments
17

 
19

Cumulative translation adjustments
239

 
328

Pension and other postretirement benefit plans
102

 
92

Derivative instruments
(50
)
 
(34
)
Other comprehensive income
308

 
405

Comprehensive Income
1,223

 
680

Comprehensive income attributable to noncontrolling interests, net of tax
53

 
37

Comprehensive Income Attributable to The Dow Chemical Company
$
1,170

 
$
643

See Notes to the Consolidated Financial Statements.


6


The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
In millions (Unaudited)
Mar 31,
2017

 
Dec 31,
2016

Assets
Current Assets
 
 
 
Cash and cash equivalents (variable interest entities restricted - 2017: $99; 2016: $75)
$
5,848

 
$
6,607

Accounts and notes receivable:
 
 
 
Trade (net of allowance for doubtful receivables - 2017: $111; 2016: $110)
4,991

 
4,666

Other
4,719

 
4,358

Inventories
8,210

 
7,363

Other current assets
872

 
665

Total current assets
24,640

 
23,659

Investments
 
 
 
Investment in nonconsolidated affiliates
3,625

 
3,747

Other investments (investments carried at fair value - 2017: $2,010; 2016: $1,959)
3,001

 
2,969

Noncurrent receivables
841

 
708

Total investments
7,467

 
7,424

Property
 
 
 
Property
58,359

 
57,438

Less accumulated depreciation
34,591

 
33,952

Net property (variable interest entities restricted - 2017: $960; 2016: $961)
23,768

 
23,486

Other Assets
 
 
 
Goodwill
15,334

 
15,272

Other intangible assets (net of accumulated amortization - 2017: $4,508; 2016: $4,295)
5,928

 
6,026

Deferred income tax assets
3,116

 
3,079

Deferred charges and other assets
575

 
565

Total other assets
24,953

 
24,942

Total Assets
$
80,828

 
$
79,511

Liabilities and Equity
Current Liabilities
 
 
 
Notes payable
$
383

 
$
272

Long-term debt due within one year
616

 
635

Accounts payable:
 
 
 
Trade
4,810

 
4,519

Other
2,549

 
2,401

Income taxes payable
409

 
600

Dividends payable
558

 
508

Accrued and other current liabilities
3,868

 
3,669

Total current liabilities
13,193

 
12,604

Long-Term Debt (variable interest entities nonrecourse - 2017: $364; 2016: $330)
20,471

 
20,456

Other Noncurrent Liabilities
 
 
 
Deferred income tax liabilities
934

 
923

Pension and other postretirement benefits - noncurrent
11,126

 
11,375

Asbestos-related liabilities - noncurrent
1,337

 
1,364

Other noncurrent obligations
5,433

 
5,560

Total other noncurrent liabilities
18,830

 
19,222

Stockholders’ Equity
 
 
 
Common stock
3,107

 
3,107

Additional paid-in capital
4,137

 
4,262

Retained earnings
30,659

 
30,338

Accumulated other comprehensive loss
(9,514
)
 
(9,822
)
Unearned ESOP shares
(203
)
 
(239
)
Treasury stock at cost
(1,126
)
 
(1,659
)
The Dow Chemical Company’s stockholders’ equity
27,060

 
25,987

Noncontrolling interests
1,274

 
1,242

Total equity
28,334

 
27,229

Total Liabilities and Equity
$
80,828

 
$
79,511

See Notes to the Consolidated Financial Statements.

7


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows
 
 
Three Months Ended
In millions (Unaudited)
Mar 31,
2017

 
Mar 31,
2016

Operating Activities
 
 
 
Net Income
$
915

 
$
275

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
778

 
607

Credit for deferred income tax
(95
)
 
(451
)
Earnings of nonconsolidated affiliates less than dividends received
212

 
360

Pension contributions
(302
)
 
(448
)
Net gain on sales of investments
(12
)
 
(12
)
Net gain on sales of property, businesses and consolidated companies
(8
)
 
(8
)
Net loss on sale of ownership interests in nonconsolidated affiliates
3

 

Restructuring credits
(1
)
 
(2
)
Other net loss
33

 
34

Changes in assets and liabilities, net of effects of acquired and divested companies:
 
 
 
Accounts and notes receivable
(890
)
 
(1,043
)
Proceeds from interests in trade accounts receivable conduits
114

 
187

Inventories
(847
)
 
(432
)
Accounts payable
322

 
135

Other assets and liabilities
254

 
937

Cash provided by operating activities
476

 
139

Investing Activities
 
 
 
Capital expenditures
(754
)
 
(820
)
Investment in gas field developments
(38
)
 

Payment into escrow account
(130
)
 

Proceeds from sales of property, businesses and consolidated companies, net of cash divested
96

 
32

Acquisitions of property, businesses and consolidated companies, net of cash acquired
(26
)
 
(167
)
Investments in and loans to nonconsolidated affiliates
(245
)
 
(245
)
Distributions and loan repayments from nonconsolidated affiliates

 
3

Proceeds from sale of ownership interests in nonconsolidated affiliates
30

 

Purchases of investments
(129
)
 
(121
)
Proceeds from sales and maturities of investments
136

 
155

Cash used in investing activities
(1,060
)
 
(1,163
)
Financing Activities
 
 
 
Changes in short-term notes payable
136

 
(54
)
Proceeds from issuance of long-term debt

 
29

Payments on long-term debt
(38
)
 
(360
)
Proceeds from sales of common stock
282

 
92

Transaction financing, debt issuance and other costs

 
(2
)
Employee taxes paid for share-based payment arrangements
(84
)
 
(61
)
Distributions to noncontrolling interests
(21
)
 
(11
)
Dividends paid to stockholders
(506
)
 
(591
)
Cash used in financing activities
(231
)
 
(958
)
Effect of Exchange Rate Changes on Cash
56

 
15

Summary
 
 
 
Decrease in cash and cash equivalents
(759
)
 
(1,967
)
Cash and cash equivalents at beginning of period
6,607

 
8,577

Cash and cash equivalents at end of period
$
5,848

 
$
6,610

See Notes to the Consolidated Financial Statements.

