Sundry income (expense) - net for Dow Inc. and TDCC was income of $461$727 million and income of $573$714 million, respectively, in 2019,2022, compared with incomeexpense of $96$35 million and $79 million, respectively, in 2018.2021. Sundry income (expense) - net increased primarily due to an increase in foreign currency exchange gains as well asthe successful and final resolution and recognition of a net gain related to litigation matters.long-running patent infringement award.
In addition to the highlights above, the following events occurred subsequent to December 31, 2019:2022:
|
| | | | | | | | | |
| Summary of Sales Results | | | |
| In millions | 2019 | 2018 | 2017 |
| Net sales | $ | 42,951 |
| $ | 49,604 |
| $ | 43,730 |
|
| Pro forma net sales | $ | 42,998 |
| $ | 49,852 |
| $ | 44,772 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region - As Reported |
| | 2019 | 2018 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total |
| Packaging & Specialty Plastics | (12 | )% | (1 | )% | (3 | )% | — | % | (16 | )% | 1 | % | 2 | % | 5 | % | 5 | % | 13 | % |
| Industrial Intermediates & Infrastructure | (12 | ) | (1 | ) | — |
| — |
| (13 | ) | 5 |
| 1 |
| 13 |
| — |
| 19 |
|
| Performance Materials & Coatings | (6 | ) | (2 | ) | (3 | ) | 3 |
| (8 | ) | 10 |
| 1 |
| (2 | ) | — |
| 9 |
|
| Total | (11 | )% | (1 | )% | (2 | )% | 1 | % | (13 | )% | 4 | % | 1 | % | 6 | % | 2 | % | 13 | % |
| U.S. & Canada | (11 | )% | — | % | (3 | )% | 1 | % | (13 | )% | 4 | % | — | % | 2 | % | 2 | % | 8 | % |
| EMEAI | (9 | ) | (3 | ) | (4 | ) | — |
| (16 | ) | 5 |
| 3 |
| 4 |
| 2 |
| 14 |
|
| Asia Pacific | (12 | ) | (1 | ) | 5 |
| — |
| (8 | ) | 2 |
| 1 |
| 19 |
| 3 |
| 25 |
|
| Latin America | (14 | ) | — |
| (3 | ) | — |
| (17 | ) | 5 |
| — |
| 4 |
| 2 |
| 11 |
|
| Total | (11 | )% | (1 | )% | (2 | )% | 1 | % | (13 | )% | 4 | % | 1 | % | 6 | % | 2 | % | 13 | % |
| |
1. | Portfolio & Other includes the sales 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. |
|
| | | | | | | | | | |
Sales Variances by Operating Segment and Geographic Region - As Reported
Percentage change from prior year | 2017 |
| Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total |
| Packaging & Specialty Plastics | 8 | % | — | % | 6 | % | 3 | % | 17 | % |
| Industrial Intermediates & Infrastructure | 10 |
| 1 |
| 6 |
| — |
| 17 |
|
| Performance Materials & Coatings | 8 |
| 1 |
| 2 |
| 26 |
| 37 |
|
| Total | 9 | % | — | % | 6 | % | 6 | % | 21 | % |
| U.S. & Canada | 8 | % | — | % | 5 | % | 6 | % | 19 | % |
| EMEAI | 12 |
| 1 |
| 6 |
| 5 |
| 24 |
|
| Asia Pacific | 6 |
| — |
| 8 |
| 13 |
| 27 |
|
| Latin America | 4 |
| — |
| — |
| 3 |
| 7 |
|
| Total | 9 | % | — | % | 6 | % | 6 | % | 21 | % |
| |
1. | Portfolio & Other primarily reflects sales related to the receipt of ECP as a common control transaction from the closing of the Merger on August 31, 2017, and the divestiture of the global Ethylene Acrylic Acid copolymers and ionomers business ("EAA Business"), divested on September 1, 2017 (both impacting Packaging & Specialty Plastics). In addition, Portfolio & Other includes the ownership restructure of Dow Silicones announced on June 1, 2016 (impacting Performance Materials & Coatings). |
20192022 Versus 20182021
The Company reported net sales of $43$56.9 billion in 2019, down 132022, up 4 percent from $49.6$55.0 billion in 2018,2021, with local price up 11 percent, an unfavorable currency impact of 4 percent and volume down 3 percent. Net sales increased in all operating segments except Industrial Intermediates & Infrastructure and across all geographic regions except EMEAI. Local price increased in all operating segments and across all geographic regions, primarily driven by a decreasetight supply and demand dynamics and increasing raw material prices, partially offset by slower macroeconomic growth in local price, decreased volume and the unfavorable impactsecond half of currency. Sales declines were broad-based and occurred in all segments and geographic regions.the year. Local price increased in Packaging & Specialty Plastics (up 7 percent), Industrial Intermediates & Infrastructure (up 11 percent) and Performance Materials & Coatings (up 21 percent). Volume decreased 113 percent, primarilydriven by EMEAI (down 10 percent), which was partially offset by the U.S. & Canada and Latin America (both up 1 percent), while volume was flat in response to lower feedstock and raw material costs and pricing pressures. Local price decreasedAsia Pacific. Volume was flat in Packaging & Specialty Plastics and decreased in Industrial Intermediates & Infrastructure (both down 12(down 7 percent) and in Performance Materials & Coatings (down 6 percent). Local price decreased in all geographic regions. Volume decreased 2 percent with declines in all geographic regions except Asia Pacific (up 5 percent). Volume declines were primarily driven by lower hydrocarbon co-product sales. Volume decreased in Packaging & Specialty Plastics and Performance Materials & Coatings (both down 3 percent), while Industrial Intermediates & Infrastructure volume was flat. Currency unfavorably impacted net sales by 14 percent compared with the prior year, driven primarily by EMEAI (down 3 percent). Portfolio & Other improved sales by 1 percent.
2018 Versus 2017
The Company reported net sales of $49.6 billion in 2018, up 13 percent from $43.7 billion in 2017, driven by higher sales volume, reflecting additional capacity from U.S. Gulf Coast growth projects and increased supply from Sadara, increased local price, the receipt of ECP and the favorable impact of currency. Sales growth was broad-based, with increases in all segments and geographic regions. Volume increased 6 percent compared with the prior year, as increases in Packaging & Specialty Plastics (up 59 percent) and Industrial Intermediates & Infrastructure (up 13 percent) more than offset a decline in Performance Materials & Coatings (down 2 percent). Volume increased in all geographic regions, including a double-digit increase in Asia Pacific (up 19 percent).
Local price was up 4 percent compared with the prior year, with increases in all geographic regions, driven by pricing initiatives and higher feedstock and raw material prices. Local price increased in all segments, with the most notable increases in Industrial Intermediates & Infrastructure (up 5 percent) and Performance Materials & Coatings (up 10 percent). Portfolio & Other contributed 2 percent of the sales increase, primarily reflecting the receipt of ECP. Currency was up 1 percent compared with the prior year, driven by a favorable impact in EMEAI and Asia Pacific.
|
| | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region - Pro Forma Basis |
| | 2019 | 2018 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total | Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total |
| Packaging & Specialty Plastics | (12 | )% | (1 | )% | (3 | )% | — | % | (16 | )% | 1 | % | 1 | % | 5 | % | — | % | 7 | % |
| Industrial Intermediates & Infrastructure | (12 | ) | (2 | ) | 1 |
| — |
| (13 | ) | 5 |
| 1 |
| 13 |
| — |
| 19 |
|
| Performance Materials & Coatings | (6 | ) | (2 | ) | (1 | ) | — |
| (9 | ) | 10 |
| 1 |
| (2 | ) | 2 |
| 11 |
|
| Total | (11 | )% | (1 | )% | (2 | )% | — | % | (14 | )% | 4 | % | 1 | % | 6 | % | — | % | 11 | % |
| Total, excluding the Hydrocarbons & Energy business | (10 | )% | (2 | )% | 1 | % | — | % | (11 | )% | 4 | % | 1 | % | 7 | % | — | % | 12 | % |
| U.S. & Canada | (11 | )% | — | % | (2 | )% | — | % | (13 | )% | 3 | % | — | % | 2 | % | 1 | % | 6 | % |
| EMEAI | (9 | ) | (3 | ) | (4 | ) | — |
| (16 | ) | 5 |
| 3 |
| 4 |
| — |
| 12 |
|
| Asia Pacific | (12 | ) | (1 | ) | 5 |
| — |
| (8 | ) | 3 |
| 1 |
| 18 |
| — |
| 22 |
|
| Latin America | (15 | ) | — |
| (3 | ) | — |
| (18 | ) | 5 |
| — |
| 4 |
| — |
| 9 |
|
| Total | (11 | )% | (1 | )% | (2 | )% | — | % | (14 | )% | 4 | % | 1 | % | 6 | % | — | % | 11 | % |
| |
1. | Portfolio & Other includes the sales 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. |
2019 Versus 2018 - Pro Forma
The Company reported pro forma net sales for 2019 of $43 billion, down 14 percent from $49.9 billion for 2018, primarily driven by a decrease in local price, decreased volume and the unfavorable impact of currency. Sales declines were broad-based and occurred in all segments and geographic regions. Local price decreased 11 percent, primarily in response to lower feedstock and raw material costs and pricing pressures. Local price decreased in Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure (both down 12 percent) and in Performance Materials & Coatings (down 6 percent). Local price decreased in all geographic regions. Volume decreased 2 percent with declines in all geographic regions except Asia Pacific (up 5 percent). Volume decreased in Packaging & Specialty Plastics (down 3 percent) and Performance Materials & Coatings (down 1 percent), and increased in Industrial Intermediates & Infrastructure (up 1 percent). Currency unfavorably impacted net sales by 1 percent compared with the prior year, driven primarily by EMEAI (down 3 percent). PortfolioExcluding the Hydrocarbons & Other was flat compared with the prior year.
2018 Versus 2017 - Pro Forma
The Company reported pro forma net sales of $49.9 billion in 2018, up 11 percent from pro forma net sales of $44.8 billion in 2017, with increases across all segments and geographic regions. Double-digit net sales increases were reported in Industrial Intermediates & Infrastructure (up 19 percent) and Performance Materials & Coatings (up 11 percent). NetEnergy business, sales increased in Asia Pacific (up 22 percent), EMEAI (up 12 percent), Latin America (up 9 percent) and U.S. & Canada (up 6 percent). Volume increased 6 percent compared with pro forma results in the prior year, reflecting additional capacity from U.S. Gulf Coast growth projects and increased supply from Sadara. Volume increases in Packaging & Specialty Plastics (up 5 percent) and Industrial Intermediates & Infrastructure (up 13 percent) more than offset a decline in Performance Materials & Coatings (down 2 percent). Volume increased in all geographic regions, including a double-digit increase in Asia Pacific (up 18 percent). Local price was up 4 percent compared with pro forma results in the prior year with increases in all geographic regions, driven by pricing initiatives and higher feedstock and raw material prices. Local price increased across all segments, including a double-digit increase in Performance Materials & Coatings (up 10 percent). Currency was up 1 percent compared with the prior year, driven primarily by EMEAI (up 3 percent).percent.
Cost of Sales
Cost of sales ("COS") was $36.7$48.3 billion in 2019, down $4.4 billion from $41.12022, compared with $44.2 billion in 2018.2021. COS decreasedincreased in 20192022 primarily due to lower feedstock andhigher feedstocks, energy, other raw material costs, decreased sales volume, cost synergies, stranded cost removal and a favorable adjustment to the warranty accrual of an exited business, which werelogistics costs, partially offset by $75 million of transaction-related costs resulting from the separation from DowDuPont (related to the Corporate segment) and $399 million of environmental chargesinsurance recoveries related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million).certain weather-related events in the prior year. COS as a percentage of net sales was 85.384.9 percent in 20192022 compared with 82.880.4 percent in 2018.2021.
COS was $41.1 billion in 2018, up $4.7 billion from $36.4 billion in 2017, primarily due to increased sales volume, which reflected additional capacity from U.S. Gulf Coast growth projects and increased supply from Sadara, higher feedstock and other raw material costs and increased planned maintenance turnaround costs which more than offset lower commissioning expenses related to U.S. Gulf Coast growth projects and cost synergies. COS as a percentage of sales was 82.8 percent in 2018 compared with 83.1 percent in 2017.
Personnel Count
The Company permanently employed approximately 36,500 people at December 31, 2019, down from approximately 37,600 people at December 31, 2018 and 39,200 people at December 31, 2017 primarily due to the Company's restructuring programs.
Research and Development Expenses
Research and development ("R&D&D") expenses were $765$851 million in 2019,2022, compared with $800$857 million in 2018 and $803 million in 2017.2021. R&D expenses in 20192022 decreased compared with 20182021 primarily due to cost reductions and lower performance-based compensation costs. R&Dcosts and a decrease in fringe benefit expenses in 2018 were essentially flatwhich reflected stock market declines compared with 2017.2021.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $1,675 million in 2022, compared with $1,645 million in 2021. SG&A expenses for Dow Inc. and TDCC were $1,590 million and $1,585 million, respectively, in 2019, compared with $1,782 million in 2018 and $1,795 million in 2017. In 2019, SG&A expenses decreased2022 increased primarily due to cost reductions, cost synergies, stranded cost removal and lower performance-based compensation costs. SG&A expenses were favorably impacted by a recovery of a portion of legal costs related to the Nova litigation award in the third quarter of 2019. In 2018, SG&A expenses decreased primarily due to additional cost reductions andhigher bad debt reserves which offset lower performance-based compensation costs and a decrease in fringe benefit expenses which more than offset a full year of expense from the ECP business and the absence of the recovery of costs related to the Nova patent infringement award in 2017. See Note 17 to the Consolidated Financial Statements for additional information on the Nova litigation awards.reflected stock market declines compared with 2021.
Amortization of Intangibles
Amortization of intangibles was $419$336 million in 2019, down from $4692022, compared with $388 million in 2018,2021. Amortization of intangibles decreased primarily due to certain intangible assets becoming fully amortized. Amortization of intangibles in 2018 increased from $400 million in 2017, primarily due to the receipt of ECP. See Note 1412 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring Goodwill Impairment and Asset Related Charges - Net
Restructuring, goodwill impairment and asset related charges - net were $3,219 million in 2019, $221 million in 2018 and $2,739 million in 2017.
DowDuPont Cost Synergy Program2022 Asset Related Charges
In September and November 2017, DowDuPont approved post-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.
As a result of the Synergy Program,2022, the Company recorded pretax restructuringasset related charges of $399$118 million in 2017, consistingdue to the Russia and Ukraine conflict and the expectation that certain assets will not be recoverable. These charges included the write-down of severanceinventory, the recording of bad debt reserves and related benefit coststhe impairment of $307 million, asset write-downs and write-offs of $87 million and costs associated with exit and disposal activities of $5 million. The restructuringother assets. Asset related charges by segment in 2022 were as follows: $36$8 million in Packaging & Specialty Plastics, $12$73 million in Industrial Intermediates & Infrastructure, $11$6 million in Performance Materials & Coatings and $340$31 million in Corporate.
For the year ended December 31, 2018, the Company recorded pretax restructuring charges of $184 million, consisting of severance and related benefit costs of $137 million, asset write-downs and write-offs of $33 million and costs associated with exit and disposal activities of $14 million. The restructuring charges by segment were as follows: $13 million in Packaging & Specialty Plastics, $11 million in Industrial Intermediates & Infrastructure, $7 million in Performance Materials & Coatings and $153 million in Corporate.
For the year ended December 31, 2019, the Company recorded pretax restructuring charges of $292 million, consisting of severance and related benefit costs of $123 million, asset write-downs and write-offs of $143 million and costs associated with exit and disposal activities of $26 million. The restructuring charges by segment were as follows: $1 million in Packaging & Specialty Plastics, $7 million in Industrial Intermediates & Infrastructure, $28 million in Performance Materials & Coatings and $256 million in Corporate. The Company expects the Synergy Program to be substantially complete by the end of the second quarter of 2020.
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 related to Performance Materials & Coatings.
Upon completion of the goodwill impairment testing in the fourth quarter of 2017, 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 $1,491 million in the fourth quarter of 2017, related to Performance Materials & Coatings.
Asset Related Charges
2019 Charges
In 2019, the Company recognized additional pretax impairment charges of $58 million related primarily to capital additions made to a biopolymers manufacturing facility in Santa Vitoria, Minas Gerais, Brazil ("Santa Vitoria"), which was impaired in 2017. The impairment charges by segment were as follows: $44 million in Packaging & Specialty Plastics, $9 million in Performance Materials & Coatings and $5 million in Corporate.
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 divestiture, the Company recognized a pretax impairment charge of $75 million in the third quarter of 2019. The impairment charge by segment was as follows: $24 million in Packaging & Specialty Plastics and $51 million in Corporate.
In the fourth quarter of 2019, the Company concluded that its equity method investment in Sadara was other-than-temporarily impaired. The Company also 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 pretax charge related to Sadara. The charge by segment was as follows: $370 million in Packaging & Specialty Plastics, $1,168 million in Industrial Intermediates & Infrastructure and $217 million in Corporate.
2018 Charges
In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions at its Santa Vitoria manufacturing facility. The impairment charge was related to Packaging & Specialty Plastics.
2017 Charges
In 2017, the Company recognized a $622 million pretax impairment charge related to its Santa Vitoria manufacturing facility. 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 related to Packaging & Specialty Plastics.
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 by segment were as follows: $58 million in Packaging & Specialty Plastics, $5 million in Industrial Intermediates & Infrastructure, $83 million in Performance Materials & Coatings and $100 million in Corporate.
Refer to See Note 75 to the Consolidated Financial Statements for additional information on restructuring goodwill impairment and asset related charges.
Integration and Separation Costs
Integration and separation costs, which reflect costs related to the Merger and the ownership restructure of Dow Silicones (through May 31, 2018), as well as post-Merger integration and business separation activities, were $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019, $1,179 million in 2018 and $798 million in 2017, and were related to Corporate. In 2018 and 2019, integration and separation costs were higher as a result of post-merger integration and business separation activities.
Equity in Earnings (Losses) of Nonconsolidated Affiliates
The Company’s share of theequity in earnings (losses) of nonconsolidated affiliates was $268 million in 2019 was a loss of $94 million,2022, compared with earnings of $555$975 million in 2018 and $394 million in 2017. In 2019, equity earnings decreased primarily due to2021, with lower equity earnings fromat all principal joint ventures, primarily driven by margin compression at Sadara and the Kuwait joint ventures (due to lower monethylene glycol and polyethylene prices) and the Thai joint ventures and increased equity losses from Sadara. See Note 13 to the Consolidated Financial Statements for additional information on the Company’s evaluation of its equity method investment in Sadara for other-than-temporary impairment.
In 2018, equity earnings increased from 2017 as higher earnings from the Kuwait joint ventures and lower equity losses from Sadara were partially offset by lower equity earnings from the Thai joint ventures.
Sundry Income (Expense) - Net
Sundry income (expense) – net includes a variety of income and expense items such as foreign currency exchange gains and losses, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other postretirement benefit plan credits or costs, losses on early extinguishment of debt and certain litigation matters.
TDCC
Sundry income (expense) - net for 20192022 was income of $573$714 million, compared with incomeexpense of $96$79 million in 2018 and expense2021.
In 2019,2022, sundry income (expense) - net included a $321 million gain related to the successful and final resolution and recognition of a long-running patent infringement award (related to Packaging & Specialty Plastics), a $60 million gain related to an increase in foreign currency exchange gains,adjustment to the Dow Silicones breast implant liability (related to Corporate), non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments, as well as a net gain of $205 million related to litigation matters, which included a $170 million gain related to a legal settlement with Nova (related to Packaging & Specialty Plastics), and an $85 million gain related to an adjustment of the Dow Silicones breast implant liability (related to Corporate), whichinvestments. These were partially offset by a $50 million charge (net of indemnifications of $37 million), related to the settlement of the Dow Silicones commercial creditor matters (related to Corporate). In 2019, sundry income (expense) - net also included a $102foreign currency exchange losses and an $8 million loss on the early extinguishment of debt and a gain of $2 million on post-closing adjustments related to previous divestitures (both related(related to Corporate). See Notes 8, 16, 17, 216, 14, 15, 19 and 2725 to the Consolidated Financial Statements for additional information.
In 2018,2021, sundry income (expense) - net included non-operating pension and other postretirement benefit plan credits, a $20$574 million gain related to the Company's sale of its equity interest in MEGlobal (related to Corporate) and gains on sales of assets and investments, which more than offset foreign currency exchange losses, a loss of $54 million on the early extinguishment of debt (related to Corporate)Corporate and included in "Other net loss" in the consolidated statements of cash flows), and foreign currency exchange losses. These were partially offset by non-operating pension and postretirement benefit plan credits, gains on the sale of assets and investments, a $54 million gain related to an arbitration award (related to Industrial Intermediates & Infrastructure), and a loss of $20$16 million forgain related to post-closing adjustments related toon the Dow Silicones ownership restructureprevious divestiture of a bio-ethanol manufacturing facility in Brazil (related to Performance MaterialsPackaging & Coatings)Specialty Plastics). See Notes 8, 166, 14, 15, 19 and 2125 to the Consolidated Financial Statements for additional information.
In 2017, sundry income (expense) - net included a $227 million gain on the divestiture of the EAA Business (related to Packaging & Specialty Plastics), a $137 million gain related to the Nova patent infringement matter (related to Packaging & Specialty Plastics), a $7 million gain on post-closing adjustments related to the split-off of the chlorine value chain (related to Corporate) and gains on sales of assets and investments. These gains were more than offset by $676 million of non-operating pension and other postretirement benefit costs, primarily driven by a $687 million settlement charge for a U.S. non-qualified pension plan (related to Corporate), and foreign currency exchange losses. See Notes 6, 8, 17 and 21 to the Consolidated Financial Statements for additional information.
Dow Inc.
Sundry income (expense) - net for 20192022 was income of $461$727 million, compared with incomeexpense of $96$35 million in 2018 and an expense of $154 million2021.
In 2022, in 2017. In addition to the amounts previously discussed above for TDCC, sundry income (expense) - net in 2019 included a $51$4 million loss on post-closing adjustments related to a previous divestiture and $69 million in chargesnet gain associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which provides(related to Corporate).
In 2021, in addition to the amounts previously discussed above for cross-indemnitiesTDCC, sundry income (expense) - net included $30 million in gains associated with the agreements entered into with DuPont and allocations of obligations and liabilities for periods prior to, at and after completionCorteva as part of the separation (both relatedand distribution (related to Corporate). See Notes 4, 8, 17, 21 and 27 to the Consolidated Financial Statements for additional information.
Interest Expense and Amortization of Debt Discount
Dow Inc.
Interest expense and amortization of debt discount was $933$662 million in 2019, down from $1,0632022, compared with $731 million in 2018, primarily due to debt reductions and lower interest bearing notes issued in the fourth quarter of 2018, which replaced higher interest bearing notes redeemed in the fourth quarter of 2018.2021. Interest expense and amortization of debt discount decreased in 2018 was up from $914 million2022 primarily due to the liability management actions taken in 2017, primarily reflecting the effect of lower capitalized interest as a result of decreased capital spending.2021. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 12 and 16Note 14 to the Consolidated Financial Statements for additional information related to debt financing activity.
TDCC
Interest expense and amortization of debt discount was $952 million in 2019, down from $1,063 million in 2018. Interest expense and amortization of debt discount in 2018 was up from $914 million in 2017. In addition to the amounts previously discussed above for Dow Inc., TDCC had interest expense related to an intercompany loan with Dow Inc. See Note 26 to the Consolidated Financial Statements for additional information.
Provision for Income Taxes on Continuing Operations
The Company's effective tax rate fluctuates based on, among other factors, where income is earned, the level of income relative to tax attributes and the level of equity earnings, since most earnings from the Company's equity method investments are taxed at the joint venture level. The underlying factors affecting the Company's overall tax rate are summarized in Note 97 to the Consolidated Financial Statements.
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) 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, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118, income tax effects of The Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018, the Company had completed its accounting for the tax effects of The Act.
In the fourth quarter of 2019, the Company recorded the impacts of tax law changes enacted in Switzerland. As a result, deferred tax assets increased by $92 million.
The provision for income taxes on continuing operations was $470$1,450 million in 2019,2022, compared with $809$1,740 million in 20182021, resulting in effective tax rates of 23.8 percent and $1,524 million21.4 percent, respectively. The provision for income taxes in 2017. The tax rate for 20192022 was unfavorably impacted by non-deductible goodwill and investment impairments,lower than 2021 primarily due to a decrease in pretax income, changes to geographic mix of earnings and reduced equity earnings. These factors resulteda reduction in a negative effectiveuncertain tax rate of 37.7 percent for Dow Inc. in 2019.
positions recognized. The tax rate for 20182022 in comparison to 2021 was favorably impacted primarily by the reduced U.S. federal corporate income tax rate as a resultlevel of The Act and benefits related to the issuance of stock-based compensation and unfavorably impacted by non-deductible restructuring costs and increases in statutory income in Latin America and Canada due to local currency devaluations. These factors resulted in an effective tax rate of 21.6 percent in 2018.equity earnings.
The tax rate for 2017 was unfavorably impacted by the enactment of The Act, the impairment of goodwill for which there was no corresponding tax deduction, charges related to tax attributes in the United States and Germany as a result of the Merger and certain non-deductible costs associated with the Merger. The tax rate was favorably impacted by the geographic mix of earnings, equity earnings and the adoption of Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which resulted in the recognition of excess tax benefits related to the issuance of stock-based compensation in the provision for income taxes on continuing operations. These factors resulted in an effective tax rate of 643.0 percent for 2017.
Income from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax was $445 million in 2019, $1,835 million in 2018 and $1,882 million in 2017, and was related to the distribution of AgCo and SpecCo to DowDuPont as a result of the separation. See Note 4 to the Consolidated Financial Statements for additional information.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $87$58 million in 2019, $1342022, compared with $94 million in 2018 and $130 million in 2017. Net income attributable to noncontrolling interests decreased in 2019 compared with 2018, primarily due to the Company's acquisition of full ownership in a propylene oxide manufacturing joint venture on October 1, 2019. Net income attributable to noncontrolling interests increased in 2018 compared with 2017, primarily due to the sale of the Company's ownership interests in the SKC Haas Display Films group of companies on June 30, 2017. Net income attributable to noncontrolling interests from discontinued operations of $13 million in 2019, $32 million in 2018 and $28 million in 2017 are included in the amounts above.2021. See Notes 2018 and 2523 to the Consolidated Financial Statements for additional information.
Net Income (Loss) Available for the Common Stockholder(s)
Dow Inc.
Net income (loss) available for Dow Inc. and TDCC common stockholder(s)stockholders was a loss of $1,359$4,582 million and $1,237 million, respectively, in 2019,2022, compared with income of $4,641$6,311 million in 2018 and income of $465 million in 2017.2021. Earnings (loss) per share of Dow Inc. was a loss of $1.84$6.28 per share in 2019,2022, compared with income of $6.21$8.38 per share in 2018 and income of $0.602021. See Note 8 to the Consolidated Financial Statements for details on Dow Inc.'s earnings per share calculations.
TDCC
Net income available for TDCC common stockholder was $4,583 million in 2017. Following the separation from DowDuPont,2022, compared with $6,274 million in 2021. TDCC's common shares are owned solely by Dow Inc.
SEGMENT RESULTS
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 ("stranded costs") which are now allocated to the operating segments. These changes to the Company's segment results have been consistently applied to all periods presented.
Dow reportedreports geographic information for the following regions: U.S. & Canada, EMEAI, Asia Pacific and Latin America, and EMEAI. As a resultAmerica. The Company transfers ethylene to its downstream derivative businesses at market prices. See Part I, Item 1. Business for further discussion of 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).Company's segments.
The Company’s measure of profit/loss for segment reporting purposes is pro forma Operating EBIT as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. 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. Pro forma Operating EBIT by segment includes all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate. The Company also presents pro forma net sales 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. See Note 2725 to the Consolidated Financial Statements for reconciliations of these measuresmeasures.
For comparison of segment results for the fiscal years ended December 31, 2021 and a summary2020, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the pro forma adjustments impacting segment measures, which are consistent with the pro forma adjustments included in the CurrentCompany's Annual Report on Form 8-K10-K for the fiscal year ended December 31, 2021, filed on June 3, 2019, with the SEC.SEC on February 4, 2022.
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; and infrastructure. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases.This segment also 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 Petrochemical Company K.S.C.C. ("EQUATE"), The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.
| | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| In millions | 2022 | 2021 | |
| Net sales | $ | 29,260 | | $ | 28,128 | | |
| Operating EBIT | $ | 4,110 | | $ | 6,638 | | |
| Equity earnings | $ | 359 | | $ | 490 | | |
The Company is responsible for marketing a majority of Sadara products outside of the Middle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee.
| | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| Percentage change from prior year | 2022 | 2021 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | 7 | % | 50 | % | |
| Currency | (3) | | 2 | | |
| Volume | — | | 2 | | |
| | | |
| Total | 4 | % | 54 | % | |
|
| | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| In millions | 2019 | 2018 | 2017 |
| Net sales | $ | 20,245 |
| $ | 24,195 |
| $ | 21,504 |
|
| Pro forma net sales | $ | 20,245 |
| $ | 24,237 |
| $ | 22,546 |
|
| Pro forma Operating EBIT | $ | 2,904 |
| $ | 3,593 |
| $ | 3,712 |
|
| Equity earnings | $ | 162 |
| $ | 287 |
| $ | 190 |
|
|
| | | | | | |
| Packaging & Specialty Plastics | | | |
| Percentage change from prior year | 2019 | 2018 | 2017 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (12 | )% | 1 | % | 8 | % |
| Currency | (1 | ) | 2 |
| — |
|
| Volume | (3 | ) | 5 |
| 6 |
|
| Portfolio & other | — |
| 5 |
| 3 |
|
| Total | (16 | )% | 13 | % | 17 | % |
| Change in Pro Forma Net Sales from Prior Period due to: | | | |
| Local price & product mix | (12 | )% | 1 | % | |
| Currency | (1 | ) | 1 |
| |
| Volume | (3 | ) | 5 |
| |
| Portfolio & other | — |
| — |
| |
| Total | (16 | )% | 7 | % | |
20192022 Versus 20182021
Packaging & Specialty Plastics net sales were $20,245$29,260 million in 2019, down 162022, up 4 percent from net sales of $24,195$28,128 million in 2018. Pro forma net sales were $20,245 million in 2019, a decrease of 162021. Local price was up 7 percent, compared with pro forma net sales of $24,237 million in 2018, with local price down 12 percent, volume down 3 percent, andcurrency had an unfavorable currency impact of 13 percent, primarily in EMEAI.EMEAI and Asia Pacific, and volume was flat. Local price decreasedincreased in both businesses, primarily in EMEAI, and across all geographic regions driven by reduced polyethylene pricesgains in functional polymers and lower prices for Hydrocarbons & Energy co-products. Volume declined for the segment in all geographic regions, except Asia Pacific. Hydrocarbons & Energy volume declinesolefins which more than offset volume gains in Packaging and Specialty Plastics. Volume decreasedlower polyethylene prices. Local price increased in Hydrocarbons & Energy primarily dueas prices for co-products are generally correlated to planned maintenance turnaround activity in Europe,Brent crude oil prices, which on average increased internal consumption of ethylene on the U.S. Gulf Coast and lighter feedslate usage in Europe, leading to lower co-product production. Volume40 percent compared with 2021. Local price increased in Packaging and Specialty Plastics in EMEAI and Asia Pacific, notably in infrastructure material and EMEAI.flexible packaging applications, more than offsetting decreases in the U.S. & Canada and Latin America. Volume increased in Hydrocarbons & Energy across all geographic regions. Volume decreased in Packaging and Specialty Plastics, volume growth was driven by strong end-market growthprimarily in flexible foodEMEAI and specialty packaging, industrialthe U.S. & Canada, as supply constraints and consumer packaging,lower demand more than offset improved demand in Latin America and health and hygiene applications.Asia Pacific.
Pro forma Operating EBIT was $2,904$4,110 million in 2019,2022, down 19 percent$2,528 million from pro forma Operating EBIT of $3,593$6,638 million in 2018. Pro forma2021. Operating EBIT decreased primarily due to lower selling prices, reducedcompression in integrated margins due to higher raw materials and energy costs and decreased equity earnings at the KuwaitEQUATE and Sadara joint ventures due to lower polyethylene margins, lower sales volume in the Hydrocarbonsventures.
INDUSTRIAL INTERMEDIATES & Energy business and the impact of an outage in Argentina, which more than offset lower feedstock and other raw material costs, volume gains in the Packaging and Specialty Plastics business and cost synergies.
2018 Versus 2017INFRASTRUCTURE
Packaging
| | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| In millions | 2022 | 2021 | |
| Net sales | $ | 16,606 | | $ | 16,851 | | |
| Operating EBIT | $ | 1,418 | | $ | 2,282 | | |
| Equity earnings (losses) | $ | (91) | | $ | 471 | | |
| | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| Percentage change from prior year | 2022 | 2021 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | 11 | % | 40 | % | |
| Currency | (5) | | 2 | | |
| Volume | (7) | | (2) | | |
| | | |
| Total | (1) | % | 40 | % | |
2022 Versus 2021
Industrial Intermediates & Specialty PlasticsInfrastructure net sales were $24,195$16,606 million in 2018, up 132022, down 1 percent from $21,504$16,851 million in 2017. Pro forma net sales were $24,237 million in 2018, up from pro forma net sales of $22,546 million in 2017. Pro forma net sales increased 7 percent compared2021, with 2017, with volume up 5 percent, a currency benefit of 1 percent, primarily in EMEAI, and local price up 111 percent, an unfavorable currency impact of 5 percent and volume down 7 percent. VolumeLocal price increased in both businesses and across all geographic regions, except Asia Pacific, primarily due to new capacity additions on the U.S. Gulf Coast and increased supply from Sadara. Packaging and Specialty Plastics' volume growth was driven by increasedstrong supply and demand dynamics in the first half of the year and rising energy prices. Currency unfavorably impacted sales in both businesses, primarily in EMEAI and Asia Pacific. Volume in Polyurethanes & Construction Chemicals decreased in all geographic regions. The volume decrease in Polyurethanes & Construction Chemicals was largely driven by inflationary pressure on demand for consumer durables, industrial and consumer packaging, foodbuilding and specialty packaging, health and hygiene solutions and elastomer applications. Hydrocarbons & Energy volume increased primarily due to higher sales of ethylene and ethylene co-products. Local priceconstruction applications. Volume in Industrial Solutions increased in all geographic regions, except U.S. & Canada. Hydrocarbons & Energy local price increased as a result of higher Brent crude oil prices, which increased approximately 30 percent compared with 2017. Packaging and Specialty Plastics local price was flat when compared with 2017 as local price increases in Latin America were offsetand was driven by declines in EMEAI.strong demand for pharmaceutical, energy and agricultural applications, as well as improved supply availability, as the prior year was impacted by Winter Storm Uri.
Pro forma Operating EBIT was $3,593$1,418 million in 2018,2022, down 3 percent$864 million from pro forma Operating EBIT of $3,712$2,282 million in 2017. Pro forma2021. Operating EBIT decreased as the impact of higher feedstock and other raw materials costs, increased costs from planned maintenance turnarounds and the unfavorable impact of stranded costs more than offset higher sales volume, reflecting additional capacity from growth projects, higher selling prices, the benefit from currency on sales, cost synergies, higherprimarily due to lower equity earnings from the Sadara, EQUATE and lower startup and commissioning costs.
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, 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 also includes a portion of the results of EQUATE, TKOC, Map Tata Phut Olefins Company Limited and Sadara, all joint ventures of the Company.and inflationary pressure on demand.
The Company is responsible for marketing a majority of Sadara products outside of the Middle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee.
|
| | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| In millions | 2019 | 2018 | 2017 |
| Net sales | $ | 13,440 |
| $ | 15,447 |
| $ | 12,951 |
|
| Pro forma net sales | $ | 13,449 |
| $ | 15,465 |
| $ | 12,951 |
|
| Pro forma Operating EBIT | $ | 845 |
| $ | 1,767 |
| $ | 1,470 |
|
| Equity earnings (losses) | $ | (241 | ) | $ | 284 |
| $ | 172 |
|
|
| | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| Percentage change from prior year | 2019 | 2018 | 2017 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (12 | )% | 5 | % | 10 | % |
| Currency | (1 | ) | 1 |
| 1 |
|
| Volume | — |
| 13 |
| 6 |
|
| Portfolio & other | — |
| — |
| — |
|
| Total | (13 | )% | 19 | % | 17 | % |
| Change in Pro Forma Net Sales from Prior Period due to: | | | |
| Local price & product mix | (12 | )% | 5 | % | |
| Currency | (2 | ) | 1 |
| |
| Volume | 1 |
| 13 |
| |
| Portfolio & other | — |
| — |
| |
| Total | (13 | )% | 19 | % | |
2019 | | | | | | | | | |
| Performance Materials & Coatings | | | |
| In millions | 2022 | 2021 | |
| Net sales | $ | 10,764 | | $ | 9,672 | | |
| Operating EBIT | $ | 1,328 | | $ | 866 | | |
| Equity earnings | $ | 10 | | $ | 7 | | |
| | | | | | | | | |
| Performance Materials & Coatings | | | |
| Percentage change from prior year | 2022 | 2021 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | 21 | % | 19 | % | |
| Currency | (4) | | 2 | | |
| Volume | (6) | | 1 | | |
| | | |
| Total | 11 | % | 22 | % | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
2022 Versus 20182021
Industrial IntermediatesPerformance Materials & InfrastructureCoatings net sales were $13,440$10,764 million in 2019, down 132022, up 11 percent from $15,447 million in 2018. Pro forma net sales were $13,449 million in 2019, down from pro forma net sales of $15,465$9,672 million in 2018. Pro forma net sales decreased 13 percent in 2019,2021, with local price down 12up 21 percent, and an unfavorable currency impact of 2 percent, primarily in EMEAI, which were partially offset by a 1 percent increase in volume. Price decreased in both businesses and all geographic regions, driven by lower feedstock and other raw material costs and unfavorable supply/demand fundamentals. Polyurethanes & Construction Chemicals reported volume increases in all geographic regions, primarily reflecting increased supply from Sadara and growth in polyurethanes systems applications, which were partially offset by a decline of caustic soda volume due to planned maintenance turnaround activities. Industrial Solutions volume decreased in EMEAI and U.S & Canada and was flat in Latin America and Asia Pacific, primarily driven by reduced availability of glycol ethers, performance solvents and monoethylene glycol due to planned and unplanned events that more than offset higher demand for industrial specialties.
Pro forma Operating EBIT was $845 million in 2019, down 52 percent from pro forma Operating EBIT of $1,767 million in 2018. Pro forma Operating EBIT decreased as a result of margin compression across both businesses as well as lower equity earnings from the Kuwait joint ventures and increased equity losses from Sadara, which more than offset cost reductions.
2018 Versus 2017
Industrial Intermediates & Infrastructure net sales were $15,447 million in 2018, up 19 percent from $12,951 million in 2017. Pro forma net sales were $15,465 million in 2018, up from pro forma net sales of $12,951 million in 2017. Pro forma net sales increased 19 percent in 2018, with volume up 13 percent, local price up 54 percent, and a currency benefit of 1 percent, primarily in EMEAI. Volumevolume down 6 percent. Local price increased in both businesses and across all geographic regions. Polyurethanes & Construction Chemicals reported volume increases in all geographic regions, except Latin America, primarily reflecting increased supply from Sadara. Industrial Solutions volume increased in all geographic regions reflecting greater production from Sadara and increased demand in industrial specialties. Local price increased in both businesses and all geographic regions, except Asia Pacific. Local price increases were driven by higher feedstock and other raw material costs, pricing initiatives and strong demand for caustic soda, propylene glycols and propylene oxide which more than offset price declines in isocyanates.
