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FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2017
Investments, All Other Investments [Abstract]  
Financial Instruments Disclosure [Text Block]
FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at December 31, 2017 and 2016:

Fair Value of Financial Instruments at Dec 31
2017
2016
Cost
Gain
Loss
Fair
Value
Cost
Gain
Loss
Fair
Value
In millions
Marketable securities 1
$
4

$
—

$
—

$
4

$
—

$
—

$
—

$
—

Other investments:
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
Government debt 2
$
637

$
13

$
(11
)
$
639

$
607

$
13

$
(12
)
$
608

Corporate bonds
704

32

(3
)
733

623

27

(5
)
645

Total debt securities
$
1,341

$
45

$
(14
)
$
1,372

$
1,230

$
40

$
(17
)
$
1,253

Equity securities
164

2

(26
)
140

658

98

(50
)
706

Total marketable securities and other investments
$
1,509

$
47

$
(40
)
$
1,516

$
1,888

$
138

$
(67
)
$
1,959

Long-term debt including debt due within one year 3
$
(20,517
)
$
6

$
(2,104
)
$
(22,615
)
$
(21,091
)
$
129

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

$
—

$
(4
)
$
(4
)
$
—

$
—

$
(5
)
$
(5
)
Commodities 4
$
—

$
130

$
(256
)
$
(126
)
$
—

$
56

$
(213
)
$
(157
)
Foreign currency
$
—

$
22

$
(112
)
$
(90
)
$
—

$
84

$
(30
)
$
54


1.
Debt securities with maturities of less than one year at the time of acquisition.
2.
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
3.
Cost includes fair value adjustments of $19 million at December 31, 2017 and $18 million at December 31, 2016.
4.
Presented net of cash collateral.

Cost approximates fair value for all other financial instruments.

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 years ended December 31, 2017, 2016 and 2015.

Investing Results
 
 
 
In millions
2017
2016
2015
Proceeds from sales of available-for-sale securities
$
1,078

$
535

$
565

Gross realized gains
$
120

$
58

$
96

Gross realized losses
$
(10
)
$
(2
)
$
(14
)

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

Contractual Maturities of Debt Securities at Dec 31, 2017 1
Amortized Cost
Fair Value
In millions
Within one year
$
7

$
7

One to five years
370

378

Six to ten years
680

682

After ten years
284

305

Total
$
1,341

$
1,372

1. Includes marketable securities with maturities of less than one year.
 
At December 31, 2017, the Company had $1,771 million ($3,934 million at December 31, 2016) of held-to-maturity securities (primarily treasury bills and time deposits) 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 December 31, 2017, the Company had investments in money market funds of $509 million classified as cash equivalents ($239 million at December 31, 2016).

The following tables provide the fair value and gross unrealized losses of the Company’s investments that were deemed to be temporarily impaired at December 31, 2017 and 2016, aggregated by investment category:

Temporarily Impaired Securities at
Dec 31, 2017
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair Value
Unrealized Losses
In millions
Government debt 1
$
295

$
(4
)
$
151

$
(7
)
$
446

$
(11
)
Corporate bonds
163

(2
)
19

(1
)
182

(3
)
Equity securities
7

(2
)
63

(24
)
70

(26
)
Total temporarily impaired securities
$
465

$
(8
)
$
233

$
(32
)
$
698

$
(40
)

1.
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations.

Temporarily Impaired Securities at
Dec 31, 2016
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair Value
Unrealized Losses
In millions
Government debt 1
$
351

$
(12
)
$
—

$
—

$
351

$
(12
)
Corporate bonds
193

(4
)
16

(1
)
209

(5
)
Equity securities
48

(6
)
163

(44
)
211

(50
)
Total temporarily impaired securities
$
592

$
(22
)
$
179

$
(45
)
$
771

$
(67
)
1.
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations.

The aggregate cost of the Company's cost method investments totaled $121 million at December 31, 2017 ($120 million at December 31, 2016). Due to the nature of these investments, either the cost basis approximates fair value or fair value is not readily determinable. These investments are reviewed quarterly for impairment indicators. In 2016, a write-down of $4 million was recorded as part of the 2016 restructuring charge. See Note 6 for additional information on the Company's restructuring activities. The Company's impairment analysis resulted in no reduction in the cost basis of these investments for the year ended December 31, 2017 (no reduction, other than the restructuring charge, for the year ended December 31, 2016).