8


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Equity
 
 
Three Months Ended
In millions, except per share amounts (Unaudited)
Mar 31,
2017

 
Mar 31,
2016

Preferred Stock
 
 
 
Balance at beginning of year and end of period
$

 
$
4,000

Common Stock
 
 
 
Balance at beginning of year and end of period
3,107

 
3,107

Additional Paid-in Capital
 
 
 
Balance at beginning of year
4,262

 
4,936

Common stock issued / sold
282

 
92

Stock-based compensation and allocation of ESOP shares
(407
)
 
(219
)
Balance at end of period
4,137

 
4,809

Retained Earnings
 
 
 
Balance at beginning of year
30,338

 
28,425

Net income available for The Dow Chemical Company common stockholders
888

 
169

Dividends declared on common stock (per share - 2017: $0.46; 2016: $0.46)
(557
)
 
(509
)
Dividend equivalents on participating securities
(10
)
 
(11
)
Balance at end of period
30,659

 
28,074

Accumulated Other Comprehensive Loss
 
 
 
Balance at beginning of year
(9,822
)
 
(8,667
)
Other comprehensive income
308

 
405

Balance at end of period
(9,514
)
 
(8,262
)
Unearned ESOP Shares
 
 
 
Balance at beginning of year
(239
)
 
(272
)
Shares allocated to ESOP participants
36

 
8

Balance at end of period
(203
)
 
(264
)
Treasury Stock
 
 
 
Balance at beginning of year
(1,659
)
 
(6,155
)
Issuances - compensation plans
533

 
290

Balance at end of period
(1,126
)
 
(5,865
)
The Dow Chemical Company’s Stockholders’ Equity
27,060

 
25,599

Noncontrolling Interests
1,274

 
835

Total Equity
$
28,334

 
$
26,434

See Notes to the Consolidated Financial Statements.


9


(Unaudited)
 
The Dow Chemical Company and Subsidiaries
PART I – FINANCIAL INFORMATION, Item 1. Financial Statements
Notes to the Consolidated Financial Statements
Table of Contents


NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated financial statements of The Dow Chemical Company and its subsidiaries (“Dow” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Adoption of Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"
In the first quarter of 2017, the Company adopted ASU 2016-09 and elected to apply changes on a retrospective basis to the consolidated statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-based payment arrangements. See Note 2 for additional information. A summary of the changes made to the consolidated statements of cash flows for the three months ended March 31, 2016, is included in the following table:

Summary of Changes to the Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016
In millions
As Filed
 
Updated
Operating Activities
 
 
 
Excess tax benefits from share-based payment arrangements
$
(26
)
 
$

Other assets and liabilities
$
876

 
$
937

Cash provided by operating activities
$
52

 
$
139

Financing Activities
 
 
 
Excess tax benefits from share-based payment arrangements
$
26

 
$

Employee taxes paid for share-based payment arrangements
$

 
$
(61
)
Cash used in financing activities
$
(871
)
 
$
(958
)

10


NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In the first quarter of 2017, the Company adopted ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment awards to employees, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Under the new guidance, excess tax benefits related to equity compensation are now recognized in "Provision (Credit) for income taxes" in the consolidated statements of income rather than in "Additional paid-in capital" in the consolidated balance sheets and this change was applied on a prospective basis. Changes to the consolidated statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-based payment arrangements were implemented on a retrospective basis. See Note 1 for additional information.

Accounting Guidance Issued But Not Adopted as of March 31, 2017
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09.

In May 2014, the FASB and International Accounting Standards Board formed The Joint Transition Resource Group for Revenue Recognition ("TRG"), consisting of financial statement preparers, auditors and users, to seek feedback on potential issues related to the implementation of the new revenue standard. As a result of feedback from the TRG, the FASB has issued additional guidance to provide clarification, implementation guidance and practical expedients to address some of the challenges of implementation. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which is an amendment on assessing whether an entity is a principal or an agent in a revenue transaction. This amendment addresses issues to clarify the principal versus agent assessment and lead to more consistent application. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarity and implementation guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The new standards have the same effective date and transition requirements as ASU 2014-09.

The Company has a team in place to analyze the impact of ASU 2014-09 and the related ASU's across all revenue streams to evaluate the impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. The Company is currently completing contract evaluations and validating the results of applying the new revenue guidance. The Company has also started drafting its accounting policies and evaluating the new disclosure requirements and expects to complete its evaluation of the impact of the accounting and disclosure requirements on its business processes, controls and systems by the end of the second quarter of 2017. Full implementation will be completed by the end of 2017. Based on analysis completed to date, the Company expects the potential impact on the recognition of revenue for product sales and licensing arrangements to remain substantially unchanged. The Company expects to adopt the new standard using the modified retrospective approach, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2018.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affects the accounting for equity investments,

11


financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, using a modified retrospective approach, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which addresses diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows with respect to eight specific cash flow issues. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments should be applied using a retrospective transition method to each period presented, if practicable. Early adoption is permitted, including adoption in an interim period, and any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. All amendments must be adopted in the same period. The Company is currently evaluating the impact of adopting this guidance.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The Company is currently evaluating the impact of adopting this guidance.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)", which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows, and, as a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the new guidance must be applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.

In February 2017, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets," which clarifies the scope of guidance on nonfinancial asset derecognition in Accounting Standards Codification 610-20 and the accounting for partial sales of nonfinancial assets. The new guidance also conforms the derecognition guidance for nonfinancial assets with the model in the new revenue standard (ASU 2014-09). The new standard is effective for annual reporting periods, and interim periods within those fiscal years, beginning after December 15, 2017, and an entity is required to apply the amendments at the same time that it applies the amendments in ASU 2014-09. The Company is currently evaluating the impact of adopting this guidance.

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost

12


component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line item(s) that includes the service cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted at the beginning of an annual period in which the financial statements have not been issued. Entities must use a retrospective transition method to adopt the requirement for separate presentation of the income statement service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The Company is currently evaluating the impact of adopting this guidance.


NOTE 3 – RESTRUCTURING
2016 Restructuring
On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the ownership restructure of Dow Corning Corporation ("Dow Corning"). These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the ownership restructure of Dow Corning ("DCC Transaction"). These actions are expected to be substantially completed by June 30, 2018.

