The Company’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.
The global nature of the Company’s business requires active participation in the foreign exchange markets. The Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company’s foreign currency risk management is to optimize the U.S. dollar value of net assets and cash flows. 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 nonderivative 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. The largest exposures are denominated in European currencies, the Chinese yuan, the Japanese yen and the Chinese yuan,Thai baht, although exposures also exist in the Canadian dollar, the Indian rupee and other currencies in Asia Pacific, Latin America, the Middle East, Africa, India and Africa.Canada.
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. The Company’s primary exposure is to the U.S. dollar yield curve.
The Company has a portfolio of equity securities derived primarily from the investment activities of its insurance subsidiaries. This exposure is managed in a manner consistent with the Company’s market risk policies and procedures.
Inherent in the Company’s business is exposure to price changes for several commodities. Some exposures can be hedged effectively through liquid tradable financial instruments. Natural gas and crude oil, along with feedstocks for ethylene and propylene production, constitute the main commodity exposures. Over-the-counter and exchange traded instruments are used to hedge these risks, when feasible.
The Company uses value-at-risk (“VAR”), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by the Company is a variance/covariance model. This model uses a 97.5 percent confidence level and includes at least one year of historical data. The 20192020 and 20182019 year-end and average daily VAR for the aggregate of all positions are shown below. These amounts are immaterial relative to the total equity of the Company.
| | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Dow Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dow Inc. and subsidiaries (the "Company") as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2020, and the related notes and the schedule listed in the Index at Item 15(a)2 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2020,5, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 1 to the financial statements, in the first quarter of 2018,2019, the Company changed its method of accounting for revenue due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts with Customers and, in the first quarter of 2019, the Company changed the method of accounting for leases due to the adoption of ASCAccounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Goodwill - Coatings & Performance Monomers Reporting Unit -– Annual Impairment Assessment – Refer to Note 1 and Note 1413 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually (in the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue growth rates, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”). Changes in these assumptions could have a significant impact on the fair value
of the reporting unit and the amount of any goodwill impairment charge. As of December 31, 2019,2020, the Company has six reporting units, all but one of which have goodwill.
Throughout 2019,2020, the Coatings & Performance MonomersCoronavirus (COVID-19) has had substantial negative impact on the results of the Company’s operations and financial performance of its reporting unit (“C&PM”) did not consistently meet expectedunits. With unprecedented volatility in global financial targets and commodities markets, the Company’s reporting units experienced volume reductions and reduced margins for products across the portfolio due todecreased demand in certain end-customer markets, changes in customer buying patterns and supply and demand balances,fundamentals, and margin compression caused by lowering of global energy prices. Given the uncertainty as well asto the continued trendultimate severity and duration of customer consolidationthe COVID-19 pandemic, the volatility in end markets, which reduced its future revenue and profitability projections. Therefore, in 2019, the Company used a discounted cash flow methodology to determine the fair value of the C&PM reporting unit. These discounted cash flows did not support the carrying valueCompany’s shares, and uneven course of C&PM. As a result, the Company recorded aeconomic recovery, leading up to its annual goodwill impairment charge of $1,039 milliontest in the fourth quarter the Company continuously monitored the impact of 2019.the pandemic on its reporting units to determine if it was more likely than not that the fair value was less than the carrying value for any of its reporting units. Based on the results of qualitative assessments completed as part of the annual impairment test for all reporting units, the Company moved to performing a quantitative test for one reporting unit. The discounted cash flows of this reporting unit supported a fair value in excess of the carrying value and as such no goodwill impairment charges were recorded.
Given the significant judgments made by management to estimate the fair value of the C&PM reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin required a high degree of auditor judgment and an increased extent of effort, including the assistance of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin for the C&PM reporting unit subject to the quantitative test included the following, among other procedures:
We•With the assistance of our fair value specialists, we tested the effectiveness of internal controls over the goodwill impairment evaluation, including controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.
•We performed a retrospective review comparing actual revenue and EBITDA results of the reporting unit for 20192020 to the forecasted results from 2018.2019.
•We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.
•We evaluated the consistency of estimates and assumptions relating to revenue and EBITDA growth inherent in the discounted cash flow model for the reporting unit to those used by management in other annual forecasting activities.
•With the assistance of our fair value specialists, we performed a benchmarking exercise comparing management’s estimates and assumptions related to revenue growth, EBITDA and EBITDA margin for the reporting unit as of the measurement date to the revenue growth, EBITDA and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.
•With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and (2) the projections of long-term revenue growth and the discount rates by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.
Other-Than-Temporary-Impairment (“OTTI”) of the Sadara Chemical Company (“Sadara”) equity method investment - Refer to Note 13 to the financial statements
Critical Audit Matter Description
In 2011, the Company and Saudi Arabian Oil Company formed Sadara Chemical Company (“Sadara”), a joint venture between the two companies that subsequently constructed and now operates a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. The Company has a 35 percent equity interest in this joint venture and has been, and continues to be, responsible for marketing the majority of Sadara’s products through the Company’s established sales channels.
In 2017, Sadara achieved full commercial operations of all its facilities. In December 2018, the joint venture successfully completed its Creditors Reliability Test, an extensive operational testing program designed to demonstrate the reliability of the joint venture’s full chemical complex by operating at high rates for an extended period of time. While Sadara has reached these operational milestones and has been generating positive EBITDA, the joint venture has yet to report positive net income.
During the fourth quarter of 2019, Sadara tested its long-lived assets for impairment using long-term cash flow projections. Due to Sadara's financial condition and its long-lived asset impairment test, Dow evaluated its equity method investment in Sadara for other-than-temporary impairment. The Company utilized a discounted cash flow methodology to measure the estimated fair value of its investment in Sadara, which was estimated to be zero. The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around the prospects for recovery in Sadara’s financial condition. In the fourth quarter of 2019, the Company recorded
an impairment of its investment in Sadara and reserved certain accounts and notes receivable and accrued interest balances due to uncertainty around timing of collection for a total charge of $1,755 million.
We have identified the evaluation of the Sadara investment for other-than-temporary impairment as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of its investment, including the discount rate, terminal value, and long-term growth rates. This required a high degree of auditor judgment and increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgements, estimates and assumptions, related to the discount rate, terminal value, and long-term growth rate used in the discounted cash flow analysis used in the evaluation of other-than-temporary impairment of the Sadara investment included the following, among others:
We tested the effectiveness of internal controls over management’s evaluation of the Sadara investment for other-than-temporary impairment, including management’s evaluation of the assumptions used such as discount rate, terminal value, and long-term growth rate.
We evaluated the consistency of the assumptions and judgments relating to the discount rate, terminal value, and long-term growth rates by comparing to:
| | |
◦ | Agreements in place between Sadara and Dow |
| |
◦ | Independent third-party pricing study |
We read external information included in press releases, earnings releases, regulatory filings, and other Sadara communications to search for contradictory information.
With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and model being used (2) the assumptions used such as the discount rate, terminal value, and the long-term growth rate by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.
|
|
/s/ DELOITTE & TOUCHE LLP |
Midland, Michigan |
February 5, 2021 |
Deloitte & Touche LLP
Midland, Michigan
February 7, 2020
We have served as the Company's auditor since 1905.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of The Dow Chemical Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Dow Chemical Company and subsidiaries (the "Company") as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2020, and the related notes and the schedule listed in the Index at Item 15(a)2 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2020,5, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 1 to the financial statements, in the first quarter of 2018, the Company changed its method of accounting for revenue due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts with Customers and, in the first quarter of 2019, the Company changed the method of accounting for leases due to the adoption of ASCAccounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.
Goodwill - Coatings & Performance Monomers Reporting Unit -– Annual Impairment Assessment – Refer to Note 1 and Note 1413 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually (in the fourth quarter), or more frequently when events or changes in circumstances, indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. TheIn performing quantitative assessments, the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue growth rates, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”)., and EBITDA margin. Changes in these assumptions could have a significant impact on the fair value of the reporting unit and the amount of any goodwill impairment charge. As ofAt December 31, 2019,2020, the Company has six reporting units, all but one of which have goodwill.
Throughout 2019,2020, the Coatings & Performance MonomersCoronavirus (COVID-19) has had substantial negative impact on the results of the Company’s operations and financial performance of its reporting unit (“C&PM”) did not consistently meet expectedunits. With unprecedented volatility in global financial targets and commodities markets, the Company’s reporting units experienced volume reductions and reduced margins for products across the portfolio due todecreased demand in certain end-customer markets, changes in customer buying patterns and supply and demand balances,fundamentals, and margin compression caused by lowering of global energy prices. Given the uncertainty as well asto the continued trendultimate severity and duration of customer consolidationthe COVID-19 pandemic, the volatility in end markets, which reduced its future revenue and profitability projections. Therefore, in 2019, the Company used a discounted cash flow methodology to determine the fair value of the C&PM reporting unit. These discounted cash flows did not support the carrying valueCompany’s shares, and uneven course of C&PM. As a result, the Company recorded aeconomic recovery, leading up to its annual goodwill impairment charge of $1,039 milliontest in the fourth quarter the Company continuously monitored the impact of 2019.the pandemic on its reporting units to determine if it was more likely than not that the fair value was less than the carrying value for any of its reporting units. Based on the results of qualitative assessments completed as part of the annual impairment test for all reporting units, the Company moved to performing a quantitative test for one reporting unit. The discounted cash flows of this reporting unit supported a fair value in excess of the carrying value and as such no goodwill impairment charges were recorded.
Given the significant judgments made by management to estimate the fair value of the C&PM reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin required a high degree of auditor judgment and an increased extent of effort, including the assistance of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin for the C&PM reporting unit subject to the quantitative test included the following, among other procedures:
We•With the assistance of our fair value specialists, we tested the effectiveness of internal controls over the goodwill impairment evaluation, including quarterly impairment monitoring controls and controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.
•We performed a retrospective review comparing actual revenue and EBITDA results of the reporting unit for 20192020 to the forecasted results from 2018.2019.
•We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.
•We evaluated the consistency of estimates and assumptions relating to revenue and EBITDA growth inherent in the discounted cash flow model for the reporting unit to those used by management in other annual forecasting activities.
•With the assistance of our fair value specialists, we performed a benchmarking exercise comparing management’s estimates and assumptions related to revenue growth, EBITDA and EBITDA margin for the reporting unit as of the measurement date to the revenue growth, EBITDA and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.
•With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and (2) the projections of long-term revenue growth and the discount rates by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.
Other-Than-Temporary-Impairment (“OTTI”) of the Sadara Chemical Company (“Sadara”) equity method investment - Refer to Note 13 to the financial statements
Critical Audit Matter Description
In 2011, the Company and Saudi Arabian Oil Company formed Sadara Chemical Company (“Sadara”), a joint venture between the two companies that subsequently constructed and now operates a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. The Company has a 35 percent equity interest in this joint venture and has been, and continues to be, responsible for marketing the majority of Sadara’s products through the Company’s established sales channels.
In 2017, Sadara achieved full commercial operations of all its facilities. In December 2018, the joint venture successfully completed its Creditors Reliability Test, an extensive operational testing program designed to demonstrate the reliability of the joint venture’s full chemical complex by operating at high rates for an extended period of time. While Sadara has reached these operational milestones and has been generating positive EBITDA, the joint venture has yet to report positive net income.
During the fourth quarter of 2019, Sadara tested its long-lived assets for impairment using long-term cash flow projections. Due to Sadara's financial condition and its long-lived asset impairment test, Dow evaluated its equity method investment in Sadara for other-than-temporary impairment. The Company utilized a discounted cash flow methodology to measure the estimated fair value of its investment in Sadara, which was estimated to be zero. The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around the prospects for recovery in Sadara’s financial condition. In the fourth quarter of 2019, the Company recorded an impairment of its investment in Sadara and reserved certain accounts and notes receivable and accrued interest balances due to uncertainty around the timing of collection for a total charge of $1,755 million.
We have identified the evaluation of the Sadara investment for other-than-temporary impairment as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of its investment, including the discount rate, terminal value, and long-term growth rates. This required a high degree of auditor judgment and increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgements, estimates and assumptions, related to the discount rate, terminal value, and long-term growth rate used in the discounted cash flow analysis used in the evaluation of other-than-temporary impairment of the Sadara investment included the following, among others:
We tested the effectiveness of internal controls over management’s evaluation of the Sadara investment for other-than-temporary impairment, including management’s evaluation of the assumptions used such as discount rate, terminal value, and long-term growth rate.
We evaluated the consistency of the assumptions and judgments relating to the discount rate, terminal value, and long-term growth rates by comparing to:
| | |
◦ | Agreements in place between Sadara and Dow |
| |
◦ | Independent third-party pricing study |
We read external information included in press releases, earnings releases, regulatory filings, and other Sadara communications to search for contradictory information.
With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and model being used (2) the assumptions used such as the discount rate, terminal value, and the long-term growth rate by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.
|
|
/s/ DELOITTE & TOUCHE LLP |
Midland, Michigan |
February 5, 2021 |
Deloitte & Touche LLP
Midland, Michigan
February 7, 2020
We have served as the Company's auditor since 1905.
Dow Inc. and Subsidiaries
Consolidated Statements of Income
| | (In millions, except per share amounts) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions, except per share amounts) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Net sales | $ | 42,951 |
| $ | 49,604 |
| $ | 43,730 |
| Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
Cost of sales | 36,657 |
| 41,074 |
| 36,350 |
| Cost of sales | 33,346 | | 36,657 | | 41,074 | |
Research and development expenses | 765 |
| 800 |
| 803 |
| Research and development expenses | 768 | | 765 | | 800 | |
Selling, general and administrative expenses | 1,590 |
| 1,782 |
| 1,795 |
| Selling, general and administrative expenses | 1,471 | | 1,590 | | 1,782 | |
Amortization of intangibles | 419 |
| 469 |
| 400 |
| Amortization of intangibles | 401 | | 419 | | 469 | |
Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
Integration and separation costs | 1,063 |
| 1,179 |
| 798 |
| Integration and separation costs | 239 | | 1,063 | | 1,179 | |
Equity in earnings (losses) of nonconsolidated affiliates | (94 | ) | 555 |
| 394 |
| Equity in earnings (losses) of nonconsolidated affiliates | (18) | | (94) | | 555 | |
Sundry income (expense) - net | 461 |
| 96 |
| (154 | ) | Sundry income (expense) - net | 1,269 | | 461 | | 96 | |
Interest income | 81 |
| 82 |
| 66 |
| Interest income | 38 | | 81 | | 82 | |
Interest expense and amortization of debt discount | 933 |
| 1,063 |
| 914 |
| Interest expense and amortization of debt discount | 827 | | 933 | | 1,063 | |
Income (loss) from continuing operations before income taxes | (1,247 | ) | 3,749 |
| 237 |
| Income (loss) from continuing operations before income taxes | 2,071 | | (1,247) | | 3,749 | |
Provision for income taxes on continuing operations | 470 |
| 809 |
| 1,524 |
| Provision for income taxes on continuing operations | 777 | | 470 | | 809 | |
Income (loss) from continuing operations, net of tax | (1,717 | ) | 2,940 |
| (1,287 | ) | Income (loss) from continuing operations, net of tax | 1,294 | | (1,717) | | 2,940 | |
Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
Net income (loss) | (1,272 | ) | 4,775 |
| 595 |
| Net income (loss) | 1,294 | | (1,272) | | 4,775 | |
Net income attributable to noncontrolling interests | 87 |
| 134 |
| 130 |
| Net income attributable to noncontrolling interests | 69 | | 87 | | 134 | |
Net income (loss) available for Dow Inc. common stockholders | $ | (1,359 | ) | $ | 4,641 |
| $ | 465 |
| Net income (loss) available for Dow Inc. common stockholders | $ | 1,225 | | $ | (1,359) | | $ | 4,641 | |
| | |
| | |
Per common share data: | | | Per common share data: | | |
Earnings (loss) per common share from continuing operations - basic | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) | Earnings (loss) per common share from continuing operations - basic | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
Earnings per common share from discontinued operations - basic | 0.58 |
| 2.41 |
| 2.48 |
| Earnings per common share from discontinued operations - basic | 0 | | 0.58 | | 2.41 | |
Earnings (loss) per common share - basic | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
| Earnings (loss) per common share - basic | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
Earnings (loss) per common share from continuing operations - diluted | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) | Earnings (loss) per common share from continuing operations - diluted | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
Earnings per common share from discontinued operations - diluted | 0.58 |
| 2.41 |
| 2.48 |
| Earnings per common share from discontinued operations - diluted | 0 | | 0.58 | | 2.41 | |
Earnings (loss) per common share - diluted | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
| Earnings (loss) per common share - diluted | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
|
|
|
|
| | |
Weighted-average common shares outstanding - basic | 742.5 |
| 747.2 |
| 744.8 |
| Weighted-average common shares outstanding - basic | 740.5 | | 742.5 | | 747.2 | |
Weighted-average common shares outstanding - diluted | 742.5 |
| 747.2 |
| 744.8 |
| Weighted-average common shares outstanding - diluted | 742.3 | | 742.5 | | 747.2 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Net income (loss) | $ | (1,272 | ) | $ | 4,775 |
| $ | 595 |
| Net income (loss) | $ | 1,294 | | $ | (1,272) | | $ | 4,775 | |
Other comprehensive income (loss), net of tax |
|
|
| Other comprehensive income (loss), net of tax | | |
Unrealized gains (losses) on investments | 115 |
| (67 | ) | (46 | ) | Unrealized gains (losses) on investments | 40 | | 115 | | (67) | |
Cumulative translation adjustments | (32 | ) | (225 | ) | 900 |
| Cumulative translation adjustments | 205 | | (32) | | (225) | |
Pension and other postretirement benefit plans | (899 | ) | (40 | ) | 391 |
| Pension and other postretirement benefit plans | (778) | | (899) | | (40) | |
Derivative instruments | (338 | ) | 75 |
| (14 | ) | Derivative instruments | (76) | | (338) | | 75 | |
Total other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| |
Total other comprehensive loss | | Total other comprehensive loss | (609) | | (1,154) | | (257) | |
Comprehensive income (loss) | (2,426 | ) | 4,518 |
| 1,826 |
| Comprehensive income (loss) | 685 | | (2,426) | | 4,518 | |
Comprehensive income attributable to noncontrolling interests, net of tax | 99 |
| 97 |
| 172 |
| Comprehensive income attributable to noncontrolling interests, net of tax | 69 | | 99 | | 97 | |
Comprehensive income (loss) attributable to Dow Inc. | $ | (2,525 | ) | $ | 4,421 |
| $ | 1,654 |
| Comprehensive income (loss) attributable to Dow Inc. | $ | 616 | | $ | (2,525) | | $ | 4,421 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Balance Sheets
| | (In millions, except share amounts) At Dec 31, | 2019 | 2018 | (In millions, except share amounts) At Dec 31, | 2020 | 2019 |
Assets | | | Assets | | |
Current Assets |
|
| Current Assets | | |
Cash and cash equivalents (variable interest entities restricted - 2019: $37; 2018: $71) | $ | 2,367 |
| $ | 2,724 |
| |
Marketable securities | 21 |
| 100 |
| |
Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | | Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | $ | 5,104 | | $ | 2,367 | |
| Accounts and notes receivable: |
|
| Accounts and notes receivable: | | |
Trade (net of allowance for doubtful receivables - 2019: $45; 2018: $42) | 4,844 |
| 5,646 |
| |
Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | | Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | 4,839 | | 4,844 | |
Other | 2,711 |
| 3,389 |
| Other | 2,551 | | 2,711 | |
Inventories | 6,214 |
| 6,899 |
| Inventories | 5,701 | | 6,214 | |
Other current assets | 658 |
| 712 |
| Other current assets | 889 | | 679 | |
Assets of discontinued operations - current | — |
| 19,900 |
| |
| Total current assets | 16,815 |
| 39,370 |
| Total current assets | 19,084 | | 16,815 | |
Investments |
|
| Investments | | |
Investment in nonconsolidated affiliates | 1,404 |
| 3,320 |
| Investment in nonconsolidated affiliates | 1,327 | | 1,404 | |
Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699) | 2,588 |
| 2,646 |
| |
Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | | Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | 2,775 | | 2,588 | |
Noncurrent receivables | 1,063 |
| 360 |
| Noncurrent receivables | 465 | | 1,063 | |
Total investments | 5,055 |
| 6,326 |
| Total investments | 4,567 | | 5,055 | |
Property |
|
| Property | | |
Property | 54,910 |
| 53,984 |
| Property | 56,325 | | 54,910 | |
Less accumulated depreciation | 33,914 |
| 32,566 |
| |
Net property (variable interest entities restricted - 2019: $330; 2018: $683) | 20,996 |
| 21,418 |
| |
Less: Accumulated depreciation | | Less: Accumulated depreciation | 36,086 | | 33,914 | |
Net property (variable interest entities restricted - 2020: $232; 2019: $330) | | Net property (variable interest entities restricted - 2020: $232; 2019: $330) | 20,239 | | 20,996 | |
Other Assets |
|
| Other Assets | | |
Goodwill | 8,796 |
| 9,846 |
| Goodwill | 8,908 | | 8,796 | |
Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) | 3,759 |
| 4,225 |
| |
Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | | Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | 3,352 | | 3,759 | |
Operating lease right-of-use assets | 2,072 |
| — |
| Operating lease right-of-use assets | 1,856 | | 2,072 | |
Deferred income tax assets | 2,213 |
| 1,779 |
| Deferred income tax assets | 2,215 | | 2,213 | |
Deferred charges and other assets | 818 |
| 735 |
| Deferred charges and other assets | 1,249 | | 818 | |
Total other assets | 17,658 |
| 16,585 |
| Total other assets | 17,580 | | 17,658 | |
Total Assets | $ | 60,524 |
| $ | 83,699 |
| Total Assets | $ | 61,470 | | $ | 60,524 | |
Liabilities and Equity |
|
| Liabilities and Equity | | |
Current Liabilities |
|
| Current Liabilities | | |
Notes payable | $ | 586 |
| $ | 298 |
| Notes payable | $ | 156 | | $ | 586 | |
Long-term debt due within one year | 435 |
| 338 |
| Long-term debt due within one year | 460 | | 435 | |
Accounts payable: |
|
| Accounts payable: | | |
Trade | 3,889 |
| 4,456 |
| Trade | 3,763 | | 3,889 | |
Other | 2,064 |
| 2,479 |
| Other | 2,126 | | 2,064 | |
Operating lease liabilities - current | 421 |
| — |
| Operating lease liabilities - current | 416 | | 421 | |
Income taxes payable | 522 |
| 557 |
| Income taxes payable | 397 | | 522 | |
| Accrued and other current liabilities | 2,762 |
| 2,931 |
| Accrued and other current liabilities | 3,790 | | 2,762 | |
Liabilities of discontinued operations - current | — |
| 4,488 |
| |
| Total current liabilities | 10,679 |
| 15,547 |
| Total current liabilities | 11,108 | | 10,679 | |
Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75) | 15,975 |
| 19,253 |
| |
Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | | Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | 16,491 | | 15,975 | |
Other Noncurrent Liabilities |
|
| Other Noncurrent Liabilities | | |
Deferred income tax liabilities | 347 |
| 501 |
| Deferred income tax liabilities | 405 | | 347 | |
Pension and other postretirement benefits - noncurrent | 10,083 |
| 8,926 |
| Pension and other postretirement benefits - noncurrent | 11,648 | | 10,083 | |
Asbestos-related liabilities - noncurrent | 1,060 |
| 1,142 |
| Asbestos-related liabilities - noncurrent | 1,013 | | 1,060 | |
Operating lease liabilities - noncurrent | 1,739 |
| — |
| Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
Other noncurrent obligations | 6,547 |
| 4,709 |
| Other noncurrent obligations | 6,279 | | 6,547 | |
Total other noncurrent liabilities | 19,776 |
| 15,278 |
| Total other noncurrent liabilities | 20,866 | | 19,776 | |
Stockholders’ Equity |
|
| Stockholders’ Equity | | |
Common stock (2019: authorized 5,000,000,000 shares and issued 751,228,644 shares of $0.01 par value each; 2018: authorized and issued 100 shares of $0.01 par value each) | 8 |
| — |
| |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2020: 755,993,198 shares; 2019: 751,228,644 shares) | | Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2020: 755,993,198 shares; 2019: 751,228,644 shares) | 8 | | 8 | |
Additional paid-in capital | 7,325 |
| 7,042 |
| Additional paid-in capital | 7,595 | | 7,325 | |
Retained earnings | 17,045 |
| 35,460 |
| Retained earnings | 16,361 | | 17,045 | |
Accumulated other comprehensive loss | (10,246 | ) | (9,885 | ) | Accumulated other comprehensive loss | (10,855) | | (10,246) | |
Unearned ESOP shares | (91 | ) | (134 | ) | Unearned ESOP shares | (49) | | (91) | |
Treasury stock at cost (2019: 9,729,834 shares; 2018: zero shares) | (500 | ) | — |
| |
Treasury stock at cost (2020: 12,803,303 shares; 2019: 9,729,834 shares) | | Treasury stock at cost (2020: 12,803,303 shares; 2019: 9,729,834 shares) | (625) | | (500) | |
Dow Inc.’s stockholders’ equity | 13,541 |
| 32,483 |
| Dow Inc.’s stockholders’ equity | 12,435 | | 13,541 | |
Noncontrolling interests | 553 |
| 1,138 |
| Noncontrolling interests | 570 | | 553 | |
Total equity | 14,094 |
| 33,621 |
| Total equity | 13,005 | | 14,094 | |
Total Liabilities and Equity | $ | 60,524 |
| $ | 83,699 |
| Total Liabilities and Equity | $ | 61,470 | | $ | 60,524 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Operating Activities |
| | Operating Activities | | |
Net income (loss) | $ | (1,272 | ) | $ | 4,775 |
| $ | 595 |
| Net income (loss) | $ | 1,294 | | $ | (1,272) | | $ | 4,775 | |
Less: Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| Less: Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
Income (loss) from continuing operations, net of tax | (1,717 | ) | 2,940 |
| (1,287 | ) | Income (loss) from continuing operations, net of tax | 1,294 | | (1,717) | | 2,940 | |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
| |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
Depreciation and amortization | 2,938 |
| 2,909 |
| 2,546 |
| Depreciation and amortization | 2,874 | | 2,938 | | 2,909 | |
Provision (credit) for deferred income tax | (228 | ) | (429 | ) | 1,413 |
| Provision (credit) for deferred income tax | 258 | | (228) | | (429) | |
Earnings of nonconsolidated affiliates less than dividends received | 1,114 |
| 108 |
| 253 |
| Earnings of nonconsolidated affiliates less than dividends received | 443 | | 1,114 | | 108 | |
Net periodic pension benefit cost | 144 |
| 279 |
| 1,032 |
| Net periodic pension benefit cost | 266 | | 144 | | 279 | |
Pension contributions | (261 | ) | (1,651 | ) | (1,672 | ) | Pension contributions | (299) | | (261) | | (1,651) | |
Net gain on sales of assets, businesses and investments | (81 | ) | (38 | ) | (419 | ) | Net gain on sales of assets, businesses and investments | (802) | | (81) | | (38) | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| Other net loss | 198 |
| 415 |
| 451 |
| Other net loss | 318 | | 198 | | 415 | |
Changes in assets and liabilities, net of effects of acquired and divested companies: |
|
|
|
|
|
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | |
Accounts and notes receivable | 1,253 |
| (855 | ) | (11,431 | ) | Accounts and notes receivable | 171 | | 1,253 | | (855) | |
Inventories | 668 |
| (859 | ) | (891 | ) | Inventories | 515 | | 668 | | (859) | |
Accounts payable | (948 | ) | 787 |
| 1,081 |
| Accounts payable | (84) | | (948) | | 787 | |
Other assets and liabilities, net | (586 | ) | (731 | ) | (258 | ) | Other assets and liabilities, net | 590 | | (586) | | (731) | |
Cash provided by (used for) operating activities - continuing operations | 5,713 |
| 3,096 |
| (6,443 | ) | |
Cash provided by operating activities - discontinued operations | 217 |
| 1,158 |
| 1,514 |
| |
Cash provided by (used for) operating activities | 5,930 |
| 4,254 |
| (4,929 | ) | |
Cash provided by operating activities - continuing operations | | Cash provided by operating activities - continuing operations | 6,252 | | 5,713 | | 3,096 | |
Cash provided by (used for) operating activities - discontinued operations | | Cash provided by (used for) operating activities - discontinued operations | (26) | | 217 | | 1,158 | |
Cash provided by operating activities | | Cash provided by operating activities | 6,226 | | 5,930 | | 4,254 | |
Investing Activities |
|
|
|
| | Investing Activities | | |
Capital expenditures | (1,961 | ) | (2,091 | ) | (2,807 | ) | Capital expenditures | (1,252) | | (1,961) | | (2,091) | |
Investment in gas field developments | (76 | ) | (114 | ) | (121 | ) | Investment in gas field developments | (5) | | (76) | | (114) | |
| Purchases of previously leased assets | (9 | ) | (26 | ) | (187 | ) | Purchases of previously leased assets | (5) | | (9) | | (26) | |
Proceeds from sales of property and businesses, net of cash divested | 84 |
| 47 |
| 522 |
| Proceeds from sales of property and businesses, net of cash divested | 929 | | 84 | | 47 | |
Acquisitions of property and businesses, net of cash acquired | — |
| (20 | ) | 47 |
| Acquisitions of property and businesses, net of cash acquired | (130) | | 0 | | (20) | |
| Investments in and loans to nonconsolidated affiliates | (638 | ) | (18 | ) | (749 | ) | Investments in and loans to nonconsolidated affiliates | (333) | | (638) | | (18) | |
Distributions and loan repayments from nonconsolidated affiliates | 89 |
| 55 |
| 69 |
| Distributions and loan repayments from nonconsolidated affiliates | 7 | | 89 | | 55 | |
| Purchases of investments | (899 | ) | (1,530 | ) | (642 | ) | Purchases of investments | (1,203) | | (899) | | (1,530) | |
Proceeds from sales and maturities of investments | 1,252 |
| 1,214 |
| 1,165 |
| Proceeds from sales and maturities of investments | 1,122 | | 1,252 | | 1,214 | |
Proceeds from interests in trade accounts receivable conduits | — |
| 657 |
| 9,462 |
| Proceeds from interests in trade accounts receivable conduits | 0 | | 0 | | 657 | |
Other investing activities, net | — |
| — |
| 34 |
| Other investing activities, net | 29 | | 0 | | 0 | |
Cash provided by (used for) investing activities - continuing operations | (2,158 | ) | (1,826 | ) | 6,793 |
| |
Cash provided by (used for) investing activities - discontinued operations | (34 | ) | (369 | ) | 725 |
| |
Cash provided by (used for) investing activities | (2,192 | ) | (2,195 | ) | 7,518 |
| |
Cash used for investing activities - continuing operations | | Cash used for investing activities - continuing operations | (841) | | (2,158) | | (1,826) | |
Cash used for investing activities - discontinued operations | | Cash used for investing activities - discontinued operations | 0 | | (34) | | (369) | |
Cash used for investing activities | | Cash used for investing activities | (841) | | (2,192) | | (2,195) | |
Financing Activities |
|
|
|
|
|
| Financing Activities | | |
Changes in short-term notes payable | 307 |
| (178 | ) | 268 |
| Changes in short-term notes payable | (431) | | 307 | | (178) | |
Proceeds from issuance of short-term debt greater than three months | | Proceeds from issuance of short-term debt greater than three months | 163 | | 0 | | 0 | |
Payments on short-term debt greater than three months | | Payments on short-term debt greater than three months | (163) | | 0 | | 0 | |
Proceeds from issuance of long-term debt | 2,287 |
| 1,999 |
| — |
| Proceeds from issuance of long-term debt | 4,672 | | 2,287 | | 1,999 | |
Payments on long-term debt | (5,561 | ) | (3,054 | ) | (617 | ) | Payments on long-term debt | (4,653) | | (5,561) | | (3,054) | |
Purchases of treasury stock | (500 | ) | — |
| — |
| Purchases of treasury stock | (125) | | (500) | | 0 | |
Proceeds from issuance of parent company stock | 93 |
| 112 |
| 66 |
| |
Proceeds from sales of common stock | — |
| — |
| 423 |
| |
Proceeds from issuance of stock | | Proceeds from issuance of stock | 108 | | 93 | | 112 | |
| Transaction financing, debt issuance and other costs | (119 | ) | (70 | ) | — |
| Transaction financing, debt issuance and other costs | (175) | | (119) | | (70) | |
Employee taxes paid for share-based payment arrangements | (60 | ) | (77 | ) | (81 | ) | Employee taxes paid for share-based payment arrangements | (27) | | (60) | | (77) | |
| Distributions to noncontrolling interests | (77 | ) | (135 | ) | (101 | ) | Distributions to noncontrolling interests | (62) | | (77) | | (135) | |
Purchases of noncontrolling interests | (297 | ) | — |
| — |
| Purchases of noncontrolling interests | 0 | | (297) | | 0 | |
| Dividends paid to stockholders | (1,550 | ) | — |
| (2,179 | ) | Dividends paid to stockholders | (2,071) | | (1,550) | | 0 | |
Dividends paid to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | Dividends paid to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
Settlements and transfers related to separation from DowDuPont Inc. | 1,935 |
| (240 | ) | 6 |
| Settlements and transfers related to separation from DowDuPont Inc. | 0 | | 1,935 | | (240) | |
Other financing activities, net | — |
| 3 |
| (4 | ) | Other financing activities, net | 0 | | 0 | | 3 | |
Cash used for financing activities - continuing operations | (4,077 | ) | (5,351 | ) | (3,275 | ) | Cash used for financing activities - continuing operations | (2,764) | | (4,077) | | (5,351) | |
Cash used for financing activities - discontinued operations | (18 | ) | (53 | ) | (50 | ) | Cash used for financing activities - discontinued operations | 0 | | (18) | | (53) | |
Cash used for financing activities | (4,095 | ) | (5,404 | ) | (3,325 | ) | Cash used for financing activities | (2,764) | | (4,095) | | (5,404) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (27 | ) | (99 | ) | 320 |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 107 | | (27) | | (99) | |
Summary |
|
|
|
|
|
| Summary | | |
Decrease in cash, cash equivalents and restricted cash | (384 | ) | (3,444 | ) | (416 | ) | |
Increase (decrease) in cash, cash equivalents and restricted cash | | Increase (decrease) in cash, cash equivalents and restricted cash | 2,728 | | (384) | | (3,444) | |
Cash, cash equivalents and restricted cash at beginning of year | 2,764 |
| 6,208 |
| 6,624 |
| Cash, cash equivalents and restricted cash at beginning of year | 2,380 | | 2,764 | | 6,208 | |
Cash, cash equivalents and restricted cash at end of year | $ | 2,380 |
| $ | 2,764 |
| $ | 6,208 |
| Cash, cash equivalents and restricted cash at end of year | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | |
Less: Restricted cash and cash equivalents, included in "Other current assets" | 13 |
| 40 |
| 19 |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 4 | | 13 | | 40 | |
Cash and cash equivalents at end of year | $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
| Cash and cash equivalents at end of year | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Equity
| (In millions, except per share amounts) For the years ended Dec 31, | | (In millions, except per share amounts) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| | (In millions, except per share amounts) For the years ended Dec 31, | 2019 | 2018 | 2017 | |
| Common Stock |
|
| Common Stock | | |
Balance at beginning of year | $ | — |
| $ | — |
| $ | 3,107 |
| Balance at beginning of year | $ | 8 | | $ | 0 | | $ | 0 | |
Merger impact | — |
| — |
| (3,107 | ) | |
| Common stock issued | 8 |
| — |
| — |
| Common stock issued | 0 | | 8 | | 0 | |
Balance at end of year | 8 |
| — |
| — |
| Balance at end of year | 8 | | 8 | | 0 | |
Additional Paid-in Capital |
|
| Additional Paid-in Capital | | |
Balance at beginning of year | 7,042 |
| 6,553 |
| 4,262 |
| Balance at beginning of year | 7,325 | | 7,042 | | 6,553 | |
Common stock issued / sold | 57 |
| — |
| 423 |
| Common stock issued / sold | 108 | | 57 | | 0 | |
Issuance of parent company stock - DowDuPont Inc. | 28 |
| 112 |
| 66 |
| Issuance of parent company stock - DowDuPont Inc. | 0 | | 28 | | 112 | |
Stock-based compensation and allocation of ESOP shares | 235 |
| 377 |
| (368 | ) | Stock-based compensation and allocation of ESOP shares | 162 | | 235 | | 377 | |
Merger impact | — |
| — |
| 2,172 |
| |
| Other | (37 | ) | — |
| (2 | ) | Other | 0 | | (37) | | 0 | |
Balance at end of year | 7,325 |
| 7,042 |
| 6,553 |
| Balance at end of year | 7,595 | | 7,325 | | 7,042 | |
Retained Earnings |
|
| Retained Earnings | | |
Balance at beginning of year | 35,460 |
| 33,742 |
| 30,338 |
| Balance at beginning of year | 17,045 | | 35,460 | | 33,742 | |
Adoption of accounting standards (Note 1) | (151 | ) | 989 |
| — |
| |
Net income (loss) available for Dow Inc.'s common stockholders | (1,359 | ) | 4,641 |
| 465 |
| Net income (loss) available for Dow Inc.'s common stockholders | 1,225 | | (1,359) | | 4,641 | |
Dividends to stockholders | (1,550 | ) | — |
| (1,673 | ) | Dividends to stockholders | (2,071) | | (1,550) | | 0 | |
Dividends to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | Dividends to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
Common control transaction | (14,806 | ) | (182 | ) | 5,693 |
| Common control transaction | 177 | | (14,806) | | (182) | |
Adoption of accounting standards (Note 1) | | Adoption of accounting standards (Note 1) | 0 | | (151) | | 989 | |
Other | (14 | ) | (19 | ) | (25 | ) | Other | (15) | | (14) | | (19) | |
Balance at end of year | 17,045 |
| 35,460 |
| 33,742 |
| Balance at end of year | 16,361 | | 17,045 | | 35,460 | |
Accumulated Other Comprehensive Loss |
|
| Accumulated Other Comprehensive Loss | | |
Balance at beginning of year | (9,885 | ) | (8,591 | ) | (9,822 | ) | Balance at beginning of year | (10,246) | | (9,885) | | (8,591) | |
Other comprehensive loss | | Other comprehensive loss | (609) | | (1,154) | | (257) | |
Common control transaction | | Common control transaction | 0 | | 793 | | 0 | |
Adoption of accounting standards (Note 1) | — |
| (1,037 | ) | — |
| Adoption of accounting standards (Note 1) | 0 | | 0 | | (1,037) | |
Other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| |
Common control transaction | 793 |
| — |
| — |
| |
Balance at end of year | (10,246 | ) | (9,885 | ) | (8,591 | ) | Balance at end of year | (10,855) | | (10,246) | | (9,885) | |
Unearned ESOP Shares |
|
| Unearned ESOP Shares | | |
Balance at beginning of year | (134 | ) | (189 | ) | (239 | ) | Balance at beginning of year | (91) | | (134) | | (189) | |
Stock-based compensation and allocation of ESOP shares | 45 |
| 55 |
| 50 |
| Stock-based compensation and allocation of ESOP shares | 42 | | 45 | | 55 | |
ESOP shares acquired | (2 | ) | — |
| — |
| ESOP shares acquired | 0 | | (2) | | 0 | |
Balance at end of year | (91 | ) | (134 | ) | (189 | ) | Balance at end of year | (49) | | (91) | | (134) | |
Treasury Stock |
|
| Treasury Stock | | |
Balance at beginning of year | — |
| — |
| (1,659 | ) | Balance at beginning of year | (500) | | 0 | | 0 | |
Common stock issued/sold | — |
| — |
| 724 |
| |
| Treasury stock purchases | (500 | ) | — |
| — |
| Treasury stock purchases | (125) | | (500) | | 0 | |
Merger impact | — |
| — |
| 935 |
| |
| Balance at end of year | (500 | ) | — |
| — |
| Balance at end of year | (625) | | (500) | | 0 | |
Dow Inc.'s stockholders' equity | 13,541 |
| 32,483 |
| 31,515 |
| Dow Inc.'s stockholders' equity | 12,435 | | 13,541 | | 32,483 | |
Noncontrolling Interests | 553 |
| 1,138 |
| 1,186 |
| Noncontrolling Interests | 570 | | 553 | | 1,138 | |
Total Equity | $ | 14,094 |
| $ | 33,621 |
| $ | 32,701 |
| Total Equity | $ | 13,005 | | $ | 14,094 | | $ | 33,621 | |
| | | |
Dividends declared per share of common stock | $ | 2.10 |
| $ | — |
| $ | 1.38 |
| Dividends declared per share of common stock | $ | 2.80 | | $ | 2.10 | | $ | 0 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
| | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Net sales | $ | 42,951 |
| $ | 49,604 |
| $ | 43,730 |
| Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
Cost of sales | 36,657 |
| 41,074 |
| 36,350 |
| Cost of sales | 33,343 | | 36,657 | | 41,074 | |
Research and development expenses | 765 |
| 800 |
| 803 |
| Research and development expenses | 768 | | 765 | | 800 | |
Selling, general and administrative expenses | 1,585 |
| 1,782 |
| 1,795 |
| Selling, general and administrative expenses | 1,471 | | 1,585 | | 1,782 | |
Amortization of intangibles | 419 |
| 469 |
| 400 |
| Amortization of intangibles | 401 | | 419 | | 469 | |
Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
Integration and separation costs | 1,039 |
| 1,179 |
| 798 |
| Integration and separation costs | 239 | | 1,039 | | 1,179 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (94 | ) | 555 |
| 394 |
| Equity in earnings (losses) of nonconsolidated affiliates | (18) | | (94) | | 555 | |
Sundry income (expense) - net | 573 |
| 96 |
| (154 | ) | Sundry income (expense) - net | 1,274 | | 573 | | 96 | |
Interest income | 81 |
| 82 |
| 66 |
| Interest income | 40 | | 81 | | 82 | |
Interest expense and amortization of debt discount | 952 |
| 1,063 |
| 914 |
| Interest expense and amortization of debt discount | 827 | | 952 | | 1,063 | |
Income (loss) from continuing operations before income taxes | (1,125 | ) | 3,749 |
| 237 |
| Income (loss) from continuing operations before income taxes | 2,081 | | (1,125) | | 3,749 | |
Provision for income taxes on continuing operations | 470 |
| 809 |
| 1,524 |
| Provision for income taxes on continuing operations | 777 | | 470 | | 809 | |
Income (loss) from continuing operations, net of tax | (1,595 | ) | 2,940 |
| (1,287 | ) | Income (loss) from continuing operations, net of tax | 1,304 | | (1,595) | | 2,940 | |
Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
Net income (loss) | (1,150 | ) | 4,775 |
| 595 |
| Net income (loss) | 1,304 | | (1,150) | | 4,775 | |
Net income attributable to noncontrolling interests | 87 |
| 134 |
| 130 |
| Net income attributable to noncontrolling interests | 69 | | 87 | | 134 | |
| Net income (loss) available for The Dow Chemical Company common stockholder | $ | (1,237 | ) | $ | 4,641 |
| $ | 465 |
| Net income (loss) available for The Dow Chemical Company common stockholder | $ | 1,235 | | $ | (1,237) | | $ | 4,641 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Comprehensive Income
| | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Net income (loss) | $ | (1,150 | ) | $ | 4,775 |
| $ | 595 |
| Net income (loss) | $ | 1,304 | | $ | (1,150) | | $ | 4,775 | |
Other comprehensive income (loss), net of tax | | | | Other comprehensive income (loss), net of tax | | |
Unrealized gains (losses) on investments | 115 |
| (67 | ) | (46 | ) | Unrealized gains (losses) on investments | 40 | | 115 | | (67) | |
Cumulative translation adjustments | (32 | ) | (225 | ) | 900 |
| Cumulative translation adjustments | 205 | | (32) | | (225) | |
Pension and other postretirement benefit plans | (899 | ) | (40 | ) | 391 |
| Pension and other postretirement benefit plans | (778) | | (899) | | (40) | |
Derivative instruments | (338 | ) | 75 |
| (14 | ) | Derivative instruments | (76) | | (338) | | 75 | |
Total other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| |
Total other comprehensive loss | | Total other comprehensive loss | (609) | | (1,154) | | (257) | |
Comprehensive income (loss) | (2,304 | ) | 4,518 |
| 1,826 |
| Comprehensive income (loss) | 695 | | (2,304) | | 4,518 | |
Comprehensive income attributable to noncontrolling interests, net of tax | 99 |
| 97 |
| 172 |
| Comprehensive income attributable to noncontrolling interests, net of tax | 69 | | 99 | | 97 | |
Comprehensive income (loss) attributable to The Dow Chemical Company | $ | (2,403 | ) | $ | 4,421 |
| $ | 1,654 |
| Comprehensive income (loss) attributable to The Dow Chemical Company | $ | 626 | | $ | (2,403) | | $ | 4,421 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
| | (In millions, except share amounts) At Dec 31, | 2019 | 2018 | (In millions, except share amounts) At Dec 31, | 2020 | 2019 |
Assets | | | Assets | | |
Current Assets | | | Current Assets | | |
Cash and cash equivalents (variable interest entities restricted - 2019: $37; 2018: $71) | $ | 2,367 |
| $ | 2,724 |
| |
Marketable securities | 21 |
| 100 |
| |
Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | | Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | $ | 5,104 | | $ | 2,367 | |
| Accounts and notes receivable: | | | Accounts and notes receivable: | | |
Trade (net of allowance for doubtful receivables - 2019: $45; 2018: $42) | 4,844 |
| 5,646 |
| |
Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | | Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | 4,839 | | 4,844 | |
Other | 2,716 |
| 3,389 |
| Other | 2,553 | | 2,716 | |
Inventories | 6,214 |
| 6,899 |
| Inventories | 5,701 | | 6,214 | |
Other current assets | 571 |
| 712 |
| Other current assets | 801 | | 592 | |
Assets of discontinued operations - current | — |
| 19,900 |
| |
| Total current assets | 16,733 |
| 39,370 |
| Total current assets | 18,998 | | 16,733 | |
Investments | | | Investments | | |
Investment in nonconsolidated affiliates | 1,404 |
| 3,320 |
| Investment in nonconsolidated affiliates | 1,327 | | 1,404 | |
Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699) | 2,588 |
| 2,646 |
| |
Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | | Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | 2,775 | | 2,588 | |
Noncurrent receivables | 1,011 |
| 360 |
| Noncurrent receivables | 426 | | 1,011 | |
Total investments | 5,003 |
| 6,326 |
| Total investments | 4,528 | | 5,003 | |
Property | | | Property | | |
Property | 54,910 |
| 53,984 |
| Property | 56,325 | | 54,910 | |
Less accumulated depreciation | 33,914 |
| 32,566 |
| |
Net property (variable interest entities restricted - 2019: $330; 2018: $683) | 20,996 |
| 21,418 |
| |
Less: Accumulated depreciation | | Less: Accumulated depreciation | 36,086 | | 33,914 | |
Net property (variable interest entities restricted - 2020: $232; 2019: $330) | | Net property (variable interest entities restricted - 2020: $232; 2019: $330) | 20,239 | | 20,996 | |
Other Assets | | | Other Assets | | |
Goodwill | 8,796 |
| 9,846 |
| Goodwill | 8,908 | | 8,796 | |
Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) | 3,759 |
| 4,225 |
| |
Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | | Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | 3,352 | | 3,759 | |
Operating lease right-of-use assets | 2,072 |
| — |
| Operating lease right-of-use assets | 1,856 | | 2,072 | |
Deferred income tax assets | 2,213 |
| 1,779 |
| Deferred income tax assets | 2,215 | | 2,213 | |
| Deferred charges and other assets | 818 |
| 735 |
| Deferred charges and other assets | 1,249 | | 818 | |
| Total other assets | 17,658 |
| 16,585 |
| Total other assets | 17,580 | | 17,658 | |
Total Assets | $ | 60,390 |
| $ | 83,699 |
| Total Assets | $ | 61,345 | | $ | 60,390 | |
Liabilities and Equity | | | Liabilities and Equity | | |
Current Liabilities | | | Current Liabilities | | |
Notes payable | $ | 586 |
| $ | 298 |
| Notes payable | $ | 156 | | $ | 586 | |
Long-term debt due within one year | 435 |
| 338 |
| Long-term debt due within one year | 460 | | 435 | |
Accounts payable: | | | Accounts payable: | | |
Trade | 3,889 |
| 4,456 |
| Trade | 3,763 | | 3,889 | |
Other | 2,064 |
| 2,479 |
| Other | 2,126 | | 2,064 | |
Operating lease liabilities - current | 421 |
| — |
| Operating lease liabilities - current | 416 | | 421 | |
Income taxes payable | 522 |
| 557 |
| Income taxes payable | 397 | | 522 | |
Accrued and other current liabilities | 2,233 |
| 2,931 |
| Accrued and other current liabilities | 3,256 | | 2,233 | |
Liabilities of discontinued operations - current | — |
| 4,488 |
| |
| Total current liabilities | 10,150 |
| 15,547 |
| Total current liabilities | 10,574 | | 10,150 | |
Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75) | 15,975 |
| 19,253 |
| |
Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | | Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | 16,491 | | 15,975 | |
Other Noncurrent Liabilities | | | Other Noncurrent Liabilities | | |
Deferred income tax liabilities | 347 |
| 501 |
| Deferred income tax liabilities | 405 | | 347 | |
Pension and other postretirement benefits - noncurrent | 10,083 |
| 8,926 |
| Pension and other postretirement benefits - noncurrent | 11,648 | | 10,083 | |
Asbestos-related liabilities - noncurrent | 1,060 |
| 1,142 |
| Asbestos-related liabilities - noncurrent | 1,013 | | 1,060 | |
Operating lease liabilities - noncurrent | 1,739 |
| — |
| Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
Other noncurrent obligations | 6,174 |
| 4,709 |
| Other noncurrent obligations | 6,124 | | 6,174 | |
| Total other noncurrent liabilities | 19,403 |
| 15,278 |
| Total other noncurrent liabilities | 20,711 | | 19,403 | |
| Stockholder's Equity | | | Stockholder's Equity | | |
Common stock (authorized and issued 100 shares of $0.01 par value each) | — |
| — |
| Common stock (authorized and issued 100 shares of $0.01 par value each) | 0 | | 0 | |
Additional paid-in capital | 7,333 |
| 7,042 |
| Additional paid-in capital | 7,603 | | 7,333 | |
Retained earnings | 17,313 |
| 35,460 |
| Retained earnings | 16,300 | | 17,313 | |
Accumulated other comprehensive loss | (10,246 | ) | (9,885 | ) | Accumulated other comprehensive loss | (10,855) | | (10,246) | |
Unearned ESOP shares | (91 | ) | (134 | ) | Unearned ESOP shares | (49) | | (91) | |
| The Dow Chemical Company’s stockholder's equity | 14,309 |
| 32,483 |
| The Dow Chemical Company’s stockholder's equity | 12,999 | | 14,309 | |
Noncontrolling interests | 553 |
| 1,138 |
| Noncontrolling interests | 570 | | 553 | |
Total equity | 14,862 |
| 33,621 |
| Total equity | 13,569 | | 14,862 | |
Total Liabilities and Equity | $ | 60,390 |
| $ | 83,699 |
| Total Liabilities and Equity | $ | 61,345 | | $ | 60,390 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows
| | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
Operating Activities | | | Operating Activities | | |
Net income (loss) | $ | (1,150 | ) | $ | 4,775 |
| $ | 595 |
| Net income (loss) | $ | 1,304 | | $ | (1,150) | | $ | 4,775 | |
Less: Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| Less: Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
Income (loss) from continuing operations, net of tax | (1,595 | ) | 2,940 |
| (1,287 | ) | Income (loss) from continuing operations, net of tax | 1,304 | | (1,595) | | 2,940 | |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
| |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
Depreciation and amortization | 2,938 |
| 2,909 |
| 2,546 |
| Depreciation and amortization | 2,874 | | 2,938 | | 2,909 | |
Provision (credit) for deferred income tax | (228 | ) | (429 | ) | 1,413 |
| Provision (credit) for deferred income tax | 258 | | (228) | | (429) | |
Earnings of nonconsolidated affiliates less than dividends received | 1,114 |
| 108 |
| 253 |
| Earnings of nonconsolidated affiliates less than dividends received | 443 | | 1,114 | | 108 | |
Net periodic pension benefit cost | 144 |
| 279 |
| 1,032 |
| Net periodic pension benefit cost | 266 | | 144 | | 279 | |
Pension contributions | (261 | ) | (1,651 | ) | (1,672 | ) | Pension contributions | (299) | | (261) | | (1,651) | |
Net gain on sales of assets, businesses and investments | (81 | ) | (38 | ) | (419 | ) | Net gain on sales of assets, businesses and investments | (802) | | (81) | | (38) | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| Other net loss | 213 |
| 415 |
| 451 |
| Other net loss | 320 | | 213 | | 415 | |
Changes in assets and liabilities, net of effects of acquired and divested companies: |
|
|
|
|
|
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | |
Accounts and notes receivable | 1,253 |
| (855 | ) | (11,431 | ) | Accounts and notes receivable | 171 | | 1,253 | | (855) | |
Inventories | 668 |
| (859 | ) | (891 | ) | Inventories | 515 | | 668 | | (859) | |
Accounts payable | (948 | ) | 787 |
| 1,081 |
| Accounts payable | (84) | | (948) | | 787 | |
Other assets and liabilities, net | (730 | ) | (731 | ) | (258 | ) | Other assets and liabilities, net | 589 | | (730) | | (731) | |
Cash provided by (used for) operating activities - continuing operations | 5,706 |
| 3,096 |
| (6,443 | ) | |
Cash provided by operating activities - continuing operations | | Cash provided by operating activities - continuing operations | 6,263 | | 5,706 | | 3,096 | |
Cash provided by operating activities - discontinued operations | 371 |
| 1,158 |
| 1,514 |
| Cash provided by operating activities - discontinued operations | 0 | | 371 | | 1,158 | |
Cash provided by (used for) operating activities | 6,077 |
| 4,254 |
| (4,929 | ) | |
Cash provided by operating activities | | Cash provided by operating activities | 6,263 | | 6,077 | | 4,254 | |
Investing Activities |
|
|
|
|
|
| Investing Activities | | |
Capital expenditures | (1,961 | ) | (2,091 | ) | (2,807 | ) | Capital expenditures | (1,252) | | (1,961) | | (2,091) | |
Investment in gas field developments | (76 | ) | (114 | ) | (121 | ) | Investment in gas field developments | (5) | | (76) | | (114) | |
| Purchases of previously leased assets | (9 | ) | (26 | ) | (187 | ) | Purchases of previously leased assets | (5) | | (9) | | (26) | |
Proceeds from sales of property and businesses, net of cash divested | 84 |
| 47 |
| 522 |
| Proceeds from sales of property and businesses, net of cash divested | 929 | | 84 | | 47 | |
Acquisitions of property and businesses, net of cash acquired | — |
| (20 | ) | 47 |
| Acquisitions of property and businesses, net of cash acquired | (130) | | 0 | | (20) | |
| Investments in and loans to nonconsolidated affiliates | (638 | ) | (18 | ) | (749 | ) | Investments in and loans to nonconsolidated affiliates | (333) | | (638) | | (18) | |
Distributions and loan repayments from nonconsolidated affiliates | 89 |
| 55 |
| 69 |
| Distributions and loan repayments from nonconsolidated affiliates | 7 | | 89 | | 55 | |
| Purchases of investments | (899 | ) | (1,530 | ) | (642 | ) | Purchases of investments | (1,203) | | (899) | | (1,530) | |
Proceeds from sales and maturities of investments | 1,252 |
| 1,214 |
| 1,165 |
| Proceeds from sales and maturities of investments | 1,122 | | 1,252 | | 1,214 | |
Proceeds from interests in trade accounts receivable conduits | — |
| 657 |
| 9,462 |
| Proceeds from interests in trade accounts receivable conduits | 0 | | 0 | | 657 | |
Other investing activities, net | — |
| — |
| 34 |
| Other investing activities, net | 29 | | 0 | | 0 | |
Cash provided by (used for) investing activities - continuing operations | (2,158 | ) | (1,826 | ) | 6,793 |
| |
Cash provided by (used for) investing activities - discontinued operations | (34 | ) | (369 | ) | 725 |
| |
Cash provided by (used for) investing activities | (2,192 | ) | (2,195 | ) | 7,518 |
| |
Cash used for investing activities - continuing operations | | Cash used for investing activities - continuing operations | (841) | | (2,158) | | (1,826) | |
Cash used for investing activities - discontinued operations | | Cash used for investing activities - discontinued operations | 0 | | (34) | | (369) | |
Cash used for investing activities | | Cash used for investing activities | (841) | | (2,192) | | (2,195) | |
Financing Activities |
|
|
|
|
|
| Financing Activities | | |
Changes in short-term notes payable | 307 |
| (178 | ) | 268 |
| Changes in short-term notes payable | (431) | | 307 | | (178) | |
Proceeds from issuance of short-term debt greater than three months | | Proceeds from issuance of short-term debt greater than three months | 163 | | 0 | | 0 | |
Payments on short-term debt greater than three months | | Payments on short-term debt greater than three months | (163) | | 0 | | 0 | |
Proceeds from issuance of long-term debt | 2,287 |
| 1,999 |
| — |
| Proceeds from issuance of long-term debt | 4,672 | | 2,287 | | 1,999 | |
Payments on long-term debt | (5,561 | ) | (3,054 | ) | (617 | ) | Payments on long-term debt | (4,653) | | (5,561) | | (3,054) | |
Proceeds from issuance of parent company stock | 93 |
| 112 |
| 66 |
| |
Proceeds from sales of common stock | — |
| — |
| 423 |
| |
| Proceeds from issuance of stock | | Proceeds from issuance of stock | 108 | | 93 | | 112 | |
| Transaction financing, debt issuance and other costs | (119 | ) | (70 | ) | — |
| Transaction financing, debt issuance and other costs | (175) | | (119) | | (70) | |
Employee taxes paid for share-based payment arrangements | (60 | ) | (77 | ) | (81 | ) | Employee taxes paid for share-based payment arrangements | (27) | | (60) | | (77) | |
| Distributions to noncontrolling interests | (77 | ) | (135 | ) | (101 | ) | Distributions to noncontrolling interests | (62) | | (77) | | (135) | |
Purchases of noncontrolling interests | (297 | ) | — |
| — |
| Purchases of noncontrolling interests | 0 | | (297) | | 0 | |
Dividends paid to stockholders | — |
| — |
| (2,179 | ) | |
| Dividends paid to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | Dividends paid to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
Dividends paid to Dow Inc. | (201 | ) | — |
| — |
| Dividends paid to Dow Inc. | (2,233) | | (201) | | 0 | |
Settlements and transfers related to separation from DowDuPont Inc. | (61 | ) | (240 | ) | 6 |
| Settlements and transfers related to separation from DowDuPont Inc. | 0 | | (61) | | (240) | |
Other financing activities, net | — |
| 3 |
| (4 | ) | Other financing activities, net | 0 | | 0 | | 3 | |
Cash used for financing activities - continuing operations | (4,224 | ) | (5,351 | ) | (3,275 | ) | Cash used for financing activities - continuing operations | (2,801) | | (4,224) | | (5,351) | |
Cash used for financing activities - discontinued operations | (18 | ) | (53 | ) | (50 | ) | Cash used for financing activities - discontinued operations | 0 | | (18) | | (53) | |
Cash used for financing activities | (4,242 | ) | (5,404 | ) | (3,325 | ) | Cash used for financing activities | (2,801) | | (4,242) | | (5,404) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (27 | ) | (99 | ) | 320 |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 107 | | (27) | | (99) | |
Summary |
|
|
|
|
|
| Summary | | |
Decrease in cash, cash equivalents and restricted cash | (384 | ) | (3,444 | ) | (416 | ) | |
Increase (decrease) in cash, cash equivalents and restricted cash | | Increase (decrease) in cash, cash equivalents and restricted cash | 2,728 | | (384) | | (3,444) | |
Cash, cash equivalents and restricted cash at beginning of year | 2,764 |
| 6,208 |
| 6,624 |
| Cash, cash equivalents and restricted cash at beginning of year | 2,380 | | 2,764 | | 6,208 | |
Cash, cash equivalents and restricted cash at end of year | $ | 2,380 |
| $ | 2,764 |
| $ | 6,208 |
| Cash, cash equivalents and restricted cash at end of year | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | |
Less: Restricted cash and cash equivalents, included in "Other current assets" | 13 |
| 40 |
| 19 |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 4 | | 13 | | 40 | |
Cash and cash equivalents at end of year | $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
| Cash and cash equivalents at end of year | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Equity
| (In millions, except per share amounts) For the years ended Dec 31, | | (In millions, except per share amounts) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| | (In millions, except per share amounts) For the years ended Dec 31, | 2019 | 2018 | 2017 | |
| Common Stock | | Common Stock | | |
Balance at beginning of year | $ | — |
| $ | — |
| $ | 3,107 |
| |
Merger impact | — |
| — |
| (3,107 | ) | |
Balance at end of year | — |
| — |
| — |
| |
Balance at beginning and end of year | | Balance at beginning and end of year | $ | 0 | | $ | 0 | | $ | 0 | |
| Additional Paid-in Capital | | Additional Paid-in Capital | | |
Balance at beginning of year | 7,042 |
| 6,553 |
| 4,262 |
| Balance at beginning of year | 7,333 | | 7,042 | | 6,553 | |
Common stock issued / sold | — |
| — |
| 423 |
| |
| Issuance of parent company stock - Dow Inc. | 65 |
| — |
| — |
| Issuance of parent company stock - Dow Inc. | 108 | | 65 | | 0 | |
Issuance of parent company stock - DowDuPont Inc. | 28 |
| 112 |
| 66 |
| Issuance of parent company stock - DowDuPont Inc. | 0 | | 28 | | 112 | |
Stock-based compensation and allocation of ESOP shares | 235 |
| 377 |
| (368 | ) | Stock-based compensation and allocation of ESOP shares | 162 | | 235 | | 377 | |
Merger impact | — |
| — |
| 2,172 |
| |
| Other | (37 | ) | — |
| (2 | ) | Other | 0 | | (37) | | 0 | |
Balance at end of year | 7,333 |
| 7,042 |
| 6,553 |
| Balance at end of year | 7,603 | | 7,333 | | 7,042 | |
Retained Earnings | | Retained Earnings | | |
Balance at beginning of year | 35,460 |
| 33,742 |
| 30,338 |
| Balance at beginning of year | 17,313 | | 35,460 | | 33,742 | |
Net income (loss) available for The Dow Chemical Company's common stockholder | | Net income (loss) available for The Dow Chemical Company's common stockholder | 1,235 | | (1,237) | | 4,641 | |
| Dividends to Dow Inc. | | Dividends to Dow Inc. | (2,233) | | (201) | | 0 | |
Dividends to DowDuPont Inc. | | Dividends to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
Common control transaction | | Common control transaction | 0 | | (16,009) | | (182) | |
Adoption of accounting standards (Note 1) | (151 | ) | 989 |
| — |
| Adoption of accounting standards (Note 1) | 0 | | (151) | | 989 | |
Net income (loss) available for The Dow Chemical Company's common stockholder | (1,237 | ) | 4,641 |
| 465 |
| |
Dividends to stockholders | — |
| — |
| (1,673 | ) | |
Dividends to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | |
Dividends to Dow Inc. | (201 | ) | — |
| — |
| |
Common control transaction | (16,009 | ) | (182 | ) | 5,693 |
| |
Other | (14 | ) | (19 | ) | (25 | ) | Other | (15) | | (14) | | (19) | |
Balance at end of year | 17,313 |
| 35,460 |
| 33,742 |
| Balance at end of year | 16,300 | | 17,313 | | 35,460 | |
Accumulated Other Comprehensive Loss | | Accumulated Other Comprehensive Loss | | |
Balance at beginning of year | (9,885 | ) | (8,591 | ) | (9,822 | ) | Balance at beginning of year | (10,246) | | (9,885) | | (8,591) | |
Other comprehensive loss | | Other comprehensive loss | (609) | | (1,154) | | (257) | |
Common control transaction | | Common control transaction | 0 | | 793 | | 0 | |
Adoption of accounting standards (Note 1) | — |
| (1,037 | ) | — |
| Adoption of accounting standards (Note 1) | 0 | | 0 | | (1,037) | |
Other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| |
Common control transaction | 793 |
| — |
| — |
| |
Balance at end of year | (10,246 | ) | (9,885 | ) | (8,591 | ) | Balance at end of year | (10,855) | | (10,246) | | (9,885) | |
Unearned ESOP Shares | | Unearned ESOP Shares | | |
Balance at beginning of year | (134 | ) | (189 | ) | (239 | ) | Balance at beginning of year | (91) | | (134) | | (189) | |
Stock-based compensation and allocation of ESOP shares | 45 |
| 55 |
| 50 |
| Stock-based compensation and allocation of ESOP shares | 42 | | 45 | | 55 | |
ESOP shares acquired | (2 | ) | — |
| — |
| ESOP shares acquired | 0 | | (2) | | 0 | |
Balance at end of year | (91 | ) | (134 | ) | (189 | ) | Balance at end of year | (49) | | (91) | | (134) | |
Treasury Stock | | |
Balance at beginning of year | — |
| — |
| (1,659 | ) | |
Common stock issued/sold | — |
| — |
| 724 |
| |
Merger impact | — |
| — |
| 935 |
| |
Balance at end of year | — |
| — |
| — |
| |
| The Dow Chemical Company's stockholder's equity | 14,309 |
| 32,483 |
| 31,515 |
| The Dow Chemical Company's stockholder's equity | 12,999 | | 14,309 | | 32,483 | |
Noncontrolling Interests | 553 |
| 1,138 |
| 1,186 |
| Noncontrolling Interests | 570 | | 553 | | 1,138 | |
Total Equity | $ | 14,862 |
| $ | 33,621 |
| $ | 32,701 |
| Total Equity | $ | 13,569 | | $ | 14,862 | | $ | 33,621 | |
See Notes to the Consolidated Financial Statements.