Portfolio managers regularly review the Company’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred.

For debt securities, the credit rating of the issuer, current credit rating trends, the trends of the issuer’s overall sector, the ability of the issuer to pay expected cash flows and the length of time the security has been in a loss position are considered in determining whether unrealized losses represent an other-than-temporary impairment. The Company did not have any credit-related losses in 2017, 2016 or 2015.

For equity securities, the Company’s investments are primarily in Standard & Poor’s (“S&P”) 500 companies; however, the Company’s policies allow investments in companies outside of the S&P 500. The largest holdings are Exchange Traded Funds that represent the S&P 500 index or an S&P 500 sector or subset; the Company also has holdings in Exchange Traded Funds that represent emerging markets. The Company considers the evidence to support the recovery of the cost basis of a security including volatility of the stock, the length of time the security has been in a loss position, value and growth expectations, and overall market and sector fundamentals, as well as technical analysis, in determining whether unrealized losses represent an other-than-temporary impairment. In 2017 and 2016, there were no other-than-temporary impairment write-downs on investments still held by the Company.

Repurchase and Reverse Repurchase Agreement Transactions
The Company enters into repurchase and reverse repurchase agreements. These transactions are accounted for as collateralized borrowings and lending transactions bearing a specified rate of interest and are short-term in nature with original maturities of 30 days or less. The underlying collateral is typically treasury bills with longer maturities than the repurchase agreement. The impact of these transactions is not material to the Company’s results. There were no repurchase or reverse repurchase agreements outstanding at December 31, 2017 and 2016.

Risk Management
Dow’s business operations give rise to market risk exposure due to changes in interest rates, foreign currency exchange rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies, which enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as cash flow, fair value or net foreign investment hedges where appropriate. Accounting guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value. A secondary objective is to add value by creating additional nonspecific exposures within established limits and policies; derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional exposures is not material to the Company’s results.

The Company’s risk management program for interest rate, foreign currency and commodity risks is based on fundamental, mathematical and technical models that take into account the implicit cost of hedging. Risks created by derivative instruments and the mark-to-market valuations of positions are strictly monitored at all times, using value-at-risk and stress tests. Counterparty credit risk arising from these contracts is not significant because the Company minimizes counterparty concentration, deals primarily with major financial institutions of solid credit quality, and the majority of its hedging transactions mature in less than three months. In addition, the Company minimizes concentrations of credit risk through its global orientation by transacting with large, internationally diversified financial counterparties. It is the Company’s policy to not have credit risk-related contingent features in its derivative instruments. No significant concentration of counterparty credit risk existed at December 31, 2017. The Company does not anticipate losses from credit risk, and the net cash requirements arising from counterparty risk associated with risk management activities are not expected to be material in 2018.

The Company revises its strategies as market conditions dictate and management reviews its overall financial strategies and the impacts from using derivatives in its risk management program with the Company’s senior leadership who also reviews these strategies with the DowDuPont Board of Directors and/or relevant committees thereof.

The notional amounts of the Company's derivative instruments at December 31, 2017 and 2016, were as follows:

Notional Amounts

Dec 31, 2017
Dec 31, 2016
In millions
Derivatives designated as hedging instruments:
 
 
Interest rate swaps
$
185

$
245

Foreign currency contracts
$
8,414

$
4,053

Derivatives not designated as hedging instruments:
 
 
Foreign currency contracts
$
14,231

$
12,388


The notional amounts of the Company's commodity derivatives at December 31, 2017 and 2016, were as follows:

Commodity Gross Aggregate Notionals
Dec 31, 2017
Dec 31, 2016
Notional Volume Unit
 
Derivatives designated as hedging instruments:
 
 
 
Corn
2.8

0.4

million bushels
Crude Oil
4.2

0.6

million barrels
Ethane
10.4

3.6

million barrels
Natural Gas
363.3

78.6

million British thermal units
Propane
8.9

1.5

million barrels
Soybeans
1.1

—

million bushels
Derivatives not designated as hedging instruments:
 
 
 
Ethane
1.9

2.6

million barrels
Gasoline
0
30
kilotons
Naptha Price Spread
60
50
kilotons
Normal Butane
0.2

—

million barrels
Propane
1.8

2.7

million barrels


Interest Rate Risk Management
The Company enters into various interest rate contracts with the objective of lowering funding costs or altering interest rate exposures related to fixed and variable rate obligations. In these contracts, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount. At December 31, 2017, the Company had open interest rate swaps with maturity dates that extend to 2021.