As a result of these actions, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance charges of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million. The following table summarizes the activities related to the Company's 2016 restructuring reserve, which is included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.

2016 Restructuring Charges
 
Severance Costs

 
Costs Associated with Exit and Disposal Activities

 
Total

In millions
Reserve balance at December 31, 2016
 
$
201

 
$
27

 
$
228

Cash payments
 
(59
)
 

 
(59
)
Reserve balance at March 31, 2017
 
$
142

 
$
27

 
$
169


Severance Costs
The restructuring charge included severance of $268 million for the separation of approximately 2,500 employees under the terms of the Company's ongoing benefit arrangements, primarily by June 30, 2018. These costs were charged against Corporate. At December 31, 2016, severance of $67 million was paid, leaving a liability of $201 million for approximately 1,700 employees. In the first three months of 2017, severance of $59 million was paid, leaving a liability of $142 million for approximately 1,080 employees.

2015 Restructuring
Severance Costs
The severance component of the 2015 restructuring charge of $235 million was for the separation of approximately 2,250 positions under the terms of the Company's ongoing benefit arrangements. At December 31, 2016, severance of $190 million was paid, leaving a liability of $45 million for approximately 290 employees. In the first three months of 2017, severance of $26 million was paid, leaving a liability of $19 million for approximately 115 employees at March 31, 2017.

Adjustments to the 2015 Restructuring Charge
In the first quarter of 2016, the Company recorded a favorable adjustment to the 2015 restructuring charge related to the impairment of long-lived assets of $2 million, included in "Restructuring credits" in the consolidated statements of income and reflected in the Infrastructure Solutions segment.

In the first quarter of 2017, the Company recorded a favorable adjustment to the 2015 restructuring charge related to costs associated with exit and disposal activities of $1 million, included in "Restructuring credits" in the consolidated statements of income and reflected in the Agricultural Sciences segment.

Dow expects to incur additional costs in the future related to its restructuring activities, as the Company continually looks for ways to enhance the efficiency and cost effectiveness of its operations, and to ensure competitiveness across its businesses and

13


geographic areas. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these costs will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.


NOTE 4 – INVENTORIES
The following table provides a breakdown of inventories:
 
Inventories
In millions
Mar 31, 2017


Dec 31, 2016

Finished goods
$
4,798

 
$
4,230

Work in process
1,828

 
1,510

Raw materials
999

 
853

Supplies
833

 
823

Total FIFO inventories
$
8,458

 
$
7,416

Adjustment of inventories to a LIFO basis
(248
)
 
(53
)
Total inventories
$
8,210

 
$
7,363



NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows the carrying amount of goodwill by operating segment:

Goodwill
Agricultural Sciences

 
Consumer Solutions

 
Infrastructure Solutions

 
Performance
Materials & Chemicals

 
Performance Plastics

 
Total  

In millions
Net goodwill at Dec 31, 2016
$
1,472

 
$
6,017

 
$
5,840

 
$
425

 
$
1,518

 
$
15,272

Foreign currency impact

 
25

 
31

 
1

 
5

 
62

Net goodwill at Mar 31, 2017
$
1,472

 
$
6,042

 
$
5,871

 
$
426

 
$
1,523

 
$
15,334


The following table provides information regarding the Company’s other intangible assets:
 
Other Intangible Assets
At March 31, 2017
 
At December 31, 2016
In millions
Gross
Carrying
Amount

 
Accumulated
Amortization

 
Net

 
Gross
Carrying
Amount

 
Accumulated
Amortization

 
Net  

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Licenses and intellectual property
$
3,152

 
$
(1,356
)
 
$
1,796

 
$
3,148

 
$
(1,286
)
 
$
1,862

Patents
106

 
(98
)
 
8

 
106

 
(97
)
 
9

Software
1,371

 
(723
)
 
648

 
1,336

 
(696
)
 
640

Trademarks
696

 
(519
)
 
177

 
696

 
(503
)
 
193

Customer-related
4,881

 
(1,664
)
 
3,217

 
4,806

 
(1,567
)
 
3,239

Other
169

 
(148
)
 
21

 
168

 
(146
)
 
22

Total other intangible assets, finite lives
$
10,375

 
$
(4,508
)
 
$
5,867

 
$
10,260

 
$
(4,295
)
 
$
5,965

IPR&D (1), indefinite lives
61

 

 
61

 
61

 

 
61

Total other intangible assets
$
10,436

 
$
(4,508
)
 
$
5,928

 
$
10,321

 
$
(4,295
)
 
$
6,026

(1)
In-process research and development (“IPR&D”) purchased in a business combination.

The following table provides information regarding amortization expense related to intangible assets:

Amortization Expense
Three Months Ended
In millions
Mar 31, 2017

 
Mar 31, 2016

Other intangible assets, excluding software
$
155

 
$
103

Software, included in “Cost of sales”
$
20

 
$
18


14


Total estimated amortization expense for 2017 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
2017
$
722

2018
$
728

2019
$
653

2020
$
615

2021
$
581

2022
$
514



NOTE 6 – NONCONSOLIDATED AFFILIATES
The table below presents summarized financial information for Dow Corning, formerly a principal nonconsolidated affiliate, at March 31, 2016 (at 100 percent). As a result of the DCC Transaction, Dow Corning, previously a 50:50 joint venture between Dow and Corning Incorporated ("Corning"), became a wholly owned subsidiary of Dow as of June 1, 2016.

Summarized Income Statement Information
Three Months Ended

In millions
Mar 31, 2016

Sales
$
1,316

Gross Profit (1)
$
350

Net Income
$
112

(1)
Gross profit for the three months ended March 31, 2016 included $57 million of "Research and development expenses".


NOTE 7 – FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments, risk management policies, derivative instruments and hedging activities can be found in Note 11 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. If applicable, updates have been included in the respective section below.