Pro forma Operating EBIT was $1,767 million in 2018, up 20 percent from pro forma Operating EBIT of $1,470 million in 2017. Pro forma Operating EBIT increased as the impact of higher selling prices, cost synergies, higher equity earnings from the Kuwait joint ventures and lower equity losses from Sadara more than offset contraction in isocyanates margins, the unfavorable impact of stranded costs and higher feedstock and other raw material costs.
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, home care and personal care 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.
|
| | | | | | | | | |
| Performance Materials & Coatings | | | |
| In millions | 2019 | 2018 | 2017 |
| Net sales | $ | 8,923 |
| $ | 9,677 |
| $ | 8,892 |
|
| Pro forma net sales | $ | 8,961 |
| $ | 9,865 |
| $ | 8,892 |
|
| Pro forma Operating EBIT | $ | 918 |
| $ | 1,246 |
| $ | 817 |
|
| Equity earnings | $ | 5 |
| $ | 4 |
| $ | 40 |
|
|
| | | | | | |
| Performance Materials & Coatings | | | |
| Percentage change from prior year | 2019 | 2018 | 2017 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (6 | )% | 10 | % | 8 | % |
| Currency | (2 | ) | 1 |
| 1 |
|
| Volume | (3 | ) | (2 | ) | 2 |
|
| Portfolio & other | 3 |
| — |
| 26 |
|
| Total | (8 | )% | 9 | % | 37 | % |
| Change in Pro Forma Net Sales from Prior Period due to: | | | |
| Local price & product mix | (6 | )% | 10 | % | |
| Currency | (2 | ) | 1 |
| |
| Volume | (1 | ) | (2 | ) | |
| Portfolio & other | — |
| 2 |
| |
| Total | (9 | )% | 11 | % | |
2019 Versus 2018
Performance Materials & Coatings net sales were $8,923 million in 2019, down 8 percent from net sales of $9,677 million in 2018. Pro forma net sales were $8,961 million in 2019, down 9 percent from pro forma net sales of $9,865 million in 2018 with local price down 6 percent, an unfavorable currency impact of 2 percent and volume down 1 percent. Local price decreased in both businesses and all geographic regions. Local price decreased in Consumer Solutions due to lower siloxanes prices, primarily
in Asia Pacific and EMEAI. Coatings & Performance Monomers local price declined in all geographic regions in response to lower feedstock and other raw material costs. Volume for the segment declined in all geographic regions except Asia Pacific. Consumer Solutions volume was flat, with volume growth in Asia Pacific, offset by volume declines in Latin America and EMEAI. Consumer Solutions volume was flat in U.S. & Canada. Coatings & Performance Monomers volume declined in all geographic regions. The decline in volume was driven by increased captive use of coatings products which drove soft demand in coating applications, primarily architectural binders, and lower demand for acrylates and methacrylates due to supply/demand balances.
Pro forma Operating EBIT was $918 million in 2019, down 26 percent from pro forma Operating EBIT of $1,246 million in 2018. Pro forma Operating EBIT decreased primarily due to margin compression in both businesses, which more than offset lower planned maintenance turnaround spending and cost synergies.
2018 Versus 2017
Performance Materials & Coatings net sales were $9,677 million in 2018, up from $8,892 million in 2017. Pro forma net sales were $9,865 million in 2018, up from pro forma net sales of $8,892 million in 2017. Pro forma net sales increased 11 percent in 2018, with an increase in local price of 10 percent, a benefit of 2 percent from portfolio actions, a benefit from currency of 1 percent, primarily in EMEAI, and a decrease in volume of 2 percent. Local price increased in both businesses and all geographic regions. Consumer Solutions local price increased primarilyin both upstream siloxanes and downstream silicones due to disciplined price/volume managementfavorable supply and demand dynamics and higher raw material costs, partially offset by price declines in upstream silicone intermediates, which more than offset a decreasesiloxanes late in volume.the year on increased industry supply. Local price increased in Coatings & Performance Monomers in responsedue to higher feedstockfavorable supply and otherdemand dynamics and higher raw material costs, and favorable supply/partially offset by price declines late in the year as demand fundamentals.softened. Volume decreased in both businesses and all geographic regions, except Asia Pacific. Volume decreased indue to lower demand. Consumer Solutions primarily as a result of targeted reductions of low-margin business, primarily in the home care market sector. Volumevolume decreased slightly for Coatings & Performance Monomers, with a decline in all geographic regions except Asia Pacific, which was flat. Coatings & Performance Monomers volume decreased in all geographic regions except the U.S. & Canada, which was flat. The unfavorable currency impact was driven by EMEAI and Asia Pacific.
Pro forma Operating EBIT was $1,246$1,328 million in 2018,2022, up 53 percent$462 million from pro forma Operating EBIT of $817$866 million in 2017. Pro forma2021. Operating EBIT improved compared with 2017 as higher selling prices and the favorable impact of cost synergies more than offset the unfavorable impact of stranded costs and higher feedstock and other raw material costs.increased primarily due to price gains in Consumer Solutions.
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.
| | | | | | | | | |
| Corporate | | | |
| In millions | 2022 | 2021 | |
| Net sales | $ | 272 | | $ | 317 | | |
| Operating EBIT | $ | (266) | | $ | (253) | | |
| Equity earnings (losses) | $ | (10) | | $ | 7 | | |
|
| | | | | | | | | |
| Corporate | | | |
| In millions | 2019 | 2018 | 2017 |
| Net sales | $ | 343 |
| $ | 285 |
| $ | 383 |
|
| Pro forma net sales | $ | 343 |
| $ | 285 |
| $ | 383 |
|
| Pro forma Operating EBIT | $ | (315 | ) | $ | (370 | ) | $ | (422 | ) |
| Equity losses | $ | (20 | ) | $ | (20 | ) | $ | (8 | ) |
20192022 Versus 20182021
Net sales and pro forma net sales for Corporate, which primarily relate to the Company's insurance operations, were $343$272 million in 2019, up2022, down from net sales and pro forma net sales of $285$317 million in 2018.2021.
Pro forma Operating EBIT was a loss of $315$266 million in 2019, compared with a pro forma Operating EBIT loss of $370 million in 2018. Compared with 2018, pro forma Operating EBIT improved primarily due to cost reductions and stranded cost removal.
2018 Versus 2017
Net sales and pro forma net sales for Corporate were $285 million in 2018, compared with net sales and pro forma net sales of $383 million in 2017.
Pro forma Operating EBIT was a loss of $370 million in 2018,2022, compared with a loss of $422$253 million in 2017. Compared with 2017, pro forma2021. Operating EBIT improveddecreased primarily due to lower discontinued businessthe Company's insurance operations, increased environmental costs and cost reductions.equity losses.
OUTLOOK
Operating Segments & End-Market Expectations
In 2020,2023, Dow remains focused on managing near-term dynamics while continuing to position the Company expects crude oil, natural gas and feedstock costs to remain volatile and sensitive to external macroeconomic and geopolitical factors.company for long-term value creation. The Company currently expects crude oil pricesrecognizes initial positive signs from moderating inflation growth in the U.S., improving outlook for energy in Europe, and re-opening in China. However, Dow will continue to be,take prudent, proactive actions by implementing a playbook of interventions focused on average, flat to slightly higher than 2019. Crude oil fundamentals suggest ample global supply to meet current demand; however, geopolitical tensions could add a risk premium that potentially supports higher prices.
The Company expects natural gas prices to be, on average, lower than 2019. In U.S. & Canada, robust supplies of natural gas areoptimizing labor and purchased service costs, reducing turnaround spending, and enhancing productivity, which is collectively expected to keep domestic prices globally competitive. U.S. exports of liquefied natural gas ("LNG") are expected to increase furtherdeliver $1 billion in 2020. In Europe, the supply of natural gas is expected tocost savings in 2023. Going forward, Dow will continue to be plentiful, both from pipeline supplymaintain its disciplined and from growing LNG imports.balanced approach to capital allocation and focus on cash flow generation, while executing its strategic priorities for long-term sustainable and profitable growth.
In Packaging & Specialty Plastics, integrated marginsimproved reliability and ongoing logistics improvements are expected to remain stableallow the Company to satisfy areas of resilient demand, notably in U.S. & Canada, supported by delays in new capacity additions, solid underlying demandflexible food and regional feedstock cost advantages. Margins in Europespecialty packaging, as well as higher-value functional polymers. Local prices are expected to remain challenged as a result of weaker regional demand and flat to higher feedstock costs. Margins in Asia Pacific commenced 2020 slightly below break-even levels, while full year margins are expectedcontinue to be comparableimpacted by high energy costs and inflation. The Company’s feedstock flexibility and advantaged regional footprint will put the segment in a position to navigate energy market dynamics throughout the second half of 2019. Profitability could vary materially depending on global GDP growth, industry operating rates, timing of capacity startupsyear. In-region presence and fluctuations in global crude oil, natural gassuperior derivative flexibility will allow the segment to continue to optimize price and feedstock prices. The Hydrocarbons & Energy business expects to bring online approximately 500,000 metric tons of additional ethylene capacity in Texas as part of its suite of incremental growth investments. The new capacity is expected to come online in the second quarter of 2020.volume mix.
In Industrial Intermediates & Infrastructure, monoethylene glycol ("MEG") marginsdemand growth is expected in consumer and energy end-markets. Market fundamentals will remain pressured for propylene oxide, polyols, isocyanates and derivatives systems, driven by lower-than-average growth in GDP, elevated raw material and energy costs and the impact of inflation on demand. Increased industry supply of propylene oxide and polyols is expected to impact margins. Recent and soon-to-be-completed investments in alkoxylation capacity are expected to remain constrainedservice areas of resilient consumer demand in 2020 due to new industry capacity additions. End-market conditions for polyurethane intermediates are expected to remain highly competitive, with demand softness expected in key applications related to infrastructure, household appliances, automotivehome care and furniture and bedding. Methyl diphenyl diisocyanate ("MDI") prices are expected to remain at low levels due to additional industry capacity and weak end-market fundamentals.pharmaceuticals.
In Performance Materials & Coatings, pricesdemand for commodity siloxane productsperformance silicones is expected to be in excess of GDP as the result of prioritization of key end-markets, most notably in mobility and electronics. Local prices are expected to be similar to those observedimpacted by inflation, energy costs in the second halfEurope and increased industry supply of 2019. Downstream silicones volume issiloxanes. Coatings and acrylic monomers are expected to grow in excess of GDP, particularlyhave improved supply availability from the prior year, especially for applications related to home and personal care, high performance building and construction and pressure-sensitive adhesives. The Company will continue to pursue incremental downstream silicones capacity debottleneck projects to meet demand in consumer driven end-markets. Global architectural coatings demand is expected to remain soft in the do-it-yourself and retail market segments. Industrial coatings are also projected to soften in 2020; however, the Company’s focusapplications, while prices will be on capturing opportunities from customers’ shift to waterborne chemistries where Dow has unique technologiesimpacted by inflation and solutions.energy costs.
Other factors impacting operating segment profitability include:
Plannedinclude an expected decrease in planned maintenance turnaround spending is expected to be approximately flat compared with 2019.
Equity losses in nonconsolidated affiliates are expected to be slightly unfavorable compared with 2019. With respect to Sadara, which impacts the Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure operating segments, the Company expects to continue to record equity losses due to anticipated funding commitments with the joint venture.
Other Income Statement Expectations
Additional items that may impact the consolidated statements of income in 2020 include:
The service cost component of pension expense is expected to be flat compared with 2019. The non-operating pension benefit is expected to be a headwind of approximately $125$300 million compared with 2019.2022.
Interest expense and amortization of debt discount is expected to be approximately $850 million in 2020, reflecting lower gross debt compared with 2019.
Projected Uses of Cash
Items that may impact the consolidated statements of cash flows in 20202023 include:
Integration and separation spending is expected to be approximately $200 million to $250 million. Year over year reductions in integration and separation spending as well as cash payments related to the DowDuPont Cost Synergy Program will result in reduced cash spending of approximately $1 billion compared with 2019.
•Cash contributions to global pension plans are expected to be limited to mandatory minimum contributions. The total cash outflow is projected to be approximately $250$150 million.
•Capital expenditures are expected to be $1.5 billionapproximately $2.2 billion.
•Cash dividends from equity companies are expected to $1.75 billion. The Company will adjust its spending within this range throughbe approximately $350 million.
•Cash outflows related to the year as economic conditions develop.Company's 2023 Restructuring Program, including restructuring implementation costs, are expected to be approximately $400 million.
The Company expects to loan approximately $500 million to Sadara and all or a portion of the loan could potentially be converted into equity.
| |
• | The Company expects to preferentially deploy its free cash flow
1 in a balanced way between shareholder returns and debt reduction.
|
1. Dow defines free cash flow as cash flows from operating activities - continuing operations, excluding the impact of ASU 2016-15, less capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,367$3,886 million at December 31, 20192022 and $2,724$2,988 million at December 31, 2018,2021, of which $986$1,789 million at December 31, 20192022 and $2,013$1,745 million at December 31, 2018,2021, was held by subsidiaries in foreign countries, including United StatesU.S. territories. The decrease in cash and cash equivalents held by subsidiaries in foreign countries is due to repatriation activities. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States.
The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. Dow has the ability to repatriate additional funds to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S. state income taxes and the impact of foreign currency movements. At December 31, 2019,2022, management believed that sufficient liquidity was available in the United States. The Company has and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company.
For comparison of cash flows for the fiscal years ended December 31, 2021 and 2020, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 4, 2022.
The Company’s cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table:
| | | | | | | | | | | | | | | | |
| Cash Flow Summary | Dow Inc. | TDCC | |
| In millions | 2022 | 2021 | | 2022 | 2021 | |
| Cash provided by (used for): | | | | | | |
| Operating activities - continuing operations | $ | 7,486 | | $ | 7,069 | | | $ | 7,519 | | $ | 7,200 | | |
| Operating activities - discontinued operations | (11) | | (60) | | | — | | — | | |
| Operating activities | 7,475 | | 7,009 | | | 7,519 | | 7,200 | | |
| Investing activities | (2,970) | | (2,914) | | | (2,970) | | (2,914) | | |
| Financing activities | (3,361) | | (6,071) | | | (3,405) | | (6,262) | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (237) | | (99) | | | (237) | | (99) | | |
| Summary | | | | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 907 | | (2,075) | | | 907 | | (2,075) | | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,033 | | 5,108 | | | 3,033 | | 5,108 | | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,940 | | $ | 3,033 | | | $ | 3,940 | | $ | 3,033 | | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 54 | | 45 | | | 54 | | 45 | | |
| Cash and cash equivalents at end of year | $ | 3,886 | | $ | 2,988 | | | $ | 3,886 | | $ | 2,988 | | |
|
| | | | | | | | | | | | | | | | | | |
| Cash Flow Summary | Dow Inc. | TDCC |
| In millions | 2019 | 2018 | 2017 1 | 2019 | 2018 | 2017 1 |
| Cash provided by (used for): | | | | | | |
| Operating activities - continuing operations | $ | 5,713 |
| $ | 3,096 |
| $ | (6,443 | ) | $ | 5,706 |
| $ | 3,096 |
| $ | (6,443 | ) |
| Operating activities - discontinued operations | 217 |
| 1,158 |
| 1,514 |
| 371 |
| 1,158 |
| 1,514 |
|
| Operating activities | 5,930 |
| 4,254 |
| (4,929 | ) | 6,077 |
| 4,254 |
| (4,929 | ) |
| Investing activities - continuing operations | (2,158 | ) | (1,826 | ) | 6,793 |
| (2,158 | ) | (1,826 | ) | 6,793 |
|
| Investing activities - discontinued operations | (34 | ) | (369 | ) | 725 |
| (34 | ) | (369 | ) | 725 |
|
| Investing activities | (2,192 | ) | (2,195 | ) | 7,518 |
| (2,192 | ) | (2,195 | ) | 7,518 |
|
| Financing activities - continuing operations | (4,077 | ) | (5,351 | ) | (3,275 | ) | (4,224 | ) | (5,351 | ) | (3,275 | ) |
| Financing activities - discontinued operations | (18 | ) | (53 | ) | (50 | ) | (18 | ) | (53 | ) | (50 | ) |
| Financing activities | (4,095 | ) | (5,404 | ) | (3,325 | ) | (4,242 | ) | (5,404 | ) | (3,325 | ) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (27 | ) | (99 | ) | 320 |
| (27 | ) | (99 | ) | 320 |
|
| Summary |
|
|
|
|
|
|
|
|
|
|
|
|
| Decrease in cash, cash equivalents and restricted cash | (384 | ) | (3,444 | ) | (416 | ) | (384 | ) | (3,444 | ) | (416 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 2,764 |
| 6,208 |
| 6,624 |
| 2,764 |
| 6,208 |
| 6,624 |
|
| Cash, cash equivalents and restricted cash at end of year | $ | 2,380 |
| $ | 2,764 |
| $ | 6,208 |
| $ | 2,380 |
| $ | 2,764 |
| $ | 6,208 |
|
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 13 |
| 40 |
| 19 |
| 13 |
| 40 |
| 19 |
|
| Cash and cash equivalents at end of year | $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
| $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
|
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1. | Updated for ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15") (including related SEC interpretive guidance) and ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which the Company adopted in 2018. |
Cash Flows from Operating Activities
Cash provided by operating activities from continuing operations increased in 2019 compared with 2018. The increase2022 was primarily due to improvements indriven by the Company's cash earnings, dividends from equity method investments and cash provided by working capital, a cash receipt related to the Nova ethylene asset matter, advance payments from customers for product supply agreements, lower pension contributions and higher dividends received from nonconsolidated affiliates, which were partially offset by a decrease in cash earnings.performance-based compensation payments and pension contributions. Cash provided by operating activities from continuing operations in 2018 improved from cash used for operating activities from continuing operations in 2017,2021 was primarily due to the change indriven by the Company's accounts receivable securitization facilities discussed in the section titled "Non-GAAP Cash Flow Measures"cash earnings and a decrease individends from equity method investments, which were partially offset by cash used for working capital requirements, which were partially offset by the absence of certain cash receipts in 2017.pension contributions and performance-based compensation payments.
| | | | | | | | | | | | | | |
| Net Working Capital and Current Ratio at Dec 31 | Dow Inc. | TDCC |
| In millions | 2022 | 2021 | 2022 | 2021 |
| Current assets | $ | 20,477 | | $ | 20,848 | | $ | 20,511 | | $ | 20,837 | |
| Current liabilities | 11,331 | | 13,226 | | 11,247 | | 13,046 | |
| Net working capital | $ | 9,146 | | $ | 7,622 | | $ | 9,264 | | $ | 7,791 | |
| Current ratio | 1.81:1 | 1.58:1 | 1.82:1 | 1.60:1 |
| | | | | | | | | | | | |
| Working Capital Metrics | | Twelve Months Ended |
| | | | | Dec 31, 2022 | Dec 31, 2021 |
| Days sales outstanding in trade receivables | | | | | 40 | | 40 | |
| Days sales in inventory | | | | | 54 | | 54 | |
| Days payables outstanding | | | | | 60 | | 57 | |
|
| | | | | | | | | | | | |
| Net Working Capital at Dec 31 | Dow Inc. | TDCC |
| In millions | 2019 | 2018 | 2019 | 2018 |
Current assets 1 | $ | 16,815 |
| $ | 19,470 |
| $ | 16,733 |
| $ | 19,470 |
|
Current liabilities 1 | 10,679 |
| 11,059 |
| 10,150 |
| 11,059 |
|
| Net working capital | $ | 6,136 |
| $ | 8,411 |
| $ | 6,583 |
| $ | 8,411 |
|
| Current ratio | 1.57:1 |
| 1.76:1 |
| 1.65:1 |
| 1.76:1 |
|
| |
1. | Amounts exclude assets and liabilities of discontinued operations. |
|
| | | | |
| Working Capital Metrics | Twelve Months Ended |
| | Dec 31, 2019 | Dec 31, 2018 |
Days sales outstanding in trade receivables 1 | 45 |
| 41 |
|
Days sales in inventory 2 | 65 |
| 58 |
|
Days payables outstanding 3 | 65 |
| 58 |
|
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1. | The increase in days sales outstanding in receivables was primarily due to an increase in accounts receivable as a result of the Company’s accounts receivable securitization facilities moving from off-balance sheet arrangements to secured borrowing arrangements in the second half of 2018. |
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2. | The increase in days sales in inventory is primarily due to a decrease in COS, driven by lower sales and raw material costs, in addition to an increase in average ending inventory. |
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3. | The increase in days payables outstanding is primarily due to a decrease in average accounts payable and a decrease in COS, which were partially offset by an increase in average ending inventory. |
Cash provided byused for operating activities from discontinued operations decreased in 2019 compared with 2018. The reduction was primarily duerelated to the separation of AgCo and SpecCo on April 1, 2019. The Company had cash payments and receipts the Company had with DuPont and Corteva that related to certain agreements and matters related to the separation from DowDuPont. See Note 4 to the Consolidated Financial Statements for additional information. Cash provided by operating activities from discontinued operations decreased in 2018 compared with 2017, primarily due to changes in working capital requirements.
Cash Flows from Investing Activities
Cash used for investing activities from continuing operations in 2019 was primarily for capital expenditures, purchases of investments and investments in and loans to nonconsolidated affiliates, which were partially offset by proceeds from sales and maturities of investments. Cash used for investing activities from continuing operations in 20182022 was primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments. Cash used for investing activities in 2021 was primarily for capital expenditures and purchases of investments and proceeds from interests in trade accounts receivable conduits. Cash providedpreviously leased assets, which were partially offset by investing activities from continuing operations in 2017 was primarily from proceeds from interests in trade accounts receivable conduits, proceeds from sales and maturities of investments and proceeds from divestitures, including the divestiture of the EAA Business, which were partially offset by capital expenditures, purchases of investments and investments in and loans to nonconsolidated affiliates, primarily with Sadara.investments.
The Company loaned Sadara $473 million in 2019 (zero in 2018 and $735 million in 2017) and a portion of these loans has been converted to equity. In the fourth quarter of 2019, the Company reserved certain notes receivable and accrued interest balances with Sadara due to uncertainty around timing of collection. The Company expects to loan Sadara approximately $500 million in 2020 and all or a portion of the loan could potentially be converted into equity. Additionally, the Company anticipates providing future financial support to Sadara through loans or capital contributions which will be subject to collectability assessments. See Note 13 to the Consolidated Financial Statements for additional information.
The Company's capital expenditures related to continuing operations, including capital expenditures of consolidated variable interest entities, were $1,961$1,823 million in 2019, $2,0912022 and $1,501 million in 20182021. Capital spending was higher in 2022 as the Company continued the post-pandemic recovery and $2,807 millionramp up of investments in 2017.its higher return, lower risk and quick payback incremental growth projects. The Company expects capital spending in 20202023 to be in the range of $1.5 billion to $1.75approximately $2.2 billion. The Company will adjust its spending within this range through the year as economic conditions develop.
Capital spending in 2019, 2018 and 2017recent years has included spending relatedthe addition of a furnace to certain U.S. Gulf Coast investment projects including: a world-scalethe Company's ethylene production facility and an ELITE™ Enhanced Polyethylene production facility, both ofin Alberta, Canada, which commenced operations in 2017; a NORDEL™ Metallocene EPDM production facility, a Low Density Polyethylene ("LDPE") production facility, a High Melt Index ("HMI") AFFINITY™ polymer production facility and debottlenecking2021; the retrofit of an existing bi-modal gas phase polyethylene production facility, all of which commenced operations in 2018; and an expansionone of the Company's Louisiana steam crackers with Dow's proprietary fluidized catalytic dehydrogenation ("FCDh") technology to produce on-purpose propylene and the addition of a new ethylene productionspecialty alkoxylation reactor in Plaquemine, Louisiana, which were both completed in 2022; the addition of an integrated methylene diphenyl diisocyanate ("MDI") distillation and prepolymers facility at its site in Freeport, Texas, which is expected to commence operationsbe completed in 2020, bringing2023; and construction of a world-scale polyethylene unit on the facility's total ethylene capacity to 2,000 kilotonnes per annum and making it the largest ethylene cracker in the world.U.S. Gulf Coast.
Cash used for investing activities from discontinued operations in 2019 was primarily for capital expenditures, partially offset by proceeds from the sales of property, businesses and ownership interests in nonconsolidated affiliates. Cash used for investing activities from discontinued operations in 2018 was primarily for capital expenditures, partially offset by proceeds from the sales of property and businesses. Cash provided by investing activities from discontinued operations in 2017 was primarily due to proceeds from the sale of property and businesses, which was partially offset by capital expenditures.
Cash Flows from Financing Activities
Cash used for financing activities from continuing operations in 20192022 included payments on long-term debt, and dividends paid to DowDuPont, which were partiallywas more than offset by proceeds from issuance of long-term debt. In addition, Dow Inc. receivedincluded cash as part of the separation from DowDuPont, which was more than offset byoutflows for dividends paid to stockholders and purchases of treasury stock. TDCC included cash outflows for dividends paid to Dow Inc. Cash used for financing activities from continuing operations in 20182021 included dividends paid to DowDuPont and payments ofon long-term debt and transaction financing, debt issuance and other costs, which were partially offset by proceeds from issuance of long-term debt. Cash usedcommon stock. In addition, Dow Inc. included cash outflows for financing activities in continuing operations in 2017 included dividends paid to stockholders through the closeand purchases of the Merger, a dividendtreasury stock. TDCC included cash outflows for dividends paid to DowDuPont in the fourth quarter of 2017, and payments of long-term debt.Dow Inc. See Notes 1614 and 1917 to the Consolidated Financial Statements for additional information related to the issuance and retirement of debt and the Company's share repurchases and dividends.
Cash used for financing activities from discontinued operations in 2019, 2018 and 2017 primarily related to distributions to noncontrolling interests and employee taxes paid for share-based payment arrangements.
Non-GAAP Cash Flow Measures
Cash Flows from Operating Activities - Continuing Operations - Excluding Impact of ASU 2016-15
Cash flows from operating activities - continuing operations, excluding the impact of ASU 2016-15, is defined as cash provided by (used for) operating activities - continuing operations, excluding the impact of ASU 2016-15 and related interpretive guidance. Management believes this non-GAAP financial measure is relevant and meaningful as it presents cash flows from operating activities inclusive of all trade accounts receivable collection activity, which Dow utilizes in support of its operating activities.
Free Cash Flow
Dow defines free cash flowFree Cash Flow as cash flows from"Cash provided by operating activities - continuing operations, excluding the impact of ASU 2016-15," less capital expenditures. Under this definition, free cash flowFree Cash Flow represents the cash generated by Dow from operations after investing in its asset base. Free cash flow,Cash Flow, combined with cash balances and other sources of liquidity, representrepresents the cash available to fund obligations and provide returns to shareholders. Free cash flowCash Flow is an integral financial measure used in Dow'sthe Company's financial planning process.
Pro Forma Operating EBITDA
Dow defines pro forma operatingOperating EBITDA as pro forma earnings (i.e. "Pro forma income from continuing operations, "Income before income taxes") before interest, depreciation and amortization, excluding the impact of significant items.
Cash Flow Conversion (Pro Forma Operating(Operating EBITDA to Cash Flow From Operations)
Dow defines cash flow conversion (or pro forma OperatingCash Flow Conversion (Operating EBITDA to cash flow from operations) as cash flows from"Cash provided by operating activities - continuing operations, excluding the impact of ASU 2016-15," divided by pro forma Operating EBITDA. Management believes cash flow conversionCash Flow Conversion is an important financial metric as it helps the Company determine how efficiently it is converting its earnings into cash flow.
These financial measures are not recognized in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAPGAAP") and should not be viewed as alternatives to U.S. GAAP financial measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, Dow's definitions may not be consistent with the methodologies used by other companies.
| | | | | | | | | |
| Reconciliation of Non-GAAP Cash Flow Measures | Dow Inc. | |
| In millions | 2022 | 2021 | |
| Cash provided by operating activities - continuing operations (GAAP) | $ | 7,486 | | $ | 7,069 | | |
| Capital expenditures | (1,823) | | (1,501) | | |
Free Cash Flow (non-GAAP) 1 | $ | 5,663 | | $ | 5,568 | | |
|
| | | | | | | | | |
| Reconciliation of Non-GAAP Cash Flow Measures | Dow Inc. |
| In millions | 2019 | 2018 | 2017 |
| Cash provided by (used for) operating activities - continuing operations (GAAP) | $ | 5,713 |
| $ | 3,096 |
| $ | (6,443 | ) |
| Impact of ASU 2016-15 and related interpretive guidance | — |
| 657 |
| 9,462 |
|
| Cash flows from operating activities - continuing operations - excluding impact of ASU 2016-15 (Non-GAAP) | $ | 5,713 |
| $ | 3,753 |
| $ | 3,019 |
|
| Capital expenditures | (1,961 | ) | (2,091 | ) | (2,807 | ) |
| Free cash flow (Non-GAAP) | $ | 3,752 |
| $ | 1,662 |
| $ | 212 |
|
| | | | | | | | | |
| Reconciliation of Cash Flow Conversion (Operating EBITDA to Cash Flow From Operations) | Dow Inc. | |
| In millions | 2022 | 2021 | |
| Net income (GAAP) | $ | 4,640 | $ | 6,405 | |
| + Provision for income taxes | 1,450 | 1,740 | |
| Income before income taxes | $ | 6,090 | $ | 8,145 | |
| - Interest income | 173 | 55 | |
| + Interest expense and amortization of debt discount | 662 | 731 | |
- Significant items 1 | (11) | (712) | |
| Operating EBIT (non-GAAP) | $ | 6,590 | $ | 9,533 | |
| + Depreciation and amortization | 2,758 | 2,842 | |
| Operating EBITDA (non-GAAP) | $ | 9,348 | $ | 12,375 | |
| Cash provided by operating activities - continuing operations (GAAP) | $ | 7,486 | $ | 7,069 | |
Cash Flow Conversion (Operating EBITDA to cash flow from operations) (non-GAAP) 2 | 80.1 | % | 57.1 | % | |
Table1.The year ended December 31, 2022 includes costs associated with implementing the Company's Digital Acceleration program and 2020 Restructuring Program, asset related charges due to the Russia and Ukraine conflict, a gain related to a legal matter with Nova, a gain related to an adjustment of Contentsthe Dow Silicones breast implant liability, a loss on the early extinguishment of debt and activity related to the separation from DowDuPont. The year ended December 31, 2021 includes costs associated with implementing the Company's Digital Acceleration program and 2020 Restructuring Program, implementation costs and asset related charges - net, a loss on early extinguishment of debt, a gain on a previous divestiture, litigation related charges, awards and adjustments and activity related to the separation from DowDuPont. See Note 25 to the Consolidated Financial Statements for additional information.
2.Cash flow conversion for the year ended December 31, 2021 reflects a $1 billion elective pension contribution.
|
| | | | | | | | | |
| Reconciliation of Cash Flow Conversion (Pro Forma Operating EBITDA to Cash Flow From Operations) | Dow Inc. |
| In millions | 2019 | 2018 | 2017 |
| Income (loss) from continuing operations, net of tax (GAAP) | $ | (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 |
|
| + Pro forma depreciation and amortization | 2,938 |
| 2,909 |
| 2,684 |
|
| Pro forma Operating EBITDA | $ | 7,290 |
| $ | 9,145 |
| $ | 8,261 |
|
| Cash flows from operating activities - continuing operations - excluding impact of ASU 2016-15 (Non-GAAP) | $ | 5,713 |
| $ | 3,753 |
| $ | 3,019 |
|
| Cash flow conversion (Pro Forma Operating EBITDA to cash flow from operations) (Non-GAAP) | 78.4 | % | 41.0 | % | 36.5 | % |
| |
1. | Pro forma adjustments include: (1) the margin 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 (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. See Note 27 to the Consolidated Financial Statements for additional information. |
Liquidity & Financial Flexibility
The Company’s primary source of incremental liquidity is cash flows from operating activities. The generation of cash from operations and the Company's ability to access capital markets is expected to meet the Company’s cash requirements for working capital, capital expenditures, debt maturities, contributions to pension plans, dividend distributions to stockholders, share repurchases and other needs. In addition to cash from operating activities, the Company’s current liquidity sources also include TDCC's U.S. and Euromarket commercial paper programs, committed and uncommitted credit facilities, a committed accounts receivable facility,facilities, a medium-term notes program, a U.S. retail note program (“InterNotes®”) and other debt markets.
The Company continues to maintain a strong financial position with all of its committed credit facilities undrawn and fully available at December 31, 2022. Cash and committed and available forms of liquidity were $13.7 billion at December 31, 2022, an increase of $1.1 billion from December 31, 2021. The Company also has no substantive long-term debt maturities due until 2027. Additional details on sources of liquidity are as follows:
Commercial Paper
TDCC issues promissory notes under its U.S. and Euromarket commercial paper programs. TDCC had $151$299 million of commercial paper outstanding at December 31, 2019 ($10 million at December 31, 2018)2022 (zero in 2021). TDCC maintains access to the commercial paper market at competitive rates. Amounts outstanding under TDCC's commercial paper programs during the period may be greater or less than the amount reported at the end of the period. Subsequent to December 31, 2019,2022, TDCC issued approximately $1.5 billion$311 million of commercial paper.
Committed Credit Facilities
The Company also has the ability to access liquidity through TDCC's committed and available credit facilities. At December 31, 2019,2022, TDCC had total committed credit facilities of $9.4 billion and available credit facilities of $7.4$8.4 billion. See Note 1614 to the Consolidated Financial Statements for additional information on committed and available credit facilities.
Committed Accounts Receivable Facilities
In connection withaddition to the ownership restructureabove committed credit facilities, the Company maintains an accounts receivable facility in the U.S. where eligible trade accounts receivable, up to $900 million, may be sold at any point in time. The Company also maintains a committed accounts receivable facility in Europe where eligible trade accounts receivable, up to €500 million, may be sold at any point in time. In 2022, the Company sold $391 million of Dow Silicones on May 31, 2016, Dow Silicones incurred $4.5 billion of indebtedness under a certain third party credit agreement ("Term Loan Facility"). In the second quarter of 2019, Dow Silicones voluntarily repaid $2.5 billion of principal on the Term Loan Facility. In September 2019, Dow Silicones amended the Term Loan Facility to extend the maturity date on the remaining principal balance of $2 billion, making amounts borrowedreceivables under the Term Loan Facility repayable 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.U.S. and Europe committed accounts receivable facilities. See Note 1613 to the Consolidated Financial Statements for additional information on the Term Loan Facility..
Uncommitted Credit Facilities
The Company has entered into various uncommitted bilateral credit arrangements as a potential source of excess liquidity. These lines can be used to support short-term liquidity needs and for general purposes, including letters of credit. The Company had no drawdowns outstanding at December 31, 2022.
Letters of Credit
TDCC utilizes letters of credit to support commitments made in the ordinary course of business. While the terms and amounts of letters of credit change, TDCC generally has approximately $400$600 million of outstanding letters of credit at any given time.
Early Settlement of Letters of Credit
The Company utilizes, from time-to-time, letters of credit discounting programs to manage and expedite the settlement of letters of credit in certain regions. These letters of credit are associated with accounts receivable and the Company retains no interest in the transferred letters of credit or receivables once sold.
Shelf Registration - U.S.
On July 26, 2019,June 13, 2022, Dow Inc. and TDCC filed a shelf registration statement with the SEC.U.S. Securities and Exchange Commission. The shelf indicates that Dow Inc. may offer common stock; preferred stock; depositary shares; debt securities; guarantees; warrants to purchase common stock, preferred stock and debt securities; and stock purchase contracts and stock purchase units, with pricing and availability of any such offerings depending on market conditions. The shelf also indicates that TDCC may offer debt securities, guarantees and warrants to purchase debt securities, with pricing and availability of any such offerings depending on market conditions. Also on July 26, 2019,In 2022, TDCC filed a new prospectus supplement under this shelf registration to register an unlimitedundetermined amount of securities for issuance under InterNotes®. Also, in 2022, TDCC filed a prospectus supplement under this shelf registration to register an undetermined amount of securities for issuance under a medium-term notes program.
Debt
As the Company continues to maintain its strong balance sheet and financial flexibility, management is focused on net debt (a non-GAAP financial measure), as the Company believes this is the best representation of its financial leverage at this point in time. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents" and "Marketable securities." At December 31, 2019, net debt as a percent
| | | | | | | | | | | | | | |
| Total Debt at Dec 31 | Dow Inc. | TDCC |
| In millions | 2022 | 2021 | 2022 | 2021 |
| Notes payable | $ | 362 | $ | 161 | $ | 362 | $ | 161 |
| Long-term debt due within one year | 362 | 231 | 362 | 231 |
| Long-term debt | 14,698 | 14,280 | 14,698 | 14,280 |
| Gross debt | $ | 15,422 | $ | 14,672 | $ | 15,422 | $ | 14,672 |
| - Cash and cash equivalents | 3,886 | 2,988 | 3,886 | 2,988 |
- Marketable securities 1 | 939 | 245 | 939 | 245 |
| Net debt | $ | 10,597 | $ | 11,439 | $ | 10,597 | $ | 11,439 |
| Total equity | $ | 21,247 | $ | 18,739 | $ | 21,489 | $ | 19,029 |
| Gross debt as a percentage of total capitalization | 42.1 | % | 43.9 | % | 41.8 | % | 43.5 | % |
| Net debt as a percentage of total capitalization | 33.3 | % | 37.9 | % | 33.0 | % | 37.5 | % |
1.Included in "Other current assets" in the consolidated balance sheets.
In the second quarter of total capitalization for Dow Inc. and TDCC increased to 50.9 percent and 49.6 percent, respectively, compared with 33.7 percent for both companies at December 31, 2018. The increase is primarily due to a reduction in stockholders' equity for both companies as a result of the separation from DowDuPont and a net loss in 2019, which was partially offset by a decrease in debt.
|
| | | | | | | | | | | | |
| Total Debt at Dec 31 | Dow Inc. | TDCC |
| In millions | 2019 | 2018 | 2019 | 2018 |
| Notes payable | $ | 586 |
| $ | 298 |
| $ | 586 |
| $ | 298 |
|
| Long-term debt due within one year | 435 |
| 338 |
| 435 |
| 338 |
|
| Long-term debt | 15,975 |
| 19,253 |
| 15,975 |
| 19,253 |
|
| Gross debt | $ | 16,996 |
| $ | 19,889 |
| $ | 16,996 |
| $ | 19,889 |
|
| - Cash and cash equivalents | 2,367 |
| 2,724 |
| 2,367 |
| 2,724 |
|
| - Marketable securities | 21 |
| 100 |
| 21 |
| 100 |
|
| Net debt | $ | 14,608 |
| $ | 17,065 |
| $ | 14,608 |
| $ | 17,065 |
|
| Gross debt as a percent of total capitalization | 54.7 | % | 37.2 | % | 53.3 | % | 37.2 | % |
| Net debt as a percent of total capitalization | 50.9 | % | 33.7 | % | 49.6 | % | 33.7 | % |
In 2019,2022, 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;redeemed $750 million aggregate principal amount of 3.625 percent notes due 2026; and $500May 2026.
In the fourth quarter of 2022, the Company issued $1.5 billion of senior unsecured notes. The offering included $600 million aggregate principal amount of 3.156.30 percent notes due 2024. In addition, the Company redeemed $1.5 billion2033 and $900 million aggregate principal amount of 4.25 percent notes issued by the Company with maturity in 2020 and $1.25 billion of 4.125 percent notes issued by the Company with maturity in 2021.
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 are with respect to the Company’s 3.156.90 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 20482053.
In 2022, the Company issued an aggregate principal amount of $167 million of InterNotes®. Additionally, the Company repaid $121 million of long-term debt at maturity 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 issuanceapproximately $3 million of the aforementioned notes.long-term debt was repaid by consolidated variable interest entities.
