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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
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Commission File Number | Exact Name of Registrant as Specified in its Charter, Principal Office Address and Telephone Number | State of Incorporation or Organization | I.R.S. Employer Identification No. |
| 001-38646 | Dow Inc. | Delaware | 30-1128146 |
| 2211 H.H. Dow Way, Midland, MI 48674 | | |
| (989)989 636-1000 | | |
| 001-03433 | The Dow Chemical Company | Delaware | 38-1285128 |
| 2211 H.H. Dow Way, Midland, MI 48674 | | |
| (989)989 636-1000 | | |
Securities registered pursuant to Section 12(b) of the Act:
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| Registrant | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Dow Inc. | Common Stock, par value $0.01 per share | DOW | New York Stock Exchange |
| The Dow Chemical Company | 0.500% Notes due March 15, 2027 | DOW/27 | New York Stock Exchange |
| The Dow Chemical Company | 1.125% Notes due March 15, 2032 | DOW/32 | New York Stock Exchange |
| The Dow Chemical Company | 1.875% Notes due March 15, 2040 | DOW/40 | New York Stock Exchange |
| The Dow Chemical Company | 4.625% Notes due October 1, 2044 | DOW/44 | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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| Dow Inc. | ☑ | Yes | ☐ | No |
| The Dow Chemical Company | ☑ | Yes | ☐ | No |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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| Dow Inc. | ☐ | Yes | ☑ | No |
| The Dow Chemical Company | ☐ | Yes | ☑ | No |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Dow Inc. | ☑ | Yes | ☐ | No |
| The Dow Chemical Company | ☑ | Yes | ☐ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| Dow Inc. | ☑ | Yes | ☐ | No |
| The Dow Chemical Company | ☑ | Yes | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Dow Inc. | Large accelerated filer | ☑ | Accelerated
filer | ¨ | Non-
accelerated filer | ¨ | Smaller reporting company | ¨ | Emerging growth company | ¨ |
| The Dow Chemical Company | Large accelerated filer | ¨ | Accelerated
filer | ¨ | Non-
accelerated filer | ☑ | Smaller reporting company | ¨ | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| Dow Inc. | ☐ | |
| The Dow Chemical Company | ☐ | |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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| Dow Inc. | ☑ | |
| The Dow Chemical Company | ☑ | |
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
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| Dow Inc. | ☐ | |
| The Dow Chemical Company | ☐ | |
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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| Dow Inc. | ☐ | |
| The Dow Chemical Company | ☐ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
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| Dow Inc. | ☐ | Yes | ☑ | No |
| The Dow Chemical Company | ☐ | Yes | ☑ | No |
As ofof June 30, 2020,2023, the aggregate market value of the common stock of Dow Inc. held by non-affiliates of Dow Inc. was approximately $29.6$37.4 billion based on the last reported closing price of $40.76$53.26 per share as reported on the New York Stock Exchange.
Dow Inc. had 743,914,560702,293,433 shares of common stock, $0.01 par value, outstanding at JanuaryDecember 31, 2021.2023. The Dow Chemical Company had 100 shares of common stock, $0.01 par value, outstanding at JanuaryDecember 31, 2021,2023, all of which were held by the registrant’s parent, Dow Inc.
The Dow Chemical Company meets the conditions set forth in General Instruction I(1)(a) and (b) for Form 10-K and therefore is filing this form in the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
Dow Inc.: Portions of Dow Inc.'s Proxy Statement for the 20212024 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of Dow Inc.'s fiscal year ended December 31, 2020.2023.
The Dow Chemical Company: None.