The following table summarizes the fair value of financial instruments at March 31, 2017 and December 31, 2016:

Fair Value of Financial Instruments
 
At March 31, 2017
 
At December 31, 2016
In millions
Cost

 
Gain

 
Loss

 
Fair
Value

 
Cost

 
Gain

 
Loss

 
Fair
Value

Marketable securities: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government debt (2)
$
616

 
$
14

 
$
(11
)
 
$
619

 
$
607

 
$
13

 
$
(12
)
 
$
608

Corporate bonds
632

 
27

 
(4
)
 
655

 
623

 
27

 
(5
)
 
645

Total debt securities
$
1,248

 
$
41

 
$
(15
)
 
$
1,274

 
$
1,230

 
$
40

 
$
(17
)
 
$
1,253

Equity securities
665

 
106

 
(35
)
 
736

 
658

 
98

 
(50
)
 
706

Total marketable securities
$
1,913

 
$
147

 
$
(50
)
 
$
2,010

 
$
1,888

 
$
138

 
$
(67
)
 
$
1,959

Long-term debt including debt due within one year (3)
$
(21,087
)
 
$
31

 
$
(1,993
)
 
$
(23,049
)
 
$
(21,091
)
 
$
129

 
$
(1,845
)
 
$
(22,807
)
Derivatives relating to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rates
$

 
$

 
$
(4
)
 
$
(4
)
 
$

 
$

 
$
(5
)
 
$
(5
)
Commodities (4)
$

 
$
103

 
$
(287
)
 
$
(184
)
 
$

 
$
56

 
$
(213
)
 
$
(157
)
Foreign currency
$

 
$
50

 
$
(56
)
 
$
(6
)
 
$

 
$
84

 
$
(30
)
 
$
54

(1)
Included in “Other investments” in the consolidated balance sheets.
(2)
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
(3)
Cost includes fair value hedge adjustments of $17 million at March 31, 2017 and $18 million at December 31, 2016.
(4)
Presented net of cash collateral, as disclosed in Note 8.


15


Investments
The Company’s investments in marketable securities are primarily classified as available-for-sale. The following table provides the investing results from available-for-sale securities for the three-month periods ended March 31, 2017 and 2016:

Investing Results
Three Months Ended
In millions
Mar 31,
2017

 
Mar 31,
2016

Proceeds from sales of available-for-sale securities
$
116

 
$
121

Gross realized gains
$
14

 
$
6

Gross realized losses
$
(2
)
 
$


The following table summarizes the contractual maturities of the Company’s investments in debt securities:

 
Contractual Maturities of Debt Securities
at March 31, 2017
In millions
Amortized Cost

 
Fair Value

Within one year
$
21

 
$
21

One to five years
327

 
335

Six to ten years
674

 
677

After ten years
226

 
241

Total
$
1,248

 
$
1,274


At March 31, 2017, the Company had $27 million ($261 million at December 31, 2016) of held-to-maturity securities (primarily Treasury Bills) classified as cash equivalents, as these securities had maturities of three months or less at the time of purchase. The Company’s investments in held-to-maturity securities are held at amortized cost, which approximates fair value. At March 31, 2017, the Company had investments in money market funds of $1,086 million classified as cash equivalents ($239 million at December 31, 2016).

The aggregate cost of the Company’s cost method investments totaled $120 million at March 31, 2017 ($120 million at December 31, 2016). Due to the nature of these investments, either the cost basis approximates fair market value or fair value is not readily determinable. These investments are reviewed quarterly for impairment indicators. The Company's impairment analysis resulted in no reduction in the cost basis of these investments for the three-month periods ended March 31, 2017 and 2016.

Accounting for Derivative Instruments and Hedging Activities
Fair Value Hedges
For interest rate swap 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 March 31, 2017, the Company had interest rate swaps with a gross notional U.S. dollar equivalent of $200 million (zero at December 31, 2016) designated as a fair value hedge of underlying fixed rate debt obligations with maturity dates extending through 2022. The fair value adjustments resulting from these swaps were a loss of less than $1 million for the three months ended March 31, 2017 (zero for the three months ended March 31, 2016).

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 "Accumulated other comprehensive loss" ("AOCL"). The Company had open foreign currency contracts designated as net foreign investment hedges with a gross notional U.S. dollar equivalent of $4,460 million at March 31, 2017 ($2,641 million at December 31, 2016). In addition, at March 31, 2017, the Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $179 million ($172 million at December 31, 2016). The results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss of $2 million after tax at March 31, 2017 (net gain of $1 million after tax at December 31, 2016).

16


The following table provides the fair value and gross balance sheet classification of derivative instruments at March 31, 2017 and December 31, 2016:
 
Fair Value of Derivative Instruments
In millions
Balance Sheet Classification
 
Mar 31,
2017

 
Dec 31,
2016

Asset Derivatives
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
Commodities
Other current assets
 
$
25

 
$
42

Commodities
Deferred charges and other assets
 
10

 
10

Foreign currency
Accounts and notes receivable - Other
 
79

 
90

Total derivatives designated as hedges
 
 
$
114

 
$
142

Derivatives not designated as hedges:
 
 
 
 
 
Commodities
Other current assets
 
$
73

 
$
13

Commodities
Deferred charges and other assets
 
9

 
12

Foreign currency
Accounts and notes receivable - Other
 
102

 
103

Total derivatives not designated as hedges
 
 
$
184

 
$
128

Total asset derivatives
 
 
$
298

 
$
270

Liability Derivatives
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
Interest rates
Accrued and other current liabilities
 
$
2

 
$
3

Interest rates
Other noncurrent obligations
 
2

 
2

Commodities
Accrued and other current liabilities
 
37

 
32

Commodities
Other noncurrent obligations
 
206

 
196

Foreign currency
Accrued and other current liabilities
 
64

 
55

Total derivatives designated as hedges
 
 
$
311

 
$
288

Derivatives not designated as hedges:
 
 
 
 
 
Commodities
Accrued and other current liabilities
 
$
71

 
$
4

Commodities
Other noncurrent obligations
 
1

 
2

Foreign currency
Accounts payable - Other
 
123

 
84

Total derivatives not designated as hedges
 
 
$
195

 
$
90

Total liability derivatives
 
 
$
506

 
$
378


Foreign currency derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities.

The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $2 million loss for interest rate contracts, a $3 million gain for commodity contracts and a $10 million gain for foreign currency contracts.



17


NOTE 8 – FAIR VALUE MEASUREMENTS
A summary of the Company's recurring and nonrecurring fair value measurements can be found in Note 12 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. If applicable, updates have been included in the respective section below.