The Company may at any time repurchase certain debt securities in the open market or in privately negotiated transactions subject to: the applicable terms under which any such debt securities were issued, certain internal approvals of the Company, and applicable laws and regulations of the relevant jurisdiction in which any such potential transactions might take place. This in no way obligates the Company to make any such repurchases nor should it be considered an offer to do so.
TDCC’s public debt instruments and primary, private credit agreements contain, among other provisions, certain customary restrictive covenant and default provisions. TDCC’s most significant debt covenant with regard to its financial position is the obligation to maintain the ratio of its consolidated indebtedness to consolidated capitalization at no greater than 0.650.70 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") equals or exceeds $500 million. The ratio of TDCC’s consolidated indebtedness as defined in the Revolving Credit Agreement was 0.510.40 to 1.00 at December 31, 2019.2022. Management believes TDCC was in compliance with all of its covenants and default provisions at December 31, 2019.2022. The Revolving Credit Agreement was extended in November 2022 and matures in November 2027.
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 the 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. See Note 1614 to the Consolidated Financial Statements for information related to TDCC’s notes payable and long-term debt activity and information on TDCC’s debt covenants and default provisions.
ManagementWhile taking into consideration the current economic environment, management expects that the Company will continue to have sufficient liquidity and financial flexibility to meet all of its business obligations.
Credit Ratings
TDCC's credit ratings at January 31, 20202023 were as follows:
|
| | | | | | | | | | |
| Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook |
| Fitch Ratings | BBB+ | F2 | Positive |
| Moody’s Investors Service | Baa1 | P-2 | Stable |
| Standard & Poor’s | BBB | A-2 | Stable |
Moody’s Investors Service | Baa2 | P-2 | Stable |
Fitch Ratings | BBB+ | F2 | StablePositive |
Downgrades inOn May 31, 2022, Moody's Investors Service announced a credit rating upgrade for TDCC from Baa2 to Baa1, affirmed its P-2 rating and maintained a stable outlook. On June 8, 2022, Standard & Poor’s affirmed TDCC’s BBB and A-2 rating, and revised its outlook to positive from stable. On June 16, 2022, Fitch Ratings affirmed TDCC’s BBB+ and F2 rating, and revised its outlook to positive from stable. These credit ratings will increase borrowing costs on certain indenturesagencies' decisions were made as part of their annual review process and could impact its ability to access debt capital markets.reflect the Company's supportive financial policies and strong operating performance.
Dividends
Dow Inc.
Dow Inc. has paid dividends on a quarterly basis and expects to continue to do so, subject to approval by the Dow Inc. Board. The dividends declared by the Dow Inc. Board align to the Company's strategy announced in 2018 of returning approximately 45 percent of operating net income1 to the shareholders through the dividend and total shareholder remuneration of approximately 65 percent, when including share repurchases, over the economic cycle. The following table providestables provide information on dividends declared and paid to common stockholders for the years ended December 31, 2019, 2018 and 2017:stockholders:
| | | | | | | | | |
| Dividends Paid for the Years Ended Dec 31 | 2022 | 2021 | |
| In millions, except per share amounts |
| Dividends paid, per common share | $ | 2.80 | | $ | 2.80 | | |
| Dividends paid to common stockholders | $ | 2,006 | | $ | 2,073 | | |
| | | |
|
| | | | | | | |
| Dividends Paid for the Years Ended Dec 31 | 2019 1 | 2018 2 | 2017 3 |
| In millions, except per share amounts |
| Dividends paid, per common share | $ | 2.10 |
| N/A | $ | 1.84 |
|
| Dividends paid to common stockholders | $ | 1,550 |
| N/A | $ | 2,179 |
|
| | | | | | | | | | | |
1. | Reflects Dow Inc. activity subsequent to the separation from DowDuPont.Cash Dividends Declared and Paid |
| Declaration Date | Record Date | Payment Date | Amount (per share) |
| February 10, 2022 | February 28, 2022 | March 11, 2022 | $ | 0.70 | |
2.April 13, 2022 | In 2018, the common stock of Dow Inc. and TDCC was owned solely by DowDuPont and therefore the Company did not have publicly traded stock.May 31, 2022 |
| June 10, 2022 | $ | 0.70 | |
3.August 10, 2022 | Reflects TDCC activity prior to the Merger.August 31, 2022 | September 9, 2022 | $ | 0.70 | |
| October 13, 2022 | November 30, 2022 | December 9, 2022 | $ | 0.70 | |
1.Operating net income is a non-GAAP measure that Dow defines as "Net income (loss) available for Dow Inc. common stockholders," excluding the impact of significant items.
TDCC
Effective with the Merger, TDCC no longer has publicly traded common stock. From the Merger date through March 31, 2019, TDCC's common shares were owned solely by DowDuPont. Pursuant to the Merger Agreement, 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 of Directors 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. For the year ended December 31, 2019, TDCC declared and paid dividends to DowDuPont of $535 million ($3,711 million for the year ended December 31, 2018 and $1,056 for the year ended December 31, 2017). See Note 26 to the Consolidated Financial Statements for additional information.
Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and share repurchases, andas approved by the Dow Inc. Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board of Directors reviews and determines a dividend distribution to Dow Inc. to settle the intercompany loans. For the year ended December 31, 2019,2022, TDCC declared and paid dividends to Dow Inc. of $201 million.$4,375 million ($3,264 million for the year ended December 31, 2021). At December 31, 2019,2022, TDCC's intercompany loan balance with Dow Inc. was zero.insignificant. See Note 2624 to the Consolidated Financial Statements for additional information.
Share Repurchase Program
Dow Inc.
On April 1, 2019, the Dow Inc.'s Board of Directors ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3 billion for the repurchase of the Company's common stock, with no expiration date. The Company completed the April 1, 2019 share repurchase program in the second quarter of 2022. On April 13, 2022, the Dow Inc. Board approved a new share repurchase program authorizing up to be spent on$3 billion for the repurchase of the Company's common stock, with no expiration date. In 2019, Dow Inc.2022, the Company repurchased $500$2,325 million of the Company'sits common stock. At December 31, 2019, approximately $2.52022, $2 billion of the new share repurchase program authorization remained available for repurchases. Dow Inc. expectsAs previously announced, the Company intends to repurchase $250 millionshares to cover dilution over the cycle. The Company may from time to time expand its share repurchases beyond dilution, based on a number of factors including macroeconomic conditions, free cash flow generation, and the Dow share price. Any share repurchases, when coupled with the Company's common stock in 2020.dividends, are intended to implement the long-term strategy of targeting shareholder remuneration of approximately 65 percent over the economic cycle.
TDCC
In 2013, TDCC's Board of Directors approved a share repurchase 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.
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. 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 gainsIn 2022 and losses and recognition of special termination benefits.
In 2019, 2018 and 2017,2021, the Company contributed $261 million, $1,651$235 million and $1,672$1,219 million to its continuing operations pension plans, respectively, including contributions to fund benefit payments for its non-qualifiedunfunded pension plans ($266 million, $1,656 million and $1,676 million, including contributions to plans of discontinued operations).plans. In the thirdfirst quarter of 2018,2021, the Company made a $1,100 million discretionary contributionelected to contribute $1 billion to its principal U.S. tax-qualified pension plan,plans, which is included in the 20182021 contribution amount above. The discretionaryThis contribution was primarily based on the Company's funding policy, which permits contributionsis to contribute to defined benefit pension plans when pension laws and/or economics either require or encourage funding, and reflected considerations relating to tax deductibility and capital structure.
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. The Company recorded a settlement charge of $687 million associated with the payout in the fourth quarter of 2017.
funding. The Company expects to contribute approximately $250$150 million to its pension plans in 2020.2023.
On March 4, 2021, the Company announced changes to the design of its U.S. tax-qualified and non-qualified pension plans (collectively, the "U.S. Plans") and, effective December 31, 2023, the Company will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the U.S. Plans. See Note 2119 to the Consolidated Financial Statements for additional information concerning the Company’s pension plans.
Restructuring Goodwill Impairment and Asset Related Charges - Net
The activities related to2020 Restructuring Program was substantially complete at December 31, 2021, with the Synergy Program areexception of certain cash expenditures expected to result in additional cash payments of approximately $70 million, primarily through the second quarter of 2020,into 2023, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation (see Note 7 to the Consolidated Financial Statements). remediation. Restructuring implementation costs totaled $40 million in 2022.
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; these costsactivities, which 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.
Integration and Separation Costs
Integration and separation costs, which reflect costs related See Note 5 to the Merger, post-Merger integrationConsolidated Financial Statements for additional information on the Company's restructuring activities.
Digital Acceleration
In 2021, Dow announced plans to further advance and business separation activitiesexpand its digitalization efforts to deliver long-term value creation, by accelerating investment in three key areas: expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and costs relatedfulfillment experience for Dow's customers; and adopting real-time digital manufacturing insights, operational data intelligence and demand sensing to enhance the ownership restructureproductivity and reliability of Dow Silicones, were $1,063 million and $1,039Dow’s operations. The Company expects more than $300 million in 2019 for Dow Inc. and TDCC, respectively, $1,179 million in 2018 and $798 million in 2017. Integration and separation costs related to post-Merger integration and business separation activities are expected to continue in 2020 for activities primarily involving the separation of information technology infrastructure and physical plant operations. Integration and separation costs are expected to result in additional cash expenditures of approximately $200 million to $250 million throughincremental annual run rate Operating EBITDA generation by the end of 2020.2023 related to digital acceleration, with an additional one-time $100 million in structural working capital efficiency gains, driven in part by enhanced planning from digital tools.
Digital acceleration pre-tax expenses totaled $230 million in 2022. The Digital Acceleration program was completed at the end of 2022.
Contractual Obligations
The following table summarizes the Company’s contractual obligations, commercial commitments and expected cash requirements for interest at December 31, 2019.2022. Additional information related to these obligations can be found in Notes 14, 15, 16 17, 18 and 2119 to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
| Contractual Obligations at Dec 31, 2022 | Payments Due In | |
| In millions | 2023 | 2024-2025 | 2026-2027 | 2028 and beyond | Total |
| Dow Inc. | | | | | |
Long-term debt obligations 1 | $ | 362 | | $ | 515 | | $ | 1,287 | | $ | 13,178 | | $ | 15,342 | |
Expected cash requirements for interest 2 | 715 | | 1,351 | | 1,298 | | 8,671 | | 12,035 | |
| Pension and other postretirement benefits | 222 | | 429 | | 439 | | 2,550 | | 3,640 | |
Operating leases 3 | 333 | | 452 | | 289 | | 470 | | 1,544 | |
Purchase obligations 4 | 3,235 | | 4,285 | | 2,236 | | 3,019 | | 12,775 | |
Other noncurrent obligations 5 | — | | 825 | | 586 | | 1,386 | | 2,797 | |
| Total | $ | 4,867 | | $ | 7,857 | | $ | 6,135 | | $ | 29,274 | | $ | 48,133 | |
| TDCC | | | | | |
Long-term debt obligations 1 | $ | 362 | | $ | 515 | | $ | 1,287 | | $ | 13,178 | | $ | 15,342 | |
Expected cash requirements for interest 2 | 715 | | 1,351 | | 1,298 | | 8,671 | | 12,035 | |
| Pension and other postretirement benefits | 222 | | 429 | | 439 | | 2,550 | | 3,640 | |
Operating leases 3 | 333 | | 452 | | 289 | | 470 | | 1,544 | |
Purchase obligations 4 | 3,235 | | 4,285 | | 2,236 | | 3,019 | | 12,775 | |
Other noncurrent obligations 5 | — | | 719 | | 583 | | 1,355 | | 2,657 | |
| Total | $ | 4,867 | | $ | 7,751 | | $ | 6,132 | | $ | 29,243 | | $ | 47,993 | |
|
| | | | | | | | | | | | | | | |
| Contractual Obligations at Dec 31, 2019 | Payments Due In | |
| In millions | 2020 | 2021-2022 | 2023-2024 | 2025 and beyond | Total |
| Dow Inc. | | | | | |
Long-term debt obligations 1 | $ | 435 |
| $ | 2,024 |
| $ | 4,036 |
| $ | 10,246 |
| $ | 16,741 |
|
Expected cash requirements for interest 2 | 799 |
| 1,529 |
| 1,289 |
| 7,479 |
| 11,096 |
|
| Pension and other postretirement benefits | 379 |
| 909 |
| 1,944 |
| 7,214 |
| 10,446 |
|
Operating leases 3 | 492 |
| 777 |
| 504 |
| 803 |
| 2,576 |
|
Purchase obligations 4 | 2,548 |
| 4,162 |
| 3,664 |
| 4,737 |
| 15,111 |
|
Other noncurrent obligations 5 | — |
| 1,390 |
| 795 |
| 1,062 |
| 3,247 |
|
| Total | $ | 4,653 |
| $ | 10,791 |
| $ | 12,232 |
| $ | 31,541 |
| $ | 59,217 |
|
| TDCC | | | | | |
Long-term debt obligations 1 | $ | 435 |
| $ | 2,024 |
| $ | 4,036 |
| $ | 10,246 |
| $ | 16,741 |
|
Expected cash requirements for interest 2 | 799 |
| 1,529 |
| 1,289 |
| 7,479 |
| 11,096 |
|
| Pension and other postretirement benefits | 379 |
| 909 |
| 1,944 |
| 7,214 |
| 10,446 |
|
Operating leases 3 | 492 |
| 777 |
| 504 |
| 803 |
| 2,576 |
|
Purchase obligations 4 | 2,548 |
| 4,162 |
| 3,664 |
| 4,737 |
| 15,111 |
|
Other noncurrent obligations 5 | — |
| 1,180 |
| 633 |
| 1,061 |
| 2,874 |
|
| Total | $ | 4,653 |
| $ | 10,581 |
| $ | 12,070 |
| $ | 31,540 |
| $ | 58,844 |
|
| |
1. | Excludes unamortized debt discount and issuance costs of $331 million. Includes finance lease obligations of $395 million. Assumes the option to extend will be exercised for the $2 billion Dow Silicones Term Loan Facility. |
| |
2. | Cash requirements for interest on long-term debt was calculated using current interest rates at December 31, 2019, and includes $2,344 million of various floating rate notes. |
| |
3. | Includes imputed interest of $416 million. |
| |
4. | Includes outstanding purchase orders and other commitments greater than $1 million obtained through a survey conducted within the Company. |
| |
5. | Includes liabilities related to asbestos litigation, environmental remediation, legal settlements and other noncurrent liabilities. In addition to these items, Dow Inc. includes liabilities related to noncurrent obligations with DuPont and Corteva. The table excludes uncertain tax positions due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities and deferred tax liabilities as it is impractical to determine whether there will be a cash impact related to these liabilities. The table also excludes deferred revenue as it does not represent future cash requirements arising from contractual payment obligations. |
2.Cash requirements for interest on long-term debt was calculated using current interest rates at December 31, 2022, and includes $6 million of various floating rate notes.
3.Includes imputed interest of $260 million.
4.Includes outstanding purchase orders and other commitments greater than $1 million obtained through a survey conducted within the Company.
5.Includes liabilities related to asbestos litigation, environmental remediation, legal matters and other noncurrent liabilities. In addition to these items, Dow Inc. includes liabilities related to noncurrent obligations with DuPont and Corteva. The table excludes uncertain tax positions due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities and deferred tax liabilities as it is impractical to determine whether there will be a cash impact related to these liabilities. The table also excludes deferred revenue as it does not represent future cash requirements arising from contractual payment obligations.
The Company expects to meet its contractual obligations through its normal sources of liquidity and believes it has the financial resources to satisfy these contractual obligations.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the primary beneficiary of these joint ventures and therefore is not required to consolidate these entities (see Note 2523 to the Consolidated Financial Statements). In addition, see Note 1513 to the Consolidated Financial Statements for information regarding the transfer of financial assets.
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 if specific triggering events occur. The Company had outstanding guarantees at December 31, 2019 of $3,952 million, compared with $4,273 million at December 31, 2018. Additional information related to guarantees can be found in the “Guarantees” section of Note 1715 to the Consolidated Financial Statements.
Fair Value Measurements
See Note 2119 to the Consolidated Financial Statements for information related to fair value measurements of pension and other postretirement benefit plan assets; see Note 2321 for information related to other-than-temporary impairments; and, see Note 2422 for additional information concerning fair value measurements.
OTHER MATTERS
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Following are the Company’s accounting policies impacted by judgments, assumptions and estimates:
Litigation
The Company is subject to legal proceedings and claims arising out of the normal course of business including product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation and other actions. The Company routinely assesses the legal and factual circumstances of each matter, the likelihood of any adverse outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim. The Company has an active risk management program consisting of numerous insurance policies secured from many carriers covering various timeframes. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 17 to the Consolidated Financial Statements.
Asbestos-Related Matters of Union Carbide Corporation
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"). Each year, Ankura Consulting Group, LLC ("Ankura") performs a review for Union Carbide based upon historical asbestos claims, resolution and asbestos-related defense and processing costs, through the terminal year of 2049. Union Carbide compares current asbestos claim and resolution activity, including asbestos-related defense and processing costs, to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.
For additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 1715 to the Consolidated Financial Statements.
Environmental Matters
The Company determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress, or as additional technical or legal information becomes available. At December 31, 2019,2022, the Company had accrued obligations of $1,155$1,192 million for probable environmental remediation and restoration costs, including $207$244 million for the remediation of Superfund sites. 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 halftwo times that amount. For further discussion, see Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 1715 to the Consolidated Financial Statements.
Goodwill
The Company performs goodwill impairment testing at the reporting unit level. Reporting units are the level at which discrete financial information is available and reviewed by business management on a regular basis. 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. Goodwill is evaluated for impairment using
qualitative and/or quantitative testing procedures. The separation from DowDuPont on April 1, 2019, 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, goodwill was carried by five out of six of the Company's reporting units.
The Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed at the Company level include, but are not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw material prices, and financial performance of the reporting unit. If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying value, additional quantitative testing is required.
Quantitative testing requires the fair value of the reporting unit to be compared with its carrying value. If the reporting unit's carrying value exceeds its fair value, an impairment charge is recognized for the difference. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. This valuation technique has been selected by management as the most meaningful valuation method due to the limited number of market comparables for the Company's reporting units. However, where market comparables are available, the Company includes EBIT/EBITDA multiples as part of the reporting unit valuation analysis. The discounted cash flow valuations are completed using the following key assumptions: projected revenue growth rates or compounded annual growth rates, discount rates, tax rates, terminal values, currency exchange rates, and forecasted long-term hydrocarbon and energy prices, by geographic region and by year, which include the Company's key feedstocks as well as natural gas and crude oil (due to its correlation to naphtha). Currency exchange rates and long-term hydrocarbon and energy prices are established for the Company as a whole and applied consistently to all reporting units, while revenue growth rates, discount rates and tax rates are established by reporting unit to account for differences in business fundamentals and industry risk. These key assumptions drive projected EBIT/EBITDA and EBIT/EBITDA margins, which are key elements of management’s internal control over the reporting unit valuation analysis.
2019 Goodwill Impairment Testing
In the fourth quarter of 2019, quantitative testing was performed on two reporting units and a qualitative assessment was performed for the remaining reporting units. For the qualitative assessments, management considered the factors at both the Company level and the reporting unit level. Based on the qualitative assessment, management concluded it is not more likely than not that the fair value of the reporting unit is less than the carrying value of the reporting unit.
Upon completion of the quantitative testing in the fourth quarter of 2019, the Company determined the Coatings & Performance Monomers ("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 continued trend of customer consolidation in end markets, which reduced growth opportunities. As a result, the C&PM reporting unit lowered its future revenue and profitability projections, which were used in determining the fair value of the C&PM reporting unit using a discounted cash flow methodology. 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. The C&PM reporting unit did not carry a goodwill balance at December 31, 2019. The fair value of the other reporting unit exceeded its carrying value and no other goodwill impairments were identified as a result of the 2019 testing.
Pension and Other Postretirement Benefits
As a result of the Company’s separation from DowDuPont, the number of defined benefit pension plans administered by the Company decreased from 45 plans to 35 plans, with approximately $270 million of net unfunded pension liabilities transferring 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 other postretirement benefit plans administered by the Company as a result of the separation.
The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled at December 31, 2019,2022, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 2119 to the Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods. The U.S. pension plans represent 7173 percent of the Company’s pension plan assets and 7072 percent of the pension obligations.
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 (including all plans prior to adoption) are determined on the basis of the single equivalent discount rates derived in determining those plan obligations.
The following information relates to the U.S. plans only; a similar approach is used for the Company’s non-U.S. plans.
The Company determines the expected long-term rate of return on assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation approved by the Company's Investment Committee and the underlying return fundamentals of each asset class. The Company’s historical experience with the pension fund asset performance is also considered. The expected return of each asset class is derived from a forecasted future return confirmed by historical experience. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 20192022 was 7.927.95 percent. The weighted-average assumption to be used for determining 20202023 net periodic pension expense is 7.957.46 percent. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Company’s pension plans.
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 weighted average discount rate utilized to measure pension obligations decreasedincreased to 3.415.64 percent at December 31, 2019,2022, from 4.393.04 percent at December 31, 2018.2021.
At December 31, 2019,2022, the U.S. qualifiedtax-qualified plans were underfunded on a projected benefit obligation basis by $4,768$545 million. The underfunded amount increased $702decreased $2,040 million compared with December 31, 2018.2021. The increasedecrease in the underfunded amount in 20192022 was primarily due to the market-related impact of lowerhigher discount rates which was partially offset by the reduction in the number of active U.S. pensionunfavorable returns on plan participants after the Company's separation from DowDuPont. The Company did not make contributions to the U.S. qualified plans in 2019.assets.
The assumption for the long-term rate for the compensation levels for the U.S. qualifiedtax-qualified plans was unchanged. The Company uses a generational mortality table to determine the duration of its pension and other postretirement obligations.
The following discussion relates to the Company’s significant pension plans.
The Company bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value will be impacted when previously deferred gains or losses are recorded. Over the life of the plans, both gains and losses have been recognized and amortized. At December 31, 2019,2022, net gainslosses of $566$3,123 million remain to be recognized in the calculation of the market-related value of plan assets. These net gainslosses will result in decreasesincreases in future pension expense as they are recognized in the market-related value of assets.
The net increasedecrease in the market-related value of assets due to the recognition of prior gains (losses)losses is presented in the following table:
| | | | | |
| Net Decrease in Market-Related Asset Value Due to Recognition of Prior Losses |
| In millions |
| 2023 | $ | 339 | |
| 2024 | 729 | |
| 2025 | 950 | |
| 2026 | 1,105 | |
| Total | $ | 3,123 | |
|
| | | |
| Net Increase in Market-Related Asset Value Due to Recognition of Prior Gains (Losses) |
| In millions |
| 2020 | $ | 93 |
|
| 2021 | 129 |
|
| 2022 | (48 | ) |
| 2023 | 392 |
|
| Total | $ | 566 |
|
At December 31, 2019, theThe Company expects pension expense from continuing operationsnet periodic benefit cost ("NPBC") to increasedecrease in 20202023 by approximately $125 million.$115 million, resulting in an NPBC credit. The increasedecrease is driven primarily by discount rate increases, resulting in pension expense is primarily due toa reduction in the decrease in discount rates and curtailment gainsamortization of $27 million recognized in 2019 that are not expected to recur in 2020.actuarial losses, partially offset by higher interest cost.
A 25 basis point increase or decrease in the long-term return on assets assumption would change the Company’s total pension expenseNPBC credit for 20202023 by $59$58 million. A 25 basis point increase in the discount rate assumption would lowerdecrease the Company's total pension expenseNPBC credit for 20202023 by $54$4 million. A 25 basis point decrease in the discount rate assumption would increasedecrease the Company's total pension expenseNPBC credit for 20202023 by $56$23 million. A 25 basis point change in the long-term return and discount rate assumptions would have an immaterial impact on the other postretirement benefit expense for 2020.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Company recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.
At December 31, 2019,2022, the Company had a net deferred tax assetliability balance of $1,866$150 million, after valuation allowances of $1,262$1,269 million.
In evaluating the ability to realize the deferred tax assets, the Company relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.
At December 31, 2019, theThe Company had deferredfiles tax assets for tax lossreturns in multiple jurisdictions and tax credit carryforwards of $1,920 million, $295 million of which is subject to expirationexamination by taxing authorities throughout the world. Tax authorities have the ability to review and challenge matters that could be subject to differing interpretation of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of tax attributes. The ultimate resolution of such uncertainties could last several years. When an uncertain tax position is identified, the Company considers and interprets complex tax laws and regulations in the years 2020 through 2024. In order to realize these deferreddetermine the need for recognizing a provision in its financial statements. Significant judgment is required in determining the timing and measurement of uncertain tax assets forpositions. The Company utilizes internal and external expertise in interpreting tax loss andlaws to support the Company's tax credit carryforwards, the Company needs taxable income of approximately $27,010 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2020 through 2024 is approximately $3,388 million.
positions. The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2019,2022, the Company had uncertain tax positions for both domestic and foreign issues of $319 million.
The Company accrues for non-income 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. At December 31, 2019, the Company had a non-income tax contingency reserve for both domestic and foreign issues of $44 million.
Indemnification Assets and Liabilities
In connection with the 2019 separation from DowDupont and the 2016 ownership restructure of Dow Silicones, Dow entered into agreements that established each party’s indemnification obligations for certain tax, environmental, litigation and other matters, subject to certain conditions and limits. The Company records indemnification assets when collection is deemed probable and engages with indemnifying parties and assesses publicly available information to evaluate collectability. The underlying tax, environmental, litigation and other liabilities for which the Company claims indemnification are subject to significant judgment and potential disputes could adversely impact collectability. The Company assesses the collectability of indemnification assets when events or changes in circumstances indicate the carrying values may not be recoverable. At December 31, 2019, indemnification assets were $210$520 million and $100$498 million for Dow Inc.interest and TDCC respectively (zero for both at December 31, 2018).penalties.
The Company records indemnification liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. At December 31, 2019, indemnification liabilities related to the agreements were $848 million for Dow Inc. and zero for TDCC (zero for both at December 31, 2018). This represents management’s best estimate of the Company’s obligations under the agreements, although it is reasonably possible that future events could cause the actual values to be higher or lower than those projected or those recorded. For further discussion, see Notes 4 and 17 to the Consolidated Financial Statements.
Environmental Matters
Environmental Policies
Dow is committed to world-class environmental, health and safety (“EH&S”) performance, as demonstrated by industry-leading performance,results, a long-standing commitment to Responsible Care®, and a strong commitment to achieve the Company's 2025 Sustainability Goals –and Dow's drive to deliver against new targets on climate protection and a circular economy. These goals thatand targets set the standard for sustainability in the chemical industry, by focusing on improvements in the Company’s local corporate citizenship and product stewardship, and by actively pursuing methods to reduce itsthe Company's environmental impact.
To meet the Company’s public commitments, as well as the stringent laws and government regulations related to environmental protection and remediation to which its global operations are subject, the Company has well-defined
policies, requirements and management systems. The Company's EH&S Management System (“EMS”) defines the “who, what, when and how” needed for the businesses to achieveimplement the Company’s policies and requirements and meet performance objectives, leadership expectations and public commitments. To ensure effective utilization, theThe EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources.
It is the Company's policy to adhere to a waste management hierarchy that minimizes the impact of wastes and emissions on the environment. First, work to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Second, find ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. The Company has specific requirements for waste that is transferred to non-Dow facilities, including the periodic auditing of these facilities.
The Company believes third-party verification and transparent public reporting are cornerstones of world-class EH&S performance and building public trust. Numerous Dow sites in Europe, Latin America, Asia Pacific and the U.S. & Canada have received third-party verification of the Company’s compliance with Responsible Care® and with outside specifications such as ISO-14001. The Company continues to be a global champion of Responsible Care® and has worked to broaden the application and impact of Responsible Care® around the world through engagement with suppliers, customers and joint venture partners.
Dow manages environmental data for reporting with a waste, water and emissions inventory system. All manufacturing sites globally record their emissions and water use in the system. The Company’sdata is reviewed at the facility level and then by global coordinators before being aggregated for ESG reporting.
Dow's EH&S policies helpedhelp to achieve improvements in many aspects of EH&S performance in 2019. The Company’s processensure the Company achieves its annual health and safety performance was excellent in 2019targets and improvements were made in injury/illness rates,the Company seeks to continuously improve on these targets through process and personal safety remains a priority. Further improvementproject implementations. Improvement in these areas, as well as environmental compliance, remains a top management priority, with initiatives underway to further improve performance and compliance in 2020 as the Company continues to implement theits 2025 Sustainability Goals.Goals and progressive, multi-decade sustainability targets that include advancing a circular economy and climate protection. Progress is reviewed regularly by management and with the Environment, Health, Safety & Technology Committee of the Board.
Detailed information on Dow’s performance regarding environmental matters and goals can be found online onis accessible through the Company's Science & Sustainability webpage at www.dow.com/sustainability. TheDow's website and its content are not deemed incorporated by reference into this report.
Chemical Security
Public and political attention continues to be placed on the protection of critical infrastructure, including the chemical industry, from security threats. Terrorist attacks,Sabotage, terrorism, war, natural disasters and cyber incidents have increased concernglobal concerns about the security and safety of chemical production and distribution. Many, including the Company and the American Chemistry Council, have called for uniform risk-based and performance-based national standards for securing the U.S. chemical industry. The Maritime Transportation Security Act of 2002 and itsCompany is subject to U.S. regulations further set forthwith established risk-based and performance-based standards that must be met at U.S. Coast Guard-regulated facilities.and Chemical Facility Anti-Terrorism Standards-regulated facilities promulgated by the U.S. Chemical Plant Security legislation was passed in 2006 and the Department of Homeland Security is now implementing the regulations known as the Chemical Facility Anti-Terrorism Standards.Security. The Company is complying withalso subject to the requirements of the Rail Transportation Security Rule issued by the U.S. Transportation Security Administration. The Company continues to support uniform risk-based national standards for securing the chemical industry.
The focusSince 1988, the Company has maintained a comprehensive, multi-level security plan that focuses on security, emergency planning, preparedness and response is not new to the Company. A comprehensive, multi-level security plan has been maintained since 1988.response. This plan, which has been activated in response to significant world and national events, since then, is reviewed on an annual basis. The Company continues to improve its security plans, placing emphasis on the safety of Dow communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. The security plan includes regular vulnerability assessments, security audits, mitigation efforts and physical security upgrades designed to reduce vulnerability. The Company’s security plans are also are developeddesigned to avert interruptions of normal business operations that could materially and adversely affect the Company’s results of operations, liquidityfinancial condition and financial condition.cash flows.
The Company played a key role in the development and implementation of the American Chemistry Council’s Responsible Care® Security Code ("Security Code"), which requires that all aspects of security – including facility, transportation and cyberspace – be assessed and gaps addressed. Through the global implementation of the Security Code, the Company has permanently heightened the level of security – not just in the U.S.,United States, but worldwide. The Company employs several hundred employees and contractors in its Emergency Services and Security department worldwide. In 2019, the Company established its Global Security Operations Center ("GSOC") to provide 24-hour/day, 365-day/year real-time monitoring of global risks to Dow assets and people. The GSOC employs state-of-the-art social media monitoring, threat reporting and geo-fencing capabilities to analyze global risks and report those risks, facilitating decision-making and actions to prevent Dow crises.
Through the implementation of the Security Code, including voluntary security enhancements and upgrades, made since 2002, the Company is well-positioned to comply with U.S. chemical facility regulations and other regulatory security frameworks. The Company is currently participatingparticipates with the American Chemistry Council to periodically review and update the Security Code.
The Company continues to work collaboratively across the supply chain on Responsible Care®, Supply Chain Design, Emergency Preparedness, Shipment Visibilitysupply chain design, emergency preparedness, shipment visibility and transportation of hazardous materials. The Company is cooperatingcooperated with public and private entities to lead the implementation of advanced tank car design, and track and trace technologies. Further, the Company’s Distribution Risk Review process that has been in place for decades was expanded to addressaddresses potential threats in all modes of transportation across the Company’s supply chain. To reduce vulnerabilities, the Company maintains security measures that meet or exceed regulatory and industry security standards in all areas in which they operate.
The Company's initiatives relative to chemical security, emergency preparedness and response, Community Awareness and Emergency ResponsesResponse and crisis management are implemented consistently at all Dow sites on a global basis. Each Dow site has established outreach programs designed to engage community stakeholders with objectives centered around awareness of Dow operations, products, and efforts to protect worker and community health and the environment. These programs also educate community members on emergency planning and response, emissions and waste, future site plans to reduce waste and emissions, and process safety systems. Finally, these outreach efforts establish an opportunity for Dow site leaders to hear about community stakeholder expectations and address questions and concerns about safety, health, environmental or other issues. The Company participates with chemical associations globally and participates as an active member of the Global Congress on Chemical Security and Emerging Threats and in positions of leadership in the U.S. delegationChemical Sector Coordinating Council.
Climate Protection
Addressing climate-related risks and opportunities is part of Dow’s overall climate strategy. This science-based strategy includes a phased approach to decarbonize while meeting growing demand for Dow's products and contributing to a low-carbon future through continued investment in new products, technologies and processes. In 2020, Dow announced commitments to reduce its net annual Scope 1 and 2 carbon emissions by an additional 5 million metric tons by 2030 versus its 2020 baseline, a 15 percent reduction and a 30 percent reduction since 2005 as Dow had reduced its carbon emissions 15 percent between 2005 and 2020. Additionally, Dow announced its intention to be carbon neutral by 2050 (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits). Reflecting Dow's focus to make meaningful progress in the near term, Dow intends to reduce its carbon emissions by approximately 2 million metric tons from 2022 to 2025 while growing underlying earnings. Dow is also committed to advancing water stewardship within the Company's operations and to working collaboratively to enhance water management at the watershed level. As part of this commitment, Dow has set a global target to reduce freshwater intake intensity by 20 percent at its key water-stressed sites by 2025.
Despite these commitments, climate change-related risks and uncertainties, legal or regulatory responses to climate change, and failure to meet climate change commitments could negatively impact Dow’s operations, financial condition and/or reputation. Climate-related risks include both physical and transition risks.
Physical Risks
Climate-related physical risks include more frequent severe weather events, potential changes in precipitation patterns, water scarcity and extreme variability in weather patterns, which can disrupt the operations of the Company as well as those of its customers, partners and vendors. In 2021, Dow partnered with S&P Global Trucost (Trucost) to assess the Company’s exposure to climate-related physical risks based on the geographic location of manufacturing operations. The risks assessed included water stress, heat waves, cold waves, droughts, hurricanes, wildfires and flooding. The analysis included an assessment of the physical risks using a baseline year of 2020 with time periods ranging to 2050, and scenarios of low, moderate and high climate change. Based on the Trucost methodology, which scores the exposure of sites to physical risks relative to global conditions, Dow was assessed at moderate exposure in 2050 under all scenarios, with a weighted average that is slightly lower than the average of the materials industry (as defined by Trucost). Dow will use this information to inform decision-making at sites with respect to managing climate-related physical risks.
Transition Risks
Climate-related transition risks include the availability, development and affordability of lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements.
Climate Opportunities and Actions
There are also significant climate opportunities for Dow, including the ability to be a leader in the development of lower emissions technology, such as Dow’s 2021 announcement to build a net-zero (Scope 1 & 2 emissions) ethylene and derivatives complex in Alberta, Canada. Additional opportunity actions to achieve carbon neutrality include expanding access to clean power, developing lower carbon emissions manufacturing technology, such as Dow's proprietary FCDh technology, and collaborating with Shell to develop electrified cracking technology powered by clean energy. Dow’s technology and materials science leadership also provide a significant opportunity to deploy materials to help reduce emissions for customers and industries that will allow Dow to capture value from increasing demand for low-carbon and sustainable products. These are just some examples of critical steps on Dow’s path to carbon neutrality by 2050 while enabling business growth.
The potential impacts of climate-related risks and opportunities are part of Dow’s climate strategy and factored into the Company’s business and financial planning. When assessing the magnitude of impact, Dow evaluates elements such as changes to the G7 Global Partnership Sub-Working Groupcost of raw materials, impact on Chemical Security.operating cost (e.g., energy costs, costs of complying with regulation), cost of investment in new technology to reduce emissions, impact to the price at which products can be sold, impact of potential lost sales or, in the case of opportunities, improvements in production, increased revenues, cost efficiencies and market share gained. In addition, there could be impacts that need to be considered that cannot be financially quantified (e.g., reputational impact of certain risks and opportunities).
Dow is taking specific actions to mitigate identified climate-related physical and transition risks, while also advancing opportunities in several key areas. These include:
•Optimizing Manufacturing Facilities and Processes for Sustainability: Dow is investing approximately $1 billion in annual capital spending allocation to decarbonize assets, in a phased approach, while growing capacity. This investment plan includes large, industry-leading projects, such as the announced net-zero carbon emissions (Scope 1 & 2 emissions) site in Alberta, Canada, as well as emissions-reduction investments in existing facilities and replacement of end-of-life carbon intensive assets with state-of-the-art, carbon-efficient and sustainable technologies. In 2021, Dow implemented energy efficiency and emissions reduction projects, reducing energy consumption by 1.232 million kilojoules per year and amounting to 611,500 metric tons of carbon dioxide ("CO2") reduction. In 2021, Dow’s Terneuzen site outlined a roadmap to support the Dutch Climate Change
Climate change matters forAgreement and enable a reduction of 1.7 million metric tons of CO2 annually by 2030 versus a 2020 baseline. These projects are part of Dow’s roadmap that will enable the Company are likely to be driven by changes in regulations, public policydecarbonize its manufacturing while meeting growing demand for its products and physical climate parameters.
Regulatory Matters
Regulatory matters include capincludes replacing end-of-life assets with high-efficiency, low-carbon assets. Dow is also working to reduce water use and trade schemes; increased greenhouse gas (“GHG”) limits; and taxes on GHG emissions, fuel and energy. The potential implications of each of these matters are all very similar, including increased cost of purchased energy, additional capital costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes), which are primarily related to energy use. It is difficult to estimate the potential impact of these regulatory matters on energy prices.water stress. One example is the Company’s commitment to 100 percent water circularity by 2025 at Dow’s site in Terneuzen, The Netherlands.
Reducing the Company's overall energy usage and GHG emissions through new and unfolding projects will decrease the potential impact of these regulatory matters. The Company also has a dedicated commercial group to handle energy contracts and purchases, including managing emissions trading. The Company has not experienced any material impact related to regulated GHG emissions, and continues to evaluate and monitor this area for future developments.
Physical Climate Parameters
Many scientific academies throughout the world have concluded that it is very likely that human activities are contributing to global warming. At this point, it is difficult to predict and assess the probability and opportunity of a global warming trend on the Company specifically. Preparedness plans are developed that detail actions needed•Increasing Clean Energy in the event of severe weather. These measures have historically been in place and these activities and associated costs are driven by normal operational preparedness.Purchased Power Mix: Dow continues to studyinvest in cost-efficient clean energy, including wind, solar and hydropower, across operations. In 2021, Dow expanded access to renewable power to more than 900 megawatts, so that more than 25 percent of purchased electricity comes from renewable sources. Dow is a leading user of renewable energy in the long-term implicationschemical industry and in the top 20 among global corporations according to BloombergNEF. Dow is also collaborating with X-energy with the intent to deploy carbon-free small modular nuclear technology options at one of changing climate parametersthe Company's U.S. sites by approximately 2030.
•Developing Next Generation, Low-Carbon Manufacturing Technologies: Dow is investing in longer-term, future-focused manufacturing technologies that will be critical in the decarbonization of the Company's manufacturing. For example, Dow is collaborating with Shell on water availability, plant siting issues,technology to electrically heat steam cracker furnaces. Combining electrical cracking with clean electricity sources would reduce the CO2 footprint of the production process to near zero emissions. Dow also developed its proprietary FCDh technology, which can be used to make cracking a less carbon intensive process, and impactshas installed the technology in a mixed-feed cracker in Louisiana to produce on-purpose propylene, reducing energy use and opportunitiesemissions by up to 20 percent. Dow is leveraging the learnings from the FCDh development to also advance ethane dehydrogenation technology for products.