|
| |
Dow Inc. and Subsidiaries The Dow Chemical Company and Subsidiaries
|
Notes to the Consolidated Financial Statements |
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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger and Separation
On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") completed the separation of its materials science business and Dow Inc. became the direct parent company of The Dow Chemical Company and its consolidated subsidiaries (“TDCC” and together with Dow Inc., “Dow” or the “Company”). The separation was contemplated by the merger of equals transaction effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017.2017 (the "Merger Agreement"). TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries (“Historical DuPont”) each merged with subsidiaries of DowDuPont and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business. See NotesNote 3 and 4 for additional information.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements of Dow Inc. and TDCC were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which Dow exercises control and, when applicable, entities for which Dow has a controlling financial interest or is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies or less than 20 percent owned companies over which significant influence is exercised) are accounted for using the equity method.
Effective April 1, 2019, Dow Inc. owns all of the outstanding common shares of TDCC. TDCC is deemed the predecessor to Dow Inc. and the historical results of TDCC are deemed the historical results of Dow Inc. for periods prior to and including March 31, 2019. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and the expectationconsidering that the financial statements and disclosures of each company will beare substantially similar, the companies are filing a combined report for this Annual Report on Form 10-K. The information reflected in the report is equally applicable to both Dow Inc. and TDCC, except where otherwise noted.
As of the effective date and time of the distribution, DowDuPont does notno longer beneficially ownowned any equity interest in Dow and no longer consolidatesconsolidated Dow and its consolidated subsidiaries into its financial results. The consolidated financial results of Dow for all periods presented reflect the distribution of TDCC’s agricultural sciences business (“AgCo”) and specialty products business (“SpecCo”) as discontinued operations, as well as the receipt of Historical DuPont’s ethylene and ethylene copolymers businesses (other than its ethylene acrylic elastomers business) (“ECP”) as a common control transaction from the closing of the Merger on August 31, 2017 ("Merger Date"). See NotesNote 3 and 4 for additional information.
Effective with the Merger, the Company's business activities were components of DowDuPont's businessThe Company conducts its worldwide operations and therefore, were reported as a single operating segment. Following the separation from DowDuPont, the Company changed the manner in which its business activities were managed. The Company's portfolio now includesthrough six global businesses which are organized into the following operating segments: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure and Performance Materials & Coatings. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. See Note 2726 for additional information.
From the Merger Date through the separation, transactions between DowDuPont, TDCC and Historical DuPont and their affiliates were treated as related party transactions. Transactions between TDCC and Historical DuPont primarily consisted of the sale and procurement of certain raw materials that were consumed in each company's manufacturing process. Transactions between TDCC and Dow Inc. are treated as related party transactions for TDCC. See Note 2625 for additional information.
Throughout this Annual Report on Form 10-K, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Except as otherwise indicated by the context, the termsterm "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of the Company, and "Dow Silicones" means Dow Silicones Corporation, (formerly known as Dow Corning Corporation, which changed its name effective as of February 1, 2018), a wholly owned subsidiary of the Company.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.
Significant Accounting Policies
Asbestos-Related Matters
Accruals for asbestos-related matters, including defense and processing costs, are recorded based on an analysis of claim and resolution activity, defense spending, and pending and future claims. These accruals are assessed at each balance sheet date to determine if the asbestos-related liability remains appropriate. Accruals for asbestos-related matters are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent.” See Note 1716 for additional information.
Legal Costs
The Company expenses legal costs as incurred, with the exception of defense and processing costs associated with asbestos-related matters.
Foreign Currency Translation
The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in "Accumulated other comprehensive loss" ("AOCL"). For certain subsidiaries, the U.S. dollar is used as the functional currency. This occurs when the subsidiary operates in an economic environment where the products produced and sold are tied to U.S. dollar-denominated markets, or when the foreign subsidiary operates in a hyper-inflationary environment. Where the U.S. dollar is used as the functional currency, foreign currency translation gains and losses are reflected in income.
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. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Other noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets in “Accounts and notes receivable - Other” or "Noncurrent receivables."
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of purchase.
Financial Instruments
The Company calculates the fair value of financial instruments using quoted market prices when available. When quoted market prices are not available for financial instruments, the Company uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows.
The Company utilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair values of these instruments are reported in income or AOCL, depending on the use of the derivative and whether the Company has elected hedge accounting treatment.
Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCL until the underlying transactions are recognized in income. Gains and losses on derivative and non-derivative instruments used as hedges of the Company’s net investment in foreign operations are recorded in AOCL as part of the cumulative translation adjustment. Prior to the adoption of Accounting Standards Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" in 2018, the ineffective portions of hedges, if any, were recognized in income immediately.
Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income.
Inventories
Inventories are stated at the lower of cost or net realizable value. The method of determining cost for each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year. At December 31, 2020, approximately 30 percent, 58 percent and 12 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2019, approximately 32 percent, 58 percent and 10 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2018, approximately 34 percent, 57 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.
The Company routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time, freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.
Property
Land, buildings and equipment are carried at cost less accumulated depreciation or amortization. Property under finance lease agreements is carried at the present value of lease payments over the lease term less accumulated amortization. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method, unless the asset was capitalized before 1997 when the declining balance method was used.method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.
Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.
Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized over the remaining useful life of the assets.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not that the fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, an impairment charge is recognized based on the difference between the reporting unit's carrying value and its fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units.
Finite-lived intangible assets such as purchased customer lists, developed technology, patents,customer-related, trademarks, tradenames and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3 to 20 years. Indefinite-lived intangible assets are reviewed for impairment or obsolescence annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows.
Asset Retirement Obligations
The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less.
Investments
Investments in debt securities, primarily held by the Company's insurance operations, are classified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Those classified as available-for-sale are reported at fair value with unrealized gains and losses recorded in AOCL. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is determined by FIFO or specific identification.
Investments in equity securities with a readily determinable fair value are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Equity securities without a readily determinable fair value are accounted for at cost, adjusted for impairments and observable price changes in orderly transactions.
The Company routinely reviews its investments for declines in fair value below the cost basis. When events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the security is written down, to fair value, establishing a new cost basis.
Leases
Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the associated ASUs (collectively, “Topic 842”). The Company added the following significant accounting policy for leases as a result of the adoption of Topic 842.
The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.
Operating lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for nearly all classes of leased assets for which the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability. See Notes 2 and 18Note 17 for additional information.
Revenue
Effective with the January 1, 2018 adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," and the associated ASUs (collectively, "Topic 606"), theThe Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 54 for additional information.
Revenue related to the Company's insurance operations includes third-party insurance premiums, which are earned over the terms of the related insurance policies and reinsurance contracts.
In periods prior to the adoption of Topic 606, the Company's accounting policy was to recognize revenue when it was realized or realizable, and the earnings process was complete. Revenue for product sales was recognized as risk and title to the product transferred to the customer, which usually occurred at the time shipment was made. As such, title to the product passed when the product was delivered to the freight carrier. The Company’s standard terms of delivery were included in its contracts of sale, order confirmation documents and invoices. Revenue related to the initial licensing of patent and technology was recognized when earned; revenue related to running royalties was recognized according to licensee production levels.
Severance Costs
The Company routinely reviews its operations around the world in an effort to ensure competitiveness across its businesses and geographic regions. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization activities, severance benefits are provided to employees primarily under the Company’s ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated.
Integration and Separation Costs
The Company classifies expenses related to the Merger and separation and the ownership restructure of Dow Silicones as "Integration and separation costs" in the consolidated statements of income. Merger and separation related costs include: costs incurred to prepare for and close the Merger, post-Merger integration expenses, costs incurred for the separation of AgCo and SpecCo and costs related to the integration of ECP. The Dow Silicones-related costs include integration expenses incurred after the close of the ownership restructure. Integration and separation costs primarily consist of financial adviser, information technology, legal, accounting, consulting and other professional advisory fees associated with preparation and execution of these activities. Integration and separation costs related to the Dow Silicones ownership restructure were completed as of May 31, 2018. Integration and separation costs related to the Merger and separation were completed as of December 31, 2020.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date. The Company uses the portfolio approach for releasing income tax effects from AOCL.
Effective with the Merger, TDCC and Historical DuPont were subsidiaries of DowDuPont. Prior to the separation, TDCC was included in DowDuPont's consolidated tax groups and related income tax returns within certain jurisdictions. The Company recordsrecorded a separate tax liability for its share of the taxable income and tax attributes and obligations on DowDuPont’s consolidated income tax returns following a formula consistent with the economic sharing of tax attributes and obligations. The Company and Historical DuPont computecomputed the amount due to DowDuPont for their share of taxable income and tax attributes and obligations on DowDuPont’s consolidated tax return. The amounts reported as income tax payable or receivable represent the Company’s payment obligation (or refundable amount) to DowDuPont based on a theoretical tax liability calculated based on the methodologies agreed, elected or required in each combined or consolidated filing jurisdiction. Since April 1, 2019, the Company no longer has consolidated income tax return filings with Historical DuPont entities.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
See Note 9 for further information relating to the enactment of the Tax Cuts and Jobs Act ("The Act") in 2017.
Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the Company's common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.
Adoption of Accounting Standards
2019
Effective January 1, 2019, the Company adopted Topic 842Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842),” and the associated ASUs (collectively, "Topic 842") and added the accounting policy on leases discussed in the section above. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $2.3 billion at January 1, 2019. The net impact to “Retained earnings” was an increase of $32 million and was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction. The adoptionimpact is reflected in the "Adoption of accounting standards" line in the new guidance did not have a material impact on Dow's consolidated statements of incomeequity of both Dow Inc. and had no impact on cash flows.TDCC. See Notes 2 and 18Note 17 for additional information.
In addition, the Company's consolidated balance sheetsfinancial statements reflect the impact of the adoption of Topic 606ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," and the associated ASUs (collectively, "Topic 606") at January 1, 2019 by certain nonconsolidated affiliates of the Company, which were subsequently distributed as part of the separation from DowDuPont. The net impact iswas reflected in assets and liabilities of discontinued operations with a corresponding reduction to "Retained earnings" of $183 million in the consolidated balance sheets at January 1, 2019. The impact is reflected in the "Adoption of accounting standards" line in the consolidated statements of equity of both Dow Inc. and TDCC.
2018
In the first quarterThe adoption of 2018, the Company adopted Topic 606, ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." The adoptionInventory" in the first quarter of these ASUs2018 resulted in a net decrease of $68 million to "Retained earnings" and a decrease of $20 million to "Accumulated other comprehensive loss" ("AOCL")AOCL in the consolidated statements of equity at January 1, 2018. In the second quarter of 2018, the Company early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")." The adoption of this standard resulted in a $1,057 million increase to "Retained earnings" due to the reclassification from AOCL in the consolidated statements of equity at April 1, 2018. The impacts are reflected in the "Adoption of accounting standards" line in the consolidated statements of equity.
Change in Financial Statement Presentation
Dividends
PriorIn 2020, the Company elected to reclassify "Marketable securities" to "Other current assets" in the consolidated balance sheets and, as a result, the prior period amounts have been reclassified to conform to current year presentation. Changes made to the Merger, consolidated balance sheets were as follows:
| | | | | | | | | | | | | | |
Changes to the Consolidated Balance Sheets | Dec 31, 2019 |
| Dow Inc. | TDCC |
In millions | As Filed | Updated | As Filed | Updated |
Marketable securities | $ | 21 | $ | 0 | $ | 21 | $ | 0 |
Other current assets | $ | 658 | $ | 679 | $ | 571 | $ | 592 |
TDCC declared dividends of $1.38 per share in 2017, based on the historical number of shares of common stock of TDCC held by shareholders of record for each dividend. Dividends
Effective with the Merger, TDCC no longer had publicly traded common stock. TDCC's common shares were owned solely by its parent company, DowDuPont, prior to separation, and TDCC's Board of Directors ("Board") determined whether or not there would be a dividend distribution to DowDuPont. Effective with the separation from DowDuPont, TDCC became a wholly owned subsidiary of Dow Inc. and TDCC's Board of Directors determines whether or not there will be a dividend distribution to Dow Inc. Subsequent to the separation from DowDuPont, Dow Inc. declared dividends of $2.10 per share in 2019. See Notes 1918 and 2625 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2019,the first quarter of 2020, the Company adopted 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, 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 requires 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 legacy U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance in Topic 606. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption was permitted.
The Company adopted Topic 842 using the modified retrospective transition approach, applying the new standard to leases existing at the date of initial adoption. The Company elected to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods were not restated. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions, lease classification and initial direct lease costs. The Company did not elect to use the hindsight practical expedient in determining the lease term or assessing impairment of ROU assets. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $2.3 billion at January 1, 2019. The net impact to retained earnings was an increase of $32 million and was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction. The adoption of the new guidance did not have a material impact on Dow's consolidated statements of income and had no impact on cash flows. See Notes 1 and 18 for additional information.
Accounting Guidance Issued But Not Adopted at December 31, 2019
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which is part of the FASBFinancial Accounting Standards Board's ("FASB") disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement.Measurement," The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively and all other requirements applied retrospectively to all periods presented.retrospectively. The Company expects to adopt the new guidance in the first quarter of 2020 and the adoption of this guidance isdid not expected to have a material impact on the consolidated financial statements. See Note 23 for additional information.
In August 2018, the FASB issuedfirst quarter of 2020, the Company adopted ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement Thatthat is a Service Contract," which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can electCompany elected to apply the new guidance on a prospective or retrospective basis. The Company expects to adopt the new guidance in the first quarter of 2020standard prospectively and the adoption of this guidance isdid not expected to have a material impact on the consolidated financial statements.
In the first quarter of 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and the associated ASUs. The amendments replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Accordingly, companies are required to consider forward-looking information to estimate credit losses expected to occur over the estimated life of an asset, including losses that may be incurred in future periods. The amendments in the standard required application through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In the third quarter of 2020, the Company adopted ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The new standard is effective March 12, 2020 through December 31, 2022, with the adoption date dependent upon the Company’s election. The Company has elected to apply the optional expedients and exceptions provided by the new guidance as modifications are made to relevant contracts, hedging relationships and other transactions during the reference rate reform transition period. As the amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting, the application of this guidance has not and will not have a material impact on the consolidated financial statements.
Accounting Guidance Issued But Not Adopted at December 31, 2020
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is currently evaluatingwill adopt the impact of adopting this guidance.
NOTE 3 - MERGER WITH HISTORICAL DUPONT
Effective August 31, 2017, TDCC and Historical DuPont completed the merger of equals transaction contemplated by the Merger Agreement, by and among TDCC, Historical DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuant to the Merger Agreement, (i) Diamond Merger Sub, Inc. was merged with and into TDCC, with TDCC surviving the merger as a subsidiary of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into Historical DuPont, with Historical DuPont surviving the merger as a subsidiary of DowDuPont (the "Orion Merger" and, together with the Diamond Merger, the "Mergers"). Following the consummation of the Mergers, each of TDCC and Historical DuPont became subsidiaries of DowDuPont. Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business.
Upon completion of the Diamond Merger, each share of common stock, par value $2.50 per share, of TDCC ("TDCC Common Stock") (excluding any shares of TDCC Common Stock that were held in treasury immediately prior to the effective time of the Diamond Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive 1 fully paid and non-assessable share of common stock, par value $0.01 per share, of DowDuPont ("DowDuPont Common Stock"). As providednew guidance in the Merger Agreement, atfirst quarter of 2021 and the effective timeadoption of the Mergers, (i) all options, deferred stock, performance deferred stock and other equity awards relatingthis guidance is not expected to shares of TDCC Common Stock outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options and deferred stock and other equity awards relating to shares of DowDuPont Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generallyhave a material impact on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers. See Note 22 for additional information on the conversion of the equity awards.consolidated financial statements.
In the third quarter of 2017, as a result of the Diamond Merger and the Merger, TDCC recorded a reduction in "Treasury stock" of $935 million, a reduction in "Common stock" of $3,107 million and an increase in "Additional paid in capital" of $2,172 million. At September 1, 2017, TDCC had 100 shares of common stock issued and outstanding, par value $0.01 per share, owned solely by its parent, DowDuPont. Following the separation from DowDuPont, these shares are now solely owned by Dow Inc.
On August 31, 2017, following the Diamond Merger, TDCC requested that the New York Stock Exchange ("NYSE") withdraw the shares of TDCC Common Stock from listing on the NYSE and filed a Form 25 with the SEC to report that the shares of TDCC Common Stock are no longer listed on the NYSE. The shares of TDCC Common Stock were suspended from trading on the NYSE prior to the open of trading on September 1, 2017.
As a condition of the regulatory approval of the Merger, TDCC and Historical DuPont agreed to certain closing conditions, which are as follows:
TDCC divested its global Ethylene Acrylic Acid copolymers and ionomers business ("EAA Business") to SK Global Chemical Co., Ltd., on September 1, 2017, as part of a divestiture commitment given to the European Commission ("EC") in connection with the EC's conditional approval of the Merger granted on March 27, 2017. See Note 6 for additional information on this transaction.
Historical DuPont divested its Cereal Broadleaf Herbicides and Chewing Insecticides portfolios as well as its Crop Protection research and development ("R&D") pipeline and organization (excluding seed treatment, nematicides, late-stage R&D programs and certain personnel needed to support marketed products and R&D programs that remained with Historical DuPont) (collectively, the "DuPont Divested Assets") to FMC Corporation ("FMC") on November 1, 2017, as part of the EC's conditional approval granted on March 27, 2017. Also on November 1, 2017, Historical DuPont completed its acquisition of FMC's Health and Nutrition business, excluding its Omega-3 products.
On May 2, 2017, TDCC and Historical DuPont announced that China's Ministry of Commerce ("MOFCOM") granted conditional regulatory approval for the companies' proposed merger of equals which included commitments already made to the EC including Historical DuPont's divestiture of the DuPont Divested Assets and TDCC's divestiture of the EAA Business. In addition, TDCC and Historical DuPont made commitments related to the supply and distribution in China of certain herbicide and insecticide ingredients and formulations for rice crops for five years after the closing of the Merger.
TDCC divested a select portion of Dow AgroSciences' corn seed business in Brazil to CITIC Agri Fund on November 30, 2017. The divestiture was part of the commitment given to Brazil's Administrative Council for Economic Defense ("CADE") in connection with the CADE's conditional approval of the Merger granted on May 17, 2017, which was incremental to commitments already made to the EC, China and regulatory agencies in other jurisdictions. This divestiture was included in discontinued operations of the Company.
On June 15, 2017, TDCC and Historical DuPont announced that a proposed agreement had been reached with the Antitrust Division of the United States Department of Justice that permitted the companies to proceed with the proposed merger of equals transaction. The proposed agreement was consistent with commitments already made to the EC.
NOTE 43 – SEPARATION FROM DOWDUPONT
Effective August 31, 2017, TDCC and Historical DuPont completed the merger of equals transaction contemplated by the Merger Agreement, by and among TDCC, Historical DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuant to the Merger Agreement, (i) Diamond Merger Sub, Inc. was merged with and into TDCC, with TDCC surviving the merger as a subsidiary of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into Historical DuPont, with Historical DuPont surviving the merger as a subsidiary of DowDuPont (the "Orion Merger" and, together with the Diamond Merger, the "Mergers"). Following the consummation of the Mergers, each of TDCC and Historical DuPont became subsidiaries of DowDuPont. Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business.
On April 1, 2019, DowDuPont completed the previously announced separation of its materials science business. The separation was effected by way of a pro rata distribution of all of the then-issued and outstanding shares of Dow Inc. common stock to DowDuPont stockholders of record as of the close of business, Eastern Time, on March 21, 2019 (the “Record Date”). The shareholders of record of DowDuPont received one share of Dow Inc. common stock, par value $0.01 per share, for every three shares of DowDuPont common stock, par value $0.01 per share, held as of the Record Date ("Distribution Ratio"). No fractional shares of Dow Inc. common stock were issued. Instead, cash in lieu of any fractional shares was paid to DowDuPont registered shareholders. The number of shares of Dow Inc. common stock issued on April 1, 2019 was 748.8 million shares. Dow Inc. is now an independent, publicly traded company and Dow Inc. common stock is listed on the NYSE under the symbol “DOW.” Dow Inc. common stock began regular-way trading on April 2, 2019, the first day following the distribution.
Effective April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. As of the effective date and time of the distribution, DowDuPont doesdid not beneficially own any equity interest in Dow and will no longer consolidateconsolidated Dow and its consolidated subsidiaries into its financial results. Beginning in the second quarter of 2019, Dow’s consolidated financial results reflect the results of Dow Inc. and its consolidated subsidiaries - that is, TDCC after giving effect to the distribution of AgCo and SpecCo and the receipt of ECP. The consolidated financial results of Dow for periods prior to April 1, 2019, reflect the distribution of AgCo and SpecCo as discontinued operations for each period presented as well as reflect the receipt of ECP as a common control transaction from the closing of the Merger on August 31, 2017.
On April 1, 2019, Dow Inc. received a cash contribution of $2,024 million from DowDuPont as part of the internal reorganization and business realignment steps between Dow Inc., TDCC and DowDuPont. Dow Inc. recognized a reduction to "Retained earnings" of $14,806 million in 2019 as a result of the cash contribution, the distribution of AgCo and SpecCo, and other separation related adjustments. TDCC recognized a reduction to "Retained earnings" of $16,009 million in 2019 as a result of the distribution of AgCo and SpecCo.
Receipt of ECP
As the receipt of ECP was accounted for as a transfer between entities under common control, the consolidated financial statements have been retrospectively adjusted to reflect the receipt of ECP from the closing of the Merger on August 31, 2017. All intercompany transactions have been eliminated in consolidation.
Distribution of AgCo and SpecCo
Upon distribution, the Company retrospectively adjusted the previously issued consolidated financial statements and presented AgCo and SpecCo as discontinued operations based on the guidance in Accounting Standards Codification (“ASC”)ASC 205-20 “Discontinued Operations” (“ASC 205-20”). The results of operations of AgCo and SpecCo are presented as discontinued operations in the consolidated statements of income and are summarized in the following table:
| | | | | | | | |
Results of Operations of AgCo and SpecCo | 2019 1 | 2018 |
In millions |
Net sales | $ | 2,953 | | $ | 12,187 | |
Cost of sales | 1,804 | | 7,668 | |
Research and development expenses | 175 | | 761 | |
Selling, general and administrative expenses | 262 | | 1,108 | |
Amortization of intangibles | 61 | | 249 | |
Restructuring and asset related charges - net | 78 | | 411 | |
| | |
Equity in earnings of nonconsolidated affiliates | 28 | | 400 | |
Sundry income (expense) - net | (18) | | (13) | |
Interest income | 3 | | 26 | |
Interest expense and amortization of debt discount | 7 | | 56 | |
Income from discontinued operations before income taxes | $ | 579 | | $ | 2,347 | |
Provision for income taxes | 134 | | 512 | |
Income from discontinued operations, net of tax | $ | 445 | | $ | 1,835 | |
|
| | | | | | | | | |
Results of Operations of AgCo and SpecCo | 2019 1 | 2018 | 2017 |
In millions |
Net sales | $ | 2,953 |
| $ | 12,187 |
| $ | 12,337 |
|
Cost of sales | 1,804 |
| 7,668 |
| 7,769 |
|
Research and development expenses | 175 |
| 761 |
| 854 |
|
Selling, general and administrative expenses | 262 |
| 1,108 |
| 1,143 |
|
Amortization of intangibles | 61 |
| 249 |
| 255 |
|
Restructuring and asset related charges - net | 78 |
| 411 |
| 376 |
|
Integration and separation costs | — |
| — |
| 18 |
|
Equity in earnings of nonconsolidated affiliates | 28 |
| 400 |
| 372 |
|
Sundry income (expense) - net | (18 | ) | (13 | ) | 245 |
|
Interest income | 3 |
| 26 |
| 40 |
|
Interest expense and amortization of debt discount | 7 |
| 56 |
| 61 |
|
Income from discontinued operations before income taxes | $ | 579 |
| $ | 2,347 |
| $ | 2,518 |
|
Provision for income taxes | 134 |
| 512 |
| 636 |
|
Income from discontinued operations, net of tax | $ | 445 |
| $ | 1,835 |
| $ | 1,882 |
|
1. Results through March 31, 2019.
The carrying amount of major classes of assets and liabilities related to the distribution of AgCo and SpecCo consisted of the following:
|
| | | |
Carrying Values of AgCo and SpecCo 1
| Dec 31, 2018 |
In millions |
Accounts and notes receivable - Trade | $ | 2,768 |
|
Accounts and notes receivable - Other | 773 |
|
Inventories | 2,826 |
|
Other current assets | 151 |
|
Investment in nonconsolidated affiliates | 612 |
|
Other investments | 2 |
|
Noncurrent receivables | 35 |
|
Net property | 3,014 |
|
Goodwill | 7,590 |
|
Other intangible assets | 1,830 |
|
Deferred income tax assets | 239 |
|
Deferred charges and other assets | 60 |
|
Total assets of discontinued operations | $ | 19,900 |
|
Notes payable | $ | 7 |
|
Long-term debt due within one year | 4 |
|
Accounts payable - Trade | 1,118 |
|
Accounts payable - Other | 868 |
|
Income taxes payable | 234 |
|
Accrued and other current liabilities | 716 |
|
Long-Term Debt | 5 |
|
Deferred income tax liabilities | 568 |
|
Pension and other postretirement benefits - noncurrent | 306 |
|
Other noncurrent obligations | 662 |
|
Total liabilities of discontinued operations | $ | 4,488 |
|
| |
1. | Includes assets and liabilities of consolidated variable interest entities related to discontinued operations. |
Agreements Related to the Separation and Distribution
In connection with the separation, Dow Inc. entered into certain agreements with DuPont and/or Corteva, Inc. ("Corteva"), including the following: Separation and Distribution Agreement, Tax Matters Agreement and Employee Matters Agreement (collectively, the "Agreements"). In addition to establishing the terms of the separation, the Agreements provide a framework for Dow’s interaction with DuPont and Corteva after the separation and also provide for the allocation among Dow, DuPont and Corteva of assets, liabilities and obligations attributable to periods prior to, at and after the completion of the separation. The Agreements also contain certain indemnity and/or cross-indemnity provisions that are intended to set forth each party’s respective rights, responsibilities and obligations for matters subject to indemnification. Except in certain instances, the parties’ indemnification obligations are uncapped. Certain indemnification obligations will be subject to reduction by insurance proceeds or other third-party proceeds of the indemnified party that reduces the amount of the loss. In addition, indemnifiable losses will be subject to, in certain cases, “de minimis” threshold amounts and, in certain cases, deductible amounts.
The impacts of indemnifications and other post-separation matters relating to the Agreements are primarily reflected in the consolidated financial statements of Dow Inc. In 2019, the Company recorded pretax charges related to the Agreements of $24 million in "Integration and separation costs" and $69 million in "Sundry income (expense) - net" in the consolidated statements of income of Dow Inc., and related to Corporate.
At December 31, 2019,2020, the Company had assets of $58$77 million ($58 million at December 31, 2019) included in "Other current assets" and $52$33 million ($52 million at December 31, 2019) included in "Noncurrent receivables,"receivables" and liabilities of $352$412 million ($352 million at December 31, 2019) included in "Accrued and other current liabilities" and $96$46 million ($96 million at December 31, 2019) included in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. related to the Agreements. Any adjustments to these assets and liabilities in subsequent periods will be recorded in Dow Inc.'s results of operations.
In addition, the Company deferred approximately $400 million of the cash distribution received from DowDuPont at separation and recorded an associated liability with an offset to "Retained earnings" in the consolidated balance sheets of Dow Inc. At December 31, 2019, $1302020, $103 million ($130 million at December 31, 2019) of this liability was recorded in "Accrued and other current liabilities" and $270$96 million ($270 million at December 31, 2019) was recorded in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. Based on notices received in the fourth quarter of 2020, Dow Inc. reversed $177 million of the liability and the impact is reflected in the "Common control transaction" line in the consolidated statements of equity of Dow Inc. The final resolution of thisthe remaining liability is uncertain and any subsequent adjustments to the carrying value of this liability will be reflected in equity of Dow Inc. Following the separation,
In 2020, Dow Inc. made net cash payments of $215$18 million ($215 million in 2019) related to the Agreements, recorded in "Cash flows from operating activities - discontinued operations" in the Dow Inc. consolidated statements of cash flows. The Company also received $98 million in 2019 related to the Agreements, recorded in "Other assets and liabilities, net" within "Cash flows from operating activities - continuing operations" in the Dow Inc. consolidated statements of cash flows.
Continuing Involvement
The Company has certain product and service agreements with DuPont and Corteva that were considered intercompany transactions prior to the separation, but are trade transactions subsequent to the separation. These transactions have been retrospectively reclassified as trade transactions in the consolidated financial statements. Based on the Company’s assessment of the specific factors identified in ASC Topic 205, “Presentation of Financial Statements,” the Company concluded that these agreements do not constitute significant continuing involvement in AgCo or SpecCo.
Integration and Separation Costs
Integration and separation costs, which reflect costs related to post-Merger integration and business separation activities, as well as the ownership restructure of Dow Silicones (through May 31, 2018), were $239 million in 2020, compared with $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019 compared withand $1,179 million in 2018 and $798 million in 2017.2018. Integration and separation costs related to post-Merger integration and business separation activities are expected to be substantially complete by the endwere completed as of December 31, 2020.
NOTE 54 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2019, 982020, 99 percent of the Company's revenue related to product sales (99(98 percent in 20182019 and 9899 percent in 2017)2018). The remaining sales were primarily related to the Company's insurance operations and licensing of patents and technologies.
Product Sales
Product sales consist of sales of the Company's products to manufacturers and distributors. The Company considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. Product sale contracts are generally short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year. However, the Company has some long-term contracts which can span multiple years.
Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing, depending on business and geographic region. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and accordingly, the costs are accrued when
the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company elected to use the practical expedient to expense cash and non-cash sales incentives, as the amortization period for the costs to obtain the contract would have been one year or less.
Certain long-term contracts include a series of distinct goods that are delivered continuously to the customer through a pipeline (e.g., feedstocks). For these types of product sales, the Company invoices the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date. As a result, the Company recognizes revenue based on the amount billable to the customer in accordance with the right to invoice practical expedient.
The transaction price includes estimates for reductions in revenue from customer rebates and right of returns on product sales. These amounts are estimated based upon the most likely amount of consideration to which the customer will be entitled. All estimates are based on historical experience, anticipated performance and the Company’s best judgment at the time to the extent it is probable that a significant reversal of revenue recognized will not occur. All estimates for variable consideration are reassessed periodically. The Company elected the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between payment and transfer of the goods will be one year or less.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.
Patents, Trademarks and Licenses
The Company enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from the majority of the Company’s licenses for patents and technology is derived from sales-based royalties. The Company estimates the amount of sales-based royalties it expects to be entitled to based on historical sales to the customer. For the remaining revenue from licensing arrangements, payments are typically received from the Company's licensees based on billing schedules established in each contract. Revenue is recognized when the performance obligation is satisfied.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. At December 31, 2019,2020, the Company had unfulfilled performance obligations forof $977 million ($826 million at December 31, 2019) related to the licensing of technology of $826 million, and expects revenue to be recognized for the remaining performance obligations over the next one to seven years.
The remaining performance obligations are for product sales that have expected durations of one year or less, product sales of materials delivered through a pipeline for which the Company has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 21 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.
Disaggregation of Revenue
The CompanyDow disaggregates its revenue from contracts with customers by operating segment and business, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See details in the tables below:
| | | | | | | | | | | |
Net Trade Sales by Segment and Business | 2020 | 2019 | 2018 |
In millions |
Hydrocarbons & Energy | $ | 4,271 | | $ | 5,357 | | $ | 7,587 | |
Packaging and Specialty Plastics | 14,030 | | 14,888 | | 16,608 | |
Packaging & Specialty Plastics | $ | 18,301 | | $ | 20,245 | | $ | 24,195 | |
Industrial Solutions | $ | 3,929 | | $ | 4,310 | | $ | 4,812 | |
Polyurethanes & Construction Chemicals | 8,080 | | 9,117 | | 10,615 | |
Others | 12 | | 13 | | 20 | |
Industrial Intermediates & Infrastructure | $ | 12,021 | | $ | 13,440 | | $ | 15,447 | |
Coatings & Performance Monomers | $ | 3,258 | | $ | 3,517 | | $ | 3,979 | |
Consumer Solutions | 4,693 | | 5,406 | | 5,698 | |
Performance Materials & Coatings | $ | 7,951 | | $ | 8,923 | | $ | 9,677 | |
Corporate | $ | 269 | | $ | 343 | | $ | 285 | |
Total | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
|
| | | | | | |
Net Trade Sales by Segment and Business | 2019 | 2018 |
In millions |
Hydrocarbons & Energy | $ | 5,357 |
| $ | 7,587 |
|
Packaging and Specialty Plastics | 14,888 |
| 16,608 |
|
Packaging & Specialty Plastics | $ | 20,245 |
| $ | 24,195 |
|
Industrial Solutions | $ | 4,310 |
| $ | 4,812 |
|
Polyurethanes & Construction Chemicals | 9,117 |
| 10,615 |
|
Others | 13 |
| 20 |
|
Industrial Intermediates & Infrastructure | $ | 13,440 |
| $ | 15,447 |
|
Coatings & Performance Monomers | $ | 3,517 |
| $ | 3,979 |
|
Consumer Solutions | 5,406 |
| 5,698 |
|
Performance Materials & Coatings | $ | 8,923 |
| $ | 9,677 |
|
Corporate | $ | 343 |
| $ | 285 |
|
Total | $ | 42,951 |
| $ | 49,604 |
|
| | | | | | | | | | | |
Net Trade Sales by Geographic Region | 2020 | 2019 | 2018 |
In millions |
U.S. & Canada | $ | 13,582 | | $ | 15,549 | | $ | 17,809 | |
EMEAI 1 | 12,969 | | 14,612 | | 17,406 | |
Asia Pacific | 8,165 | | 8,676 | | 9,404 | |
Latin America | 3,826 | | 4,114 | | 4,985 | |
Total | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
|
| | | | | | |
Net Trade Sales by Geographic Region | 2019 | 2018 |
In millions |
U.S. & Canada | $ | 15,549 |
| $ | 17,809 |
|
EMEAI 1 | 14,612 |
| 17,406 |
|
Asia Pacific | 8,676 |
| 9,404 |
|
Latin America | 4,114 |
| 4,985 |
|
Total | $ | 42,951 |
| $ | 49,604 |
|
1.Europe, Middle East, Africa and India.
Contract Assets and Liabilities
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are realizedrecognized in revenue when the associated revenue is recognized under the contract.performance obligations are met. "Contract liabilities - current" primarily reflects deferred revenue from prepayments from customers for product to be delivered in 12 months or less. "Contract liabilities - noncurrent" includes advance payments that the Company has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract.
The Company's contract liabilities increased from December 31, 2018 to December 31, 2019 due to advanced payments from customers related to long-term product supply agreements. Revenue recognized in 20192020 from amounts included in contract liabilities at the beginning of the period was approximately $145 million ($205(approximately $145 million in 2019 and $205 million in 2018). In 2019,2020, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $25 million (approximately $15 million ($12 million in 2018)2019). The Company did not recognize any asset impairment charges related to contract assets in 2020, 2019, or 2018.
The following table summarizes the contract assets and liabilities at December 31, 20192020 and 2018:2019:
| | | | | | | | | |
Contract Assets and Liabilities at Dec 31 | 2020 | 2019 | |
In millions |
Accounts and notes receivable - Trade | $ | 4,839 | | $ | 4,844 | | |
Contract assets - current 1 | $ | 58 | | $ | 41 | | |
Contract assets - noncurrent 2 | $ | 11 | | $ | 4 | | |
Contract liabilities - current 3 | $ | 349 | | $ | 193 | | |
Contract liabilities - noncurrent 4 | $ | 1,915 | | $ | 1,607 | | |
|
| | | | | | |
Contract Assets and Liabilities at Dec 31 | 2019 | 2018 |
In millions |
Accounts and notes receivable - Trade | $ | 4,844 |
| $ | 5,646 |
|
Contract assets - current 1 | $ | 41 |
| $ | 19 |
|
Contract assets - noncurrent 2 | $ | 4 |
| $ | 1 |
|
Contract liabilities - current 3 | $ | 193 |
| $ | 134 |
|
Contract liabilities - noncurrent 4 | $ | 1,607 |
| $ | 1,318 |
|
1.Included in "Other current assets" in the consolidated balance sheets.
2.Included in "Deferred charges and other assets" in the consolidated balance sheets.
3.Included in "Accrued and other current liabilities" in the consolidated balance sheets. The increase from December 31, 2019 to December 31, 2020 was primarily due to advance payments from customers related to royalty agreements.
4.Included in "Other noncurrent obligations" in the consolidated balance sheets. The increase from December 31, 2019 to December 31, 2020 was due to an advance payment from a customer related to a long-term product supply agreement.
NOTE 65 – DIVESTITURES
Merger Remedy - Divestiture of the Global Ethylene Acrylic Acid CopolymersRail Infrastructure Operations and Ionomers BusinessAssets
On February 2, 2017, as a condition of regulatory approval of the Merger, the Company announced it would divest its global EAA Business to SK Global Chemical Co., Ltd. The divestiture included production assets located in Freeport, Texas, and Tarragona, Spain, along with associated intellectual property and product trademarks. Under terms of the purchase agreement, SK Global Chemical Co., Ltd will honor certain customer and supplier contracts and other agreements. On September 1, 2017,30, 2020, TDCCsold its rail infrastructure operations and assets, including existing agreements to provide rail services to unrelated third parties, at six sites in the sale was completedU.S. & Canada to an affiliate of Watco Companies, L.L.C. for $296cash proceeds of $303 million, net of working capital adjustments, costs to sell and other adjustments with proceedsand subject to customary post-closing adjustments. AsThese assets are located at TDCC’s sites in Plaquemine and St. Charles, Louisiana; Freeport and Seadrift, Texas; and Fort Saskatchewan and Prentiss, Alberta, Canada. Divested operations included property with a result, in 2017,net book value of $68 million and goodwill of $2 million ($16 million related to Packaging & Specialty Plastics and $54 million related to Corporate). TDCC retained ownership of the Companysites and underlying real property where the divested operations are located. TDCC and the buyer entered into mutual long-term service agreements designed to ensure the continuation of rail services for TDCC's existing operations at each site. The rail-service agreements include variable fees that have an initial term of 25 years. TDCC recognized a pretax gain of $227$233 million on the sale ($48 million related to Packaging & Specialty Plastics and $185 million related to Corporate), included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Packaging & Specialty Plastics segment.income.
The Company evaluated the divestiture of the EAA Businessrail infrastructure operations and assets and determined it did not represent a strategic shift that had a major effect on the Company’s operations and financial results and did not qualify as an individually significant component of the Company. As a result, thisthe divestiture wasis not reported inas discontinued operations.
Divestiture of Marine and Terminal Operations and Assets
On December 1, 2020, TDCC sold certain U.S. Gulf Coast marine and terminal operations and assets, including existing agreements to provide marine and terminal services to unrelated third parties, at three U.S. sites to an affiliate of Royal Vopak for cash proceeds of $600 million, net of costs to sell and other adjustments and subject to customary post-closing adjustments. These assets are located at TDCC's sites in Plaquemine and St. Charles, Louisiana, and Freeport, Texas. Divested operations included property with a net book value of $93 million and goodwill of $8 million ($7 million related to Packaging & Specialty Plastics, $17 million related to Industrial Intermediates & Infrastructure and $77 million related to Corporate). TDCC retained ownership of the sites and the underlying real property where the divested operations are located. TDCC and the buyer entered into mutual long-term service agreements designed to ensure the continuation of marine and terminal services for TDCC's existing operations at each site. The marine and terminal service agreements include fixed and variable fees that have initial terms of up to 25 years. In the fourth quarter of 2020, TDCC recognized a pretax gain of $499 million on the sale ($17 million related to Packaging & Specialty Plastics, $61 million related to Industrial Intermediates & Infrastructure and $421 million related to Corporate), included in "Sundry income (expense) - net" in the consolidated statements of income.