Fair Value Measurements on a Recurring Basis
The following tables summarize the bases used to measure certain assets and liabilities at fair value on a recurring basis:

Basis of Fair Value Measurements
on a Recurring Basis
at March 31, 2017

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)
$

 
$
1,113

 
$

 
$

 
$
1,113

Interests in trade accounts receivable conduits (3)

 

 
1,663

 

 
1,663

Equity securities (4)
647

 
89

 

 

 
736

Debt securities: (4)

 

 

 

 
 
Government debt (5)

 
619

 

 

 
619

Corporate bonds

 
655

 

 

 
655

Derivatives relating to: (6)

 

 

 

 
 
Commodities
33

 
84

 

 
(14
)
 
103

Foreign currency

 
181

 

 
(131
)
 
50

Total assets at fair value
$
680

 
$
2,741

 
$
1,663

 
$
(145
)
 
$
4,939

Liabilities at fair value:
 
 
 
 
 
 
 
 
 
Long-term debt (7)
$

 
$
23,049

 
$

 
$

 
$
23,049

Derivatives relating to: (6)
 
 
 
 
 
 
 
 
 
Interest rates

 
4

 

 

 
4

Commodities
21

 
294

 

 
(28
)
 
287

Foreign currency

 
187

 

 
(131
)
 
56

Total liabilities at fair value
$
21

 
$
23,534

 
$

 
$
(159
)

$
23,396

(1)
Counterparty and 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 cash collateral placed with the same counterparty.
(2)
Treasury Bills and money market funds 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 11 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 7 for the classification of derivatives in the consolidated balance sheets.
(7)    See Note 7 for information on fair value measurements of long-term debt.


18


Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2016

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)
$

 
$
500

 
$

 
$

 
$
500

Interests in trade accounts receivable conduits (3)

 

 
1,237

 

 
1,237

Equity securities (4)
619

 
87

 

 

 
706

Debt securities: (4)

 

 

 

 
 
Government debt (5)

 
608

 

 

 
608

Corporate bonds

 
645

 

 

 
645

Derivatives relating to: (6)

 

 

 

 
 
Commodities
48

 
29

 

 
(21
)
 
56

Foreign currency

 
193

 

 
(109
)
 
84

Total assets at fair value
$
667

 
$
2,062

 
$
1,237

 
$
(130
)
 
$
3,836

Liabilities at fair value:
 
 
 
 
 
 
 
 
 
Long-term debt (7)
$

 
$
22,807

 
$

 
$

 
$
22,807

Derivatives relating to: (6)
 
 
 
 
 
 
 
 
 
Interest rates

 
5

 

 

 
5

Commodities
20

 
214

 

 
(21
)
 
213

Foreign currency

 
139

 

 
(109
)
 
30

Total liabilities at fair value
$
20

 
$
23,165

 
$

 
$
(130
)
 
$
23,055

(1)
Counterparty and 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 cash collateral placed with the same counterparty.
(2)
Treasury Bills and money market funds 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 11 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 7 for the classification of derivatives in the consolidated balance sheets.
(7)    See Note 7 for information on fair value measurements of long-term debt.

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 March 31, 2017 (less than $1 million at December 31, 2016).

The following table summarizes the changes in fair value measurements of interests held in trade receivable conduits using Level 3 inputs for the three-month periods ended March 31, 2017 and 2016:

Fair Value Measurements Using Level 3 Inputs
Three Months Ended
Interests Held in Trade Receivable Conduits (1)
In millions
Mar 31,
2017

 
Mar 31,
2016

Balance at beginning of period
$
1,237

 
$
943

Loss included in earnings (2)

 
(1
)
Purchases
540

 
440

Settlements
(114
)
 
(187
)
Balance at end of period
$
1,663

 
$
1,195

(1)
Included in “Accounts and notes receivable – Other” in the consolidated balance sheets.
(2)
Included in “Selling, general and administrative expenses” in the consolidated statements of income.



19


NOTE 9 – SUPPLEMENTARY INFORMATION
The Company uses "Sundry income (expense) – net" to record a variety of income and expense items such as foreign exchange gains and losses, dividends from investments, gains and losses on sales of investments and assets, and certain litigation matters. In the first quarter of 2017, "Sundry income (expense) - net" was net expense of $470 million, which included a $469 million loss related to the Bayer CropScience arbitration matter, reflected in the Agricultural Sciences segment. In the first quarter of 2016, "Sundry income (expense) - net" was net expense of $1,241 million, which included a $1,235 million loss related to the settlement of the urethane matters class action lawsuit and opt-out cases, reflected in the Performance Materials & Chemicals segment. See Note 10 for additional information on these matters.

The Company had “Other current assets” of $872 million at March 31, 2017 ($665 million at December 31, 2016). Restricted cash, which is a component of “Other current assets,” was $145 million at March 31, 2017 ($17 million at December 31, 2016). The restricted cash at March 31, 2017, is primarily related to the funding of an escrow account for the Rocky Flats Matter. The Company classified the restricted cash as "Other current assets" in the consolidated balance sheets as the funds are expected to be released from escrow within one year. See Note 10 for additional information.


NOTE 10 – COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. At March 31, 2017, the Company had accrued obligations of $931 million for probable environmental remediation and restoration costs, including $151 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. It is the opinion of the Company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Company’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2016, the Company had accrued obligations of $909 million for probable environmental remediation and restoration costs, including $151 million for the remediation of Superfund sites.

Environmental Matters Summary
It is the opinion of the Company's management that the possibility is remote that costs in excess of those disclosed will have a material impact on the Company's results of operations, financial condition or cash flows.

Litigation
Asbestos-Related Matters of Union Carbide Corporation
A summary of Asbestos-Related Matters of Union Carbide Corporation can be found in Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Introduction
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.

Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.


20


Estimating the Asbestos-Related Liability
Since 2003, Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review Union Carbide's historical asbestos-related claim and resolution activity in order to assist Union Carbide's management in estimating the asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study. Historically, every other year beginning in October, Ankura has completed a full review and formal update to the most recent Ankura study.