Dow’s Energy businessethylene and Public Affairs and Sustainability functions are tasked with developing and implementing a comprehensive strategy that addressespropylene production, which has the potential challenges of energy security and GHGto reduce emissions on the Company. Dow continuesby 40 to elevate its internal focus and external positions - to focus on the root causes of GHG emissions - including the unsustainable use of energy. The Company's energy plan provides the roadmap:
Conserve - aggressively pursue energy efficiency and conservation
Optimize - increase and diversify energy resources
Accelerate - develop cost-effective, clean, renewable and alternative energy sources
Transition - to a sustainable energy future
Through corporate•Developing Low-Carbon Products, Technologies and Services: Dow products are essential to a low carbon future, and the Company wants the world’s best brands to look to Dow to help them achieve their goals and make their products more sustainable. Dow is helping its customers achieve their climate goals by providing products that facilitate energy efficiency, programslight weighting, fuel transition, circularity, increased operational efficiency, resource reductions and reduced emissions. Examples include Dow’s MobilityScience™ platform, which is focused GHG managementon developing cutting-edge material innovations that will enable the next generation of electric and autonomous vehicles to achieve longer range, greater comfort, enhanced safety, and a lower carbon footprint. Dow’s ENDURANCE™ compounds for cable systems support next-generation, longer-life, and lower-carbon emissions infrastructure, including on- and off-shore windfarms. Dow’s Novel ENDURANCE™ HFDD 4201 enables significantly lower-carbon emissions (approximately 80 percent), and material and energy savings during cable production. Additionally, in September 2022, Dow introduced DOWSIL™ Immersion Cooling Technology, a next-generation solution for cooling hyperscale cloud enterprise data centers with optimized efficiency and sustainability. DOWSIL™ ICL-1000 Fluid, the first product in this new technology family, is estimated to absorb heat about one thousand times more efficiently than air-cooled systems, resulting in up to a 95 percent reduction in energy use for server cooling and up to a 50 percent reduction in overall data center power consumption. This product can also be recycled to increase its circularity.
Advancing a Circular Economy
Dow’s vision for turning the tide on plastic waste is centered on solving challenges: from designing for recyclability at the beginning of a product’s life to increasing Dow's capacity to use plastic waste as feedstock and other alternative feedstock, enabling plastic waste to be blended with virgin plastic as recycled resins, and building and partnering in industrial ecosystems to close the loop. The issue is complex, and through partnerships, Dow is working across the value chain to improve access to collection, recycling, and processing infrastructure and to create new circular business models. Improving circularity of plastics through recycling and reuse is critical to a world that is also targeting carbon emissions reduction. The lower-carbon benefits of polyethylene-based packaging serve as a key driver and source of value, as well as the lifecycle perspective of plastic versus other available materials. Moving to circular products includes increasing the share of plastics production from circular feedstocks. In 2020, Dow announced "stop the waste" and "close the loop" targets to address plastic waste and, in 2022, Dow committed to accelerating the circular ecosystem by turning waste and alternative feedstock into raw materials that help deliver 3 million metric tons per year of circular and renewable solutions by 2030 with a new "transform the waste" sustainability target.
Meeting this expanded “transform the waste” target will require investments in technologies and infrastructure and strategic partnerships. To do this, Dow will expand its efforts to “stop the Company haswaste” by building industrial ecosystems to collect, reuse or recycle waste and expand its portfolio to meet rapidly growing demand. Dow expects the waste required to produce this expanded target to surpass and replace the original 1 million metric ton stop the waste goal. Dow is also catalyzing a circular economy for plastics through global partnerships with non-governmental
organizations and investors, such as the Alliance to End Plastic Waste, The Recycling Partnership, Circulate Capital and Closed Loop Partners. Additionally, Dow is accelerating its progress through several recently announced circular and mechanical offtake agreements and projects that will help contribute to achieving the new target, including:
•Agreements with Mura Technology to construct multiple world-scale advanced recycling facilities in the U.S. and Europe, collectively adding as much as 600 kilotons of annual capacity.
•An investment to build the largest single hybrid recycling site in France, managed by Valoregen, which will secure a source of post-consumer resins (“PCR”) for Dow.
•Mechanical recycling collaboration with Boomera LAR in Brazil.
•An investment in Mr. Green Africa and an agreement to co-develop more traceable, fair, and high-quality PCR that can be used in the production of new flexible plastic packaging.
•A memorandum of understanding with Lucro Plastecycle to develop and launch polyethylene film solutions using PCR plastics in India.
•The launch of a bold new collaboration with WM to improve consumer recycling for hard-to-recycle plastic films throughout the U.S. by allowing consumers to recycle these materials directly in their curbside recycling. Once operating at full capacity, this collaboration is expected to divert more than 120,000 metric tons of plastic film from landfills annually.
Dow is also working directly with its customers, brand owners and the value chain to help customers redesign and create packaging solutions that are both high-performance and recyclable or made with circular polymers. Dow continuously invests in application development, packaging redesign and infrastructure improvements to deliver on the Company's circularity goals.
As one of the world’s largest producers of plastic, Dow wants to put an end to plastic waste. Eliminating plastic waste is about more than just recycling and reusing. It is about creating innovative solutions that are sustainable and continuing to reduce its GHG emissions footprint. Dow’s manufacturing intensity, measuredinvest in Btu per poundan industrial ecosystem for the circular economy.
Environmental Remediation
For comparison of product, has improved by more than 40 percent since 1990. As partenvironmental remediation-related matters for the fiscal years ended December 31, 2021 and 2020, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2025 Sustainability Goals,Company's Annual Report on Form 10-K for the Company will maintain GHG emissions below 2006 levels on an absolute basis for all GHGs.
The Company intends to implement the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures ("Task Force") over the next three years, which is alignedfiscal year ended December 31, 2021, filed with the recommendations of the Task Force.SEC on February 4, 2022.
Environmental Remediation
The Company accrues the costs of remediation of its facilities and formerly owned facilities based on current law and regulatory requirements. The nature of such remediation can include management of soil and groundwater contamination. The accounting policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note 1 to the Consolidated Financial Statements. To assess the impact on the financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and the ability to apply remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Company had an accrued liability of $948 million at December 31, 2019,2022, related to the remediation of current or former Dow-owned sites. At December 31, 2018,2021, the liability related to remediation was $654$983 million.
In addition to current and former Dow-owned sites, under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and equivalent state laws (hereafter referred to collectively as "Superfund Law"), the Company is liable for remediation of other hazardous waste sites where the Company allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. Because Superfund Law imposes joint and several liability upon each party at a site, the Company has evaluated its potential liability in light of the number of other companies that have also have been named potentially responsible parties (“PRPs”) at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. The Company’s remaining liability for the remediation of Superfund sites was $207$244 million at December 31, 20192022 ($156237 million at December 31, 2018)2021). The Company has not recorded any third-party recovery related to these sites as a receivable.
Information regarding environmental sites is provided below:
| | | | | | | | | | | | | | |
| Environmental Sites | Dow-owned Sites 1 | Superfund Sites 2 |
| 2022 | 2021 | 2022 | 2021 |
| Number of sites at Jan 1 | 171 | | 185 | | 134 | | 132 | |
| Sites added during year | — | | 2 | | 2 | | 5 | |
| Sites closed during year | — | | (16) | | (6) | | (3) | |
| Number of sites at Dec 31 | 171 | | 171 | | 130 | | 134 | |
|
| | | | | | | | |
| Environmental Sites | Dow-owned Sites 1 | Superfund Sites 2 |
| 2019 | 2018 | 2019 | 2018 |
| Number of sites at Jan 1 | 178 |
| 181 |
| 131 |
| 131 |
|
| Sites added during year | 7 |
| 3 |
| 6 |
| 2 |
|
| Sites closed during year | (7 | ) | (6 | ) | (4 | ) | (2 | ) |
| Number of sites at Dec 31 | 178 |
| 178 |
| 133 |
| 131 |
|
| |
1. | Dow-owned sites are sites currently or formerly owned by the Company. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law. At December 31, 2019, 28 of these sites (32 sites at December 31, 2018) were formerly owned by Dowell Schlumberger, Inc., a group of companies in which the Company previously owned a 50 percent interest. The Company sold its interest in Dowell Schlumberger in 1992. |
| |
2. | Superfund sites are sites, including sites not owned by the Company, where remediation obligations are imposed by Superfund Law. |
2.Superfund sites are sites, including sites not owned by the Company, where remediation obligations are imposed by Superfund Law.
Additional information is provided below for the Company’s Midland, Michigan, manufacturing site and Midland off-site locations (collectively, the "Midland sites"), as well as a Superfund site in Wood-Ridge, New Jersey, the locations for which the Company has the largest potential environmental liabilities.
In the early days of operations at the Midland manufacturing site, wastes were usually disposed of on-site, resulting in soil and groundwater contamination, which has been contained and managed on-site under a series of Resource Conservation and Recovery Act permits and regulatory agreements. The Hazardous Waste Operating License for the Midland manufacturing site, issued in 2003, and renewed and replaced in September 2015, also included provisions for the Company to conduct an investigation to determine the nature and extent of off-site contamination from historic Midland manufacturing site operations. In January 2010, the Company, the U.S. Environmental Protection Agency ("EPA") and the State of Michigan ("State") entered into an Administrative Order on Consent 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 CERCLA. See Note 1715 to the Consolidated Financial Statements for further information relating to Midland off-site environmental matters.
Rohm and Haas, a wholly owned subsidiary of the Company, is a PRP at the Wood-Ridge, New Jersey Ventron/Velsicol Superfund Site, and the adjacent Berry’s Creek Study Area ("BCSA") (collectively, the "Wood-Ridge sites"). Rohm and Haas is a successor
in interest to a company that owned and operated a mercury processing facility, where wastewater and waste handling resulted in contamination of soils and adjacent creek sediments. In 2018, the Berry’s Creek Study Area Potentially Responsible Party Group (“PRP Group”), consisting of over 100 PRPs, completed a Remedial Investigation/Feasibility Study for the BCSA. During that time, the EPA concluded that an “iterative or adaptive approach” was appropriate for cleaning up the BCSA. Thus, each phase of remediation will be followed by a period of monitoring to assess its effectiveness and determine if there is a need for more work. In September 2018, the EPA signed a Record of Decision ("ROD 1") which describes the initial phase of the EPA’s plan to clean-up the BCSA. ROD 1 will remediate waterways and major tributaries in the most contaminated part of the BCSA. The PRP Group has signed agreements with the EPA to design the selected remedy. Although there is currently much uncertainty as to what will ultimately be required to remediate the BCSA and Rohm and Haas's share of these costs has yet to be determined, the range of activities that are required in the interim Record of Decision is known in general terms.
At December 31, 2019,2022, the Company had accrued liabilities totaling $368$339 million ($240358 million at December 31, 2018)2021) for environmental remediation at the Midland and Wood-Ridge sites. In 2019,2022, the Company spent $32$37 million ($3238 million in 2018)2021) for environmental remediation at the Midland and Wood-Ridge sites.
During the third quarter of 2019, the Company accrued additional liabilities totaling $447 million related to environmental remediation matters at a number of current and historical locations. The additional accrual 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. Net of indemnifications, the Company recognized a pretax charge of $399 million related to these environmental matters, included in “Cost of sales” in the consolidated statements of income.
In total, the Company’s accrued liability for probable environmental remediation and restoration costs was $1,155$1,192 million at December 31, 2019,2022, compared with $810$1,220 million at December 31, 2018.2021. 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 halftwo 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 and cash flows.
The amounts charged to income on a pretax basis related to environmental remediation totaled $588 million in 2019, $176 million in 20182022 and $163$158 million in 2017.2021. The amounts charged to income on a pretax basis related to operating the Company's current pollution abatement facilities, excluding internal recharges, totaled $677$773 million in 2019, $6952022 and $761 million in 2018 and $566 million in 2017.2021. Capital expenditures for environmental protection were $83$137 million in 2019, $552022 and $65 million in 2018 and $57 million in 2017.2021.
Asbestos-Related Matters of Union Carbide Corporation
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. 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.
For comparison of asbestos-related matters of Union Carbide Corporation for the fiscal years ended December 31, 2021 and 2020, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 4, 2022.
The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants:
| | | | | | | | | |
| Asbestos-Related Claim Activity | 2022 | 2021 | |
| Claims unresolved at Jan 1 | 8,747 | | 9,126 | | |
| Claims filed | 4,664 | | 4,233 | | |
| Claims settled, dismissed or otherwise resolved | (6,538) | | (4,612) | | |
| Claims unresolved at Dec 31 | 6,873 | | 8,747 | | |
| Claimants with claims against both Union Carbide and Amchem | (1,530) | | (2,139) | | |
| Individual claimants at Dec 31 | 5,343 | | 6,608 | | |
|
| | | | | | |
| Asbestos-Related Claim Activity | 2019 | 2018 | 2017 |
| Claims unresolved at Jan 1 | 12,780 |
| 15,427 |
| 16,141 |
|
| Claims filed | 5,743 |
| 6,599 |
| 7,010 |
|
| Claims settled, dismissed or otherwise resolved | (7,406 | ) | (9,246 | ) | (7,724 | ) |
| Claims unresolved at Dec 31 | 11,117 |
| 12,780 |
| 15,427 |
|
| Claimants with claims against both Union Carbide and Amchem | (3,837 | ) | (4,675 | ) | (5,530 | ) |
| Individual claimants at Dec 31 | 7,280 |
| 8,105 |
| 9,897 |
|
Plaintiffs’ lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to Union Carbide, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no asbestos personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide’s litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.
For additional information see Part I, Item 3. Legal Proceedings and Asbestos-Related Matters of Union Carbide Corporation in Note 1715 to the Consolidated Financial Statements.
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| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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, the Thai baht and the Chinese yuan,Argentinian peso, although exposures also exist in the Canadian dollar, the Indian rupee and other currencies in Asia Pacific, Canada, Latin America, the Middle East, Africa and Africa.India.
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 20192022 and 20182021 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.
| | | | | | | | | | | | | | |
| Total Daily VAR by Exposure Type at Dec 31 | 2022 | 2021 |
| In millions | Year-end | Average | Year-end | Average |
| Commodities | $ | 72 | | $ | 56 | | $ | 26 | | $ | 17 | |
| Equity securities | 10 | | 9 | | 7 | | 11 | |
| Foreign exchange | 7 | | 18 | | 24 | | 15 | |
| Interest rate | 252 | | 230 | | 143 | | 112 | |
| Composite | $ | 341 | | $ | 313 | | $ | 200 | | $ | 155 | |
|
| | | | | | | | | | | | |
| Total Daily VAR by Exposure Type at Dec 31 | 2019 | 2018 |
| In millions | Year-end | Average | Year-end | Average |
| Commodities | $ | 7 |
| $ | 12 |
| $ | 26 |
| $ | 30 |
|
| Equity securities | 10 |
| 11 |
| 12 |
| 7 |
|
| Foreign exchange | 43 |
| 36 |
| 26 |
| 28 |
|
| Interest rate | 77 |
| 69 |
| 81 |
| 80 |
|
| Composite | $ | 137 |
| $ | 128 |
| $ | 145 |
| $ | 145 |
|
The Company’s compositedaily VAR for the aggregate of all positions decreasedincreased from $145a composite VAR of $200 million at December 31, 20182021 to $137a composite VAR of $341 million at December 31, 2019.2022. The interest rate and commodities VAR declinedincreased due to a decreasean increase in exposure.interest rate volatility. The equity securities VAR declinedincreased due to an increase in equity volatility and an increase in equity exposure. The foreign exchange VAR decreased due to a decrease in managed exposures and lower equity volatility.exposures. The foreign exchangecommodities VAR increased due to increased hedging.an increase in managed exposures and an increase in commodity volatility. See Note 2321 to the Consolidated Financial Statements for further disclosure regarding market risk.
| | |
| 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, 20192022 and 2018,2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes and the schedule listed in the Index at Item 15(a)2(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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, 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)(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019,2022, 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, 2020,1, 2023, 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 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)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) relate 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 -
Uncertain Tax Positions — Refer to NoteNotes 1 and Note 147 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually (inhas a complex legal structure involving numerous domestic and foreign locations with constantly changing tax laws, regulations, and legal interpretations. The Company’s management is required to interpret and apply these tax laws and regulations in determining the fourth quarter), or more frequently when events or changes in circumstances indicateamount of its income tax liability and provision. When an uncertain tax position is identified by management, the Company must evaluate if it is more likely than not, based on the technical merits, that the fair value of a reporting unit has declined below its carrying value.uncertain tax position will be sustained upon examination. The Company utilizesrecognizes a discounted cash flow methodologybenefit for tax positions using the highest cumulative tax benefit that is more likely than not to calculate the fair valuebe realized. The Company establishes a liability for unrecognized tax benefits that do not meet this threshold.
The evaluation of each uncertain tax position requires management to makeapply specialized skill, knowledge, and significant estimates and assumptionsjudgment related to projected revenue growth rates, discount rates,the identified position. The Company’s liability for unrecognized tax benefits and earnings beforerelated accrued 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. Aspenalties as of December 31, 2019,2022 was $520 million and $498 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company has six reporting units, all but one of which have goodwill.
Throughout 2019, the Coatings & Performance Monomers reporting unit (“C&PM”) did not consistently meet expected financial targets and experienced volume reductions and reduced margins for products across the portfolio due to changes in customer buying patterns and supply and demand balances, as well as the continued trend of customer consolidation 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 value of C&PM. As a result, the Company recorded a goodwill impairment charge of $1,039 million in the fourth quarter of 2019.
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 included the following, among other procedures:
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 2019 to the forecasted results from 2018.
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 yearsoperates, auditing uncertain tax positions and the projection period.
Withdetermination of whether 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, whichmore likely than not threshold 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 requiredmet requires a high degree of auditor judgment and increased extent of effort, including the need to involveinvolvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.income tax specialists.
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 investmentuncertain tax positions 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,income taxes, including management’s evaluation of the assumptions used such as discount rate, terminal value,those over identifying uncertain tax positions and long-term growth rate.measuring liabilities.
•We evaluated, the consistency of the assumptions and judgments relating to the discount rate, terminal value, and long-term growth rates by comparing to:
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◦ | Agreements in place between Sadara and Dow |
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◦ | 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.
Withwith the assistance of our fair valueincome tax specialists, we evaluated (1) the valuation methodology usedCompany’s uncertain tax positions by performing the following:
–Obtaining Company and model being used (2)third-party opinions or memoranda regarding the assumptions useduncertain tax positions.
–Identifying key judgements underlying the Company’s position and evaluating whether the conclusions are consistent with our interpretation of the relevant laws and regulations.
–Evaluating the Company’s method of measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the basis for certain intercompany transactions, such as the discount rate, terminal value,transfer pricing, by comparison to economic studies performed by management and the long-term growth ratethird-party data.
–Evaluating matters raised by testing the underlying source information,taxing authorities in former and by developing a rangeongoing tax audits.
–Assessing changes and interpretation of independent estimates and comparing those to the rates selected by management.applicable tax law.
|
| |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| February 1, 2023 |
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, 20192022 and 2018,2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes and the schedule listed in the Index at Item 15(a)2(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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, 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)(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019,2022, 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, 2020,1, 2023, 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 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.it relates.
Goodwill - Coatings & Performance Monomers Reporting Unit -
Uncertain Tax Positions — Refer to NoteNotes 1 and Note 147 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually (inhas a complex legal structure involving numerous domestic and foreign locations with constantly changing tax laws, regulations, and legal interpretations. The Company’s management is required to interpret and apply these tax laws and regulations in determining the fourth quarter), or more frequently when events or changes in circumstances indicateamount of its income tax liability and provision. When an uncertain tax position is identified by management, the Company must evaluate if it is more likely than not, based on the technical merits, that the fair value of a reporting unit has declined below its carrying value.uncertain tax position will be sustained upon examination. The Company utilizesrecognizes a discounted cash flow methodologybenefit for tax positions using the highest cumulative tax benefit that is more likely than not to calculate the fair valuebe realized. The Company establishes a liability for unrecognized tax benefits that do not meet this threshold. The evaluation of its reporting units, whicheach uncertain tax position requires management to makeapply specialized skill, knowledge, and significant estimates and assumptions
judgment related to projected revenue growth rates, discount rates,the identified position. The Company’s liability for unrecognized tax benefits and earnings beforerelated accrued 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. Aspenalties as of December 31, 2019,2022 was $520 million and $498 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company has six reporting units, all but one of which have goodwill.
Throughout 2019, the Coatings & Performance Monomers reporting unit (“C&PM”) did not consistently meet expected financial targets and experienced volume reductions and reduced margins for products across the portfolio due to changes in customer buying patterns and supply and demand balances, as well as the continued trend of customer consolidation 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 value of C&PM. As a result, the Company recorded a goodwill impairment charge of $1,039 million in the fourth quarter of 2019.
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 included the following, among other procedures:
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 2019 to the forecasted results from 2018.
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 yearsoperates, auditing uncertain tax positions and the projection period.
Withdetermination of whether 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, whichmore likely than not threshold 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 requiredmet requires a high degree of auditor judgment and increased extent of effort, including the need to involveinvolvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.income tax specialists.
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 investmentuncertain tax positions 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,income taxes, including management’s evaluation of the assumptions used such as discount rate, terminal value,those over identifying uncertain tax positions and long-term growth rate.measuring liabilities.
•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.
Withwith the assistance of our fair valueincome tax specialists, we evaluated (1) the valuation methodology usedCompany’s uncertain tax positions by performing the following:
–Obtaining Company and model being used (2)third-party opinions or memoranda regarding the assumptions useduncertain tax positions.
–Identifying key judgements underlying the Company’s position and evaluating whether the conclusions are consistent with our interpretation of the relevant laws and regulations.
–Evaluating the Company’s method of measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the basis for certain intercompany transactions, such as the discount rate, terminal value,transfer pricing, by comparison to economic studies performed by management and the long-term growth ratethird-party data.
–Evaluating matters raised by testing the underlying source information,taxing authorities in former and by developing a rangeongoing tax audits.
–Assessing changes and interpretation of independent estimates and comparing those to the rates selected by management.applicable tax law.
|
| |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| February 1, 2023 |
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, | 2022 | 2021 | 2020 |
| Net sales | $ | 42,951 |
| $ | 49,604 |
| $ | 43,730 |
| Net sales | $ | 56,902 | | $ | 54,968 | | $ | 38,542 | |
| Cost of sales | 36,657 |
| 41,074 |
| 36,350 |
| Cost of sales | 48,338 | | 44,191 | | 33,346 | |
| Research and development expenses | 765 |
| 800 |
| 803 |
| Research and development expenses | 851 | | 857 | | 768 | |
| Selling, general and administrative expenses | 1,590 |
| 1,782 |
| 1,795 |
| Selling, general and administrative expenses | 1,675 | | 1,645 | | 1,471 | |
| Amortization of intangibles | 419 |
| 469 |
| 400 |
| Amortization of intangibles | 336 | | 388 | | 401 | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| |
| Restructuring and asset related charges - net | | Restructuring and asset related charges - net | 118 | | 6 | | 708 | |
| Integration and separation costs | 1,063 |
| 1,179 |
| 798 |
| Integration and separation costs | — | | — | | 239 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (94 | ) | 555 |
| 394 |
| Equity in earnings (losses) of nonconsolidated affiliates | 268 | | 975 | | (18) | |
| Sundry income (expense) - net | 461 |
| 96 |
| (154 | ) | Sundry income (expense) - net | 727 | | (35) | | 1,269 | |
| Interest income | 81 |
| 82 |
| 66 |
| Interest income | 173 | | 55 | | 38 | |
| Interest expense and amortization of debt discount | 933 |
| 1,063 |
| 914 |
| Interest expense and amortization of debt discount | 662 | | 731 | | 827 | |
| Income (loss) from continuing operations before income taxes | (1,247 | ) | 3,749 |
| 237 |
| |
| 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 | ) | |
| Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| |
| Net income (loss) | (1,272 | ) | 4,775 |
| 595 |
| |
| Income before income taxes | | Income before income taxes | 6,090 | | 8,145 | | 2,071 | |
| Provision for income taxes | | Provision for income taxes | 1,450 | | 1,740 | | 777 | |
| Net income | | Net income | 4,640 | | 6,405 | | 1,294 | |
| Net income attributable to noncontrolling interests | 87 |
| 134 |
| 130 |
| Net income attributable to noncontrolling interests | 58 | | 94 | | 69 | |
| Net income (loss) available for Dow Inc. common stockholders | $ | (1,359 | ) | $ | 4,641 |
| $ | 465 |
| |
| Net income available for Dow Inc. common stockholders | | Net income available for Dow Inc. common stockholders | $ | 4,582 | | $ | 6,311 | | $ | 1,225 | |
| | | |
| | | |
| Per common share data: | | | Per common share data: | | |
| Earnings (loss) per common share from continuing operations - basic | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) | |
| Earnings per common share from discontinued operations - basic | 0.58 |
| 2.41 |
| 2.48 |
| |
| Earnings (loss) per common share - basic | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
| |
| Earnings (loss) per common share from continuing operations - diluted | $ | (2.42 | ) | $ | 3.80 |
| $ | (1.88 | ) | |
| Earnings per common share from discontinued operations - diluted | 0.58 |
| 2.41 |
| 2.48 |
| |
| Earnings (loss) per common share - diluted | $ | (1.84 | ) | $ | 6.21 |
| $ | 0.60 |
| |
| Earnings per common share - basic | | Earnings per common share - basic | $ | 6.32 | | $ | 8.44 | | $ | 1.64 | |
| Earnings per common share - diluted | | Earnings per common share - diluted | $ | 6.28 | | $ | 8.38 | | $ | 1.64 | |
| |
|
|
|
| | |
| Weighted-average common shares outstanding - basic | 742.5 |
| 747.2 |
| 744.8 |
| Weighted-average common shares outstanding - basic | 721.0 | | 743.6 | | 740.5 | |
| Weighted-average common shares outstanding - diluted | 742.5 |
| 747.2 |
| 744.8 |
| Weighted-average common shares outstanding - diluted | 725.6 | | 749.0 | | 742.3 | |
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, | 2022 | 2021 | 2020 |
| Net income (loss) | $ | (1,272 | ) | $ | 4,775 |
| $ | 595 |
| |
| Net income | | Net income | $ | 4,640 | | $ | 6,405 | | $ | 1,294 | |
| 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 | (312) | | (45) | | 40 | |
| Cumulative translation adjustments | (32 | ) | (225 | ) | 900 |
| Cumulative translation adjustments | (579) | | (425) | | 205 | |
| Pension and other postretirement benefit plans | (899 | ) | (40 | ) | 391 |
| Pension and other postretirement benefit plans | 2,457 | | 2,225 | | (778) | |
| Derivative instruments | (338 | ) | 75 |
| (14 | ) | Derivative instruments | 272 | | 123 | | (76) | |
| Total other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| Total other comprehensive income (loss) | 1,838 | | 1,878 | | (609) | |
| Comprehensive income (loss) | (2,426 | ) | 4,518 |
| 1,826 |
| |
| Comprehensive income | | Comprehensive income | 6,478 | | 8,283 | | 685 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 99 |
| 97 |
| 172 |
| Comprehensive income attributable to noncontrolling interests, net of tax | 58 | | 94 | | 69 | |
| Comprehensive income (loss) attributable to Dow Inc. | $ | (2,525 | ) | $ | 4,421 |
| $ | 1,654 |
| |
| Comprehensive income attributable to Dow Inc. | | Comprehensive income attributable to Dow Inc. | $ | 6,420 | | $ | 8,189 | | $ | 616 | |
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, | 2022 | 2021 |
| 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 | | Cash and cash equivalents | $ | 3,886 | | $ | 2,988 | |
| | 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 - 2022: $110; 2021: $54) | | Trade (net of allowance for doubtful receivables - 2022: $110; 2021: $54) | 5,611 | | 6,841 | |
| Other | 2,711 |
| 3,389 |
| Other | 2,144 | | 2,713 | |
| Inventories | 6,214 |
| 6,899 |
| Inventories | 6,988 | | 7,372 | |
| Other current assets | 658 |
| 712 |
| Other current assets | 1,848 | | 934 | |
| Assets of discontinued operations - current | — |
| 19,900 |
| |
| | Total current assets | 16,815 |
| 39,370 |
| Total current assets | 20,477 | | 20,848 | |
| Investments |
|
| Investments | | |
| Investment in nonconsolidated affiliates | 1,404 |
| 3,320 |
| Investment in nonconsolidated affiliates | 1,589 | | 2,045 | |
| Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699) | 2,588 |
| 2,646 |
| |
| Other investments (investments carried at fair value - 2022: $1,757; 2021: $2,079) | | Other investments (investments carried at fair value - 2022: $1,757; 2021: $2,079) | 2,793 | | 3,193 | |
| Noncurrent receivables | 1,063 |
| 360 |
| Noncurrent receivables | 666 | | 478 | |
| Total investments | 5,055 |
| 6,326 |
| Total investments | 5,048 | | 5,716 | |
| Property |
|
| Property | | |
| Property | 54,910 |
| 53,984 |
| Property | 58,055 | | 57,604 | |
| 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 | 37,613 | | 37,049 | |
| Net property | | Net property | 20,442 | | 20,555 | |
| Other Assets |
|
| Other Assets | | |
| Goodwill | 8,796 |
| 9,846 |
| Goodwill | 8,644 | | 8,764 | |
| Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) | 3,759 |
| 4,225 |
| |
| Other intangible assets (net of accumulated amortization - 2022: $5,022; 2021: $4,725) | | Other intangible assets (net of accumulated amortization - 2022: $5,022; 2021: $4,725) | 2,442 | | 2,881 | |
| Operating lease right-of-use assets | 2,072 |
| — |
| Operating lease right-of-use assets | 1,227 | | 1,412 | |
| Deferred income tax assets | 2,213 |
| 1,779 |
| Deferred income tax assets | 960 | | 1,358 | |
| Deferred charges and other assets | 818 |
| 735 |
| Deferred charges and other assets | 1,363 | | 1,456 | |
| Total other assets | 17,658 |
| 16,585 |
| Total other assets | 14,636 | | 15,871 | |
| Total Assets | $ | 60,524 |
| $ | 83,699 |
| Total Assets | $ | 60,603 | | $ | 62,990 | |
| Liabilities and Equity |
|
| Liabilities and Equity | | |
| Current Liabilities |
|
| Current Liabilities | | |
| Notes payable | $ | 586 |
| $ | 298 |
| Notes payable | $ | 362 | | $ | 161 | |
| Long-term debt due within one year | 435 |
| 338 |
| Long-term debt due within one year | 362 | | 231 | |
| Accounts payable: |
|
| Accounts payable: | | |
| Trade | 3,889 |
| 4,456 |
| Trade | 4,940 | | 5,577 | |
| Other | 2,064 |
| 2,479 |
| Other | 2,276 | | 2,839 | |
| Operating lease liabilities - current | 421 |
| — |
| Operating lease liabilities - current | 287 | | 314 | |
| Income taxes payable | 522 |
| 557 |
| Income taxes payable | 334 | | 623 | |
| | Accrued and other current liabilities | 2,762 |
| 2,931 |
| Accrued and other current liabilities | 2,770 | | 3,481 | |
| Liabilities of discontinued operations - current | — |
| 4,488 |
| |
| | Total current liabilities | 10,679 |
| 15,547 |
| Total current liabilities | 11,331 | | 13,226 | |
| Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75) | 15,975 |
| 19,253 |
| |
| Long-Term Debt | | Long-Term Debt | 14,698 | | 14,280 | |
| Other Noncurrent Liabilities |
|
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 347 |
| 501 |
| Deferred income tax liabilities | 1,110 | | 506 | |
| Pension and other postretirement benefits - noncurrent | 10,083 |
| 8,926 |
| Pension and other postretirement benefits - noncurrent | 3,808 | | 7,557 | |
| Asbestos-related liabilities - noncurrent | 1,060 |
| 1,142 |
| Asbestos-related liabilities - noncurrent | 857 | | 931 | |
| Operating lease liabilities - noncurrent | 1,739 |
| — |
| Operating lease liabilities - noncurrent | 997 | | 1,149 | |
| Other noncurrent obligations | 6,547 |
| 4,709 |
| Other noncurrent obligations | 6,555 | | 6,602 | |
| Total other noncurrent liabilities | 19,776 |
| 15,278 |
| Total other noncurrent liabilities | 13,327 | | 16,745 | |
| 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 2022: 771,678,525 shares; 2021: 764,226,882 shares) | | Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2022: 771,678,525 shares; 2021: 764,226,882 shares) | 8 | | 8 | |
| Additional paid-in capital | 7,325 |
| 7,042 |
| Additional paid-in capital | 8,540 | | 8,151 | |
| Retained earnings | 17,045 |
| 35,460 |
| Retained earnings | 23,180 | | 20,623 | |
| Accumulated other comprehensive loss | (10,246 | ) | (9,885 | ) | Accumulated other comprehensive loss | (7,139) | | (8,977) | |
| Unearned ESOP shares | (91 | ) | (134 | ) | Unearned ESOP shares | — | | (15) | |
| Treasury stock at cost (2019: 9,729,834 shares; 2018: zero shares) | (500 | ) | — |
| |
| Treasury stock at cost (2022: 66,798,605 shares; 2021: 29,011,573 shares) | | Treasury stock at cost (2022: 66,798,605 shares; 2021: 29,011,573 shares) | (3,871) | | (1,625) | |
| Dow Inc.’s stockholders’ equity | 13,541 |
| 32,483 |
| Dow Inc.’s stockholders’ equity | 20,718 | | 18,165 | |
| Noncontrolling interests | 553 |
| 1,138 |
| Noncontrolling interests | 529 | | 574 | |
| Total equity | 14,094 |
| 33,621 |
| Total equity | 21,247 | | 18,739 | |
| Total Liabilities and Equity | $ | 60,524 |
| $ | 83,699 |
| Total Liabilities and Equity | $ | 60,603 | | $ | 62,990 | |
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, | 2022 | 2021 | 2020 |
| Operating Activities |
| | Operating Activities | | |
| Net income (loss) | $ | (1,272 | ) | $ | 4,775 |
| $ | 595 |
| |
| Less: Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| |
| Income (loss) from continuing operations, net of tax | (1,717 | ) | 2,940 |
| (1,287 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
| |
| Net income | | Net income | $ | 4,640 | | $ | 6,405 | | $ | 1,294 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | 2,938 |
| 2,909 |
| 2,546 |
| Depreciation and amortization | 2,758 | | 2,842 | | 2,874 | |
| Provision (credit) for deferred income tax | (228 | ) | (429 | ) | 1,413 |
| |
| Earnings of nonconsolidated affiliates less than dividends received | 1,114 |
| 108 |
| 253 |
| |
| Provision for deferred income tax | | Provision for deferred income tax | 79 | | 278 | | 258 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | | Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 696 | | (651) | | 443 | |
| Net periodic pension benefit cost | 144 |
| 279 |
| 1,032 |
| Net periodic pension benefit cost | 23 | | 39 | | 266 | |
| Pension contributions | (261 | ) | (1,651 | ) | (1,672 | ) | Pension contributions | (235) | | (1,219) | | (299) | |
| Net gain on sales of assets, businesses and investments | (81 | ) | (38 | ) | (419 | ) | Net gain on sales of assets, businesses and investments | (19) | | (105) | | (802) | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| |
| | Restructuring and asset related charges - net | | Restructuring and asset related charges - net | 118 | | 6 | | 708 | |
| | Other net loss | 198 |
| 415 |
| 451 |
| Other net loss | 212 | | 921 | | 318 | |
| 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 | 1,187 | | (2,132) | | 171 | |
| Inventories | 668 |
| (859 | ) | (891 | ) | Inventories | 347 | | (1,768) | | 515 | |
| Accounts payable | (948 | ) | 787 |
| 1,081 |
| Accounts payable | (1,255) | | 2,458 | | (84) | |
| Other assets and liabilities, net | (586 | ) | (731 | ) | (258 | ) | Other assets and liabilities, net | (1,065) | | (5) | | 590 | |
| 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 | 7,486 | | 7,069 | | 6,252 | |
| Cash used for operating activities - discontinued operations | | Cash used for operating activities - discontinued operations | (11) | | (60) | | (26) | |
| Cash provided by operating activities | | Cash provided by operating activities | 7,475 | | 7,009 | | 6,226 | |
| Investing Activities |
|
|
|
| | Investing Activities | | |
| Capital expenditures | (1,961 | ) | (2,091 | ) | (2,807 | ) | Capital expenditures | (1,823) | | (1,501) | | (1,252) | |
| Investment in gas field developments | (76 | ) | (114 | ) | (121 | ) | Investment in gas field developments | (190) | | (92) | | (5) | |
| | Purchases of previously leased assets | (9 | ) | (26 | ) | (187 | ) | Purchases of previously leased assets | (7) | | (694) | | (5) | |
| 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 | 32 | | 68 | | 929 | |
| Acquisitions of property and businesses, net of cash acquired | — |
| (20 | ) | 47 |
| Acquisitions of property and businesses, net of cash acquired | (228) | | (129) | | (130) | |
| | Investments in and loans to nonconsolidated affiliates | (638 | ) | (18 | ) | (749 | ) | Investments in and loans to nonconsolidated affiliates | (148) | | — | | (333) | |
| Distributions and loan repayments from nonconsolidated affiliates | 89 |
| 55 |
| 69 |
| Distributions and loan repayments from nonconsolidated affiliates | 52 | | 51 | | 7 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | | Proceeds from sales of ownership interests in nonconsolidated affiliates | 11 | | — | | — | |
| Purchases of investments | (899 | ) | (1,530 | ) | (642 | ) | Purchases of investments | (1,366) | | (1,366) | | (1,203) | |
| Proceeds from sales and maturities of investments | 1,252 |
| 1,214 |
| 1,165 |
| Proceeds from sales and maturities of investments | 747 | | 759 | | 1,122 | |
