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FINANCIAL INSTRUMENTS
 3 Months Ended
Mar. 31, 2018
Investments, All Other Investments [Abstract]  
Financial Instruments Disclosure [Text Block]
FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at March 31, 2018 and December 31, 2017:

Fair Value of Financial Instruments
Mar 31, 2018
Dec 31, 2017
In millions
Cost
Gain
Loss
Fair Value
Cost
Gain
Loss
Fair Value
Cash equivalents 1
$
1,421

$
1

$
—

$
1,422

$
2,280

$
—

$
—

$
2,280

Marketable securities
$
11

$
—

$
—

$
11

$
4

$
—

$
—

$
4

Other investments:
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
Government debt 2
$
551

$
8

$
(17
)
$
542

$
637

$
13

$
(11
)
$
639

Corporate bonds
986

26

(19
)
993

704

32

(3
)
733

Total debt securities
$
1,537

$
34

$
(36
)
$
1,535

$
1,341

$
45

$
(14
)
$
1,372

Equity securities 3
$
148

$
20

$
(17
)
$
151

$
164

$
2

$
(26
)
$
140

Total other investments
$
1,685

$
54

$
(53
)
$
1,686

$
1,505

$
47

$
(40
)
$
1,512

Total cash equivalents, marketable securities and other investments
$
3,117

$
55

$
(53
)
$
3,119

$
3,789

$
47

$
(40
)
$
3,796

Long-term debt including debt due within one year 4
$
(20,516
)
$
32

$
(1,607
)
$
(22,091
)
$
(20,517
)
$
6

$
(2,104
)
$
(22,615
)
Derivatives relating to:
 
 
 
 
 
 
 
 
Interest rates
$
—

$
—

$
(3
)
$
(3
)
$
—

$
—

$
(4
)
$
(4
)
Commodities 5
—

97

(246
)
(149
)
—

130

(256
)
(126
)
Foreign currency
—

21

(71
)
(50
)
—

22

(112
)
(90
)
Total derivatives
$
—

$
118

$
(320
)
$
(202
)
$
—

$
152

$
(372
)
$
(220
)

1.
Updated to conform with the current year presentation.
2.
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
3.
Equity securities with a readily determinable fair value. Presented in accordance with ASU 2016-01. See Notes 1 and 2 for additional information.
4.
Cost includes fair value hedge adjustments of $18 million at March 31, 2018 and $19 million at December 31, 2017.
5.
Presented net of cash collateral.

Cash Equivalents
At March 31, 2018, the Company had $748 million ($1,771 million at December 31, 2017) 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 March 31, 2018, the Company had investments in money market funds of $671 million classified as cash equivalents ($509 million at December 31, 2017). At March 31, 2018, the Company had investments with maturities of less than three months at the time of purchase of $2 million (zero at December 31, 2017).

Marketable Securities
At March 31, 2018, the Company had $11 million ($4 million at December 31, 2017) of debt securities with maturities of less than one year at the time of purchase.

Debt Securities
The Company's investments in debt securities are primarily classified as available-for-sale. The following table summarizes the contractual maturities of the Company’s investments in debt securities:

Contractual Maturities of Debt Securities at Mar 31, 2018
Amortized Cost
Fair Value
In millions
Within one year
$
22

$
24

One to five years
421

423

Six to ten years
776

763

After ten years
318

325

Total
$
1,537

$
1,535



The following table provides the investing results from available-for-sale securities for the three months ended March 31, 2018 and 2017:

Investing Results 1
Three Months Ended
In millions
Mar 31,
2018
Mar 31,
2017
Proceeds from sales of available-for-sale securities
$
348

$
69

Gross realized gains
$
7

$
1

Gross realized losses
$
(9
)
$
—


1.
Prior year amounts were updated to conform with the current year presentation as a result of the adoption of ASU 2016-01.

Equity Securities
The Company’s investments in equity securities with a readily determinable fair value totaled $151 million at March 31, 2018 ($140 million at December 31, 2017). The net unrealized gain recognized in earnings on equity securities totaled $9 million for the three months ended March 31, 2018. The aggregate carrying value of the Company’s investments in equity securities where fair value is not readily determinable totaled $58 million at March 31, 2018, reflecting the cost of the investment. There were no adjustments to the cost basis of these investments for impairment or observable price changes for the three months ended March 31, 2018.

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 March 31, 2018 and December 31, 2017.

Risk Management
Dow’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest 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 that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and hedging activities, where appropriate. A secondary objective is to add value by creating additional non-specific exposure 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. Accounting guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value.