The Company evaluated the divestiture of the marine and terminal operations and assets and determined it did not represent a strategic shift that had a major effect on the Company’s operations and financial results and did not qualify as an individually significant component of the Company. As a result, the divestiture is not reported as discontinued operations.
NOTE 76 – RESTRUCTURING, GOODWILL IMPAIRMENT AND ASSET RELATED CHARGES - NET
The "Restructuring, goodwill impairment and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs, goodwill impairments, and other asset related charges, which includes other asset impairments.
Restructuring Programs
2020 Restructuring Program
On September 29, 2020, the Board of Dow Inc. approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the coronavirus disease 2019 ("COVID-19") pandemic. The restructuring program is designed to reduce structural costs and enable the Company to further enhance competitiveness while the COVID-19 economic recovery gains traction. This program includes a global workforce cost reduction of approximately 6 percent and actions to rationalize the Company's manufacturing assets, which include asset write-down and write-off charges, related contract termination fees and environmental remediation costs ("2020 Restructuring Program"). These actions are expected to be substantially complete by the end of 2021.
As a result of these actions, in the third quarter of 2020 the Company recorded pretax restructuring charges of $575 million, consisting of severance and related benefit costs of $297 million, asset write-downs and write-offs of $197 million and costs associated with exit and disposal activities of $81 million. The impact of these charges is shown as "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income. In the fourth quarter of 2020, the Company recorded net favorable pretax restructuring credits of $1 million related to asset write-downs and write-offs and $1 million related to costs associated with exit and disposal activities (related to Performance Materials & Coatings and Corporate). The adjustment to costs associated with exit and disposal activities included curtailment costs associated with a defined benefit pension plan. See Note 20 for additional information. The following table summarizes the activities related to the 2020 Restructuring Program:
| | | | | | | | | | | | | | |
2020 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
In millions |
Packaging & Specialty Plastics | $ | 0 | | $ | 11 | | $ | 0 | | $ | 11 | |
Industrial Intermediates & Infrastructure | 0 | | 22 | | 0 | | 22 | |
Performance Materials & Coatings | 0 | | 116 | | 61 | | 177 | |
Corporate | 297 | | 47 | | 19 | | 363 | |
Total restructuring charges | $ | 297 | | $ | 196 | | $ | 80 | | $ | 573 | |
Charges against the reserve | 0 | | (196) | | (5) | | (201) | |
Cash payments | (8) | | 0 | | 0 | | (8) | |
Reserve balance at Dec 31, 2020 | $ | 289 | | $ | 0 | | $ | 75 | | $ | 364 | |
At December 31, 2020, $227 million of the reserve balance was included in "Accrued and other current liabilities" and $137 million was included in "Other noncurrent obligations" in the consolidated balance sheets.
Severance and Related Benefit Costs
Severance benefits are provided to employees primarily under Dow's ongoing benefit arrangements and are accrued against the Corporate segment once management commits to a plan of termination. The 2020 Restructuring Program included a charge for severance and related benefit costs of $297 million for a global workforce cost reduction of approximately 6 percent, with separations occurring primarily through the end of 2021, and impacting Corporate. At December 31, 2020, $8 million in severance payments had been made.
Asset Write-downs and Write-offs
The 2020 Restructuring Program included charges related to the write-down and write-off of assets totaling $196 million. Details regarding the asset write-downs and write-offs are as follows:
•Packaging & Specialty Plastics recorded a charge of $11 million to rationalize its production capacity by shutting down a small-scale production unit. The production unit will be shut down by the end of the third quarter of 2022.
•Industrial Intermediates & Infrastructure recorded a charge of $22 million to rationalize its asset footprint by shutting down certain amines and solvents facilities in the United States and Europe as well as select, small-scale downstream polyurethanes manufacturing facilities. The facilities will be shut down by the end of 2021.
•Performance Materials & Coatings recorded a charge of $116 million to shut down manufacturing assets, primarily related to small-scale coatings reactors, and will also rationalize its upstream asset footprint in Europe and the U.S. & Canada by adjusting the supply of siloxane and silicon metal to balance to regional needs. The impacted facilities will be shut down by the end of 2021.
•Corporate recorded a charge of $47 million related to the write-down of leased, non-manufacturing facilities and the write-down of miscellaneous assets.
Costs Associated with Exit and Disposal Activities
The 2020 Restructuring Program included charges of $80 million for costs associated with exit and disposal activities, which included $19 million for contract termination fees related to the asset actions listed above, impacting Performance Materials & Coatings ($9 million) and Corporate ($10 million), as well as $56 million for environmental remediation, impacting Performance Materials & Coatings ($52 million) and Corporate ($4 million) and $5 million related to curtailment costs associated with a defined benefit pension plan, impacting Corporate.
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont approved post-mergerpost-Merger restructuring actions under the DowDuPont Cost Synergy Program (the "Synergy Program") which was designed to integrate and optimize the organization following the Merger and in preparation for the business separations. The Company expected (prior to the impact of any discontinued operations) to record total pretax restructuring charges of approximately $1.3 billion, which included initial estimates of approximately $525 million to $575 million of severance and related benefit costs, $400 million to $440 million of asset write-downs and write-offs, and $290 million to $310 million of costs associated with exit and disposal activities. The restructuring charges below reflect charges from continuing operations. The impact of the charges are shown as "Restructuring, goodwill impairment and asset related charges ‑ net" in the consolidated statements of income.
The Company recorded pretax restructuring charges of $399 million in 2017, consisting of severance and related benefit costs of $307 million, asset write-downs and write-offs of $87 million and costs associated with exit and disposal activities of $5 million.
The Company recorded pretax restructuring charges of $184 million in 2018, consisting of severance and related benefit costs of $137 million, assetsasset write-downs and write-offs of $33 million and costs associated with exit and disposal activities of $14 million.
For the year ended December 31, 2019, the
The Company recorded pretax restructuring charges of $292 million in 2019, consisting of severance and related benefit costs of $123 million, assetassets write-downs and write-offs of $143 million and costs associated with exit and disposal activities of $26 million. The impact
For the year ended December 31, 2020, the Company recorded pretax restructuring charges of these charges is shown as "Restructuring, goodwill impairment$86 million for severance and asset related charges ‑ net" in the consolidated statements of income. The Company expectsbenefit costs. Cash expenditures related to the Synergy Program to bewere substantially complete by the end of the second quarter ofat December 31, 2020.
The following table summarizes the activities related to the Synergy Program. At December 31, 2019, $522020, $21 million was included in "Accrued and other current liabilities" ($20552 million at December 31, 2018)2019) and $19$13 million ($19 million at December 31, 2019) was included in "Other noncurrent obligations" ($12 million at December 31, 2018) in the consolidated balance sheets.
|
| | | | | | | | | | | | |
DowDuPont Synergy Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
In millions |
2017 restructuring charges | | | | |
Packaging & Specialty Plastics | $ | — |
| $ | 33 |
| $ | 3 |
| $ | 36 |
|
Industrial Intermediates & Infrastructure | — |
| 12 |
| — |
| 12 |
|
Performance Materials & Coatings | — |
| 9 |
| 2 |
| 11 |
|
Corporate | 307 |
| 33 |
| — |
| 340 |
|
Total 2017 restructuring charges | $ | 307 |
| $ | 87 |
| $ | 5 |
| $ | 399 |
|
Charges against the reserve | — |
| (87 | ) | — |
| (87 | ) |
Cash payments | (37 | ) | — |
| — |
| (37 | ) |
Reserve balance at Dec 31, 2017 | $ | 270 |
| $ | — |
| $ | 5 |
| $ | 275 |
|
2018 restructuring charges | | | |
|
Packaging & Specialty Plastics | $ | — |
| $ | 10 |
| $ | 3 |
| $ | 13 |
|
Industrial Intermediates & Infrastructure | — |
| — |
| 11 |
| 11 |
|
Performance Materials & Coatings | — |
| 7 |
| — |
| 7 |
|
Corporate | 137 |
| 16 |
| — |
| 153 |
|
Total 2018 restructuring charges | $ | 137 |
| $ | 33 |
| $ | 14 |
| $ | 184 |
|
Charges against the reserve | — |
| (33 | ) | — |
| (33 | ) |
Cash payments | (197 | ) | — |
| (12 | ) | (209 | ) |
Reserve balance at Dec 31, 2018 | $ | 210 |
| $ | — |
| $ | 7 |
| $ | 217 |
|
2019 restructuring charges | | | | |
Packaging & Specialty Plastics | $ | — |
| $ | — |
| $ | 1 |
| $ | 1 |
|
Industrial Intermediates & Infrastructure | — |
| 2 |
| 5 |
| 7 |
|
Performance Materials & Coatings | — |
| 28 |
| — |
| 28 |
|
Corporate | 123 |
| 113 |
| 20 |
| 256 |
|
Total 2019 restructuring charges | $ | 123 |
| $ | 143 |
| $ | 26 |
| $ | 292 |
|
Charges against the reserve | — |
| (143 | ) | — |
| (143 | ) |
Cash payments | (279 | ) | — |
| (16 | ) | (295 | ) |
Reserve balance at Dec 31, 2019 | $ | 54 |
| $ | — |
| $ | 17 |
| $ | 71 |
|
| | | | | | | | | | | | | | |
DowDuPont Synergy Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
In millions |
Reserve balance at Dec 31, 2017 | $ | 270 | | $ | 0 | | $ | 5 | | 275 |
2018 restructuring charges | | | | |
Packaging & Specialty Plastics | $ | 0 | | $ | 10 | | $ | 3 | | $ | 13 | |
Industrial Intermediates & Infrastructure | 0 | | 0 | | 11 | | 11 | |
Performance Materials & Coatings | 0 | | 7 | | 0 | | 7 | |
Corporate | 137 | | 16 | | 0 | | 153 | |
Total 2018 restructuring charges | $ | 137 | | $ | 33 | | $ | 14 | | $ | 184 | |
Charges against the reserve | 0 | | (33) | | 0 | | (33) | |
Cash payments | (197) | | 0 | | (12) | | (209) | |
Reserve balance at Dec 31, 2018 | $ | 210 | | $ | 0 | | $ | 7 | | $ | 217 | |
2019 restructuring charges | | | | |
Packaging & Specialty Plastics | $ | 0 | | $ | 0 | | $ | 1 | | $ | 1 | |
Industrial Intermediates & Infrastructure | 0 | | 2 | | 5 | | 7 | |
Performance Materials & Coatings | 0 | | 28 | | 0 | | 28 | |
Corporate | 123 | | 113 | | 20 | | 256 | |
Total 2019 restructuring charges | $ | 123 | | $ | 143 | | $ | 26 | | $ | 292 | |
Charges against the reserve | 0 | | (143) | | 0 | | (143) | |
Cash payments | (279) | | 0 | | (16) | | (295) | |
Reserve balance at Dec 31, 2019 | $ | 54 | | $ | 0 | | $ | 17 | | $ | 71 | |
2020 restructuring charges | | | | |
| | | | |
| | | | |
| | | | |
Corporate | 90 | | 0 | | 0 | | 90 | |
Total 2020 restructuring charges | $ | 90 | | $ | 0 | | $ | 0 | | $ | 90 | |
Charges against the reserve | (4) | | 0 | | 0 | | (4) | |
Cash payments | (121) | | 0 | | (2) | | (123) | |
Reserve balance at Dec 31, 2020 | $ | 19 | | $ | 0 | | $ | 15 | | $ | 34 | |
The Company recorded pretax restructuring charges of $961 million inception-to-date under the Synergy Program on a continuing operations basis, consisting of severance and related benefit costs of $653 million, asset write-downs and write-offs of $263 million and costs associated with exit and disposal activities of $45 million.
Asset Write-downs and Write-offs
The restructuring charges related to the write-down and write-off of assets in 2017 are2018 under the Synergy Program were as follows:
The Company recorded a charge of $22 million for asset write-downs and write-offs aligned with an energy project, including the write-off of capital projects and other non-manufacturing assets in Packaging & Specialty Plastics.
The Company recorded a charge of $65 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets, certain corporate facilities and data centers. The charge related to Packaging & Specialty Plastics ($11 million), Industrial Intermediates & Infrastructure ($12 million), Performance Materials & Coatings ($9 million) and Corporate ($33 million). These manufacturing facilities were shut down primarily by the end of 2019.
The restructuring charges related to the write-down and write-off of assets in 2018 are as follows:
•The Company recorded a charge of $33 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of leased, non-manufacturing assets and certain corporate facilities. The charge related to Packaging & Specialty Plastics ($10 million), Performance Materials & Coatings ($7 million) and Corporate ($16 million). These manufacturing facilities were shut down by the end of 2019.
The restructuring charges related to the write-down and write-off of assets in 2019 areunder the Synergy Program were as follows:
•The Company recorded a charge of $143 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets and certain corporate facilities. The charge related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million). These manufacturing facilities will bewere substantially shut down by the end of 2020.
There were no restructuring charges related to the second quarterwrite-down and write-off of 2020.assets in 2020 under the Synergy Program.
Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation liabilities, totaled $5 million in 2017, $14 million in 2018, and $26 million in 2019.2019 and 0 in 2020.
The Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities.facilities and restructuring 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.
2019 Goodwill Impairment
Upon completion of the goodwill impairment testing in the fourth quarter of 2019, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount. As a result, the Company recorded an impairment charge of $1,039 million in the fourth quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings.
In 2017, upon completion of the annual goodwill impairment testing, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount and as a result, recorded an impairment charge of $1,491 million in the fourth quarter of 2017, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 1413 for additional information on these impairment charges.information.
Asset Related Charges
20192020 Charges
In 2019,2020, the Company recognized pretax impairment charges of $49 million, including additional pretax impairment charges of $58 million related primarily tofor capital additions made to a biopolymersbio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil ("Santa Vitoria"), which was impaired in 2017.2017 and divested in 2020, as well as charges for miscellaneous write-offs and write-downs of non-manufacturing assets and the write-down of certain corporate leased equipment. The impairment charges were included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($4419 million), Performance Materials & Coatings ($915 million) and Corporate ($515 million). See Note 2423 for additional information.
2019 Charges
On August 13, 2019, the Company entered into a definitive agreement to sell its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land, utilities and certain railcars. The Company remains at the Institute site as a tenant. As a result of the planned transaction, the Company recognized a pretax impairment charge of $75 million in the third quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million). See Note 2423 for additional information.
In the fourth quarter of 2019, upon completion of an evaluation of its equity method investment in Sadara Chemical Company ("Sadara") for other-than-temporary impairment, the Company determined that its investment in Sadara was other-than-temporarily impaired and it was written down to zero. Additionally, as part of Dow's evaluation of Sadara, the Company reserved certain of its notes and accounts receivable with Sadara due to uncertainty on the timing of collection. As a result, the Company recorded a $1,755 million charge related to Sadara, included in “Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million). See Notes 1312 and 2423 for additional information.
In 2019, the Company recognized additional pretax impairment charges of $58 million related primarily to capital additions at Santa Vitoria. The impairment charges were included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($44 million), Performance Materials & Coatings ($9 million) and Corporate ($5 million). See Note 23 for additional information.
2018 Charges
In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions at Santa Vitoria. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note 2423 for additional information.
2017 Charges
In 2017, the Company recognized a $622 million pretax impairment charge related to Santa Vitoria. The Company determined it would not pursue an expansion of the facility’s ethanol mill into downstream derivative products, primarily as a result of cheaper ethane-based production as well as the Company’s new assets coming online on the U.S. Gulf Coast which can be used to meet growing market demands in Brazil. As a result of this decision, cash flow analysis indicated the carrying amount of the impacted assets was not recoverable. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note 24 for additional information.
The Company also recognized other pretax impairment charges of $246 million in the fourth quarter of 2017, including charges related to manufacturing assets of $159 million, an equity method investment of $81 million and other assets of $6 million. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($58 million), Industrial Intermediates & Infrastructure ($5 million), Performance Materials & Coatings ($83 million) and Corporate ($100 million). See Note 24 for additional information.
NOTE 87 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | | | | | | | |
Sundry Income (Expense) – Net 1 | Dow Inc. | TDCC |
In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
Non-operating pension and other postretirement benefit plan net credits 2 | $ | 103 | | $ | 205 | | $ | 123 | | $ | 103 | | $ | 205 | | $ | 123 | |
Foreign exchange gains (losses) | (62) | | 91 | | (119) | | (65) | | 77 | | (119) | |
Gain on divestiture of marine and terminal operations and assets 3 | 233 | | 0 | | 0 | | 233 | | 0 | | 0 | |
Gain on divestiture of rail infrastructure operations and assets 3 | 499 | | 0 | | 0 | | 499 | | 0 | | 0 | |
Loss on early extinguishment of debt 4 | (149) | | (102) | | (54) | | (149) | | (102) | | (54) | |
Gain (loss) on divestitures and asset sale 5 | (15) | | (49) | | 0 | | (15) | | 2 | | 0 | |
Gain related to Nova ethylene asset matter 6 | 544 | | 170 | | 0 | | 544 | | 170 | | 0 | |
Gain on sales of other assets and investments | 48 | | 67 | | 18 | | 48 | | 67 | | 18 | |
Dow Silicones breast implant liability adjustment 6 | 5 | | 85 | | 0 | | 5 | | 85 | | 0 | |
Indemnification and other transaction related credits (costs) 7 | (21) | | (69) | | 0 | | (11) | | 6 | | 0 | |
Loss on Dow Silicones commercial creditor matters 6 | 0 | | (50) | | 0 | | 0 | | (50) | | 0 | |
Post-closing adjustments related to Dow Silicones ownership restructure | 0 | | 0 | | (20) | | 0 | | 0 | | (20) | |
Post-closing adjustments on divestiture of MEGlobal | 0 | | 0 | | 20 | | 0 | | 0 | | 20 | |
Other - net | 84 | | 113 | | 128 | | 82 | | 113 | | 128 | |
Total sundry income (expense) – net | $ | 1,269 | | $ | 461 | | $ | 96 | | $ | 1,274 | | $ | 573 | | $ | 96 | |
1.Prior period amounts were updated to conform with the current year presentation.
2.See Note 20 for additional information.
3.See Note 5 for additional information.
4.See Note 15 for additional information.
5.The year ended December 31, 2020 primarily relates to a loss on the divestiture of a bio-ethanol manufacturing facility in Brazil, related to Packaging & Specialty Plastics. The year ended December 31, 2019 includes post-closing adjustments on previous divestitures, related to Corporate.
6.See Note 16 for additional information.
7.See Note 3 for additional information.
|
| | | | | | | | | | | | | | | | | | |
Sundry Income (Expense) – Net | Dow Inc. | TDCC |
In millions | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 |
Non-operating pension and other postretirement benefit plan net credits (costs) 1 | $ | 205 |
| $ | 123 |
| $ | (676 | ) | $ | 205 |
| $ | 123 |
| $ | (676 | ) |
Foreign exchange gains (losses) | 91 |
| (119 | ) | (72 | ) | 77 |
| (119 | ) | (72 | ) |
Gain related to Nova ethylene asset matter 2 | 170 |
| — |
| — |
| 170 |
| — |
| — |
|
Dow Silicones breast implant liability adjustment 2 | 85 |
| — |
| — |
| 85 |
| — |
| — |
|
Gain (loss) on Dow Silicones commercial creditor matters 2 | (50 | ) | — |
| 33 |
| (50 | ) | — |
| 33 |
|
Indemnification and other transaction related costs 3 | (69 | ) | — |
| — |
| 6 |
| — |
| — |
|
Loss on early extinguishment of debt 4 | (102 | ) | (54 | ) | — |
| (102 | ) | (54 | ) | — |
|
Gain (loss) on divestitures 5 | (49 | ) | — |
| 7 |
| 2 |
| — |
| 7 |
|
Gain on sales of other assets and investments | 67 |
| 18 |
| 117 |
| 67 |
| 18 |
| 117 |
|
Reclassification of cumulative translation adjustments | 10 |
| 4 |
| 8 |
| 10 |
| 4 |
| 8 |
|
Post-closing adjustments related to Dow Silicones ownership restructure | — |
| (20 | ) | — |
| — |
| (20 | ) | — |
|
Post-closing adjustments on divestiture of MEGlobal | — |
| 20 |
| — |
| — |
| 20 |
| — |
|
Gain on divestiture of the EAA business 6 | — |
| — |
| 227 |
| — |
| — |
| 227 |
|
Gain related to Nova patent infringement award 2 | — |
| — |
| 137 |
| — |
| — |
| 137 |
|
Other - net | 103 |
| 124 |
| 65 |
| 103 |
| 124 |
| 65 |
|
Total sundry income (expense) – net | $ | 461 |
| $ | 96 |
| $ | (154 | ) | $ | 573 |
| $ | 96 |
| $ | (154 | ) |
| |
1. | See Note 21 for additional information. |
| |
2. | See Note 17 for additional information. |
| |
3. | See Note 4 for additional information. |
| |
4. | See Note 16 for additional information. |
| |
5. | Primarily related to post-closing adjustments on previous divestitures. |
| |
6. | See Note 6 for additional information. |
Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $3,790 million and $3,256 million at December 31, 2020 and $2,762 million and $2,233 million at December 31, 2019, for Dow Inc. and TDCC, respectively, and $2,931 million at December 31, 2018.respectively. Accrued payroll, which is a component of "Accrued and other current liabilities" and includes liabilities related to payroll, incentive compensation and severance, was $866 million at December 31, 2020 and $284 million at December 31, 2019 and $759 million at December 31, 2018.2019. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.
Other Investments
| | | | | | | | |
Investments in Company-Owned Life Insurance | Dec 31, 2020 | Dec 31, 2019 |
In millions |
Gross cash value | $ | 807 | | $ | 820 | |
Less: Existing drawdowns 1 | 0 | | 85 | |
Investments in company-owned life insurance 2 | $ | 807 | | $ | 735 | |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2019, the Company had monetized $85 million of its existing COLI policies' value. In the first nine months of 2020, the Company monetized an additional $211 million. In the fourth quarter of 2020, the Company repaid all existing drawdowns against the cash surrender value, which resulted in no monetization of its existing COLI policies' value at December 31, 2020. The repayment was reflected in "Purchases of investments" in the consolidated statements of cash flows.
Supplemental Cash Flow Information
The following table shows cash paid for interest and income taxes for the years ended December 31, 2020, 2019 2018 and 2017:2018:
|
| | | | | | | | | |
Supplemental Cash Flow Information | 2019 | 2018 | 2017 |
In millions |
Cash paid during year for: | | | |
Interest, net of amounts capitalized | $ | 993 |
| $ | 1,143 |
| $ | 1,115 |
|
Income taxes | $ | 881 |
| $ | 1,193 |
| $ | 1,259 |
|
| | | | | | | | | | | |
Supplemental Cash Flow Information | 2020 | 2019 | 2018 |
In millions |
Cash paid during year for: | | | |
Interest | $ | 842 | | $ | 993 | | $ | 1,143 | |
Income taxes | $ | 518 | | $ | 881 | | $ | 1,193 | |
NOTE 98 – INCOME TAXES
The financial statements for Dow Inc. and TDCC are substantially similar, including the reporting of current and deferred tax expense (benefit), provision for income taxes on continuing operations, and deferred tax asset and liability balances. As a result, the following income tax discussion pertains to Dow Inc. only.
| | | | | | | | | | | |
Geographic Allocation of Income and Provision for Income Taxes on Continuing Operations | | | |
In millions | 2020 | 2019 | 2018 |
Income (loss) from continuing operations before income taxes | | | |
Domestic 1 | $ | (681) | | $ | (1,196) | | $ | 745 | |
Foreign 2 | 2,752 | | (51) | | 3,004 | |
Income (loss) from continuing operations before income taxes | $ | 2,071 | | $ | (1,247) | | $ | 3,749 | |
Current tax expense (benefit) | | | |
Federal | $ | (176) | | $ | (287) | | $ | 324 | |
State and local | 4 | | 25 | | 13 | |
Foreign | 691 | | 960 | | 901 | |
Total current tax expense | $ | 519 | | $ | 698 | | $ | 1,238 | |
Deferred tax expense (benefit) | | | |
Federal 3 | $ | 184 | | $ | 52 | | $ | (318) | |
State and local | 19 | | 19 | | (32) | |
Foreign | 55 | | (299) | | (79) | |
Total deferred tax expense (benefit) | $ | 258 | | $ | (228) | | $ | (429) | |
Provision for income taxes on continuing operations | $ | 777 | | $ | 470 | | $ | 809 | |
Income (loss) from continuing operations, net of tax | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | |
|
| | | | | | | | | |
Geographic Allocation of Income and Provision for Income Taxes on Continuing Operations | | | |
In millions | 2019 | 2018 | 2017 |
Income (loss) from continuing operations before income taxes | | | |
Domestic 1 | $ | (1,196 | ) | $ | 745 |
| $ | (2,226 | ) |
Foreign 2 | (51 | ) | 3,004 |
| 2,463 |
|
Income (loss) from continuing operations before income taxes | $ | (1,247 | ) | $ | 3,749 |
| $ | 237 |
|
Current tax expense (benefit) | | | |
Federal | $ | (287 | ) | $ | 324 |
| $ | (864 | ) |
State and local | 25 |
| 13 |
| 4 |
|
Foreign | 960 |
| 901 |
| 971 |
|
Total current tax expense | $ | 698 |
| $ | 1,238 |
| $ | 111 |
|
Deferred tax expense (benefit) | | | |
Federal 3 | $ | 52 |
| $ | (318 | ) | $ | 1,499 |
|
State and local | 19 |
| (32 | ) | 85 |
|
Foreign | (299 | ) | (79 | ) | (171 | ) |
Total deferred tax expense (benefit) | $ | (228 | ) | $ | (429 | ) | $ | 1,413 |
|
Provision for income taxes on continuing operations | $ | 470 |
| $ | 809 |
| $ | 1,524 |
|
Income (loss) from continuing operations, net of tax | $ | (1,717 | ) | $ | 2,940 |
| $ | (1,287 | ) |
1.The 2019 amount includes approximately $1.4 billion of expense related to goodwill impairment and environmental matters. See Notes 13 and 16 for additional information. | |
1. | The 2019 amount includes approximately $1.4 billion of expense related to goodwill impairment and environmental matters. The 2017 amount includes approximately $1.4 billion of expense related to goodwill impairment and litigation settlements. See Notes 14 and 17 for additional information. |
| |
2. | The 2019 amount includes approximately $1.8 billion of expense related to Sadara related charges. See Note 13 for additional information. |
| |
3. | The 2018 and 2017 amounts reflect2.The 2019 amount includes approximately $1.8 billion of expense for Sadara related charges. See Note 12 for additional information. 3.The 2018 amount reflects the tax impact of The Act which accelerated the utilization of tax credits and required remeasurement of all U.S. deferred tax assets and liabilities. |
In 2017, as a result of the MergerTax Cuts and subsequent changeJobs Act which accelerated the utilization of tax credits and required remeasurement of all U.S. deferred tax assets and liabilities.
| | | | | | | | | | | |
Reconciliation to U.S. Statutory Rate | 2020 | 2019 | 2018 |
Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
Equity earnings effect | 0.2 | | (3.2) | | (3.3) | |
Foreign income taxed at rates other than the statutory U.S. federal income tax rate 1 | 1.7 | | (14.8) | | 6.7 | |
U.S. tax effect of foreign earnings and dividends | 3.9 | | 1.9 | | (0.7) | |
Unrecognized tax benefits | 3.3 | | 1.0 | | 0.2 | |
Divestitures 2 | (5.1) | | 0 | | 0.8 | |
Changes in valuation allowances | 12.6 | | 0 | | 0 | |
Impact of tax reform 3 | 0 | | 11.1 | | (3.4) | |
Federal tax accrual adjustment 4 | 0 | | 10.4 | | 0 | |
State and local income taxes | 0.3 | | (4.4) | | 0.4 | |
Sadara related charges 5 | 0 | | (29.5) | | 0 | |
Goodwill impairment 6 | 0 | | (17.5) | | 0 | |
| | | |
Other - net | (0.4) | | (13.7) | | (0.1) | |
Effective tax rate | 37.5 | % | (37.7) | % | 21.6 | % |
1.Includes the impact of valuation allowances and interest and penalties associated with uncertain tax positions in foreign jurisdictions. The 2020 impact from interest and penalties increased the effective tax rate by approximately 4 percent.
2.The 2020 impact relates to the divestiture of a bio-ethanol manufacturing facility in Brazil. See Note 6 for additional information.
3.Includes the impact of tax reform in Switzerland and the United States.
4.Primarily related to the favorable impact of the restoration of tax basis in assets, driven by a court judgment that did not involve the Company.
5.See Note 12 for additional information.
6.See Note 13 for additional information.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. While the CARES Act has had no significant impact on the Company's ownership, certain net operating loss carryforwards available for the Company’s consolidated German tax group were derecognized. In addition, the sale of stock between two consolidated subsidiaries in 2014 created a gain that was initially deferred for tax purposes. This deferred gain became taxable as a result of activities executed in anticipation of the business separations. As a result, in 2017, the Company recorded a charge of $267 million to “Provisionprovision for income taxes on continuing operations”operations in 2020, the Company filed a tax loss carryback claim for $291 million in accordance with the provisions of the CARES Act. This resulted in an increase in "Accounts and notes receivable - other" and a decrease in "Deferred income tax assets" in the consolidated statementsbalance sheets.
In the fourth quarter of income.2020, a valuation allowance of $260 million was recorded in the United States, primarily due to filing of the final combined Dow and DuPont tax return and related unutilized foreign tax credits. The Company projects it is more likely than not that a portion of these foreign tax credits and other tax attributes will remain unutilized prior to their expiration.
|
| | | | | | |
Reconciliation to U.S. Statutory Rate | 2019 | 2018 | 2017 |
Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 35.0 | % |
Equity earnings effect | (3.2 | ) | (3.3 | ) | (52.7 | ) |
Foreign income taxed at rates other than the statutory U.S. federal income tax rate 1 | (14.8 | ) | 6.7 |
| (61.2 | ) |
U.S. tax effect of foreign earnings and dividends | 1.9 |
| (0.7 | ) | (8.4 | ) |
Unrecognized tax benefits | 1.0 |
| 0.2 |
| 13.5 |
|
Divestitures 2 | — |
| 0.8 |
| 142.0 |
|
Impact of tax reform 3 | 11.1 |
| (3.4 | ) | 367.8 |
|
Federal tax accrual adjustment 4 | 10.4 |
| — |
| — |
|
State and local income taxes | (4.4 | ) | 0.4 |
| 11.4 |
|
Sadara related charges 5 | (29.5 | ) | — |
| — |
|
Goodwill impairment 6 | (17.5 | ) | — |
| 220.8 |
|
Excess tax benefits from stock-based compensation | 1.2 |
| (1.0 | ) | (39.7 | ) |
Other - net | (14.9 | ) | 0.9 |
| 14.5 |
|
Effective Tax Rate | (37.7 | )% | 21.6 | % | 643.0 | % |
| |
1. | Includes the impact of valuation allowances in foreign jurisdictions. |
| |
2. | See Note 6 for additional information. |
| |
3. | Includes the impact of tax reform in Switzerland and the U.S. |
| |
4. | Primarily related to the favorable impact of the restoration of tax basis in assets, driven by a recent court judgment that did not involve the Company. |
| |
5. | See Note 13 for additional information.
|
| |
6. | See Note 14 for additional information. |
On December 22, 2017, the Tax Cuts and Jobs Act ("The ActAct") was enacted. The Act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, created new provisions related to foreign sourced earnings, eliminated the domestic manufacturing deduction and moved to a hybrid territorial system. At December 31, 2017, the Company had not completed its accounting for the tax effects of The Act; however,While the Company made a reasonable estimate of the effects of The Act on its existing deferred tax balances and the one-time transition tax. Intax at December 31, 2017, in accordance with Staff Accounting Bulletin 118, the income tax effects of The Act were refined upon obtaining, preparing and analyzing additional information during the measurement period. At December 31,period as follows:
•In 2018, the Company had completed its accounting for the tax effectsremeasurement of The Act.
As a result of The Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. The Companypercent, and recorded a cumulative benefit of $81$79 million ($79 million benefit in 2018 and $2 million benefit in 2017) to “Provision for income taxes on continuing operations” in the consolidated statements of income with respect to the remeasurement of the Company's deferred tax balances.
•The Act required aCompany adjusted the impact of the mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits, which resulted in a one-time transition tax. The Companytax, and recorded a cumulative charge of $789 million ($85 million benefit in 2018 and $874of $85 million charge in 2017) to "Provision for income taxes on continuing operations" in the consolidated statements of income with respect to the one-time transition tax. The Company had sufficient tax credits to offset the tax liability associated with the one-time transition tax.
•In 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to inventory was a charge of $38 million to "Provision for income taxes on continuing operations" in the consolidated statements of income.
For tax years beginning after December 31, 2017, The Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred. | | | | | | | | | | | | | | |
Deferred Tax Balances at Dec 31 | 2020 | 2019 |
In millions | Assets | Liabilities | Assets | Liabilities |
Property | $ | 499 | | $ | 3,388 | | $ | 494 | | $ | 3,177 | |
Tax loss and credit carryforwards | 2,004 | | — | | 1,920 | | — | |
Postretirement benefit obligations | 2,712 | | 250 | | 2,432 | | 210 | |
Other accruals and reserves | 1,507 | | 43 | | 1,678 | | 43 | |
Intangibles | 124 | | 638 | | 120 | | 688 | |
Inventory | 30 | | 198 | | 28 | | 234 | |
| | | | |
Investments | 142 | | 51 | | 125 | | 48 | |
| | | | |
Other – net | 858 | | 196 | | 851 | | 120 | |
Subtotal | $ | 7,876 | | $ | 4,764 | | $ | 7,648 | | $ | 4,520 | |
Valuation allowances | (1,302) | | — | | (1,262) | | — | |
Total | $ | 6,574 | | $ | 4,764 | | $ | 6,386 | | $ | 4,520 | |
| | | | | | | | |
Operating Loss and Tax Credit Carryforwards at Dec 31 | 2020 | 2019 |
In millions | Assets | Assets |
Operating loss carryforwards | | |
Expire within 5 years | $ | 274 | | $ | 263 | |
Expire after 5 years or indefinite expiration | 1,031 | | 1,133 | |
Total operating loss carryforwards | $ | 1,305 | | $ | 1,396 | |
Tax credit carryforwards | | |
Expire within 5 years | $ | 434 | | $ | 32 | |
Expire after 5 years or indefinite expiration | 265 | | 492 | |
Total tax credit carryforwards | $ | 699 | | $ | 524 | |
Total operating loss and tax credit carryforwards | $ | 2,004 | | $ | 1,920 | |
|
| | | | | | | | | | | | |
Deferred Tax Balances at Dec 31 | 2019 | 2018 |
In millions | Assets | Liabilities | Assets | Liabilities |
Property | $ | 494 |
| $ | 3,177 |
| $ | 406 |
| $ | 2,519 |
|
Tax loss and credit carryforwards | 1,920 |
| — |
| 2,079 |
| — |
|
Postretirement benefit obligations | 2,432 |
| 210 |
| 2,115 |
| 143 |
|
Other accruals and reserves | 1,678 |
| 43 |
| 1,220 |
| 151 |
|
Intangibles | 120 |
| 688 |
| 157 |
| 954 |
|
Inventory | 28 |
| 234 |
| 53 |
| 239 |
|
Investments | 125 |
| 48 |
| 190 |
| 84 |
|
Other – net | 851 |
| 120 |
| 620 |
| 247 |
|
Subtotal | $ | 7,648 |
| $ | 4,520 |
| $ | 6,840 |
| $ | 4,337 |
|
Valuation allowances | (1,262 | ) | — |
| (1,225 | ) | — |
|
Total | $ | 6,386 |
| $ | 4,520 |
| $ | 5,615 |
| $ | 4,337 |
|
|
| | | | | | |
Operating Loss and Tax Credit Carryforwards at Dec 31 | 2019 | 2018 |
In millions | Assets | Assets |
Operating loss carryforwards | | |
Expire within 5 years | $ | 263 |
| $ | 245 |
|
Expire after 5 years or indefinite expiration | 1,133 |
| 1,196 |
|
Total operating loss carryforwards | $ | 1,396 |
| $ | 1,441 |
|
Tax credit carryforwards | | |
Expire within 5 years | $ | 32 |
| $ | 32 |
|
Expire after 5 years or indefinite expiration | 492 |
| 606 |
|
Total tax credit carryforwards | $ | 524 |
| $ | 638 |
|
Total operating loss and tax credit carryforwards | $ | 1,920 |
| $ | 2,079 |
|
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,401 million at December 31, 2020 and $6,851 million at December 31, 2019 and $6,014 million at December 31, 2018. The Act imposed U.S. tax on all post-1986 foreign unrepatriated2019. Undistributed earnings accumulated through December 31, 2017. Unrepatriated earnings generated after December 31, 2017, are now subject to tax in the current year. All undistributed earnings are still subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.
The following table provides a reconciliation of the Company's unrecognized tax benefits:
|
| | | | | | | | | |
Total Gross Unrecognized Tax Benefits | | | |
In millions | 2019 | 2018 | 2017 |
Total unrecognized tax benefits at Jan 1 | $ | 314 |
| $ | 255 |
| $ | 231 |
|
Decreases related to positions taken on items from prior years | (1 | ) | (8 | ) | (4 | ) |
Increases related to positions taken on items from prior years | 16 |
| 68 |
| 37 |
|
Increases related to positions taken in the current year | 10 |
| 2 |
| 12 |
|
Settlement of uncertain tax positions with tax authorities | (19 | ) | — |
| (12 | ) |
Decreases due to expiration of statutes of limitations | — |
| (1 | ) | (9 | ) |
Foreign exchange gain | (1 | ) | (2 | ) | — |
|
Total unrecognized tax benefits at Dec 31 | $ | 319 |
| $ | 314 |
| $ | 255 |
|
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 234 |
| $ | 235 |
| $ | 245 |
|
Total amount of interest and penalties (benefit) recognized in "Provision for income taxes on continuing operations" | $ | (11 | ) | $ | (12 | ) | $ | 2 |
|
Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 100 |
| $ | 109 |
| $ | 110 |
|
| | | | | | | | | | | |
Total Gross Unrecognized Tax Benefits | | | |
In millions | 2020 | 2019 | 2018 |
Total unrecognized tax benefits at Jan 1 | $ | 319 | | $ | 314 | | $ | 255 | |
Decreases related to positions taken on items from prior years | (1) | | (1) | | (8) | |
Increases related to positions taken on items from prior years | 52 | | 16 | | 68 | |
Increases related to positions taken in the current year | 18 | | 10 | | 2 | |
Settlement of uncertain tax positions with tax authorities | (14) | | (19) | | 0 | |
Decreases due to expiration of statutes of limitations | (1) | | 0 | | (1) | |
Foreign exchange gain | 0 | | (1) | | (2) | |
Total unrecognized tax benefits at Dec 31 | $ | 373 | | $ | 319 | | $ | 314 | |
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 285 | | $ | 234 | | $ | 235 | |
Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes on continuing operations" | $ | 84 | | $ | (11) | | $ | (12) | |
Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 144 | | $ | 100 | | $ | 109 | |
On January 9, 2017, the U.S. Supreme Court denied
certiorari in the Company’s tax treatment of partnerships and transactions associated with Chemtech, a wholly owned subsidiary. The Company has fully accrued the position and does not expect a future impact to “Provision for income taxes on continuing operations” in the consolidated statements of income as a result of the ruling.
Prior to the separation, TDCC and its consolidated subsidiaries were included in DowDuPont's consolidated federal income tax group and consolidated tax return. Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year will bewas apportioned among the members of the consolidated group based on each member’s separate taxable income. TDCC and DuPont intend that, to the extent federal and/or state corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax sharing agreement and/or tax matters agreement. At December 31, 2019,2020, the Company had a receivable of $312$261 million as part ofrelated to the tax sharing agreement, which is included in "Noncurrent receivables""Other current assets" in the consolidated balance sheets. At December 31, 2018, the Company had a receivable related to the tax sharing agreement of $89sheets ($312 million included in "Accounts and notes receivable - Other" in the consolidated balance sheets."Noncurrent receivables" at December 31, 2019).
Each year, the Company files tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.
Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:
|
| | | | |
Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 20192020 | Earliest Open Year |
Jurisdiction |
Argentina | 20132014 |
Brazil | 20062015 |
Canada | 2012 |
China | 20092010 |
Germany | 20102014 |
Italy | 20152016 |
The Netherlands | 2016 |
Switzerland | 2016 |
United States: | |
Federal income tax | 2004 |
State and local income tax | 2004 |
The reserve for non-income tax contingencies related to issues in the United States and foreign locations was $44$33 million at December 31, 20192020 ($9144 million at December 31, 2018)2019). This is management’s best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions’ tax court systems. It is the opinion of the Company’s management that the possibility is remote that costs in excess of those accrued will have a material impact on the Company’s consolidated financial statements.
NOTE 109 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2020, 2019, 2018, and 2017.2018. In accordance with the accounting guidance for earnings per share, earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.
| | | | | | | | | | | |
Net Income (Loss) for Earnings Per Share Calculations | 2020 | 2019 | 2018 |
In millions |
Income (loss) from continuing operations, net of tax | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | |
Net income attributable to noncontrolling interests - continuing operations | (69) | | (74) | | (102) | |
| | | |
Net income attributable to participating securities - continuing operations 1 | (9) | | (6) | | 0 | |
Income (loss) from continuing operations attributable to common stockholders | $ | 1,216 | | $ | (1,797) | | $ | 2,838 | |
Income from discontinued operations, net of tax | $ | 0 | | $ | 445 | | $ | 1,835 | |
Net income attributable to noncontrolling interests - discontinued operations | 0 | | (13) | | (32) | |
| | | |
Income from discontinued operations attributable to common stockholders | $ | 0 | | $ | 432 | | $ | 1,803 | |
Net income (loss) attributable to common stockholders | $ | 1,216 | | $ | (1,365) | | $ | 4,641 | |
| | | | | | | | | | | |
Earnings (Loss) Per Share Calculations - Basic | 2020 | 2019 | 2018 |
Dollars per share |
Income (loss) from continuing operations attributable to common stockholders | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
Income from discontinued operations, net of tax | 0 | | 0.58 | | 2.41 | |
Net income (loss) attributable to common stockholders | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| | | | | | | | | | | |
Earnings (Loss) Per Share Calculations - Diluted | 2020 | 2019 | 2018 |
Dollars per share |
Income (loss) from continuing operations attributable to common stockholders | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
Income from discontinued operations, net of tax | 0 | | 0.58 | | 2.41 | |
Net income (loss) attributable to common stockholders | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| | | | | | | | | | | |
Share Count Information | 2020 | 2019 | 2018 |
Shares in millions |
Weighted-average common shares outstanding - basic 2 | 740.5 | | 742.5 | | 747.2 | |
Plus dilutive effect of equity compensation plans 3 | 1.8 | | 0 | | 0 | |
Weighted-average common shares outstanding - diluted 2, 3 | 742.3 | | 742.5 | | 747.2 | |
Stock options and restricted stock units excluded from EPS calculations 4 | 14.2 | | 20.8 | | 0 | |
1.Restricted stock units are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
2.Share amounts for the year ended December 31, 2018 were based on 2,246.3 million DowDuPont common shares outstanding as of the Record Date for the April 1, 2019 distribution, less 4.6 million Employee Stock Ownership Plan ("ESOP") shares that had not been released and were not considered outstanding, adjusted for the Distribution Ratio. There was no dilutive effect for the year ended December 31, 2018 as the Company did not engage in activities giving rise to dilution.
3.The year ended December 31, 2019 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis.
4.These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive. For the year ended December 31, 2018, the Company did not engage in activities giving rise to dilution.
|
| | | | | | | | | |
Net Income (Loss) for Earnings Per Share Calculations | 2019 | 2018 | 2017 |
In millions |
Income (loss) from continuing operations, net of tax | $ | (1,717 | ) | $ | 2,940 |
| $ | (1,287 | ) |
Net income attributable to noncontrolling interests - continuing operations | (74 | ) | (102 | ) | (102 | ) |
Net income attributable to participating securities - continuing operations 1 | (6 | ) | — |
| (8 | ) |
Income (loss) from continuing operations attributable to common stockholders | $ | (1,797 | ) | $ | 2,838 |
| $ | (1,397 | ) |
Income from discontinued operations, net of tax | $ | 445 |
| $ | 1,835 |
| $ | 1,882 |
|
Net income attributable to noncontrolling interests - discontinued operations | (13 | ) | (32 | ) | (28 | ) |
Net income attributable to participating securities - discontinued operations 1 | — |
| — |
| (6 | ) |
Income from discontinued operations attributable to common stockholders | $ | 432 |
| $ | 1,803 |
| $ | 1,848 |
|
Net income (loss) attributable to common stockholders | $ | (1,365 | ) | $ | 4,641 |
| $ | 451 |
|
|
| | | | | | | | | |
Earnings Per Share Calculations - Basic | 2019 | 2018 | 2017 |
Dollars per share |
Income (loss) from continuing operations attributable to common stockholders | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) |
Income from discontinued operations, net of tax | 0.58 |
| 2.41 |
| 2.48 |
|
Net income (loss) attributable to common stockholders | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
|
|
| | | | | | | | | |
Earnings Per Share Calculations - Diluted | 2019 | 2018 | 2017 |
Dollars per share |
Income (loss) from continuing operations attributable to common stockholders | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) |
Income from discontinued operations, net of tax | 0.58 |
| 2.41 |
| 2.48 |
|
Net income (loss) attributable to common stockholders | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
|
|
| | | | | | |
Share Count Information | 2019 | 2018 | 2017 |
Shares in millions |
Weighted-average common shares - basic 2, 3 | 742.5 |
| 747.2 |
| 744.8 |
|
Plus dilutive effect of equity compensation plans | — |
| — |
| — |
|
Weighted-average common shares - diluted 2, 3, 4 | 742.5 |
| 747.2 |
| 744.8 |
|
Stock options and restricted stock units excluded from EPS calculations 5 | 20.8 |
| — |
| 1.1 |
|
| |
1. | Restricted stock units (formerly termed deferred stock) are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares. |
| |
2. | Share amounts for the year ended December 31, 2018 were based on 2,246.3 million DowDuPont common shares outstanding as of the Record Date for the April 1, 2019 distribution, less 4.6 million Employee Stock Ownership Plan ("ESOP") shares that had not been released and were not considered outstanding, adjusted for the Distribution Ratio. There was no dilutive effect for the year ended December 31, 2018 as the Company did not engage in activities giving rise to dilution. |
| |
3. | Share amounts for the year ended December 31, 2017 were based on 2,246.3 million DowDuPont common shares outstanding as of the Record Date for the April 1, 2019 distribution, less 4.6 million ESOP shares that had not been released and were not considered outstanding, adjusted for the Distribution Ratio and further adjusted by 2.4 million shares for the effect of TDCC basic common shares outstanding during the pre-Merger period. The year ended December 31, 2017 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis. |
| |
4. | The year ended December 31, 2019 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis. |
| |
5. | These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive. For the year ended December 31, 2018, the Company did not engage in activities giving rise to dilution. |
NOTE 1110 – INVENTORIES
The following table provides a breakdown of inventories:
|
| | | | | | |
Inventories at Dec 31 | | |
In millions | 2019 | 2018 |
Finished goods | $ | 3,505 |
| $ | 4,313 |
|
Work in process | 1,122 |
| 1,335 |
|
Raw materials | 628 |
| 674 |
|
Supplies | 845 |
| 826 |
|
Total | $ | 6,100 |
| $ | 7,148 |
|
Adjustment of inventories to a LIFO basis | 114 |
| (249 | ) |
Total inventories | $ | 6,214 |
| $ | 6,899 |
|
| | | | | | | | |
Inventories at Dec 31 | | |
In millions | 2020 | 2019 |
Finished goods | $ | 3,140 | | $ | 3,505 | |
Work in process | 996 | | 1,122 | |
Raw materials | 598 | | 628 | |
Supplies | 933 | | 845 | |
Total | $ | 5,667 | | $ | 6,100 | |
Adjustment of inventories to the LIFO basis | 34 | | 114 | |
Total inventories | $ | 5,701 | | $ | 6,214 | |
Inventories valued on athe LIFO basis represented 30 percent of the total inventories at December 31, 2020 and 32 percent of the total inventories at December 31, 2019 and 34 percent of the total inventories at December 31, 2018.2019.
NOTE 1211 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
Property at Dec 31 | Estimated Useful Lives (Years) | 2020 | 2019 |
In millions |
Land and land improvements | 0-25 | $ | 2,011 | | $ | 2,177 | |
Buildings | 5-50 | 4,976 | | 4,742 | |
Machinery and equipment | 3-25 | 42,108 | | 40,651 | |
Other property | 3-50 | 5,626 | | 5,354 | |
Construction in progress 1 | — | | 1,604 | | 1,986 | |
Total property | | $ | 56,325 | | $ | 54,910 | |
1.The decrease is primarily related to the Company proactively reducing capital spending in 2020 to focus on cash and maintaining financial strength during the COVID-19 pandemic.
|
| | | | | | | | |
Property at Dec 31 | Estimated Useful Lives (Years) | 2019 | 2018 |
In millions |
Land and land improvements | 0-25 |
| $ | 2,177 |
| $ | 2,059 |
|
Buildings | 5-50 |
| 4,742 |
| 4,745 |
|
Machinery and equipment | 3-25 |
| 40,651 |
| 40,250 |
|
Other property | 3-50 |
| 5,354 |
| 5,084 |
|
Construction in progress | — |
| 1,986 |
| 1,846 |
|
Total property | | $ | 54,910 |
| $ | 53,984 |
|
| | | | | | | | | | | |
In millions | 2020 | 2019 | 2018 |
Depreciation expense | $ | 2,092 | | $ | 2,156 | | $ | 2,174 | |
Capitalized interest | $ | 64 | | $ | 80 | | $ | 88 | |
|
| | | | | | | | | |
In millions | 2019 | 2018 | 2017 |
Depreciation expense | $ | 2,156 |
| $ | 2,174 |
| $ | 1,955 |
|
Capitalized interest | $ | 80 |
| $ | 88 |
| $ | 240 |
|
NOTE 1312 – NONCONSOLIDATED AFFILIATES
The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”) and dividends received from nonconsolidated affiliates are shown in the following tables:
|
| | | | | | |
Investments in Nonconsolidated Affiliates at Dec 31 | 2019 1 | 2018 1 |
In millions |
Investment in nonconsolidated affiliates | $ | 1,404 |
| $ | 3,320 |
|
Other noncurrent obligations | (80 | ) | — |
|
Net investment in nonconsolidated affiliates | $ | 1,324 |
| $ | 3,320 |
|
| |
1. | The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2019, was $51 million less than its share of the investees’ net assets, ($39 million less at December 31, 2018), exclusive of additional differences relating to EQUATE Petrochemical Company K.S.C.C. ("EQUATE"), Sadara and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow. |
|
| | | | | | | | | |
Dividends Received from Nonconsolidated Affiliates | 2019 | 2018 | 2017 1 |
In millions |
Dividends from nonconsolidated affiliates | $ | 1,020 |
| $ | 663 |
| $ | 654 |
|
| |
1. | Includes a non-cash dividend of $7 million. |
| | | | | | | | |
Investments in Nonconsolidated Affiliates at Dec 31 | 2020 1 | 2019 1 |
In millions |
Investment in nonconsolidated affiliates | $ | 1,327 | | $ | 1,404 | |
Other noncurrent obligations | (169) | | (80) | |
Net investment in nonconsolidated affiliates | $ | 1,158 | | $ | 1,324 | |
1.The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2020, was $55 million less than its share of the investees’ net assets, ($51 million less at December 31, 2019), exclusive of additional differences relating to Sadara, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.
| | | | | | | | | | | |
Dividends Received from Nonconsolidated Affiliates | 2020 | 2019 | 2018 |
In millions |
Dividends from nonconsolidated affiliates | $ | 425 | | $ | 1,020 | | $ | 663 | |
Except for AFSI, the nonconsolidated affiliates in which the Company has investments are privately held companies; therefore, quoted market prices are not available.
Sadara
In 2011, the Company and Saudi Arabian Oil Company formed Sadara - a joint venture between the two companies that subsequently constructed and now operates a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. The Company has a 35 percent equity interest in this joint venture and has been, and continues to be, responsible for marketing the majority of Sadara’s products through the Company’s established sales channels.
The Company’s investment in Sadara was $1,618 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara at December 31, 2020 ($1,705 million less at December 31, 2019). This basis difference is primarily attributed to the long-lived assets of Sadara and is being amortized over the remaining useful lives of the assets. At December 31, 2020, the Company had a negative investment balance in Sadara of $22 million (0 at December 31, 2019) classified as “Other noncurrent obligations” in the Company’s consolidated balance sheets, related to the Company’s share of Sadara’s AOCL in 2020 offset by the basis difference amortization. The Company expects to continue to recognize its share of potential future losses reported by Sadara. See Note 16 for additional information related to guarantees.