Based on the December 2016 Ankura study and Union Carbide's own review of the data, and taking into account the change in accounting policy that occurred in the fourth quarter of 2016, Union Carbide's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was $1,490 million at December 31, 2016, and included in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

Each quarter, Union Carbide reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. Union Carbide also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of Union Carbide and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. Union Carbide's management considers all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on Union Carbide's review of 2017 activity, it was determined that no adjustment to the accrual was required at March 31, 2017.

Union Carbide’s asbestos-related liability for pending and future claims and defense and processing costs was $1,460 million at March 31, 2017. Approximately 14 percent of the recorded liability for pending and future claims related to pending claims and approximately 86 percent related to future claims.

Summary
The Company's management believes the amounts recorded by Union Carbide for the asbestos-related liability (including defense and processing costs) reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs for Union Carbide to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Urethane Matters
A full description of the Urethane Matters can be found in Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Class Action Lawsuit
On February 26, 2016, the Company announced a proposed settlement of $835 million for the Urethane Matters Class Action Lawsuit, which included damages, class attorney fees and post-judgment interest. As a result, in the first quarter of 2016, the Company recorded a loss of $835 million, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment.

Opt-Out Cases
On April 5, 2016, the Company entered into a binding settlement for the Opt-Out Cases under which the Company would pay the named plaintiffs $400 million, inclusive of damages and attorney fees. As a result, the Company recorded a loss of $400 million in the first quarter of 2016, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment.

Bayer CropScience v. Dow AgroSciences ICC Arbitration
On August 13, 2012, Bayer CropScience AG and Bayer CropScience NV (together, “Bayer”) filed a request for arbitration with the International Chamber of Commerce ("ICC") International Court of Arbitration against Dow AgroSciences LLC, a wholly owned subsidiary of the Company, and other subsidiaries of the Company (collectively, “DAS”) under a 1992 license agreement executed by predecessors of the parties (the “License Agreement”). In its request for arbitration, Bayer alleged that (i) DAS breached the License Agreement, (ii) the License Agreement was properly terminated with no ongoing rights to DAS, (iii) DAS has infringed and continues to infringe its patent rights related to the use of the pat gene in certain soybean and cotton seed products, and (iv) Bayer is entitled to monetary damages and injunctive relief. DAS denied that it breached the License Agreement and asserted that the License Agreement remained in effect because it was not properly terminated. DAS also asserted that all of Bayer’s patents at issue are invalid and/or not infringed, and, therefore, for these reasons (and others), a

21


license was not required. During the pendency of the arbitration proceeding, DAS filed six re-examination petitions with the United States Patent & Trademark Office (“USPTO”) against the Bayer patents, asserting that each patent is invalid based on the doctrine against double-patenting and/or prior art. The USPTO granted all six petitions, and, on February 26, 2015, the USPTO issued an office action rejecting the patentability of the sole Bayer patent claim in the only asserted Bayer patent that has not expired and that forms the basis for the vast majority of the damages in the arbitral award discussed below.

A three-member arbitration tribunal presided over the arbitration proceeding (the “tribunal”). In a decision dated October 9, 2015, the tribunal determined that (i) DAS breached the License Agreement, (ii) Bayer properly terminated the License Agreement, (iii) all of the patents remaining in the proceeding are valid and infringed, and (iv) that Bayer is entitled to monetary damages in the amount of $455 million inclusive of pre-judgment interest and costs (the “arbitral award”). One of the arbitrators, however, issued a partial dissent finding that all of the patents are invalid based on the double-patenting doctrine. The tribunal also denied Bayer’s request for injunctive relief. The arbitration award is not self-executing, and must be confirmed by a court for it to be enforceable and to have the legal effect of a judgment.

On October 16, 2015, Bayer filed a motion in U.S. District Court for the Eastern District of Virginia ("Federal District Court") seeking to confirm the arbitral award. DAS opposed the motion and filed separate motions to vacate the award, or in the alternative, to stay enforcement of the award until the USPTO issues final office actions with respect to the re-examination proceedings. On January 15, 2016, the Federal District Court denied DAS's motions and confirmed the award. DAS appealed the Federal District Court's decision and posted a bond to stay enforcement of the award during the appeal. On March 1, 2017, the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") affirmed the arbitral award. As a result of this action, in the first quarter of 2017, the Company recorded a loss of $469 million, inclusive of the arbitral award and post-judgment interest, which is included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Agricultural Sciences segment and "Accrued and other current liabilities" in the consolidated balance sheets.

The Company continues to believe the arbitral award is fundamentally flawed in numerous respects because it (i) violates U.S. public policy prohibiting enforcement of invalid patents, (ii) manifestly disregards applicable law, and (iii) disregards unambiguous contract provisions and ignores the essence of the applicable contracts. The USPTO has now issued final office actions rejecting the patentability of all four patents that Bayer asserted in the case. The Company disagrees with the Federal Circuit opinion and is continuing to pursue its appellate rights, including by filing a combined petition for Rehearing or Rehearing En Banc (collectively, the "Rehearing Petition") with the Federal Circuit. If the Federal Circuit denies the Company's Rehearing Petition, the Company can seek judicial review by the U.S. Supreme Court.

The arbitral award will not impact DAS’s commercialization of its soybean and cotton seed products, including those containing the ENLIST™ technologies.

Rocky Flats Matter
A summary of the Rocky Flats Matter can be found in Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

The Company and Rockwell International Corporation ("Rockwell") (collectively, the "defendants") were defendants in a class action lawsuit filed in 1990 on behalf of property owners ("plaintiffs") in Rocky Flats, Colorado, who asserted claims for nuisance and trespass based on alleged property damage caused by plutonium releases from a nuclear weapons facility owned by the U.S. Department of Energy ("DOE") (the "facility") but operated by Dow and Rockwell. The plaintiffs tried their case as a public liability action under the Price Anderson Act ("PAA"). Dow and Rockwell litigated this matter in the United States District Court for the District of Colorado ("District Court"), the U.S. Tenth Circuit Court of Appeals and then filed a petition for writ of certiorari in the United States Supreme Court. On May 18, 2016, Dow, Rockwell and the plaintiffs entered into a settlement agreement for $375 million, of which $131 million will be paid by Dow. The DOE authorized the settlement pursuant to the PAA and the nuclear hazards indemnity provisions contained in Dow's and Rockwell's contracts. The District Court granted preliminary approval to the class settlement on August 5, 2016. At March 31, 2017, the Company had a liability of $130 million related to this matter, having already paid $1 million towards class notice costs, included in "Accrued and other current liabilities" in the consolidated balance sheets ($130 million at December 31, 2016). A fairness hearing on the class settlement is scheduled for April 28, 2017.