| Proceeds from interests in trade accounts receivable conduits | — |
| 657 |
| 9,462 |
| |
| | Other investing activities, net | — |
| — |
| 34 |
| Other investing activities, net | (50) | | (10) | | 29 | |
| 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 | | Cash used for investing activities | (2,970) | | (2,914) | | (841) | |
| Financing Activities |
|
|
|
|
|
| Financing Activities | | |
| Changes in short-term notes payable | 307 |
| (178 | ) | 268 |
| Changes in short-term notes payable | 253 | | (48) | | (431) | |
| Proceeds from issuance of short-term debt greater than three months | | Proceeds from issuance of short-term debt greater than three months | — | | 144 | | 163 | |
| Payments on short-term debt greater than three months | | Payments on short-term debt greater than three months | (14) | | (130) | | (163) | |
| Proceeds from issuance of long-term debt | 2,287 |
| 1,999 |
| — |
| Proceeds from issuance of long-term debt | 1,667 | | 109 | | 4,672 | |
| Payments on long-term debt | (5,561 | ) | (3,054 | ) | (617 | ) | Payments on long-term debt | (1,006) | | (2,771) | | (4,653) | |
| | Purchases of treasury stock | (500 | ) | — |
| — |
| Purchases of treasury stock | (2,325) | | (1,000) | | (125) | |
| 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 | 212 | | 320 | | 108 | |
| | Transaction financing, debt issuance and other costs | (119 | ) | (70 | ) | — |
| Transaction financing, debt issuance and other costs | (24) | | (537) | | (175) | |
| Employee taxes paid for share-based payment arrangements | (60 | ) | (77 | ) | (81 | ) | Employee taxes paid for share-based payment arrangements | (35) | | (12) | | (27) | |
| | Distributions to noncontrolling interests | (77 | ) | (135 | ) | (101 | ) | Distributions to noncontrolling interests | (83) | | (73) | | (62) | |
| Purchases of noncontrolling interests | (297 | ) | — |
| — |
| |
| | Dividends paid to stockholders | (1,550 | ) | — |
| (2,179 | ) | Dividends paid to stockholders | (2,006) | | (2,073) | | (2,071) | |
| Dividends paid to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | |
| Settlements and transfers related to separation from DowDuPont Inc. | 1,935 |
| (240 | ) | 6 |
| |
| Other financing activities, net | — |
| 3 |
| (4 | ) | |
| Cash used for financing activities - continuing operations | (4,077 | ) | (5,351 | ) | (3,275 | ) | |
| Cash used for financing activities - discontinued operations | (18 | ) | (53 | ) | (50 | ) | |
| | Cash used for financing activities | (4,095 | ) | (5,404 | ) | (3,325 | ) | Cash used for financing activities | (3,361) | | (6,071) | | (2,764) | |
| 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 | (237) | | (99) | | 107 | |
| 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 | 907 | | (2,075) | | 2,728 | |
| 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 | 3,033 | | 5,108 | | 2,380 | |
| 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 | $ | 3,940 | | $ | 3,033 | | $ | 5,108 | |
| 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" | 54 | | 45 | | 4 | |
| Cash and cash equivalents at end of year | $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
| Cash and cash equivalents at end of year | $ | 3,886 | | $ | 2,988 | | $ | 5,104 | |
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, | 2019 | 2018 | 2017 | (In millions, except per share amounts) For the years ended Dec 31, | 2022 | 2021 | 2020 |
| Common Stock |
|
| Common Stock | | |
| Balance at beginning of year | $ | — |
| $ | — |
| $ | 3,107 |
| |
| Merger impact | — |
| — |
| (3,107 | ) | |
| Common stock issued | 8 |
| — |
| — |
| |
| Balance at end of year | 8 |
| — |
| — |
| |
| Balance at beginning and end of year | | Balance at beginning and end of year | $ | 8 | | $ | 8 | | $ | 8 | |
| | Additional Paid-in Capital |
|
| Additional Paid-in Capital | | |
| Balance at beginning of year | 7,042 |
| 6,553 |
| 4,262 |
| Balance at beginning of year | 8,151 | | 7,595 | | 7,325 | |
| Common stock issued / sold | 57 |
| — |
| 423 |
| Common stock issued / sold | 212 | | 320 | | 108 | |
| Issuance of parent company stock - DowDuPont Inc. | 28 |
| 112 |
| 66 |
| |
| Stock-based compensation and allocation of ESOP shares | 235 |
| 377 |
| (368 | ) | Stock-based compensation and allocation of ESOP shares | 258 | | 236 | | 162 | |
| Merger impact | — |
| — |
| 2,172 |
| |
| Treasury stock issuances - compensation and benefit plans | | Treasury stock issuances - compensation and benefit plans | (79) | | — | | — | |
| Other | (37 | ) | — |
| (2 | ) | Other | (2) | | — | | — | |
| Balance at end of year | 7,325 |
| 7,042 |
| 6,553 |
| Balance at end of year | 8,540 | | 8,151 | | 7,595 | |
| Retained Earnings |
|
| Retained Earnings | | |
| Balance at beginning of year | 35,460 |
| 33,742 |
| 30,338 |
| Balance at beginning of year | 20,623 | | 16,361 | | 17,045 | |
| 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 available for Dow Inc.'s common stockholders | | Net income available for Dow Inc.'s common stockholders | 4,582 | | 6,311 | | 1,225 | |
| Dividends to stockholders | (1,550 | ) | — |
| (1,673 | ) | Dividends to stockholders | (2,006) | | (2,073) | | (2,071) | |
| Dividends to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | |
| Common control transaction | (14,806 | ) | (182 | ) | 5,693 |
| Common control transaction | — | | 46 | | 177 | |
| Other | (14 | ) | (19 | ) | (25 | ) | Other | (19) | | (22) | | (15) | |
| Balance at end of year | 17,045 |
| 35,460 |
| 33,742 |
| Balance at end of year | 23,180 | | 20,623 | | 16,361 | |
| Accumulated Other Comprehensive Loss |
|
| Accumulated Other Comprehensive Loss | | |
| Balance at beginning of year | (9,885 | ) | (8,591 | ) | (9,822 | ) | Balance at beginning of year | (8,977) | | (10,855) | | (10,246) | |
| Adoption of accounting standards (Note 1) | — |
| (1,037 | ) | — |
| |
| Other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| Other comprehensive income (loss) | 1,838 | | 1,878 | | (609) | |
| Common control transaction | 793 |
| — |
| — |
| |
| Balance at end of year | (10,246 | ) | (9,885 | ) | (8,591 | ) | Balance at end of year | (7,139) | | (8,977) | | (10,855) | |
| Unearned ESOP Shares |
|
| Unearned ESOP Shares | | |
| Balance at beginning of year | (134 | ) | (189 | ) | (239 | ) | Balance at beginning of year | (15) | | (49) | | (91) | |
| Stock-based compensation and allocation of ESOP shares | 45 |
| 55 |
| 50 |
| |
| ESOP shares acquired | (2 | ) | — |
| — |
| |
| Allocation of ESOP shares | | Allocation of ESOP shares | 15 | | 34 | | 42 | |
| | Balance at end of year | (91 | ) | (134 | ) | (189 | ) | Balance at end of year | — | | (15) | | (49) | |
| Treasury Stock |
|
| Treasury Stock | | |
| Balance at beginning of year | — |
| — |
| (1,659 | ) | Balance at beginning of year | (1,625) | | (625) | | (500) | |
| Common stock issued/sold | — |
| — |
| 724 |
| |
| Treasury stock purchases | (500 | ) | — |
| — |
| Treasury stock purchases | (2,325) | | (1,000) | | (125) | |
| Merger impact | — |
| — |
| 935 |
| |
| Treasury stock issuances - compensation and benefit plans | | Treasury stock issuances - compensation and benefit plans | 79 | | — | | — | |
| Balance at end of year | (500 | ) | — |
| — |
| Balance at end of year | (3,871) | | (1,625) | | (625) | |
| Dow Inc.'s stockholders' equity | 13,541 |
| 32,483 |
| 31,515 |
| Dow Inc.'s stockholders' equity | 20,718 | | 18,165 | | 12,435 | |
| Noncontrolling Interests | 553 |
| 1,138 |
| 1,186 |
| Noncontrolling Interests | 529 | | 574 | | 570 | |
| Total Equity | $ | 14,094 |
| $ | 33,621 |
| $ | 32,701 |
| Total Equity | $ | 21,247 | | $ | 18,739 | | $ | 13,005 | |
| | | | |
| Dividends declared per share of common stock | $ | 2.10 |
| $ | — |
| $ | 1.38 |
| Dividends declared per share of common stock | $ | 2.80 | | $ | 2.80 | | $ | 2.80 | |
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, | 2022 | 2021 | 2020 |
| Net sales | $ | 42,951 |
| $ | 49,604 |
| $ | 43,730 |
| Net sales | $ | 56,902 | | $ | 54,968 | | $ | 38,542 | |
| Cost of sales | 36,657 |
| 41,074 |
| 36,350 |
| Cost of sales | 48,332 | | 44,187 | | 33,343 | |
| Research and development expenses | 765 |
| 800 |
| 803 |
| Research and development expenses | 851 | | 857 | | 768 | |
| Selling, general and administrative expenses | 1,585 |
| 1,782 |
| 1,795 |
| Selling, general and administrative expenses | 1,675 | | 1,645 | | 1,471 | |
| Amortization of intangibles | 419 |
| 469 |
| 400 |
| Amortization of intangibles | 336 | | 388 | | 401 | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| |
| Restructuring and asset related charges - net | | Restructuring and asset related charges - net | 118 | | 6 | | 708 | |
| Integration and separation costs | 1,039 |
| 1,179 |
| 798 |
| Integration and separation costs | — | | — | | 239 | |
| | Equity in earnings (losses) of nonconsolidated affiliates | (94 | ) | 555 |
| 394 |
| Equity in earnings (losses) of nonconsolidated affiliates | 268 | | 975 | | (18) | |
| Sundry income (expense) - net | 573 |
| 96 |
| (154 | ) | Sundry income (expense) - net | 714 | | (79) | | 1,274 | |
| Interest income | 81 |
| 82 |
| 66 |
| Interest income | 181 | | 56 | | 40 | |
| Interest expense and amortization of debt discount | 952 |
| 1,063 |
| 914 |
| Interest expense and amortization of debt discount | 662 | | 731 | | 827 | |
| Income (loss) from continuing operations before income taxes | (1,125 | ) | 3,749 |
| 237 |
| |
| Provision for income taxes on continuing operations | 470 |
| 809 |
| 1,524 |
| |
| Income (loss) from continuing operations, net of tax | (1,595 | ) | 2,940 |
| (1,287 | ) | |
| Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| |
| Net income (loss) | (1,150 | ) | 4,775 |
| 595 |
| |
| Income before income taxes | | Income before income taxes | 6,091 | | 8,106 | | 2,081 | |
| Provision for income taxes | | Provision for income taxes | 1,450 | | 1,738 | | 777 | |
| Net income | | Net income | 4,641 | | 6,368 | | 1,304 | |
| Net income attributable to noncontrolling interests | 87 |
| 134 |
| 130 |
| Net income attributable to noncontrolling interests | 58 | | 94 | | 69 | |
| Net income (loss) available for The Dow Chemical Company common stockholder | $ | (1,237 | ) | $ | 4,641 |
| $ | 465 |
| |
| | Net income available for The Dow Chemical Company common stockholder | | Net income available for The Dow Chemical Company common stockholder | $ | 4,583 | | $ | 6,274 | | $ | 1,235 | |
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, | 2022 | 2021 | 2020 |
| Net income (loss) | $ | (1,150 | ) | $ | 4,775 |
| $ | 595 |
| |
| Net income | | Net income | $ | 4,641 | | $ | 6,368 | | $ | 1,304 | |
| 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 | (312) | | (45) | | 40 | |
| Cumulative translation adjustments | (32 | ) | (225 | ) | 900 |
| Cumulative translation adjustments | (579) | | (425) | | 205 | |
| Pension and other postretirement benefit plans | (899 | ) | (40 | ) | 391 |
| Pension and other postretirement benefit plans | 2,457 | | 2,225 | | (778) | |
| Derivative instruments | (338 | ) | 75 |
| (14 | ) | Derivative instruments | 272 | | 123 | | (76) | |
| Total other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| Total other comprehensive income (loss) | 1,838 | | 1,878 | | (609) | |
| Comprehensive income (loss) | (2,304 | ) | 4,518 |
| 1,826 |
| |
| Comprehensive income | | Comprehensive income | 6,479 | | 8,246 | | 695 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 99 |
| 97 |
| 172 |
| Comprehensive income attributable to noncontrolling interests, net of tax | 58 | | 94 | | 69 | |
| Comprehensive income (loss) attributable to The Dow Chemical Company | $ | (2,403 | ) | $ | 4,421 |
| $ | 1,654 |
| |
| Comprehensive income attributable to The Dow Chemical Company | | Comprehensive income attributable to The Dow Chemical Company | $ | 6,421 | | $ | 8,152 | | $ | 626 | |
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, | 2022 | 2021 |
| 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 | | Cash and cash equivalents | $ | 3,886 | | $ | 2,988 | |
| | 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 - 2022: $110; 2021: $54) | | Trade (net of allowance for doubtful receivables - 2022: $110; 2021: $54) | 5,611 | | 6,841 | |
| Other | 2,716 |
| 3,389 |
| Other | 2,211 | | 2,712 | |
| Inventories | 6,214 |
| 6,899 |
| Inventories | 6,988 | | 7,372 | |
| Other current assets | 571 |
| 712 |
| Other current assets | 1,815 | | 924 | |
| Assets of discontinued operations - current | — |
| 19,900 |
| |
| | Total current assets | 16,733 |
| 39,370 |
| Total current assets | 20,511 | | 20,837 | |
| Investments | | | Investments | | |
| Investment in nonconsolidated affiliates | 1,404 |
| 3,320 |
| Investment in nonconsolidated affiliates | 1,589 | | 2,045 | |
| Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699) | 2,588 |
| 2,646 |
| |
| Other investments (investments carried at fair value - 2022: $1,757; 2021: $2,079) | | Other investments (investments carried at fair value - 2022: $1,757; 2021: $2,079) | 2,793 | | 3,193 | |
| Noncurrent receivables | 1,011 |
| 360 |
| Noncurrent receivables | 650 | | 452 | |
| Total investments | 5,003 |
| 6,326 |
| Total investments | 5,032 | | 5,690 | |
| Property | | | Property | | |
| Property | 54,910 |
| 53,984 |
| Property | 58,055 | | 57,604 | |
| 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 | 37,613 | | 37,049 | |
| Net property | | Net property | 20,442 | | 20,555 | |
| Other Assets | | | Other Assets | | |
| Goodwill | 8,796 |
| 9,846 |
| Goodwill | 8,644 | | 8,764 | |
| Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) | 3,759 |
| 4,225 |
| |
| Other intangible assets (net of accumulated amortization - 2022: $5,022; 2021: $4,725) | | Other intangible assets (net of accumulated amortization - 2022: $5,022; 2021: $4,725) | 2,442 | | 2,881 | |
| Operating lease right-of-use assets | 2,072 |
| — |
| Operating lease right-of-use assets | 1,227 | | 1,412 | |
| Deferred income tax assets | 2,213 |
| 1,779 |
| Deferred income tax assets | 960 | | 1,358 | |
| | Deferred charges and other assets | 818 |
| 735 |
| Deferred charges and other assets | 1,363 | | 1,455 | |
| | Total other assets | 17,658 |
| 16,585 |
| Total other assets | 14,636 | | 15,870 | |
| Total Assets | $ | 60,390 |
| $ | 83,699 |
| Total Assets | $ | 60,621 | | $ | 62,952 | |
| Liabilities and Equity | | | Liabilities and Equity | | |
| Current Liabilities | | | Current Liabilities | | |
| Notes payable | $ | 586 |
| $ | 298 |
| Notes payable | $ | 362 | | $ | 161 | |
| Long-term debt due within one year | 435 |
| 338 |
| Long-term debt due within one year | 362 | | 231 | |
| Accounts payable: | | | Accounts payable: | | |
| Trade | 3,889 |
| 4,456 |
| Trade | 4,940 | | 5,577 | |
| Other | 2,064 |
| 2,479 |
| Other | 2,349 | | 2,841 | |
| Operating lease liabilities - current | 421 |
| — |
| Operating lease liabilities - current | 287 | | 314 | |
| Income taxes payable | 522 |
| 557 |
| Income taxes payable | 334 | | 623 | |
| Accrued and other current liabilities | 2,233 |
| 2,931 |
| Accrued and other current liabilities | 2,613 | | 3,299 | |
| Liabilities of discontinued operations - current | — |
| 4,488 |
| |
| | Total current liabilities | 10,150 |
| 15,547 |
| Total current liabilities | 11,247 | | 13,046 | |
| Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75) | 15,975 |
| 19,253 |
| |
| Long-Term Debt | | Long-Term Debt | 14,698 | | 14,280 | |
| Other Noncurrent Liabilities | | | Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 347 |
| 501 |
| Deferred income tax liabilities | 1,110 | | 506 | |
| Pension and other postretirement benefits - noncurrent | 10,083 |
| 8,926 |
| Pension and other postretirement benefits - noncurrent | 3,808 | | 7,557 | |
| Asbestos-related liabilities - noncurrent | 1,060 |
| 1,142 |
| Asbestos-related liabilities - noncurrent | 857 | | 931 | |
| Operating lease liabilities - noncurrent | 1,739 |
| — |
| Operating lease liabilities - noncurrent | 997 | | 1,149 | |
| Other noncurrent obligations | 6,174 |
| 4,709 |
| Other noncurrent obligations | 6,415 | | 6,454 | |
| | Total other noncurrent liabilities | 19,403 |
| 15,278 |
| Total other noncurrent liabilities | 13,187 | | 16,597 | |
| | 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) | — | | — | |
| Additional paid-in capital | 7,333 |
| 7,042 |
| Additional paid-in capital | 8,627 | | 8,159 | |
| Retained earnings | 17,313 |
| 35,460 |
| Retained earnings | 19,472 | | 19,288 | |
| Accumulated other comprehensive loss | (10,246 | ) | (9,885 | ) | Accumulated other comprehensive loss | (7,139) | | (8,977) | |
| Unearned ESOP shares | (91 | ) | (134 | ) | Unearned ESOP shares | — | | (15) | |
| | The Dow Chemical Company’s stockholder's equity | 14,309 |
| 32,483 |
| The Dow Chemical Company’s stockholder's equity | 20,960 | | 18,455 | |
| Noncontrolling interests | 553 |
| 1,138 |
| Noncontrolling interests | 529 | | 574 | |
| Total equity | 14,862 |
| 33,621 |
| Total equity | 21,489 | | 19,029 | |
| Total Liabilities and Equity | $ | 60,390 |
| $ | 83,699 |
| Total Liabilities and Equity | $ | 60,621 | | $ | 62,952 | |
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, | 2022 | 2021 | 2020 |
| Operating Activities | | | Operating Activities | | |
| Net income (loss) | $ | (1,150 | ) | $ | 4,775 |
| $ | 595 |
| |
| Less: Income from discontinued operations, net of tax | 445 |
| 1,835 |
| 1,882 |
| |
| Income (loss) from continuing operations, net of tax | (1,595 | ) | 2,940 |
| (1,287 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
| |
| Net income | | Net income | $ | 4,641 | | $ | 6,368 | | $ | 1,304 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | 2,938 |
| 2,909 |
| 2,546 |
| Depreciation and amortization | 2,758 | | 2,842 | | 2,874 | |
| Provision (credit) for deferred income tax | (228 | ) | (429 | ) | 1,413 |
| |
| Earnings of nonconsolidated affiliates less than dividends received | 1,114 |
| 108 |
| 253 |
| |
| Provision for deferred income tax | | Provision for deferred income tax | 80 | | 278 | | 258 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | | Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 696 | | (651) | | 443 | |
| Net periodic pension benefit cost | 144 |
| 279 |
| 1,032 |
| Net periodic pension benefit cost | 23 | | 39 | | 266 | |
| Pension contributions | (261 | ) | (1,651 | ) | (1,672 | ) | Pension contributions | (235) | | (1,219) | | (299) | |
| Net gain on sales of assets, businesses and investments | (81 | ) | (38 | ) | (419 | ) | Net gain on sales of assets, businesses and investments | (19) | | (105) | | (802) | |
| Restructuring, goodwill impairment and asset related charges - net | 3,219 |
| 221 |
| 2,739 |
| |
| | Restructuring and asset related charges - net | | Restructuring and asset related charges - net | 118 | | 6 | | 708 | |
| | Other net loss | 213 |
| 415 |
| 451 |
| Other net loss | 221 | | 927 | | 320 | |
| 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 | 1,187 | | (2,132) | | 171 | |
| Inventories | 668 |
| (859 | ) | (891 | ) | Inventories | 347 | | (1,768) | | 515 | |
| Accounts payable | (948 | ) | 787 |
| 1,081 |
| Accounts payable | (1,255) | | 2,458 | | (84) | |
| Other assets and liabilities, net | (730 | ) | (731 | ) | (258 | ) | Other assets and liabilities, net | (1,043) | | 157 | | 589 | |
| Cash provided by (used for) operating activities - continuing operations | 5,706 |
| 3,096 |
| (6,443 | ) | |
| Cash provided by operating activities - discontinued operations | 371 |
| 1,158 |
| 1,514 |
| |
| Cash provided by (used for) operating activities | 6,077 |
| 4,254 |
| (4,929 | ) | |
| Cash provided by operating activities | | Cash provided by operating activities | 7,519 | | 7,200 | | 6,263 | |
| Investing Activities |
|
|
|
|
|
| Investing Activities | | |
| Capital expenditures | (1,961 | ) | (2,091 | ) | (2,807 | ) | Capital expenditures | (1,823) | | (1,501) | | (1,252) | |
| Investment in gas field developments | (76 | ) | (114 | ) | (121 | ) | Investment in gas field developments | (190) | | (92) | | (5) | |
| | Purchases of previously leased assets | (9 | ) | (26 | ) | (187 | ) | Purchases of previously leased assets | (7) | | (694) | | (5) | |
| 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 | 32 | | 68 | | 929 | |
| Acquisitions of property and businesses, net of cash acquired | — |
| (20 | ) | 47 |
| Acquisitions of property and businesses, net of cash acquired | (228) | | (129) | | (130) | |
| | Investments in and loans to nonconsolidated affiliates | (638 | ) | (18 | ) | (749 | ) | Investments in and loans to nonconsolidated affiliates | (148) | | — | | (333) | |
| Distributions and loan repayments from nonconsolidated affiliates | 89 |
| 55 |
| 69 |
| Distributions and loan repayments from nonconsolidated affiliates | 52 | | 51 | | 7 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | | Proceeds from sales of ownership interests in nonconsolidated affiliates | 11 | | — | | — | |
| Purchases of investments | (899 | ) | (1,530 | ) | (642 | ) | Purchases of investments | (1,366) | | (1,366) | | (1,203) | |
| Proceeds from sales and maturities of investments | 1,252 |
| 1,214 |
| 1,165 |
| Proceeds from sales and maturities of investments | 747 | | 759 | | 1,122 | |
| Proceeds from interests in trade accounts receivable conduits | — |
| 657 |
| 9,462 |
| |
| | Other investing activities, net | — |
| — |
| 34 |
| Other investing activities, net | (50) | | (10) | | 29 | |
| 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 | | Cash used for investing activities | (2,970) | | (2,914) | | (841) | |
| Financing Activities |
|
|
|
|
|
| Financing Activities | | |
| Changes in short-term notes payable | 307 |
| (178 | ) | 268 |
| Changes in short-term notes payable | 253 | | (48) | | (431) | |
| Proceeds from issuance of short-term debt greater than three months | | Proceeds from issuance of short-term debt greater than three months | — | | 144 | | 163 | |
| Payments on short-term debt greater than three months | | Payments on short-term debt greater than three months | (14) | | (130) | | (163) | |
| Proceeds from issuance of long-term debt | 2,287 |
| 1,999 |
| — |
| Proceeds from issuance of long-term debt | 1,667 | | 109 | | 4,672 | |
| Payments on long-term debt | (5,561 | ) | (3,054 | ) | (617 | ) | Payments on long-term debt | (1,006) | | (2,771) | | (4,653) | |
| 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 | 212 | | 320 | | 108 | |
| | Transaction financing, debt issuance and other costs | (119 | ) | (70 | ) | — |
| Transaction financing, debt issuance and other costs | (24) | | (537) | | (175) | |
| Employee taxes paid for share-based payment arrangements | (60 | ) | (77 | ) | (81 | ) | Employee taxes paid for share-based payment arrangements | (35) | | (12) | | (27) | |
| | Distributions to noncontrolling interests | (77 | ) | (135 | ) | (101 | ) | Distributions to noncontrolling interests | (83) | | (73) | | (62) | |
| Purchases of noncontrolling interests | (297 | ) | — |
| — |
| |
| Dividends paid to stockholders | — |
| — |
| (2,179 | ) | |
| Dividends paid to DowDuPont Inc. | (535 | ) | (3,711 | ) | (1,056 | ) | |
| | Dividends paid to Dow Inc. | (201 | ) | — |
| — |
| Dividends paid to Dow Inc. | (4,375) | | (3,264) | | (2,233) | |
| Settlements and transfers related to separation from DowDuPont Inc. | (61 | ) | (240 | ) | 6 |
| |
| Other financing activities, net | — |
| 3 |
| (4 | ) | |
| Cash used for financing activities - continuing operations | (4,224 | ) | (5,351 | ) | (3,275 | ) | |
| Cash used for financing activities - discontinued operations | (18 | ) | (53 | ) | (50 | ) | |
| | Cash used for financing activities | (4,242 | ) | (5,404 | ) | (3,325 | ) | Cash used for financing activities | (3,405) | | (6,262) | | (2,801) | |
| 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 | (237) | | (99) | | 107 | |
| 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 | 907 | | (2,075) | | 2,728 | |
| 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 | 3,033 | | 5,108 | | 2,380 | |
| 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 | $ | 3,940 | | $ | 3,033 | | $ | 5,108 | |
| 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" | 54 | | 45 | | 4 | |
| Cash and cash equivalents at end of year | $ | 2,367 |
| $ | 2,724 |
| $ | 6,189 |
| Cash and cash equivalents at end of year | $ | 3,886 | | $ | 2,988 | | $ | 5,104 | |
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, | 2022 | 2021 | 2020 |
| | | (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 | $ | — | | $ | — | | $ | — | |
| | Additional Paid-in Capital | | Additional Paid-in Capital | | |
| Balance at beginning of year | 7,042 |
| 6,553 |
| 4,262 |
| Balance at beginning of year | 8,159 | | 7,603 | | 7,333 | |
| Common stock issued / sold | — |
| — |
| 423 |
| |
| | Issuance of parent company stock - Dow Inc. | 65 |
| — |
| — |
| Issuance of parent company stock - Dow Inc. | 212 | | 320 | | 108 | |
| Issuance of parent company stock - DowDuPont Inc. | 28 |
| 112 |
| 66 |
| |
| Stock-based compensation and allocation of ESOP shares | 235 |
| 377 |
| (368 | ) | Stock-based compensation and allocation of ESOP shares | 258 | | 236 | | 162 | |
| Merger impact | — |
| — |
| 2,172 |
| |
| Other | (37 | ) | — |
| (2 | ) | Other | (2) | | — | | — | |
| Balance at end of year | 7,333 |
| 7,042 |
| 6,553 |
| Balance at end of year | 8,627 | | 8,159 | | 7,603 | |
| Retained Earnings | | Retained Earnings | | |
| Balance at beginning of year | 35,460 |
| 33,742 |
| 30,338 |
| Balance at beginning of year | 19,288 | | 16,300 | | 17,313 | |
| Adoption of accounting standards (Note 1) | (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 | ) | |
| Net income available for The Dow Chemical Company's common stockholder | | Net income available for The Dow Chemical Company's common stockholder | 4,583 | | 6,274 | | 1,235 | |
| Dividends to Dow Inc. | (201 | ) | — |
| — |
| Dividends to Dow Inc. | (4,375) | | (3,264) | | (2,233) | |
| Common control transaction | (16,009 | ) | (182 | ) | 5,693 |
| |
| Other | (14 | ) | (19 | ) | (25 | ) | Other | (24) | | (22) | | (15) | |
| Balance at end of year | 17,313 |
| 35,460 |
| 33,742 |
| Balance at end of year | 19,472 | | 19,288 | | 16,300 | |
| Accumulated Other Comprehensive Loss | | Accumulated Other Comprehensive Loss | | |
| Balance at beginning of year | (9,885 | ) | (8,591 | ) | (9,822 | ) | Balance at beginning of year | (8,977) | | (10,855) | | (10,246) | |
| Adoption of accounting standards (Note 1) | — |
| (1,037 | ) | — |
| |
| Other comprehensive income (loss) | (1,154 | ) | (257 | ) | 1,231 |
| Other comprehensive income (loss) | 1,838 | | 1,878 | | (609) | |
| Common control transaction | 793 |
| — |
| — |
| |
| | Balance at end of year | (10,246 | ) | (9,885 | ) | (8,591 | ) | Balance at end of year | (7,139) | | (8,977) | | (10,855) | |
| Unearned ESOP Shares | | Unearned ESOP Shares | | |
| Balance at beginning of year | (134 | ) | (189 | ) | (239 | ) | Balance at beginning of year | (15) | | (49) | | (91) | |
| Stock-based compensation and allocation of ESOP shares | 45 |
| 55 |
| 50 |
| |
| ESOP shares acquired | (2 | ) | — |
| — |
| |
| Allocation of ESOP shares | | Allocation of ESOP shares | 15 | | 34 | | 42 | |
| | Balance at end of year | (91 | ) | (134 | ) | (189 | ) | Balance at end of year | — | | (15) | | (49) | |
| 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 | 20,960 | | 18,455 | | 12,999 | |
| Noncontrolling Interests | 553 |
| 1,138 |
| 1,186 |
| Noncontrolling Interests | 529 | | 574 | | 570 | |
| Total Equity | $ | 14,862 |
| $ | 33,621 |
| $ | 32,701 |
| Total Equity | $ | 21,489 | | $ | 19,029 | | $ | 13,569 | |
See Notes to the Consolidated Financial Statements.
|
| |
Dow Inc. and Subsidiaries
The Dow Chemical Company and Subsidiaries
|
| Notes to the Consolidated Financial Statements |
Table of Contents
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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. 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 Notes 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 primarily 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 Transactions between TDCC and time of the distribution, DowDuPont does not beneficially own any equity interest in Dow and no longer consolidates Dow and its consolidated subsidiaries into its financial results. The consolidated financial results of DowInc. are treated as related party transactions 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").TDCC. See Notes 3 and 4Note 24 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 2725 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 26 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 ofand the Company, andterm "Dow Silicones" means Dow Silicones Corporation, (formerly known as Dow Corning Corporation, which changed its name effective as of February 1, 2018), aboth wholly owned subsidiarysubsidiaries 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 1715 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, 2019,2022, approximately 3227 percent, 5864 percent and 109 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2018,2021, approximately 3427 percent, 5765 percent and 98 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(property, finite-lived intangible assets and right-of-use 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 depreciationdepreciation/amortization 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 depreciationdepreciation/amortization 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 16 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 53 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.
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 records 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 compute 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.
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
Effective January 1, 2019, the Company adopted Topic 842 and added the accounting policy 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 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 2 and 18 for additional information.
Additionally, the Company's consolidated balance sheets reflect the impact of the adoption of 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 is 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.
2018
In the first quarter 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 adoption of these ASUs resulted in a net decrease of $68 million to "Retained earnings" and a decrease of $20 million to "Accumulated other comprehensive loss" ("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.
TDCC Dividends
Prior to the Merger, 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. 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 determined whether or not there would be a dividend distribution to DowDuPont. Effective with the separation from DowDuPont, TDCC becameis 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 1917 and 2624 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2019, 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 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." 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. The Company expects to adopt the new guidance in the first quarter of 2020 and2021, the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer'sCompany adopted Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That 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 elect to apply the new guidance on a prospective or retrospective basis. The Company expects to adopt the new guidance in the first quarter of 2020 and the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In December 2019, the FASB issued ASUStandards Update ("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 isadoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Accounting Guidance Issued But Not Adopted at December 31, 2022
In September 2022, the Financial Accounting Standards Board issued ASU 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," which requires disclosures intended to enhance the transparency of supplier finance programs. The amendments in this ASU require buyers in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments are effective for fiscal years andbeginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2020.2023. Early adoption is permitted, with thepermitted. The amendments toshould be applied onretrospectively to each period in which a retrospective, modified retrospective or prospective basis, depending on the specific amendment.balance sheet is presented, except for disclosure of rollforward information, which should be applied prospectively. The Company is currently evaluating 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 provided in the Merger Agreement, at the effective time of the Mergers, (i) all options, deferred stock, performance deferred stock and other equity awards relating 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 generally 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.
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 commitmentsASU only requires disclosures related to the supplyCompany's supplier finance
programs and distributiondoes not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The Company expects to adopt the new disclosure requirements in Chinathe first quarter of certain herbicide and insecticide ingredients and formulations for rice crops for five years after2023, with the closingexception of the Merger.annual requirement to disclose rollforward information, which the Company expects to early adopt and present prospectively beginning in the 2023 annual financial statements.
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 4 – SEPARATION FROM DOWDUPONT
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 does not beneficially own any equity interest in Dow and will no longer consolidate 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”) 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 | 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, the Company had assets of $58 million included in "Other current assets" and $52 million included in "Noncurrent receivables," and liabilities of $352 million included in "Accrued and other current liabilities" and $96 million 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, $130 million of this liability was recorded in "Accrued and other current liabilities" and $270 million was recorded in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. The final resolution of this 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, Dow Inc. made cash payments of $215 million 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 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 $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019, compared with $1,179 million in 2018 and $798 million in 2017. Integration and separation costs related to post-Merger integration and business separation activities are expected to be substantially complete by the end of 2020.
NOTE 53 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2019, 982022, 99 percent of the Company's revenue related to product sales (99 percent in 20182021 and 98 percent in 2017)2020). The remaining sales were primarily related to the Company's insurance operations and licensing of patents and technologies.
Disaggregation of Revenue
Dow 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 | 2022 | 2021 | 2020 |
| In millions |
| Hydrocarbons & Energy | $ | 9,414 | | $ | 8,149 | | $ | 4,271 | |
| Packaging and Specialty Plastics | 19,846 | | 19,979 | | 14,030 | |
| Packaging & Specialty Plastics | $ | 29,260 | | $ | 28,128 | | $ | 18,301 | |
| Industrial Solutions | $ | 5,682 | | $ | 5,139 | | $ | 3,929 | |
| Polyurethanes & Construction Chemicals | 10,907 | | 11,700 | | 8,080 | |
| Others | 17 | | 12 | | 12 | |
| Industrial Intermediates & Infrastructure | $ | 16,606 | | $ | 16,851 | | $ | 12,021 | |
| Coatings & Performance Monomers | $ | 4,051 | | $ | 4,050 | | $ | 3,258 | |
| Consumer Solutions | 6,713 | | 5,622 | | 4,693 | |
| Performance Materials & Coatings | $ | 10,764 | | $ | 9,672 | | $ | 7,951 | |
| Corporate | $ | 272 | | $ | 317 | | $ | 269 | |
| Total | $ | 56,902 | | $ | 54,968 | | $ | 38,542 | |
| | | | | | | | | | | |
| Net Trade Sales by Geographic Region | 2022 | 2021 | 2020 |
| In millions |
| U.S. & Canada | $ | 20,945 | | $ | 19,613 | | $ | 13,582 | |
EMEAI 1 | 19,631 | | 19,746 | | 12,969 | |
| Asia Pacific | 10,344 | | 10,043 | | 8,165 | |
| Latin America | 5,982 | | 5,566 | | 3,826 | |
| Total | $ | 56,902 | | $ | 54,968 | | $ | 38,542 | |
1.Europe, Middle East, Africa and India.
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, 2019,2022, the Company had unfulfilled performance obligations forof $840 million ($829 million at December 31, 2021) 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 sevensix 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 2118 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 Company disaggregates its revenue from contracts with customers by 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 | 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 | 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 and royalty payments that are deferred and will be recognized 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 20192022 from amounts included in contract liabilities at the beginning of the period was approximately $250 million (approximately $295 million in 2021 and $145 million ($205 million in 2018)2020). In 2019,2022, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming
unconditional was approximately $15 million ($12(approximately $35 million in 2018)2021). The Company did not recognize any assetAsset impairment charges related to contract assets in 20192022 were insignificant (no impairment charges in 2021 or 2018.2020).
The following table summarizes the contract assets and liabilities at December 31, 20192022 and 2018:2021:
| | | | | | | | | | | | |
| Contract Assets and Liabilities at Dec 31 | Balance Sheet Classification | 2022 | 2021 | |
| In millions |
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 5,611 | | $ | 6,841 | | |
| Contract assets - current | Other current assets | $ | 48 | | $ | 34 | | |
| Contract assets - noncurrent | Deferred charges and other assets | $ | 16 | | $ | 26 | | |
Contract liabilities - current 1 | Accrued and other current liabilities | $ | 275 | | $ | 209 | | |
Contract liabilities - noncurrent 2 | Other noncurrent obligations | $ | 1,725 | | $ | 1,925 | | |
1.The increase from December 31, 2021 to December 31, 2022 was due to the reclassification of deferred royalty payments from noncurrent to current.
2.The decrease from December 31, 2021 to December 31, 2022 was due to the recognition of revenue on long-term product supply agreements and the reclassification of deferred royalty payments from noncurrent to current.
|
| | | | | | |
| 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"Divestiture of Rail Infrastructure Operations and Assets
On September 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 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.
4. Included in "Other noncurrent obligations" in the consolidated balance sheets.
NOTE 6 – DIVESTITURES
Merger Remedy - DivestitureU.S. & Canada to an affiliate of the Global Ethylene Acrylic Acid Copolymers and Ionomers Business
On February 2, 2017, as a conditionWatco Companies, L.L.C. for cash proceeds 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, the sale was completed for $296$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.
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 75 – 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.
DowDuPont Cost SynergyRestructuring Programs
2020 Restructuring Program
InOn September and November 2017, DowDuPont29, 2020, the Dow Inc. Board approved post-merger restructuring actions underto achieve the DowDuPont Cost Synergy Program (the "Synergy Program"Company's structural cost improvement initiatives in response to the continued economic impact from the coronavirus disease 2019 ("COVID-19") whichpandemic. The restructuring program was designed to integratereduce structural costs and optimizeenable the organization followingCompany to further enhance competitiveness while the MergerCOVID-19 economic recovery gained traction. This program included a global workforce cost reduction of approximately 6 percent and in preparation foractions to rationalize the business separations.Company's manufacturing assets, which included asset write-down and write-off charges, related contract termination fees and environmental remediation costs ("2020 Restructuring Program"). 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 Company expected (prioractions related to the impact2020 Restructuring Program were substantially complete by the end of any discontinued operations) to record total pretax restructuring charges2021, with the exception of approximately $1.3 billion, which included initial estimatescertain cash payments that will continue into 2023.
In the third quarter 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.
The2020, the Company recorded pretax restructuring charges of $399$575 million, in 2017, consisting of severance and related benefit costs of $307$297 million, asset write-downs and write-offs of $87$197 million and costs associated with exit and disposal activities of $5$81 million. 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 19 for additional information. In 2021, the Company recorded pretax restructuring charges of $12 million for asset write-downs and write-offs and $10 million for costs associated with exit and disposal activities. In addition, the Company reduced pretax restructuring charges by $10 million for severance and related benefit costs.
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 | $ | — | | $ | 11 | | $ | — | | $ | 11 | |
| Industrial Intermediates & Infrastructure | — | | 22 | | — | | 22 | |
| Performance Materials & Coatings | — | | 116 | | 61 | | 177 | |
| Corporate | 297 | | 47 | | 19 | | 363 | |
| Total restructuring charges | $ | 297 | | $ | 196 | | $ | 80 | | $ | 573 | |
| Charges against the reserve | — | | (196) | | (5) | | (201) | |
| Cash payments | (8) | | — | | — | | (8) | |
| Reserve balance at Dec 31, 2020 | $ | 289 | | $ | — | | $ | 75 | | $ | 364 | |
| Packaging & Specialty Plastics | $ | — | | $ | — | | $ | 8 | | $ | 8 | |
| Industrial Intermediates & Infrastructure | — | | 1 | | — | | 1 | |
| Performance Materials & Coatings | — | | 8 | | 2 | | 10 | |
| Corporate | (10) | | 3 | | — | | (7) | |
| Total restructuring charges | $ | (10) | | $ | 12 | | $ | 10 | | $ | 12 | |
| Charges against the reserve | — | | (12) | | — | | (12) | |
| Cash payments | (175) | | — | | (21) | | (196) | |
| Reserve balance at Dec 31, 2021 | $ | 104 | | $ | — | | $ | 64 | | $ | 168 | |
| Cash payments | (88) | | — | | (11) | | (99) | |
| Reserve balance at Dec 31, 2022 | $ | 16 | | $ | — | | $ | 53 | | $ | 69 | |
At December 31, 2022, $22 million ($112 million at December 31, 2021) of the reserve balance was included in "Accrued and other current liabilities" and $47 million ($56 million at December 31, 2021) was included in "Other noncurrent obligations" in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $184$585 million in 2018,inception-to-date under the 2020 Restructuring Program, consisting of severance and related benefit costs of $137$287 million, assetsasset write-downs and write-offs of $33$208 million and costs associated with exit and disposal activities of $14$90 million.
For the year ended December 31, 2019, the Company recorded pretax restructuring charges of $292 million, consisting of severance and related benefit costs of $123 million, asset write-downs and write-offs of $143 million and costs associated with exit and disposal activities of $26 million. The impact of these charges is shown as "Restructuring, goodwill impairment and asset related charges ‑ net" in the consolidated statements of income. The Company expects the Synergy Program to be substantially complete by the end of the second quarter of 2020.