In 2017, Sadara2019, the Company recorded impairment charges related to its investment in Sadara. The joint venture achieved full commercial operations of all its facilities.facilities in 2017. In December 2018, the joint venture successfully completed its Creditors Reliability Test, an extensive operational testing program designed to demonstrate the reliability of the joint venture’s full chemical complex by operating at high rates for an extended period of time. While Sadara hashad reached these operational milestones and hashad been generating positive EBITDA (a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization), the joint venture hashad yet to report positive net income. During the fourth quarter of 2019, Sadara tested its long-lived assets for impairment using long-term cash flow projections. Sadara’s U.S. GAAP impairment test utilized an undiscounted cash flow methodology, under which Sadara concluded its long-lived assets were recoverable. Due to Sadara's financial condition and its long-lived asset impairment test, Dow evaluated its equity method investment in Sadara for other-than-temporary impairment. The Company utilized a discounted cash flow methodology to measure the estimated fair value of its investment in Sadara, which was estimated to be zero (see Note 2423 for additional information on the fair value measurement). The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around prospects for recovery in Sadara’s financial condition. In addition, the Company reserved certain accounts and notes receivable and accrued interest balances associated with Sadara due to uncertainty around the timing of collection. In total, the Company recorded a $1,755 million pretax charge in the fourth quarter of 2019 related to Sadara, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million).
In 2020, the Company’s investment in Sadara was $1,705Company loaned $333 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara. This basis difference is attributed to the long-lived assets of Sadara and will be amortized over a period of 22 years as Sadara recognizes the associated depreciation expense, which represents the estimated remaining useful lives of Sadara’s long-lived assets. Due to the potential for Dow to continue providing financial support to Sadara that was accounted for as in substance common stock and classified as "Investment in nonconsolidated affiliates" in the Company expects to continue to recognize its share of potential future losses reported by Sadara.
Prior to the impairment of the Company’s investment in Sadara and reserve of certain notes receivable at December 31, 2019, theCompany's consolidated balance sheets. The Company loaned $473 million to Sadara and converted $380 million of the notes and accounts receivable into equity during 2019. In 2018, the Company converted $382 million of outstanding notes and accounts receivable with Sadara into equity, primarily due to a shareholder loan reduction agreement with Sadara. In 2017, the Company loaned $735 million to Sadara and converted $718 million to equity. At December 31, 20192020 and 2018,2019, the Company's note receivable with Sadara was 0. Potential future loans and investments will continue to be subject to evaluation for reserve and impairments.
EQUATE
The Company had a negative investment balance in EQUATE of $147 million at December 31, 2020 (negative $80 million at December 31, 2019,2019), classified as "Other noncurrent obligations" in the consolidated balance sheets. At December 31, 2018, the Company had an investment balance in EQUATE of $131 million, classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. The Company's investment in EQUATE was $489$475 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 20192020 ($502489 million less at December 31, 2018)2019), which represents the difference between the fair values of certain MEGlobal assets acquired by EQUATE and the Company's related valuation on a U.S. GAAP basis. A basis difference of $169$155 million at December 31, 20192020 ($184169 million at December 31, 2018)2019) is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At December 31, 2019,2020, the Company had an investment in AFSI of $35 million0 ($4835 million at December 31, 2018)2019), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. At December 31, 2019,2020, the Company's investment in AFSI was $102$108 million less than the Company's proportionate share of AFSI's underlying net assets ($101102 million less at December 31, 2018)2019). This amount primarily relates to an other-than-temporary decline in the Company's investment in AFSI. At December 31, 2019,2020, the Company held a 4140 percent ownership interest in AFSI (42(41 percent at December 31, 2018)2019). See Note 25 for additional information on this investment.
Transactions with Nonconsolidated Affiliates
The Company has service agreements with certain nonconsolidated affiliates, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase, lease and sublease agreements.
The Company sells excess ethylene glycol produced at manufacturing facilities in the United States and Europe to MEGlobal, a subsidiary of EQUATE. The Company also sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in Canada. Sales of these products to MEGlobal represented 1 percent of total net sales in 2020, 2019 2018 and 2017.2018. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 12 percent of the segment's sales in 2020 (1 percent in 2019 2018 and 2017.2018). Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2020 (1 percent in 2019 and 2 percent of the segment's sales in 2018 and 2017.2018).
The Company is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company’s established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee. Purchases of Sadara products represented 8 percent of "Cost of sales" in 2019 (92020 (8 percent in 20182019 and 49 percent in 2017)2018).
The Company purchases products from The SCG-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCG-Dow Group represented 23 percent of "Cost of sales" in 20192020 (2 percent in 20182019 and 3 percent in 2017)2018).
Sales to and purchases from other nonconsolidated affiliates were not material to the consolidated financial statements.
Balances due to or due from nonconsolidated affiliates at December 31, 20192020 and 20182019 were as follows:
|
| | | | | | |
Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2019 | 2018 |
In millions |
Accounts and notes receivable - Other | $ | 211 |
| $ | 556 |
|
Noncurrent receivables | — |
| 8 |
|
Total assets | $ | 211 |
| $ | 564 |
|
Accounts payable - Other | $ | 1,092 |
| $ | 1,347 |
|
| | | | | | | | |
Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2020 | 2019 |
In millions |
Accounts and notes receivable - Other | $ | 229 | | $ | 211 | |
| | |
| | |
| | |
Accounts payable - Other | $ | 1,075 | | $ | 1,092 | |
| | |
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 3735 nonconsolidated affiliates at December 31, 2019 (382020 (37 at December 31, 2018)2019). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2020, 2019 2018 and 20172018 are as follows:
|
| | | | | | | |
Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest |
| 2019 | 2018 | 2017 |
EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % |
Sadara Chemical Company | Saudi Arabia | 35 | % | 35 | % | 35 | % |
The SCG-Dow Group: | | | | |
Siam Polyethylene Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Polystyrene Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Styrene Monomer Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Synthetic Latex Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
| |
1. | The Company's effective ownership of Map Ta Phut Olefins Company Limited ("Map Ta Phut") is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited. |
| | | | | | | | | | | | | | |
Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest |
| 2020 | 2019 | 2018 |
EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % |
| | | | |
Sadara Chemical Company | Saudi Arabia | 35 | % | 35 | % | 35 | % |
The SCG-Dow Group: | | | | |
Siam Polyethylene Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Polystyrene Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Styrene Monomer Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
Siam Synthetic Latex Company Limited | Thailand | 50 | % | 50 | % | 50 | % |
| | | | |
1.The Company's effective ownership of Map Ta Phut Olefins Company Limited ("Map Ta Phut") is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited.
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are shown in the tables below:
|
| | | | | | |
Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2019 | 2018 |
In millions |
Investment in nonconsolidated affiliates | $ | 963 |
| $ | 2,876 |
|
Other noncurrent obligations | (80 | ) | — |
|
Net investment in principal nonconsolidated affiliates | $ | 883 |
| $ | 2,876 |
|
| | | | | | | | |
Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2020 | 2019 |
In millions |
Investment in nonconsolidated affiliates | $ | 922 | | $ | 963 | |
Other noncurrent obligations | (169) | | (80) | |
Net investment in principal nonconsolidated affiliates | $ | 753 | | $ | 883 | |
|
| | | | | | | | | |
Equity Earnings from Principal Nonconsolidated Affiliates | 2019 | 2018 | 2017 |
In millions |
Equity in earnings of principal nonconsolidated affiliates | $ | 21 |
| $ | 561 |
| $ | 347 |
|
| | | | | | | | | | | |
Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2020 | 2019 | 2018 |
In millions |
Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (16) | | $ | 21 | | $ | 561 | |
The summarized financial information that follows represents the combined accounts (at 100 percent) of the principal nonconsolidated affiliates.
|
| | | | | | |
Summarized Balance Sheet Information at Dec 31 | 2019 | 2018 |
In millions |
Current assets | $ | 5,302 |
| $ | 7,553 |
|
Noncurrent assets | 26,477 |
| 25,971 |
|
Total assets | $ | 31,779 |
| $ | 33,524 |
|
Current liabilities | $ | 3,743 |
| $ | 5,163 |
|
Noncurrent liabilities | 20,271 |
| 19,089 |
|
Total liabilities | $ | 24,014 |
| $ | 24,252 |
|
Noncontrolling interests | $ | 110 |
| $ | 72 |
|
| | | | | | | | |
Summarized Balance Sheet Information at Dec 31 | 2020 | 2019 |
In millions |
Current assets | $ | 5,044 | | $ | 5,302 | |
Noncurrent assets | 25,298 | | 26,477 | |
Total assets | $ | 30,342 | | $ | 31,779 | |
Current liabilities | $ | 3,942 | | $ | 3,743 | |
Noncurrent liabilities | 20,144 | | 20,271 | |
Total liabilities | $ | 24,086 | | $ | 24,014 | |
Noncontrolling interests | $ | 132 | | $ | 110 | |
|
| | | | | | | | | |
Summarized Income Statement Information 1 | 2019 | 2018 | 2017 |
In millions |
Sales | $ | 10,905 |
| $ | 14,461 |
| $ | 11,629 |
|
Gross profit | $ | 644 |
| $ | 2,320 |
| $ | 1,992 |
|
Income (loss) from continuing operations, net of tax | $ | (277 | ) | $ | 1,173 |
| $ | 689 |
|
| |
1. | The results in this table reflect purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section. |
| | | | | | | | | | | |
Summarized Income Statement Information 1 | 2020 | 2019 | 2018 |
In millions |
Sales | $ | 9,470 | | $ | 10,905 | | $ | 14,461 | |
Gross profit | $ | 619 | | $ | 644 | | $ | 2,320 | |
Income (loss) from continuing operations, net of tax | $ | (461) | | $ | (277) | | $ | 1,173 | |
1.The results in this table reflect purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.
NOTE 1413 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows changes in the carrying amounts of goodwill by reportable segment for the years ended December 31, 20192020 and 2018:2019:
|
| | | | | | | | | | | | |
Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
In millions |
Balance at Jan 1, 2018 | $ | 5,043 |
| $ | 1,101 |
| $ | 3,689 |
| $ | 9,833 |
|
Foreign currency impact | (24 | ) | (6 | ) | (39 | ) | (69 | ) |
Measurement period adjustment - ECP 1 | 82 |
| — |
| — |
| 82 |
|
Balance at Dec 31, 2018 | $ | 5,101 |
| $ | 1,095 |
| $ | 3,650 |
| $ | 9,846 |
|
Foreign currency impact | 8 |
| 6 |
| (24 | ) | (10 | ) |
Goodwill impairment | — |
| — |
| (1,039 | ) | (1,039 | ) |
Other | — |
| (1 | ) | — |
| (1 | ) |
Balance at Dec 31, 2019 | $ | 5,109 |
| $ | 1,100 |
| $ | 2,587 |
| $ | 8,796 |
|
1. Goodwill recognized from the receipt of the ECP businesses as part of the separation from DowDuPont. See Note 4 for additional information. | | | | | | | | | | | | | | |
Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
In millions |
Balance at Jan 1, 2019 | $ | 5,101 | | $ | 1,095 | | $ | 3,650 | | $ | 9,846 | |
Foreign currency impact | 8 | | 6 | | (24) | | (10) | |
| | | | |
Goodwill Impairment | 0 | | 0 | | (1,039) | | (1,039) | |
Other | 0 | | (1) | | 0 | | (1) | |
Balance at Dec 31, 2019 | $ | 5,109 | | $ | 1,100 | | $ | 2,587 | | $ | 8,796 | |
Foreign currency impact | 12 | | 4 | | 106 | | 122 | |
Sale of rail infrastructure | (2) | | 0 | | 0 | | (2) | |
Sale of marine and terminal infrastructure | (4) | | (4) | | 0 | | (8) | |
| | | | |
Balance at Dec 31, 2020 | $ | 5,115 | | $ | 1,100 | | $ | 2,693 | | $ | 8,908 | |
The separation from DowDuPont did not impact the composition of the Company's six reporting units: Coatings & Performance Monomers, Consumer Solutions, Hydrocarbons & Energy, Industrial Solutions, Packaging and Specialty Plastics and Polyurethanes & Construction Chemicals. The ECP businesses received as part of the separation from DowDuPont are included in the Hydrocarbons & Energy and Packaging and Specialty Plastics reporting units. At December 31, 2019,2020, goodwill was carried by all reporting units except Coatings & Performance Monomers (“C&PM”).
Goodwill Impairments
The carrying amounts of goodwill at December 31, 2020 and 2019 were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure ($309 million at December 31, 2018) and $2,530 million in Performance Materials & Coatings ($1,491 million at December 31, 2018).Coatings.
Goodwill Impairment Testing
The Company performs an impairment test of goodwill annually in the fourth quarter. In 2019,2020, the Company performed qualitative assessments for all reporting units that carried goodwill. Based on the results of the qualitative assessments, the Company performed quantitative testing for 21 reporting units (1unit (2 in 20182019 and 41 in 2017) and a2018). The qualitative assessment was performed forassessments on the remaining reporting units. The qualitative assessmentsunits indicated that it was not more likely than not that fair value was less than the carrying value for those reporting units included in the qualitative test.units.
Upon completion of theThe quantitative testing conducted in the fourth quarter of 2017, the Company determined the C&PM reporting unit was impaired. Throughout 2017, the C&PM reporting unit did not consistently meet expected financial performance targets, primarily due to increasing commoditization in coatings markets2020 and competition, as well as customer consolidation in end markets which reduced growth opportunities. As a result, the C&PM reporting unit lowered future revenue and profitability expectations. The fair value of the C&PM reporting unit was determined using a discounted cash flow methodology that reflected reductions in projected revenue growth rates, primarily driven by modified sales volume and pricing assumptions, as well as revised expectations for future growth rates. These discounted cash flows did not support the carrying value of the C&PM reporting unit. As a result, the Company recorded a goodwill impairment charge for the C&PM reporting unit of $1,491 million in the fourth quarter of 2017, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Performance Materials & Coatings segment. The C&PM reporting unit carried $1,071 million of goodwill at December 31, 2017. No other goodwill impairments were identified as a result of the 2017 testing.
Quantitative testing was performed on the C&PM reporting unit in the fourth quarter of 2018. The fair value of the reporting unit was determined using a discounted cash flow methodology that included plans to undertake modest, higher-return investments in several existing assets, improvements in cost performance and leveraging of technologies. While assessments supported a case for sustaining market growth consistent with GDP projections, the valuation also included adverse impacts related to increased customer purchasing leverage from ongoing customer consolidation. The resulting valuation was compared with the carrying value of the C&PM reporting and the Company2018 concluded that no goodwill impairmentimpairments existed.
Upon completion of the quantitative testing in the fourth quarter of 2019, the Company determined the C&PM reporting unit was impaired. During 2019, the C&PM reporting unit did not consistently meet expected financial performance targets, primarily due to the industry’s increased captive use of coatings products, which led to volume reductions; reduced margins for products across the portfolio due to changes in customer buying patterns and supply and demand balances; as well as a continuous trend of customer consolidation in end markets,end-markets, which reduced growth opportunities. As a result, the C&PM reporting unit lowered its future revenue and profitability projections. The fair value of the C&PM reporting unit was determined using a discounted cash flow methodology that reflected reductions in projected revenue growth rates due to lower sales volume and price assumptions, as well as reductions to future growth rates. These discounted cash flows did not support the carrying value of the C&PM reporting unit. As a result, the Company recorded a goodwill impairment charge of $1,039 million in the fourth quarter of 2019, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Performance Materials & Coatings segment. The carrying value of the C&PM reporting unit's goodwill was 0 at December 31, 2019. No other goodwill impairments were identified as a result of the 2019 testing.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:
|
| | | | | | | | | | | | | | | | | | |
Other Intangible Assets at Dec 31 | 2019 | 2018 |
In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
Intangible assets with finite lives: | | | | | | |
Developed technology | $ | 2,634 |
| $ | (1,467 | ) | $ | 1,167 |
| $ | 2,634 |
| $ | (1,252 | ) | $ | 1,382 |
|
Software | 1,449 |
| (893 | ) | 556 |
| 1,404 |
| (805 | ) | 599 |
|
Trademarks/tradenames | 352 |
| (342 | ) | 10 |
| 352 |
| (329 | ) | 23 |
|
Customer-related | 3,207 |
| (1,184 | ) | 2,023 |
| 3,211 |
| (993 | ) | 2,218 |
|
Total other intangible assets, finite lives | $ | 7,642 |
| $ | (3,886 | ) | $ | 3,756 |
| $ | 7,601 |
| $ | (3,379 | ) | $ | 4,222 |
|
In-process research and development | 3 |
| — |
| 3 |
| 3 |
| — |
| 3 |
|
Total other intangible assets | $ | 7,645 |
| $ | (3,886 | ) | $ | 3,759 |
| $ | 7,604 |
| $ | (3,379 | ) | $ | 4,225 |
|
| | | | | | | | | | | | | | | | | | | | |
Other Intangible Assets at Dec 31 | 2020 | 2019 |
In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
Intangible assets with finite lives: | | | | | | |
Developed technology | $ | 2,638 | | $ | (1,677) | | $ | 961 | | $ | 2,634 | | $ | (1,467) | | $ | 1,167 | |
Software | 1,489 | | (989) | | 500 | | 1,449 | | (893) | | 556 | |
Trademarks/tradenames | 352 | | (343) | | 9 | | 352 | | (342) | | 10 | |
Customer-related | 3,301 | | (1,419) | | 1,882 | | 3,207 | | (1,184) | | 2,023 | |
| | | | | | |
Total other intangible assets, finite lives | $ | 7,780 | | $ | (4,428) | | $ | 3,352 | | $ | 7,642 | | $ | (3,886) | | $ | 3,756 | |
In-process research and development | 0 | | 0 | | 0 | | 3 | | 0 | | 3 | |
Total other intangible assets | $ | 7,780 | | $ | (4,428) | | $ | 3,352 | | $ | 7,645 | | $ | (3,886) | | $ | 3,759 | |
The following table provides information regarding amortization expense from continuing operations related to intangible assets:
|
| | | | | | | | | |
Amortization Expense from Continuing Operations | 2019 | 2018 | 2017 |
In millions |
Other intangible assets, excluding software | $ | 419 |
| $ | 469 |
| $ | 400 |
|
Software 1 | $ | 96 |
| $ | 93 |
| $ | 82 |
|
| |
1. | Included in "Cost of sales" in the consolidated statements of income. |
| | | | | | | | | | | |
Amortization Expense from Continuing Operations | 2020 | 2019 | 2018 |
In millions |
Other intangible assets, excluding software | $ | 401 | | $ | 419 | | $ | 469 | |
Software, included in "Cost of sales" | $ | 96 | | $ | 96 | | $ | 93 | |
Total estimated amortization expense from continuing operations for the next five fiscal years, including amounts expected to be capitalized, is as follows:
|
| | | |
Estimated Amortization Expense for Next Five Years |
In millions |
2020 | $ | 492 |
|
2021 | $ | 472 |
|
2022 | $ | 411 |
|
2023 | $ | 380 |
|
2024 | $ | 364 |
|
| | | | | |
Estimated Amortization Expense for Next Five Years |
In millions |
2021 | $ | 477 | |
2022 | $ | 415 | |
2023 | $ | 384 | |
2024 | $ | 366 | |
2025 | $ | 275 | |
NOTE 1514 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains committed accounts receivable facilities with various financial institutions, including in the United States, which expires in November 2022 (“U.S. A/R Program”) and in Europe, which expires in July 2023 (“Europe A/R Program” and together with the U.S. A/R Program, "the Programs"). Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. A/R Program and up to €400 million for the Europe A/R Program. Under the terms of the Programs, the Company continues to service the receivables from the customer, but retains no interest in the receivables, and remits payment to the financial institutions. The Company also provides a guarantee to the financial institutions for the creditworthiness and collection of the receivables in satisfaction of the facility. See Note 16 for additional information related to guarantees. There were 0 receivables sold under the Programs during the years ended December 31, 2020 and 2019.
Accounts Receivable Securitization Facilities
The Company historically sold 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 were comprised of cash and interests in specified assets of the conduits (the receivables sold by the Company) that entitled the Company to the residual cash flows of such specified assets in the conduits after the commercial paper had been repaid. Neither the conduits nor the investors in those entities had recourse to other assets of the Company in the event of nonpayment by the debtors.
In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In 2018, the Company recognized a loss of $7 million on the sale of these receivables, which is included in “Interest expense and amortization of debt discount” in the consolidated statements of income. The Company's interests in the conduits were reflected in "Investing Activities" in the consolidated statements of cash flows and were $657 million in 2018. In September and October 2018, the North American and European facilities, respectively, were amended and the terms of the agreements changed from off-balance sheet arrangements to secured borrowing arrangements. In November 2019 and July 2020, the North American and European facilities, respectively, were amended and are no longer secured borrowing arrangements. These facilities were not drawn upon during the period they were secured borrowing arrangements. See Note 1615 for additional information on the secured borrowing arrangements.
In 2018, the Company recognized a loss of $7 million on the sale of these receivables (loss of $25 million in 2017), which is included in “Interest expense and amortization of debt discount” in the consolidated statements of income. There were no sales of receivables through these facilities in 2019.
Following is an analysis of certain cash flows between the Company and the conduits:
|
| | | | | | |
Cash Proceeds | | |
In millions | 2018 | 2017 |
Sale of receivables | $ | — |
| $ | 1 |
|
Collections reinvested in revolving receivables | $ | — |
| $ | 21,293 |
|
Interests in conduits 1 | $ | 657 |
| $ | 9,462 |
|
| |
1. | Presented in "Investing Activities" in the consolidated statements of cash flows. |
North America Accounts Receivable Program
The Company maintains a committed accounts receivable facility in North America (“North America A/R Program”) with various financial institutions, which expires in November 2022. Under the terms of the North America A/R Program, the Company may sell certain eligible trade accounts receivable, up to $900 million, at any point in time. The Company continues to service the receivables from the customer, but retains no interest in the receivables, and remits payment to the financial institutions. The Company also provides a guarantee to the financial institutions for the creditworthiness and collection of the receivables in satisfaction of the facility. See Note 17 for additional information related to guarantees. There were 0 receivables sold during the year ended December 31, 2019.
NOTE 1615 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| | | | | | | | |
Notes Payable at Dec 31 | | |
In millions | 2020 | 2019 |
Commercial paper | $ | 0 | | $ | 151 | |
Notes payable to banks and other lenders | 156 | | 435 | |
| | |
| | |
Total notes payable | $ | 156 | | $ | 586 | |
Year-end average interest rates | 3.89 | % | 6.30 | % |
|
| | | | | | |
Notes Payable at Dec 31 | | |
In millions | 2019 | 2018 |
Commercial paper | $ | 151 |
| $ | 10 |
|
Notes payable to banks and other lenders | 435 |
| 288 |
|
Total notes payable | $ | 586 |
| $ | 298 |
|
Year-end average interest rates | 6.30 | % | 8.28 | % |
| | | | | | | | | | | | | | |
Long-Term Debt at Dec 31 | 2020 Average Rate | 2020 | 2019 Average Rate | 2019 |
In millions |
Promissory notes and debentures: | | | | |
Final maturity 2020 | 0 | % | $ | 0 | | 8.44 | % | $ | 76 | |
Final maturity 2021 | 8.95 | % | 173 | | 8.95 | % | 174 | |
Final maturity 2022 | 8.64 | % | 121 | | 3.50 | % | 1,372 | |
Final maturity 2023 | 7.63 | % | 250 | | 7.64 | % | 325 | |
Final maturity 2024 1 | 3.43 | % | 1,017 | | 3.37 | % | 1,397 | |
Final maturity 2025 | 5.13 | % | 625 | | 5.26 | % | 662 | |
Final maturity 2026 and thereafter 1 | 5.22 | % | 10,888 | | 5.73 | % | 8,820 | |
Other facilities: | | | | |
U.S. dollar loans | 0 | % | 0 | | 2.55 | % | 2,000 | |
Foreign currency notes and loans, various rates and maturities | 1.41 | % | 3,189 | | 3.26 | % | 592 | |
InterNotes®, varying maturities through 2050 | 3.56 | % | 535 | | 3.44 | % | 928 | |
| | | | |
Finance lease obligations 2 | | 518 | | | 395 | |
Unamortized debt discount and issuance costs | | (365) | | | (331) | |
Long-term debt due within one year 3 | | (460) | | | (435) | |
Long-term debt | | $ | 16,491 | | | $ | 15,975 | |
1.Cost includes net fair value hedge adjustment gains of $69 million at December 31, 2020 ($1 million at December 31, 2019). See Note 22 for additional information.
|
| | | | | | | | | | |
Long-Term Debt at Dec 31 | 2019 Average Rate | 2019 | 2018 Average Rate | 2018 |
In millions |
Promissory notes and debentures: | | | | |
Final maturity 2019 | — | % | $ | — |
| 9.80 | % | $ | 7 |
|
Final maturity 2020 | 8.44 | % | 76 |
| 4.46 | % | 1,547 |
|
Final maturity 2021 | 8.95 | % | 174 |
| 4.71 | % | 1,424 |
|
Final maturity 2022 | 3.50 | % | 1,372 |
| 3.50 | % | 1,373 |
|
Final maturity 2023 | 7.64 | % | 325 |
| 7.64 | % | 325 |
|
Final maturity 2024 | 3.37 | % | 1,397 |
| 3.50 | % | 896 |
|
Final maturity 2025 and thereafter | 5.70 | % | 9,482 |
| 5.98 | % | 7,963 |
|
Other facilities: | | | | |
U.S. dollar loans, various rates and maturities | 2.55 | % | 2,000 |
| 3.59 | % | 4,533 |
|
Foreign currency loans, various rates and maturities | 3.26 | % | 592 |
| 3.20 | % | 708 |
|
InterNotes®, varying maturities through 2049 | 3.44 | % | 928 |
| 3.26 | % | 778 |
|
Finance lease obligations 1 | | 395 |
| | 371 |
|
Unamortized debt discount and issuance costs | | (331 | ) | | (334 | ) |
Long-term debt due within one year 2 | | (435 | ) | | (338 | ) |
Long-term debt |
|
| $ | 15,975 |
|
|
| $ | 19,253 |
|
2.See Note 17 for additional information.3.Presented net of current portion of unamortized debt issuance costs.
| |
1. | See Note 18 for additional information. |
| |
2. | Presented net of current portion of unamortized debt issuance costs. |
| | | | | |
Maturities of Long-Term Debt for Next Five Years at Dec 31, 2020 |
In millions |
2021 | $ | 460 | |
2022 | $ | 236 | |
2023 | $ | 381 | |
2024 | $ | 1,079 | |
2025 | $ | 717 | |
2020 Activity
In February 2020, the Company issued €2.25 billion aggregate principal amount of notes (“Euro Notes”). The Euro Notes included €1 billion aggregate principal amount of 0.50 percent notes due 2027, €750 million aggregate principal amount of 1.125 percent notes due 2032 and €500 million aggregate principal amount of 1.875 percent notes due 2040. The Euro Notes have a weighted average coupon rate of approximately 1.0 percent. With the net proceeds from the issuance of the Euro Notes, Dow Silicones voluntarily repaid $750 million of principal under a certain third party credit agreement, ("Term Loan Facility”). In addition, the Company redeemed $1.25 billion of 3.0 percent notes issued by the Company with maturity in 2022. As a result, the Company recognized a pretax loss of $85 million on the early extinguishment of debt, included in “Sundry income (expense) – net” in the consolidated statements of income and related to Corporate.
|
| | | |
Maturities of Long-Term Debt for Next Five Years at Dec 31, 2019 |
In millions |
2020 | $ | 435 |
|
2021 | $ | 511 |
|
2022 | $ | 1,513 |
|
2023 1 | $ | 2,508 |
|
2024 | $ | 1,528 |
|
| |
1. | Assumes the option to extend maturity to 2023 will be exercised for the $2 billion Dow Silicones Term Loan Facility. |
In the first quarter of 2020, the Company withdrew $800 million under various uncommitted bilateral credit arrangements, which were subsequently repaid in the second quarter of 2020.
In August 2020, the Company issued $2 billion aggregate principal amount of notes. The notes included $850 million aggregate principal amount of 2.1 percent notes due 2030 and $1.15 billion aggregate principal amount of 3.6 percent notes due 2050 (together, the "Notes"). With the net proceeds from the issuance of the Notes, Dow Silicones voluntarily repaid the remaining $1.25 billion outstanding principal balance under the Term Loan Facility. In September 2020, the Company also used $556 million of aggregate proceeds from the Notes to fund cash tender offers for certain of its debt securities and certain debt securities of Union Carbide. In total, $493 million aggregate principal amount was tendered and retired. These actions resulted in a pretax loss of $62 million on the early extinguishment of debt included in "Sundry income (expense) – net" in the consolidated statements of income and related to Corporate.
In 2020, the Company also issued an aggregate principal amount of $190 million of InterNotes®, and redeemed an aggregate principal amount of $180 million at maturity. In addition, the Company voluntarily repaid an aggregate principal amount of $400 million of InterNotes® with various maturities. As a result, the Company recognized a pretax loss on the early extinguishment of debt of $2 million, included in “Sundry income (expense) – net” in the consolidated statements of income and related to Corporate. Additionally, the Company repaid $134 million of long-term debt at maturity and approximately $29 million of long-term debt was repaid by consolidated variable interest entities.
Subsequent Event
On January 15, 2021, the Company announced a call for $118 million of InterNotes® with various maturities, which will settle on February 15, 2021.
2019 Activity
In 2019, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $750 million aggregate principal amount of 4.80 percent notes due 2049; $750 million aggregate principal amount of 3.625 percent notes due 2026; and $500 million aggregate principal amount of 3.15 percent notes due 2024. In addition, the Company redeemed $1.5 billion of 4.25 percent notes with maturity in 2020 and $1.25 billion of 4.125 percent notes with maturity in 2021. As a result, the Company recognized a pretax loss of $100 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment.Corporate. The Company also issued an aggregate principal amount of $277 million of InterNotes®, and redeemed an aggregate principal amount of $122 million at maturity. Approximately $149 million of long-term debt (net of $16 million of issuances) was repaid by consolidated variable interest entities.
In 2019, Dow Silicones voluntarily repaid $2.5 billion of principal under a certain third party credit agreement ("the Term Loan Facility").Facility. As a result, Dow Silicones recognized a pretax loss of $2 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment. Dow Silicones also amended the Term Loan Facility to extend the maturity date on the remaining principal balance of $2 billion, making amounts borrowed under the Term Loan Facility payable in September 2021. In addition, this amendment includes options to extend the maturity date through September 2023, at Dow Silicones' election, which the Company intends to exercise.Corporate.
In October 2019, TDCC launched exchange offers for $4 billion of all the outstanding, unregistered senior notes that were issued in private offerings on November 30, 2018 and May 20, 2019, for identical, registered notes under the Securities Act of 1933 (the “Exchange Offers”). The Exchange Offers arewere with respect to the Company’s 3.15 percent notes due 2024, 4.55 percent notes due 2025, 3.625 percent notes due 2026, 4.80 percent notes due 2028, 5.55 percent notes due 2048 and 4.80 percent notes due 2049, and fulfilled the Company’s obligations contained in the registration rights agreements entered into in connection with the issuance of the aforementioned notes.
2018 Activity
In 2018, the Company redeemed $333 million of 5.70 percent notes at maturity and an aggregate principal amount of $91 million of InterNotes® at maturity. In addition, approximately $138 million of long-term debt was repaid by consolidated variable interest entities. The Company also called an aggregate principal amount of $343 million tax-exempt bonds of various interest rates and maturities in 2029, 2033 and 2038. As a result of these redemptions, the Company recognized a pretax loss of $6 million on the early extinguishment of debt, included in “Sundry income (expense) - net” in the consolidated statements of income and related to Corporate.
In November 2018, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $900 million aggregate principal amount of 5.55 percent notes due
2048; $600 million aggregate principal amount of 4.80 percent notes due 2028; and $500 million aggregate principal amount of 4.55 percent notes due 2025.
In December 2018, the Company tendered and redeemed $2.1 billion of 8.55 percent notes issued by the Company with maturity in 2019. As a result, the Company recognized a pretax loss of $48 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
2017 Activity
In 2017, the Company redeemed $436 million of 6.00 percent notes that matured on September 15, 2017, and an aggregate principal amount of $32 million of InterNotes® at maturity. In addition, approximately $119 million of long-term debt was repaid by consolidated variable interest entities.
Available Credit Facilities
The following table summarizes the Company's credit facilities:
|
| | | | | | | | |
Committed and Available Credit Facilities at Dec 31, 2019 |
In millions | Committed Credit | Credit Available | Maturity Date | Interest |
Five Year Competitive Advance and Revolving Credit Facility | $ | 5,000 |
| $ | 5,000 |
| October 2024 | Floating rate |
Term Loan Facility 1 | 2,000 |
| — |
| September 2023 | Floating rate |
European Securitization Facility 2 | 448 |
| 448 |
| October 2020 | Floating rate |
Bilateral Revolving Credit Facility | 100 |
| 100 |
| March 2020 | Floating rate |
Bilateral Revolving Credit Facility | 100 |
| 100 |
| March 2020 | Floating rate |
Bilateral Revolving Credit Facility | 280 |
| 280 |
| March 2020 | Floating rate |
Bilateral Revolving Credit Facility | 200 |
| 200 |
| May 2020 | Floating rate |
Bilateral Revolving Credit Facility | 200 |
| 200 |
| July 2020 | Floating rate |
Bilateral Revolving Credit Facility | 100 |
| 100 |
| August 2020 | Floating rate |
Bilateral Revolving Credit Facility | 300 |
| 300 |
| December 2020 | Floating rate |
Bilateral Revolving Credit Facility | 300 |
| 300 |
| December 2021 | Floating rate |
Bilateral Revolving Credit Facility | 100 |
| 100 |
| October 2024 | Floating rate |
Bilateral Revolving Credit Facility | 100 |
| 100 |
| October 2024 | Floating rate |
Bilateral Revolving Credit Facility | 200 |
| 200 |
| November 2024 | Floating rate |
Total Committed and Available Credit Facilities | $ | 9,428 |
| $ | 7,428 |
| | |
| |
1. | Assumes the option to extend the Term Loan Facility will be exercised. |
| |
2. | Equivalent to Euro 400 million. |
| | | | | | | | | | | | | | | |
Committed and Available Credit Facilities at Dec 31, 2020 |
In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | October 2024 | Floating rate |
Bilateral Revolving Credit Facility | | 200 | | 200 | | November 2021 | Floating rate |
Bilateral Revolving Credit Facility | | 300 | | 300 | | December 2021 | Floating rate |
Bilateral Revolving Credit Facility | | 300 | | 300 | | December 2021 | Floating rate |
Bilateral Revolving Credit Facility | | 150 | | 150 | | March 2022 | Floating rate |
Bilateral Revolving Credit Facility | | 100 | | 100 | | June 2022 | Floating rate |
Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2022 | Floating rate |
Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2023 | Floating rate |
Bilateral Revolving Credit Facility | | 250 | | 250 | | September 2023 | Floating rate |
Bilateral Revolving Credit Facility | | 300 | | 300 | | September 2023 | Floating rate |
Bilateral Revolving Credit Facility | | 100 | | 100 | | October 2024 | Floating rate |
Bilateral Revolving Credit Facility | | 100 | | 100 | | October 2024 | Floating rate |
Bilateral Revolving Credit Facility | | 200 | | 200 | | November 2024 | Floating rate |
Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2025 | Floating rate |
Bilateral Revolving Credit Facility | | 250 | | 250 | | March 2025 | Floating rate |
Bilateral Revolving Credit Facility | | 350 | | 350 | | March 2025 | Floating rate |
Total Committed and Available Credit Facilities | | $ | 8,100 | | $ | 8,100 | | | |
Secured Borrowings
In September 2018, the Company renewed its North American accounts receivable securitization facility for a one year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to $800 million. Under the structure of the amended agreement, the Company had the option to use select trade accounts receivable to collateralize the credit facility with certain lenders. In November 2019, the facility was amended and is no longer a secured borrowing arrangement. It hadwas not been drawn upon during its term as a secured borrowing arrangement.
In October 2018, the Company renewed its European accounts receivable securitization facility for a two year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to Euro 400€400 million. Under the structure of the amended agreement, the Company willhad the option to use select trade accounts receivable to collateralize the credit facility with certain lenders. At December 31, 2019 and 2018,In July 2020, the facility hadwas amended and is no longer a secured borrowing arrangement. It was not been drawn upon.upon during its term as a secured borrowing arrangement. See Note 14 for additional information related to the accounts receivable programs.
Letters of Credit
The Company utilizes letters of credit to support commitments made in the ordinary course of business. While the terms and amounts of letters of credit change, the Company generally has approximately $400 million of outstanding letters of credit at any given time. In addition, at December 31, 2020, the Company had a $220 million outstanding letter of credit related to a guarantee of the Company’s share of one future debt service schedule payment for Sadara. See Note 16 for additional information related to guarantees.
Debt Covenants and Default Provisions
TDCC’s outstanding long-term debt has been issued primarily under indentures which contain, among other provisions, certain customary restrictive covenants with which TDCC must comply while the underlying notes are outstanding. Failure of TDCC to comply with any of its covenants, could result in a default under the applicable indenture and allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the underlying notes.
TDCC's indenture covenants include obligations to not allow liens on principal U.S. manufacturing facilities, enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, merge or consolidate with any other corporation, or sell, lease or convey, directly or indirectly, all or substantially all of TDCC’s assets. The outstanding debt also contains customary default provisions. TDCC remains in compliance with these covenants.
TDCC’s primary, private credit agreements also contain certain customary restrictive covenant and default provisions in addition to the covenants set forth above with respect to TDCC’s debt. Significant other restrictive covenants and default provisions related to these agreements include:
| |
(a) | the obligation to maintain the ratio of TDCC’s consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement") dated October 30, 2018, equals or exceeds $500 million, |
(a) the obligation to maintain the ratio of TDCC’s consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement") dated October 30, 2018, equals or exceeds $500 million,
| |
(b) | a default if TDCC or an applicable subsidiary fails to make any payment, including principal, premium or interest, under the applicable agreement on other indebtedness of, or guaranteed by, TDCC or such applicable subsidiary in an aggregate amount of $100 million or more when due, or any other default or other event under the applicable agreement with respect to such indebtedness occurs which permits or results in the acceleration of $400 million or more in the aggregate of principal, and |
(b) a default if TDCC or an applicable subsidiary fails to make any payment, including principal, premium or interest, under the applicable agreement on other indebtedness of, or guaranteed by, TDCC or such applicable subsidiary in an aggregate amount of $100 million or more when due, or any other default or other event under the applicable agreement with respect to such indebtedness occurs which permits or results in the acceleration of $400 million or more in the aggregate of principal, and
| |
(c) | a default if TDCC or any applicable subsidiary fails to discharge or stay within 60 days after the entry of a final judgment against TDCC or such applicable subsidiary of more than $400 million. |
(c) a default if TDCC or any applicable subsidiary fails to discharge or stay within 60 days after the entry of a final judgment against TDCC or such applicable subsidiary of more than $400 million.
Failure of TDCC to comply with any of the covenants or default provisions could result in a default under the applicable credit agreement which would allow the lenders to not fund future loan requests and to accelerate the due date of the outstanding principal and accrued interest on any outstanding indebtedness.
On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. In conjunction with the separation, Dow Inc. is obligated, substantially concurrently with the issuance of any guarantee in respect of outstanding or committed indebtedness under TDCC's Revolving Credit Agreement, to enter into a supplemental indenture with TDCC and the trustee under TDCC’s existing 2008 base indenture governing certain notes issued by TDCC. Under such supplemental indenture, Dow Inc. will guarantee all outstanding debt securities and all amounts due under such existing base indenture and will become subject to certain covenants and events of default under the existing base indenture.
In addition, the Revolving Credit Agreement includes an event of default which would be triggered in the event Dow Inc. incurs or guarantees third party indebtedness for borrowed money in excess of $250 million or engages in any material activity or directly owns any material assets, in each case, subject to certain conditions and exceptions. Dow Inc. may, at its option, cure the event of default by delivering an unconditional and irrevocable guarantee to the administrative agent within thirty days of the event or events giving rise to such event of default.
No such events have occurred or have been triggered at the time of the filing of this Annual Report on Form 10-K.
NOTE 1716 – COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
Introduction
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 December 31, 2019,2020, the Company had accrued obligations of $1,155$1,244 million for probable environmental remediation and restoration costs, including $207$248 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 one and a half times 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 or 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. As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability. At December 31, 2018,2019, the Company had accrued obligations of $810$1,155 million for probable environmental remediation and restoration costs, including $156$207 million for the remediation of Superfund sites.
As part of the Company's 2020 Restructuring Program, in the third quarter of 2020, the Company recorded a pretax charge related to environmental remediation matters. This charge resulted from the Company's evaluation of the costs required to manage remediation activities at sites Dow will permanently shut down as part of its 2020 Restructuring Program. In addition, the Company recorded indemnification assets of $50 million related to Dow Silicones' environmental matters. The Company recognized a pretax charge, net of indemnifications, of $56 million, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($52 million) and Corporate ($4 million). See Note 6 for additional information.
In the third quarter of 2019, the Company recorded a pretax charge related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted from: the culmination of long-standing negotiations and discussions with regulators and agencies, including technical studies supporting higher cost estimates for final or staged remediation plans; the Company’s evaluation of the cost required to manage remediation activities at sites affected by Dow’s separation from DowDuPont and related agreements with Corteva and DuPont; and, the Company’s review of its closure strategies and obligations to monitor ongoing operations and maintenance activities. In addition, the Company recorded indemnification assets of $48 million related to Dow Silicones’ environmental matters. The Company recognized a pretax charge, net of indemnifications, of $399 million related to these environmental matters, included in “Cost of sales” in the consolidated statements of income and related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million).
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 20192020 and 2018:2019:
|
| | | | | | |
Accrued Obligations for Environmental Matters | 2019 | 2018 |
In millions |
Balance at Jan 1 | $ | 810 |
| $ | 865 |
|
Accrual adjustment | 590 |
| 176 |
|
Payments against reserve | (241 | ) | (208 | ) |
Foreign currency impact | (4 | ) | (23 | ) |
Balance at Dec 31 | $ | 1,155 |
| $ | 810 |
|
| | | | | | | | |
Accrued Obligations for Environmental Matters | 2020 | 2019 |
In millions |
Balance at Jan 1 | $ | 1,155 | | $ | 810 | |
Accrual adjustment | 285 | | 590 | |
Payments against reserve | (198) | | (241) | |
Foreign currency impact | 2 | | (4) | |
Balance at Dec 31 | $ | 1,244 | | $ | 1,155 | |
The amounts charged to income on a pretax basis related to environmental remediation totaled $234 million in 2020, $588 million in 2019 and $176 million in 2018 and $163 million in 2017.2018. Capital expenditures for environmental protection were $80 million in 2020, $83 million in 2019 and $55 million in 2018 and $57 million in 2017.2018.
Midland Off-Site Environmental Matters
On June 12, 2003, the Michigan Department of Environmental Quality ("MDEQ") issued a Hazardous Waste Operating License (the "License") to the Company’s Midland, Michigan, manufacturing site (the “Midland Site”), which was renewed and replaced by the MDEQ on September 25, 2015, and included provisions requiring the Company to conduct an investigation to determine the nature and extent of off-site contamination in the City of Midland soils, the Tittabawassee River and Saginaw River sediment and floodplain soils, and the Saginaw Bay, and, if necessary, undertake remedial action. In 2016, final regulatory approval was received from the MDEQ for the City of Midland and the Company is continuing the long term monitoring requirements of the Remedial Action Plan.
Tittabawassee and Saginaw Rivers, Saginaw Bay
The Company, the U.S. Environmental Protection Agency (“EPA”) and the State of Michigan ("State") entered into an administrative order on consent (“AOC”), effective January 21, 2010, that requires the Company to conduct a remedial investigation, a feasibility study and a remedial design for the Tittabawassee River, the Saginaw River and the Saginaw Bay, and pay the oversight costs of the EPA and the State under the authority of the Comprehensive Environmental Response, Compensation, and Liability Act. These actions, to be conducted under the lead oversight of the EPA, will build upon the investigative work completed under the State Resource Conservation Recovery Act program from 2005 through 2009.
The Tittabawassee River, beginning at the Midland Site and extending down to the first six miles of the Saginaw River, are designated as the first Operable Unit for purposes of conducting the remedial investigation, feasibility study and remedial design work. This work will be performed in a largely upriver to downriver sequence for eight geographic segments of the Tittabawassee and upper Saginaw Rivers. In the first quarter of 2012, the EPA requested the Company address the Tittabawassee River floodplain ("Floodplain") as an additional segment. In January 2015, the Company and the EPA entered into an order to address remediation of the Floodplain. The remedial work is expected to continue over the next threetwo years. The remainder of the Saginaw River and the Saginaw Bay are designated as a second Operable Unit and the work associated with that unit may also be geographically segmented. The AOC does not obligate the Company to perform removal or remedial action; that action can only be required by a separate order. The Company and the EPA have been negotiating orders separate from the AOC that obligate the Company to perform remedial actions under the scope of work of the AOC. The Company and the EPA have entered into six separate orders to perform limited remedial actions in seven of the eight geographic segments in the first Operable Unit, including the Floodplain. Dow has received from the EPA a Notice of Completion of Work for three of these six orders and the Company continues the long-term monitoring requirements. Dow also has entered into a separate order to perform a limited remedial action for certain properties located within the second Operable Unit.
Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice ("DOJ"), and the natural resource damage trustees (which include the Michigan Office of the Attorney General, the Michigan Department of Environment, Great Lakes and Energy, the Michigan Department of Natural Resources, the U.S. Fish and Wildlife Service, the U.S. Bureau of Indian Affairs and the Saginaw-Chippewa Indian Tribe of Michigan) have been engaged in negotiations to seek to resolve potential governmental claims against the Company for natural resource damages related to historical off-site contamination associated with the City of Midland, the Tittabawassee and Saginaw Rivers and the Saginaw Bay. The Company and the governmental parties started meeting in the fall of 2005 and entered into a Confidentiality Agreement in December 2005.
On November 8, 2019, a proposed consent decree on this matter was filed inJuly 20, 2020, the U.S. District Court for the Eastern District of Michigan ("District Court"), entered a final consent decree in Civil Action No. 1:19-cv-13292 between the Company and federal, state and tribal trustees to resolve allegations of natural resource damages arising from the historic operations of the Company’s Midland Site. On November 14, 2019, a Notice of Lodging and Notice of Availability and Request for Comments on Draft Restoration Plan/Environmental Assessment was published in the Federal Register. Public comments on the proposedThe consent decree andrequired the draft Restoration Plan/Environmental Assessment were requiredCompany to pay a $15 million cash settlement to be submitted within 45 days of that publication.used for long-term maintenance and trustee-selected remediation projects with an additional $7 million to specified local projects managed by third parties. These funds were paid in December 2020. The consent decree further requires the Company to complete 13 additional environmental restoration projects which are valued by the trustees at approximately $77 million, to be conducted over the next several years.
At December 31, 2019,2020, the accrual for these off-site matters was $107 million (included in the total accrued obligation of $1,244 million). At December 31, 2019, the Company had an accrual for these off-site matters of $135 million (included in the total accrued obligation of $1,155 million). At December 31, 2018, the Company had an accrual for these off-site matters
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
Introduction
Union Carbide 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.
Estimating the Asbestos-Related Liability
Based on a study completed by Ankura Consulting Group, LLC ("Ankura") in January 2003, Union Carbide increased its December 31, 2002, asbestos-related liability for pending and future claims for a 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. In subsequent years, Union Carbide compared current asbestos claim and resolution activity to the results of the most recent Ankura study at each balance sheet date to determine whether the accrual continued to be appropriate.
In 2016, Ankura completed a study to provide estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049, including a reasonable forecast of future defense and processing costs. Based on the study and Union Carbide’s internal review of asbestos claim and resolution activity, Union Carbide determined estimating the liability through the terminal year of 2049 was more appropriate due to increased knowledge and data about the costs to resolve claims and diminished volatility in filing rates. Union Carbide and the Company also determined that estimating and accruing a liability for future asbestos-related defense and processing costs was more appropriate as such costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities of Union Carbide and the Company and is also reflective of the manner in which Union Carbide manages its asbestos-related exposure, including careful monitoring of the correlation between defense spending and resolution costs. As a result, in the fourth quarter of 2016, Union Carbide recorded a $1,113 million increase in its asbestos-related liability for pending and future claims, including future defense and processing costs. Each October, Union Carbide requests Ankura to review its historical asbestos claim and resolution activity through the third quarter of the current year, including asbestos-related defense and processing costs, to determine the appropriateness of updating the most recent study.
In December 2017, Ankura stated that an update of its December 2016 study would not provide a more likely estimate of future events than the estimate reflected in the study and, therefore, the estimate in the study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required.
In December 2018, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2018, including asbestos-related defense and processing costs, and provided estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049. Based on the study and Union Carbide's internal review process, it was determined that no adjustment to the accrual was required. At December 31, 2018, Union Carbide's asbestos-related liability for pending and future claims and defense and processing costs was $1,260 million, and approximately 16 percent of the recorded liability related to pending claims and approximately 84 percent related to future claims.
In December 2019, Ankura stated that an update of its December 2018 study would not provide a more likely estimate of future events than the estimate reflected in the study and, therefore, the estimate in the study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required. At December 31, 2019, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,165 million, and approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.
In December 2020, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2020, including asbestos-related defense and processing costs, and provided estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049. Based on the study and Union Carbide's internal review process, it was determined that no adjustment to the accrual was required. At December 31, 2020, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,098 million, and approximately 22 percent of the recorded liability related to pending claims and approximately 78 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 over a significant period of time, 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.
Because of the uncertainties described above, Union Carbide cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. As a result, it is reasonably possible that an additional cost of disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position.
Dow Silicones Chapter 11 Related Matters
Introduction
In 1995, Dow Silicones, then a 50:50 joint venture between the Company and Corning Incorporated ("Corning"), voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve Dow Silicones’ breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Silicones 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 Silicones is a wholly owned subsidiary of the Company.
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 Silicones 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 7 percent (approximately $4,019$4,081 million undiscounted at December 31, 2019)2020). Of this amount, no more than $400 million NPV determined as of the Effective Date can be used to fund the Litigation Facility.
Dow Silicones hashad an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At December 31, 2019,2020, Dow Silicones 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 $74$58 million.
In accordance with ASC Topic 450 "Accounting for Contingencies," the Company records a liability for breast implant and other product liability claims (“Implant Liability”), which reflects the estimated impact of the settlement of future claims primarily based on reportedpending claims. The claim filing levelsdeadline passed in the Revised Settlement Program (the “RSP”)June 2019. All claims have been received and on the resolution of almost all cases pending against the Litigation Facility. The RSP was a program sponsored by certain other breast implant manufacturers in the context of multi-district, coordinated federal breast implant cases and was open from 1995 through 2010. The RSP was also a revised successor to an earlier settlement plan involving Dow Silicones (prior to its bankruptcy filing). While Dow Silicones withdrew from the RSP, many of the benefit categories and payment levels in Dow Silicones settlement program were drawn from the RSP.are being processed. Based on the comparability in designclaims filed at and actual claim experience of both plans, management concludedbefore the deadline, Dow Silicones estimates that claim information from the RSP provides a reasonable basisit will be obligated to estimate future claim filing levels forcontribute an additional $160 million after the Settlement Facility.Facility balance is exhausted.
In the third quarter of 2019, with the assistance of a third party consultant ("Consultant"), Dow Silicones updated its Implant Liability estimate, to $165 million, primarily reflecting a decrease in Class 16 claims, a decrease resulting from the passage of time, decreased claim filing activity and administrative costs compared with the previous estimate, and an increase in investment income resulting from insurance proceeds. Based on the Consultant's updated estimate and Dow Silicones own review of claim filing activity, Dow Silicones determined that an adjustment to the Implant Liability was required. Accordingly, in the third quarter of 2019, Dow Silicones decreased its Implant Liability in the third quarter of 2019 by $98 million included in "Sundry income (expense) - net" in the consolidated statements of income, and also decreased its corresponding Class 16 receivable in the third quarter of 2019, resulting in a charge of $13 million, both included in “Sundry income (expense) - net” in the consolidated statements of income (bothand related to Corporate. The estimate was updated again in the Corporate segment). second quarter of 2020 with the assistance of the Consultant, which primarily reflected decreased administrative costs compared with the previous estimate and an increase in investment income resulting from insurance proceeds.
Dow Silicones' Implant Liability was $165$160 million at December 31, 20192020 ($263165 million at December 31, 2018)2019), of which $20$46 million ($20 million at December 31, 2019 ($111 million at December 31, 2018)2019) was included in “Accrued and other current liabilities” and $145$114 million ($145 million at December 31, 2019 ($152 million at December 31, 2018)2019) was included in "Other noncurrent obligations" in the consolidated balance sheets.
Dow Silicones 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 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 Silicones was ultimately required to fund the full liability up to the maximum capped value, the liability would be $2,257 million at December 31, 2019.