On December 13, 2016, the United States Civil Board of Contract Appeals unanimously ordered the United States government to pay the amounts stipulated in the settlement agreement. On January 17, 2017, the Company received a full indemnity payment of $131 million from the United States government for Dow's share of the class settlement. On January 26, 2017, the Company funded an escrow account for the settlement payment owed to the plaintiffs, which will remain in escrow until the settlement is approved and finalized by the District Court. At March 31, 2017, $130 million remained in escrow and is included

22


in "Other current assets" in the consolidated balance sheets ($131 million at December 31, 2016 and included in "Accounts and notes receivable - Other" in the consolidated balance sheets).

Dow Corning Chapter 11 Related Matters
A summary of the Dow Corning Chapter 11 Related Matters can be found in Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Introduction
In 1995, Dow Corning, then a 50:50 joint venture between Dow and Corning voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve Dow Corning’s breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Corning emerged from the Chapter 11 Proceeding on June 1, 2004 (the “Effective Date”) and is implementing the Joint Plan of Reorganization (the “Plan”). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. As of June 1, 2016, Dow Corning is a wholly owned subsidiary of Dow.

Breast Implant and Other Product Liability Claims
Under the Plan, a product liability settlement program administered by an independent claims office (the “Settlement Facility”) was created to resolve breast implant and other product liability claims. Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Under the Plan, total payments committed by Dow Corning to resolving product liability claims are capped at a maximum $2,350 million net present value (“NPV”) determined as of the Effective Date using a discount rate of seven percent (approximately $3,660 million undiscounted at March 31, 2017). Of this amount, no more than $400 million NPV determined as of the Effective Date can be used to fund the Litigation Facility.

Dow Corning has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. As of March 31, 2017, Dow Corning and its insurers have made life-to-date payments of $1,762 million to the Settlement Facility and the Settlement Facility reported an unexpended balance of $145 million.

Dow Corning's liability for breast implant and other product liability claims ("Implant Liability") was $263 million at March 31, 2017 ($263 million at December 31, 2016), which is included in "Other noncurrent obligations" in the consolidated balance sheets. Dow Corning is not aware of circumstances that would change the factors used in estimating the Implant Liability and believes the recorded liability reflects the best estimate of the remaining funding obligations under the Plan; however, the estimate relies upon a number of significant assumptions, including: future claim filing levels in the Settlement Facility will be similar to those in the revised settlement program, which management uses to estimate future claim filing levels for the Settlement Facility; future acceptance rates, disease mix, and payment values will be materially consistent with historical experience; no material negative outcomes in future controversies or disputes over Plan interpretation will occur; and the Plan will not be modified. If actual outcomes related to any of these assumptions prove to be materially different, the future liability to fund the Plan may be materially different than the amount estimated. If Dow Corning was ultimately required to fund the full liability up to the maximum capped value, the liability would be $1,894 million at March 31, 2017.

Commercial Creditor Issues
The Plan provides that each of Dow Corning’s commercial creditors (the “Commercial Creditors”) would receive in cash the sum of (a) an amount equal to the principal amount of their claims and (b) interest on such claims.     The actual amount of interest that will ultimately be paid to these Commercial Creditors is uncertain due to pending litigation between Dow Corning and the Commercial Creditors regarding the appropriate interest rates to be applied to outstanding obligations from the 1995 bankruptcy filing date through the Effective Date, as well as the presence of any recoverable fees, costs and expenses.

In 2006, the U.S. Court of Appeals for the Sixth Circuit concluded that there is a general presumption that contractually specified default interest should be paid by a solvent debtor to unsecured creditors (the “Interest Rate Presumption”) and permitting Dow Corning’s Commercial Creditors to recover fees, costs, and expenses where allowed by relevant loan agreements and state law. The matter was remanded to the U.S. District Court for the Eastern District of Michigan ("District Court") for further proceedings, including rulings on the facts surrounding specific claims and consideration of any equitable factors that would preclude the application of the Interest Rate Presumption.

Upon the Plan becoming effective, Dow Corning paid approximately $1,500 million to the Commercial Creditors, representing principal and an amount of interest that Dow Corning considers undisputed. At March 31, 2017, Dow Corning has estimated its remaining liability to the Commercial Creditors to be within a range of $109 million to $361 million. However, no single amount within the range appears to be a better estimate than any other amount within the range. Therefore, Dow Corning recorded the minimum liability within the range. At March 31, 2017, the liability related to Dow Corning’s potential obligation

23


to pay additional interest to its Commercial Creditors in the Chapter 11 Proceeding was $109 million and included in "Accrued and other current liabilities" in the consolidated balance sheets ($108 million at December 31, 2016). The actual amount of interest that will be paid to these creditors is uncertain and will ultimately be resolved through continued proceedings in the District Court.

Indemnifications
In connection with the June 1, 2016 ownership restructure of Dow Corning, the Company is indemnified by Corning for 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability and Commercial Creditors matters described above, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnified losses are capped at (1) $1.5 billion until May 31, 2018, (2) $1 billion between May 31, 2018 and May 31, 2023, and (3) no recoveries are permitted after May 31, 2023. No indemnification assets were recorded at March 31, 2017 or December 31, 2016.

Summary
The amounts recorded by Dow Corning for the Chapter 11 related matters described above were based on current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Corning to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Other Litigation Matters
In addition to the specific matters described above, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. Dow has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.

Purchase Commitments
A summary of the Company's purchase commitments can be found in Note 15 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the purchase commitments since December 31, 2016.
 
Guarantees
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for each type of guarantee:

Guarantees
At March 31, 2017
 
At December 31, 2016
In millions
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

 
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

Guarantees
2021
 
$
5,102

 
$
57

 
2021
 
$
5,096

 
$
86

Residual value guarantees
2027
 
951

 
132

 
2027
 
947

 
134

Total guarantees
 
 
$
6,053

 
$
189

 
 
 
$
6,043

 
$
220


Guarantees
Guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to four years, and trade financing transactions in Latin America, which typically expire within one year of inception. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered unlikely.