The following table summarizes the activities related to the Synergy Program. At December 31, 2019, $52 million was included in "Accrued and other current liabilities" ($205 million at December 31, 2018) and $19 million 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 |
|
Asset Write-downs and Write-offs
The restructuring2020 Restructuring Program included charges related to the write-down and write-off of assets totaling $196 million in 20172020. Details regarding the asset write-downs and write-offs are as follows:
The Company•Industrial Intermediates & Infrastructure recorded a charge of $22 million forto rationalize its asset write-downsfootprint by shutting down certain amines and write-offs aligned with an energy project, includingsolvents facilities in the write-off of capital projectsUnited States and other non-manufacturing assets in PackagingEurope as well as select, small-scale downstream polyurethanes manufacturing facilities.
•Performance Materials & Specialty Plastics.
The CompanyCoatings recorded a charge of $65$116 million for other miscellaneousshutting down manufacturing assets, primarily related to small-scale coatings reactors, and also rationalized its upstream asset write-downsfootprint in Europe and write-offs, including the shutdownU.S. & Canada by adjusting the supply of several small manufacturingsiloxane and silicon metal to balance to regional needs.
•Corporate recorded a charge of $47 million related to the write-down of leased, non-manufacturing facilities and the write-down of miscellaneous assets.
The 2020 Restructuring Program included charges related to the write-down and write-off of non-manufacturing assets certain corporate facilitiestotaling $12 million in 2021, which included additional write-down and data centers. The chargewrite-off of assets related to Packaging & Specialty Plastics ($11 million),the actions listed above, impacting Industrial Intermediates & Infrastructure ($121 million) and Performance Materials & Coatings ($8 million), and the write-down of an additional non-manufacturing facility impacting Corporate ($3 million).
Shut down related activities for impacted facilities were substantially complete by the end of 2021.
Costs Associated with Exit and Disposal Activities
The 2020 Restructuring Program included charges of $80 million for costs associated with exit and disposal activities in 2020, which included $19 million for contract termination fees related to the asset actions listed above, impacting Performance Materials & Coatings ($9 million) and Corporate ($3310 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 $33well as $56 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),environmental remediation, impacting Performance Materials & Coatings ($752 million) and Corporate ($164 million). These manufacturing facilities were shut down by the end of 2019. and $5 million related to curtailment costs associated with a defined benefit pension plan, impacting Corporate.
The restructuring2020 Restructuring Program included charges related to the write-down and write-off of assets in 2019 are as follows:
The Company recorded a charge of $143$10 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 be shut down by the end of the second quarter of 2020.
Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities includingin 2021, which included contract cancellation penaltiestermination fees and environmental remediation, liabilities, totaled $5 million in 2017, $14 million in 2018impacting Packaging & Specialty Plastics ($8 million) and $26 million in 2019.Performance Materials & Coatings ($2 million).
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.
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 14 for additional information on these impairment charges.
Asset Related Charges
20192022 Charges
In 2019,2022, the Company recorded pretax asset related charges of $118 million due to the Russia and Ukraine conflict and the expectation that certain assets would not be recoverable. These charges included the write-down of inventory, the recording of bad debt reserves and the impairment of other assets. Asset related charges by segment in 2022 were as follows: $8 million in Packaging & Specialty Plastics, $73 million in Industrial Intermediates & Infrastructure, $6 million in Performance Materials & Coatings and $31 million in Corporate.
2020 Charges
In 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 2422 for additional information.
Subsequent Event
On August 13, 2019,January 25, 2023, the Company entered into a definitive agreementDow Inc. Board approved restructuring actions to sell its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and includedachieve the Company's acetone derivatives related inventory and production assets, locatedstructural cost improvement initiatives in Institute, West Virginia, in additionresponse to the site infrastructure, land, utilitiescontinued economic impact from the global recessionary environment and certain railcars. The Company remains atto enhance its agility and long-term competitiveness across the Institute site aseconomic cycle. This program includes a tenant. As a result ofglobal workforce cost reduction, decreasing turnaround spending, actions to rationalize the planned transaction, the Company recognized a pretax impairment charge of $75 million in the third quarter of 2019, included in "Restructuring, goodwill impairmentCompany’s manufacturing assets, which includes asset write-down and asset relatedwrite-off charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million). See Note 24 for additional information.contract termination fees.
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 13 and 24 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 24 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 chargeswill record a charge in the first quarter of $2462023 for costs associated with these activities. In total, these costs are expected to be in the range of $550 million to $725 million and will consist of severance and related benefit costs ranging from $330 million to $425 million in the fourth quarterconnection with a global workforce reduction of 2017, including chargesapproximately 2,000 roles; costs associated with exit and disposal activities ranging from $20 million to $50 million; and asset write-downs and write-offs ranging from $200 million to $250 million.
Future cash payments related to manufacturing assets of $159severance costs, contract termination fees and environmental remediation costs are anticipated to be approximately $450 million an equity method investment of $81to $550 million and other assets of $6 million. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" inwill be paid out primarily over 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.next two years.
NOTE 86 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | | | | | | | |
| Sundry Income (Expense) – Net | Dow Inc. | TDCC |
| In millions | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 |
Non-operating pension and other postretirement benefit plan net credits 1 | $ | 358 | | $ | 332 | | $ | 103 | | $ | 358 | | $ | 332 | | $ | 103 | |
Foreign exchange losses 2 | (117) | | (8) | | (62) | | (126) | | (13) | | (65) | |
Loss on early extinguishment of debt 3 | (8) | | (574) | | (149) | | (8) | | (574) | | (149) | |
| Gain on sales of other assets and investments | 78 | | 105 | | 48 | | 78 | | 105 | | 48 | |
Indemnification and other transaction related costs 4 | 4 | | 30 | | (21) | | — | | (2) | | (11) | |
Luxi arbitration award 5 | — | | 54 | | — | | — | | 54 | | — | |
Gain (loss) on divestitures and asset sale 6 | — | | 16 | | (15) | | — | | 16 | | (15) | |
Gain on divestiture of rail infrastructure operations and assets 7 | — | | — | | 233 | | — | | — | | 233 | |
Gain on divestiture of marine and terminal operations and assets 7 | — | | — | | 499 | | — | | — | | 499 | |
Gain related to Nova legal matter 5 | 321 | | — | | 544 | | 321 | | — | | 544 | |
Dow Silicones breast implant liability adjustment 5 | 60 | | — | | 5 | | 60 | | — | | 5 | |
| | | | | | |
| Other - net | 31 | | 10 | | 84 | | 31 | | 3 | | 82 | |
| Total sundry income (expense) – net | $ | 727 | | $ | (35) | | $ | 1,269 | | $ | 714 | | $ | (79) | | $ | 1,274 | |
1.See Note 19 for additional information.
2.Foreign exchange losses in 2022 relate primarily to exposures in the Argentinian peso.
3.See Note 14 for additional information.
4.Primarily related to charges associated with agreements entered into with DuPont and Corteva as part of the separation and distribution.
5.See Note 15 for additional information.
6.The year ended December 31, 2021 includes post-closing adjustments on a previous divestiture, related to Packaging & Specialty Plastics. 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.
7.See Note 4 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 $2,762$2,770 million and $2,233$2,613 million at December 31, 20192022 and $3,481 million and $3,299 million at December 31, 2021, 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, incentiveperformance-based compensation and severance, was $284$650 million at December 31, 20192022 and $759$1,030 million at December 31, 2018.2021. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.
Supplemental Cash Flow Information
The following table shows cash paid for interest and income taxes for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
|
| | | | | | | | | |
| 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 | 2022 | 2021 | 2020 |
| In millions |
| Cash paid during year for: | | | |
| Interest | $ | 675 | | $ | 801 | | $ | 842 | |
| Income taxes | $ | 793 | | $ | 731 | | $ | 518 | |
NOTE 97 – 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 | | | |
| In millions | 2022 | 2021 | 2020 |
| Income (loss) before income taxes | | | |
| Domestic | $ | 2,383 | | $ | 1,523 | | $ | (681) | |
| Foreign | 3,707 | | 6,622 | | 2,752 | |
| Income before income taxes | $ | 6,090 | | $ | 8,145 | | $ | 2,071 | |
| Current tax expense (benefit) | | | |
| Federal | $ | 434 | | $ | (46) | | $ | (176) | |
| State and local | 82 | | 48 | | 4 | |
| Foreign | 855 | | 1,460 | | 691 | |
| Total current tax expense | $ | 1,371 | | $ | 1,462 | | $ | 519 | |
| Deferred tax expense | | | |
| Federal | $ | 63 | | $ | 130 | | $ | 184 | |
| State and local | 1 | | 26 | | 19 | |
| Foreign | 15 | | 122 | | 55 | |
| Total deferred tax expense | $ | 79 | | $ | 278 | | $ | 258 | |
| Provision for income taxes | $ | 1,450 | | $ | 1,740 | | $ | 777 | |
| Net income | $ | 4,640 | | $ | 6,405 | | $ | 1,294 | |
|
| | | | | | | | | |
| 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. 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 reflect 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 Merger and subsequent change in 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 “Provision for income taxes on continuing operations” in the consolidated statements of income.
| | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2022 | 2021 | 2020 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| Equity earnings effect | (1.2) | | (2.2) | | 0.2 | |
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | (1.4) | | (1.3) | | (2.3) | |
| U.S. tax effect of foreign earnings and dividends | 1.2 | | 1.7 | | 3.9 | |
| Unrecognized tax benefits | 1.3 | | 4.7 | | 7.3 | |
Divestitures 1 | — | | — | | (5.1) | |
| Changes in valuation allowances | (2.8) | | 2.6 | | 12.6 | |
Federal tax accrual adjustment 2 | 0.6 | | (5.3) | | 0.3 | |
| State and local income taxes | 2.8 | | 0.2 | | 0.3 | |
| | | |
| | | |
| | | |
| Other - net | 2.3 | | — | | (0.7) | |
| Effective tax rate | 23.8 | % | 21.4 | % | 37.5 | % |
|
| | | | | | |
| 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 Act 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, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118, income tax effects of The Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018, the Company had completed its accounting for the tax effects 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 Company recorded a cumulative benefit of $81 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 respect2020 impact relates to the remeasurementdivestiture of the Company's deferred tax balances.a bio-ethanol manufacturing facility in Brazil. See Note 5 for additional information.
The Act required a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits, which resulted in a one-time transition tax. The Company recorded a cumulative charge of $789 million ($85 million benefit in 2018 and $874 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.
| | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2022 | 2021 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | 505 | | $ | 3,001 | | $ | 484 | | $ | 3,150 | |
| Tax loss and credit carryforwards | 1,472 | | — | | 1,784 | | — | |
| Postretirement benefit obligations | 749 | | 239 | | 1,753 | | 303 | |
| Other accruals and reserves | 1,497 | | 279 | | 1,487 | | 191 | |
| Intangibles | 36 | | 415 | | 108 | | 556 | |
| Inventory | 129 | | 278 | | 33 | | 203 | |
| | | | |
| Investments | 116 | | 41 | | 31 | | 26 | |
| | | | |
| Other – net | 999 | | 131 | | 1,093 | | 101 | |
| Subtotal | $ | 5,503 | | $ | 4,384 | | $ | 6,773 | | $ | 4,530 | |
| Valuation allowances | (1,269) | | — | | (1,391) | | — | |
| Total | $ | 4,234 | | $ | 4,384 | | $ | 5,382 | | $ | 4,530 | |
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.
| | | | | | | | |
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2022 | 2021 |
| In millions | Assets | Assets |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 158 | | $ | 240 | |
| Expire after 5 years or indefinite expiration | 752 | | 817 | |
| Total operating loss carryforwards | $ | 910 | | $ | 1,057 | |
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 77 | | $ | 227 | |
| Expire after 5 years or indefinite expiration | 96 | | 103 | |
| Total tax credit carryforwards | $ | 173 | | $ | 330 | |
| Capital loss carryforwards | | |
| Expire within 5 years | $ | 389 | | $ | 397 | |
| Total tax loss and tax credit carryforwards | $ | 1,472 | | $ | 1,784 | |
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 | 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 $6,851$6,013 million at December 31, 20192022 and $6,014$7,769 million at December 31, 2018. The Act imposed U.S. tax on all post-1986 foreign unrepatriated2021. 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 | 2022 | 2021 | 2020 |
| Total unrecognized tax benefits at Jan 1 | $ | 580 | | $ | 373 | | $ | 319 | |
| Decreases related to positions taken on items from prior years | (47) | | (3) | | (1) | |
| Increases related to positions taken on items from prior years | 53 | | 187 | | 52 | |
| Increases related to positions taken in the current year | 46 | | 44 | | 18 | |
| Settlement of uncertain tax positions with tax authorities | (111) | | (18) | | (14) | |
| Decreases due to expiration of statutes of limitations | — | | (1) | | (1) | |
| Foreign exchange gain | (1) | | (2) | | — | |
| Total unrecognized tax benefits at Dec 31 | $ | 520 | | $ | 580 | | $ | 373 | |
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 520 | | $ | 501 | | $ | 285 | |
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes" | $ | (27) | | $ | 359 | | $ | 84 | |
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 498 | | $ | 502 | | $ | 144 | |
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.
PriorThe 2022 impacts primarily relate 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 be 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 beuncertain tax positions in accordance with amultiple foreign jurisdictions. The 2021 impacts primarily relate to an increase in uncertain tax sharing agreement and/or tax matters agreement. At December 31, 2019, the Company had a receivable of $312 million as part of the tax sharing agreement, which is includedpositions due to controversy in "Noncurrent receivables" in the consolidated balance sheets. At December 31, 2018, the Company had a receivablemultiple jurisdictions related to the tax sharing agreement of $89 million, included in "Accounts and notes receivable - Other" in the consolidated balance sheets.various prior year cross-border matters.
Each year, theThe Company files tax returns in the various national, state and local income taxing jurisdictions in which it operates.multiple jurisdictions. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged byOpen years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax authorities may be settled or appealed by the Company. Ascredits for 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.given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.
Tax The earliest open tax years that remain subject to examinationare 2004 for the Company’s major tax jurisdictions are shown below:
|
| |
Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2019 | Earliest Open Year |
Jurisdiction |
Argentina | 2013 |
Brazil | 2006 |
Canada | 2012 |
China | 2009 |
Germany | 2010 |
Italy | 2015 |
The Netherlands | 2016 |
Switzerland | 2016 |
United States: | |
Federal income tax | 2004 |
State and local income tax | 2004 |
The reservestate income taxes and 2007 for non-income tax contingencies related to issuesfederal income taxes in the United States and 2011 in foreign locations was $44 million at December 31, 2019 ($91 million at December 31, 2018). 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.jurisdictions.
NOTE 108 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2019, 2018,2022, 2021 and 2017.2020. 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 for Earnings Per Share Calculations | 2022 | 2021 | 2020 |
| In millions |
| Net income | $ | 4,640 | | $ | 6,405 | | $ | 1,294 | |
| Net income attributable to noncontrolling interests | 58 | | 94 | | 69 | |
| | | |
Net income attributable to participating securities 1 | 24 | | 32 | | 9 | |
| Net income attributable to common stockholders | $ | 4,558 | | $ | 6,279 | | $ | 1,216 | |
1.Restricted stock units are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
| | | | | | | | | | | |
| Earnings Per Share - Basic and Diluted | 2022 | 2021 | 2020 |
| Dollars per share |
| Earnings per common share - basic | $ | 6.32 | | $ | 8.44 | | $ | 1.64 | |
| Earnings per common share - diluted | $ | 6.28 | | $ | 8.38 | | $ | 1.64 | |
|
| | | | | | | | | |
| 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. |
| | | | | | | | | | | |
| Share Count Information | 2022 | 2021 | 2020 |
| Shares in millions |
| Weighted-average common shares outstanding - basic | 721.0 | | 743.6 | | 740.5 | |
| Plus dilutive effect of equity compensation plans | 4.6 | | 5.4 | | 1.8 | |
| Weighted-average common shares outstanding - diluted | 725.6 | | 749.0 | | 742.3 | |
Stock options and restricted stock units excluded from EPS calculations 1 | 7.6 | | 5.8 | | 14.2 | |
1.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.
NOTE 119 – 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 | 2022 | 2021 |
| Finished goods | $ | 4,150 | | $ | 4,554 | |
| Work in process | 1,476 | | 1,615 | |
| Raw materials | 954 | | 822 | |
| Supplies | 892 | | 866 | |
| Total | $ | 7,472 | | $ | 7,857 | |
| Adjustment of inventories to the LIFO basis | (484) | | (485) | |
| Total inventories | $ | 6,988 | | $ | 7,372 | |
Inventories valued on athe LIFO basis represented 3227 percent of the total inventories at December 31, 20192022 and 34 percent of the total inventories at December 31, 2018.2021.
NOTE 1210 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful
Lives (Years) | 2022 | 2021 |
| In millions |
| Land and land improvements | 0-25 | $ | 2,129 | | $ | 2,045 | |
| Buildings | 5-50 | 5,045 | | 5,108 | |
| Machinery and equipment | 3-25 | 42,131 | | 42,627 | |
| Other property | 3-50 | 6,622 | | 6,286 | |
| Construction in progress | — | | 2,128 | | 1,538 | |
| Total property | | $ | 58,055 | | $ | 57,604 | |
|
| | | | | | | | |
| 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 | 2022 | 2021 | 2020 |
| Depreciation expense | $ | 1,958 | | $ | 2,063 | | $ | 2,092 | |
| Capitalized interest | $ | 63 | | $ | 59 | | $ | 64 | |
|
| | | | | | | | | |
| In millions | 2019 | 2018 | 2017 |
| Depreciation expense | $ | 2,156 |
| $ | 2,174 |
| $ | 1,955 |
|
| Capitalized interest | $ | 80 |
| $ | 88 |
| $ | 240 |
|
NOTE 1311 – NONCONSOLIDATED AFFILIATES
The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”), by classification in the consolidated balance sheets, 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 | 20221 | 20211 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,589 | | $ | 2,045 | |
| Other noncurrent obligations | (144) | | — | |
| Net investment in nonconsolidated affiliates | $ | 1,445 | | $ | 2,045 | |
96 | | | | | | | | | | | |
| Dividends Received from Nonconsolidated Affiliates | 2022 | 2021 | 2020 |
| In millions |
Dividends from nonconsolidated affiliates 1 | $ | 964 | | $ | 324 | | $ | 425 | |
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. In 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara’s finished products to levels more consistent with each partner’s equity ownership, which is being implemented through 2026. This transition will not impact equity earnings, but is expected to reduce the Company's sales of Sadara products over the five year period.
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 (a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization), 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. 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 24 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).
At December 31, 2019, the Company’s investment in Sadara was $1,705$1,464 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara.Sadara at December 31, 2022 ($1,541 million less at December 31, 2021). This basis difference, which resulted from the 2019 impairment of the investment, is primarily attributed to the long-lived assets of Sadara and will beis being 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-livedthe assets. Due to the potential for Dow to continue providing financial support to Sadara,At December 31, 2022, the Company expects to continue to recognize its share of potential future losses reported by Sadara.
Prior to the impairment of the Company’shad an investment balance in Sadara and reserve of certain notes receivable$322 million ($416 million at December 31, 2019,2021) included in “Investment in nonconsolidated affiliates” in the Company’s consolidated balance sheets. See Note 15 for additional information related to guarantees.
In 2020, the Company loaned $473$333 million to Sadara that was accounted for as in substance common stock and converted $380 million ofclassified as "Investment in nonconsolidated affiliates" in 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.Company's consolidated balance sheets. At December 31, 20192022 and 2018,2021, 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.zero.
EQUATE
TheAt December 31, 2022, the Company had a negative investment balance in EQUATE of $80$144 million at December 31, 2019, classified as "Other noncurrent obligations" in the consolidated balance sheets. At($115 million at December 31, 2018, the Company had an investment balance2021 included in EQUATE of $131 million, classified as "Investment“Investment in nonconsolidated affiliates"affiliates”) in the consolidated balance sheets. The Company's investment in EQUATE was $489$447 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 20192022 ($502458 million less at December 31, 2018)2021), 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$126 million at December 31, 20192022 ($184140 million at December 31, 2018)2021) is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At December 31, 2019,2022 and 2021, the Company had an investment balance in AFSI of $35 million ($48 million at December 31, 2018), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets.zero. At December 31, 2019,2022, the Company's investment in AFSI was $102$72 million less than the Company's proportionate share of AFSI's underlying net assets ($10196 million less at December 31, 2018)2021). This amount primarily relates to an other-than-temporary decline in the Company's investment in AFSI. At December 31, 2019,2022 and 2021, the Company held a 4140 percent ownership interest in AFSI (42 percent at December 31, 2018). See Note 25 for additional information on this investment.AFSI.
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 2019, 20182022, 2021 and 2017.2020. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 12 percent of the segment's sales in 2019, 20182022, 2021 and 2017.2020. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2019,2022, 2021 and 2 percent of the segment's sales in 2018 and 2017.2020.
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 87 percent of "Cost of sales" in 20192022 (9 percent in 20182021 and 48 percent in 2017)2020).
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 2019 (2 percent in 20182022, 2021 and 3 percent in 2017).2020.
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, 20192022 and 20182021 were as follows:
| | | | | | | | |
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2022 | 2021 |
| In millions |
| Accounts and notes receivable - Other | $ | 307 | | $ | 357 | |
| | |
| | |
| | |
| Accounts payable - Other | $ | 1,083 | | $ | 1,611 | |
| | |
|
| | | | | | |
| 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 |
|
87
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 37 nonconsolidated affiliates at December 31, 2019 (382022 (37 at December 31, 2018)2021). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2019, 20182022, 2021 and 20172020 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 |
| | 2022 | 2021 | 2020 |
| 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 | % |
| | | | |
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are shown in the tables below:as follows:
|
| | | | | | |
| 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 | 2022 | 2021 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,116 | | $ | 1,621 | |
| Other noncurrent obligations | (144) | | — | |
| Net investment in principal nonconsolidated affiliates | $ | 972 | | $ | 1,621 | |
|
| | | | | | | | | |
| 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 | 2022 | 2021 | 2020 |
| In millions |
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | 192 | | $ | 918 | | $ | (16) | |
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 | 2022 | 2021 |
| In millions |
| Current assets | $ | 6,241 | | $ | 8,158 | |
| Noncurrent assets | 22,526 | | 23,681 | |
| Total assets | $ | 28,767 | | $ | 31,839 | |
| Current liabilities | $ | 3,754 | | $ | 3,990 | |
| Noncurrent liabilities | 18,999 | | 20,039 | |
| Total liabilities | $ | 22,753 | | $ | 24,029 | |
| Noncontrolling interests | $ | 223 | | $ | 174 | |
|
| | | | | | | | | |
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 | 2022 | 2021 | 2020 |
| In millions |
| Sales | $ | 14,026 | | $ | 14,969 | | $ | 9,470 | |
| Gross profit | $ | 1,246 | | $ | 3,219 | | $ | 619 | |
| Income (loss), net of tax | $ | (91) | | $ | 2,013 | | $ | (461) | |
NOTE 1412 – 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, 20192022 and 2018:2021:
|
| | | | | | | | | | | | |
| 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, 2021 | $ | 5,115 | | $ | 1,100 | | $ | 2,693 | | $ | 8,908 | |
| Foreign currency impact | (10) | | (4) | | (130) | | (144) | |
| | | | |
| | | | |
| Balance at Dec 31, 2021 | $ | 5,105 | | $ | 1,096 | | $ | 2,563 | | $ | 8,764 | |
| Foreign currency impact | (5) | | (3) | | (112) | | (120) | |
| | | | |
| Balance at Dec 31, 2022 | $ | 5,100 | | $ | 1,093 | | $ | 2,451 | | $ | 8,644 | |
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, 2019,2022, goodwill was carried by all reporting units except Coatings & Performance Monomers (“C&PM”).Monomers.
Goodwill Impairments
The carrying amounts of goodwill at December 31, 20192022 and 2021 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 2019,2022, the Company performed qualitative testing for all reporting units that carried goodwill. Based on the results of the qualitative testing, the Company did not perform quantitative testing for 2on any reporting units (1 in 20182022 and 4 in 2017) and a qualitative assessment2021. Quantitative testing was performed for the remainingone reporting units.unit in 2020. The qualitative assessmentstesting on the reporting units indicated that it was not more likely than not that fair value was less than the carrying value for thosethe reporting units included in the qualitative test.
Upon completion of theunits. The 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 markets 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 Company2020 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, 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 | 2022 | 2021 |
| In millions | Gross
Carrying
Amount | Accum Amort | Net | Gross
Carrying
Amount | Accum Amort | Net |
| Intangible assets: | | | | | | |
Developed technology 1 | $ | 2,651 | | $ | (2,025) | | $ | 626 | | $ | 2,654 | | $ | (1,871) | | $ | 783 | |
| Software | 1,358 | | (962) | | 396 | | 1,396 | | (945) | | 451 | |
| Trademarks/tradenames | 352 | | (345) | | 7 | | 352 | | (344) | | 8 | |
| Customer-related | 3,103 | | (1,690) | | 1,413 | | 3,204 | | (1,565) | | 1,639 | |
| | | | | | |
| Total other intangible assets | $ | 7,464 | | $ | (5,022) | | $ | 2,442 | | $ | 7,606 | | $ | (4,725) | | $ | 2,881 | |
1.Includes $17 million gross carrying amount in 2022 and 2021 for in-process research and development that has not yet commercialized.
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 | 2022 | 2021 | 2020 |
| In millions |
| Other intangible assets, excluding software | $ | 336 | | $ | 388 | | $ | 401 | |
| Software, included in "Cost of sales" | $ | 80 | | $ | 90 | | $ | 96 | |
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 |
| 2023 | $ | 387 | |
| 2024 | $ | 368 | |
| 2025 | $ | 278 | |
| 2026 | $ | 203 | |
| 2027 | $ | 170 | |
NOTE 1513 – TRANSFERS OF FINANCIAL ASSETS
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 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. See Note 16 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 ProgramPrograms
The Company maintains a committed accounts receivable facility in North America (“North America A/R Program”)facilities with various financial institutions, including in the United States (“U.S. Program”) and in Europe (“Europe Program” and together with the U.S. Program, "the Programs"), which expiresare both set to expire in November 2022.2025. Under the terms of the North America A/R Program,Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million at any point in time. Thefor the U.S. Program and up to €500 million for the Europe 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 1715 for additional information related to guarantees. There were 0In 2022, the Company sold $391 million (zero in 2021) of receivables sold duringunder the year ended December 31, 2019.Programs.
NOTE 1614 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| | | | | | | | |
| Notes Payable at Dec 31 | | |
| In millions | 2022 | 2021 |
| Commercial paper | $ | 299 | | $ | — | |
| Notes payable to banks and other lenders | 63 | | 161 | |
| | |
| | |
| Total notes payable | $ | 362 | | $ | 161 | |
| Year-end average interest rates | 6.55 | % | 5.78 | % |
|
| | | | | | |
| 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 | 2022 Average Rate | 2022 | 2021
Average
Rate | 2021 |
| In millions |
| Promissory notes and debentures: | | | | |
| Final maturity 2022 | — | % | $ | — | | 8.64 | % | $ | 121 | |
| Final maturity 2023 | 7.63 | % | 250 | | 7.63 | % | 250 | |
| Final maturity 2025 | 5.63 | % | 333 | | 5.63 | % | 333 | |
| Final maturity 2026 | — | % | — | | 3.63 | % | 750 | |
Final maturity 2028 and thereafter 1 | 5.36 | % | 10,864 | | 5.15 | % | 9,363 | |
| Other facilities: | | | | |
| | | | |
| Foreign currency notes and loans, various rates and maturities | 1.16 | % | 2,562 | | 1.17 | % | 2,730 | |
| InterNotes®, varying maturities through 2052 | 3.87 | % | 543 | | 3.37 | % | 392 | |
| | | | |
Finance lease obligations 2 | | 790 | | | 869 | |
| Unamortized debt discount and issuance costs | | (282) | | | (297) | |
Long-term debt due within one year 3 | | (362) | | | (231) | |
| Long-term debt | | $ | 14,698 | | | $ | 14,280 | |
1.Cost includes net fair value hedge adjustment gains of $46 million at December 31, 2022 ($47 million at December 31, 2021). See Note 21 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 |
|
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, 2022 |
| In millions |
| 2023 | $ | 362 | |
| 2024 | $ | 127 | |
| 2025 | $ | 388 | |
| 2026 | $ | 78 | |
| 2027 | $ | 1,209 | |
|
| | | |
| 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. |
20192022 Activity
In 2019,the second quarter of 2022, 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;redeemed $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.May 2026. As a result of the redemption, the Company recognized a pretax loss of $100 million on the early extinguishment of debt of $8 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In the Corporate segment.fourth quarter of 2022, the Company issued $1.5 billion of senior unsecured notes. The offering included $600 million aggregate principal amount of 6.30 percent notes due 2033 and $900 million aggregate principal amount of 6.90 percent notes due 2053.
In 2022, the Company also issued an aggregate principal amount of $277$167 million of InterNotes®, and redeemed an aggregate principal amount of $122 million at maturity. Approximately $149. Additionally, the Company repaid $121 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 ("Term Loan 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.
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 are 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$3 million of long-term debt was repaid by consolidated variable interest entities. The
2021 Activity
In the second quarter of 2021, the Company also called anredeemed $208 million aggregate principal amount of $3433.15 percent notes due May 2024 and $811 million tax-exempt bondsaggregate principal amount of various interest rates and maturities in 2029, 2033 and 2038.3.50 percent notes due October 2024. As a result of thesethe 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$101 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 third quarter of 2021, the Company redeemed $436completed cash tender offers for certain debt securities. In total, $1,042 million aggregate principal amount was tendered and retired. As a result, the Company recognized a pretax loss of $472 million on the early extinguishment of debt, included in "Sundry income (expense) – net" in the consolidated statements of income and related to Corporate. In addition, the Company voluntarily repaid $81 million of 6.00 percent notes that matured on September 15, 2017, andlong-term debt due within one year.
In 2021, the Company issued an aggregate principal amount of $32$109 million of InterNotes®, and redeemed an aggregate principal amount of $31 million at maturity. In addition, the Company voluntarily repaid an aggregate principal amount of $213 million of InterNotes® with various maturities. As a result, the Company recognized a pretax loss of $1 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. Additionally, the Company repaid $259 million of long-term debt at maturity and approximately $119$25 million of long-term debt was repaid by consolidated variable interest entities.
2020 Activity
In February 2020, the Company issued €2.25 billion aggregate principal amount of notes (“Euro Notes”). The Euro Notes included €1.0 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.
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 $2.0 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.
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, 2022 |
| In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | November 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | September 2023 | Floating rate |
Bilateral Revolving Credit Facility 1 | | 500 | | 500 | | November 2024 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 250 | | 250 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | November 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2026 | Floating rate |
| Bilateral Revolving Credit Facility | | 150 | | 150 | | November 2026 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | November 2026 | Floating rate |
| Bilateral Revolving Credit Facility | | 250 | | 250 | | March 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | May 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 350 | | 350 | | June 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | October 2027 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | November 2027 | Floating rate |
| Total Committed and Available Credit Facilities | | $ | 8,400 | | $ | 8,400 | | | |
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 had1.Assumes the option to use select trade accounts receivable to collateralizeextend the bilateral revolving credit facility with certain lenders. In November 2019, the facility was amended and is no longer a secured borrowing arrangement. It had not been drawn upon during its term as a secured borrowing arrangement.will be exercised.
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 million. Under the structure of the amended agreement, the Company will use select trade accounts receivable to collateralize the credit facility with certain lenders. At December 31, 2019 and 2018, the facility had not been drawn upon.
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$600 million of outstanding letters of credit at any given time.
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 0.70 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 November 23, 2021, equals or exceeds $500 million,
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(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
(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.
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(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 |
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(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 1715 – COMMITMENTS AND CONTINGENT LIABILITIESCONTINGENCIES
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, 2019,2022, the Company had accrued obligations of $1,155$1,192 million for probable environmental remediation and restoration costs ($1,220 million at December 31, 2021), including $207$244 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.sites ($237 million at December 31, 2021). 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 halftwo 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,
As part of the Company had accrued obligations of $810 million for probable environmental remediation and restoration costs, including $156 million for the remediation of Superfund sites.
InCompany's 2020 Restructuring Program, in the third quarter of 2019,2020, the Company recorded a pretax charge related to environmental remediation matters at a number of current and historical locations. Thematters. This charge primarily resulted from: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’sCompany's evaluation of the costcosts 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 reviewDow will permanently shut down as part of its closure strategies and obligations to monitor ongoing operations and maintenance activities.2020 Restructuring Program. In addition, the Company recorded indemnification assets of $48$50 million related to Dow Silicones’Silicones' environmental matters. The Company recognized a pretax charge, net of indemnifications, of $399$56 million, related to these environmental matters, included in “Cost of sales”"Restructuring and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($5052 million) and Corporate ($3364 million). See Note 5 for additional information.
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 20192022 and 2018:2021:
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| 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 | 2022 | 2021 |
| In millions |
| Balance at Jan 1 | $ | 1,220 | | $ | 1,244 | |
| Accrual adjustment | 184 | | 159 | |
| Payments against reserve | (204) | | (162) | |
| Foreign currency impact | (8) | | (21) | |
| Balance at Dec 31 | $ | 1,192 | | $ | 1,220 | |
The amounts charged to income on a pretax basis related to environmental remediation totaled $588$176 million in 2019, $1762022, $158 million in 20182021 and $163$234 million in 2017.2020. Capital expenditures for environmental protection were $83$137 million in 2019, $552022, $65 million in 20182021 and $57$80 million in 2017.2020.
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 three years.as river levels allow. 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. In 2022, the Company implemented the limited remedial action in 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,The consent decree required the Company to pay a Notice of Lodging$15 million cash settlement to be used for long-term maintenance and Notice of Availability and Request for Comments on Draft Restoration Plan/Environmental Assessmenttrustee-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. In 2022, the first environmental restoration project was published inopened to the Federal Register. Public commentspublic. The Company continues to work with the trustees on the proposed consent decree and the draft Restoration Plan/Environmental Assessment were required to be submitted within 45 days of that publication.remaining projects.
At December 31, 2019,2022, the accrual for these off-site matters was $135$92 million (included in the total accrued obligation of $1,155$1,192 million). At December 31, 2018,2021, the Company had an accrual for these off-site matters of $95$104 million (included in the total accrued obligation of $810$1,220 million).
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 byUnion Carbide has engaged 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 activityperform periodic studies 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 forestimate 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. At each balance sheet date, Union Carbide also compares current asbestos claim and resolution activity, including asbestos-related defense and processing costs, to the results of the most recent Ankura study to determine whether the accrual continues to be appropriate.
In December 2017,2020, 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.
In December 2021, Ankura stated that an update of its December 20162020 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, 2021, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,016 million, and approximately 25 percent of the recorded liability related to pending claims and approximately 75 percent related to future claims.
In December 2018,2022, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2018,2022, 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, 2019,2022, 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$947 million, and approximately 1823 percent of the recorded liability related to pending claims and approximately 8277 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 and funded by Dow Silicones (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”"Litigation Facility"). Under the Plan, total payments committed that is also funded 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 million undiscounted atSilicones. At December 31, 2019). 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 has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At December 31, 2019,2022, Dow Silicones and its insurers have made life-to-date payments of $1,762$1,846 million to the Settlement Facility and Litigation Facility and Dow Silicones is currently making additional payments to fund the Settlement Facility reported an unexpended balance of $74 million.Facility.
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. Based on the comparability in design and actual claim experience of both plans, management concluded that claim information from the RSP provides a reasonable basis to estimate future claim filing levels for the Settlement Facility.
are being processed. In the thirdfourth quarter of 2019,2022, with the assistance of a third party consultant, ("Consultant"), Dow Silicones updated its Implant Liability estimate to $165 million, primarily reflecting areflect the reduced uncertainty of the Company's liability for unpaid claims, the decrease in Class 16 claims a decrease resulting fromfiling activity and 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.time. Accordingly, Dow Silicones decreased its Implant Liability in the third quarter of 2019 by $98$60 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, included in “Sundry income (expense) - net” in the consolidated statements of income (both related to the Corporate segment). Dow Silicones' Implant Liability was $165 million at December 31, 2019 ($263 million at December 31, 2018), of which $20 million at December 31, 2019 ($111 million at December 31, 2018) was included in “Accrued and other current liabilities” and $145 million at December 31, 2019 ($152 million at December 31, 2018) 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. AtBased on the new estimate related to claims filed at and before the claim filing deadline, Dow Silicones estimates that it will be obligated to contribute an additional $16 million to the Settlement Facility at December 31, 2018, the liability related to Dow Silicones' potential obligation to its Commercial Creditors2022 ($130 million at December 31, 2021) which was $82 million, included in "Accrued“Accrued and other current liabilities"liabilities” and "Other noncurrent obligations" in the consolidated balance sheets.
On August 19, 2019, Dow Silicones entered into a settlement agreement with the Commercial Creditors, 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. 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 forbelieves the Chapter 11 related matters described above wererecorded liability reflects the best estimate of the remaining funding obligations under the Plan and is not aware of circumstances based uponon current, known facts which management believes reflect reasonable and probable estimates ofthat would significantly change 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.Implant Liability estimate.
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) 0no recoveries are permitted on claims initially submitted after May 31, 2023. The Company had indemnification assets of $100$98 million at December 31, 2019 (02022 ($95 million at December 31, 2018)2021), of which $37 million was included in "Other current assets" and $63 million 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 ("Canadian Supreme Court"), which dismissed Nova’s petition in April 2017. As a result, Nova has exhausted all appeal rights on the merits, and it iswas undisputed that Nova owesowed 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 iswas appealing portions of the damages judgment, certain portions of it arewere indisputable and willcould 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,Canadian Supreme Court. In November 2022, the Canadian Supreme Court dismissed Nova's appeal, thereby exhausting all of Nova's appeal rights for the damages judgment. As a result, the Company recorded a pretax gain of $341 million in the fourth quarter of 2022 for the previously disputed portion of the damages judgment, of which $137$321 million was included in "Sundry income (expense) - net"net," related to Packaging & Specialty Plastics, and $23$20 million was included in "Selling, general and administrative expenses" in the consolidated statements of income. At December 31, 2019,2021, the Company had $341 million ($341 million at December 31, 2018) included in "Other noncurrent obligations""Accrued and other current liabilities" related to the previously disputed portion of the damages judgment. The Company is confidentjudgment (zero at December 31, 2022).
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 fordeprived the Company.Company of millions of pounds of ethylene. Nova has appealed the judgment, however, certain portions of it are notno longer in dispute and are owed tocan be retained by the Company regardless of the outcome of Nova's appeal.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 $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, general and administrative expenses" in the consolidated statements of income and related to Packaging & Specialty Plastics.2019. 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 Canadian Supreme 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, 2022, $323 million ($323 million at December 31, 2021) 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 additional damages for the period from 2013 through 2018 to account for the ethylene shortfall during those years. The damages hearing began in the trial court in November 2021 that would resolve the impact of the appellate ruling and quantify Dow's damages for the 2013-2018 period. Dow has also filed a new lawsuit in the same Alberta, Canada court to account for damages due to lost ethylene after June 2018.
Luxi Chemical Group Breach of Contract Matter
In November 2017, an arbitration panel of the Stockholm Chamber of Commerce held that Luxi Chemical Group Co., Ltd. (“Luxi”), based in Shandong Province, China, violated a secrecy and non-use agreement related to the Dow and Johnson Matthey Davy Technologies Limited (“JM”) LP OXOSM Process by using Dow and JM protected information in the design, construction, and operation of its chancesbutanol and 2-ethylhexanol plants, awarding damages, fees and costs, plus interest, to both Dow and JM. In September 2021, Luxi paid the arbitration award and interest assessment and, as a result, Dow recorded a pretax gain of defending$54 million included in “Sundry income (expense) – net” in the entire judgmentconsolidated statements of income and related to Industrial Intermediates & Infrastructure.