Commercial Creditor Issues
The Plan provides that each of Dow Silicones 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. Upon the Plan becoming effective, Dow Silicones paid approximately $1,500 million to the Commercial Creditors, representing principal and an amount of interest that Dow Silicones considers undisputed.
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 the Commercial Creditors to recover fees, costs, and expenses where allowed by relevant loan agreements. 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. On May 10, 2017, the District Court entered a stipulated order resolving pending discovery motions and established a discovery schedule for the Commercial Creditors matter. As a result, Dow Silicones and its third party consultants conducted further analysis of the Commercial Creditors claims and defenses. This analysis indicated the estimated remaining liability to the Commercial Creditors to be within a range of $77 million to $260 million. No single amount within the range appeared to be a better estimate than any other amount within the range. Therefore, Dow Siliconesrecorded the minimum liability within the range, which resulted in a decrease to the Commercial Creditor liability of $33 million in the second quarter of 2017, which was included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. At December 31, 2018, the liability related to Dow Silicones' potential obligation to its Commercial Creditors was $82 million, included in "Accrued and other current liabilities" in the consolidated balance sheets.
On August 19, 2019, Dow Silicones entered into a settlement agreement with the Commercial Creditors related to the remaining, disputed portion, obligating Dow Silicones to pay $172 million, inclusive of the Commercial Creditors' legal costs. The settlement was approved by the District Court. As a result of the settlement agreement, in the third quarter of 2019, the Company recorded a pretax charge of $50 million, net of indemnifications of $37 million, included in "Sundry Income (expense) - net" in the consolidated statements of income and related to the Corporate segment.Corporate. The settlement was paid to the Commercial Creditors in the fourth quarter of 2019. The litigation is now concluded.
Summary
The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones 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. The Company 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.
Indemnifications with Corning
In connection with the June 1, 2016 ownership restructure of Dow Silicones, the Company is indemnified by Corning for at least 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability, Commercial Creditors issues and certain environmental matters described in the preceding sections, 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 billion between May 31, 2018 and May 31, 2023, and (2) 0 recoveries are permitted after May 31, 2023. The Company had indemnification assets of $100$115 million at December 31, 2019 (02020 ($100 million at December 31, 2018)2019), of which $370 ($37 million at December 31, 2019) was included in "Other current assets" and $63$115 million ($63 million at December 31, 2019) was included in "Noncurrent receivables" in the consolidated balance sheets.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
OnIn December 9, 2010, Dow filed suit in the Federal Court in Ontario, Canada ("Federal Court") alleging that Nova Chemicals Corporation ("Nova") was infringing the Company's Canadian polyethylene patent 2,106,705 (the "'705 Patent"). Nova counterclaimed on the grounds of invalidity and non-infringement. In accordance with Canadian practice, the suit was bifurcated into a merits phase, followed by a damages phase. Following trial in the merits phase, in May 2014 the Federal Court ruled that the Company's '705 Patent was valid and infringed by Nova. Nova appealed to the Canadian Federal Court of Appeal, which affirmed the Federal Court decision in August 2016. Nova then sought leave to appeal its loss to the Supreme Court of Canada ("Court"), which dismissed Nova’s petition in April 2017. As a result, Nova has exhausted all appeal rights on the merits, and it is undisputed that Nova owes the Company the profits it earned from its infringing sales as determined in the trial for the damages phase.
OnIn April 19, 2017, the Federal Court issued a Public Judgment in the damages phase, which detailed its conclusions on how to calculate the profits to be awarded to the Company. The Company and Nova submitted their respective calculations of the damages to the Federal Court in May 2017. OnIn June 29, 2017, the Federal Court issued a Confidential Supplemental Judgment, concluding thatordered Nova mustto pay $645 million Canadian dollars (equivalent to $495 million U.S. dollars) to the Company, plus pre- and post-judgment interest, for which the Company received payment of $501 million from Nova onin July 6, 2017. Although Nova is appealing portions of the damages judgment, certain portions of it are indisputable and willcan be owed toretained by the Company regardless of the outcome of any further appeals by Nova. As a result of these actions and in accordance with ASC Topic 450-30 "Gain Contingencies," the Company recorded a $160 million pretax gain in the second quarter of 2017, related2017.
On September 15, 2020, the Canadian Federal Court of Appeal dismissed Nova's appeal of the damages judgment, thus affirming the trial court's decision in its entirety. In November 2020, Nova filed an application for leave to appeal this decision to the Packaging & Specialty Plastics segment, of which $137 million was includedCourt. Briefing is expected to be completed in "Sundry income (expense) - net"early 2021 and $23 million was included in "Selling, general and administrative expenses"the Company anticipates a decision in the consolidated statementsfirst half of income.2021 as to whether the Court will accept the appeal. The Court has complete discretion on whether to grant leave applications. At December 31, 2019,2020, the Company had $341 million (0 at December 31, 2019) included in "Accrued and other current liabilities" and 0 ($341 million at December 31, 2018)2019) included in "Other noncurrent obligations" related to the disputed portion of the damages judgment. The Company is confident of its chances of defendingto continue to defend the entire judgment on appeal,if the Court agrees to review it, particularly the trial court'sand appellate courts' determinations on important factual issues, which will be accorded deferential review on appeal.
Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter
On September 18, 2019, the Court of the Queen’s Bench in Alberta, Canada, signed a judgment ordering Nova to pay the Company $1.43 billion Canadian dollars (equivalent to approximately $1.08 billion U.S. dollars) by October 11, 2019, for damages the Company incurred through 2012 related to the companies’ jointly-owned ethylene asset in Joffre, Alberta, Canada. The Court of the Queen's Bench in Alberta, Canada, which initially ruled in June 2018, found that Nova failed to operate the ethylene asset at full capacity for more than ten years, and furthermore, that Nova violated several contractual agreements related to the Company receiving its share of the asset’s ethylene production. These actions resulted in reduced productivity and sales for the Company. Nova has appealed the judgment, however, certain portions of it are not in dispute and are owed to the Company regardless of the outcome of Nova's appeal. As a result of these actions and in accordance with ASC Topic 450-30 “Gain Contingencies,” the Company recorded a $186 million pretax gain in the third quarter of 2019, of which $170 million was included in "Sundry income (expense) - net" and $16 million was included in
"Selling, "Selling, general and administrative expenses" in the consolidated statements of income and related to Packaging & Specialty Plastics. In October 2019, Nova paid $1.08 billion Canadian dollars (equivalent to approximately $0.8 billion U.S. dollars) directly to the Company, and remitted $347 million Canadian dollars to the Canada Revenue Agency ("CRA") for the tax account of one of the Company's subsidiaries. The Company has sought a refund of the entire amount remitted to CRA. On March 31, 2020, the CRA. At December 31, 2019, $265Company received the full refund from CRA, equivalent to $259 million U.S. dollars.
In preparation for the June 2020 appellate hearing on the case, Nova provided the Court of the Queen's Bench in Alberta, Canada, an updated schedule of the financial impact of the issues on appeal, which explained that even if Nova prevails on all appeal issues, the Company would still be entitled to retain an amount in excess of the gain recognized in 2019. As a result, the Company recorded an $18 million pretax gain in the second quarter of 2020, of which $12 million was included in "Noncurrent receivables""Selling, general and administrative expenses" and $6 million was included in "Sundry income (expense) - net" in the Company's consolidated balance sheetsstatements of income and related to Packaging & Specialty Plastics. On September 16, 2020, the withholding taxCourt of Appeal of Alberta issued its decision, affirming the trial court's liability finding, upholding the majority of Dow's damages and $893requiring the trial court to recalculate a portion of damages. In the fourth quarter of 2020, Nova chose not to petition the Court to review the appellate court decision, making additional portions of the ruling in Dow’s favor final and no longer subject to dispute. As a result, the Company recorded a $552 million pretax gain in the fourth quarter of 2020, of which $538 million was included in "Sundry income (expense) - net" and $14 million was included in "Selling, general and administrative expenses" in the consolidated statements of income and related to Packaging & Specialty Plastics. At December 31, 2020, $323 million ($893 million at December 31, 2019) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment. Dow is confidentcontinues to seek an award of its chances of defendingadditional damages for the entire judgment on appeal, particularly the trial court's determinations on important factual and discretionary issues, which will be accorded deferential review on appeal.period from 2013 through 2018.
Purchase Commitments
The Company has outstanding purchase commitments and various commitments for take-or-pay or throughput agreements. The Company was not aware of any purchase commitments that were negotiated as part of a financing arrangement for the facilities that will provide the contracted goods or services or for the costs related to those goods or services at December 31, 20192020 and 2018.2019.
Guarantees
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for guarantees:
|
| | | | | | | | | | | | | | |
Guarantees | Dec 31, 2019 | Dec 31, 2018 |
In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
Guarantees | 2023 | $ | 3,952 |
| $ | 10 |
| 2023 | $ | 4,273 |
| $ | 22 |
|
| | | | | | | | | | | | | | | | | | | | |
Guarantees | Dec 31, 2020 | Dec 31, 2019 |
In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
Guarantees | 2023 | $ | 251 | | $ | 2 | | 2023 | $ | 3,952 | | $ | 10 | |
| | | | | | |
Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities 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 less than fourthree years. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
The Company has entered into guarantee agreements (“Guarantees”) related to project financing for Sadara.Sadara, a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara iswas approximately $12.5 billion. Sadara had $10.8 billion of Total Project Financing debt outstanding at December 31, 2019 ($11.7 billion at December 31, 2018). The Company's guarantee of2019. In November 2020, the remaining project completion conditions related to the Total Project Financing guarantees were fulfilled and the Company's guarantee obligations terminated. Subsequently, the Company provided a new guarantee in the form of a letter of credit for its share of one future debt service schedule payment up to $220 million. The guarantee is in proportion to the Company'sCompany’s 35 percent ownership interest in Sadara or upand is expected to approximately $3.9 billion whenremain in effect until the project financingre-profiling of Sadara’s debt is fully drawn. Sadara successfully completed an extensive operational testing program in December 2018, however, the Guarantees will be released upon the satisfactory fulfillment of certain project completion conditions, which is expected by the end ofin the first quarter of 2020,2021. See Note 12 for additional information.
In January 2021, Sadara reached an agreement in principle with its lenders to re-profile Sadara's outstanding project financing debt. In conjunction with completion of the Sadara debt re-profiling, the Company expects to guarantee approximately $1.3 billion of Sadara’s debt. The debt re-profiling is expected to include a grace period until June 2026, during which Sadara is obligated to make interest-only payments. Dow will also provide guarantees for its portion of all Sadara interest payments due during the grace period. Dow's pro-rata share of any potential shortfall during the grace period will be funded by a new $500 million revolving credit facility guaranteed by Dow,
which is expected to be established by Sadara in the first quarter of 2021. Dow's existing $220 million letter of credit related to the guarantee of one future Sadara debt service schedule payment will be cancelled upon completion of the full re-profiling of Sadara's debt. All guarantees related to the debt re-profile and must occur no later than December 2020.revolving credit facility are in proportion to Dow’s 35 percent ownership interest in Sadara. As a result of these actions, the Company does not expect to provide any shareholder loans or equity contributions to Sadara in 2021.
Asset Retirement Obligations
The Company has 109106 manufacturing sites in 31 countries. Most of these sites contain numerous individual manufacturing operations, particularly at the Company’s larger sites. Asset retirement obligations are recorded as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The retirement of assets may involve such efforts as remediation and treatment of asbestos, contractually required demolition, and other related activities, depending on the nature and location of the assets; and retirement obligations are typically realized only upon demolition of those facilities. In identifying asset retirement obligations, the Company considers identification of legally enforceable obligations, changes in existing law, estimates of potential settlement dates and the calculation of an appropriate discount rate to be used in calculating the fair value of the obligations. The Company has a well-established global process to identify, approve and track the demolition of retired or to-be-retired facilities; and no assets are retired from service until this process has been followed. The Company typically forecasts demolition projects based on the usefulness of the assets; environmental, health and safety concerns; and other similar considerations. Under this process, as demolition projects are identified and approved, reasonable estimates are determined for the time frames during which any related asset retirement obligations are expected to be settled. For those assets where a range of potential settlement dates may be reasonably estimated, obligations are recorded. The Company routinely reviews all changes to items under consideration for demolition to determine if an adjustment to the value of the asset retirement obligation is required.
The Company has recognized asset retirement obligations for the following activities: demolition and remediation activities at manufacturing sites primarily in theEurope, United States, Canada, Brazil, Argentina, Japan, United Arab Emirates, AustraliaCanada and Europe;Argentina; and capping activities at landfill sites in the United States, CanadaBrazil and Brazil.Canada. 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,Europe, Argentina Australia and Europe.Japan. The aggregate carrying amount of conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown below) was $19$14 million at December 31, 20192020 ($2219 million at December 31, 2018)2019).
The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 20192020 and 2018:2019:
|
| | | | | | |
Asset Retirement Obligations | 2019 | 2018 |
In millions |
Balance at Jan 1 | $ | 109 |
| $ | 100 |
|
Additional accruals | 10 |
| 9 |
|
Liabilities settled | (7 | ) | (3 | ) |
Accretion expense | 2 |
| 3 |
|
Revisions in estimated cash flows | 3 |
| — |
|
Other | (13 | ) | — |
|
Balance at Dec 31 | $ | 104 |
| $ | 109 |
|
| | | | | | | | |
Asset Retirement Obligations | 2020 | 2019 |
In millions |
Balance at Jan 1 | $ | 104 | | $ | 109 | |
Additional accruals | 6 | | 10 | |
Liabilities settled | (3) | | (7) | |
Accretion expense | 3 | | 2 | |
Revisions in estimated cash flows | 7 | | 3 | |
Other | (5) | | (13) | |
Balance at Dec 31 | $ | 112 | | $ | 104 | |
The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2019,2020, was 2.120.42 percent (3.54(2.12 percent at December 31, 2018)2019). 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. Assets that have not been submitted/reviewed for potential demolition activities are considered to have continued usefulness and are generally still operating normally. Therefore, without a plan to demolish the assets or the expectation of a plan, such as shortening the useful life of assets for depreciation purposes in accordance with the accounting guidance related to property, plant and equipment, the Company is unable to reasonably forecast a time frame to use for present value calculations. As such, the Company has not recognized obligations for individual plants/buildings at its manufacturing sites where
estimates of potential settlement dates cannot be reasonably made. In addition, the Company has not recognized conditional asset retirement obligations for the capping of its approximately 36 underground storage wells and 131129 underground brine mining and other wells at Company-owned sites when there are no plans or expectations of plans to exit the sites. 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 1817 - LEASES
Operating lease ROU assets are included in "Operating lease right-of-use assets" while finance lease ROU assets are included in "Net property" in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets.
Dow routinely leases sales and administrative offices, power plants, production facilities, warehouses and tanks for product storage, aircraft, motor vehicles, railcars, computers, office machines and equipment. Some leases contain renewal provisions, purchase options and escalation clauses and the terms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms of up to 5055 years. See NotesNote 1 and 2 for additional information on leases.
The components of lease cost for operating and finance leases for the yearyears ended December 31, 2020 and 2019 were as follows:
|
| | | |
Lease Cost | Year Ended Dec 31, 2019 |
In millions |
Operating lease cost | $ | 532 |
|
Finance lease cost | |
Amortization of right-of-use assets - finance | $ | 39 |
|
Interest on lease liabilities - finance | 25 |
|
Total finance lease cost | $ | 64 |
|
Short-term lease cost | $ | 204 |
|
Variable lease cost | 198 |
|
Sublease income | (4 | ) |
Total lease cost | $ | 994 |
|
| | | | | | | | |
Lease Cost | 2020 | 2019 |
In millions |
Operating lease cost | $ | 484 | | $ | 532 | |
Finance lease cost | | |
Amortization of right-of-use assets - finance | $ | 58 | | $ | 39 | |
Interest on lease liabilities - finance | 25 | | 25 | |
Total finance lease cost | $ | 83 | | $ | 64 | |
Short-term lease cost | $ | 213 | | $ | 204 | |
Variable lease cost | 199 | | 198 | |
Sublease income | (5) | | (4) | |
Total lease cost | $ | 974 | | $ | 994 | |
The following table provides supplemental cash flow information related to leases:
|
| | | |
Other Lease Information | Year Ended Dec 31, 2019 |
In millions |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows for operating leases | $ | 544 |
|
Operating cash flows for finance leases | $ | 25 |
|
Financing cash flows for finance leases | $ | 34 |
|
| | | | | | | | |
Other Lease Information | 2020 | 2019 |
In millions |
| | |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows for operating leases | $ | 482 | | $ | 544 | |
Operating cash flows for finance leases | $ | 25 | | $ | 25 | |
Financing cash flows for finance leases | $ | 58 | | $ | 34 | |
| | |
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at December 31, 2020 and 2019.
|
| | | | |
Lease Position | Balance Sheet Classification | Dec 31, 2019 |
In millions |
Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases 1 | | $ | 2,476 |
|
Finance leases | | $ | 89 |
|
Assets | | |
Operating lease assets | Operating lease right-of-use assets | $ | 2,072 |
|
Finance lease assets | Property | 486 |
|
Finance lease amortization | Accumulated depreciation | (167 | ) |
Total lease assets | | $ | 2,391 |
|
Liabilities | | |
Current | | |
Operating | Operating lease liabilities - current | $ | 421 |
|
Finance | Long-term debt due within one year | 32 |
|
Noncurrent | | |
Operating | Operating lease liabilities - noncurrent | 1,739 |
|
Finance | Long-Term Debt | 363 |
|
Total lease liabilities | | $ | 2,555 |
|
| |
1. | Includes $2.3 billion related to the adoption of Topic 842. See Note 2 for additional information. |
|
| | |
Lease Term and Discount Rate | Dec 31, 2019 |
Weighted-average remaining lease term | |
Operating leases | 8.0 years |
|
Finance leases | 12.3 years |
|
Weighted-average discount rate | |
Operating leases | 4.09 | % |
Finance leases | 6.28 | % |
| | | | | | | | | | | |
Lease Position | Balance Sheet Classification | Dec 31, 2020 | Dec 31, 2019 |
In millions |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases 1 | | $ | 185 | | $ | 2,476 | |
Finance leases | | $ | 178 | | $ | 89 | |
Assets | | | |
Operating lease assets | Operating lease right-of-use assets | $ | 1,856 | | $ | 2,072 | |
Finance lease assets | Property | 665 | | 486 | |
Finance lease amortization | Accumulated depreciation | (216) | | (167) | |
Total lease assets | | $ | 2,305 | | $ | 2,391 | |
Liabilities | | | |
Current | | | |
Operating | Operating lease liabilities - current | $ | 416 | | $ | 421 | |
Finance | Long-term debt due within one year | 54 | | 32 | |
Noncurrent | | | |
Operating | Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
Finance | Long-Term Debt | 464 | | 363 | |
Total lease liabilities | | $ | 2,455 | | $ | 2,555 | |
1.Includes $2.3 billion for the period ended December 31, 2019 related to the adoption of Topic 842. See Note 1 for additional information.
The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at December 31, 2020 and 2019 are provided below:
| | | | | | | | |
Lease Term and Discount Rate | Dec 31, 2020 | Dec 31, 2019 |
Weighted-average remaining lease term | | |
Operating leases | 7.6 years | 8.0 years |
Finance leases | 11.6 years | 12.3 years |
Weighted-average discount rate | | |
Operating leases | 3.84 | % | 4.09 | % |
Finance leases | 5.41 | % | 6.28 | % |
The following table provides the maturities of lease liabilities at December 31, 2019:2020:
|
| | | | | | |
Maturities of Lease Liabilities at Dec 31, 2019 | Operating Leases | Finance Leases |
In millions |
2020 | $ | 492 |
| $ | 60 |
|
2021 | 422 |
| 55 |
|
2022 | 355 |
| 50 |
|
2023 | 285 |
| 84 |
|
2024 | 219 |
| 29 |
|
2025 and thereafter | 803 |
| 310 |
|
Total future undiscounted lease payments | $ | 2,576 |
| $ | 588 |
|
Less imputed interest | 416 |
| 193 |
|
Total present value of lease liabilities | $ | 2,160 |
| $ | 395 |
|
| | | | | | | | |
Maturities of Lease Liabilities | Operating Leases | Finance Leases |
In millions |
2021 | $ | 477 | | $ | 78 | |
2022 | 387 | | 74 | |
2023 | 312 | | 98 | |
2024 | 242 | | 45 | |
2025 | 164 | | 41 | |
2026 and thereafter | 703 | | 373 | |
Total future undiscounted lease payments | $ | 2,285 | | $ | 709 | |
Less: Imputed interest | 348 | | 191 | |
Total present value of lease liabilities | $ | 1,937 | | $ | 518 | |
At December 31, 2019,2020, Dow had additional leases of approximately $71$56 million, primarily for buildings and equipment, which had not yet commenced. These leases are expected to commence in 20202021 and 2021,2022, with lease terms of up to 2010 years.
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
| | | |
Minimum Lease Commitments at Dec 31, 2018 | |
In millions | |
2019 | $ | 366 |
|
2020 | 329 |
|
2021 | 296 |
|
2022 | 269 |
|
2023 | 227 |
|
2024 and thereafter | 855 |
|
Total | $ | 2,342 |
|
Dow provides guarantees related to certain leased assets, specifying the residual value that will be available to the lessor at lease termination through the sale of the assets to the lessee or third parties. The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for residual value guarantees at December 31, 20192020 and 2018.2019. There was no$22 million of recorded liability related to these residual value guarantees at December 31, 2019,2020 (0 at December 31, 2019), as payment of such residual value guarantees was not determined to be probable. The lease agreements do not contain any material restrictive covenants.
|
| | | | | | | | | | | | | | |
Lease Guarantees | Dec 31, 2019 | Dec 31, 2018 |
In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
Residual value guarantees | 2028 | $ | 792 |
| $ | — |
| 2028 | $ | 885 |
| $ | 130 |
|
| | | | | | | | | | | | | | | | | | | | |
Lease Guarantees | Dec 31, 2020 | Dec 31, 2019 |
In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
Residual value guarantees | 2030 | $ | 818 | | $ | 22 | | 2028 | $ | 792 | | $ | 0 | |
NOTE 1918 – STOCKHOLDERS’ EQUITY
Merger with Historical DuPont
Effective with the Merger, each share of TDCC Common Stock (excluding any shares of TDCC Common Stock that were held in treasury, which were automatically canceled and retired for no consideration) was converted into the right to receive 1 fully paid and non-assessable share of DowDuPont Common Stock. As a result, in the third quarter of 2017, the Company recorded a reduction in "Treasury stock" of $935 million, a reduction in "Common stock" of $3,107 million and an increase in "Additional paid in capital" of $2,172 million in the consolidated balance sheets. See Note 3 for additional information.
Common Stock
Dow Inc.
Dow Inc. was incorporated in 2018 with 100 authorized and issued shares of common stock, par value $0.01 per share, owned solely by its parent company, DowDuPont. In the first quarter of 2019, in connection with the separation and distribution of DowDuPont’s materials science business, the number of authorized shares of common stock was increased to 5,000,000,000 shares, par value $0.01 per share, and Dow Inc.'s 100 shares of issued common stock were recapitalized into 748,771,240 shares of common stock. Dow Inc.'s common stock was solely owned by DowDuPont through March 31, 2019, and on April 1, 2019, Dow Inc. became an independent, publicly traded company. Dow Inc. common stock is listed on the NYSE under the symbol “DOW.” See NotesNote 3 and 4 for additional information.
The Company may issue shares of Dow Inc. common stock shares out of treasury stock or as new shares of common stock shares for purchases under the Employee Stock Purchase Plan ("ESPP"), for options exercised and for the release of restricted stock units ("RSUs") (formerly termed deferred stock), performance stock units ("PSUs") (formerly termed performance deferred stock) and restricted stock. Common stock shares issued to employees and non-employee directors was approximately 4.8 million in 2020. Subsequent to the separation from DowDuPont, the number of new Dow Inc. common stock shares issued to employees and non-employee directors was approximately 2.5 million in 2019. Prior to the Merger, the number of new TDCC common stock shares issued to employees and non-employee directors was 0 in 2017. See Note 2221 for additional information on changes to the Company's equity awards in connection with the Merger and separation from DowDuPont.awards.
TDCC
Effective with the Merger and through March 31, 2019, TDCC had 100 authorized and issued shares of common stock, par value $0.01 per share, owned solely by DowDuPont. Effective with the separation from DowDuPont, TDCC became a wholly owned subsidiary of Dow Inc., which now holds all 100 authorized and issued shares of common stock of TDCC. See NotesNote 3 and 4 for additional information.
Retained Earnings
Dow Inc.
There are no significant restrictions limiting Dow Inc.’s ability to pay dividends. Subsequent to the separation from DowDuPont, Dow Inc. declared dividends of $2.10$2.80 per share in 2019.2020 ($2.10 per share in 2019, subsequent to the separation from DowDuPont).
Undistributed earnings of nonconsolidated affiliates included in retained earnings were $716 million at December 31, 2020 and $852 million at December 31, 2019 and $1,856 million at December 31, 2018.2019.
TDCC
Prior to the Merger, TDCC declared dividends of $1.38 per share in 2017. Effective with the Merger, TDCC no longer had publicly traded common stock. TDCC's common shares were owned solely by DowDuPont, prior to the separation on April 1, 2019, and TDCC's Board of Directors determined whether or not there would be a dividend distribution to DowDuPont. Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. and TDCC's Board of Directors determines whether or not there will be a dividend distribution to Dow Inc. See Note 26 for additional information onIn 2020 and 2019, TDCC declared and paid dividends to Dow Inc. of $2,233 million and $201 million, respectively. In 2019 and 2018, TDCC declared and paid by TDCCdividends to DowDuPont of $535 million and Dow Inc.$3,711 million, respectively.
See Note 4 for information on the impact
Employee Stock Ownership Plan
The Dow Employee Stock Ownership Plan (the “ESOP”) is an integral part of The Dow Chemical Company Employees’ Savings Plan (the “Plan”“Savings Plan”). A significant majority of full-time employees in the United States are eligible to participate in the Savings Plan. The Company uses the ESOP to provide its matching contribution in the form of stock to Plan participants. Prior to the Merger, contributions were in the form of TDCC Common Stock. Effective with the Merger, shares of TDCC Common Stock held by the ESOP were converted into shares of DowDuPont Common Stock at a ratio of 1:1. Effective with the separation from DowDuPont, the DowDuPont Common Stock held by the ESOP received a Dow Inc. Common Stock share dividend at a ratio of 3:1, resulting
in the ESOP holding both DowDuPont and Dow Inc. shares. Subsequent to the separation from DowDuPont, the ESOP independent fiduciary sold the DowDuPont shares and purchased additional Dow Inc. shares with the proceeds.
In connection with the acquisition of Rohm and Haas on April 1, 2009, the Rohm and Haas Employee Stock Ownership Plan (the "Rohm and Haas ESOP") was merged into the Savings Plan, and the Company assumed the $78 million balance of debt at 9.8 percent interest with final maturity in 2020 that was used to finance share purchases by the Rohm and Haas ESOP in 1990. The debt was fully repaid in 2020 which resulted in an outstanding balance of the debt was $30 at December 31, 2020 ($3 million at December 31, 2019 and $10 million at December 31, 2018.2019).
Dividends on unallocated shares held by the ESOP are used by the ESOP to make debt service payments and to purchase additional shares if dividends exceed the debt service payments. Dividends on allocated shares are used by the ESOP to make debt service payments to the extent needed; otherwise, they are paid to the Savings Plan participants. Shares are released for allocation to participants based on the ratio of the current year’s debt service to the sum of the principal and interest payments over the life of the loan. The shares are allocated to Plan participants in accordance with the terms of the Savings Plan. The unallocated shares are excluded from the Company's earnings per share calculation.
Compensation expense for allocated shares is recorded at the fair value of the shares on the date of allocation. Compensation expense reflected in income from continuing operations for ESOP shares was $72 million in 2020, $77 million in 2019 and $144 million in 2018 and $200 million in 2017.2018. At December 31, 2019, 12.62020, 4.4 million shares out of a total 16.16.1 million shares held by the ESOP had been allocated to participants’ accounts and 3.51.7 million shares, at a fair value of $190$93 million, were considered unearned.
Treasury Stock
Dow Inc.
On April 1, 2019, Dow Inc.'s Board of Directors ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3 billion to be spent on the repurchase of the Company's common stock, with no expiration date. In 2019,2020, Dow Inc. repurchased $500$125 million of Dow Inc. common stock.stock ($500 million in 2019). At December 31, 2019, $2.52020, $2.4 billion of the share repurchase program authorization remained available for repurchases.
TDCC
In 2013, TDCC's Board of Directors approved a share buy-back program. As a result of subsequent authorizations approved by TDCC's Board of Directors, the total authorized amount of the share repurchase program was $9.5 billion. Effective with the Merger, the share repurchase program was canceled. Over the duration of the program, a total of $8.1 billion was spent on the repurchase of TDCC Common Stock.
The Company may issue shares for purchases under the ESPP,of Dow Inc. common stock out of treasury stock or as new shares of common stock for options exercised as well asand for the release of RSUs, PSUs and restricted stock out ofstock. The Company did not issue any treasury stock or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under the Company’sits stock-based compensation programs are summarized infor the following table.years ended December 31, 2020 and 2019. See Note 2221 for additional information on changes to the CompanyCompany's equity awards in connection with the Merger and separation from DowDuPont.
|
| | | | | |
Treasury Shares Issued Under Stock-Based Compensation Programs | 2019 1
| 2018 | 2017 2
|
To employees and non-employee directors | — |
| N/A | 14,194,282 |
|
| |
1. | Reflects Dow Inc. activity subsequent to the separation from DowDuPont. |
| |
2. | Reflects TDCC activity prior to the Merger. |
The following table provides a reconciliation of Dow Inc. common stock activity for the years ended December 31, 20192020 and 2018:2019:
| | | | | | | | |
Shares of Dow Inc. Common Stock | Issued | Held in Treasury |
|
Balance at Jan 1, 2019 | 100 | | 0 | |
Impact of recapitalization | 748,771,140 | | 0 | |
Issued 1 | 2,457,404 | | 0 | |
Repurchased | — | | 9,729,834 | |
Balance at Jan 1, 2020 | 751,228,644 | | 9,729,834 | |
| | |
Issued 1 | 4,764,554 | | 0 | |
Repurchased | — | | 3,073,469 | |
Balance at Dec 31, 2020 | 755,993,198 | | 12,803,303 | |
1.Shares issued to employees and non-employee directors under the Company's equity compensation plans.
|
| | | | |
Shares of Dow Inc. Common Stock | Issued | Held in Treasury |
|
Balance at Jan 1, 2018 | — |
| — |
|
Issued 1 | 100 |
| — |
|
Balance at Jan 1, 2019 | 100 |
| — |
|
Impact of recapitalization | 748,771,140 |
| — |
|
Issued 2 | 2,457,404 |
| — |
|
Repurchased | — |
| 9,729,834 |
|
Balance at Dec 31, 2019 | 751,228,644 |
| 9,729,834 |
|
| |
1. | Dow Inc. was incorporated in 2018 with 100 authorized and issued shares of common stock, par value $0.01 per share. |
| |
2. | Shares issued to employees and non-employee directors under the Company's equity compensation plans. |
Accumulated Other Comprehensive Loss
The changes in each component of AOCL for the years ended December 31, 2020, 2019 2018 and 20172018 were as follows:
|
| | | | | | | | | |
Accumulated Other Comprehensive Loss | 2019 | 2018 | 2017 |
In millions |
Unrealized Gains (Losses) on Investments | | | |
Beginning balance 1 | $ | (51 | ) | $ | 17 |
| $ | 43 |
|
Unrealized gains (losses) on investments | 178 |
| (93 | ) | 38 |
|
Less: Tax (expense) benefit | (38 | ) | 19 |
| (13 | ) |
Net unrealized gains (losses) on investments | 140 |
| (74 | ) | 25 |
|
(Gains) losses reclassified from AOCL to net income 2 | (33 | ) | 9 |
| (110 | ) |
Less: Tax expense (benefit) 3 | 8 |
| (2 | ) | 39 |
|
Net (gains) losses reclassified from AOCL to net income | (25 | ) | 7 |
| (71 | ) |
Other comprehensive income (loss), net of tax | 115 |
| (67 | ) | (46 | ) |
Reclassification of stranded tax effects 4 | — |
| (1 | ) | — |
|
Ending balance | $ | 64 |
| $ | (51 | ) | $ | (3 | ) |
Cumulative Translation Adjustment | | | |
Beginning balance | $ | (1,813 | ) | $ | (1,481 | ) | $ | (2,381 | ) |
Gains (losses) on foreign currency translation | 59 |
| (215 | ) | 1,006 |
|
Less: Tax (expense) benefit | (2 | ) | (6 | ) | (98 | ) |
Net gains (losses) on foreign currency translation | 57 |
| (221 | ) | 908 |
|
(Gains) losses reclassified from AOCL to net income 5 | (89 | ) | (4 | ) | (8 | ) |
Other comprehensive income (loss), net of tax | (32 | ) | (225 | ) | 900 |
|
Impact of common control transaction 6 | 710 |
| — |
| — |
|
Reclassification of stranded tax effects 4 | — |
| (107 | ) | — |
|
Ending balance | $ | (1,135 | ) | $ | (1,813 | ) | $ | (1,481 | ) |
Pension and Other Postretirement Benefits | | | |
Beginning balance | $ | (7,965 | ) | $ | (6,998 | ) | $ | (7,389 | ) |
Gains (losses) arising during the period | (1,699 | ) | (625 | ) | (3 | ) |
Less: Tax (expense) benefit | 413 |
| 130 |
| (20 | ) |
Net gains (losses) arising during the period | (1,286 | ) | (495 | ) | (23 | ) |
Amortization and recognition of net loss and prior service credits 7 | 504 |
| 594 |
| 607 |
|
Less: Tax expense (benefit) 3 | (117 | ) | (139 | ) | (193 | ) |
Net loss and prior service credits reclassified from AOCL to net income | 387 |
| 455 |
| 414 |
|
Other comprehensive income (loss), net of tax | (899 | ) | (40 | ) | 391 |
|
Impact of common control transaction 6 | 83 |
| — |
| — |
|
Reclassification of stranded tax effects 4 | — |
| (927 | ) | — |
|
Ending balance | $ | (8,781 | ) | $ | (7,965 | ) | $ | (6,998 | ) |
Derivative Instruments | | | |
Beginning balance | $ | (56 | ) | $ | (109 | ) | $ | (95 | ) |
Gains (losses) on derivative instruments | (470 | ) | 6 |
| 2 |
|
Less: Tax (expense) benefit | 101 |
| (2 | ) | (1 | ) |
Net gains (losses) on derivative instruments | (369 | ) | 4 |
| 1 |
|
(Gains) losses reclassified from AOCL to net income 8 | 44 |
| 89 |
| (13 | ) |
Less: Tax expense (benefit) 3 | (13 | ) | (18 | ) | (2 | ) |
Net (gains) losses reclassified from AOCL to net income | 31 |
| 71 |
| (15 | ) |
Other comprehensive income (loss), net of tax | (338 | ) | 75 |
| (14 | ) |
Reclassification of stranded tax effects 4 | — |
| (22 | ) | — |
|
Ending balance | $ | (394 | ) | $ | (56 | ) | $ | (109 | ) |
Total AOCL ending balance | $ | (10,246 | ) | $ | (9,885 | ) | $ | (8,591 | ) |
| |
1. | The beginning balance of "Unrealized gains (losses) on investments" for 2018 was increased by $20 million to reflect the impact of adoption of ASU 2016-01. |
| |
2. | Reclassified to "Net sales" and "Sundry income (expense) - net." |
| |
3. | Reclassified to "Provision for income taxes." |
| |
4. | Amounts reclassified to "Retained earnings" as a result of the adoption of ASU 2018-02. |
| |
5. | Reclassified to "Sundry income (expense) - net." |
| |
6. | Reclassified to "Retained earnings" as a result of the separation from DowDuPont on April 1, 2019. See Note 4 for additional information. |
7. | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | 2020 | 2019 | 2018 |
In millions |
Unrealized Gains (Losses) on Investments | | | |
Beginning balance | $ | 64 | | $ | (51) | | $ | 17 | |
Unrealized gains (losses) on investments | 104 | | 178 | | (93) | |
Less: Tax (expense) benefit | (23) | | (38) | | 19 | |
Net unrealized gains (losses) on investments | 81 | | 140 | | (74) | |
(Gains) losses reclassified from AOCL to net income 1 | (54) | | (33) | | 9 | |
Less: Tax expense (benefit) 2 | 13 | | 8 | | (2) | |
Net (gains) losses reclassified from AOCL to net income | (41) | | (25) | | 7 | |
Other comprehensive income (loss), net of tax | 40 | | 115 | | (67) | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (1) | |
Ending balance | $ | 104 | | $ | 64 | | $ | (51) | |
Cumulative Translation Adjustment | | | |
Beginning balance | $ | (1,135) | | $ | (1,813) | | $ | (1,481) | |
Gains (losses) on foreign currency translation | 227 | | 59 | | (215) | |
Less: Tax (expense) benefit | 25 | | (2) | | (6) | |
Net gains (losses) on foreign currency translation | 252 | | 57 | | (221) | |
(Gains) losses reclassified from AOCL to net income 4 | (47) | | (89) | | (4) | |
Other comprehensive income (loss), net of tax | 205 | | (32) | | (225) | |
Impact of common control transaction 5 | 0 | | 710 | | 0 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (107) | |
Ending balance | $ | (930) | | $ | (1,135) | | $ | (1,813) | |
Pension and Other Postretirement Benefits | | | |
Beginning balance | $ | (8,781) | | $ | (7,965) | | $ | (6,998) | |
Gains (losses) arising during the period | (1,769) | | (1,699) | | (625) | |
Less: Tax (expense) benefit | 411 | | 413 | | 130 | |
Net gains (losses) arising during the period | (1,358) | | (1,286) | | (495) | |
Amortization and recognition of net loss and prior service credits 6 | 753 | | 504 | | 594 | |
Less: Tax expense (benefit) 2 | (173) | | (117) | | (139) | |
Net loss and prior service credits reclassified from AOCL to net income | 580 | | 387 | | 455 | |
Other comprehensive income (loss), net of tax | (778) | | (899) | | (40) | |
Impact of common control transaction 5 | 0 | | 83 | | 0 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (927) | |
Ending balance | $ | (9,559) | | $ | (8,781) | | $ | (7,965) | |
Derivative Instruments | | | |
Beginning balance | $ | (394) | | $ | (56) | | $ | (109) | |
Gains (losses) on derivative instruments | (96) | | (470) | | 6 | |
Less: Tax (expense) benefit | (1) | | 101 | | (2) | |
Net gains (losses) on derivative instruments | (97) | | (369) | | 4 | |
(Gains) losses reclassified from AOCL to net income 7 | 30 | | 44 | | 89 | |
Less: Tax expense (benefit) 2 | (9) | | (13) | | (18) | |
Net (gains) losses reclassified from AOCL to net income | 21 | | 31 | | 71 | |
Other comprehensive income (loss), net of tax | (76) | | (338) | | 75 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (22) | |
Ending balance | $ | (470) | | $ | (394) | | $ | (56) | |
Total AOCL ending balance | $ | (10,855) | | $ | (10,246) | | $ | (9,885) | |
1.Reclassified to "Net sales" and "Sundry income (expense) - net."
2.Reclassified to "Provision for income taxes on continuing operations."
3.Amounts reclassified to "Retained earnings" as a result of the adoption of ASU 2018-02.
4.Reclassified to "Sundry income (expense) - net."
5.Reclassified to "Retained earnings" as a result of the separation from DowDuPont on April 1, 2019. See Note 3 for additional information.
6.These AOCL components are included in the computation of net periodic benefit cost of the Company's defined benefit pension and other postretirement benefit plans. See Note 2120 for additional information.
8. 7.Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."
NOTE 2019 – NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income.
The following table summarizes the activity for equity attributable to noncontrolling interests for the years ended December 31, 2020, 2019 2018 and 2017:2018:
| | | | | | | | | | | |
Noncontrolling Interests | | | |
In millions | 2020 | 2019 | 2018 |
Balance at Jan 1 | $ | 553 | | $ | 1,138 | | $ | 1,186 | |
Net income attributable to noncontrolling interests - continuing operations | 69 | | 74 | | 102 | |
Net income attributable to noncontrolling interests - discontinued operations | 0 | | 13 | | 32 | |
Distributions to noncontrolling interests 1 | (55) | | (77) | | (145) | |
| | | |
| | | |
Impact of common control transaction 2 | 0 | | (353) | | 0 | |
Purchase of noncontrolling interests 3 | 0 | | (254) | | 0 | |
| | | |
| | | |
| | | |
Deconsolidation of noncontrolling interests 4 | (7) | | 0 | | 0 | |
Cumulative translation adjustments | 9 | | 12 | | (39) | |
Other | 1 | | 0 | | 2 | |
Balance at Dec 31 | $ | 570 | | $ | 553 | | $ | 1,138 | |
1.Distributions to noncontrolling interests are net of $7 million in 2020 ($7 million in 2019 and $27 million in 2018) in dividends paid to a joint venture, which were reclassified to "Equity in earnings (losses) of nonconsolidated affiliates" in the consolidated statements of income. Also includes amounts attributable to discontinued operations of $7 million in 2019 and $37 million in 2018.
2.Related to the separation from DowDuPont. See Note 3 for additional information.
3.Related to the acquisition of full ownership in a propylene oxide manufacturing joint venture, which occurred on October 1, 2019. See Note 24 for additional information. As a result of this arrangement, the carrying value of the noncontrolling interest was removed, and “Additional paid-in capital” was adjusted by $38 million.
4.Related to the divestiture of the Company's interest in a cogeneration facility in Brazil in the third quarter of 2020. See Note 24 for additional information.
|
| | | | | | | | | |
Noncontrolling Interests | | | |
In millions | 2019 | 2018 | 2017 |
Balance at Jan 1 | $ | 1,138 |
| $ | 1,186 |
| $ | 1,242 |
|
Net income attributable to noncontrolling interests - continuing operations | 74 |
| 102 |
| 102 |
|
Net income attributable to noncontrolling interests - discontinued operations | 13 |
| 32 |
| 28 |
|
Distributions to noncontrolling interests 1 | (77 | ) | (145 | ) | (109 | ) |
Impact of common control transaction 2 | (353 | ) | — |
| — |
|
Purchase of noncontrolling interests 3 | (254 | ) | — |
| — |
|
Deconsolidation of noncontrolling interests 4 | — |
| — |
| (119 | ) |
Cumulative translation adjustments | 12 |
| (39 | ) | 41 |
|
Other | — |
| 2 |
| 1 |
|
Balance at Dec 31 | $ | 553 |
| $ | 1,138 |
| $ | 1,186 |
|
132
| |
1. | Distributions to noncontrolling interests are net of $7 million in 2019 ($27 million in 2018 and $20 million in 2017) in dividends paid to a joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income. Also includes amounts attributable to discontinued operations of $7 million in 2019 ($37 million in 2018 and $28 million in 2017) |
| |
2. | Related to the separation from DowDuPont. See Note 4 for additional information. |
| |
3. | Relates to the acquisition of full ownership in a propylene oxide manufacturing joint venture, which occurred on October 1, 2019. See Note 25 for additional information. As a result of this arrangement, the carrying value of the noncontrolling interest was removed, and “Additional paid-in capital” was adjusted by $38 million. |
| |
4. | On June 30, 2017, the Company sold its ownership interest in the SKC Haas Display Films group of companies. |
NOTE 2120 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
As a result of the Company’s separation from DowDuPont, the number of significant defined benefit pension plans administered by the Company decreased from 45 plans to 35 plans, with approximately $270 million of net unfunded pension liabilities transferred to DowDupont. Plans administered by other subsidiaries of DowDuPont that were transferred to the Company were not significant. There were no changes in the number of significant other postretirement benefit plans administered by the Company as a result of the separation. Existing Company plans that were significantly impacted by the transfer of active plan participants to DowDuPont were remeasured, resulting in curtailment gains and losses and recognition of special termination benefits.
Defined Benefit Pension Plans
The Company has both funded and unfunded defined benefit pension plans that cover employees in the United States and a number of other countries. The U.S. qualified plan covering the parent company is the largest plan. Benefits for employees hired before January 1, 2008, are based on length of service and the employee’s three highest consecutive years of compensation. Employees hired after January 1, 2008, earn benefits that are based on a set percentage of annual pay, plus interest.
The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2019,2020, the Company contributed $261$299 million to its continuing operations pension plans, ($266 million, including contributions to plans of discontinued operations). Total contributions in 2019 also included contributions to fund benefit payments for the Company's non-qualifiedunfunded pension plans. The Company expects to contribute approximately $250$300 million to its pension plans in 2020.2021.
The provisions of a U.S. non-qualified pension plan require the payment of plan obligations to certain participants upon a change in control of the Company, which occurred at the time of the Merger. Certain participants could elect to receive a lump-sum payment or direct the Company to purchase an annuity on their behalf using the after-tax proceeds of the lump sum. In the fourth quarter of 2017, the Company paid $940 million to plan participants and $230 million to an insurance company for the purchase of annuities, which were included in "Pension contributions" in the consolidated statements of cash flows. The Company also paid $205 million for income and payroll taxes for participants electing the annuity option, of which $201 million was included in "Cost of sales" and $4 million was included in "Selling, general and administrative expenses" in the consolidated statements of income and related to the Corporate segment. The Company recorded a settlement charge of $687 million associated with the payout in the fourth quarter of 2017, which was included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for all plans are summarized in the table below:
| | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions for All Pension Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2020 | 2019 | 2020 | 2019 | 2018 |
Discount rate | 2.20 | % | 2.81 | % | 2.81 | % | 3.50 | % | 3.17 | % |
Interest crediting rate for applicable benefits | 3.55 | % | 3.51 | % | 3.51 | % | 3.72 | % | 3.61 | % |
Rate of compensation increase | 3.91 | % | 3.92 | % | 3.92 | % | 3.92 | % | 3.88 | % |
Expected return on plan assets | | | 7.00 | % | 7.11 | % | 7.11 | % |
|
| | | | | | | | | | |
Weighted-Average Assumptions for All Pension Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2019 | 2018 | 2019 | 2018 | 2017 |
Discount rate | 2.81 | % | 3.69 | % | 3.50 | % | 3.17 | % | 3.52 | % |
Interest crediting rate for applicable benefits | 3.51 | % | 3.72 | % | 3.72 | % | 3.61 | % | 3.45 | % |
Rate of compensation increase | 3.92 | % | 3.84 | % | 3.92 | % | 3.88 | % | 3.90 | % |
Expected return on plan assets | — |
| — |
| 7.11 | % | 7.11 | % | 7.16 | % |
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for U.S. plans are summarized in the table below:
|
| | | | | | | | | | |
Weighted-Average Assumptions for U.S. Pension Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2019 | 2018 | 2019 | 2018 | 2017 |
Discount rate | 3.41 | % | 4.39 | % | 4.15 | % | 3.66 | % | 4.11 | % |
Interest crediting rate for applicable benefits | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
Expected return on plan assets | — |
| — |
| 7.92 | % | 7.92 | % | 7.91 | % |
| | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions for U.S. Pension Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2020 | 2019 | 2020 | 2019 | 2018 |
Discount rate | 2.71 | % | 3.41 | % | 3.41 | % | 4.15 | % | 3.66 | % |
Interest crediting rate for applicable benefits | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
Expected return on plan assets | | | 7.95 | % | 7.92 | % | 7.92 | % |
Other Postretirement Benefit Plans
The Company provides certain health care and life insurance benefits to retired employees and survivors. The Company’s plans outside of the United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under the plans.
The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2019,2020, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2019.2020. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2020.2021.
The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit costs for the U.S. plans are provided below:
|
| | | | | | | | | | |
Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2019 | 2018 | 2019 | 2018 | 2017 |
Discount rate | 3.19 | % | 4.24 | % | 4.01 | % | 3.51 | % | 3.83 | % |
Health care cost trend rate assumed for next year | 6.25 | % | 6.50 | % | 6.50 | % | 6.75 | % | 7.00 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
Year that the rate reaches the ultimate health care cost trend rate | 2025 | 2025 | 2025 | 2025 | 2025 |
| | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| 2020 | 2019 | 2020 | 2019 | 2018 |
Discount rate | 2.38 | % | 3.19 | % | 3.19 | % | 4.01 | % | 3.51 | % |
Health care cost trend rate assumed for next year | 6.75 | % | 6.25 | % | 6.25 | % | 6.50 | % | 6.75 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
Year that the rate reaches the ultimate health care cost trend rate | 2028 | 2025 | 2025 | 2025 | 2025 |
Assumptions
The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Company’s historical experience with the pension fund asset performance is also considered.
The Company uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs for the U.S. and other selected countries. Under the spot rate approach, the Company calculates service costscost and interest costscost by applying individual spot rates from the Willis Towers Watson RATE:Link yield curve (based on high-quality corporate bond yields) for each selected country to the separate expected cash flow components of service cost and interest cost. Service cost and interest cost for all other plans are determined on the basis of the single equivalent discount rates derived in determining those plan obligations.
The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the Company’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.
The Company utilizes a modified version of the Society of Actuaries’ mortality tables released in 2014 and a modified version of the generational mortality improvement scale released in 2018 for purposes of measuring the U.S. pension and other postretirement obligations, based on an evaluation of the mortality experience of the Company’s pension plans.
Separation from DowDuPont
As a result of the Company’s separation from DowDuPont in 2019, the number of significant defined benefit pension plans administered by the Company decreased from 45 plans to 35 plans, with approximately $270 million of net unfunded pension liabilities transferred to DowDuPont. Plans administered by other subsidiaries of DowDuPont that were transferred to the Company were not significant. There were no changes in the number of significant other postretirement benefit plans administered by the Company as a result of the separation. Existing Company plans that were significantly impacted by the transfer of active plan participants to DowDuPont were remeasured, resulting in curtailment gains and losses and recognition of special termination benefits.
Summarized information on the Company's pension and other postretirement benefit plans is as follows:
| | | | | | | | | | | | | | |
Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions | 2020 | 2019 | 2020 | 2019 |
Change in projected benefit obligations: | | | | |
Benefit obligations at beginning of year | $ | 32,621 | | $ | 29,600 | | $ | 1,535 | | $ | 1,478 | |
Impact of plans transferred to DowDuPont at separation | 0 | | (331) | | 0 | | 0 | |
Service cost | 399 | | 396 | | 7 | | 8 | |
Interest cost | 767 | | 921 | | 40 | | 49 | |
Plan participants' contributions | 12 | | 12 | | 0 | | 0 | |
Actuarial changes in assumptions and experience | 3,021 | | 3,904 | | 7 | | 148 | |
Benefits paid | (1,569) | | (1,684) | | (132) | | (148) | |
Plan amendments | 8 | | 0 | | 0 | | 0 | |
Acquisitions/divestitures/other 1 | (692) | | (37) | | 0 | | 0 | |
Effect of foreign exchange rates | 791 | | 14 | | 7 | | 3 | |
Termination benefits/curtailments/settlements 2 | (49) | | (174) | | 0 | | (3) | |
Benefit obligations at end of year | $ | 35,309 | | $ | 32,621 | | $ | 1,464 | | $ | 1,535 | |
| | | | |
Change in plan assets: | | | | |
Fair value of plan assets at beginning of year | $ | 24,908 | | $ | 22,544 | | $ | 0 | | $ | 0 | |
Impact of plans transferred to DowDuPont at separation | 0 | | (61) | | 0 | | 0 | |
Actual return on plan assets | 2,877 | | 3,790 | | 0 | | 0 | |
Employer contributions | 299 | | 266 | | 0 | | 0 | |
Plan participants' contributions | 12 | | 12 | | 0 | | 0 | |
Benefits paid | (1,569) | | (1,684) | | 0 | | 0 | |
Other 3 | (681) | | 0 | | 0 | | 0 | |
Effect of foreign exchange rates | 571 | | 41 | | 0 | | 0 | |
Settlements | (11) | | 0 | | 0 | | 0 | |
Fair value of plan assets at end of year | $ | 26,406 | | $ | 24,908 | | $ | 0 | | $ | 0 | |
| | | | |
Funded status: | | | | |
U.S. plans with plan assets | $ | (5,873) | | $ | (4,768) | | $ | — | | $ | — | |
Non-U.S. plans with plan assets | (2,222) | | (2,207) | | — | | — | |
All other plans | (808) | | (738) | | (1,464) | | (1,535) | |
| | | | |
Funded status at end of year | $ | (8,903) | | $ | (7,713) | | $ | (1,464) | | $ | (1,535) | |
| | | | |
Amounts recognized in the consolidated balance sheets at Dec 31: | | | | |
Deferred charges and other assets | $ | 1,007 | | $ | 623 | | $ | 0 | | $ | 0 | |
Accrued and other current liabilities | (54) | | (49) | | (113) | | (128) | |
Pension and other postretirement benefits - noncurrent | (9,856) | | (8,287) | | (1,351) | | (1,407) | |
| | | | |
| | | | |
Net amount recognized | $ | (8,903) | | $ | (7,713) | | $ | (1,464) | | $ | (1,535) | |
| | | | |
Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | | | | |
Net loss (gain) | $ | 12,736 | | $ | 11,761 | | $ | (129) | | $ | (147) | |
Prior service credit | (154) | | (177) | | 0 | | 0 | |
Pretax balance in accumulated other comprehensive loss at end of year | $ | 12,582 | | $ | 11,584 | | $ | (129) | | $ | (147) | |
1.The 2020 impact relates primarily to the transfer of benefit obligations in the U.S. through the purchase of annuity contracts from an insurance company. The 2019 impact includes the divestiture of a business with pension benefit obligations of $53 million.