The Company has entered into guarantee agreements (“Guarantees”) related to project financing for Sadara Chemical Company ("Sadara"), a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately $12.5 billion. Sadara had $12.4 billion of Total Project Financing outstanding at March 31, 2017 ($12.4 billion at December 31, 2016). The Company's guarantee of the Total Project Financing is in

24


proportion to the Company's 35 percent ownership interest in Sadara, or up to approximately $4.4 billion when the project financing is fully drawn. The Guarantees will be released upon completion of construction of the Sadara complex and satisfactory fulfillment of certain other conditions, including passage of an extensive operational testing program, which is currently anticipated by the end of the first quarter of 2018 and must occur no later than December 2020.

Residual Value Guarantees
The Company provides guarantees related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties.

Asset Retirement Obligations
The Company has recognized asset retirement obligations for the following activities: demolition and remediation activities at manufacturing and administrative sites primarily in the United States, Canada, Argentina, Chile, Colombia and Europe; and capping activities at landfill sites in the United States, Canada, Brazil and Italy. The Company has also recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites primarily in the United States, Canada, Argentina, Chile, Colombia and Europe.

The aggregate carrying amount of asset retirement obligations recognized by the Company was $110 million at March 31, 2017 ($110 million at December 31, 2016). These obligations are included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."

The Company has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. It is the opinion of the Company’s management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material impact on the Company’s consolidated financial statements based on current costs.


NOTE 11 – TRANSFERS OF FINANCIAL ASSETS
The Company sells trade accounts receivable of select North American entities and qualifying trade accounts receivable of select European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). 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.

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
Mar 31,
2017

 
Dec 31,
2016

In millions
 
Carrying value of interests held
$
1,663

 
$
1,237

Percentage of anticipated credit losses
0.34
%
 
0.36
%
Impact to carrying value - 10% adverse change
$
1

 
$
1

Impact to carrying value - 20% adverse change
$
2

 
$
1


Credit losses, net of any recoveries, on receivables sold were insignificant during the three-month periods ended March 31, 2017 and 2016.


25


Following is an analysis of certain cash flows between the Company and the conduits:
 
Cash Proceeds
Three Months Ended
In millions
Mar 31,
2017

 
Mar 31,
2016

Collections reinvested in revolving receivables
$
5,681

 
$
4,548

Interests in conduits (1)
$
114

 
$
187

(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
Mar 31,
2017

 
Dec 31,
2016

In millions
 
Delinquencies on sold receivables still outstanding
$
55

 
$
86

Trade accounts receivable outstanding and derecognized
$
2,607

 
$
2,257



NOTE 12 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
Notes Payable
In millions
Mar 31,
2017

 
Dec 31,
2016

Commercial paper
$
135

 
$

Notes payable to banks and other lenders
224

 
225

Notes payable to related companies
19

 
44

Notes payable trade
5

 
3

Total notes payable
$
383

 
$
272

Period-end average interest rates
4.63
%
 
4.60
%

Long-Term Debt

In millions
2017
Average
Rate

 
Mar 31,
2017

 
2016
Average
Rate

 
Dec 31,
2016

Promissory notes and debentures:
 
 
 
 
 
 
 
Final maturity 2017
6.06
%
 
$
442

 
6.06
%
 
$
442

Final maturity 2018
5.78
%
 
339

 
5.78
%
 
339

Final maturity 2019
8.55
%
 
2,122

 
8.55
%
 
2,122

Final maturity 2020
4.46
%
 
1,547

 
4.46
%
 
1,547

Final maturity 2021
4.72
%
 
1,424

 
4.72
%
 
1,424

Final maturity 2022
3.00
%
 
1,250

 
3.00
%
 
1,250

Final maturity 2023 and thereafter
5.98
%
 
7,199

 
5.98
%
 
7,199

Other facilities:

 

 

 

U.S. dollar loans, various rates and maturities
1.62
%
 
4,595

 
1.60
%
 
4,595

Foreign currency loans, various rates and maturities
3.22
%
 
900

 
3.42
%
 
882

Medium-term notes, varying maturities through 2025
3.86
%
 
997

 
3.82
%
 
1,026

Tax-exempt bonds, varying maturities through 2038
5.66
%
 
343

 
5.66
%
 
343

Capital lease obligations

 
293

 

 
295

Unamortized debt discount and issuance costs

 
(364
)
 

 
(373
)
Long-term debt due within one year (1)

 
(616
)
 

 
(635
)
Long-term debt

 
$
20,471

 

 
$
20,456

(1)
Presented net of current portion of unamortized debt issuance costs.


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Annual Installments on Long-Term Debt
For Next Five Years at March 31, 2017 (1)
In millions
2017
$
593

2018
$
5,248

2019
$
2,427

2020
$
1,826

2021
$
1,569

2022
$
1,496

(1)
Assumes the option to extend a term loan facility
related to the ownership restructure of Dow Corning
will be exercised.

2016 Activity
In the first quarter of 2016, the Company redeemed $349 million of 2.5 percent notes that matured on February 15, 2016.

Available Credit Facilities
The following table summarizes the Company's credit facilities:

Committed and Available Credit Facilities at March 31, 2017
In millions
 
Effective Date
 
Committed Credit

 
Credit Available

 
Maturity Date
 
Interest
Five Year Competitive Advance and Revolving Credit Facility

March 2015

$
5,000


$
5,000


March 2020

Floating rate
Bilateral Revolving Credit Facility

August 2015

100


100


March 2018

Floating rate
Bilateral Revolving Credit Facility

August 2015

100


100


March 2020

Floating rate
Bilateral Revolving Credit Facility

August 2015

280


280


March 2020

Floating rate
Bilateral Revolving Credit Facility

August 2015

100


100


March 2020

Floating rate
Bilateral Revolving Credit Facility

August 2015

100


100


March 2020

Floating rate
Bilateral Revolving Credit Facility

August 2015

200


200


March 2020

Floating rate
Bilateral Revolving Credit Facility

May 2016

200


200


May 2018

Floating rate
Bilateral Revolving Credit Facility

July 2016

200


200


July 2018