Brazilian Tax Credits
In March 2017, the Federal Supreme Court of Brazil (“Brazil Supreme Court”) ruled in a leading case that a Brazilian value-added tax ("ICMS") should not be included in the base used to calculate a taxpayer's federal contribution on total revenue known as PIS/COFINS (the “2017 Decision”). Previously, three of the Company’s Brazilian subsidiaries filed lawsuits challenging the inclusion of ICMS in their calculation of PIS/COFINS, seeking recovery of excess taxes paid. In response to the 2017 Decision, the Brazilian tax authority filed an appeal particularlyseeking clarification of the trial court's determinations on important factualamount of ICMS tax to exclude from the calculation of PIS/COFINS. In May 2021, the Brazil Supreme Court ruled in a leading case related to the amount of ICMS tax to exclude from the calculation of PIS/COFINS, which resolved two of the lawsuits filed by the Company and, discretionary issues,in May 2022, a court decision related to the remaining lawsuit, ruling in favor of the Company's Brazilian subsidiary, became final and unappealable. As a result, the Company recorded pretax gains of $112 million in 2022 and $67 million in 2021 for certain excess PIS/COFINS paid from 2009 to 2019, plus applicable interest, which willthe Company expects to apply to future required federal tax payments, and the reversal of related liabilities. The pretax gains were recorded in “Cost of sales” in the
consolidated statements of income. At December 31, 2022, related tax credits available and expected to be accorded deferential review on appeal.applied to future required federal tax payments totaled $126 million ($52 million at December 31, 2021).
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, 20192022 and 2018.2021.
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, 2022 | Dec 31, 2021 |
| In millions | Final
Expiration | Maximum Future Payments 1 | Recorded Liability | Final
Expiration | Maximum Future Payments | Recorded Liability |
| Guarantees | 2038 | $ | 1,236 | | $ | 200 | | 2038 | $ | 1,273 | | $ | 220 | |
| | | | | | |
1.In addition, TDCC has provided guarantees, in proportion to the Company's 35 percent ownership interest, of all future interest payments that will become due on Sadara’s project financing debt during the grace period, which Dow's share is estimated to be $393 million at December 31, 2022 ($446 million at December 31, 2021). Based on Sadara's current forecasted cash flows, the Company does not expect to be required to perform under the guarantees.
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 four16 years. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
The CompanyTDCC has entered into guarantee agreements (“Guarantees”) related to Sadara, a nonconsolidated affiliate. Sadara reached an agreement with its lenders to re-profile its outstanding project financing for Sadara.debt in the first quarter of 2021. In conjunction with the debt re-profiling, TDCC entered into a guarantee of up to approximately $1.3 billion of Sadara’s debt, proportionate to the Company's 35 percent ownership interest. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained bydebt re-profiling includes a grace period until June 2026, during which Sadara is approximately $12.5 billion. Sadara had $10.8 billion of Total Project Financing outstanding at December 31, 2019 ($11.7 billion at December 31, 2018). The Company's guarantee of the Total Project Financing isobligated to make interest-only payments which are guaranteed by TDCC in proportion to the Company's 35 percent ownership interest in Sadara, or up to approximately $3.9 billion when the project financing 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 endinterest. As part of the first quarterdebt re-profiling, Sadara established a $500 million revolving credit facility guaranteed by Dow, which would be used to fund Dow’s pro-rata share of 2020,any potential shortfall during the grace period. Based on Sadara's forecasted cash flows and must occur no later than December 2020.significant scheduled debt repayments until 2026, the Company does not expect Sadara to draw on the facility. See Note 11 for additional information.
Asset Retirement Obligations
The Company has 109104 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 Europe, the United States, Canada, Brazil, Argentina, Japan, the United Arab Emirates Australia and Europe;Brazil; 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, Argentina, AustraliaEurope, Japan and Europe.Argentina. The aggregate carrying amount of conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown below) was $19$11 million at December 31, 20192022 ($2213 million at December 31, 2018)2021).
The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 20192022 and 2018:2021:
|
| | | | | | |
| 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 | 2022 | 2021 |
| In millions |
| Balance at Jan 1 | $ | 118 | | $ | 112 | |
| Additional accruals | 14 | | 13 | |
| Liabilities settled | (8) | | (7) | |
| Accretion expense | 2 | | 1 | |
| Revisions in estimated cash flows | (9) | | (1) | |
| Other | 2 | | — | |
| Balance at Dec 31 | $ | 119 | | $ | 118 | |
The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2019,2022, was 2.125.53 percent (3.54(1.13 percent at December 31, 2018)2021). 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 3635 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 1816 - 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 5053 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, 20192022, 2021 and 2020 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 | 2022 | 2021 | 2020 |
| In millions |
| Operating lease cost | $ | 397 | | $ | 494 | | $ | 484 | |
| Finance lease cost | | | |
| Amortization of right-of-use assets - finance | 105 | | 76 | | 58 | |
| Interest on lease liabilities - finance | 32 | | 27 | | 25 | |
| Total finance lease cost | 137 | | 103 | | 83 | |
| Short-term lease cost | 255 | | 238 | | 213 | |
| Variable lease cost | 611 | | 381 | | 199 | |
| Sublease income | (10) | | (6) | | (5) | |
| Total lease cost | $ | 1,390 | | $ | 1,210 | | $ | 974 | |
The following table provides supplemental cash flow and other 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 | 2022 | 2021 | 2020 |
| In millions |
| | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows for operating leases | $ | 393 | | $ | 497 | | $ | 482 | |
| Operating cash flows for finance leases | $ | 32 | | $ | 27 | | $ | 25 | |
| Financing cash flows for finance leases | $ | 114 | | $ | 74 | | $ | 58 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases 1 | $ | 151 | | $ | (25) | | $ | 185 | |
Finance leases 1 | $ | 62 | | $ | 512 | | $ | 178 | |
1.In 2021, $193 million of leased assets were reclassified from Operating leases to Finance leases due to an amendment that extended the term of the agreement.
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at December 31, 2019.2022 and 2021.
| | | | | | | | | | | |
| Lease Position | Balance Sheet Classification | Dec 31, 2022 | Dec 31, 2021 |
| In millions |
| Assets | | | |
| Operating lease assets | Operating lease right-of-use assets | $ | 1,227 | | $ | 1,412 | |
| Finance lease assets | Property | 1,167 | | 1,158 | |
| Finance lease amortization | Accumulated depreciation | (441) | | (368) | |
| Total lease assets | | $ | 1,953 | | $ | 2,202 | |
| Liabilities | | | |
| Current | | | |
| Operating | Operating lease liabilities - current | $ | 287 | | $ | 314 | |
| Finance | Long-term debt due within one year | 109 | | 106 | |
| Noncurrent | | | |
| Operating | Operating lease liabilities - noncurrent | 997 | | 1,149 | |
| Finance | Long-Term Debt | 681 | | 763 | |
| Total lease liabilities | | $ | 2,074 | | $ | 2,332 | |
In 2021, the Company executed buy-outs of certain leased assets for $687 million. The lease buyouts reduced “Operating lease right-of-use assets” by $166 million and reduced “Operating lease liabilities - current” and “Operating lease liabilities - noncurrent” by $44 million and $158 million, respectively. The Company recognized a pretax loss related to the lease buy-outs of $37 million included in “Sundry income (expense) - net” in the consolidated statements of income. The lease buy-outs are included in “Purchases of previously leased assets” in the consolidated statements of cash flows.
Additionally, in 2021, the Company amended an agreement to extend leases of certain assets. The amendment and related remeasurement resulted in a reclassification of $73 million from “Operating lease liabilities – noncurrent” to “Long-Term Debt” and $34 million from “Operating lease liabilities - current” to “Long-term debt due within one year." In addition to the reclassifications, the amendment increased “Long-Term Debt” by $152 million and decreased “Long-term debt due within one year" by $2 million.
|
| | | | |
| 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 Term and Discount Rate | Dec 31, 2022 | Dec 31, 2021 |
| Weighted-average remaining lease term | | |
| Operating leases | 7.6 years | 7.9 years |
| Finance leases | 11.0 years | 11.8 years |
| Weighted-average discount rate | | |
| Operating leases | 4.49 | % | 3.72 | % |
| Finance leases | 4.29 | % | 4.17 | % |
The following table provides the maturities of lease liabilities at December 31, 2019:2022:
|
| | | | | | |
| 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 |
| 2023 | $ | 333 | | $ | 138 | |
| 2024 | 253 | | 153 | |
| 2025 | 199 | | 78 | |
| 2026 | 160 | | 70 | |
| 2027 | 129 | | 64 | |
| 2028 and thereafter | 470 | | 487 | |
| Total future undiscounted lease payments | $ | 1,544 | | $ | 990 | |
| Less: Imputed interest | 260 | | 200 | |
| Total present value of lease liabilities | $ | 1,284 | | $ | 790 | |
At December 31, 2019,2022, Dow had additional leases of approximately $71$142 million, primarily for equipment, which had not yet commenced. These leases are expected to commence in 20202023 and 2021,2025, with lease terms of up to 2016 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, 20192022 and 2018. There was no recorded liability related to these residual value guarantees at December 31, 2019, as payment of such residual value guarantees was not determined to be probable.2021. 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, 2022 | Dec 31, 2021 |
| In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
| Residual value guarantees | 2031 | $ | 258 | | $ | — | | 2031 | $ | 280 | | $ | — | |
NOTE 1917 – 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 onOn April 1, 2019, Dow Inc. became an independent, publicly traded company. The principal market for Dow Inc.'s common stock is listed on the NYSENew York Stock Exchange, traded under the symbol “DOW.” See Notes 3Dow Inc. is the direct parent company of The Dow Chemical Company and 4 for additional information.its consolidated subsidiaries, ("TDCC" and together with Dow Inc., "Dow" or the "Company"), owning all of the outstanding common shares of TDCC.
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), the Employee Stock Purchase Plan ("ESPP") and restricted stock. Subsequent to the separation from DowDuPont, the number of new Dow Inc. commonEmployees' Savings Plan (the "Savings Plan"). Common stock shares issued to employees and non-employee directors was approximately 2.57.5 million in 2019. Prior to the Merger, the number of new TDCC common stock shares issued to employees2022 (8.2 million in 2021 and non-employee directors was 04.8 million in 2017.2020). See Note 2220 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 Notes 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 2019.2022, 2021 and 2020.
Undistributed earnings of nonconsolidated affiliates included in retained earnings were $852$669 million at December 31, 20192022 and $1,856$1,155 million at December 31, 2018.2021.
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 onTDCC declared and paid dividends paid by TDCC to DowDuPont and Dow Inc. of $4,375 million in 2022, $3,264 million in 2021 and $2,233 million in 2020.
See Note 4 for information on the impact of the receipt of ECP, which was accounted for as a transfer between entities under common control.
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”). A significant majority of full-time employeesallocated the remaining shares in the United States are eligible to participate in the 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,2022 and no 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 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 outstanding balance of the debt was $3 millionremain unallocated at December 31, 2019 and $10 million2022. Unallocated shares at December 31, 2018.2021 and 2020 were excluded from the Company's earnings per share calculation.
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 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 Plan.
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 operationsbefore income taxes for ESOP shares allocated was $31 million in 2022, $77 million in 2019, $1442021 and $72 million in 2018 and $200 million in 2017.2020. At December 31, 2019, 12.6 million2022, all remaining unallocated ESOP shares out of a total 16.1 million shares held by the ESOP had beenwere allocated to participants’ accounts and 3.5 million shares, at a fair value of $190 million, were considered unearned.plan participants.
Treasury Stock
Dow Inc.
On April 1, 2019, the Dow Inc.'s Board of Directors ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3$3.0 billion for the repurchase of the Company's common stock, with no expiration date. The Company completed the April 1, 2019 share repurchase program in the second quarter of 2022. On April 13, 2022, the Dow Inc. Board approved a new share repurchase program authorizing up to be spent on$3.0 billion for the repurchase of the Company's common stock, with no expiration date. In 2019, Dow Inc.2022, the Company repurchased $500$2,325 million of Dow Inc.its common stock.stock ($1,000 million in 2021 and $125 million in 2020). At December 31, 2019, $2.52022, $2.0 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 issuebegan issuing treasury shares to satisfy its obligations to make matching contributions to plan participants under The Dow Employees' Savings Plan in the first quarter of 2022. The Company issued 1.5 million treasury shares under its compensation and benefit plans in 2022.
Compensation expense for purchases underissued shares is recorded at the ESPP,fair value of the shares on the date of issuance. Compensation expense reflected in income before income taxes for options exercised as well as for the release of RSUs, PSUs and restricted stock out of treasury stock or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under the Company’s stock-based compensation programs are summarizedwas $94 million in the following table. See Note 22 for additional information on changes to the Company equity awards in connection with the Merger and separation from DowDuPont.2022.
|
| | | | | |
Treasury Shares Issued Under Stock-Based Compensation Programs | | 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, 20192022, 2021 and 2018:2020:
| | | | | | | | |
| Shares of Dow Inc. Common Stock | Issued | Held in Treasury |
|
| Balance at Jan 1, 2020 | 751,228,644 | | 9,729,834 | |
Issued 1 | 4,764,554 | | — | |
| Repurchased | — | | 3,073,469 | |
| Balance at Jan 1, 2021 | 755,993,198 | | 12,803,303 | |
Issued 1 | 8,233,684 | | — | |
| Repurchased | — | | 16,208,270 | |
| Balance at Jan 1, 2022 | 764,226,882 | | 29,011,573 | |
Issued 1 | 7,451,643 | | (1,499,610) | |
| Repurchased | — | | 39,286,642 | |
| Balance at Dec 31, 2022 | 771,678,525 | | 66,798,605 | |
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, 2019, 20182022, 2021 and 20172020 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 | 2022 | 2021 | 2020 |
| In millions |
| Unrealized Gains (Losses) on Investments | | | |
| Beginning balance | $ | 59 | | $ | 104 | | $ | 64 | |
| Unrealized gains (losses) on investments | (326) | | (21) | | 104 | |
| Tax (expense) benefit | 13 | | 5 | | (23) | |
| Net unrealized gains (losses) on investments | (313) | | (16) | | 81 | |
(Gains) losses reclassified from AOCL to net income 1 | 2 | | (38) | | (54) | |
Tax expense (benefit) 2 | (1) | | 9 | | 13 | |
| Net (gains) losses reclassified from AOCL to net income | 1 | | (29) | | (41) | |
| Other comprehensive income (loss), net of tax | (312) | | (45) | | 40 | |
| Ending balance | $ | (253) | | $ | 59 | | $ | 104 | |
| Cumulative Translation Adjustment | | | |
| Beginning balance | $ | (1,355) | | $ | (930) | | $ | (1,135) | |
| Gains (losses) on foreign currency translation | (557) | | (375) | | 227 | |
| Tax (expense) benefit | 24 | | (40) | | 25 | |
| Net gains (losses) on foreign currency translation | (533) | | (415) | | 252 | |
(Gains) losses reclassified from AOCL to net income 3 | (46) | | (10) | | (47) | |
| Other comprehensive income (loss), net of tax | (579) | | (425) | | 205 | |
| Ending balance | $ | (1,934) | | $ | (1,355) | | $ | (930) | |
| Pension and Other Postretirement Benefits | | | |
| Beginning balance | $ | (7,334) | | $ | (9,559) | | $ | (8,781) | |
| Gains (losses) arising during the period | 2,611 | | 2,094 | | (1,769) | |
| Tax (expense) benefit | (630) | | (464) | | 411 | |
| Net gains (losses) arising during the period | 1,981 | | 1,630 | | (1,358) | |
Amortization of net loss and prior service credits reclassified from AOCL to net income 4 | 622 | | 776 | | 753 | |
Tax expense (benefit) 2 | (146) | | (181) | | (173) | |
| Net loss and prior service credits reclassified from AOCL to net income | 476 | | 595 | | 580 | |
| Other comprehensive income (loss), net of tax | 2,457 | | 2,225 | | (778) | |
| Ending balance | $ | (4,877) | | $ | (7,334) | | $ | (9,559) | |
| Derivative Instruments | | | |
| Beginning balance | $ | (347) | | $ | (470) | | $ | (394) | |
| Gains (losses) on derivative instruments | 638 | | 155 | | (96) | |
| Tax (expense) benefit | (87) | | 3 | | (1) | |
| Net gains (losses) on derivative instruments | 551 | | 158 | | (97) | |
(Gains) losses reclassified from AOCL to net income 5 | (313) | | (38) | | 30 | |
Tax expense (benefit) 2 | 34 | | 3 | | (9) | |
| Net (gains) losses reclassified from AOCL to net income | (279) | | (35) | | 21 | |
| Other comprehensive income (loss), net of tax | 272 | | 123 | | (76) | |
| Ending balance | $ | (75) | | $ | (347) | | $ | (470) | |
| Total AOCL ending balance | $ | (7,139) | | $ | (8,977) | | $ | (10,855) | |
1.Reclassified to "Net sales" and "Sundry income (expense) - net."
2.Reclassified to "Provision for income taxes."
3.Reclassified to "Sundry income (expense) - net."
4.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 2119 for additional information.
8. 5.Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."
NOTE 2018 – 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, 2019, 20182022, 2021 and 2017:2020:
| | | | | | | | | | | |
| Noncontrolling Interests | | | |
| In millions | 2022 | 2021 | 2020 |
| Balance at Jan 1 | $ | 574 | | $ | 570 | | $ | 553 | |
Net income attributable to noncontrolling interests 1 | 58 | | 94 | | 69 | |
Distributions to noncontrolling interests 2 | (76) | | (66) | | (55) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Deconsolidation of noncontrolling interests 3 | — | | — | | (7) | |
| Cumulative translation adjustments | (28) | | (25) | | 9 | |
| Other | 1 | | 1 | | 1 | |
| Balance at Dec 31 | $ | 529 | | $ | 574 | | $ | 570 | |
|
| | | | | | | | | |
| 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 |
|
| |
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 2119 – 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. qualifiedtax-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.
On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified pension plans. Effective December 31, 2023 ("Effective Date"), the Company will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in its U.S. tax-qualified and non-qualified retirement programs (collectively, the "U.S. Plans"). As a result, at the Effective Date and subject to any bargaining obligations required by law, active participants of the U.S. Plans will not accrue additional benefits for future service and compensation. In connection with these plan amendments, the Company remeasured its U.S. Plans effective February 28, 2021, which resulted in a pretax actuarial gain of $1,268 million, included in other comprehensive income and inclusive of a $345 million reduction in the projected benefit obligation resulting from the plan amendments, and a pretax curtailment gain of $19 million, recognized in the first quarter of 2021.
The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2019, the Company contributed $261Total global pension contributions were $235 million to its continuing operations pension plans ($266 million, includingin 2022, which includes contributions to plans of discontinued operations). Total contributions in 2019 also included contributionsnecessary to fund benefit payments for the Company's non-qualifiedunfunded pension plans. The Company expects to contribute approximately $250$150 million to its pension plans in 2020.2023.
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 Benefit Costs
for the Year Ended |
| | 2022 | 2021 | 2022 | 2021 | 2020 |
| Discount rate | 5.18 | % | 2.57 | % | 2.57 | % | 2.40 | % | 2.81 | % |
| Interest crediting rate for applicable benefits | 4.19 | % | 3.57 | % | 3.57 | % | 3.55 | % | 3.51 | % |
| Rate of compensation increase | 4.05 | % | 3.94 | % | 3.94 | % | 3.91 | % | 3.92 | % |
| Expected return on plan assets | | | 6.68 | % | 6.86 | % | 7.00 | % |
|
| | | | | | | | | | |
| 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 Benefit Costs
for the Year Ended |
| 2022 | 2021 | 2022 | 2021 | 2020 |
| Discount rate | 5.64 | % | 3.04 | % | 3.04 | % | 3.03 | % | 3.41 | % |
| 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 | % | 7.96 | % | 7.95 | % |
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 2019,2022, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2019.2022. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2020.2023.
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 Benefit Costs
for the Year Ended |
| 2022 | 2021 | 2022 | 2021 | 2020 |
| Discount rate | 5.57 | % | 2.85 | % | 2.85 | % | 2.38 | % | 3.19 | % |
| Health care cost trend rate assumed for next year | 6.79 | % | 6.50 | % | 6.50 | % | 6.75 | % | 6.25 | % |
| 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 | 2033 | 2028 | 2028 | 2028 | 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 utilizesCompany’s mortality assumption used for the US plans is a modifiedbenefit-weighted version of the Society of Actuaries’ RP-2014 base table with future rates of mortality tables released in 2014 andimprovement based on a modified version of the generational mortality improvement scale releasedassumptions used 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.Social Security Administration’s 2021 trustees report.
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 | 2022 | 2021 | 2022 | 2021 |
| Change in projected benefit obligations: | | | | |
| Benefit obligations at beginning of year | $ | 32,977 | | $ | 35,309 | | $ | 1,251 | | $ | 1,464 | |
| Service cost | 392 | | 387 | | 6 | | 7 | |
| Interest cost | 680 | | 594 | | 26 | | 23 | |
| Plan participants' contributions | 12 | | 10 | | — | | — | |
| Actuarial changes in assumptions and experience | (8,433) | | (820) | | (318) | | (98) | |
| Benefits paid | (1,539) | | (1,582) | | (67) | | (141) | |
| Plan amendments | (25) | | 2 | | — | | — | |
Acquisitions/divestitures/other 1 | (602) | | 8 | | — | | — | |
| Effect of foreign exchange rates | (600) | | (545) | | (5) | | (4) | |
Termination benefits/curtailments/settlements 2 | (1) | | (386) | | — | | — | |
| Benefit obligations at end of year | $ | 22,861 | | $ | 32,977 | | $ | 893 | | $ | 1,251 | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | $ | 28,167 | | $ | 26,406 | | $ | — | | $ | — | |
| Actual return on plan assets | (4,556) | | 2,501 | | — | | — | |
| Employer contributions | 235 | | 1,219 | | — | | — | |
| Plan participants' contributions | 12 | | 10 | | — | | — | |
| Benefits paid | (1,539) | | (1,582) | | — | | — | |
Other 3 | (592) | | 10 | | — | | — | |
| Effect of foreign exchange rates | (496) | | (397) | | — | | — | |
| | | | |
| Fair value of plan assets at end of year | $ | 21,231 | | $ | 28,167 | | $ | — | | $ | — | |
| | | | |
| Funded status: | | | | |
| U.S. plans with plan assets | $ | (545) | | $ | (2,585) | | $ | — | | $ | — | |
| Non-U.S. plans with plan assets | (473) | | (1,467) | | — | | — | |
| All other plans | (612) | | (758) | | (893) | | (1,251) | |
| | | | |
| Funded status at end of year | $ | (1,630) | | $ | (4,810) | | $ | (893) | | $ | (1,251) | |
| | | | |
| Amounts recognized in the consolidated balance sheets at Dec 31: | | | | |
| Deferred charges and other assets | $ | 1,035 | | $ | 1,173 | | $ | — | | $ | — | |
| Accrued and other current liabilities | (66) | | (58) | | (88) | | (99) | |
| Pension and other postretirement benefits - noncurrent | (2,599) | | (5,925) | | (805) | | (1,152) | |
| | | | |
| | | | |
| Net amount recognized | $ | (1,630) | | $ | (4,810) | | $ | (893) | | $ | (1,251) | |
| | | | |
| Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | | | | |
| Net loss (gain) | $ | 7,045 | | $ | 9,934 | | $ | (523) | | $ | (221) | |
| Prior service credit | (116) | | (112) | | — | | — | |
| Pretax balance in accumulated other comprehensive loss at end of year | $ | 6,929 | | $ | 9,822 | | $ | (523) | | $ | (221) | |
|
| | | | | | | | | | | | |
| 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 divestiture1.The 2022 impact primarily relates to the transfer 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 forU.S. through the year ended December 31, 2019 was duepurchase of annuity contracts from an insurance company.
2.The 2021 impact primarily relates to the changefreeze of pensionable compensation and credited service amounts for employees that participate in weighted-average discount rates, which decreased from 3.69 percent at December 31, 2018the U.S. Plans.
3.The 2022 impact relates to 2.81 percent at December 31, 2019. the purchase of an annuity contract associated with the transfer of benefit obligations to an insurance company.
A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 20182022 was due to the change in weighted-average discount rates, which increased from 3.172.57 percent at December 31, 20172021 to 3.695.18 percent at December 31, 2018.2022. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2021 was due to the change in weighted-average discount rates, which increased from 2.20 percent at December 31, 2020 to 2.57 percent at December 31, 2021.
The accumulated benefit obligation for all significant pension plans was $31.4$22.6 billion and $28.3$32.5 billion at December 31, 20192022 and 2018,2021, 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 | 2022 | 2021 |
| In millions |
| Accumulated benefit obligations | $ | 18,300 | | $ | 27,052 | |
| Fair value of plan assets | $ | 15,723 | | $ | 21,385 | |
|
| | | | | | |
| 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 | 2022 | 2021 |
| In millions |
| Projected benefit obligations | $ | 18,388 | | $ | 27,367 | |
| | |
| Fair value of plan assets | $ | 15,723 | | $ | 21,385 | |
|
| | | | | | | | | | | | | | | | | | |
| 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 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 |
| Net Periodic Benefit Costs: | | | | | | |
| Service cost | $ | 392 | | $ | 387 | | $ | 399 | | $ | 6 | | $ | 7 | | $ | 7 | |
| Interest cost | 680 | | 594 | | 767 | | 26 | | 23 | | 40 | |
| Expected return on plan assets | (1,686) | | (1,724) | | (1,658) | | — | | — | | — | |
| Amortization of prior service credit | (21) | | (22) | | (19) | | — | | — | | — | |
| Amortization of unrecognized (gain) loss | 658 | | 822 | | 773 | | (15) | | (6) | | (10) | |
Curtailment/settlement/other 1 | — | | (18) | | 9 | | — | | — | | — | |
| Net periodic benefit costs | $ | 23 | | $ | 39 | | $ | 271 | | $ | 17 | | $ | 24 | | $ | 37 | |
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | |
| Net (gain) loss | $ | (2,231) | | $ | (1,980) | | $ | 1,753 | | $ | (317) | | $ | (98) | | $ | 8 | |
| Prior service cost (credit) | (25) | | 2 | | 8 | | — | | — | | — | |
| Amortization of prior service credit | 21 | | 22 | | 19 | | — | | — | | — | |
| Amortization of unrecognized gain (loss) | (658) | | (822) | | (773) | | 15 | | 6 | | 10 | |
Curtailment and settlement gain (loss) 1 | — | | 18 | | (9) | | — | | — | | — | |
| Total recognized in other comprehensive (income) loss | $ | (2,893) | | $ | (2,760) | | $ | 998 | | $ | (302) | | $ | (92) | | $ | 18 | |
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | (2,870) | | $ | (2,721) | | $ | 1,269 | | $ | (285) | | $ | (68) | | $ | 55 | |
Net1.The 2021 impact primarily relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the U.S. Plans. 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.
Except for plan curtailment costs related to the 2020 Restructuring Program, which are included in "Restructuring 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 5 and 6 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, 2022 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| In millions |
| 2023 | $ | 1,597 | | $ | 90 | |
| 2024 | 1,474 | | 85 | |
| 2025 | 1,496 | | 82 | |
| 2026 | 1,515 | | 82 | |
| 2027 | 1,531 | | 80 | |
| 2028-2032 | 7,783 | | 350 | |
| Total | $ | 15,396 | | $ | 769 | |
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 $21.2 billion at December 31, 2019, plan assets totaled $24.92022 and $28.2 billion at December 31, 2021 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 Investment A 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 34 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, 20192022 | Target Allocation |
| Asset Category |
| Equity securities | 3525 | % |
| Fixed income securities | 3643 |
|
| Alternative investments | 2829 |
|
| Other investments | 13 |
|
| 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, 20192022 and 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basis of Fair Value Measurements | Dec 31, 2022 | Dec 31, 2021 |
| In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 1,240 | | $ | 989 | | $ | 251 | | $ | — | | $ | 1,463 | | $ | 1,353 | | $ | 110 | | $ | — | |
| Equity securities: | | | | | | | | |
| U.S. equity securities | $ | 1,855 | | $ | 1,845 | | $ | 7 | | $ | 3 | | $ | 4,117 | | $ | 4,097 | | $ | 18 | | $ | 2 | |
| Non - U.S. equity securities | 2,120 | | 1,924 | | 193 | | 3 | | 4,559 | | 3,935 | | 620 | | 4 | |
| Total equity securities | $ | 3,975 | | $ | 3,769 | | $ | 200 | | $ | 6 | | $ | 8,676 | | $ | 8,032 | | $ | 638 | | $ | 6 | |
| Fixed income securities: | | | | | | | | |
| Debt - government-issued | $ | 3,885 | | $ | 57 | | $ | 3,827 | | $ | 1 | | $ | 4,838 | | $ | 242 | | $ | 4,596 | | $ | — | |
| Debt - corporate-issued | 4,231 | | 441 | | 3,790 | | — | | 4,949 | | 1,095 | | 3,854 | | — | |
| Debt - asset-backed | 128 | | 44 | | 84 | | — | | 117 | | — | | 116 | | 1 | |
| Total fixed income securities | $ | 8,244 | | $ | 542 | | $ | 7,701 | | $ | 1 | | $ | 9,904 | | $ | 1,337 | | $ | 8,566 | | $ | 1 | |
| Alternative investments: | | | | | | | | |
| | | | | | | | |
| Private markets | $ | 5 | | $ | — | | $ | — | | $ | 5 | | $ | 5 | | $ | — | | $ | — | | $ | 5 | |
| Real estate | 48 | | 48 | | — | | — | | 67 | | 67 | | — | | — | |
| Derivatives - asset position | 348 | | 5 | | 343 | | — | | 399 | | 2 | | 397 | | — | |
| Derivatives - liability position | (479) | | (6) | | (473) | | — | | (324) | | (2) | | (322) | | — | |
| Total alternative investments | $ | (78) | | $ | 47 | | $ | (130) | | $ | 5 | | $ | 147 | | $ | 67 | | $ | 75 | | $ | 5 | |
| Other investments | $ | 1,103 | | $ | 16 | | $ | 1,087 | | $ | — | | $ | 1,068 | | $ | 7 | | $ | 1,061 | | $ | — | |
| Subtotal | $ | 14,484 | | $ | 5,363 | | $ | 9,109 | | $ | 12 | | $ | 21,258 | | $ | 10,796 | | $ | 10,450 | | $ | 12 | |
| Investments measured at net asset value: | | | | | | | | |
| Hedge funds | $ | 964 | | | | | $ | 1,312 | | | | |
| Private markets | 3,873 | | | | | 3,857 | | | | |
| Real estate | 1,956 | | | | | 1,793 | | | | |
| Total investments measured at net asset value | $ | 6,793 | | | | | $ | 6,962 | | | | |
| Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 1 | $ | 31 | | | | | $ | 62 | | | | |
Pension trust payables 2 | (77) | | | | | (115) | | | | |
| Total | $ | 21,231 | | | | | $ | 28,167 | | | | |
1.Primarily receivables for investment securities sold.
2.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, 20192022 and 2018:2021:
|
| | | | | | | | | | | | | | | |
| 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, 2021 | $ | 10 | | $ | 2 | | $ | 13 | | $ | 2 | | $ | 27 | |
| Actual return on assets: | | | | | |
| | | | | |
| Relating to assets held at Dec 31, 2021 | 1 | | — | | (11) | | — | | (10) | |
| Purchases, sales and settlements, net | (5) | | (1) | | 3 | | (2) | | (5) | |
| | | | | |
| | | | | |
| Balance at Dec 31, 2021 | $ | 6 | | $ | 1 | | $ | 5 | | $ | — | | $ | 12 | |
| Actual return on assets: | | | | | |
| | | | | |
| Relating to assets held at Dec 31, 2022 | (6) | | — | | (6) | | — | | (12) | |
| Purchases, sales and settlements, net | — | | — | | 6 | | — | | 6 | |
| Transfers into Level 3, net | 6 | | — | | — | | — | | 6 | |
| | | | | |
| Balance at Dec 31, 2022 | $ | 6 | | $ | 1 | | $ | 5 | | $ | — | | $ | 12 | |
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, Brazil, The Netherlands, Canada, Italy,Korea, Spain and the United Kingdom. Expense of continuing operations recognized for all defined contribution plans was $163$150 million in 2019, $1862022, $165 million in 20182021 and $286$156 million in 2017.2020.
NOTE 2220 – 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, 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 grantedgrants eligible employees the right to purchase shares of the Company's common stock at a discounted price.
In connection with The Company also grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the Merger, on August 31, 2017 ("Conversion Date"), all outstanding TDCCform of stock options, stock appreciation rights, PSUs 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.RSUs.
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 $158$211 million, $188$276 million and $310$171 million in 2019, 20182022, 2021 and 2017,2020, respectively. The income tax benefits related to stock-based compensation arrangements were $36$47 million, $42$62 million and $115$39 million in 2019, 20182022, 2021 and 2017,2020, 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.forfeitures based on historical activity.
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 | 2022 | 2021 | 2020 |
| Dividend yield | 4.59 | % | 4.86 | % | 5.80 | % |
| Expected volatility | 30.20 | % | 33.40 | % | 26.70 | % |
| Risk-free interest rate | 2.00 | % | 0.68 | % | 1.49 | % |
| Expected life of stock options granted during period (years) | 6.25 | 6.25 | 6.10 |
| | | |
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 20192022, 2021 and 2020 on Dow Inc. Common Stock ($0.38 per share in 2018 on DowDuPont Common Stock and $0.46 per share in 2017 on TDCC Common Stock).common stock. The expected volatility assumptions for the 2017 stock options2022, 2021 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 20192020 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 20172022, 2021 and 20192020 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 20182022, 2021 and 20192020 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 TDCC 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 TDCC 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 grantgranted 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 arewere fixed at the grant date. TDCC's stock-basedstock 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, 2019,2022, there were approximately 2553 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 year to three years and have a maximum term of ten years.
The following table summarizes stock option activity for 2019:2022:
| | | | | | | | |
| Stock Options | 2022 |
| Shares in thousands | Shares | Exercise Price 1 |
| Outstanding at Jan 1, 2022 | 16,280 | | $ | 50.56 | |
| Granted | 1,199 | | $ | 60.95 | |
| Exercised | (2,968) | | $ | 38.50 | |
| Forfeited/Expired | (86) | | $ | 61.20 | |
| Outstanding at Dec 31, 2022 | 14,425 | | $ | 53.84 | |
| Remaining contractual life in years | | 4.65 |
| Aggregate intrinsic value in millions | $ | 38 | | |
| Exercisable at Dec 31, 2022 | 11,727 | | $ | 53.19 | |
| Remaining contractual life in years | | 3.81 |
| Aggregate intrinsic value in millions | $ | 36 | | |
|
| | | | | | |
| 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 | 2022 | 2021 | 2020 |
| Weighted-average fair value per share of options granted | $ | 11.08 | | $ | 10.37 | | $ | 5.89 | |
| Total compensation expense for stock option plans | $ | 13 | | $ | 14 | | $ | 22 | |
| Related tax benefit | $ | 3 | | $ | 3 | | $ | 5 | |
| Total amount of cash received from the exercise of options | $ | 109 | | $ | 217 | | $ | 108 | |
Total intrinsic value of options exercised 1 | $ | 73 | | $ | 121 | | $ | 41 | |
| Related tax benefit | $ | 16 | | $ | 27 | | $ | 9 | |
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$4 million at December 31, 2019,2022, is expected to be recognized over a weighted-average period of 1.371.47 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 | 2022 |
| Shares in thousands | Shares | Grant Date Fair Value 1 |
| Nonvested at Jan 1, 2022 | 3,543 | | $ | 53.67 | |
| Granted | 2,080 | | $ | 58.60 | |
| Vested | (1,676) | | $ | 56.30 | |
| Canceled | (122) | | $ | 55.80 | |
| Nonvested at Dec 31, 2022 | 3,825 | | $ | 55.13 | |
|
| | | | | |
| 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 | 2022 | 2021 | 2020 |
| Weighted-average fair value per share of RSUs granted | $ | 58.60 | | $ | 57.96 | | $ | 47.66 | |
Total fair value of RSUs vested 1 | $ | 102 | | $ | 33 | | $ | 106 | |
| Related tax benefit | $ | 23 | | $ | 7 | | $ | 24 | |
| Total compensation expense for RSU awards | $ | 99 | | $ | 95 | | $ | 93 | |
| Related tax benefit | $ | 22 | | $ | 21 | | $ | 21 | |
| | | |
| | | |
1.Includes the fair value of shares vested in prior years and delivered in the reporting year.
In 2019,2022, the Company paid $17 milliondid not settle any RSUs in cash equal to the value of the stock award on the date of delivery, to certain executive employees to settle approximately 341,000(zero RSUs (625,000settled in cash in 2021 and 85,000 RSUs settled in cash for $45$4 million in 2018 and no RSUs settled in cash in 2017)2020). Total unrecognized compensation cost related to RSU awards of $80$86 million at December 31, 20192022 is expected to be recognized over a weighted-average period of 1.832.09 years. At December 31, 2019,2022, approximately 2.21.8 million RSUs with a grant date weighted-average fair value per share of $60.79$54.32 had previously vested, but were not issued. These shares are scheduled to be issued to employees within six months to three years or to non-employee directors 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, cumulative cash from operations, environmental, social and governance metrics, and relative total shareholder return, over a predetermined period, generally one year 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. | | | | | | | | | | | | | | PSU Awards | Target Shares Granted 1 | Grant Date Fair Value 2 | | Shares in thousands | | Year | Performance Period | | 2022 | Jan 1, 2022 – Dec 31, 2024 | 1,157 | | $ | 65.83 | | | 2021 | Jan 1, 2021 – Dec 31, 2023 | 1,223 | | $ | 61.48 | | | 2020 | Jan 1, 2020 – Dec 31, 2022 | 1,426 | | $ | 48.35 | | | | | | | | | | | | | |
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.performance period, the actual number of shares issued can range from zero to 200 percent of target shares granted for the 2022 and 2021 awards and can range from zero to 100 percent of the target shares granted for the 2020 award.
2.Weighted-average per share.
The following table shows changes in nonvested PSUs:
| | | | | | | | |
| PSUs | 2022 |
| Shares in thousands | Shares | Grant Date Fair Value 1 |
| Nonvested at Jan 1, 2022 | 3,639 | | $ | 55.36 | |
| Granted | 1,157 | | $ | 65.83 | |
Vested 2 | (1,079) | | $ | 57.58 | |
| Canceled | (77) | | $ | 59.73 | |
| Nonvested at Dec 31, 2022 | 3,640 | | $ | 57.93 | |
|
| | | | | |
| 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 | 2022 | 2021 | 2020 |
Total fair value of PSUs vested and delivered 1 | $ | 51 | | $ | — | | $ | — | |
| Related tax benefit | $ | 11 | | $ | — | | $ | — | |
| Total compensation expense for PSU awards | $ | 70 | | $ | 138 | | $ | 56 | |
| Related tax benefit | $ | 16 | | $ | 31 | | $ | 13 | |
Shares of PSUs settled in cash (in thousands) 2 | 162 | | — | | — | |
Total cash paid to settle PSUs 3 | $ | 10 | | $ | — | | $ | — | |
1.Includes the fair value of shares vested in prior years and delivered in the reporting year. |
| | | | | | | | | |
| 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. |
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$37 million at December 31, 2019,2022, is expected to be recognized over a weighted-average period of 1.861.45 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 the restricted stock 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 2012Inc. Board unanimously approved the Dow Inc. 2021 Employee Stock Purchase Plan (the "2012"2021 ESPP"), which was approved by the Company's stockholders at TDCC’s annual meetingthe 2021 Annual Meeting of Stockholders held on May 10, 2012. When offered,April 15, 2021. Under the 2022 ESPP offering, most employees arewere eligible to purchase shares of common stock of TDCCDow Inc. valued at up to 10 percent of their annual total base salary.salary or wages. The value isnumber of shares purchased was determined using the plan price multipliedamount contributed by the number of shares subscribed toemployee divided by the employee.plan price. The plan price of the stock is set at an amountwas equal to at least 85 percent of the fair market value (closing price) of the common stock onat April 1, 2022 (beginning) or October 7, 2022 (ending) of the offering period, whichever was lower.