2.The 2020 impact relates to pension plan curtailments of a European plan resulting from the 2020 Restructuring Program and the settlement of certain plan obligations of a U.S. non-qualified pension plan resulting from lump-sum payments. The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation due to the separation from DowDuPont.
3.The 2020 impact relates to the purchase of annuity contracts associated with the transfer of benefit obligations to an insurance company.
|
| | | | | | | | | | | | |
Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions | 2019 | 2018 | 2019 | 2018 |
Change in projected benefit obligations: | | | | |
Benefit obligations at beginning of year | $ | 29,600 |
| $ | 31,851 |
| $ | 1,478 |
| $ | 1,567 |
|
Impact of plans transferred to DowDuPont at separation | (331 | ) | — |
| — |
| — |
|
Service cost | 396 |
| 520 |
| 8 |
| 12 |
|
Interest cost | 921 |
| 886 |
| 49 |
| 45 |
|
Plan participants' contributions | 12 |
| 19 |
| — |
| — |
|
Actuarial changes in assumptions and experience | 3,904 |
| (1,754 | ) | 148 |
| (13 | ) |
Benefits paid | (1,684 | ) | (1,476 | ) | (148 | ) | (123 | ) |
Plan amendments | — |
| 17 |
| — |
| — |
|
Acquisitions/divestitures/other 1 | (37 | ) | (45 | ) | — |
| — |
|
Effect of foreign exchange rates | 14 |
| (418 | ) | 3 |
| (10 | ) |
Termination benefits/curtailments/settlements | (174 | ) | — |
| (3 | ) | — |
|
Benefit obligations at end of year | $ | 32,621 |
| $ | 29,600 |
| $ | 1,535 |
| $ | 1,478 |
|
| | | | |
Change in plan assets: | | | | |
Fair value of plan assets at beginning of year | $ | 22,544 |
| $ | 23,401 |
| $ | — |
| $ | — |
|
Impact of plans transferred to DowDuPont at separation | (61 | ) | — |
| — |
| — |
|
Actual return on plan assets | 3,790 |
| (742 | ) | — |
| — |
|
Employer contributions | 266 |
| 1,656 |
| — |
| — |
|
Plan participants' contributions | 12 |
| 19 |
| — |
| — |
|
Benefits paid | (1,684 | ) | (1,476 | ) | — |
| — |
|
Effect of foreign exchange rates | 41 |
| (314 | ) | — |
| — |
|
Fair value of plan assets at end of year | $ | 24,908 |
| $ | 22,544 |
| $ | — |
| $ | — |
|
| | | | |
Funded status: |
|
|
|
|
U.S. plans with plan assets | $ | (4,768 | ) | $ | (4,066 | ) | $ | — |
| $ | — |
|
Non-U.S. plans with plan assets | (2,207 | ) | (2,041 | ) | — |
| — |
|
All other plans | (738 | ) | (695 | ) | (1,535 | ) | (1,478 | ) |
Plans of discontinued operations | — |
| (254 | ) | — |
| — |
|
Funded status at end of year | $ | (7,713 | ) | $ | (7,056 | ) | $ | (1,535 | ) | $ | (1,478 | ) |
| | | | |
Amounts recognized in the consolidated balance sheets at Dec 31: | | | | |
Deferred charges and other assets | $ | 623 |
| $ | 491 |
| $ | — |
| $ | — |
|
Accrued and other current liabilities | (49 | ) | (50 | ) | (128 | ) | (131 | ) |
Pension and other postretirement benefits - noncurrent | (8,287 | ) | (7,227 | ) | (1,407 | ) | (1,347 | ) |
Liabilities of discontinued operations - current | — |
| (270 | ) | — |
| — |
|
Net amount recognized | $ | (7,713 | ) | $ | (7,056 | ) | $ | (1,535 | ) | $ | (1,478 | ) |
| | | | |
Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | | | | |
Net loss (gain) | $ | 11,761 |
| $ | 10,841 |
| $ | (147 | ) | $ | (315 | ) |
Prior service credit | (177 | ) | (224 | ) | — |
| — |
|
Pretax balance in accumulated other comprehensive loss at end of year | $ | 11,584 |
| $ | 10,617 |
| $ | (147 | ) | $ | (315 | ) |
| |
1. | The 2019 impact includes the divestiture of a business with pension benefit obligations of $53 million.The 2018 impact includes the divestiture of a business with pension benefit obligations of $37 million. |
A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2020 was due to the change in weighted-average discount rates, which decreased from 2.81 percent at December 31, 2019 to 2.20 percent at December 31, 2020. A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2019 was due to the change in weighted-average discount rates, which decreased from 3.69 percent at December 31, 2018 to 2.81 percent at December 31, 2019. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2018 was due to the change in weighted-average discount rates, which increased from 3.17 percent at December 31, 2017 to 3.69 percent at December 31, 2018.
The accumulated benefit obligation for all significant pension plans was $31.4$34.1 billion and $28.3$31.4 billion at December 31, 20192020 and 2018,2019, respectively.
|
| | | | | | |
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | 2019 | 2018 |
In millions |
Accumulated benefit obligations | $ | 26,959 |
| $ | 25,392 |
|
Fair value of plan assets | $ | 19,571 |
| $ | 18,902 |
|
| | | | | | | | |
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | 2020 | 2019 |
In millions |
Accumulated benefit obligations | $ | 29,084 | | $ | 26,959 | |
Fair value of plan assets | $ | 20,130 | | $ | 19,571 | |
|
| | | | | | |
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2019 | 2018 |
In millions |
Projected benefit obligations | $ | 28,013 |
| $ | 26,599 |
|
Fair value of plan assets | $ | 19,677 |
| $ | 19,051 |
|
| | | | | | | | |
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2020 | 2019 |
In millions |
Projected benefit obligations | $ | 30,161 | | $ | 28,013 | |
| | |
Fair value of plan assets | $ | 20,251 | | $ | 19,677 | |
|
| | | | | | | | | | | | | | | | | | |
Net Periodic Benefit Costs for All Significant Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 |
Net Periodic Benefit Costs: | | | | | | |
Service cost | $ | 396 |
| $ | 520 |
| $ | 506 |
| $ | 8 |
| $ | 12 |
| $ | 14 |
|
Interest cost | 921 |
| 886 |
| 883 |
| 49 |
| 45 |
| 54 |
|
Expected return on plan assets | (1,679 | ) | (1,644 | ) | (1,548 | ) | — |
| — |
| — |
|
Amortization of prior service credit | (20 | ) | (24 | ) | (25 | ) | — |
| — |
| — |
|
Amortization of unrecognized (gain) loss | 574 |
| 642 |
| 638 |
| (20 | ) | (24 | ) | (6 | ) |
Curtailment/settlement/other 1 | (27 | ) | — |
| 683 |
| (3 | ) | — |
| — |
|
Net periodic benefit costs | $ | 165 |
| $ | 380 |
| $ | 1,137 |
| $ | 34 |
| $ | 33 |
| $ | 62 |
|
Less: discontinued operations | 21 |
| 101 |
| 105 |
| — |
| 3 |
| 3 |
|
Net periodic benefit costs - continuing operations | $ | 144 |
| $ | 279 |
| $ | 1,032 |
| $ | 34 |
| $ | 30 |
| $ | 59 |
|
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | |
Net (gain) loss | $ | 1,606 |
| $ | 584 |
| $ | 845 |
| $ | 145 |
| $ | (13 | ) | $ | (199 | ) |
Prior service cost | — |
| 17 |
| 14 |
| — |
| — |
| — |
|
Amortization of prior service credit | 20 |
| 24 |
| 25 |
| — |
| — |
| — |
|
Amortization of unrecognized gain (loss) | (574 | ) | (642 | ) | (638 | ) | 20 |
| 24 |
| 6 |
|
Common control transaction 2 | (112 | ) | — |
| — |
| — |
| — |
| — |
|
Curtailment and settlement (gain) loss 1 | 27 |
| — |
| (687 | ) | 3 |
| — |
| — |
|
Total recognized in other comprehensive (income) loss | $ | 967 |
| $ | (17 | ) | $ | (441 | ) | $ | 168 |
| $ | 11 |
| $ | (193 | ) |
Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 1,132 |
| $ | 363 |
| $ | 696 |
| $ | 202 |
| $ | 44 |
| $ | (131 | ) |
| |
1. | The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation due to the separation of the Company from DowDuPont. The 2017 impact relates to the settlement of a U.S. non-qualified plan triggered by a change in control provision. |
| |
2. | The 2019 impact is the result of the separation of the Company from DowDuPont. |
| | | | | | | | | | | | | | | | | | | | |
Net Periodic Benefit Costs for All Significant Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
Net Periodic Benefit Costs: | | | | | | |
Service cost | $ | 399 | | $ | 396 | | $ | 520 | | $ | 7 | | $ | 8 | | $ | 12 | |
Interest cost | 767 | | 921 | | 886 | | 40 | | 49 | | 45 | |
Expected return on plan assets | (1,658) | | (1,679) | | (1,644) | | 0 | | 0 | | 0 | |
Amortization of prior service credit | (19) | | (20) | | (24) | | 0 | | 0 | | 0 | |
Amortization of unrecognized (gain) loss | 773 | | 574 | | 642 | | (10) | | (20) | | (24) | |
Curtailment/settlement/other 1 | 9 | | (27) | | 0 | | 0 | | (3) | | 0 | |
Net periodic benefit costs | $ | 271 | | $ | 165 | | $ | 380 | | $ | 37 | | $ | 34 | | $ | 33 | |
Less: discontinued operations | 0 | | 21 | | 101 | | 0 | | 0 | | 3 | |
Net periodic benefit costs - continuing operations | $ | 271 | | $ | 144 | | $ | 279 | | $ | 37 | | $ | 34 | | $ | 30 | |
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | |
Net (gain) loss | $ | 1,753 | | $ | 1,606 | | $ | 584 | | $ | 8 | | $ | 145 | | $ | (13) | |
Prior service cost | 8 | | 0 | | 17 | | 0 | | 0 | | 0 | |
Amortization of prior service credit | 19 | | 20 | | 24 | | 0 | | 0 | | 0 | |
Amortization of unrecognized gain (loss) | (773) | | (574) | | (642) | | 10 | | 20 | | 24 | |
Common control transaction 2 | 0 | | (112) | | 0 | | 0 | | 0 | | 0 | |
Curtailment and settlement gain (loss) 1 | (9) | | 27 | | 0 | | 0 | | 3 | | 0 | |
Total recognized in other comprehensive (income) loss | $ | 998 | | $ | 967 | | $ | (17) | | $ | 18 | | $ | 168 | | $ | 11 | |
Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 1,269 | | $ | 1,132 | | $ | 363 | | $ | 55 | | $ | 202 | | $ | 44 | |
Net1.The 2020 impact relates to pension plan curtailments of a European plan resulting from the 2020 Restructuring Program and the settlement of certain plan obligations of a U.S. non-qualified pension plan resulting from lump-sum payments. The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation due to the separation from DowDuPont.
2.The 2019 impact is the result of the separation from DowDuPont.
Except for plan curtailment costs related to the 2020 Restructuring Program, which are included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income, non-service cost components of net periodic benefit cost other than the service cost component, isare included in "Sundry income (expense) - net" in the consolidated statements of income. See Note 8Notes 6 and 7 for additional information.
Estimated Future Benefit Payments
The estimated future benefit payments of continuing operations, reflecting expected future service, as appropriate, are presented in the following table:
|
| | | | | | |
Estimated Future Benefit Payments at Dec 31, 2019 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions |
2020 | $ | 1,561 |
| $ | 129 |
|
2021 | 1,571 |
| 124 |
|
2022 | 1,603 |
| 121 |
|
2023 | 1,636 |
| 118 |
|
2024 | 1,646 |
| 114 |
|
2025-2029 | 8,523 |
| 496 |
|
Total | $ | 16,540 |
| $ | 1,102 |
|
| | | | | | | | |
Estimated Future Benefit Payments at Dec 31, 2020 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
In millions |
2021 | $ | 1,647 | | $ | 114 | |
2022 | 1,595 | | 103 | |
2023 | 1,593 | | 102 | |
2024 | 1,604 | | 101 | |
2025 | 1,641 | | 100 | |
2026-2030 | 8,419 | | 449 | |
Total | $ | 16,499 | | $ | 969 | |
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments, such as real estate, private market securitiesequity and absolute return strategies. AtPlan assets totaled $26.4 billion at December 31, 2019, plan assets totaled2020 and $24.9 billion at December 31, 2019 and included no directly held common stock of Dow Inc. At December 31, 2018, plan assets totaled $22.5 billion and included no directly held DowDuPont common stock.
The Company's investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plans.
The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposure and rebalancing the asset allocation. The plans use value-at-risk, stress testing, scenario analysis and Monte Carlo simulations to monitor and manage both the risk within the portfolios and the surplus risk of the plans.
Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities include investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Alternative investments primarily include investments in real estate, private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges.
The Company mitigates the credit risk of investments by establishing guidelines with investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Company and external managers. Credit risk related to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements and centralized clearing, where appropriate.
The Northern Trust Collective Government Short Term InvestmentA short-term investment money market fund is utilized as the sweep vehicle for the U.S. plans, which from time to time can represent a significant investment. For one U.S. plan, approximately 3431 percent of the liability is covered by a participating group annuity issued by Prudential Insurance Company.
The weighted-average target allocation for plan assets of the Company's pension plans is summarized as follows:
|
| | | | |
Target Allocation for Plan Assets at Dec 31, 20192020 | Target Allocation |
Asset Category |
Equity securities | 35 | % |
Fixed income securities | 36 |
|
Alternative investments | 28 |
|
Other investments | 1 |
|
Total | 100 | % |
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.
Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.
The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Basis of Fair Value Measurements | Dec 31, 2020 | Dec 31, 2019 |
In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
Cash and cash equivalents | $ | 1,298 | | $ | 1,103 | | $ | 195 | | $ | 0 | | $ | 754 | | $ | 675 | | $ | 79 | | $ | 0 | |
Equity securities: | | | | | | | | |
U.S. equity securities 1 | $ | 3,934 | | $ | 3,911 | | $ | 22 | | $ | 1 | | $ | 3,844 | | $ | 3,752 | | $ | 91 | | $ | 1 | |
Non - U.S. equity securities | 5,186 | | 4,213 | | 964 | | 9 | | 4,646 | | 3,819 | | 801 | | 26 | |
Total equity securities | $ | 9,120 | | $ | 8,124 | | $ | 986 | | $ | 10 | | $ | 8,490 | | $ | 7,571 | | $ | 892 | | $ | 27 | |
Fixed income securities: | | | | | | | | |
Debt - government-issued | $ | 4,998 | | $ | 128 | | $ | 4,870 | | $ | 0 | | $ | 4,992 | | $ | 197 | | $ | 4,795 | | $ | 0 | |
Debt - corporate-issued | 3,970 | | 553 | | 3,416 | | 1 | | 3,697 | | 607 | | 3,089 | | 1 | |
Debt - asset-backed | 103 | | 0 | | 102 | | 1 | | 70 | | 0 | | 69 | | 1 | |
Total fixed income securities | $ | 9,071 | | $ | 681 | | $ | 8,388 | | $ | 2 | | $ | 8,759 | | $ | 804 | | $ | 7,953 | | $ | 2 | |
Alternative investments: | | | | | | | | |
| | | | | | | | |
Private markets | $ | 13 | | $ | 0 | | $ | 0 | | $ | 13 | | $ | 11 | | $ | 0 | | $ | 0 | | $ | 11 | |
Real estate | 51 | | 51 | | 0 | | 0 | | 25 | | 25 | | 0 | | 0 | |
Derivatives - asset position | 697 | | 2 | | 695 | | 0 | | 574 | | 2 | | 572 | | 0 | |
Derivatives - liability position | (594) | | (1) | | (593) | | 0 | | (513) | | (2) | | (511) | | 0 | |
Total alternative investments | $ | 167 | | $ | 52 | | $ | 102 | | $ | 13 | | $ | 97 | | $ | 25 | | $ | 61 | | $ | 11 | |
Other investments | $ | 472 | | $ | 22 | | $ | 448 | | $ | 2 | | $ | 411 | | $ | 28 | | $ | 383 | | $ | 0 | |
Subtotal | $ | 20,128 | | $ | 9,982 | | $ | 10,119 | | $ | 27 | | $ | 18,511 | | $ | 9,103 | | $ | 9,368 | | $ | 40 | |
Investments measured at net asset value: | | | | | | | | |
Hedge funds | $ | 1,350 | | | | | $ | 1,595 | | | | |
Private markets | 3,135 | | | | | 2,794 | | | | |
Real estate | 1,886 | | | | | 2,110 | | | | |
Total investments measured at net asset value | $ | 6,371 | | | | | $ | 6,499 | | | | |
Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 2 | $ | 66 | | | | | $ | 70 | | | | |
Pension trust payables 3 | (159) | | | | | (172) | | | | |
Total | $ | 26,406 | | | | | $ | 24,908 | | | | |
1.No Dow Inc. common stock was directly held at December 31, 2020 or December 31, 2019.
2.Primarily receivables for investment securities sold.
3.Primarily payables for investment securities purchased.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Basis of Fair Value Measurements | Dec 31, 2019 | Dec 31, 2018 |
In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
Cash and cash equivalents | $ | 754 |
| $ | 675 |
| $ | 79 |
| $ | — |
| $ | 877 |
| $ | 818 |
| $ | 59 |
| $ | — |
|
Equity securities: | | | | | | | | |
U.S. equity securities 1 | $ | 3,844 |
| $ | 3,752 |
| $ | 91 |
| $ | 1 |
| $ | 3,493 |
| $ | 3,251 |
| $ | 241 |
| $ | 1 |
|
Non - U.S. equity securities | 4,646 |
| 3,819 |
| 801 |
| 26 |
| 4,242 |
| 3,497 |
| 707 |
| 38 |
|
Total equity securities | $ | 8,490 |
| $ | 7,571 |
| $ | 892 |
| $ | 27 |
| $ | 7,735 |
| $ | 6,748 |
| $ | 948 |
| $ | 39 |
|
Fixed income securities: | | | | | | | | |
Debt - government-issued | $ | 4,992 |
| $ | 197 |
| $ | 4,795 |
| $ | — |
| $ | 4,751 |
| $ | 285 |
| $ | 4,466 |
| $ | — |
|
Debt - corporate-issued | 3,697 |
| 607 |
| 3,089 |
| 1 |
| 2,929 |
| 411 |
| 2,518 |
| — |
|
Debt - asset-backed | 70 |
| — |
| 69 |
| 1 |
| 90 |
| — |
| 89 |
| 1 |
|
Total fixed income securities | $ | 8,759 |
| $ | 804 |
| $ | 7,953 |
| $ | 2 |
| $ | 7,770 |
| $ | 696 |
| $ | 7,073 |
| $ | 1 |
|
Alternative investments: | | | | | | | | |
Private market securities | $ | 11 |
| $ | — |
| $ | — |
| $ | 11 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | 1 |
|
Real estate | 25 |
| 25 |
| — |
| — |
| 19 |
| 19 |
| — |
| — |
|
Derivatives - asset position | 574 |
| 2 |
| 572 |
| — |
| 451 |
| 17 |
| 434 |
| — |
|
Derivatives - liability position | (513 | ) | (2 | ) | (511 | ) | — |
| (506 | ) | (19 | ) | (487 | ) | — |
|
Total alternative investments | $ | 97 |
| $ | 25 |
| $ | 61 |
| $ | 11 |
| $ | (35 | ) | $ | 17 |
| $ | (53 | ) | $ | 1 |
|
Other investments | $ | 411 |
| $ | 28 |
| $ | 383 |
| $ | — |
| $ | 380 |
| $ | 47 |
| $ | 333 |
| $ | — |
|
Subtotal | $ | 18,511 |
| $ | 9,103 |
| $ | 9,368 |
| $ | 40 |
| $ | 16,727 |
| $ | 8,326 |
| $ | 8,360 |
| $ | 41 |
|
Investments measured at net asset value: | | | | | | | | |
Hedge funds | $ | 1,595 |
| | | | $ | 1,637 |
| | | |
Private market securities | 2,794 |
| | | | 2,196 |
| | | |
Real estate | 2,110 |
| | | | 2,080 |
| | | |
Total investments measured at net asset value | $ | 6,499 |
| | | | $ | 5,913 |
| | | |
Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 2 | $ | 70 |
| |
| |
| |
| $ | 29 |
| |
| |
| |
|
Pension trust payables 3 | (172 | ) | |
| |
| |
| (125 | ) | |
| |
| |
|
Total | $ | 24,908 |
| |
| |
| |
| $ | 22,544 |
| |
| |
| |
|
| |
1. | No Dow Inc. common stock was directly held at December 31, 2019. No DowDuPont common stock was directly held at December 31, 2018. |
| |
2. | Primarily receivables for investment securities sold. |
| |
3. | Primarily payables for investment securities purchased. |
The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | |
Fair Value Measurement of Level 3 Pension Plan Assets | Equity Securities | Fixed Income Securities | Alternative Investments | Other Investments | Total |
In millions |
Balance at Jan 1, 2018 | $ | 40 |
| $ | 16 |
| $ | — |
| $ | — |
| $ | 56 |
|
Actual return on assets: | | | | |
|
Relating to assets sold during 2018 | — |
| 4 |
| (1 | ) | 1 |
| 4 |
|
Relating to assets held at Dec 31, 2018 | (3 | ) | (4 | ) | — |
| — |
| (7 | ) |
Purchases, sales and settlements, net | 2 |
| (15 | ) | 2 |
| (1 | ) | (12 | ) |
Balance at Dec 31, 2018 | $ | 39 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | 41 |
|
Actual return on assets: | | | | | |
Relating to assets sold during 2019 | (2 | ) | — |
| — |
| — |
| (2 | ) |
Relating to assets held at Dec 31, 2019 | 1 |
| — |
| (14 | ) | — |
| (13 | ) |
Purchases, sales and settlements, net | (11 | ) | 1 |
| 24 |
| — |
| 14 |
|
Balance at Dec 31, 2019 | $ | 27 |
| $ | 2 |
| $ | 11 |
| $ | — |
| $ | 40 |
|
| | | | | | | | | | | | | | | | | |
Fair Value Measurement of Level 3 Pension Plan Assets | Equity Securities | Fixed Income Securities | Alternative Investments | Other Investments | Total |
In millions |
Balance at Jan 1, 2019 | $ | 39 | | $ | 1 | | $ | 1 | | $ | 0 | | $ | 41 | |
Actual return on assets: | | | | | |
Relating to assets sold during 2019 | (2) | | 0 | | 0 | | 0 | | (2) | |
Relating to assets held at Dec 31, 2019 | 1 | | 0 | | (14) | | 0 | | (13) | |
Purchases, sales and settlements, net | (11) | | 1 | | 24 | | 0 | | 14 | |
| | | | | |
| | | | | |
Balance at Dec 31, 2019 | $ | 27 | | $ | 2 | | $ | 11 | | $ | 0 | | $ | 40 | |
Actual return on assets: | | | | | |
Relating to assets sold during 2020 | 0 | | 0 | | (11) | | 0 | | (11) | |
Relating to assets held at Dec 31, 2020 | (1) | | 0 | | 8 | | (1) | | 6 | |
Purchases, sales and settlements, net | (19) | | (1) | | 5 | | 3 | | (12) | |
Transfers into Level 3, net | 3 | | 1 | | 0 | | 0 | | 4 | |
| | | | | |
Balance at Dec 31, 2020 | $ | 10 | | $ | 2 | | $ | 13 | | $ | 2 | | $ | 27 | |
Defined Contribution Plans
U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia,China, Brazil, Canada, Italy,Belgium, Spain and the United Kingdom. Expense of continuing operations recognized for all defined contribution plans was $156 million in 2020, $163 million in 2019 and $186 million in 2018 and $286 million in 2017.2018.
NOTE 2221 – STOCK-BASED COMPENSATION
The Company grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, stock appreciation rights, RSUs and restricted stock. The Company also provides stock-based compensation in the form of PSUs. The Company previously provided the Employee Stock Purchase Plan (“ESPP”), which granted eligible employees the right to purchase shares of the Company's common stock at a discounted price.
In connection with the Merger, on August 31, 2017 ("Conversion Date"), all outstanding TDCC stock options and RSU awards were converted into stock options and RSU awards with respect to DowDuPont common stock. The stock options and RSU awards had the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested PSU awards were converted into RSU awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. TDCC and Historical DuPont did not merge their stock-based compensation plans as a result of the Merger. TDCC and Historical DuPont stock-based compensation plans were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.
In connection with the separation on April 1, 2019, outstanding stock options, RSU and PSU awards were converted to Dow Inc. denominated awards under the “Employer Method,” or DowDuPont denominated awards under the “Shareholder Method,” and adjusted to maintain the intrinsic value of those awards before and after the date of the separation. In connection with the Corteva separation transaction on June 3, 2019, the outstanding DowDuPont denominated stock options, RSU and PSU awards were converted to Corteva and DuPont denominated awards and adjusted to maintain the intrinsic value of those awards before and after the date of the Corteva separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the separation transactions.
The conversions of stock awards resulted in 0 incremental compensation expense. Approximately 5,000 employees were impacted by the conversion on April 1, 2019 in connection with Dow Inc.'s separation from DowDuPont. Approximately 4,000 employees were impacted by the conversion on June 3, 2019 in connection with the Corteva separation transaction.
The total stock-based compensation expense included in continuing operations in the consolidated statements of income was $171 million, $158 million and $188 million in 2020, 2019 and $310 million in 2019, 2018, and 2017, respectively. The income tax benefits related to stock-based compensation arrangements were $39 million, $36 million and $42 million in 2020, 2019 and $115 million in 2019, 2018, and 2017, respectively. Amounts disclosed throughout the remainder of this footnote are inclusive of activity attributable to both continuing operations and discontinued operations, as the impact of discontinued operations is not significant.
Accounting for Stock-Based Compensation
The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments (granted to executive employees subject to stock ownership requirements, that provide the recipient the option to elect to receive a cash payment equal to the value of the stock award on the date of delivery) is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.
The Company historically used a lattice-based option valuation model to estimate the fair value of stock options and used a Monte Carlo simulation for the market portion of PSU awards. Effective with the first quarter of 2018 grant, the Company began usinguses the Black-Scholes option valuation model to estimate the fair value of stock options. This valuation methodology was adopted as a result of the Merger to align valuation methodologies with Historical DuPont and better align with industry practice. The Company used the Black-Scholes option valuation model for subscriptions to purchase shares under the ESPP. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
|
| | | | | | |
Weighted-Average Assumptions | 2019 | 2018 | 2017 |
Dividend yield | 5.10 | % | 2.13 | % | 3.01 | % |
Expected volatility | 26.10 | % | 23.34 | % | 23.71 | % |
Risk-free interest rate | 2.43 | % | 2.83 | % | 1.28 | % |
Expected life of stock options granted during period (years) | 6.1 |
| 6.2 |
| 7.5 |
|
Life of Employee Stock Purchase Plan (months) | 0 |
| 0 |
| 3 |
|
| | | | | | | | | | | |
Weighted-Average Assumptions | 2020 | 2019 | 2018 |
Dividend yield | 5.80 | % | 5.10 | % | 2.13 | % |
Expected volatility | 26.70 | % | 26.10 | % | 23.34 | % |
Risk-free interest rate | 1.49 | % | 2.43 | % | 2.83 | % |
Expected life of stock options granted during period (years) | 6.1 | 6.1 | 6.2 |
| | | |
The dividend yield assumption was equal to the dividend yield on the grant date, which reflected the Company's quarterly dividend payments of $0.70 per share in 2020 on Dow Inc. Common Stock ($0.70 per share in 2019 on Dow Inc. Common Stock ($0.38and $0.38 per share in 2018 on DowDuPont Common Stock and $0.46 per share in 2017 on TDCC Common Stock). The expected volatility assumptions for the 2017 stock options2020, 2019 and ESPP were based on an equal weighting of the historical daily volatility for the contractual term of the awards and current implied volatility from exchange-traded options. The expected volatility assumptions for the 2018 and 2019 stock options were based on an equal weighting of the historical daily volatility for the expected term of the awards and current implied volatility from exchange-traded options. The expected volatility assumption for the market portion of the 20172020 and 2019 PSU awards were based on historical daily volatility for the term of the award. The risk-free interest rate was based on the weighted-average of U.S. Treasury strip rates over the contractual term of the 2017 options. The risk-free interest rate was based on the U.S. Treasury strip rates over the expected life of the 20182020, 2019 and 20192018 options. The expected life of stock options granted was based on an analysis of historical exercise patterns.
Stock Incentive Plan
The Company has historically granted equity awards under various plans (the "Prior Plans"). On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by stockholders at TDCC's annual meeting on May 10, 2012 ("2012 Plan Effective Date") and became effective on that date. On February 13, 2014, the Board adopted The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Restated Plan"). The 2012 Restated Plan was approved by stockholders at TDCC's annual meeting on May 15, 2014, and became effective on that date. The Prior Plans were superseded by the 2012 Plan and the 2012 Restated Plan (collectively, the "2012 Plan"). Under the 2012 Plan, the Company may grant options, RSUs, PSUs, restricted stock, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the 2012 Plan Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. TDCC's stock-based compensation programs were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.
On April 1, 2019 ("Original Effective Date"), in connection with the separation, the Company adopted the 2019 Stock Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company may grant stock options, RSUs, PSUs, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the Original Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. At December 31, 2019,2020, there were approximately 2516 million shares of common stock available for grant under the 2019 Plan.
Stock Options
The Company grants stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of the common stock on the grant date. Options vest from one to three years and have a maximum term of ten years.
The following table summarizes stock option activity for 2019:2020:
| | | | | | | | |
Stock Options | 2020 |
Shares in thousands | Shares | Exercise Price 1 |
Outstanding at Jan 1, 2020 | 21,265 | | $ | 45.96 | |
Granted | 2,191 | | $ | 48.30 | |
Exercised | (3,002) | | $ | 36.78 | |
Forfeited/Expired | (202) | | $ | 59.70 | |
Outstanding at Dec 31, 2020 | 20,252 | | $ | 47.44 | |
Remaining contractual life in years | | 4.63 |
Aggregate intrinsic value in millions | $ | 209 | | |
Exercisable at Dec 31, 2020 | 16,564 | | $ | 46.11 | |
Remaining contractual life in years | | 3.76 |
Aggregate intrinsic value in millions | $ | 192 | | |
|
| | | | | | |
Stock Options | 2019 |
Shares in thousands | Shares | Exercise Price 1 |
Outstanding at Jan 1, 2019 | 28,846 |
| $ | 46.70 |
|
Granted | 1,588 |
| $ | 54.89 |
|
Exercised | (3,196 | ) | $ | 30.02 |
|
Forfeited/Expired | (239 | ) | $ | 60.77 |
|
Conversion impact 2 | (5,734 | ) | $ | 59.62 |
|
Outstanding at Dec 31, 2019 | 21,265 |
| $ | 45.96 |
|
Remaining contractual life in years |
|
| 4.62 |
|
Aggregate intrinsic value in millions | $ | 237 |
|
|
|
Exercisable at Dec 31, 2019 | 18,248 |
| $ | 43.34 |
|
Remaining contractual life in years |
|
| 3.99 |
|
Aggregate intrinsic value in millions | $ | 237 |
|
|
|
1.Weighted-average per share.
2. Awards converted at April 1 and June 3 separations.
|
| | | | | | | | | |
Additional Information about Stock Options | | | |
In millions, except per share amounts | 2019 | 2018 | 2017 |
Weighted-average fair value per share of options granted | $ | 7.99 |
| $ | 15.38 |
| $ | 14.44 |
|
Total compensation expense for stock option plans | $ | 23 |
| $ | 68 |
| $ | 37 |
|
Related tax benefit | $ | 5 |
| $ | 15 |
| $ | 14 |
|
Total amount of cash received from the exercise of options | $ | 93 |
| $ | 112 |
| $ | 310 |
|
Total intrinsic value of options exercised 1 | $ | 77 |
| $ | 160 |
| $ | 286 |
|
Related tax benefit | $ | 17 |
| $ | 36 |
| $ | 106 |
|
| | | | | | | | | | | |
Additional Information about Stock Options | | | |
In millions, except per share amounts | 2020 | 2019 | 2018 |
Weighted-average fair value per share of options granted | $ | 5.89 | | $ | 7.99 | | $ | 15.38 | |
Total compensation expense for stock option plans | $ | 22 | | $ | 23 | | $ | 68 | |
Related tax benefit | $ | 5 | | $ | 5 | | $ | 15 | |
Total amount of cash received from the exercise of options | $ | 108 | | $ | 93 | | $ | 112 | |
Total intrinsic value of options exercised 1 | $ | 41 | | $ | 77 | | $ | 160 | |
Related tax benefit | $ | 9 | | $ | 17 | | $ | 36 | |
1.Difference between the market price at exercise and the price paid by the employee to exercise the options.
Total unrecognized compensation cost related to unvested stock option awards of $18$8 million at December 31, 2019,2020, is expected to be recognized over a weighted-average period of 1.371.34 years.
Restricted Stock Units
The Company grants RSUs to certain employees and non-employee directors. The grants vest after a designated period of time, generally three years for employees and two years for non-employee directors. The following table shows changes in nonvested RSUs:
| | | | | | | | |
RSU Awards | 2020 |
Shares in thousands | Shares | Grant Date Fair Value 1 |
Nonvested at Jan 1, 2020 | 2,454 | | $ | 59.98 | |
Granted | 2,065 | | $ | 47.66 | |
Vested | (1,422) | | $ | 55.53 | |
Canceled | (90) | | $ | 54.69 | |
Nonvested at Dec 31, 2020 | 3,007 | | $ | 53.78 | |
|
| | | | | |
RSU Awards | 2019 |
Shares in thousands | Shares | Grant Date Fair Value 1 |
Nonvested at Jan 1, 2019 | 9,735 |
| $ | 57.41 |
|
Granted | 1,821 |
| $ | 54.78 |
|
Vested | (7,045 | ) | $ | 53.22 |
|
Canceled | (156 | ) | $ | 60.84 |
|
Conversion impact 2 | (1,901 | ) | $ | 65.87 |
|
Nonvested at Dec 31, 2019 | 2,454 |
| $ | 59.98 |
|
1.Weighted-average per share.
2. Awards converted at April 1 and June 3 separations.
|
| | | | | | | | | |
Additional Information about RSUs | | | |
In millions, except per share amounts | 2019 | 2018 | 2017 |
Weighted-average fair value per share of RSUs granted | $ | 54.78 |
| $ | 71.46 |
| $ | 61.29 |
|
Total fair value of RSUs vested 1 | $ | 375 |
| $ | 382 |
| $ | 179 |
|
Related tax benefit | $ | 84 |
| $ | 86 |
| $ | 66 |
|
Total compensation expense for RSU awards | $ | 110 |
| $ | 144 |
| $ | 178 |
|
Related tax benefit | $ | 25 |
| $ | 32 |
| $ | 66 |
|
| |
1. | Includes the fair value of shares vested in prior years and delivered in the reporting year. |
| | | | | | | | | | | |
Additional Information about RSUs | | | |
In millions, except per share amounts | 2020 | 2019 | 2018 |
Weighted-average fair value per share of RSUs granted | $ | 47.66 | | $ | 54.78 | | $ | 71.46 | |
Total fair value of RSUs vested 1 | $ | 106 | | $ | 264 | | $ | 382 | |
Related tax benefit | $ | 24 | | $ | 59 | | $ | 86 | |
Total compensation expense for RSU awards | $ | 93 | | $ | 110 | | $ | 144 | |
Related tax benefit | $ | 21 | | $ | 25 | | $ | 32 | |
| | | |
| | | |
1.Includes the fair value of shares vested in prior years and delivered in the reporting year.
In 2019,2020, the Company paid $17$4 million in cash, equal to the value of the stock award on the date of delivery, to certain executive employees to settle approximately 341,00085,000 RSUs (625,000(341,000 RSUs settled in cash for $19 million in 2019 and 625,000 RSUs settled in cash for $45 million in 2018 and no RSUs settled in cash in 2017)2018). Total unrecognized compensation cost related to RSU awards of $80$75 million at December 31, 20192020 is expected to be recognized over a weighted-average period of 1.831.69 years. At December 31, 2019,2020, approximately 2.21.3 million RSUs with a grant date weighted-average fair value per share of $60.79$53.91 had previously vested, but were not issued. These shares are scheduled to be issued to employees within six months to three years or upon retirement.
Total incremental pretax compensation expense resulting from the conversion of PSU awards into RSU awards was $25 million ($20 million was recognized in the second half of 2017 and $5 million was recognized over the remaining service period). Approximately 5,000 employees were impacted by the conversion.
Performance Stock Units
The Company grants PSUs to certain employees. The grants vest when the Company attains specified performance targets, such as return on capital and relative total shareholder return, over a predetermined period, generally one to three years. In November 2017, the Company granted PSUs to senior leadership measured on the realization of cost savings in connection with cost synergy commitments, as well as the Company’s ability to complete the business separations. Performance and payouts are determined independently for each metric. Compensation expense related to PSU awards is recognized over the lesser of the service or performance period. Changes in the fair value of liability instruments are recognized as compensation expense each quarter.
The following table shows the PSU awards granted:
|
| | | | | | |
PSU Awards | Target Shares Granted 1 | Grant Date Fair Value 2 |
Shares in thousands |
Year | Performance Period |
2019 | Apr 1, 2019 – Dec 31, 2021 | 1,173 |
| $ | 57.58 |
|
2017 | Sep 1, 2017 – Aug 31, 2019 | 232 |
| $ | 71.16 |
|
2017 3 | Jan 1, 2017 – Dec 31, 2019 | 1,728 |
| $ | 81.99 |
|
| |
1. | At the end of the performance period, the actual number of shares issued can range from 0 to 200 percent of target shares granted. |
| |
2. | Weighted-average per share. |
| | | | | | | | | | | |
PSU Awards | Target Shares Granted 1 | Grant Date Fair Value 2 |
Shares in thousands |
Year | Performance Period |
2020 | Jan 1, 2020 – Dec 31, 2022 | 1,426 | | $ | 48.35 | |
2019 | Apr 1, 2019 – Dec 31, 2021 | 1,173 | | $ | 57.58 | |
2017 | Sep 1, 2017 – Aug 31, 2019 | 232 | | $ | 71.16 | |
2017 3 | Jan 1, 2017 – Dec 31, 2019 | 1,728 | | $ | 81.99 | |
| | | |
1.At the end of the performance period, the actual number of shares issued can range from 0 to 200 percent of target shares granted.
2.Weighted-average per share.
3.Converted to RSUs as a result of the Merger.
The following table shows changes in nonvested PSUs:
| | | | | | | | |
PSUs | 2020 |
Shares in thousands | Shares | Grant Date Fair Value 1 |
Nonvested at Jan 1, 2020 | 1,121 | | $ | 57.58 | |
Granted | 1,426 | | $ | 48.35 | |
Vested | 0 | | $ | 0 | |
Canceled | (59) | | $ | 53.09 | |
Nonvested at Dec 31, 2020 | 2,488 | | $ | 53.78 | |
|
| | | | | |
PSUs | 2019 |
Shares in thousands | Shares | Grant Date Fair Value 1 |
Nonvested at Jan 1, 2019 | 232 |
| $ | 71.16 |
|
Granted | 1,173 |
| $ | 57.58 |
|
Vested | (232 | ) | $ | 71.16 |
|
Canceled | (52 | ) | $ | 57.58 |
|
Nonvested at Dec 31, 2019 | 1,121 |
| $ | 57.58 |
|
1.Weighted-average per share.
| | | | | | | | | | | |
Additional Information about PSUs | | | |
In millions, except share amounts | 2020 | 2019 | 2018 |
Total fair value of PSUs vested and delivered 1 | $ | 0 | | $ | 18 | | $ | 0 | |
Related tax benefit | $ | 0 | | $ | 4 | | $ | 0 | |
Total compensation expense for PSU awards | $ | 56 | | $ | 25 | | $ | 12 | |
Related tax benefit | $ | 13 | | $ | 6 | | $ | 3 | |
Shares of PSUs settled in cash (in thousands) 2 | 0 | | 162 | | 0 | |
Total cash paid to settle PSUs 3 | $ | 0 | | $ | 13 | | $ | 0 | |
2.PSU awards vested in prior years and delivered in the reporting year.
3.Cash paid to certain executive employees for PSU awards vested in prior periods and delivered in the reporting year, equal to the value of the stock award on the date of delivery.
|
| | | | | | | | | |
Additional Information about PSUs | | | |
In millions, except share amounts | 2019 | 2018 | 2017 |
Total fair value of PSUs vested and delivered 1 | $ | 18 |
| $ | — |
| $ | 202 |
|
Related tax benefit | $ | 4 |
| $ | — |
| $ | 75 |
|
Total compensation expense for PSU awards | $ | 25 |
| $ | 12 |
| $ | 106 |
|
Related tax benefit | $ | 6 |
| $ | 3 |
| $ | 39 |
|
Shares of PSUs settled in cash (in thousands) 2 | 162 |
| — |
| 616 |
|
Total cash paid to settle PSUs 3 | $ | 13 |
| $ | — |
| $ | 38 |
|
| |
1. | Includes the fair value of shares vested in prior years and delivered in the reporting year. |
| |
2. | PSU awards vested in prior years and delivered in the reporting year. |
| |
3. | Cash paid to certain executive employees for PSU awards vested in prior periods and delivered in the reporting year, equal to the value of the stock award on the date of delivery. |
Total unrecognized compensation cost related to PSU awards of $12$31 million at December 31, 2019,2020, is expected to be recognized over a weighted-average period of 1.861.67 years.
Restricted Stock
Under the 2012 Plan, the Company granted shares (including options, stock appreciation rights, stock units and restricted stock) to non-employee directors over the 10-year duration of the program, subject to the plan's aggregate limit as well as annual individual limits. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferred by the non-employee director, until retirement or termination of service to the Company. The following table shows theIn 2018, 36,000 shares of restricted stock with a weighted average fair value of $62.82 were issued under this plan:
|
| | | | | |
Restricted Stock | Shares Issued (in thousands) | Weighted-Average Fair Value |
Year |
2019 | N/A |
| N/A |
|
2018 | 36 |
| $ | 62.82 |
|
2017 | 33 |
| $ | 62.04 |
|
Employee Stock Purchase Plan
On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Employee Stock Purchase Plan (the "2012 ESPP") which was approved by stockholders at TDCC’s annual meeting on May 10, 2012. When offered, most employees are eligible to purchase shares of common stock of TDCC valued at up to 10 percent of their annual base salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan price of the stock is set at an amount equal to at least 85 percent of the fair market value (closing price) of the common stock on a date during the fourth quarter of the year prior to the offering, or the average fair market value (closing price) of the common stock over a period during the fourth quarter of the year prior to the offering, in each case, specified by the Chief Human Resources Officer. The most recent offering of the 2012 ESPP closed on July 15, 2017. The ESPP was not offered in 2018 andplan. In 2019 and no current offerings remain outstanding.2020, there were 0 restricted stock shares issued under this plan.
|
| | | |
Additional Information about Employee Stock Purchase Plan | |
In millions, except per share amounts | 2017 |
Weighted-average fair value per share of purchase rights granted | $ | 10.70 |
|
Total compensation expense for ESPP | $ | 38 |
|
Related tax benefit | $ | 14 |
|
Total amount of cash received from the exercise of purchase rights | $ | 179 |
|
Total intrinsic value of purchase rights exercised 1 | $ | 48 |
|
Related tax benefit | $ | 18 |
|
| |
1. | Difference between the market price at exercise and the price paid by the employee to exercise the purchase rights. |
NOTE 2322 – FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at December 31, 20192020 and 2018:2019:
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| | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Financial Instruments at Dec 31 1 | 2019 | 2018 |
In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents: | | | | | | | | |
Held to maturity securities 2 | $ | 220 |
| $ | — |
| $ | — |
| $ | 220 |
| $ | 410 |
| $ | — |
| $ | — |
| $ | 410 |
|
Money market funds | 408 |
| — |
| — |
| 408 |
| 156 |
| — |
| — |
| 156 |
|
Total cash equivalents | $ | 628 |
| $ | — |
| $ | — |
| $ | 628 |
| $ | 566 |
| $ | — |
| $ | — |
| $ | 566 |
|
Marketable securities | $ | 21 |
| $ | — |
| $ | — |
| $ | 21 |
| $ | 100 |
| $ | — |
| $ | — |
| $ | 100 |
|
Other investments: | | | | | | | | |
Debt securities: | | | | | | | | |
Government debt 3 | $ | 533 |
| $ | 33 |
| $ | (11 | ) | $ | 555 |
| $ | 714 |
| $ | 9 |
| $ | (23 | ) | $ | 700 |
|
Corporate bonds | 944 |
| 80 |
| (10 | ) | 1,014 |
| 1,026 |
| 20 |
| (63 | ) | 983 |
|
Total debt securities | $ | 1,477 |
| $ | 113 |
| $ | (21 | ) | $ | 1,569 |
| $ | 1,740 |
| $ | 29 |
| $ | (86 | ) | $ | 1,683 |
|
Equity securities 4 | 10 |
| 6 |
| (1 | ) | 15 |
| 16 |
| 1 |
| (1 | ) | 16 |
|
Total other investments | $ | 1,487 |
| $ | 119 |
| $ | (22 | ) | $ | 1,584 |
| $ | 1,756 |
| $ | 30 |
| $ | (87 | ) | $ | 1,699 |
|
Total cash equivalents, marketable securities and other investments | $ | 2,136 |
| $ | 119 |
| $ | (22 | ) | $ | 2,233 |
| $ | 2,422 |
| $ | 30 |
| $ | (87 | ) | $ | 2,365 |
|
Long-term debt including debt due within one year 5 | $ | (16,410 | ) | $ | 7 |
| $ | (2,258 | ) | $ | (18,661 | ) | $ | (19,591 | ) | $ | 351 |
| $ | (972 | ) | $ | (20,212 | ) |
Derivatives relating to: | | | | | | | | |
Interest rates 6 | $ | — |
| $ | 8 |
| $ | (283 | ) | $ | (275 | ) | $ | — |
| $ | — |
| $ | (64 | ) | $ | (64 | ) |
Foreign currency | — |
| 101 |
| (21 | ) | 80 |
| — |
| 120 |
| (43 | ) | 77 |
|
Commodities 6 | — |
| 59 |
| (115 | ) | (56 | ) | — |
| 91 |
| (178 | ) | (87 | ) |
Total derivatives | $ | — |
| $ | 168 |
| $ | (419 | ) | $ | (251 | ) | $ | — |
| $ | 211 |
| $ | (285 | ) | $ | (74 | ) |
| |
1. | Prior period amounts were updated to conform with the current year presentation. |
| |
2. | The Company had held-to-maturity securities (primarily treasury bills and time deposits) classified as cash equivalents. |
| |
3. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations. |
| |
4. | Equity securities with a readily determinable fair value. |
| |
5. | Cost includes fair value hedge adjustment gains of $1 million at December 31, 2019 and losses of $18 million at December 31, 2018 on $3,490 million of debt at December 31, 2019 and $2,290 million of debt at December 31, 2018. |
| |
6. | Presented net of cash collateral where master netting arrangements allow. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Financial Instruments at Dec 31 | 2020 | 2019 |
In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | 980 | | $ | 0 | | $ | 0 | | $ | 980 | | $ | 220 | | $ | 0 | | $ | 0 | | $ | 220 | |
Money market funds | 484 | | 0 | | 0 | | 484 | | 408 | | 0 | | 0 | | 408 | |
Total cash equivalents | $ | 1,464 | | $ | 0 | | $ | 0 | | $ | 1,464 | | $ | 628 | | $ | 0 | | $ | 0 | | $ | 628 | |
Marketable securities 2 | $ | 45 | | $ | 0 | | $ | 0 | | $ | 45 | | $ | 21 | | $ | 0 | | $ | 0 | | $ | 21 | |
Other investments: | | | | | | | | |
Debt securities: | | | | | | | | |
Government debt 3 | $ | 673 | | $ | 35 | | $ | (10) | | $ | 698 | | $ | 533 | | $ | 33 | | $ | (11) | | $ | 555 | |
Corporate bonds | 822 | | 119 | | (5) | | 936 | | 944 | | 80 | | (10) | | 1,014 | |
Total debt securities | $ | 1,495 | | $ | 154 | | $ | (15) | | $ | 1,634 | | $ | 1,477 | | $ | 113 | | $ | (21) | | $ | 1,569 | |
Equity securities 4 | 6 | | 34 | | 0 | | 40 | | 10 | | 6 | | (1) | | 15 | |
Total other investments | $ | 1,501 | | $ | 188 | | $ | (15) | | $ | 1,674 | | $ | 1,487 | | $ | 119 | | $ | (22) | | $ | 1,584 | |
Total cash equivalents, marketable securities and other investments | $ | 3,010 | | $ | 188 | | $ | (15) | | $ | 3,183 | | $ | 2,136 | | $ | 119 | | $ | (22) | | $ | 2,233 | |
Long-term debt including debt due within one year 5 | $ | (16,951) | | $ | 6 | | $ | (3,659) | | $ | (20,604) | | $ | (16,410) | | $ | 7 | | $ | (2,258) | | $ | (18,661) | |
Derivatives relating to: | | | | | | | | |
Interest rates 6 | $ | — | | $ | 41 | | $ | (182) | | $ | (141) | | $ | — | | $ | 8 | | $ | (283) | | $ | (275) | |
Foreign currency | — | | 69 | | (84) | | (15) | | — | | 101 | | (21) | | 80 | |
Commodities 6 | — | | 63 | | (84) | | (21) | | — | | 59 | | (115) | | (56) | |
Total derivatives | $ | — | | $ | 173 | | $ | (350) | | $ | (177) | | $ | — | | $ | 168 | | $ | (419) | | $ | (251) | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company's investments in marketable securities are included in "Other current assets" in the consolidated balance sheets.
3.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities’ obligations.
4.Equity securities with a readily determinable fair value.
5.Cost includes fair value hedge adjustment gains of $69 million at December 31, 2020 and losses of $1 million at December 31, 2019 on $3,314 million of debt at December 31, 2020 and $3,490 million of debt at December 31, 2019.
6.Presented net of cash collateral where master netting arrangements allow.
Cost approximates fair value for all other financial instruments.
Debt Securities
The Company’s investments in debt 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, 2020, 2019 2018 and 2017.2018.
| | | | | | | | | | | |
Investing Results | | | |
In millions | 2020 | 2019 | 2018 |
Proceeds from sales of available-for-sale securities | $ | 837 | | $ | 1,138 | | $ | 1,053 | |
Gross realized gains | $ | 94 | | $ | 51 | | $ | 21 | |
Gross realized losses | $ | 40 | | $ | 18 | | $ | 30 | |
|
| | | | | | | | | |
Investing Results | | | |
In millions | 2019 | 2018 | 2017 |
Proceeds from sales of available-for-sale securities | $ | 1,138 |
| $ | 1,053 |
| $ | 245 |
|
Gross realized gains | $ | 51 |
| $ | 21 |
| $ | 5 |
|
Gross realized losses | $ | 18 |
| $ | 30 |
| $ | — |
|
145
The following table summarizes the contractual maturities of the Company’s investments in debt securities:
|
| | | | | | |
Contractual Maturities of Debt Securities at Dec 31, 2019 1 | Amortized Cost | Fair Value |
In millions |
Within one year | $ | 36 |
| $ | 39 |
|
One to five years | 391 |
| 406 |
|
Six to ten years | 534 |
| 554 |
|
After ten years | 516 |
| 570 |
|
Total | $ | 1,477 |
| $ | 1,569 |
|
| | | | | | | | |
Contractual Maturities of Debt Securities at Dec 31, 2020 1 | Cost | Fair Value |
In millions |
Within one year | $ | 25 | | $ | 25 | |
One to five years | 406 | | 448 | |
Six to ten years | 649 | | 685 | |
After ten years | 415 | | 476 | |
Total | $ | 1,495 | | $ | 1,634 | |
1.Includes marketable securities with maturities of less than one year.
Portfolio managers regularly review the Company’s holdings to determine if any investments in debt securities 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.
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 2020, 2019 2018 or 2017.2018.