Foreign Currency Risk Management
The Company’s global operations require active participation in foreign exchange markets. The Company enters into foreign currency contracts to hedge various currency exposures or create desired exposures. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities. The primary business objective of the activity is to optimize the U.S. dollar value of the Company’s assets, liabilities and future cash flows with respect to exchange rate fluctuations. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. At December 31, 2017, the Company had foreign currency contracts with various expiration dates, through the fourth quarter of 2019.

Commodity Risk Management
The Company has exposure to the prices of commodities in its procurement of certain raw materials. The primary purpose of commodity hedging activities is to manage the price volatility associated with these forecasted inventory purchases. At December 31, 2017, the Company had futures contracts, options and swaps to buy, sell or exchange commodities. These agreements had various expiration dates through the fourth quarter of 2022.

Derivatives Not Designated in Hedging Relationships
Foreign Currency Contracts
The Company also uses foreign exchange forward contracts, options and cross-currency swaps that are not designated as hedging instruments primarily to manage foreign currency exposure.

Commodity Contracts
The Company utilizes futures, options and swap instruments that are effective as economic hedges of commodity price exposures, but do not meet hedge accounting criteria for derivatives and hedging, to reduce exposure to commodity price fluctuations on purchases of raw materials and inventory.

Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
For derivatives that are designated and qualify as cash flow hedging instruments, the effective portion of the gain or loss on the derivative is recorded in AOCL; it is reclassified to income in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCL fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCL and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period income.

The Company had open interest rate derivatives designated as cash flow hedges at December 31, 2017, with a net loss of $3 million after tax (net loss of $4 million after tax at December 31, 2016).

The Company had open foreign currency contracts designated as cash flow hedges of the currency risk associated with forecasted feedstock transactions not extending beyond 2019. The effective portion of the mark-to-market effects of the foreign currency 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 loss from the foreign currency hedges included in AOCL at December 31, 2017 was $19 million after tax (net gain of $22 million after tax at December 31, 2016). In 2017, 2016 and 2015, there was no material impact on the consolidated financial statements due to foreign currency hedge ineffectiveness.

Commodity swaps, futures and option contracts with maturities of not more than 60 months are utilized and designated as cash flow hedges of forecasted commodity purchases. Current open contracts hedge forecasted transactions until December 2022. 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, 2017 was $73 million after tax ($99 million after tax loss at December 31, 2016). In 2017, 2016 and 2015, there was no material impact on the consolidated financial statements due to commodity hedge ineffectiveness.
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. In 2017, the Company entered into and subsequently terminated interest rate swaps designated as fair value hedges of underlying fixed rate debt obligations with maturity dates extending through 2024. The fair value adjustment resulting from these swaps was a loss on the derivative of $2 million. At December 31, 2017 and 2016, 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. The Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $177 million at December 31, 2017 ($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 $76 million after tax for the year ended December 31, 2017 (net gain of $1 million after tax for the year ended December 31, 2016). In 2017, 2016 and 2015 there was no material impact on the consolidated financial statements due to hedge ineffectiveness.

The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $17 million loss for commodity contracts, a $19 million loss for foreign currency contracts and a $2 million loss for interest rate contracts.

The following tables provide the fair value and gross balance sheet classification of derivative instruments at December 31, 2017 and 2016:

Fair Value of Derivative Instruments

Dec 31, 2017
In millions
Balance Sheet Classification
Gross
Counterparty and Cash Collateral Netting 1
Net Amounts Included in the Consolidated Balance Sheets
Asset derivatives:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Other current assets
$
51

$
(46
)
$
5

Commodity contracts
Other current assets
20

(4
)
16

Commodity contracts
Deferred charges and other assets
70

(5
)
65

Total
 
$
141

$
(55
)
$
86

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Other current assets
$
75

$
(58
)
$
17

Commodity contracts
Other current assets
50

(5
)
45

Commodity contracts
Deferred charges and other assets
7

(3
)
4

Total
 
$
132

$
(66
)
$
66

Total asset derivatives
 
$
273

$
(121
)
$
152

 
 