In 2022, employees subscribed to the right to purchase approximately 2.7 million shares at a date duringweighted-average price of $37.75 per share. The plan price was fixed upon the close of the offering period. The shares were delivered to employees in the fourth quarter of the year prior2022.
In 2021, employees subscribed to the offering, orright to purchase approximately 2.3 million shares at a weighted-average price of $45.11 per share. The plan price was fixed upon the average fair market value (closing price)close of the common stock over a period duringoffering period. The shares were delivered to employees in the fourth quarter of 2021.
| | | | | | | | | |
| Additional Information about Employee Stock Purchase Plan | | | |
| In millions, except per share amounts | 2022 | 2021 | |
| Weighted-average fair value per share of purchase rights granted | $ | 14.28 | | $ | 16.26 | | |
| Total compensation expense for ESPP | $ | 29 | | $ | 30 | | |
| Related tax benefit | $ | 7 | | $ | 7 | | |
| Total amount of cash received from the exercise of purchase rights | $ | 103 | | $ | 103 | | |
Total intrinsic value of purchase rights exercised 1 | $ | 18 | | $ | 18 | | |
| Related tax benefit | $ | 4 | | $ | 4 | | |
1.Difference between the year prior tomarket price at exercise and the offering, in each case, specifiedprice paid by the Chief Human Resources Officer. The most recent offering ofemployee to exercise the 2012 ESPP closed on July 15, 2017. The ESPP was not offered in 2018 and 2019 and no current offerings remain outstanding.
|
| | | |
| 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 2321 – FINANCIAL INSTRUMENTS
The following table summarizes the fair value of financial instruments at December 31, 20192022 and 2018:2021:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | 2022 | 2021 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | 872 | | $ | — | | $ | — | | $ | 872 | | $ | 317 | | $ | — | | $ | — | | $ | 317 | |
| Money market funds | 355 | | — | | — | | 355 | | 489 | | — | | — | | 489 | |
| Total cash equivalents | $ | 1,227 | | $ | — | | $ | — | | $ | 1,227 | | $ | 806 | | $ | — | | $ | — | | $ | 806 | |
Marketable securities 2 | $ | 927 | | $ | 12 | | $ | — | | $ | 939 | | $ | 237 | | $ | 8 | | $ | — | | $ | 245 | |
| Other investments: | | | | | | | | |
| Debt securities: | | | | | | | | |
Government debt 3 | $ | 754 | | $ | 1 | | $ | (133) | | $ | 622 | | $ | 746 | | $ | 17 | | $ | (28) | | $ | 735 | |
| Corporate bonds | 1,274 | | 10 | | (159) | | 1,125 | | 1,251 | | 93 | | (20) | | 1,324 | |
| Total debt securities | $ | 2,028 | | $ | 11 | | $ | (292) | | $ | 1,747 | | $ | 1,997 | | $ | 110 | | $ | (48) | | $ | 2,059 | |
Equity securities 4 | 5 | | 5 | | — | | 10 | | 7 | | 13 | | — | | 20 | |
| Total other investments | $ | 2,033 | | $ | 16 | | $ | (292) | | $ | 1,757 | | $ | 2,004 | | $ | 123 | | $ | (48) | | $ | 2,079 | |
| Total cash equivalents, marketable securities and other investments | $ | 4,187 | | $ | 28 | | $ | (292) | | $ | 3,923 | | $ | 3,047 | | $ | 131 | | $ | (48) | | $ | 3,130 | |
Long-term debt including debt due within one year 5 | $ | (15,060) | | $ | 1,683 | | $ | (498) | | $ | (13,875) | | $ | (14,511) | | $ | 27 | | $ | (2,641) | | $ | (17,125) | |
| Derivatives relating to: | | | | | | | | |
Interest rates 6 | $ | — | | $ | 105 | | $ | — | | $ | 105 | | $ | — | | $ | 1 | | $ | (140) | | $ | (139) | |
| Foreign currency | — | | 115 | | (30) | | 85 | | — | | 46 | | (18) | | 28 | |
Commodities 6 | — | | 72 | | (61) | | 11 | | — | | 142 | | (92) | | 50 | |
| Total derivatives | $ | — | | $ | 292 | | $ | (91) | | $ | 201 | | $ | — | | $ | 189 | | $ | (250) | | $ | (61) | |
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 $46 million at December 31, 2022 and $47 million at December 31, 2021 on $2,279 million of debt at December 31, 2022 and December 31, 2021.
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, 2019, 20182022, 2021 and 2017.2020.
| | | | | | | | | | | |
| Investing Results | | | |
| In millions | 2022 | 2021 | 2020 |
| Proceeds from sales of available-for-sale securities | $ | 543 | | $ | 424 | | $ | 837 | |
| Gross realized gains | $ | 43 | | $ | 50 | | $ | 94 | |
| Gross realized losses | $ | 45 | | $ | 12 | | $ | 40 | |
|
| | | | | | | | | |
| 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 |
| $ | — |
|
121
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, 2022 1 | Cost | Fair
Value |
| In millions |
| Within one year | $ | 71 | | $ | 68 | |
| One to five years | 855 | | 773 | |
| Six to ten years | 594 | | 503 | |
| After ten years | 508 | | 403 | |
| Total | $ | 2,028 | | $ | 1,747 | |
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 2019, 20182022, 2021 or 2017.2020.
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, 20192022 and 2018,2021, 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 |
| 2022 | | | | | | |
Government debt 1 | $ | 273 | | $ | (37) | | $ | 333 | | $ | (96) | | $ | 606 | | $ | (133) | |
| Corporate bonds | 818 | | (110) | | 158 | | (49) | | 976 | | (159) | |
| Total temporarily impaired debt securities | $ | 1,091 | | $ | (147) | | $ | 491 | | $ | (145) | | $ | 1,582 | | $ | (292) | |
| 2021 | | | | | | |
Government debt 1 | $ | 295 | | $ | (13) | | $ | 151 | | $ | (15) | | $ | 446 | | $ | (28) | |
| Corporate bonds | 355 | | (17) | | 16 | | (3) | | 371 | | (20) | |
| Total temporarily impaired debt securities | $ | 650 | | $ | (30) | | $ | 167 | | $ | (18) | | $ | 817 | | $ | (48) | |
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
2022. The Company enters into repurchase and reverse repurchase agreements. These transactions are accountednet unrealized loss recognized in earnings on equity securities totaled $8 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 2018.2022 ($13 million net unrealized loss for the year ended December 31, 2021).
| | | | | | | | |
| Investments in Equity Securities | Dec 31, 2022 | Dec 31, 2021 |
| In millions |
| Readily determinable fair value | $ | 10 | | $ | 20 | |
| Not readily determinable fair value | $ | 186 | | $ | 209 | |
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 exposuresexposure 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, 2019.2022. 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 2020.2023.
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, 20192022 and 2018,2021, were as follows:
| | | | | | | | |
Notional Amounts 1 | Dec 31, 2022 | Dec 31, 2021 |
| In millions |
| Derivatives designated as hedging instruments | | |
| Interest rate contracts | $ | 1,500 | | $ | 3,000 | |
| Foreign currency contracts | $ | 2,408 | | $ | 5,300 | |
| Derivatives not designated as hedging instruments | | |
| Interest rate contracts | $ | 3 | | $ | 36 | |
| Foreign currency contracts | $ | 8,837 | | $ | 8,234 | |
|
| | | | | | |
| 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 at December 31, 20192022 and 2018,2021, 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 1 | Dec 31, 2022 | Dec 31, 2021 | Notional Volume Unit |
|
| Derivatives designated as hedging instruments | | | |
| Hydrocarbon derivatives | 19.2 | | 9.7 | | million barrels of oil equivalent |
| | | |
| | | |
| | | |
| | | |
| | | |
| Derivatives not designated as hedging instruments | | | |
| Hydrocarbon derivatives | — | | 0.1 | | million barrels of oil equivalent |
| Power derivatives | — | | 3.3 | | thousands of megawatt hours |
| | | |
| | | |
| | | |
1.Notional amounts represent the net volume of open derivative positions outstanding at the end of the period.
|
| | | | |
Maturity Dates of Derivatives Designated as HedgesHedging Instruments | Year |
|
| Interest rate contracts | 20212023 |
Foreign currency contracts1 | 20202023 |
| Commodity contracts | 20222026 |
| |
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, theThe Company also 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$152 million at December 31, 20192022 ($182174 million at December 31, 2018)2021).
The following tables provide the fair value and gross balance sheet classification of derivative instruments at December 31, 20192022 and 2018:2021:
|
| | | | | | | | | | |
| 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, 2022 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in Consolidated Balance Sheets |
| Asset derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 351 | | $ | (246) | | $ | 105 | |
| | | | |
| Foreign currency contracts | Other current assets | 58 | | (39) | | 19 | |
| | | | |
| Commodity contracts | Other current assets | 199 | | (148) | | 51 | |
| | | | |
| Total | | $ | 608 | | $ | (433) | | $ | 175 | |
| Derivatives not designated as hedging instruments | | | | |
| | | | |
| Foreign currency contracts | Other current assets | $ | 146 | | $ | (50) | | $ | 96 | |
| | | | |
| Commodity contracts | Other current assets | 22 | | (1) | | 21 | |
| Total | | $ | 168 | | $ | (51) | | $ | 117 | |
| Total asset derivatives | | $ | 776 | | $ | (484) | | $ | 292 | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 246 | | $ | (246) | | $ | — | |
| | | | |
| Foreign currency contracts | Accrued and other current liabilities | 58 | | (39) | | 19 | |
| | | | |
| Commodity contracts | Accrued and other current liabilities | 258 | | (198) | | 60 | |
| | | | |
| Total | | $ | 562 | | $ | (483) | | $ | 79 | |
| Derivatives not designated as hedging instruments | | | | |
| | | | |
| Foreign currency contracts | Accrued and other current liabilities | $ | 61 | | $ | (50) | | $ | 11 | |
| | | | |
| Commodity contracts | Accrued and other current liabilities | 12 | | (11) | | 1 | |
| Total | | $ | 73 | | $ | (61) | | $ | 12 | |
| Total liability derivatives | | $ | 635 | | $ | (544) | | $ | 91 | |
|
| | | | | | | | | | |
| 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, 2021 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in Consolidated Balance Sheets |
| Asset derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 14 | | $ | (14) | | $ | — | |
| Interest rate contracts | Deferred charges and other assets | 130 | | (130) | | — | |
| Foreign currency contracts | Other current assets | 24 | | (13) | | 11 | |
| Foreign currency contracts | Deferred charges and other assets | 117 | | (89) | | 28 | |
| Commodity contracts | Other current assets | 305 | | (173) | | 132 | |
| Commodity contracts | Deferred charges and other assets | 9 | | (2) | | 7 | |
| Total | | $ | 599 | | $ | (421) | | $ | 178 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 1 | | $ | — | | $ | 1 | |
| Foreign currency contracts | Other current assets | 23 | | (16) | | 7 | |
| Foreign currency contracts | Deferred charges and other assets | 1 | | (1) | | — | |
| Commodity contracts | Other current assets | 8 | | (5) | | 3 | |
| | | | |
| Total | | $ | 33 | | $ | (22) | | $ | 11 | |
| Total asset derivatives | | $ | 632 | | $ | (443) | | $ | 189 | |
| | | | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 33 | | $ | (14) | | $ | 19 | |
| Interest rate contracts | Other noncurrent obligations | 192 | | (130) | | 62 | |
| Foreign currency contracts | Accrued and other current liabilities | 15 | | (13) | | 2 | |
| Foreign currency contracts | Other noncurrent obligations | 90 | | (89) | | 1 | |
| Commodity contracts | Accrued and other current liabilities | 267 | | (192) | | 75 | |
| Commodity contracts | Other noncurrent obligations | 2 | | (2) | | — | |
| Total | | $ | 599 | | $ | (440) | | $ | 159 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 59 | | $ | — | | $ | 59 | |
| | | | |
| Foreign currency contracts | Accrued and other current liabilities | 31 | | (16) | | 15 | |
| Foreign currency contracts | Other noncurrent obligations | 1 | | (1) | | — | |
| Commodity contracts | Accrued and other current liabilities | 25 | | (8) | | 17 | |
| Total | | $ | 116 | | $ | (25) | | $ | 91 | |
| Total liability derivatives | | $ | 715 | | $ | (465) | | $ | 250 | |
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$80 million at December 31, 20192022 ($2671 million at December 31, 2018)2021). Counterparties posted cashCash collateral of $3$2 million was posted by counterparties with the Company at December 31, 2019 ($34 million2022 (zero at December 31, 2018)2021).
| | | 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 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 |
| 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 | $ | — | | $ | — | | $ | — | | $ | — | | $ | (25) | | $ | 69 | | Interest expense and amortization of debt discount 3 |
Excluded components 4 | (3 | ) | — |
| — |
| — |
| — |
| — |
| | Excluded components 4 | — | | 2 | | 7 | | — | | — | | — | | 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 | 239 | | (62) | | — | | (10) | | (9) | | (2) | | Interest expense and amortization of debt discount |
| Foreign currency contracts | 16 |
| 19 |
| (30 | ) | 28 |
| (18 | ) | 7 |
| Cost of sales | Foreign currency contracts | 5 | | 13 | | (20) | | 13 | | (15) | | 3 | | Cost of sales |
| Foreign currency contracts | 10 |
| (3 | ) | (5 | ) | 8 |
| — |
| (17 | ) | Sundry income (expense) - net | |
| | Commodity contracts | (6 | ) | (46 | ) | 37 |
| (81 | ) | (69 | ) | 10 |
| Cost of sales | Commodity contracts | 166 | | 133 | | (8) | | 310 | | 62 | | (31) | | Cost of sales |
| Net investment hedges: | | | | |
| Net foreign investment hedges: | | Net foreign investment hedges: | | |
| Foreign currency contracts | (52 | ) | 116 |
| (73 | ) | — |
| — |
| — |
| | Foreign currency contracts | 34 | | 31 | | (38) | | — | | — | | — | | |
Excluded components 4 | 162 |
| — |
| — |
| 99 |
| — |
| — |
| Sundry income (expense) - net | Excluded components 4 | 59 | | 54 | | 27 | | 44 | | 11 | | 20 | | Sundry income (expense) - net |
| Total derivatives designated as hedging instruments | $ | (189 | ) | $ | 112 |
| $ | (69 | ) | $ | 72 |
| $ | (90 | ) | $ | 2 |
| | Total derivatives designated as hedging instruments | $ | 503 | | $ | 171 | | $ | (32) | | $ | 357 | | $ | 24 | | $ | 59 | | |
| 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 | $ | — | | $ | — | | $ | — | | $ | (1) | | $ | (8) | | $ | (16) | | Interest expense and amortization of debt discount |
| Foreign currency contracts | — |
| — |
| — |
| 45 |
| 101 |
| (289 | ) | Sundry income (expense) - net | Foreign currency contracts | — | | — | | — | | (249) | | (253) | | 28 | | Sundry income (expense) - net |
| Commodity contracts | — |
| — |
| — |
| (28 | ) | (12 | ) | (9 | ) | Cost of sales | Commodity contracts | — | | — | | — | | 48 | | (46) | | 11 | | Cost of sales |
| Total derivatives not designated as hedging instruments | $ | — |
| $ | — |
| $ | — |
| $ | 13 |
| $ | 89 |
| $ | (298 | ) | | Total derivatives not designated as hedging instruments | $ | — | | $ | — | | $ | — | | $ | (202) | | $ | (307) | | $ | 23 | | |
| Total derivatives | $ | (189 | ) | $ | 112 |
| $ | (69 | ) | $ | 85 |
| $ | (1 | ) | $ | (296 | ) | | Total derivatives | $ | 503 | | $ | 171 | | $ | (32) | | $ | 155 | | $ | (283) | | $ | 82 | | |
| |
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 amountsgain (loss) expected 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,
2022 |
| Cash flow hedges: | |
| Interest rate contracts | $ | (7) | |
| Commodity contracts | $ | (48) | |
| Foreign currency contracts | $ | 2 | |
| Net foreign investment hedges: | |
| Excluded components | $ | — | |
NOTE 2422 – 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, 2022 | Dec 31, 2021 |
| In millions | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Assets at fair value: | | | | | | | | |
| Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | — | | $ | 872 | | $ | — | | $ | 872 | | $ | — | | $ | 317 | | $ | — | | $ | 317 | |
| Money market funds | — | | 355 | | — | | 355 | | — | | 489 | | — | | 489 | |
Marketable securities 2 | — | | 939 | | — | | 939 | | — | | 245 | | — | | 245 | |
Equity securities 3 | 10 | | — | | — | | 10 | | 20 | | — | | — | | 20 | |
Nonconsolidated affiliates 4 | — | | — | | 7 | | 7 | | — | | — | | — | | — | |
Debt securities: 3 | | | | | | | | |
Government debt 5 | — | | 622 | | — | | 622 | | — | | 735 | | — | | 735 | |
| Corporate bonds | 35 | | 1,090 | | — | | 1,125 | | 44 | | 1,280 | | — | | 1,324 | |
Derivatives relating to: 6 | | | | | | | | |
| Interest rates | — | | 351 | | — | | 351 | | — | | 145 | | — | | 145 | |
| Foreign currency | — | | 204 | | — | | 204 | | — | | 165 | | — | | 165 | |
| Commodities | 63 | | 158 | | — | | 221 | | 15 | | 307 | | — | | 322 | |
| Total assets at fair value | $ | 108 | | $ | 4,591 | | $ | 7 | | $ | 4,706 | | $ | 79 | | $ | 3,683 | | $ | — | | $ | 3,762 | |
| Liabilities at fair value: | | | | | | | | |
Long-term debt including debt due within one year 7 | $ | — | | $ | 13,875 | | $ | — | | $ | 13,875 | | $ | — | | $ | 17,125 | | $ | — | | $ | 17,125 | |
Guarantee liability 8 | — | | — | | 199 | | 199 | | — | | — | | 220 | | 220 | |
Derivatives relating to: 6 | | | | | | | | |
| Interest rates | — | | 246 | | — | | 246 | | — | | 284 | | — | | 284 | |
| Foreign currency | — | | 119 | | — | | 119 | | — | | 137 | | — | | 137 | |
| Commodities | 103 | | 167 | | — | | 270 | | 37 | | 257 | | — | | 294 | |
| Total liabilities at fair value | $ | 103 | | $ | 14,407 | | $ | 199 | | $ | 14,709 | | $ | 37 | | $ | 17,803 | | $ | 220 | | $ | 18,060 | |
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.Estimated asset for an investment in a limited liability company included in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
5.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
6.See Note 21 for the classification of derivatives in the consolidated balance sheets.
7.See Note 21 for information on fair value measurements of long-term debt.
8.Estimated liability for TDCC's guarantee of Sadara's debt which is included in "Other noncurrent obligations" in the consolidated balance sheets. See Note 15 for additional information.
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 2321 for further information on the types of instruments used by the Company for risk management.
There were 0no transfers between Levels 1 and 2 in the years ended December 31, 20192022 and 2018.2021.
For assets classified as Level 3 measurements, fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The level 3 asset value represents the fair value of an investment in a limited liability company, accounted for as an investment in nonconsolidated affiliates. There was no unfunded commitment on the investment at December 31, 2022.
For liabilities 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 heldaccrued liability related to the guarantee of Sadara's debt is in trade accounts receivable conduits is determined by calculatingproportion to the expected amount of cash to be received using the key input of anticipated credit lossesCompany's 35 percent ownership interest in the portfolio of receivables sold that have not yet been collected. Given the short-term natureSadara. The estimated fair value of the underlying receivables, discount rateguarantee was calculated using a "with" and prepayments are not factors in determining"without" method. The fair value of the debt was calculated "with" the guarantee less the fair value of the interests.debt "without" the guarantee. The "with" and "without" values were calculated using a discounted cash flow method based on contractual cash flows as well as projected prepayments made on the debt by Sadara. See Note 15 for further information on assetsguarantees classified as Level 3 measurements. The following table summarizes the changes in fair value measurements using Level 3 inputs for the years ended December 31, 2022 and 2021:
| | | | | | | | |
| Fair Value Measurements Using Level 3 Inputs for Accrued Liability of Sadara Guarantee at Dec 31, | 2022 | 2021 |
| In millions |
| Balance at Jan 1 | $ | (220) | | $ | — | |
Recognition of liability 1 | — | | (235) | |
Gain included in earnings 2 | 21 | | 15 | |
| Balance at Dec 31 | $ | (199) | | $ | (220) | |
1.Included in "Other noncurrent obligations" in the consolidated balance sheets.
2.Included in "Equity in earnings (losses) of nonconsolidated affiliates" in the consolidated income statements.
For equity securities calculated at net asset value per share (or its equivalent), the Company had $117$92 million in private market securitiesequity and $18$20 million in real estate at December 31, 20192022 ($120106 million in private market securitiesequity and $29$22 million in real estate at December 31, 2018)2021). There are no redemption restrictions and the underfundedunfunded commitments on these investments were $76$54 million at December 31, 20192022 ($8959 million at December 31, 2018)2021).
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 | $ | — |
|
| |
1. | Included in "Accounts and notes receivable – Other" in the consolidated balance sheets. See Note 15 for additional information. |
| |
2. | Included in "Selling, general and administrative expenses" in the consolidated statements of income. |
| |
3. | 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 2019, 2018 and 2017:sheets:
|
| | | | | | |
| 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
2022 Fair Value Measurements on a Nonrecurring Basis
The Company's fair value measurements on a nonrecurring basis were insignificant in 2022.
2021 Fair Value Measurements on a Nonrecurring Basis
The Company's fair value measurements on a nonrecurring basis were insignificant in 2021.
2020 Fair Value Measurements on a Nonrecurring Basis
As part of the Synergy2020 Restructuring Program, the Company has or will shut down and write-offwrite off several small manufacturing facilities non-manufacturingand miscellaneous assets and certain corporate facilities around the world. In 2019, manufacturing facilitiesThe 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 $152$110 million using unobservable inputs. The impairment charges related to the Synergy2020 Restructuring Program, totaling $143$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 ($222 million), Performance Materials & Coatings ($28116 million) and Corporate ($11347 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 2019,2020, the Company recognized impairment charges of $14$30 million related to the write-down of a non-manufacturing assets.asset and certain corporate leased equipment and the write-off of a capital project. The assets, classified as Level 3 measurements, were valued at $10$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 ($915 million) and Corporate ($515 million).
In 2019,2020, the Company recognized an additional pretax impairment charge of $75$19 million resulting from the planned divestiture of its acetone derivatives businessrelated to ALTIVIA Ketones & Additives, LLC.capital additions made to a bio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil, which was impaired in 2017. 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.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 ($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 14 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). Plastics. On September 29, 2020, the Company divested the bio-ethanol manufacturing facility.
See Note 13 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 75 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 2523 – 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 holds variable interests in a cogeneration facility in Brazil related to the production of ethanol from sugarcane. The Company's variable interests are the result of a tolling arrangement where it provides fuel to the entity and purchases a majority of the cogeneration facility’s output on terms that ensure a return to the entity’s equity holders.
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, 20192022 and 2018:2021:
|
| | | | | | |
| 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 | 2022 | 2021 |
| Cash and cash equivalents | $ | 17 | | $ | 40 | |
| Other current assets | 36 | | 40 | |
| Net property | 157 | | 184 | |
| Other noncurrent assets | 17 | | 15 | |
Total assets 1 | $ | 227 | | $ | 279 | |
| Current liabilities | $ | 30 | | $ | 37 | |
| Long-term debt | — | | 3 | |
| Other noncurrent obligations | 12 | | 13 | |
Total liabilities 2 | $ | 42 | | $ | 53 | |
1.All assets were restricted at December 31, 2022 and 2021.
2.All liabilities were nonrecourse at December 31, 2022 and 2021.
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 20192022 and 20182021 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, 2019,2022, the Company's investment in these joint ventures was $100$113 million ($100110 million at December 31, 2018)2021), 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 2624 – 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 date 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 the Dow Inc. 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 of 2019,The following table summarizes cash dividends TDCC declared and paid a dividend of $201 million to Dow Inc. for the years ended 2022, 2021 and 2020.
| | | | | | | | | | | |
| TDCC Cash Dividends Declared and Paid | 2022 | 2021 | 2020 |
| In millions |
| Cash dividends declared and paid | $ | 4,375 | | $ | 3,264 | | $ | 2,233 | |
At December 31, 2019,2022 and 2021, TDCC's intercompany loan balance with Dow Inc. was insignificant.
DowDuPont
Pursuant to the Merger Agreement, 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:
|
| | | | | | |
| 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 2725 – SEGMENTS AND GEOGRAPHIC REGIONS
Dow combines oneSales 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 |
| 2022 | | | | |
| Sales to external customers | $ | 19,336 | | $ | 19,631 | | $ | 17,935 | | $ | 56,902 | |
| Long-lived assets | $ | 14,638 | | $ | 2,578 | | $ | 3,226 | | $ | 20,442 | |
| 2021 | | | | |
| Sales to external customers | $ | 18,083 | | $ | 19,746 | | $ | 17,139 | | $ | 54,968 | |
| Long-lived assets | $ | 14,425 | | $ | 2,703 | | $ | 3,427 | | $ | 20,555 | |
| 2020 | | | | |
| Sales to external customers | $ | 12,547 | | $ | 12,969 | | $ | 13,026 | | $ | 38,542 | |
| Long-lived assets | $ | 13,833 | | $ | 2,813 | | $ | 3,593 | | $ | 20,239 | |
See Part I, Item 1. Business for further discussion of the broadest technology sets in the industry with asset integration, focused innovation and global scale to achieve profitable growth and become the most innovative, customer centric, inclusive and sustainable materials science company. Dow’s portfolio of performance materials, industrial intermediates and plastics businesses delivers a broad range of differentiated science-based products and solutions for our customers in high-growth segments, such as packaging, infrastructure and consumer care. Dow operates 109 manufacturing sites in 31 countries and employs approximately 36,500 people.
Effective with the Merger, TDCC's business activities were components of DowDuPont's business 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 includes 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 reported geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America, and EMEAI. As a result of 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).
Dow’s measure of profit/loss for segment reporting purposes is pro forma Operating EBIT as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines pro forma Operating EBIT as earnings (i.e., "Income from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. Pro forma Operating EBIT by segment includes all operating items relating
to the businesses; items that principally apply to Dow as a whole are assigned to Corporate. Pro forma
| | | | | | | | | | | | | | | | | |
| Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
| 2022 | | | | | |
| Net sales | $ | 29,260 | | $ | 16,606 | | $ | 10,764 | | $ | 272 | | $ | 56,902 | |
Restructuring and asset related charges - net 1 | 8 | | 73 | | 6 | | 31 | | 118 | |
| Equity in earnings (losses) of nonconsolidated affiliates | 359 | | (91) | | 10 | | (10) | | 268 | |
Operating EBIT 2 | 4,110 | | 1,418 | | 1,328 | | (266) | | 6,590 | |
| Depreciation and amortization | 1,396 | | 550 | | 789 | | 23 | | 2,758 | |
| Total assets | 30,017 | | 12,883 | | 13,028 | | 4,675 | | 60,603 | |
| Investments in nonconsolidated affiliates | 846 | | 454 | | 115 | | 174 | | 1,589 | |
| Capital expenditures | 1,069 | | 385 | | 369 | | — | | 1,823 | |
| 2021 | | | | | |
| Net sales | $ | 28,128 | | $ | 16,851 | | $ | 9,672 | | $ | 317 | | $ | 54,968 | |
Restructuring and asset related charges (credits) - net 1 | 8 | | 1 | | 10 | | (13) | | 6 | |
| Equity in earnings of nonconsolidated affiliates | 490 | | 471 | | 7 | | 7 | | 975 | |
Operating EBIT 2 | 6,638 | | 2,282 | | 866 | | (253) | | 9,533 | |
| Depreciation and amortization | 1,358 | | 612 | | 842 | | 30 | | 2,842 | |
| Total assets | 30,556 | | 13,750 | | 13,810 | | 4,874 | | 62,990 | |
| Investments in nonconsolidated affiliates | 1,230 | | 670 | | 111 | | 34 | | 2,045 | |
| Capital expenditures | 808 | | 359 | | 334 | | — | | 1,501 | |
| 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 | | — | | 1,252 | |
1.See Note 5 for information regarding the Company's restructuring programs and other asset related charges.
2.Operating EBIT has been reflected retrospectively for all periods presented,TDCC in 2022, 2021 and reconciliations are2020 is substantially the same as that of Dow Inc. and therefore is not disclosed separately in the table above. A reconciliation of "Net income" to Operating EBIT is provided at the end of this footnote. The Company also presents pro forma net sales 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:table.
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; 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, 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, home care and personal care 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 |
|
| | | | | | | | | | | |
| Reconciliation of "Net income" to Operating EBIT | 2022 | 2021 | 2020 |
| In millions |
| Net income | $ | 4,640 | | $ | 6,405 | | $ | 1,294 | |
| + Provision for income taxes | 1,450 | | 1,740 | | 777 | |
| Income before income taxes | $ | 6,090 | | $ | 8,145 | | $ | 2,071 | |
| - Interest income | 173 | | 55 | | 38 | |
| + Interest expense and amortization of debt discount | 662 | | 731 | | 827 | |
| - Significant items | (11) | | (712) | | 145 | |
| Operating EBIT | $ | 6,590 | | $ | 9,533 | | $ | 2,715 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
| |
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) 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. |
| |
3. | 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 |
|
| |
1. | Pro forma adjustments include: (1) the margin 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 (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. |
The following tables summarize the pretax impact of significant items by segment that are excluded from pro forma Operating EBIT:
| | | | | | | | | | | | | | | | | |
| Significant Items by Segment for 2022 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
Digitalization program costs 1 | $ | — | | $ | — | | $ | — | | $ | (230) | | $ | (230) | |
Restructuring, implementation costs and asset related charges - net 2 | — | | — | | — | | (40) | | (40) | |
Russia / Ukraine conflict charges 3 | (8) | | (73) | | (6) | | (31) | | (118) | |
Loss on early extinguishment of debt 4 | — | | — | | — | | (8) | | (8) | |
Litigation related charges, awards and adjustments 5 | 321 | | — | | — | | 60 | | 381 | |
Indemnification and other transaction related costs 6 | — | | — | | — | | 4 | | 4 | |
| Total | $ | 313 | | $ | (73) | | $ | (6) | | $ | (245) | | $ | (11) | |
1.Includes costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program.
3.Asset related charges due to the Russia and Ukraine conflict. See Note 5 for additional information.
4.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 14 for additional information.
5.Includes a gain associated with a legal matter with Nova Chemicals Corporation and a gain related to an adjustment of the Dow Silicones breast implant liability. See Note 15 for additional information.
6.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 2021 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
Digitalization program costs 1 | $ | — | | $ | — | | $ | — | | $ | (169) | | $ | (169) | |
Restructuring, implementation costs and asset related charges - net 2 | (8) | | (1) | | (10) | | (50) | | (69) | |
Loss on early extinguishment of debt 3 | — | | — | | — | | (574) | | (574) | |
Net gain on divestitures and asset sale 4 | 16 | | — | | — | | — | | 16 | |
Litigation related charges, awards and adjustments 5 | — | | 54 | | — | | — | | 54 | |
Indemnification and other transaction related costs 6 | — | | — | | — | | 30 | | 30 | |
| Total | $ | 8 | | $ | 53 | | $ | (10) | | $ | (763) | | $ | (712) | |
1.Includes costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program, and asset-related charges, which include other asset impairments. See Note 5 for additional information.
3.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 14 for additional information.
4.Includes post-closing adjustments on a previous divestiture.
5.Related to an arbitration award received from Luxi Chemical Group Co., Ltd. See Note 15 for additional information.
6.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. |
NOTE 28 - 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, 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 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. |
| | | | | | | | | | | | | | | | | |
| Significant Items by Segment for 2020 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
Integration and separation costs 1 | $ | — | | $ | — | | $ | — | | $ | (239) | | $ | (239) | |
Restructuring, implementation costs and asset related charges - net 2 | (30) | | (22) | | (192) | | (474) | | (718) | |
Warranty accrual adjustment of exited business 3 | — | | — | | — | | 11 | | 11 | |
Net gain on divestitures and asset sale 4 | 52 | | 61 | | — | | 604 | | 717 | |
Litigation related charges, awards and adjustments 5 | 544 | | — | | — | | — | | 544 | |
Loss on early extinguishment of debt 6 | — | | — | | — | | (149) | | (149) | |
Indemnification and other transaction related costs 7 | — | | — | | — | | (21) | | (21) | |
| Total | $ | 566 | | $ | 39 | | $ | (192) | | $ | (268) | | $ | 145 | |
1.Costs related to business separation activities.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program, and asset-related charges, which include other asset impairments. See Note 5 for additional information.
3.Includes an adjustment to the warranty accrual of an exited business.
4.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 4 and 6 for additional information.
5.Includes recognition of gains associated with a legal matter with Nova. See Note 15 for additional information.
6.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 14 for additional information.
7.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.
|
| | | | | | | | | | | | | | | |
| 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, the Company's consolidated financial results reflect the distribution of AgCo and SpecCo as discontinued operations, as well as the receipt of ECP as a common control transaction from the closing of the Merger on August 31, 2017. The following table provides the reconciliation of the amounts reported in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019, to the amounts presented for the first quarter of 2019 on the previous page. See Note 4 for additional information on the separation from DowDuPont.
|
| | | | | | | | | | | | |
| 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 ended December 31, 2022, 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, 2019,2022, 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, 2019,2022, based on criteria established inInternal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, 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)(“PCAOB”), the consolidated financial statements as of and for the year ended December 31, 2019,2022, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 7, 2020,1, 2023, 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, schedule.
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.
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, 20201, 2023 |
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, 2019,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, 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)(“PCAOB”), the consolidated financial statements as of and for the year ended December 31, 2019,2022, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 7, 2020,1, 2023, 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, schedule.
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.
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, 20201, 2023 |
| | |
| 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 members of the Audit Committee membersof the Board and financial expert(s)) is contained in the definitive Proxy Statement for the 20202023 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 20202023 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 20202023 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 20202023 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 20202023 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 20202023 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 20202023 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, 2019 and 2018. 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 | 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 2022 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) 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 |
| |
2.2.1 | 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). |
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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.
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32.1* |
101.INS The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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101.INS | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
*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, | 2022 | 2021 | 2020 |
| Accounts Receivable - Allowance for Doubtful Receivables | | | |
| Balance at beginning of year | $ | 54 | | $ | 51 | | $ | 45 | |
| Additions charged to expenses | 61 | | 16 | | 22 | |
| | | |
Deductions from reserves 1 | (5) | | (13) | | (16) | |
| Balance at end of year | $ | 110 | | $ | 54 | | $ | 51 | |
| Inventory - Obsolescence Reserve | | | |
| Balance at beginning of year | $ | 14 | | $ | 23 | | $ | 35 | |
| Additions charged to expenses | 50 | | 3 | | 2 | |
Deductions from reserves 2 | (7) | | (12) | | (14) | |
| Balance at end of year | $ | 57 | | $ | 14 | | $ | 23 | |
| Reserves for Other Investments and Noncurrent Receivables | | | |
| Balance at beginning of year | $ | 2,033 | | $ | 2,093 | | $ | 2,215 | |
| Additions charged to expenses | 17 | | 19 | | 7 | |
Deductions from reserves 3 | (100) | | (79) | | (129) | |
| Balance at end of year | $ | 1,950 | | $ | 2,033 | | $ | 2,093 | |
| Deferred Tax Assets - Valuation Allowance | | | |
| Balance at beginning of year | $ | 1,391 | | $ | 1,302 | | $ | 1,262 | |
| Additions charged to expenses | 120 | | 201 | | 313 | |
| Deductions from reserves | (242) | | (112) | | (273) | |
| Balance at end of year | $ | 1,269 | | $ | 1,391 | | $ | 1,302 | |
1.Deductions included write-offs, recoveries, currency translation adjustments and other miscellaneous items.
2.Deductions included disposals and currency translation adjustments.
3.Deductions from reserves for "Reserves for Other Investments and Noncurrent Receivables" included $77 million in 2022, 2021 and 2020 related to the Company's investment in Sadara. See Note 11 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 1, 2023.
| | |
| 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 1, 2023 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. FETTIG |
| Samuel R. Allen, Director, Dow Inc. | | Jeff M. Fettig, Non-Executive Chairman,Director, Dow Inc. |
February 7, 2020 | | February 7, 2020 |
| | |
/s/ AJAY BANGAGAURDIE E. BANISTER JR. | | /s/ JIM FITTERLING |
Ajay Banga,Gaurdie E. 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. BARTONWESLEY G. BUSH | | /s/ JACQUELINE C. HINMAN |
Jacqueline K. Barton,Wesley G. Bush, Director, Dow Inc. | | Jacqueline C. Hinman, Director, Dow Inc. |
February 7, 2020 | | February 7, 2020 |
| /s/ RICHARD K. DAVIS | | /s/ LUIS ALBERTO MORENO MEJIA |
/s/ JAMES A. BELL | | /s/ RUTH G. SHAW |
James A. Bell,Richard K. Davis, Lead Director, Dow Inc. | | Ruth G. Shaw,Luis Alberto Moreno Mejia, Director, Dow Inc. |
February 7, 2020 | | February 7, 2020 |
| | |
/s/ WESLEY G. BUSHJERRI DEVARD | | /s/ HOWARD UNGERLEIDER |
Wesley G. Bush,Jerri DeVard, 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/ DEBRA L. DIAL | | /s/ JILL S. WYANT |
| Debra L. Dial, Director, Dow Inc. | | Jill S. Wyant, Director, Dow Inc. |
| | |
/s/ RICHARD K. DAVISRONALD C. EDMONDS | | /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, Dow Inc.
and TDCC (Authorized Signatory and Principal Accounting Officer) | | Daniel W. Yohannes, Director, Dow Inc. |
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: ACCUTRACE, ACOUSTICRYL, ACRYSOL, AFFINITY,ACUSOL, AMPLIFY, AQUASET, AVANSE, CARBOWAX, DOW, DOWANOL, DOWSIL, DOWTHERM, DURATRACK, ECOFAST, ELITE, ENGAGE, EVOLV3D,ELVALOY, ENDURANCE, EVOQUE, FASTRACK, FORMASHIELD, IMAGIN3D,LP OXO, MAINCOTE, MAIZECARE, MOBILITYSCIENCE, NORDEL, OPULUX, PRIMAL, RENUVA, REVOLOOP, RHOPLEX, SENTRY, SILASTIC, SUNSPHERES, SYL-OFF, TAMOL, TERGITOL, TRITON, UCAR, UCARTHERM, UCON, UNIFINITY, 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 trademark of the Business Intelligence Group appears in this report: BIG™
The following registered trademark of Disability:IN appears in this report: Disability Equality Index®
The following trademark of Edison Awards appears in this report: Edison Awards™
The following trademarks and registered trademarks 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 STUFF™Great Place to Work®, SMART DISPENSERFortune 100 Best Companies to Work For®, PEOPLE Companies that Care®, Best Workplaces in Manufacturing & Production™
™
The following trademark of HACR Hispanic Association on Corporate Responsibility appears in this report:
HACR Corporate Inclusion Index™
® ™ Trademark of The Dow Chemical Company ("TDCC") or an affiliated company, except as otherwise specified.