The following table provides the fair value and gross unrealized losses of the Company’s investments in debt securities that were deemed to be temporarily impaired at December 31, 20192020 and 2018,2019, aggregated by investment category:
|
| | | | | | | | | | | | | | | | | | |
Temporarily Impaired Debt Securities at Dec 31 | Less than 12 months | 12 months or more | Total |
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
In millions |
2019 | | | | | | |
Government debt 1 | $ | 55 |
| $ | (3 | ) | $ | 23 |
| $ | (8 | ) | $ | 78 |
| $ | (11 | ) |
Corporate bonds | 79 |
| (3 | ) | 52 |
| (7 | ) | 131 |
| (10 | ) |
Total temporarily impaired debt securities | $ | 134 |
| $ | (6 | ) | $ | 75 |
| $ | (15 | ) | $ | 209 |
| $ | (21 | ) |
2018 | | | | | | |
Government debt 1 | $ | 287 |
| $ | (17 | ) | $ | 187 |
| $ | (6 | ) | $ | 474 |
| $ | (23 | ) |
Corporate bonds | 724 |
| (58 | ) | 64 |
| (5 | ) | 788 |
| (63 | ) |
Total temporarily impaired debt securities | $ | 1,011 |
| $ | (75 | ) | $ | 251 |
| $ | (11 | ) | $ | 1,262 |
| $ | (86 | ) |
| |
1. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations. |
| | | | | | | | | | | | | | | | | | | | |
Temporarily Impaired Debt Securities at Dec 31 | Less than 12 months | 12 months or more | Total |
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
In millions |
2020 | | | | | | |
Government debt 1 | $ | 124 | | $ | (3) | | $ | 7 | | $ | (7) | | $ | 131 | | $ | (10) | |
Corporate bonds | 55 | | (3) | | 12 | | (2) | | 67 | | (5) | |
Total temporarily impaired debt securities | $ | 179 | | $ | (6) | | $ | 19 | | $ | (9) | | $ | 198 | | $ | (15) | |
2019 | | | | | | |
Government debt 1 | $ | 55 | | $ | (3) | | $ | 23 | | $ | (8) | | $ | 78 | | $ | (11) | |
Corporate bonds | 79 | | (3) | | 52 | | (7) | | 131 | | (10) | |
Total temporarily impaired debt securities | $ | 134 | | $ | (6) | | $ | 75 | | $ | (15) | | $ | 209 | | $ | (21) | |
1.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
Equity Securities
The Company’s investments in equity securities with a readily determinable fair value totaled $15 million at December 31, 2019 ($16 million at December 31, 2018). The net unrealized gains recognized in earnings on readily determinable equity securities totaled $5 million for the year ended December 31, 2019 ($7 million for the year ended December 31, 2018). The aggregate carrying value of the Company's investments in equity securities where fair value is not readily determinable totaled $189 million at December 31, 2019 ($204 million at December 31, 2018), reflecting the carrying value of the investments. There were no material adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the year ended December 31, 2019.
Repurchase and Reverse Repurchase Agreement Transactions
2020. The Company enters into repurchase and reverse repurchase agreements. These transactions are accountednet unrealized gain recognized in earnings on equity securities totaled $32 million 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 atyear ended December 31, 2019 and 2018.2020 ($5 million net unrealized gain for the year ended December 31, 2019).
| | | | | | | | |
Investments in Equity Securities | Dec 31, 2020 | Dec 31, 2019 |
In millions |
Readily determinable fair value | $ | 40 | | $ | 15 | |
Not readily determinable fair value | $ | 215 | | $ | 189 | |
Risk Management
The Company’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 December 31, 2019.2020. 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 2020.2021.
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 Dow Inc. Board and/or relevant committees thereof.
Derivative Instruments
The notional amounts of the Company's derivative instruments presented on a net basis at December 31, 20192020 and 2018,2019, were as follows:
| | | | | | | | |
Notional Amounts - Net | Dec 31, 2020 | Dec 31, 2019 |
In millions |
Derivatives designated as hedging instruments | | |
Interest rate contracts | $ | 612 | | $ | 922 | |
Foreign currency contracts | $ | 3,784 | | $ | 6,253 | |
Derivatives not designated as hedging instruments | | |
Interest rate contracts | $ | 94 | | $ | 145 | |
Foreign currency contracts | $ | 9,187 | | $ | 5,567 | |
|
| | | | | | |
Notional Amounts - Net | Dec 31, 2019 | Dec 31, 2018 |
In millions |
Derivatives designated as hedging instruments: | | |
Interest rate contracts | $ | 922 |
| $ | 2,049 |
|
Foreign currency contracts | $ | 6,253 |
| $ | 4,457 |
|
Derivatives not designated as hedging instruments: | | |
Interest rate contracts | $ | 145 |
| $ | 5 |
|
Foreign currency contracts | $ | 5,567 |
| $ | 19,285 |
|
The notional amounts of the Company's commodity derivatives presented on a net basis at December 31, 20192020 and 2018,2019, were as follows:
|
| | | | | |
Commodity Notionals - Net | Dec 31, 2019 | Dec 31, 2018 | Notional Volume Unit |
|
Derivatives designated as hedging instruments: | | | |
Hydrocarbon derivatives | 6.1 |
| 39.9 |
| million barrels of oil equivalent |
Derivatives not designated as hedging instruments: | | | |
Hydrocarbon derivatives | 0.1 |
| 1.2 |
| million barrels of oil equivalent |
Power derivatives | 87.5 |
| 73.9 |
| thousands of megawatt hours |
| | | | | | | | | | | |
Commodity Notionals - Net | Dec 31, 2020 | Dec 31, 2019 | Notional Volume Unit |
|
Derivatives designated as hedging instruments | | | |
Hydrocarbon derivatives | 10.9 | | 6.1 | | million barrels of oil equivalent |
| | | |
| | | |
| | | |
| | | |
| | | |
Derivatives not designated as hedging instruments | | | |
Hydrocarbon derivatives | 0 | | 0.1 | | million barrels of oil equivalent |
Power derivatives | 0 | | 87.5 | | thousands of megawatt hours |
| | | |
| | | |
| | | |
|
| | | | |
Maturity Dates of Derivatives Designated as HedgesHedging Instruments | Year |
|
Interest rate contracts | 2021 |
Foreign currency contracts1 | 20202021 |
Commodity contracts | 2022 |
| |
1. | The Company had foreign currency contracts primarily through 2020 with a nominal impact into the first quarter of 2021. |
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 the Company's business requires active participation in the foreign exchange markets. The Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company's foreign currency risk management is to optimize the U.S. dollar value of net assets and cash flows. 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 nonderivative 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.
Interest Rate Contracts
The Company uses swap instruments that are not designated as hedging instruments to manage interest rate exposures. The Company uses interest rate swaps, "swaptions," and exchange-traded instruments to accomplish this objective.
Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
For derivatives that are designated and qualify as cash flow hedging instruments, 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.
The 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 item affects income.
Commodity swaps, futures and option contracts with maturities of not more than 4860 months are utilized and designated as cash flow hedges of forecasted commodity purchases. The designated 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.
Fair Value Hedges
For interest rate 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 hedge 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, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.
Net Foreign Investment Hedges
The Company designates derivatives that qualify as effective net foreign investment hedges, the results of which are presented in the effect of derivative instruments table. In addition, the Company utilizes non-derivative instruments as net foreign investment hedges. The Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $184$194 million at December 31, 20192020 ($182184 million at December 31, 2018)2019).
The following tables provide the fair value and gross balance sheet classification of derivative instruments at December 31, 20192020 and 2018:2019:
|
| | | | | | | | | | |
Fair Value of Derivative Instruments | Dec 31, 2019 |
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: | | | | |
Interest rate contracts | Other current assets | $ | 21 |
| $ | (13 | ) | $ | 8 |
|
Foreign currency contracts | Other current assets | 105 |
| (36 | ) | 69 |
|
Commodity contracts | Other current assets | 44 |
| (25 | ) | 19 |
|
Commodity contracts | Deferred charges and other assets | 28 |
| (3 | ) | 25 |
|
Total | | $ | 198 |
| $ | (77 | ) | $ | 121 |
|
Derivatives not designated as hedging instruments: | | | | |
Interest rate contracts | Other current assets | $ | 14 |
| $ | (14 | ) | $ | — |
|
Interest rate contracts | Deferred charges and other assets | — |
| — |
| — |
|
Foreign currency contracts | Other current assets | 44 |
| (12 | ) | 32 |
|
Commodity contracts | Other current assets | 18 |
| (3 | ) | 15 |
|
Commodity contracts | Deferred charges and other assets | — |
| — |
| — |
|
Total | | $ | 76 |
| $ | (29 | ) | $ | 47 |
|
Total asset derivatives | | $ | 274 |
| $ | (106 | ) | $ | 168 |
|
| | | | |
Liability derivatives: | | | | |
Derivatives designated as hedging instruments: | | | | |
Interest rate contracts | Accrued and other current liabilities | $ | 23 |
| $ | (13 | ) | $ | 10 |
|
Interest rate contracts | Other noncurrent obligations | 1 |
| — |
| 1 |
|
Foreign currency contracts | Accrued and other current liabilities | 46 |
| (36 | ) | 10 |
|
Commodity contracts | Accrued and other current liabilities | 95 |
| (29 | ) | 66 |
|
Commodity contracts | Other noncurrent obligations | 38 |
| (4 | ) | 34 |
|
Total | | $ | 203 |
| $ | (82 | ) | $ | 121 |
|
Derivatives not designated as hedging instruments: | | | | |
Interest rate contracts | Accrued and other current liabilities | $ | 136 |
| $ | (14 | ) | $ | 122 |
|
Interest rate contracts | Other noncurrent obligations | 150 |
| — |
| 150 |
|
Foreign currency contracts | Accrued and other current liabilities | 23 |
| (12 | ) | 11 |
|
Commodity contracts | Accrued and other current liabilities | 17 |
| (3 | ) | 14 |
|
Commodity contracts | Other noncurrent obligations | 1 |
| — |
| 1 |
|
Total | | $ | 327 |
| $ | (29 | ) | $ | 298 |
|
Total liability derivatives | | $ | 530 |
| $ | (111 | ) | $ | 419 |
|
| |
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 payable or receivable for cash collateral held or placed with the same counterparty. |
| | | | | | | | | | | | | | |
Fair Value of Derivative Instruments | Dec 31, 2020 |
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 | | | | |
Interest rate contracts | Other current assets | $ | 3 | | $ | (3) | | $ | 0 | |
Foreign currency contracts | Other current assets | 39 | | (19) | | 20 | |
Commodity contracts | Other current assets | 146 | | (109) | | 37 | |
Commodity contracts | Deferred charges and other assets | 31 | | (8) | | 23 | |
Total | | $ | 219 | | $ | (139) | | $ | 80 | |
Derivatives not designated as hedging instruments | | | | |
Interest rate contracts | Deferred charges and other assets | $ | 41 | | $ | 0 | | $ | 41 | |
Foreign currency contracts | Other current assets | 74 | | (25) | | 49 | |
Commodity contracts | Other current assets | 4 | | (1) | | 3 | |
Total | | $ | 119 | | $ | (26) | | $ | 93 | |
Total asset derivatives | | $ | 338 | | $ | (165) | | $ | 173 | |
| | | | |
Liability derivatives | | | | |
Derivatives designated as hedging instruments | | | | |
Interest rate contracts | Accrued and other current liabilities | $ | 7 | | $ | (3) | | $ | 4 | |
Foreign currency contracts | Accrued and other current liabilities | 93 | | (19) | | 74 | |
Commodity contracts | Accrued and other current liabilities | 151 | | (112) | | 39 | |
Commodity contracts | Other noncurrent obligations | 48 | | (9) | | 39 | |
Total | | $ | 299 | | $ | (143) | | $ | 156 | |
Derivatives not designated as hedging instruments | | | | |
Interest rate contracts | Other noncurrent obligations | $ | 178 | | $ | 0 | | $ | 178 | |
Foreign currency contracts | Accrued and other current liabilities | 35 | | (25) | | 10 | |
Commodity contracts | Accrued and other current liabilities | 9 | | (3) | | 6 | |
Total | | $ | 222 | | $ | (28) | | $ | 194 | |
Total liability derivatives | | $ | 521 | | $ | (171) | | $ | 350 | |
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 payable or receivable for cash collateral held or placed with the same counterparty.
|
| | | | | | | | | | |
Fair Value of Derivative Instruments | Dec 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 | $ | 98 |
| $ | (42 | ) | $ | 56 |
|
Commodity contracts | Other current assets | 47 |
| (13 | ) | 34 |
|
Commodity contracts | Deferred charges and other assets | 18 |
| (3 | ) | 15 |
|
Total | | $ | 163 |
| $ | (58 | ) | $ | 105 |
|
Derivatives not designated as hedging instruments: | | | | |
Foreign currency contracts | Other current assets | $ | 128 |
| $ | (64 | ) | $ | 64 |
|
Commodity contracts | Other current assets | 41 |
| (1 | ) | 40 |
|
Commodity contracts | Deferred charges and other assets | 4 |
| (2 | ) | 2 |
|
Total | | $ | 173 |
| $ | (67 | ) | $ | 106 |
|
Total asset derivatives | | $ | 336 |
| $ | (125 | ) | $ | 211 |
|
| | | | |
Liability derivatives: | | | | |
Derivatives designated as hedging instruments: | | | | |
Interest rate contracts | Other noncurrent obligations | $ | 64 |
| $ | — |
| $ | 64 |
|
Foreign currency contracts | Accrued and other current liabilities | 46 |
| (42 | ) | 4 |
|
Commodity contracts | Accrued and other current liabilities | 111 |
| (18 | ) | 93 |
|
Commodity contracts | Other noncurrent obligations | 86 |
| (9 | ) | 77 |
|
Total | | $ | 307 |
| $ | (69 | ) | $ | 238 |
|
Derivatives not designated as hedging instruments: | | | | |
Foreign currency contracts | Accrued and other current liabilities | $ | 103 |
| $ | (64 | ) | $ | 39 |
|
Commodity contracts | Accrued and other current liabilities | 7 |
| (4 | ) | 3 |
|
Commodity contracts | Other noncurrent obligations | 8 |
| (3 | ) | 5 |
|
Total | | $ | 118 |
| $ | (71 | ) | $ | 47 |
|
Total liability derivatives | | $ | 425 |
| $ | (140 | ) | $ | 285 |
|
| |
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 payable or receivable for cash collateral held or placed with the same counterparty. |
| | | | | | | | | | | | | | |
Fair Value of Derivative Instruments | Dec 31, 2019 |
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 | | | | |
Interest rate contracts | Other current assets | $ | 21 | | $ | (13) | | $ | 8 | |
Foreign currency contracts | Other current assets | 105 | | (36) | | 69 | |
Commodity contracts | Other current assets | 44 | | (25) | | 19 | |
Commodity contracts | Deferred charges and other assets | 28 | | (3) | | 25 | |
Total | | $ | 198 | | $ | (77) | | $ | 121 | |
Derivatives not designated as hedging instruments | | | | |
Interest rate contracts | Other current assets | $ | 14 | | $ | (14) | | $ | 0 | |
| | | | |
Foreign currency contracts | Other current assets | 44 | | (12) | | 32 | |
Commodity contracts | Other current assets | 18 | | (3) | | 15 | |
| | | | |
Total | | $ | 76 | | $ | (29) | | $ | 47 | |
Total asset derivatives | | $ | 274 | | $ | (106) | | $ | 168 | |
| | | | |
Liability derivatives | | | | |
Derivatives designated as hedging instruments | | | | |
Interest rate contracts | Accrued and other current liabilities | $ | 23 | | $ | (13) | | $ | 10 | |
Interest rate contracts | Other noncurrent obligations | 1 | | 0 | | 1 | |
Foreign currency contracts | Accrued and other current liabilities | 46 | | (36) | | 10 | |
Commodity contracts | Accrued and other current liabilities | 95 | | (29) | | 66 | |
Commodity contracts | Other noncurrent obligations | 38 | | (4) | | 34 | |
Total | | $ | 203 | | $ | (82) | | $ | 121 | |
Derivatives not designated as hedging instruments | | | | |
Interest rate contracts | Accrued and other current liabilities | $ | 136 | | $ | (14) | | $ | 122 | |
Interest rate contracts | Other noncurrent obligations | 150 | | 0 | | 150 | |
Foreign currency contracts | Accrued and other current liabilities | 23 | | (12) | | 11 | |
Commodity contracts | Accrued and other current liabilities | 17 | | (3) | | 14 | |
Commodity contracts | Other noncurrent obligations | 1 | | 0 | | 1 | |
Total | | $ | 327 | | $ | (29) | | $ | 298 | |
Total liability derivatives | | $ | 530 | | $ | (111) | | $ | 419 | |
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 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 assets or liabilities, when applicable. The Company posted cash collateral of $5$7 million at December 31, 20192020 ($265 million at December 31, 2018)2019). Counterparties postedNaN cash collateral of $3 millionwas posted by counterparties with the Company at December 31, 20192020 ($343 million at December 31, 2018)2019).
The following table summarizes the gain (loss) of derivative instruments in the consolidated statements of income and comprehensive income for the years ended December 31, 2020, 2019 and 2018:
| | Effect of Derivative Instruments | Amount of gain (loss) recognized in OCI 1 | Amount of gain (loss) recognized in income 2 | | Effect of Derivative Instruments | Amount of gain (loss) recognized in OCI 1 | Amount of gain (loss) recognized in income 2 | Income Statement Classification |
In millions | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | Income Statement Classification | In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
Derivatives designated as hedging instruments: | | | | Derivatives designated as hedging instruments: | | |
Fair value hedges: | | | | Fair value hedges: | | |
Interest rate contracts | $ | — |
| $ | — |
| $ | — |
| $ | 17 |
| $ | — |
| $ | (2 | ) | Interest expense and amortization of debt discount 3 | Interest rate contracts | $ | 0 | | $ | 0 | | $ | 0 | | $ | 69 | | $ | 17 | | $ | 0 | | Interest expense and amortization of debt discount 3 |
Excluded components 4 | (3 | ) | — |
| — |
| — |
| — |
| — |
| | Excluded components 4 | 7 | | (3) | | 0 | | 0 | | 0 | | 0 | | Interest expense and amortization of debt discount |
Cash flow hedges: | | | | Cash flow hedges: | | |
Interest rate contracts | (316 | ) | 26 |
| 2 |
| 1 |
| (3 | ) | 4 |
| Interest expense and amortization of debt discount | Interest rate contracts | 0 | | (316) | | 26 | | (2) | | 1 | | (3) | | Interest expense and amortization of debt discount |
Foreign currency contracts | 16 |
| 19 |
| (30 | ) | 28 |
| (18 | ) | 7 |
| Cost of sales | Foreign currency contracts | (20) | | 16 | | 19 | | 3 | | 28 | | (18) | | Cost of sales |
Foreign currency contracts | 10 |
| (3 | ) | (5 | ) | 8 |
| — |
| (17 | ) | Sundry income (expense) - net | Foreign currency contracts | 0 | | 10 | | (3) | | 0 | | 8 | | 0 | | Sundry income (expense) - net |
Commodity contracts | (6 | ) | (46 | ) | 37 |
| (81 | ) | (69 | ) | 10 |
| Cost of sales | Commodity contracts | (8) | | (6) | | (46) | | (31) | | (81) | | (69) | | Cost of sales |
Net investment hedges: | | | | |
Net foreign investment hedges: | | Net foreign investment hedges: | | |
Foreign currency contracts | (52 | ) | 116 |
| (73 | ) | — |
| — |
| — |
| | Foreign currency contracts | (38) | | (52) | | 116 | | 0 | | 0 | | 0 | | |
Excluded components 4 | 162 |
| — |
| — |
| 99 |
| — |
| — |
| Sundry income (expense) - net | Excluded components 4 | 27 | | 162 | | 0 | | 20 | | 99 | | 0 | | Sundry income (expense) - net |
Total derivatives designated as hedging instruments | $ | (189 | ) | $ | 112 |
| $ | (69 | ) | $ | 72 |
| $ | (90 | ) | $ | 2 |
| | Total derivatives designated as hedging instruments | $ | (32) | | $ | (189) | | $ | 112 | | $ | 59 | | $ | 72 | | $ | (90) | | |
Derivatives not designated as hedging instruments: | | | | Derivatives not designated as hedging instruments: | | |
Interest rate contracts | $ | — |
| $ | — |
| $ | — |
| $ | (4 | ) | $ | — |
| $ | — |
| Interest expense and amortization of debt discount | Interest rate contracts | $ | 0 | | $ | 0 | | $ | 0 | | $ | (16) | | $ | (4) | | $ | 0 | | Interest expense and amortization of debt discount |
Foreign currency contracts | — |
| — |
| — |
| 45 |
| 101 |
| (289 | ) | Sundry income (expense) - net | Foreign currency contracts | 0 | | 0 | | 0 | | 28 | | 45 | | 101 | | Sundry income (expense) - net |
Commodity contracts | — |
| — |
| — |
| (28 | ) | (12 | ) | (9 | ) | Cost of sales | Commodity contracts | 0 | | 0 | | 0 | | 11 | | (28) | | (12) | | Cost of sales |
Total derivatives not designated as hedging instruments | $ | — |
| $ | — |
| $ | — |
| $ | 13 |
| $ | 89 |
| $ | (298 | ) | | Total derivatives not designated as hedging instruments | $ | 0 | | $ | 0 | | $ | 0 | | $ | 23 | | $ | 13 | | $ | 89 | | |
Total derivatives | $ | (189 | ) | $ | 112 |
| $ | (69 | ) | $ | 85 |
| $ | (1 | ) | $ | (296 | ) | | Total derivatives | $ | (32) | | $ | (189) | | $ | 112 | | $ | 82 | | $ | 85 | | $ | (1) | | |
| |
1. | OCI is defined as other comprehensive income (loss). |
| |
3. | Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of the hedged item. |
| |
4. | The excluded components are related to the time value of the derivatives designated as hedges. |
1.OCI is defined as other comprehensive income (loss).
2.Pretax amounts.
3.Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of the hedged item.
4.The excluded components are related to the time value of the derivatives designated as hedges.
The following table provides the net after-tax amounts to be reclassified from AOCL to income within the next 12 months:
|
| | | |
Expected Reclassifications from AOCL within the next 12 months | Dec 31, 2019 |
|
Cash flow hedges | |
Interest rate contracts | $ | 2 |
|
Commodity contracts | $ | (23 | ) |
Foreign currency contracts | $ | 5 |
|
Net investment hedges | |
Excluded components | $ | 26 |
|
| | | | | |
Expected Reclassifications from AOCL within the next 12 months | Dec 31, 2020 |
Cash flow hedges: | |
Interest rate contracts | $ | (8) | |
Commodity contracts | $ | (1) | |
Foreign currency contracts | $ | (18) | |
Net foreign investment hedges: | |
Excluded components | $ | 2 | |
NOTE 2423 – FAIR VALUE MEASUREMENTS
Fair Value Measurements on a Recurring Basis
The following table summarizes 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 1 | Dec 31, 2019 | Dec 31, 2018 |
In millions | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total |
Assets at fair value: | | | | | | |
Cash equivalents | | | | | | |
Held to maturity securities 2 | $ | — |
| $ | 220 |
| $ | 220 |
| $ | — |
| $ | 410 |
| $ | 410 |
|
Money market funds | — |
| 408 |
| 408 |
| — |
| 156 |
| 156 |
|
Marketable securities | — |
| 21 |
| 21 |
| — |
| 100 |
| 100 |
|
Equity securities 3 | 15 |
| — |
| 15 |
| 16 |
| — |
| 16 |
|
Debt securities: 3 | | | |
|
| |
Government debt 4 | — |
| 555 |
| 555 |
| — |
| 700 |
| 700 |
|
Corporate bonds | 22 |
| 992 |
| 1,014 |
| — |
| 983 |
| 983 |
|
Derivatives relating to: 5 | | | |
|
| |
Interest rates | — |
| 35 |
| 35 |
| — |
| — |
| — |
|
Foreign currency | — |
| 149 |
| 149 |
| — |
| 226 |
| 226 |
|
Commodities | 23 |
| 67 |
| 90 |
| 17 |
| 93 |
| 110 |
|
Total assets at fair value | $ | 60 |
| $ | 2,447 |
| $ | 2,507 |
| $ | 33 |
| $ | 2,668 |
| $ | 2,701 |
|
Liabilities at fair value: | | | | | | |
Long-term debt including debt due within one year 6 | $ | — |
| $ | 18,661 |
| $ | 18,661 |
| $ | — |
| $ | 20,212 |
| $ | 20,212 |
|
Derivatives relating to: 5 | | | | | | |
Interest rates | — |
| 310 |
| 310 |
| — |
| 64 |
| 64 |
|
Foreign currency | — |
| 69 |
| 69 |
| — |
| 149 |
| 149 |
|
Commodities | 14 |
| 137 |
| 151 |
| 23 |
| 189 |
| 212 |
|
Total liabilities at fair value | $ | 14 |
| $ | 19,177 |
| $ | 19,191 |
| $ | 23 |
| $ | 20,614 |
| $ | 20,637 |
|
| |
1. | Prior period amounts were updated to conform with the current year presentation. |
| |
2. | The Company had held-to-maturity securities (primary treasury bills and time deposits) classified as cash equivalents. |
| |
3. | The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets. |
| |
4. | U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations. |
| |
5. | See Note 23 for the classification of derivatives in the consolidated balance sheets. |
| |
6. | See Note 23 for information on fair value measurements of long-term debt. |
| | | | | | | | | | | | | | | | | | | | | | |
Basis of Fair Value Measurements on a Recurring Basis | Dec 31, 2020 | Dec 31, 2019 |
In millions | Level 1 | Level 2 | | Total | Level 1 | Level 2 | | Total |
Assets at fair value: | | | | | | | | |
Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | 0 | | $ | 980 | | | $ | 980 | | $ | 0 | | $ | 220 | | | $ | 220 | |
Money market funds | 0 | | 484 | | | 484 | | 0 | | 408 | | | 408 | |
Marketable securities 2 | 0 | | 45 | | | 45 | | 0 | | 21 | | | 21 | |
Equity securities 3 | 40 | | 0 | | | 40 | | 15 | | 0 | | | 15 | |
Debt securities: 3 | | | | | | | | |
Government debt 4 | 0 | | 698 | | | 698 | | 0 | | 555 | | | 555 | |
Corporate bonds | 28 | | 908 | | | 936 | | 22 | | 992 | | | 1,014 | |
Derivatives relating to: 5 | | | | | | | | |
Interest rates | 0 | | 44 | | | 44 | | 0 | | 35 | | | 35 | |
Foreign currency | 0 | | 113 | | | 113 | | 0 | | 149 | | | 149 | |
Commodities | 8 | | 173 | | | 181 | | 23 | | 67 | | | 90 | |
Total assets at fair value | $ | 76 | | $ | 3,445 | | | $ | 3,521 | | $ | 60 | | $ | 2,447 | | | $ | 2,507 | |
Liabilities at fair value: | | | | | | | | |
Long-term debt including debt due within one year 6 | $ | 0 | | $ | 20,604 | | | $ | 20,604 | | $ | 0 | | $ | 18,661 | | | $ | 18,661 | |
| | | | | | | | |
Derivatives relating to: 5 | | | | | | | | |
Interest rates | 0 | | 185 | | | 185 | | 0 | | 310 | | | 310 | |
Foreign currency | 0 | | 128 | | | 128 | | 0 | | 69 | | | 69 | |
Commodities | 7 | | 201 | | | 208 | | 14 | | 137 | | | 151 | |
Total liabilities at fair value | $ | 7 | | $ | 21,118 | | | $ | 21,125 | | $ | 14 | | $ | 19,177 | | | $ | 19,191 | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company's investments in marketable securities are included in "Other current assets" in the consolidated balance sheets.
3.The Company's investments in debt securities, which are primarily available-for-sale, and equity securities are included in "Other investments" in the consolidated balance sheets.
4.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
5.See Note 22 for the classification of derivatives in the consolidated balance sheets.
6.See Note 22 for information on fair value measurements of long-term debt.
For assets and liabilities classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models. See Note 2322 for further information on the types of instruments used by the Company for risk management.
There were 0 transfers between Levels 1 and 2 in the years ended December 31, 20192020 and 2018.2019.
For assets classified as Level 3 measurements, the fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The fair value of the Company’s interests held in trade accounts receivable conduits is determined by calculating the expected amount of cash to be received using the key input of anticipated credit losses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the underlying receivables, discount rate and prepayments are not factors in determining the fair value of the interests. See Note 1514 for further information on assets classified as Level 3 measurements.
For equity securities calculated at net asset value per share (or its equivalent), the Company had $117$111 million in private market securitiesequity and $19 million in real estate at December 31, 2020 ($117 million in private equity and $18 million in real estate at December 31, 2019 ($120 million in private market securities and $29 million in real estate at December 31, 2018)2019). There are no redemption restrictions and the underfundedunfunded commitments on these investments were $76$63 million at December 31, 20192020 ($8976 million at December 31, 2018)2019).
The following table summarizes the changes in fair value measurements using Level 3 inputs for the year ended December 31, 2018:
|
| | | |
Fair Value Measurements Using Level 3 Inputs for Interests Held in Trade Accounts Receivable Conduits 1 | 2018 |
In millions |
Balance at Jan 1 | $ | 677 |
|
Gain (loss) included in earnings 2 | 3 |
|
Settlements 3 | (680 | ) |
Balance at Dec 31 | $ | — |
|
| | | | | |
Fair Value Measurements Using Level 3 Inputs for Interests Held in Trade Accounts Receivable Conduits | 2018 |
In millions |
Balance at Jan 1 | $ | 677 | |
Gain (loss) included in earnings 1 | 3 | |
| |
1.Settlements 2 | Included in "Accounts and notes receivable – Other" in the consolidated balance sheets. See Note 15 for additional information. |
(680) | |
2.Balance at Dec 31 | Included in "Selling, general and administrative expenses" in the consolidated statements of income.$ |
0 | |
3. | Includes noncash transactions of $23 million for the year ended December 31, 2018. |
1.Included in "Selling, general and administrative expenses" in the consolidated statements of income.
2.Includes noncash transactions of $23 million for the year ended December 31, 2018.
Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the bases used to measure certain assets at fair value on a nonrecurring basis in the consolidated balance sheets in 2020, 2019 2018 and 2017:2018:
|
| | | | | | |
Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | (Level 3) | Total Losses |
In millions |
2019 | | |
Assets at fair value: | | |
Long-lived assets, other assets and equity method investments | $ | 162 |
| $ | (2,031 | ) |
Goodwill | $ | — |
| $ | (1,039 | ) |
2018 | | |
Assets at fair value: | | |
Long-lived assets and other assets | $ | — |
| $ | (67 | ) |
2017 | | |
Assets at fair value: | | |
Long-lived assets, intangible assets, other assets and equity method investments | $ | 61 |
| $ | (955 | ) |
Goodwill | $ | — |
| $ | (1,491 | ) |
| | | | | | | | | |
Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | | (Level 3) | Total Losses |
In millions |
2020 | | | |
Assets at fair value: | | | |
Long-lived assets and other assets | | $ | 121 | | $ | (245) | |
2019 | | | |
Assets at fair value: | | | |
Long-lived assets, other assets and equity method investments | | $ | 162 | | $ | (2,031) | |
Goodwill | | $ | 0 | | $ | (1,039) | |
2018 | | | |
Assets at fair value: | | | |
Long-lived assets and other assets | | $ | 0 | | $ | (67) | |
| | | |
2020 Fair Value Measurements on a Nonrecurring Basis
As part of the 2020 Restructuring Program, the Company has or will shut down and write off several small manufacturing facilities and miscellaneous assets around the world. The assets associated with this plan were written down to zero. In addition, impairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to a fair value of $110 million using unobservable inputs. The impairment charges related to the 2020 Restructuring Program, totaling $196 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated
statements of income and related to Packaging & Specialty Plastics ($11 million), Industrial Intermediates & Infrastructure ($22 million), Performance Materials & Coatings ($116 million) and Corporate ($47 million).
In 2020, the Company recognized impairment charges of $30 million related to the write-down of a non-manufacturing asset and certain corporate leased equipment and the write-off of a capital project. The assets, classified as Level 3 measurements, were valued at $11 million using unobservable inputs. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($15 million) and Corporate ($15 million).
In 2020, the Company recognized an additional pretax impairment charge of $19 million related to capital additions made to a bio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil, which was impaired in 2017. The assets were written down to zero in 2020. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics. On September 29, 2020, the Company divested the bio-ethanol manufacturing facility. See Note 6 for additional information.
2019 Fair Value Measurements on a Nonrecurring Basis
As part of the Synergy Program, the Company has or will shut down and write-off several small manufacturing facilities, non-manufacturing assets and certain corporate facilities around the world. In 2019, manufacturing facilities associated with this plan were written down to zero. In addition, impairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to a fair value of $152 million using unobservable inputs. The impairment charges related to the Synergy Program, totaling $143 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million).
In 2019, the Company recognized an additional pretax impairment charge of $44 million related to capital additions made to Santa Vitoria, which was impaired in 2017. The assets were written down to zero in 2019. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics.
In 2019, the Company recognized impairment charges of $14 million related to non-manufacturing assets. The assets, classified as Level 3 measurements, were valued at $10 million using unobservable inputs. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($9 million) and Corporate ($5 million).
In 2019, the Company recognized an impairment charge of $75 million resulting from the planned divestiture of its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The assets, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero in 2019, except for inventory, which was sold at the lower of cost or market. The impairment charge was included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million).
In the fourth quarter of 2019, the Company performed its annual goodwill impairment testing utilizing a discounted cash flow methodology as its valuation technique. As a result, the Company determined the fair value of the C&PM reporting unit was lower than its carrying amount and recorded an impairment charge of $1,039 million, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 1413 for additional information on the impairment charge.
In the fourth quarter of 2019, the Company concluded that its equity method investment in Sadara, classified as a Level 3 measurement and valued using unobservable inputs, was other-than-temporarily impaired and written down to zero. Additionally, the Company reserved certain accounts and notes receivable and accrued interest balances due to uncertainty on the timing of collection. As a result, the Company recorded a $1,755 million charge related to Sadara. The charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million). See Note 1312 for additional information.
2018 Fair Value Measurements on a Nonrecurring Basis
The Company has or will shut down a number of manufacturing and other non-manufacturing facilities and corporate facilities around the world as part of its restructuring programs. In 2018, the manufacturing facilities and related assets and corporate facilities associated with these programs were written down to zero. The impairment charges related to the restructuring programs, totaling $33 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($10 million), Performance Materials & Coatings ($7 million) and Corporate ($16 million).
In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions made to Santa Vitoria, which was impaired in 2017. The assets were written down to 0 in 2018. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment.
2017 Fair Value Measurements on a Nonrecurring Basis
The Company has or will shut down a number of manufacturing, R&D and corporate facilities around the world as part of the Synergy Program. The manufacturing facilities and related assets (including intangible assets), corporate facilities and data centers associated with this plan were written down to 0 in the fourth quarter of 2017. The impairment charges related to the Synergy Program, totaling $87 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($33 million), Industrial Intermediates & Infrastructure ($12 million), Performance Materials & Coatings ($9 million) and Corporate ($33 million). See Note 76 for additional information on the Company's restructuring activities.
In the fourth quarter of 2017, the Company recognized a $622 million pretax impairment charge related to Santa Vitoria. The Company determined it would not pursue an expansion of the facility’s ethanol mill into downstream derivative products, primarily as a result of cheaper ethane-based production as well as the Company’s new assets coming online on the U.S. Gulf Coast which can be used to meet growing market demands in Brazil. As a result of this decision, cash flow analysis indicated the carrying amount of the impacted assets was not recoverable and the assets were written down to 0 in the fourth quarter of 2017. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Notes 7 and 25 for additional information.
The Company also recognized other pretax impairment charges of $246 million in the fourth quarter of 2017, including charges related to manufacturing assets of $159 million, an equity method investment of $81 million and other assets of $6 million. The assets, classified as Level 3 measurements, were valued at $61 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets, which included projected cash flows. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($83 million), Industrial Intermediates & Infrastructure ($5 million), Performance Materials & Coatings ($58 million) and Corporate ($100 million). See Note 7 for additional information.
In the fourth quarter of 2017, the Company performed its annual goodwill impairment testing utilizing a discounted cash flow methodology as its valuation technique. As a result, the Company determined the fair value of the C&PM reporting unit was lower than its carrying amount and recorded an impairment charge of $1,491 million, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 14 for additional information on the impairment charge.
See Note 7 for additional information on the Company's restructuring activities.
NOTE 2524 – VARIABLE INTEREST ENTITIES
Consolidated Variable Interest Entities ("VIEs")
The Company holds a variable interest in the following joint ventures or entities for which it is the primary beneficiary:
Asia Pacific joint venturesJoint Ventures
The Company has variable interests in two joint ventures that own and operate manufacturing and logistics facilities, which produce chemicals and provide services in Asia Pacific. The Company's variable interests in these joint ventures relate to arrangements between the joint ventures and the Company, involving the majority of the output on take-or-pay terms with pricing ensuring a guaranteed return to the joint ventures.
The Company was a 50 percent indirect owner in a propylene oxide ("PO") manufacturing joint venture in Asia Pacific. The Company had a variable interest in this joint venture relating to arrangements between the joint venture and the Company involving the majority of the output on take-or-pay terms, with pricing ensuring a guaranteed return to the joint venture. On April 30, 2019, the Company executed an agreement to acquire full ownership in the PO manufacturing joint venture. The transaction closed on October 1, 2019, for a cash purchase price of $331 million. Approximately half of the purchase price was attributed to the Company’s proportionate equity interest in the entity that owned the PO manufacturing joint venture, which is accounted for under the equity method of accounting, and was classified as "Investments in and loans to nonconsolidated affiliates" in the consolidated statements of cash flows. The remaining $166 million was classified as "Purchases of noncontrolling interests" in the consolidated statements of cash flows.
Ethylene storage joint ventureStorage Joint Venture
The Company has variable interests in a joint venture that provides ethylene storage in Alberta, Canada. The Company's variable interests relate to arrangements involving a majority of the joint venture's storage capacity on take-or-pay terms with pricing ensuring a guaranteed return to the joint venture; and favorably priced leases provided to the joint venture. The Company provides the joint venture with operation and maintenance services and utilities.
Cogeneration in Brazil
The Company holdsheld variable interests in a cogeneration facility in Brazil relatedthat provided power to the production of ethanol from sugarcane.Company's bio-ethanol manufacturing facility. The Company's variable interests arewere the result of a tolling arrangement where it providesprovided fuel to the entity and purchasespurchased a majority of the cogeneration facility’s output on terms that ensureensured a return to the entity’s equity holders. On September 29, 2020, the Company divested its bio-ethanol manufacturing facility and is no longer a party to the tolling arrangement with the cogeneration facility.
Assets and Liabilities of Consolidated VIEs
The Company's consolidated financial statements include the assets, liabilities and results of operations of VIEs for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in "Net income attributable to noncontrolling interests" in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.
The following table summarizes the carrying amounts of these entities’ assets and liabilities included in the Company’s consolidated balance sheets at December 31, 20192020 and 2018:2019:
|
| | | | | | |
Assets and Liabilities of Consolidated VIEs at Dec 31 | | |
In millions | 2019 | 2018 |
Cash and cash equivalents | $ | 37 |
| $ | 71 |
|
Other current assets | 51 |
| 101 |
|
Net property | 330 |
| 683 |
|
Other noncurrent assets | 18 |
| 14 |
|
Total assets 1 | $ | 436 |
| $ | 869 |
|
Current liabilities | $ | 141 |
| $ | 307 |
|
Long-term debt | 34 |
| 75 |
|
Other noncurrent obligations | 21 |
| 14 |
|
Total liabilities 2 | $ | 196 |
| $ | 396 |
|
| |
1. | All assets were restricted at December 31, 2019 and 2018. |
| |
2. | All liabilities were nonrecourse at December 31, 2019 and 2018. |
| | | | | | | | |
Assets and Liabilities of Consolidated VIEs at Dec 31 | | |
In millions | 2020 | 2019 |
Cash and cash equivalents | $ | 26 | | $ | 37 | |
Other current assets | 44 | | 51 | |
Net property | 232 | | 330 | |
Other noncurrent assets | 17 | | 18 | |
Total assets 1 | $ | 319 | | $ | 436 | |
Current liabilities | $ | 73 | | $ | 141 | |
Long-term debt | 6 | | 34 | |
Other noncurrent obligations | 18 | | 21 | |
Total liabilities 2 | $ | 97 | | $ | 196 | |
1.All assets were restricted at December 31, 2020 and 2019.
2.All liabilities were nonrecourse at December 31, 2020 and 2019.
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 20192020 and 20182019 are adjusted for intercompany eliminations and parental guarantees.eliminations.
Nonconsolidated VIEs
The Company holds a variable interest in the following entities for which the Company is not the primary beneficiary:
Silicon joint venturesJoint Ventures
The Company holds minority voting interests in certain joint ventures that produce silicon inputs for the Company. These joint ventures operate under supply agreements that sell inventory to the equity owners using pricing mechanisms that guarantee a return, therefore shielding the joint ventures from the obligation to absorb expected losses. As a result of the pricing mechanisms of these agreements, these entities are determined to be VIEs. The Company is not the primary beneficiary, as it does not hold the power to direct the activities that most significantly impact the economic performance of these entities; therefore, the entities are accounted for under the equity method of accounting. The Company's maximum exposure to loss as a result of its involvement with these variable interest entities is determined to be the carrying value of the investment in these entities. At December 31, 2019,2020, the Company's investment in these joint ventures was $100$107 million ($100 million at December 31, 2018)2019), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, representing the Company's maximum exposure to loss.
AgroFresh Solutions Inc.
The Company held a variable interest in AgroFresh Solutions Inc. ("AFSI"), a company that produces and sells proprietary technologies for the horticultural market. The variable interest in AFSI related to a tax receivable agreement that entitled the Company to additional consideration in the form of tax savings, which was contingent on the operations and earnings of AFSI. The Company was not the primary beneficiary, as it is a minority shareholder in AFSI and AFSI is governed by a board of directors, the composition of which is mandated by AFSI's corporate governance requirements that a majority of the directors be independent. In December 2019, the Company and AFSI settled the tax receivable agreement and the Company's receivable with AFSI was 0 at December 31, 2019 ($8 million at December 31, 2018, classified as "Accounts and notes receivable - Other" in the consolidated balance sheets). The Company continues to be a minority shareholder, but does not have a controlling financial interest in AFSI.
NOTE 2625 – RELATED PARTY TRANSACTIONS
Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. and reported transactions with Dow Inc. as related party transactions. From the Merger dateDate through March 31, 2019, TDCC reported transactions with DowDuPont and Historical DuPont and its affiliates as related party transactions.
TDCC
TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and share repurchases, andas approved by Dow Inc.'s Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution to Dow Inc. to settle the intercompany loans. In the fourth quarter of2020 and 2019, TDCC declared and paid a dividend of $201 milliondividends to Dow Inc. of $2,233 million and $201 million, respectively. At December 31, 2020 and 2019, TDCC's intercompany loan balance with Dow Inc. was insignificant.
DowDuPont
Pursuant to the Agreement and Plan of Merger, Agreement,dated as of December 11, 2015, as amended on March 31, 2017, and prior to the separation from DowDuPont, TDCC committed to fund a portion of DowDuPont's dividends paid to common stockholders and certain governance expenses. In addition, share repurchases by DowDuPont were partially funded by TDCC through 2018. Funding was accomplished through intercompany loans. On a quarterly basis, TDCC's Board reviewed and determined a dividend distribution to DowDuPont to settle the intercompany loans. The dividend distribution considered the level of TDCC’s earnings and cash flows and the outstanding intercompany loan balances. In 2019, TDCC declared and paid dividends to DowDuPont of $535 million ($3,711 million in 2018). At December 31, 2018, TDCC's outstanding intercompany loan balance was insignificant.
Historical DuPont and its Affiliates
Prior to the separation from DowDuPont, TDCC sold to and procured from Historical DuPont and its affiliates certain raw materials that were consumed in each company's manufacturing process. The following table presents amounts due to or due from Historical DuPont and its affiliates at December 31, 2018:
|
| | | |
Balances Due To or Due From Historical DuPont and its Affiliates | Dec 31, 2018 |
In millions |
Accounts and notes receivable - Other | $ | 89 |
|
Accounts payable - Other | $ | 19 |
|
The following table presents revenue earned and expenses incurred related to transactions with Historical DuPont and its affiliates, prior to the separation from DowDuPont:affiliates:
|
| | | | | | |
Sales to Historical DuPont and its Affiliates | 2019 | 2018 |
In millions |
Net sales | $ | 12 |
| $ | 55 |
|
Cost of sales | $ | 9 |
| $ | 42 |
|
| | | | | | | | |
Sales to Historical DuPont and its Affiliates | 2019 | 2018 |
In millions |
Net sales | $ | 12 | | $ | 55 | |
Cost of sales | $ | 9 | | $ | 42 | |
Purchases from Historical DuPont and its affiliates were insignificant for 2019 and 2018.
NOTE 2726 – SEGMENTS AND GEOGRAPHIC REGIONS
Dow combines one of the broadest technology sets in the industry withglobal breadth, asset integration and scale, focused innovation and global scaleleading business positions to achieve profitable growth andgrowth. The Company's ambition is to become the most innovative, customer centric, inclusive and sustainable materials science company.company, with a purpose to deliver a sustainable future for the world through our materials science expertise and collaboration with our partners. Dow’s portfolio of performance materials,plastics, industrial intermediates, coatings and plasticssilicones businesses delivers a broad range of differentiated science-based products and solutions for ourits customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer care. Dow operates 109106 manufacturing sites in 31 countries and employs approximately 36,50035,700 people.
Effective with the Merger, TDCC's business activities were components of DowDuPont's businessThe Company conducts its worldwide operations and were reported as a single operating segment. Following the separation from DowDuPont, the Company changed the manner in which its business activities were managed. The Company's portfolio now includesthrough six global businesses which are organized into the following operating segments: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure and Performance Materials & Coatings. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. The Company did not aggregate any operating segments when determining its reportable segments.
Following the separation from DowDuPont, the Company changed its practice of transferring ethylene to its downstream derivative businesses at cost to transferring ethylene at market prices. The Company also changed certain of its Corporate segment allocation practices including costs previously assigned to AgCo and SpecCo, which are now allocated to the operating segments. These changes have been consistently applied to all periods presented.
Dow reportedreports geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America and EMEAI. As a result ofThe Company transfers ethylene to its downstream derivative businesses at market prices. The Company also allocated costs previously assigned to AgCo and SpecCo ("stranded costs") to the separation from DowDuPont, the Company changed the geographic alignment for the country of India to be reflected in EMEAI (previously reported in Asia Pacific).operating segments.
Dow’s measure of profit/loss for segment reporting purposes is Operating EBIT (for the year ended December 31, 2020) and pro forma Operating EBIT (for the years ended December 31, 2019 and 2018) as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, excluding the impact of significant items. The Company defines pro forma Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. ProOperating EBIT and pro forma Operating EBIT by segment includesinclude all operating items relating
to the businesses; items that principally apply to Dow as a whole are assigned to Corporate. Pro forma Operating EBIT has been reflected retrospectively for all periods presented, and reconciliations are provided at the end of this footnote. The Company also presents pro forma net sales for the years ended December 31, 2019 and 2018 in this footnote as it is included in management's measure of segment performance and is regularly reviewed by the CODM. Pro forma net sales includes the impact of ECP from January 1, 2017 through August 31, 2017, as well as the impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont.
Corporate Profile
Dow conducts its worldwide operations through global businesses which are reflected in the following reportable segments:
Packaging & Specialty Plastics
Packaging & Specialty Plastics consists of two highly integrated global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The segment employs the industry’s broadest polyolefin product portfolio, supported by the Company’s proprietary catalyst and manufacturing process technologies, to work at the customer’s design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; automotive;mobility and transportation; and infrastructure. This segment includes the results of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group, as well as a portion of the results of EQUATE, The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut and Sadara, all joint ventures of the Company.
Industrial Intermediates & Infrastructure
Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others. This segment includes a portion of the Company's share of the results of EQUATE, TKOC, Map Ta Phut and Sadara.
Performance Materials & Coatings
Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumer and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings,coatings; home care and personal carecare; consumer and electronics; mobility and transportation; industrial and chemical processing; and building and infrastructure end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.
Corporate
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; non-business aligned litigation expenses; and discontinued or non-aligned businesses.