 
 
 
Liability derivatives:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
Other noncurrent obligations
$
4

$
—

$
4

Foreign currency contracts
Accrued and other current liabilities
109

(46
)
63

Commodity contracts
Accrued and other current liabilities
96

(15
)
81

Commodity contracts
Other noncurrent obligations
143

(12
)
131

Total
 
$
352

$
(73
)
$
279

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Accrued and other current liabilities
$
107

$
(58
)
$
49

Commodity contracts
Accrued and other current liabilities
45

(6
)
39

Commodity contracts
Other noncurrent obligations
8

(3
)
5

Total
 
$
160

$
(67
)
$
93

Total liability derivatives
 
$
512

$
(140
)
$
372


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 Dow and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

Fair Value of Derivative Instruments

Dec 31, 2016
In millions
Balance Sheet Classification 1
Gross
Counterparty and Cash Collateral Netting 2
Net Amounts Included in the Consolidated Balance Sheets
Asset derivatives:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Other current assets
$
90

$
(47
)
$
43

Commodity contracts
Other current assets
42

(14
)
28

Commodity contracts
Deferred charges and other assets
10

(3
)
7

Total
 
$
142

$
(64
)
$
78

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Other current assets
$
103

$
(62
)
$
41

Commodity contracts
Other current assets
13

(2
)
11

Commodity contracts
Deferred charges and other assets
12

(2
)
10

Total
 
$
128

$
(66
)
$
62

Total asset derivatives
 
$
270

$
(130
)
$
140

 
 
 
 
 
Liability derivatives:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
Accrued and other current liabilities
$
3

$
—

$
3

Interest rate swaps
Other noncurrent obligations
2

—

2

Foreign currency contracts
Accrued and other current liabilities
55

(47
)
8

Commodity contracts
Accrued and other current liabilities
32

(14
)
18

Commodity contracts
Other noncurrent obligations
196

(3
)
193

Total
 
$
288

$
(64
)
$
224

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Accrued and other current liabilities
$
84

$
(62
)
$
22

Commodity contracts
Accrued and other current liabilities
4

(2
)
2

Commodity contracts
Other noncurrent obligations
2

(2
)
—

Total
 
$
90

$
(66
)
$
24

Total liability derivatives
 
$
378

$
(130
)
$
248


1. Updated to conform with the current year presentation.
2.
Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between Dow and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

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 $21 million at December 31, 2017 (less than $1 million of cash collateral at December 31, 2016).


Effect of Derivative Instruments
Amount of gain (loss) recognized in OCI 1 (Effective portion)
Amount of gain (loss) recognized in income 2, 3
 
In millions
2017
2016
2015
2017
2016
2015
Income Statement Classification
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
Interest rate swaps
$
—

$
—

$
—

$
(2
)
$
—

$
—

Interest expense and amortization of debt discount
Cash flow hedges:
 
 
 
 
 
 
 
Interest rate swaps
2

2

2

4

6

9

Interest expense and amortization of debt discount
Foreign currency contracts
(30
)
8

123

7

(5
)
68

Cost of sales
Foreign currency contracts
(5
)
25

—

(17
)
(13
)
—

Sundry income (expense) - net
Commodity contracts
35

55

(247
)
7

(28
)
(91
)
Cost of sales
Net investment hedges:
 
 
 
 
 
 
 
Foreign currency contracts
(73
)
5

—

—

—

—

 
Total derivatives designated as hedging instruments
$
(71
)
$
95

$
(122
)
$
(1
)
$
(40
)
$
(14
)
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency contracts
$
—

$
—

$
—

$
(289
)
$
(180
)
$
(318
)
Sundry income (expense) - net
Commodity contracts
—

—

—

(9
)
6

4

Cost of sales
Total derivatives not designated as hedging instruments
$
—

$
—

$
—

$
(298
)
$
(174
)
$
(314
)
 
Total derivatives
$
(71
)
$
95

$
(122
)
$
(299
)
$
(214
)
$
(328
)
 
1.
OCI is defined as other comprehensive income (loss).
2. For cash flow hedges, this represents the effective portion of the gain (loss) reclassified from AOCL into income during the period. For the years ended December 31, 2017, 2016 and 2015, there was no material ineffectiveness with regard to the Company's cash flow hedges.
3. Pretax amounts.