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 March 31, 2018. 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 were as follows:

Notional Amounts
Mar 31,
2018
Dec 31,
2017
In millions
Derivatives designated as hedging instruments:
 
 
Interest rate swaps
$
175

$
185

Foreign currency contracts
$
10,306

$
8,414

Derivatives not designated as hedging instruments:
 
 
Foreign currency contracts
$
21,763

$
14,231


Commodity Gross Aggregate Notional Amounts
Mar 31,
2018
Dec 31,
2017
Notional Volume Unit
 
Derivatives designated as hedging instruments:
 
 
 
Corn
—

2.8

million bushels
Crude Oil
8.2

4.2

million barrels
Ethane
9.2

10.4

million barrels
Naphtha Price Spread
275.0

—

kilotons
Natural Gas
325.7

363.3

million British thermal units
Propane
6.2

8.9

million barrels
Soybeans
—

1.1

million bushels
Derivatives not designated as hedging instruments:
 
 
 
Ethane
1.7
1.9

million barrels
Gasoline
0.2

—

million barrels
Naphtha Price Spread
90.0
60.0
kilotons
Normal Butane
0.2
0.2

million barrels
Propane
3.5
1.8
million barrels


Interest Rate Risk Management
The main objective of interest rate risk management is to reduce the total funding cost to the Company and to alter the interest rate exposure to the desired risk profile. To achieve this objective, the Company hedges using interest rate swaps, “swaptions” and exchange-traded instruments.

Foreign Currency Risk Management
The global nature of Dow’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. To achieve this objective, the Company hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps and non-derivative instruments in foreign currencies. 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.

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.

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 March 31, 2018, with a net loss included in AOCL of $2 million after tax (net loss of $3 million after tax at December 31, 2017).

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 March 31, 2018 was $18 million after tax (net loss of $19 million after tax at December 31, 2017).

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 March 31, 2018 was $108 million after tax ($73 million after tax loss at December 31, 2017).

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 open foreign currency contracts designated as net foreign investment hedges at March 31, 2018 and December 31, 2017. In addition, at March 31, 2018, the Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $188 million ($177 million at December 31, 2017). The results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss after tax of $43 million at March 31, 2018 (net loss after tax of $76 million at December 31, 2017).

Reclassification from AOCL
The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $1 million loss for interest rate contracts, a $38 million loss for commodity contracts and a $19 million loss for foreign currency contracts.
The following tables provide the fair value and gross balance sheet classification of derivative instruments at March 31, 2018 and December 31, 2017:
 
Fair Value of Derivative Instruments
Mar 31, 2018
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
$
65

$
(61
)
$
4

Commodity contracts
Other current assets
13

(2
)
11

Commodity contracts
Deferred charges and other assets
60

(3
)
57

Total
 
$
138

$
(66
)
$
72

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Other current assets
$
51

$
(34
)
$
17

Commodity contracts
Other current assets
26

(3
)
23

Commodity contracts
Deferred charges and other assets
7

(1
)
6

Total
 
$
84

$
(38
)
$
46

Total asset derivatives
 
$
222

$
(104
)
$
118

 
 
 
 
 
Liability derivatives:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
Other noncurrent obligations
$
3

$
—

$
3

Foreign currency contracts
Accrued and other current liabilities
99

(61
)
38

Commodity contracts
Accrued and other current liabilities
8

(8
)
—

Commodity contracts
Other noncurrent obligations
221

(10
)
211

Total
 
$
331

$
(79
)
$
252

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
Accrued and other current liabilities
$
67

$
(34
)
$
33

Commodity contracts
Accrued and other current liabilities
32

(5
)
27

Commodity contracts
Other noncurrent obligations
9

(1
)
8

Total
 
$
108

$
(40
)
$
68

Total liability derivatives
 
$
439

$
(119
)
$
320


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, 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.

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 $26 million at March 31, 2018 ($21 million at December 31, 2017).



Effect of Derivative Instruments
Amount of gain (loss) recognized in OCI 1 (Effective portion)
Amount of gain (loss) recognized in income 2,3
 
 
Three Months Ended
Three Months Ended
 
In millions
Mar 31,
2018
Mar 31, 2017 4
Mar 31,
2018
Mar 31, 2017 4
Income Statement Classification
Derivatives designated as hedging instruments:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Interest rate swaps
$
—

$
1

$
1

$
2

Interest expense and amortization of debt discount
Foreign currency contracts
(16
)
(5
)
19

(4
)
Cost of sales
Foreign currency contracts
(2
)
(11
)
—

(3
)
Sundry income (expense) - net
Commodity contracts
(17
)
(30
)
7

(2
)
Cost of sales
Net foreign investment hedges:
 
 
 
 
 
Foreign currency contracts
(36
)
1

—

—

 
Total derivatives designated as hedging instruments
$
(71
)
$
(44
)
$
27

$
(7
)
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Foreign currency contracts
$
—

$
—

$
(17
)
$
33

Sundry income (expense) - net
Commodity contracts
—

—

13

(1
)
Cost of sales
Total derivatives not designated as hedging instruments
$
—

$
—

$
(4
)
$
32

 
Total derivatives
$
(71
)
$
(44
)
$
23

$
25

 
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 three months ended March 31, 2018 and 2017, there was no material ineffectiveness with regard to the Company's cash flow hedges.
3.
Pretax amounts.
4.
Updated to conform with the current year presentation.