Sales are attributed to geographic region based on customer location; long-lived assets are attributed to geographic region based on asset location.
|
| | | | | | | | | | | | |
Geographic Region Information | United States | EMEAI | Rest of World | Total |
In millions |
2019 | | | | |
Sales to external customers | $ | 14,437 |
| $ | 14,612 |
| $ | 13,902 |
| $ | 42,951 |
|
Long-lived assets | $ | 14,571 |
| $ | 2,649 |
| $ | 3,776 |
| $ | 20,996 |
|
2018 |
|
|
| |
Sales to external customers | $ | 16,613 |
| $ | 17,406 |
| $ | 15,585 |
| $ | 49,604 |
|
Long-lived assets | $ | 14,750 |
| $ | 2,657 |
| $ | 4,011 |
| $ | 21,418 |
|
2017 | | | | |
Sales to external customers | $ | 15,316 |
| $ | 15,226 |
| $ | 13,188 |
| $ | 43,730 |
|
Long-lived assets | $ | 14,771 |
| $ | 2,547 |
| $ | 4,266 |
| $ | 21,584 |
|
| | | | | | | | | | | | | | |
Geographic Region Information | United States | EMEAI | Rest of World | Total |
In millions |
2020 | | | | |
Sales to external customers | $ | 12,547 | | $ | 12,969 | | $ | 13,026 | | $ | 38,542 | |
Long-lived assets | $ | 13,833 | | $ | 2,813 | | $ | 3,593 | | $ | 20,239 | |
2019 | | | | |
Sales to external customers | $ | 14,437 | | $ | 14,612 | | $ | 13,902 | | $ | 42,951 | |
Long-lived assets | $ | 14,571 | | $ | 2,649 | | $ | 3,776 | | $ | 20,996 | |
2018 | | | | |
Sales to external customers | $ | 16,613 | | $ | 17,406 | | $ | 15,585 | | $ | 49,604 | |
Long-lived assets | $ | 14,750 | | $ | 2,657 | | $ | 4,011 | | $ | 21,418 | |
| | | | | | | | | | | | | | | | | |
Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
In millions |
2020 | | | | | |
Net sales | $ | 18,301 | | $ | 12,021 | | $ | 7,951 | | $ | 269 | | $ | 38,542 | |
Restructuring and asset related charges - net 1 | 30 | | 22 | | 192 | | 464 | | 708 | |
Equity in earnings (losses) of nonconsolidated affiliates | 173 | | (166) | | 6 | | (31) | | (18) | |
Operating EBIT 2 | 2,325 | | 355 | | 314 | | (279) | | 2,715 | |
Depreciation and amortization | 1,372 | | 605 | | 870 | | 27 | | 2,874 | |
Total assets | 30,069 | | 12,220 | | 13,915 | | 5,266 | | 61,470 | |
Investments in nonconsolidated affiliates | 661 | | 531 | | 108 | | 27 | | 1,327 | |
Capital expenditures | 678 | | 268 | | 306 | | 0 | | 1,252 | |
2019 | | | | | |
Net sales | $ | 20,245 | | $ | 13,440 | | $ | 8,923 | | $ | 343 | | $ | 42,951 | |
Pro forma net sales | 20,245 | | 13,449 | | 8,961 | | 343 | | 42,998 | |
Restructuring, goodwill impairment and asset related charges - net 1 | 439 | | 1,175 | | 1,076 | | 529 | | 3,219 | |
Equity in earnings (losses) of nonconsolidated affiliates | 162 | | (241) | | 5 | | (20) | | (94) | |
Pro forma Operating EBIT 3 | 2,904 | | 845 | | 918 | | (315) | | 4,352 | |
Depreciation and amortization | 1,435 | | 594 | | 877 | | 32 | | 2,938 | |
Total assets | 29,522 | | 11,753 | | 14,059 | | 5,190 | | 60,524 | |
Investments in nonconsolidated affiliates | 675 | | 568 | | 101 | | 60 | | 1,404 | |
Capital expenditures | 1,039 | | 452 | | 470 | | 0 | | 1,961 | |
2018 | | | | | |
Net sales | $ | 24,195 | | $ | 15,447 | | $ | 9,677 | | $ | 285 | | $ | 49,604 | |
Pro forma net sales | 24,237 | | 15,465 | | 9,865 | | 285 | | 49,852 | |
Restructuring, goodwill impairment and asset related charges - net 1 | 46 | | 11 | | 21 | | 143 | | 221 | |
Equity in earnings (losses) of nonconsolidated affiliates | 287 | | 284 | | 4 | | (20) | | 555 | |
Pro forma Operating EBIT 3 | 3,593 | | 1,767 | | 1,246 | | (370) | | 6,236 | |
Depreciation and amortization | 1,385 | | 607 | | 888 | | 29 | | 2,909 | |
Total assets 4 | 30,279 | | 14,092 | | 16,050 | | 3,378 | | 63,799 | |
Investments in nonconsolidated affiliates | 1,278 | | 1,850 | | 99 | | 93 | | 3,320 | |
Capital expenditures | 1,231 | | 433 | | 427 | | 0 | | 2,091 | |
1.See Note 6 for information regarding the Company's restructuring programs, goodwill impairment and other asset related charges. |
| | | | | | | | | | | | | | | |
Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
In millions |
2019 | | | | | |
Net sales | $ | 20,245 |
| $ | 13,440 |
| $ | 8,923 |
| $ | 343 |
| $ | 42,951 |
|
Pro forma net sales | 20,245 |
| 13,449 |
| 8,961 |
| 343 |
| 42,998 |
|
Restructuring, goodwill impairment and asset related charges - net 1 | 439 |
| 1,175 |
| 1,076 |
| 529 |
| 3,219 |
|
Equity in earnings (losses) of nonconsolidated affiliates | 162 |
| (241 | ) | 5 |
| (20 | ) | (94 | ) |
Pro forma Operating EBIT 2 | 2,904 |
| 845 |
| 918 |
| (315 | ) | 4,352 |
|
Depreciation and amortization | 1,435 |
| 594 |
| 877 |
| 32 |
| 2,938 |
|
Total assets | 29,522 |
| 11,753 |
| 14,059 |
| 5,190 |
| 60,524 |
|
Investments in nonconsolidated affiliates | 675 |
| 568 |
| 101 |
| 60 |
| 1,404 |
|
Capital expenditures | 1,039 |
| 452 |
| 470 |
| — |
| 1,961 |
|
2018 | | | | | |
Net sales | $ | 24,195 |
| $ | 15,447 |
| $ | 9,677 |
| $ | 285 |
| $ | 49,604 |
|
Pro forma net sales | 24,237 |
| 15,465 |
| 9,865 |
| 285 |
| 49,852 |
|
Restructuring, goodwill impairment and asset related charges - net 1 | 46 |
| 11 |
| 21 |
| 143 |
| 221 |
|
Equity in earnings (losses) of nonconsolidated affiliates | 287 |
| 284 |
| 4 |
| (20 | ) | 555 |
|
Pro forma Operating EBIT 2 | 3,593 |
| 1,767 |
| 1,246 |
| (370 | ) | 6,236 |
|
Depreciation and amortization | 1,385 |
| 607 |
| 888 |
| 29 |
| 2,909 |
|
Total assets 3 | 30,279 |
| 14,092 |
| 16,050 |
| 3,378 |
| 63,799 |
|
Investments in nonconsolidated affiliates | 1,278 |
| 1,850 |
| 99 |
| 93 |
| 3,320 |
|
Capital expenditures | 1,231 |
| 433 |
| 427 |
| — |
| 2,091 |
|
2017 | | | | | |
Net sales | $ | 21,504 |
| $ | 12,951 |
| $ | 8,892 |
| $ | 383 |
| $ | 43,730 |
|
Pro forma net sales | 22,546 |
| 12,951 |
| 8,892 |
| 383 |
| 44,772 |
|
Restructuring, goodwill impairment and asset related charges - net 1 | 716 |
| 17 |
| 1,578 |
| 428 |
| 2,739 |
|
Equity in earnings (losses) of nonconsolidated affiliates | 190 |
| 172 |
| 40 |
| (8 | ) | 394 |
|
Pro forma Operating EBIT 2 | 3,712 |
| 1,470 |
| 817 |
| (422 | ) | 5,577 |
|
Depreciation and amortization | 1,055 |
| 572 |
| 885 |
| 34 |
| 2,546 |
|
Total assets 3 | 30,633 |
| 14,115 |
| 17,483 |
| 4,342 |
| 66,573 |
|
Investments in nonconsolidated affiliates | 1,184 |
| 1,700 |
| 103 |
| 120 |
| 3,107 |
|
Capital expenditures | 2,034 |
| 310 |
| 463 |
| — |
| 2,807 |
|
2.Operating EBIT for TDCC in 2020 is substantially the same as that of Dow Inc. and therefore is not disclosed separately in the table above. A reconciliation of "Income from continuing operations, net of tax" to Operating EBIT is provided on the following page. | |
1. | See Note 7 for information regarding the Company's restructuring programs, goodwill impairment and other asset related charges. |
| |
2. | Pro forma Operating EBIT for TDCC in 2019 is substantially the same as that of Dow Inc. (same for 2018 and 2017)3.Pro forma Operating EBIT for TDCC in 2019 is substantially the same as that of Dow Inc. (same for 2018) and therefore is not disclosed separately in the table above. A reconciliation of "Income (loss) from continuing operations, net of tax" to pro forma Operating EBIT is provided on the following page. 4.Excludes assets of discontinued operations of $19,900 million.
| | | | | | Reconciliation of "Income from continuing operations, net of tax" to pro forma Operating EBIT is provided on the following page. | 2020 |
In millions | Income from continuing operations, net of tax | $ | 1,294 | | 3.+ Provision for income taxes on continuing operations | Excludes assets of discontinued operations of $19,900 million and $19,279 million for 2018 and 2017, respectively. |
| | | | | | | | | | | Reconciliation of "Income (loss) from continuing operations, net of tax" to Pro Forma Operating EBIT | 2019 | 2018 | 2017 | In millions | Income (loss) from continuing operations, net of tax | $ | (1,717 | ) | $ | 2,940 |
| $ | (1,287 | ) | + Provision for income taxes on continuing operations | 470 |
| 809 |
| 1,524 |
| Income (loss) from continuing operations before income taxes | $ | (1,247 | ) | $ | 3,749 |
| $ | 237 |
| - Interest income | 81 |
| 82 |
| 66 |
| + Interest expense and amortization of debt discount | 933 |
| 1,063 |
| 914 |
| + Pro forma adjustments 1 | 65 |
| 180 |
| 1,120 |
| - Significant items | (4,682 | ) | (1,326 | ) | (3,372 | ) | Pro forma Operating EBIT | $ | 4,352 |
| $ | 6,236 |
| $ | 5,577 |
|
777 | | 1.Income from continuing operations before income taxes | Pro forma adjustments include: (1) the margin impact of various manufacturing, supply$ | 2,071 | | - Interest income | 38 | | + Interest expense and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont (included for 2019 and 2018 only), (2) the inclusion of ECP for the period of January 1, 2017 through August 31, 2017, (3) the removal of the amortization of ECP's inventory step-up recognized in connection with the Merger (4) the elimination of the impact of events directly attributable to the Merger, internal reorganization and business realignment, separation, distribution and other related transactions (e.g., one-time transaction costs) and (5) the elimination of the effect of a consummated divestiture agreed to with certain regulatory agencies as a condition of approval for the Merger.debt discount | 827 | | - Significant items | 145 | | Operating EBIT | $ | 2,715 | |
145 | | | | | | | | | Reconciliation of "Income (loss) from continuing operations, net of tax" to Pro Forma Operating EBIT | 2019 | 2018 | In millions | Income (loss) from continuing operations, net of tax | $ | (1,717) | | $ | 2,940 | | + Provision for income taxes on continuing operations | 470 | | 809 | | Income (loss) from continuing operations before income taxes | $ | (1,247) | | $ | 3,749 | | - Interest income | 81 | | 82 | | + Interest expense and amortization of debt discount | 933 | | 1,063 | | + Pro forma adjustments 1 | 65 | | 180 | | - Significant items | (4,682) | | (1,326) | | Pro forma Operating EBIT | $ | 4,352 | | $ | 6,236 | | | | | | | |
The following tables summarize the pretax impact of significant items by segment that are excluded from Operating EBIT and pro forma Operating EBIT:
| | | | | | | | | | | | | | | | | | Significant Items by Segment for 2020 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Integration and separation costs 1 | $ | 0 | | $ | 0 | | $ | 0 | | $ | (239) | | $ | (239) | | Restructuring and asset related charges - net 2 | (30) | | (22) | | (192) | | (464) | | (708) | | Warranty accrual adjustment of exited business 3 | 0 | | 0 | | 0 | | 11 | | 11 | | Restructuring implementation costs 4 | 0 | | 0 | | 0 | | (10) | | (10) | | Net gain on divestitures and asset sale 5 | 52 | | 61 | | 0 | | 604 | | 717 | | Litigation related charges, awards and adjustments 6 | 544 | | 0 | | 0 | | 0 | | 544 | | Loss on early extinguishment of debt 7 | 0 | | 0 | | 0 | | (149) | | (149) | | Indemnification and other transaction related costs 8 | 0 | | 0 | | 0 | | (21) | | (21) | | Total | $ | 566 | | $ | 39 | | $ | (192) | | $ | (268) | | $ | 145 | |
1.Costs related to business separation activities. 2.Includes Board approved restructuring plans and asset-related charges, which include other asset impairments. See Note 6 for additional information. 3.Includes an adjustment to the warranty accrual of an exited business. 4.Includes costs associated with implementing the Company's 2020 Restructuring Program. 5.Primarily related to a gain on the sale of rail infrastructure in the U.S. and Canada and a gain on the sale of marine and terminal operations and assets in the U.S. See Notes 5 and 7 for additional information. 6.Includes recognition of gains associated with a legal matter with Nova. See Note 16 for additional information. 7.The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 15 for additional information. 8.Primarily related to charges associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
| | | | | | | | | | | | | | | | | Significant Items by Segment for 2019 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Indemnification and other transaction related costs 1 | $ | — |
| $ | — |
| $ | — |
| $ | (144 | ) | $ | (144 | ) | Integration and separation costs 2 | — |
| — |
| — |
| (1,013 | ) | (1,013 | ) | Restructuring, goodwill impairment and asset related charges - net 3 | (439 | ) | (1,175 | ) | (1,076 | ) | (529 | ) | (3,219 | ) | Loss on divestitures 4 | — |
| (5 | ) | — |
| (44 | ) | (49 | ) | Loss on early extinguishment of debt 5 | — |
| — |
| — |
| (102 | ) | (102 | ) | Environmental charges 6 | (5 | ) | (8 | ) | (50 | ) | (336 | ) | (399 | ) | Warranty accrual adjustment of exited business 7 | — |
| — |
| — |
| 39 |
| 39 |
| Litigation related charges, awards and adjustments 8 | 170 |
| — |
| — |
| 35 |
| 205 |
| Total | $ | (274 | ) | $ | (1,188 | ) | $ | (1,126 | ) | $ | (2,094 | ) | $ | (4,682 | ) |
| | 1. | Includes charges primarily associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation. |
| | 2. | Costs related to post-Merger integration and business separation activities. Excludes one-time transaction costs directly attributable to the Merger. |
| | 3. | Includes Board approved restructuring plans and asset-related charges (see Note 7 for additional information); a charge related to Sadara (see Note 13 for additional information) and an impairment charge related to goodwill associated with the Coatings & Performance Monomers reporting unit (see Note 14 for additional information). |
| | 4. | Includes post-closing adjustments on previous divestitures. |
| | 5. | The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 16 for additional information. |
| | 6. | Related to environmental remediation, primarily resulting from the culmination of long-standing negotiations with regulators and/or agencies and review of additional costs to manage ongoing remediation activities resulting from Dow’s separation from DowDuPont and related agreements with Corteva and DuPont. See Note 17 for additional information. |
| | 7. | Includes an adjustment to the warranty accrual of an exited business. |
| | 8. | Includes a gain associated with a legal settlement with Nova, as well as a gain related to an adjustment of the Dow Silicones breast implant liability and a charge related to the settlement of the Dow Silicones commercial creditor matters. See Note 17 for additional information. |
| | | | | | | | | | | | | | | | | Significant Items by Segment for 2018 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Impact of Dow Silicones ownership restructure 1 | $ | — |
| $ | — |
| $ | (20 | ) | $ | — |
| $ | (20 | ) | Integration and separation costs 2 | — |
| — |
| — |
| (1,074 | ) | (1,074 | ) | Restructuring, goodwill impairment and asset related charges - net 3 | (46 | ) | (11 | ) | (21 | ) | (120 | ) | (198 | ) | Gain on divestiture 4 | — |
| 20 |
| — |
| — |
| 20 |
| Transaction costs and productivity actions 5 | — |
| — |
| — |
| (54 | ) | (54 | ) | Total | $ | (46 | ) | $ | 9 |
| $ | (41 | ) | $ | (1,248 | ) | $ | (1,326 | ) |
| | 1. | Includes a loss related to a post-closing adjustment related to the Dow Silicones ownership restructure. |
| | 2. | Costs related to post-Merger integration and separation and distribution activities, and costs related to the Dow Silicones ownership restructure. |
| | 3. | Includes Board approved restructuring plans and asset-related charges, which include other asset impairments. See Note 7 for additional information. |
| | 4. | Includes a gain related to the Company's sale of its equity interest in MEGlobal. |
| | 5. | The Company retired outstanding notes payable resulting in a loss on early extinguishment. See Note 16 for additional information. |
| | | | | | | | | | | | | | | | | Significant Items by Segment for 2017
| Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Litigation related charges, awards and adjustments 1 | $ | 137 |
| $ | — |
| $ | — |
| $ | — |
| $ | 137 |
| Integration and separation costs 2 | — |
| — |
| — |
| (716 | ) | (716 | ) | Restructuring, goodwill impairment and asset related charges - net 3 | (716 | ) | (17 | ) | (1,578 | ) | (431 | ) | (2,742 | ) | Gain on divestiture 4 | — |
| — |
| — |
| 7 |
| 7 |
| Transaction costs and productivity actions 5 | — |
| — |
| — |
| (58 | ) | (58 | ) | Total | $ | (579 | ) | $ | (17 | ) | $ | (1,578 | ) | $ | (1,198 | ) | $ | (3,372 | ) |
| | 1. | Includes a gain associated with a patent infringement matter with Nova. See Note 17 for additional information. |
| | 2. | Costs related to post-Merger integration, separation and distribution activities, and costs related to the Dow Silicones ownership restructure. |
| | 3. | Includes Board approved restructuring plans, goodwill impairment and asset-related charges, which includes other asset impairments. See Note 7 for additional information. |
| | 4. | Includes post-closing adjustments related to the split-off of the Company's chlorine value chain. |
| | 5. | Includes implementation costs associated with the Company's restructuring programs and other productivity actions. |
| | | | | | | | | | | | | | | | | | Significant Items by Segment for 2019 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Integration and separation costs 1 | $ | 0 | | $ | 0 | | $ | 0 | | $ | (1,013) | | $ | (1,013) | | Restructuring, goodwill impairment and asset related charges - net 2 | (439) | | (1,175) | | (1,076) | | (529) | | (3,219) | | Warranty accrual adjustment of exited business 3 | 0 | | 0 | | 0 | | 39 | | 39 | | Environmental charges 4 | (5) | | (8) | | (50) | | (336) | | (399) | | Loss on divestitures 5 | 0 | | (5) | | 0 | | (44) | | (49) | | Loss on early extinguishment of debt 6 | 0 | | 0 | | 0 | | (102) | | (102) | | Litigation related charges, awards and adjustments 7 | 170 | | 0 | | 0 | | 35 | | 205 | | Indemnification and other transaction related costs 8 | 0 | | 0 | | 0 | | (144) | | (144) | | Total | $ | (274) | | $ | (1,188) | | $ | (1,126) | | $ | (2,094) | | $ | (4,682) | |
1.Costs related to post-Merger integration and business separation activities. Excludes one-time transaction costs directly attributable to the Merger. 2.Includes Board approved restructuring plans and asset related charges (see Note 6 for additional information); a charge related to Sadara (see Note 12 for additional information) and an impairment charge related to goodwill associated with the Coatings & Performance Monomers reporting unit (see Note 13 for additional information). 3.Includes an adjustment to the warranty accrual of an exited business. 4.Related to environmental remediation, primarily resulting from the culmination of long-standing negotiations with regulators and/or agencies and review of additional costs to manage ongoing remediation activities resulting from Dow’s separation from DowDuPont and related agreements with Corteva and DuPont. See Note 16 for additional information. 5.Includes post-closing adjustments on previous divestitures. 6.The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 15 for additional information. 7.Includes a gain associated with a legal matter with Nova, as well as a gain related to an adjustment of the Implant Liability and a charge related to the settlement of the Commercial Creditor matters. See Note 16 for additional information. 8.Includes charges primarily associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
| | | | | | | | | | | | | | | | | | Significant Items by Segment for 2018 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | In millions | Impact of Dow Silicones ownership restructure 1 | $ | 0 | | $ | 0 | | $ | (20) | | $ | 0 | | $ | (20) | | Integration and separation costs 2 | 0 | | 0 | | 0 | | (1,074) | | (1,074) | | Restructuring and asset related charges - net 3 | (46) | | (11) | | (21) | | (120) | | (198) | | Gain on divestiture 4 | 0 | | 20 | | 0 | | 0 | | 20 | | Loss on early extinguishment of debt 5 | 0 | | 0 | | 0 | | (54) | | (54) | | Total | $ | (46) | | $ | 9 | | $ | (41) | | $ | (1,248) | | $ | (1,326) | |
1.Includes a loss related to a post-closing adjustment related to the Dow Silicones ownership restructure. 2.Costs related to post-Merger integration and separation and distribution activities, and costs related to the Dow Silicones ownership restructure. 3.Includes Board approved restructuring plans and asset-related charges, which include other asset impairments. See Note 6 for additional information. 4.Includes a gain related to the Company's sale of its equity interest in MEGlobal. 5.The Company retired outstanding notes payable resulting in a loss on early extinguishment. See Note 15 for additional information.
NOTE 2827 - SELECTED QUARTERLY FINANCIAL DATA | | | | | | | | | | | | | | | | | 2019 | | | | | | In millions, except per share amounts (Unaudited) | 1st 1 | 2nd | 3rd | 4th | Year | Dow Inc. | | | | | | Net sales | $ | 10,969 |
| $ | 11,014 |
| $ | 10,764 |
| $ | 10,204 |
| $ | 42,951 |
| Cost of sales | $ | 9,142 |
| $ | 9,420 |
| $ | 9,377 |
| $ | 8,718 |
| $ | 36,657 |
| Gross margin | $ | 1,827 |
| $ | 1,594 |
| $ | 1,387 |
| $ | 1,486 |
| $ | 6,294 |
| Restructuring, goodwill impairment and asset related charges - net 2 | $ | 156 |
| $ | 65 |
| $ | 147 |
| $ | 2,851 |
| $ | 3,219 |
| Integration and separation costs 3 | $ | 452 |
| $ | 348 |
| $ | 164 |
| $ | 99 |
| $ | 1,063 |
| Income (loss) from continuing operations, net of tax | $ | 156 |
| $ | 90 |
| $ | 347 |
| $ | (2,310 | ) | $ | (1,717 | ) | Income from discontinued operations net of tax | $ | 445 |
| $ | — |
| $ | — |
| $ | — |
| $ | 445 |
| Net income (loss) 4 | $ | 601 |
| $ | 90 |
| $ | 347 |
| $ | (2,310 | ) | $ | (1,272 | ) | Net income (loss) attributable to Dow Inc. | $ | 556 |
| $ | 75 |
| $ | 333 |
| $ | (2,323 | ) | $ | (1,359 | ) | Earnings (loss) per common share from continuing operations - basic 5 | $ | 0.16 |
| $ | 0.10 |
| $ | 0.45 |
| $ | (3.14 | ) | $ | (2.42 | ) | Earnings (loss) per common share from continuing operations - diluted 5 | $ | 0.16 |
| $ | 0.10 |
| $ | 0.45 |
| $ | (3.14 | ) | $ | (2.42 | ) | Dividends declared per share of common stock 6 | N/A |
| $ | 0.70 |
| $ | 0.70 |
| $ | 0.70 |
| $ | 2.10 |
| Market price range of common stock: | | | | | | High 6 | N/A |
| $ | 59.71 |
| $ | 52.79 |
| $ | 55.99 |
| $ | 59.71 |
| Low 6 | N/A |
| $ | 46.76 |
| $ | 40.71 |
| $ | 43.85 |
| $ | 40.71 |
| TDCC | | | | | | Net sales | $ | 10,969 |
| $ | 11,014 |
| $ | 10,764 |
| $ | 10,204 |
| $ | 42,951 |
| Cost of sales | $ | 9,142 |
| $ | 9,419 |
| $ | 9,377 |
| $ | 8,719 |
| $ | 36,657 |
| Gross margin | $ | 1,827 |
| $ | 1,595 |
| $ | 1,387 |
| $ | 1,485 |
| $ | 6,294 |
| Restructuring, goodwill impairment and asset related charges - net 2 | $ | 156 |
| $ | 65 |
| $ | 147 |
| $ | 2,851 |
| $ | 3,219 |
| Integration and separation costs | $ | 452 |
| $ | 324 |
| $ | 164 |
| $ | 99 |
| $ | 1,039 |
| Income (loss) from continuing operations, net of tax | $ | 156 |
| $ | 217 |
| $ | 324 |
| $ | (2,292 | ) | $ | (1,595 | ) | Income from discontinued operations net of tax | $ | 445 |
| $ | — |
| $ | — |
| $ | — |
| $ | 445 |
| Net income (loss) 3 | $ | 601 |
| $ | 217 |
| $ | 324 |
| $ | (2,292 | ) | $ | (1,150 | ) | Net income (loss) attributable to The Dow Chemical Company | $ | 556 |
| $ | 202 |
| $ | 310 |
| $ | (2,305 | ) | $ | (1,237 | ) |
| | 1. | The amounts presented for the first quarter of 2019 have been updated from the amounts reported in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019, to reflect the effects of the separation from DowDuPont. See reconciliation on the following page. |
| | 2. | See Note 7 for additional information. |
| | 3. | See Note 4 for additional information. |
| | 4. | See Notes 4, 9, | | | | | | | | | | | | | | | | | | 2020 | | | | | | In millions, except per share amounts (Unaudited) | 1st | 2nd | 3rd | 4th | Year | Dow Inc. | | | | | | Net sales | $ | 9,770 | | $ | 8,354 | | $ | 9,712 | | $ | 10,706 | | $ | 38,542 | | Cost of sales | $ | 8,230 | | $ | 7,610 | | $ | 8,371 | | $ | 9,135 | | $ | 33,346 | | Gross margin | $ | 1,540 | | $ | 744 | | $ | 1,341 | | $ | 1,571 | | $ | 5,196 | | Restructuring and asset related charges (credits) - net 1 | $ | 96 | | $ | 6 | | $ | 617 | | $ | (11) | | $ | 708 | | Integration and separation costs 2 | $ | 65 | | $ | 46 | | $ | 63 | | $ | 65 | | $ | 239 | | | | | | | | Net income (loss) 3 | $ | 258 | | $ | (217) | | $ | (1) | | $ | 1,254 | | $ | 1,294 | | Net income (loss) attributable to Dow Inc. | $ | 239 | | $ | (225) | | $ | (25) | | $ | 1,236 | | $ | 1,225 | | Earnings (loss) per common share from continuing operations - basic 4 | $ | 0.32 | | $ | (0.31) | | $ | (0.04) | | $ | 1.66 | | $ | 1.64 | | Earnings (loss) per common share from continuing operations - diluted 4 | $ | 0.32 | | $ | (0.31) | | $ | (0.04) | | $ | 1.65 | | $ | 1.64 | | Dividends declared per share of common stock | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 2.80 | | Market price range of common stock: | | | | | | High | $ | 53.75 | | $ | 45.90 | | $ | 51.07 | | $ | 57.73 | | $ | 57.73 | | Low | $ | 22.00 | | $ | 27.04 | | $ | 39.44 | | $ | 45.18 | | $ | 22.00 | | TDCC | | | | | | Net sales | $ | 9,770 | | $ | 8,354 | | $ | 9,712 | | $ | 10,706 | | $ | 38,542 | | Cost of sales | $ | 8,230 | | $ | 7,608 | | $ | 8,371 | | $ | 9,134 | | $ | 33,343 | | Gross margin | $ | 1,540 | | $ | 746 | | $ | 1,341 | | $ | 1,572 | | $ | 5,199 | | Restructuring and asset related charges (credits) - net 1 | $ | 96 | | $ | 6 | | $ | 617 | | $ | (11) | | $ | 708 | | Integration and separation costs 2 | $ | 65 | | $ | 46 | | $ | 63 | | $ | 65 | | $ | 239 | | | | | | | | | | | | | | Net income (loss) 3 | $ | 258 | | $ | (217) | | $ | (1) | | $ | 1,264 | | $ | 1,304 | | Net income (loss) attributable to The Dow Chemical Company | $ | 239 | | $ | (225) | | $ | (25) | | $ | 1,246 | | $ | 1,235 | |
1.See Note 6 for additional information. 2.See Note 3 for additional information. 3.See Notes 5, 7, 15 and 16 for information on additional items materially impacting "Net income (loss)." The fourth quarter of 2020 includes a gain related to the sale of marine and terminal operations and assets and a gain associated with a legal matter with Nova. The third quarter of 2020 includes a gain related to the sale of rail infrastructure operations and assets and a loss on the early extinguishment of debt. The first quarter of 2020 includes a loss on the early extinguishment of debt. 4.Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. Due to quarterly changes in the share count and the allocation of income to participating securities, the sum of the four quarters does not equal the earnings per share amount calculated for the year.
| | | | | | | | | | | | | | | | | | 2019 | | | | | | In millions, except per share amounts (Unaudited) | 1st | 2nd | 3rd | 4th | Year | Dow Inc. | | | | | | Net sales | $ | 10,969 | | $ | 11,014 | | $ | 10,764 | | $ | 10,204 | | $ | 42,951 | | Cost of sales | $ | 9,142 | | $ | 9,420 | | $ | 9,377 | | $ | 8,718 | | $ | 36,657 | | Gross margin | $ | 1,827 | | $ | 1,594 | | $ | 1,387 | | $ | 1,486 | | $ | 6,294 | | Restructuring, goodwill impairment and asset related charges - net 1 | $ | 156 | | $ | 65 | | $ | 147 | | $ | 2,851 | | $ | 3,219 | | Integration and separation costs 2 | $ | 452 | | $ | 348 | | $ | 164 | | $ | 99 | | $ | 1,063 | | Income (loss) from continuing operations, net of tax | $ | 156 | | $ | 90 | | $ | 347 | | $ | (2,310) | | $ | (1,717) | | Income from discontinued operations net of tax | $ | 445 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 445 | | Net income (loss) 3 | $ | 601 | | $ | 90 | | $ | 347 | | $ | (2,310) | | $ | (1,272) | | Net income (loss) attributable to Dow Inc. | $ | 556 | | $ | 75 | | $ | 333 | | $ | (2,323) | | $ | (1,359) | | Earnings (loss) per common share from continuing operations - basic 4 | $ | 0.16 | | $ | 0.10 | | $ | 0.45 | | $ | (3.14) | | $ | (2.42) | | Earnings (loss) per common share from continuing operations - diluted 4 | $ | 0.16 | | $ | 0.10 | | $ | 0.45 | | $ | (3.14) | | $ | (2.42) | | Dividends declared per share of common stock 5 | N/A | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 2.10 | | Market price range of common stock: | | | | | | High 5 | N/A | $ | 59.71 | | $ | 52.79 | | $ | 55.99 | | $ | 59.71 | | Low 5 | N/A | $ | 46.76 | | $ | 40.71 | | $ | 43.85 | | $ | 40.71 | | TDCC | | | | | | Net sales | $ | 10,969 | | $ | 11,014 | | $ | 10,764 | | $ | 10,204 | | $ | 42,951 | | Cost of sales | $ | 9,142 | | $ | 9,419 | | $ | 9,377 | | $ | 8,719 | | $ | 36,657 | | Gross margin | $ | 1,827 | | $ | 1,595 | | $ | 1,387 | | $ | 1,485 | | $ | 6,294 | | Restructuring, goodwill impairment and asset related charges - net 1 | $ | 156 | | $ | 65 | | $ | 147 | | $ | 2,851 | | $ | 3,219 | | Integration and separation costs 2 | $ | 452 | | $ | 324 | | $ | 164 | | $ | 99 | | $ | 1,039 | | Income (loss) from continuing operations, net of tax | $ | 156 | | $ | 217 | | $ | 324 | | $ | (2,292) | | $ | (1,595) | | Income from discontinued operations net of tax | $ | 445 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 445 | | Net income (loss) 3 | $ | 601 | | $ | 217 | | $ | 324 | | $ | (2,292) | | $ | (1,150) | | Net income (loss) attributable to The Dow Chemical Company | $ | 556 | | $ | 202 | | $ | 310 | | $ | (2,305) | | $ | (1,237) | |
1.See Note 6 for additional information. 2.See Note 3 for additional information. 3.See Notes 3, 8, 15 and 16 and 17 for information on additional items materially impacting "Net income (loss)." The fourth quarter of 2019 included a gain related to the effects of Swiss tax reform and a loss on the early extinguishment of debt. The third quarter of 2019 included a charge related to environmental remediation, a charge related to the settlement of the Dow Silicones commercial creditor matters, a gain related to an adjustment to the Dow Silicones breast implant liability and a gain associated with a legal settlement of the Commercial Creditor matters, a gain related to an adjustment to the Implant Liability and a gain associated with a legal matter with Nova. The second quarter of 2019 included charges associated with agreements entered into with DuPont and Corteva as part of the separation from DowDuPont. |
| | 5. | Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. Due to quarterly changes in the share count and the allocation of income to participating securities, the sum of the four quarters does not equal the earnings per share amount calculated for the year. |
| | 6. | Dow Inc.'s common stock was solely owned by DowDuPont through March 31, 2019, and on April 1, 2019, Dow Inc. became an independent, publicly traded company. |
| | | | | | | | | | | | | | | | | 2018 | | | | | | In millions, except per share amounts (Unaudited) | 1st | 2nd | 3rd | 4th | Year | Net sales | $ | 12,237 |
| $ | 12,789 |
| $ | 12,634 |
| $ | 11,944 |
| $ | 49,604 |
| Cost of sales | $ | 9,980 |
| $ | 10,540 |
| $ | 10,456 |
| $ | 10,098 |
| $ | 41,074 |
| Gross margin | $ | 2,257 |
| $ | 2,249 |
| $ | 2,178 |
| $ | 1,846 |
| $ | 8,530 |
| Restructuring, goodwill impairment and asset related charges - net 1 | $ | 87 |
| $ | 40 |
| $ | 48 |
| $ | 46 |
| $ | 221 |
| Integration and separation costs 2 | $ | 224 |
| $ | 262 |
| $ | 313 |
| $ | 380 |
| $ | 1,179 |
| Income from continuing operations, net of tax | $ | 925 |
| $ | 810 |
| $ | 714 |
| $ | 491 |
| $ | 2,940 |
| Income from discontinued operations, net of tax | $ | 514 |
| $ | 554 |
| $ | 335 |
| $ | 432 |
| $ | 1,835 |
| Net income 3 | $ | 1,439 |
| $ | 1,364 |
| $ | 1,049 |
| $ | 923 |
| $ | 4,775 |
| Net income attributable to Dow Inc. and The Dow Chemical Company | $ | 1,404 |
| $ | 1,333 |
| $ | 1,013 |
| $ | 891 |
| $ | 4,641 |
| Earnings per common share from continuing operations - basic 4 | $ | 1.21 |
| $ | 1.05 |
| $ | 0.91 |
| $ | 0.63 |
| $ | 3.80 |
| Earnings per common share from continuing operations - diluted 4 | $ | 1.21 |
| $ | 1.05 |
| $ | 0.91 |
| $ | 0.63 |
| $ | 3.80 |
|
| | 1. | See Note 7 for additional information. |
| | 2. | See Note 4 for additional information. |
| | 3. | Includes tax adjustments related to The Act, enacted on December 22, 2017. See Note 9 for additional information. |
| | 4. | Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. |
Effective with the separation from DowDuPont,DowDuPont.
4.Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. Due to quarterly changes in the Company's consolidated financial results reflectshare count and the distributionallocation of AgCo and SpecCo as discontinued operations, as well asincome to participating securities, the receipt of ECP as a common control transaction from the closingsum of the Merger on August 31, 2017. The following table providesfour quarters does not equal the reconciliation of the amounts reported in the Company's Quarterly Report on Form 10-Qearnings per share amount calculated for the period endedyear. 5.Dow Inc.'s common stock was solely owned by DowDuPont through March 31, 2019, to the amounts presented for the first quarter ofand on April 1, 2019, on the previous page. See Note 4 for additional information on the separation from DowDuPont.Dow Inc. became an independent, publicly traded company.
| | | | | | | | | | | | | | Reconciliation - First Quarter 2019 | As Filed | Distribution of AgCo and SpecCo | Receipt of ECP | Updated | In millions (Unaudited) | Net sales | $ | 13,582 |
| $ | (2,954 | ) | $ | 341 |
| $ | 10,969 |
| Cost of sales | $ | 10,707 |
| $ | (1,805 | ) | $ | 240 |
| $ | 9,142 |
| Gross margin | $ | 2,875 |
| $ | (1,149 | ) | $ | 101 |
| $ | 1,827 |
| Restructuring, goodwill impairment and asset related charges - net | $ | 232 |
| $ | (78 | ) | $ | 2 |
| $ | 156 |
| Integration and separation costs | $ | 408 |
| $ | — |
| $ | 44 |
| $ | 452 |
| Income from continuing operations, net of tax | $ | 586 |
| $ | (445 | ) | $ | 15 |
| $ | 156 |
| Income from discontinued operations, net of tax | $ | — |
| $ | 445 |
| $ | — |
| $ | 445 |
| Net income | $ | 586 |
| $ | — |
| $ | 15 |
| $ | 601 |
| Net income available for common stockholders | $ | 541 |
| $ | — |
| $ | 15 |
| $ | 556 |
|
| | | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| | | ITEM 9A. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Annual Report on Form 10-K, Dow Inc. and The Dow Chemical Company (the "Companies") carried out an evaluation, under the supervision and with the participation of the Companies' Disclosure Committee and the Companies' management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Companies' disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companies' disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting There were no changes in the Companies' internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companies' internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Companies' internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Companies' consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
The Companies' internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Companies; •provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Companies are being made only in accordance with authorizations of management and Directors of the Companies; and •provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companies' assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, any system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.
Management assessed the effectiveness of the Companies' internal control over financial reporting and concluded that, as of December 31, 2019,2020, such internal control is effective. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013).
The Companies' independent auditors, Deloitte & Touche LLP,, with direct access to the Companies' Board of Directors through the Audit Committee of Dow Inc., have audited the consolidated financial statements prepared by the Companies. Their reports on the consolidated financial statements are included in Part II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP’s reports on the Companies' internal control over financial reporting are referenced therein and included herein.
February 7, 2020
| | | | /s/ JIM FITTERLING | | /s/ HOWARD UNGERLEIDER | Jim Fitterling | | Howard Ungerleider | Chief Executive Officer | | President and Chief Financial Officer | | | | | | | /s/ RONALD C. EDMONDS | | | Ronald C. Edmonds | | | Controller and Vice President of Controllers and Tax | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Dow Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Dow Inc. and subsidiaries (the “Company”) as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019,2020, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 7, 2020,5, 2021, expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding a) a change in the method of accounting for revenue due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts with Customers, in the first quarter of 2018 and b) a change in the method of accounting for leases due to the adoption of ASC Topic 842, Leases, in the first quarter of 2019.schedule. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | /S/ DELOITTE & TOUCHE LLP | Deloitte & Touche LLPMidland, Michigan | Midland, Michigan | February 7, 20205, 2021 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholder and the Board of Directors of The Dow Chemical Company Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of The Dow Chemical Company and subsidiaries (the “Company”) as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019,2020, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 7, 2020,5, 2021, expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding a) a change in the method of accounting for revenue due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts with Customers, in the first quarter of 2018 and b) a change in the method of accounting for leases due to the adoption of ASC Topic 842, Leases, in the first quarter of 2019.schedule. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | /S/ DELOITTE & TOUCHE LLP | Deloitte & Touche LLPMidland, Michigan | Midland, Michigan | February 7, 20205, 2021 |
| | | ITEM 9B. OTHER INFORMATION |
None.
| | | Dow Inc. and Subsidiaries | The Dow Chemical Company and Subsidiaries | PART III |
| | | ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information relating to Directors, certain executive officers and certain corporate governance matters (including identification of Audit Committee members and financial expert(s)) is contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and is incorporated herein by reference. See also the information regarding executive officers of the registrant set forth in Part I, Item 1. Business under the caption "Executive Officers of the Registrant" in reliance on General Instruction G to Form 10-K.
This information is omitted for The Dow Chemical Company pursuant to General Instruction I of Form 10-K.
| | | ITEM 11. EXECUTIVE COMPENSATION |
Information relating to executive compensation and the Company's equity compensation plans is contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and is incorporated herein by reference.
This information is omitted for The Dow Chemical Company pursuant to General Instruction I of Form 10-K.
| | | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to beneficial ownership of Dow Inc. common stock by each Director and all Directors and executive officers of the Company as a group is contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and is incorporated herein by reference.
Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of Dow Inc. common stock is contained in the definitive Proxy Statement for the 20202021 Annual Meeting of the Stockholders of Dow Inc. and is incorporated herein by reference.
Information with respect to compensation plans under which equity securities are authorized for issuance is contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and is incorporated herein by reference.
This information is omitted for The Dow Chemical Company pursuant to General Instruction I of Form 10-K.
| | | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Reportable relationships and related transactions, if any, as well as information relating to director independence are contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and are incorporated herein by reference.
This information is omitted for The Dow Chemical Company pursuant to General Instruction I of Form 10-K.
| | | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
Independent Registered Public Accountants Information with respect to fees and services related to the Company's independent auditors, Deloitte & Touche LLP ("Deloitte"), and the disclosure of the Audit Committee's pre-approval policies and procedures are contained in the definitive Proxy Statement for the 20202021 Annual Meeting of Stockholders of Dow Inc. and are incorporated herein by reference.
The Audit Committee of Dow Inc. carefully considers the qualifications and competence of candidates for the independent registered public accounting firm. In accordance with its pre-approval policies and procedures, the Audit Committee pre-approved all professional services rendered by and associated fees paid to Deloitte, for the Companies, for the years ended December 31, 20192020 and 2018.2019. Professional services were performed by Deloitte, its member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (“Deloitte Entities”). Total fees paid to the Deloitte Entities are shown by category in the following table:
| | | | | | | | | Type of Fees | | | In thousands | 2020 | 2019 | Audit Fees 1 | $ | 21,237 | | $ | 25,142 | | Audit-Related Fees 2 | 2,807 | | 4,438 | | Tax Fees 3 | 2,053 | | 2,780 | | Total | $ | 26,097 | | $ | 32,360 | |
1.The aggregate fees billed for the integrated audit of the Company's annual financial statements and internal control over financial reporting, the reviews of the financial statements in quarterly reports on Form 10-Q, comfort letters, consents, statutory audits, and other regulatory filings. For 2020 and 2019, the fees include $135,000 and $850,000 respectively, which were associated with supporting the DuPont de Nemours, Inc. filings with the U.S. Securities and Exchange Commission ("SEC") for the period prior to the separation from DowDuPont Inc. 2.The aggregate fees billed primarily for audits of carve-out financial statements, assessment of controls relating to outsourced services, audits and reviews supporting divestiture activities, and agreed-upon procedures engagements. 3.The aggregate fees billed primarily for corporate tax consulting services, the preparation of expatriate employees' tax returns and tax compliance services.
| | | | | | | | Type of Fees | | | In thousands | 2019 | 2018 | Audit Fees 1 | $ | 25,142 |
| $ | 26,199 |
| Audit-Related Fees 2 | 4,438 |
| 6,976 |
| Tax Fees 3 | 2,780 |
| 600 |
| Total | $ | 32,360 |
| $ | 33,775 |
|
| | | 1. | The aggregate fees billed for the integrated audit of the Company's annual financial statements and internal control over financial reporting, the reviews of the financial statements in quarterly reports on Form 10-Q, comfort letters, consents, statutory audits, and other regulatory filings. For 2019, the fees include $850,000 associated with supporting the DuPont de Nemours, Inc. SEC filings for the period prior to the separation from DowDuPont Inc. |
| | 2. | The aggregate fees billed primarily for audits of carve-out financial statements, assessment of controls relating to outsourced services, audits and reviews supporting divestiture activities, and agreed-upon procedures engagements. |
| | 3. | The aggregate fees billed primarily for corporate tax consulting services, the preparation of expatriate employees' tax returns and tax compliance services. |
| | Dow Inc. and Subsidiaries | The Dow Chemical Company and Subsidiaries | PART IV |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | | (a) | The following documents are filed as part of this report:ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this report:
(1) The Company’s 2020 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8. Financial Statements and Supplementary Data.
(2) Financial Statement Schedules – The following Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm included in Part II, Item 8. Financial Statements and Supplementary Data: | | | | | | (1) | The Company’s 2019 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8. Financial Statements and Supplementary Data. |
| | (2) | Financial Statement Schedules – The following Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm included in Part II, Item 8. Financial Statements and Supplementary Data: |
| | | Schedule II | Valuation and Qualifying Accounts |
Schedules other than the one listed above are omitted due to the absence of conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.
(3) The following exhibits are filed with or incorporated by reference into this Annual Report on Form 10-K:
| | | | | | (3) | The following exhibits are filed with or incorporated by reference into this Annual Report on Form 10-K: |
| | | Exhibit No. | Description of Exhibit |
| | 2.1 |
2.2.1 First Amendment, effective June 1, 2012, to the Shareholders' Agreement, dated as of October 8, 2011, between Performance Chemicals Holding Company, Dow Saudi Arabia Holding B.V., Saudi Arabian Oil Company, Dow Europe Holding B.V. and The Dow Chemical Company (incorporated by reference to Exhibit 99.1 to The Dow Chemical Company's Current Report on Form 8-K filed with the SEC on February 14, 2013).
|
| | 2.2.1 | First Amendment, effective June 1, 2012, to the Shareholders' Agreement, dated as of October 8, 2011, between Performance Chemicals Holding Company, Dow Saudi Arabia Holding B.V., Saudi Arabian Oil Company, Dow Europe Holding B.V. and The Dow Chemical Company (incorporated by reference to Exhibit 99.1 to The Dow Chemical Company's Current Report on Form 8-K filed with the SEC on February 14, 2013). |
| | 4.4 | Dow Inc. agrees to provide the SEC, on request, copies of all other such indentures and instruments that define the rights of holders of long-term debt of Dow Inc. and its consolidated subsidiaries, including The Dow Chemical Company, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. |
4.4 Dow Inc. agrees to provide the SEC, on request, copies of all other such indentures and instruments that define the rights of holders of long-term debt of Dow Inc. and its consolidated subsidiaries, including The Dow Chemical Company, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
| | 32.1* |
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*Filed herewith
A copy of any exhibit can be obtained via the Internet through the Investor Relations section of the Company's website (www.dow.com/investors), or the Company will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Controller and Vice President of Controllers and Tax of the Company at the address of the Company’s principal executive offices. The referenced website and its content are not deemed incorporated by reference into this report.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
| | | | | Dow Inc. and Subsidiaries | | | The Dow Chemical Company and Subsidiaries | | | Valuation and Qualifying Accounts | Schedule IIITEM 16. FORM 10-K SUMMARY |
Not applicable.
| | | | | | | | | | | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | Accounts Receivable - Allowance for Doubtful Receivables | | | | Balance at beginning of year | $ | 42 |
| $ | 59 |
| $ | 51 |
| Additions charged to expenses 1 | 24 |
| 10 |
| 23 |
| Additions charged to other accounts 2 | — |
| 4 |
| 2 |
| Deductions from reserves 3 | (21 | ) | (31 | ) | (17 | ) | Balance at end of year | $ | 45 |
| $ | 42 |
| $ | 59 |
| Inventory - Obsolescence Reserve | | | | Balance at beginning of year | $ | 23 |
| $ | 18 |
| $ | 34 |
| Additions charged to expenses | 19 |
| 7 |
| 5 |
| Deductions from reserves 4 | (7 | ) | (2 | ) | (21 | ) | Balance at end of year | $ | 35 |
| $ | 23 |
| $ | 18 |
| Reserves for Other Investments and Noncurrent Receivables | | | | Balance at beginning of year | $ | 460 |
| $ | 430 |
| $ | 350 |
| Additions charged to expenses 1 | 1,758 |
| 44 |
| 83 |
| Deductions from reserves | (3 | ) | (14 | ) | (3 | ) | Balance at end of year | $ | 2,215 |
| $ | 460 |
| $ | 430 |
| Deferred Tax Assets - Valuation Allowance | | | | Balance at beginning of year | $ | 1,225 |
| $ | 1,255 |
| $ | 936 |
| Additions charged to expenses | 140 |
| 152 |
| 369 |
| Deductions from reserves | (103 | ) | (182 | ) | (50 | ) | Balance at end of year | $ | 1,262 |
| $ | 1,225 |
| $ | 1,255 |
|
| | 1. | In 2019, additions charged to expenses for "Accounts Receivable - Allowance for Doubtful Receivables" included $2 million and additions charged to expenses for "Reserves for Other Investments and Noncurrent Receivables" included $1,753 million related to the Company's investment in Sadara Chemical Company. See Note 13 to the Consolidated Financial Statements for additional information. |
| | 2. | Additions to allowance for doubtful accounts charged to other accounts were classified as "Accounts and notes receivable - Other" in the consolidated balance sheets. These reserves relate to the Company's sale of trade accounts receivable. Anticipated credit losses in the portfolio of receivables sold were used to fair value the Company's interests held in trade accounts receivable conduits. See Notes 15 and 24 to the Consolidated Financial Statements for additional information. |
| | 3. | Deductions included write-offs, recoveries, currency translation adjustments and other miscellaneous items. |
| | 4. | Deductions included disposals and currency translation adjustments. |
| | | | | | | | | | | Dow Inc. and Subsidiaries | | | The Dow Chemical Company and Subsidiaries | | | | Valuation and Qualifying Accounts | Signatures | | Schedule II |
| | | | | | | | | | | | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 | Accounts Receivable - Allowance for Doubtful Receivables | | | | Balance at beginning of year | $ | 45 | | $ | 42 | | $ | 59 | | Additions charged to expenses 1 | 22 | | 24 | | 10 | | Additions charged to other accounts 2 | 0 | | 0 | | 4 | | Deductions from reserves 3 | (16) | | (21) | | (31) | | Balance at end of year | $ | 51 | | $ | 45 | | $ | 42 | | Inventory - Obsolescence Reserve | | | | Balance at beginning of year | $ | 35 | | $ | 23 | | $ | 18 | | Additions charged to expenses | 2 | | 19 | | 7 | | Deductions from reserves 4 | (14) | | (7) | | (2) | | Balance at end of year | $ | 23 | | $ | 35 | | $ | 23 | | Reserves for Other Investments and Noncurrent Receivables | | | | Balance at beginning of year | $ | 2,215 | | $ | 460 | | $ | 430 | | Additions charged to expenses 1 | 7 | | 1,758 | | 44 | | Deductions from reserves 5 | (129) | | (3) | | (14) | | Balance at end of year | $ | 2,093 | | $ | 2,215 | | $ | 460 | | Deferred Tax Assets - Valuation Allowance | | | | Balance at beginning of year | $ | 1,262 | | $ | 1,225 | | $ | 1,255 | | Additions charged to expenses | 313 | | 140 | | 152 | | Deductions from reserves | (273) | | (103) | | (182) | | Balance at end of year | $ | 1,302 | | $ | 1,262 | | $ | 1,225 | |
1.In 2019, additions charged to expenses for "Accounts Receivable - Allowance for Doubtful Receivables" included $2 million and additions charged to expenses for "Reserves for Other Investments and Noncurrent Receivables" included $1,753 million related to the Company's investment in Sadara Chemical Company ("Sadara"). See Note 12 to the Consolidated Financial Statements for additional information. 2.Additions to allowance for doubtful receivables charged to other accounts were classified as "Accounts and notes receivable - Other" in the consolidated balance sheets. These reserves relate to the Company's sale of trade accounts receivable. Anticipated credit losses in the portfolio of receivables sold were used to fair value the Company's interests held in trade accounts receivable conduits. See Notes 14 and 23 to the Consolidated Financial Statements for additional information. 3.Deductions included write-offs, recoveries, currency translation adjustments and other miscellaneous items. 4.Deductions included disposals and currency translation adjustments. 5.In 2020, deductions from reserves for "Reserves for Other Investments and Noncurrent Receivables" included $77 million related to the Company's investment in Sadara. See Note 12 to the Consolidated Financial Statements for additional information.
| | | | | | | | | | | | | | | | | Dow Inc. and Subsidiaries The Dow Chemical Company and Subsidiaries | | | | | Signatures | | |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportAnnual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.authorized, on February 5, 2021.
| | | DOW INC. | THE DOW CHEMICAL COMPANY | | DOW INC. | THE DOW CHEMICAL COMPANY | | /s/ RONALD C. EDMONDS | Ronald C. Edmonds, Controller and Vice President of Controllers and Tax | February 7, 2020 (Authorized Signatory and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this reportAnnual Report on Form 10-K has been signed below on February 5, 2021 by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | | | | | | | | | | | /s/ SAMUEL R. ALLEN | | /s/ JEFF M. FETTIGRONALD C. EDMONDS | Samuel R. Allen, Director, Dow Inc. | | Jeff M. Fettig, Non-Executive Chairman,Ronald C. Edmonds, Controller and Vice President of Controllers and Tax, Dow Inc. and TDCC (Authorized Signatory and Principal Accounting Officer) | February 7, 2020 | | February 7, 2020 | | | | /s/ AJAY BANGA | | /s/ JIM FITTERLINGJEFF M. FETTIG | Ajay Banga, Director, Dow Inc. | | Jeff M. Fettig, Lead Director, Dow Inc. | | | | /s/ GAURDIE BANISTER JR. | | /s/ JIM FITTERLING | Gaurdie Banister Jr., Director, Dow Inc. | | Jim Fitterling, Director, Chairman and Chief Executive Officer, Dow Inc. and TDCC (Principal Executive Officer) | February 7, 2020 | | February 7, 2020 | | | | /s/ JACQUELINE K. BARTON | | /s/ JACQUELINE C. HINMAN | Jacqueline K. Barton, Director, Dow Inc. | | Jacqueline C. Hinman, Director, Dow Inc. | February 7, 2020 | | February 7, 2020 | | | | /s/ JAMES A. BELL | | /s/ RUTH G. SHAWHOWARD UNGERLEIDER | James A. Bell, Director, Dow Inc. | | Ruth G. Shaw, Director, Dow Inc. | February 7, 2020 | | February 7, 2020 | | | | /s/ WESLEY G. BUSH | | /s/ HOWARD UNGERLEIDER | Wesley G. Bush, Director, Dow Inc. | | Howard Ungerleider, President and Chief Financial Officer, Dow Inc. and TDCC; Director, TDCC (Principal Financial Officer) | February 7, 2020 | | February 7, 2020 | /s/ WESLEY G. BUSH | | /s/ JILL S. WYANT | Wesley G. Bush, Director, Dow Inc. | | Jill S. Wyant, Director, Dow Inc. | | | | /s/ RICHARD K. DAVIS | | /s/ DANIEL W. YOHANNES | Richard K. Davis, Director, Dow Inc. | | Daniel W. Yohannes, Director, Dow Inc. | February 7, 2020 | | February 7, 2020 | | | | /s/ RONALD C. EDMONDS | | | Ronald C. Edmonds, Controller and Vice President of Controllers and Tax | | | February 7, 2020 | | |
| | | Dow Inc. and Subsidiaries The Dow Chemical Company and Subsidiaries
| Trademark Listing |
The following trademarks or service marks of The Dow Chemical Company and certain affiliated companies of Dow appear in this report: ACOUSTICRYL, ACRYSOL, AFFINITY, AMPLIFY, AQUASET, AVANSE, CARBOWAX, DOW, DOWANOL, DOWSIL, DOWTHERM, ECOFAST, ELITE, ENGAGE, EVOLV3D, EVOQUE, FORMASHIELD, IMAGIN3D, MAINCOTE, MOBILITYSCIENCE, NEOSEED, NORDEL, OPULUX, PRIMAL, RENUVA,RHOBARR, RHOPLEX, SENTRY, SILASTIC, SUNSPHERES, SYL-OFF, TAMOL, TERGITOL, TRITON, UCAR, UCARTHERM, UCON, VERSENE, VORARAD, WALOCEL
The following registered trademark of Disability:IN appears in this report: Disability Equality Index®
The following registered trademark of Incapital Holdings appears in this report: InterNotes®
The following registered service mark of American Chemistry Council in the United States appears in this report: Responsible Care®
The following trademarksregistered trademark of E.I. du Pont de Nemours and Company or an affiliated company of DuPont appearGreat Place to Work® Institute, Inc. appears in this report: GREAT STUFFGreat Place to Work® ™, SMART DISPENSER™
The following registered trademark of The National Safety Council appears in this report: Green Cross for Safety®
® ™ Trademark of The Dow Chemical Company ("TDCC") or an affiliated company, except as otherwise specified.
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