Dow Inc. and Subsidiaries
The Dow Chemical Company and Subsidiaries
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 20202023
TABLE OF CONTENTS
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| The Dow Chemical Company and Subsidiaries: | |
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| Dow Inc. and Subsidiaries and The Dow Chemical Company and Subsidiaries: | |
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| Dow Inc. and Subsidiaries
The Dow Chemical Company and Subsidiaries | |
This Annual Report on Form 10-K is a combined report being filed by Dow Inc. and The Dow Chemical Company and its consolidated subsidiaries (“TDCC” and together with Dow Inc., “Dow” or the "Company"). This Annual Report on Form 10-K reflects the results of Dow and its consolidated subsidiaries, after giving effect to the distribution to DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") of TDCC’s agricultural sciences business (“AgCo”) and specialty products business (“SpecCo”) and the receipt of E. I. du Pont de Nemours and Company and its consolidated subsidiaries' (“Historical DuPont”) ethylene and ethylene copolymers business (other than its ethylene acrylic elastomers business) ("ECP"). The U.S. GAAP consolidated financial results of Dow Inc. and TDCC reflect the distribution of AgCo and SpecCo as discontinued operations for the applicable periods presented as well as the receipt of ECP as a common control transaction from the closing of the merger with Historical DuPont on August 31, 2017.subsidiaries. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and considering that the financial statements and disclosures of each company are substantially similar, the companies are filing a combined report for this Annual Report on Form 10-K. The information reflected in this report is equally applicable to both Dow Inc. and TDCC, except where otherwise noted. Each of Dow Inc. and TDCC is filing information in this report on its own behalf and neither company makes any representation to the information relating to the other company.
Background
On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC and its consolidated subsidiaries, owning all of the outstanding common shares of TDCC. For filings relating to the period commencing April 1, 2019 and thereafter, TDCC was 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.
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 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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” "target," “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases.
Forward-looking statements are based on current assumptions and expectations of future events that are subject to risks, uncertainties and other factors that are beyond Dow’s control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements and speak only as of the date the statements were made. These factors include, but are not limited to: sales of Dow’s products; Dow’s expenses, future revenues and profitability; the continuingany global and regional economic impacts of the coronavirus disease 2019 (“COVID-19”)a pandemic andor other public health-related risks and events on Dow’s business; any sanctions, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflicts between Russia and Ukraine and in the Middle East; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to Dow's contemplated capital and operating projects; Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe, including the completion and success of its integrated ethylene cracker and derivatives facility in Alberta, Canada; size of the markets for Dow’s products and services and ability to compete in such markets; failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow’s products; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect Dow’s intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in relationships with Dow’s significant customers and suppliers; changes in public sentiment and political leadership; increased concerns about plastics in the environment and lack of a circular economy for plastics at scale; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry
development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war;war, including the ongoing conflicts between Russia and Ukraine and in the Middle East; weather events and natural disasters; and disruptions in Dow’s information technology networks and systems.
Riskssystems, including the impact of cyberattacks; and risks related to Dow'sDow’s separation from DowDuPont include, but are not limited to: (i) Dow's inability to achieve some or all of the benefits that it expects to receive from the separation from DowDuPont; (ii) certain tax risks associated with the separation; (iii) the failure of Dow's pro forma financial information to be a reliable indicator of Dow's future results; (iv) Dow's inability to receive third-party consents required under the separation agreement; (v) non-compete restrictions under the separation agreement; (vi) receipt of less favorable terms in the commercial agreements Dow entered into with DuPont and Corteva, Inc. (“Corteva”), including restrictions under intellectual property cross-license agreements, than Dow would have received from an unaffiliated third party; and (vii) Dow'ssuch as Dow’s obligation to indemnify DuPont de Nemours, Inc. and/or Corteva, Inc. for certain liabilities.
Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section of this Annual Report on Form 10-K titled “Risk Factors.” These are not the only risks and uncertainties that Dow faces. There may be other risks and uncertainties that Dow is unable to identify at this time or that Dow does not currently expect to have a material impact on its business. If any of those risks or uncertainties develops into an actual event, it could have a material adverse effect on Dow’s business. Dow Inc. and TDCC assume no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.
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| Dow Inc. and Subsidiaries | |
| The Dow Chemical Company and Subsidiaries | |
| PART I | |
THE COMPANY
Dow Inc. was incorporated on August 30, 2018, under Delaware law, to serve as a holding company for The Dow Chemical Company and its consolidated subsidiaries ("TDCC" and together with Dow Inc., "Dow" or the "Company"). Dow Inc. operates all of its businesses through TDCC, a wholly owned subsidiary, which was incorporated in 1947 under Delaware law and is the successor to a Michigan corporation, of the same name, organized in 1897. The Company's principal executive offices are located at 2211 H.H. Dow Way, Midland, Michigan 48674.
Available Information
The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at www.dow.com/investors, as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains these reports as well as proxy statements and other information regarding issuers that file electronically. The SEC's website is www.sec.gov. Dow's website and its content are not deemed incorporated by reference into this report.
MERGER AND SEPARATION
On April 1, 2019, DowDuPont Inc. (“DowDuPont”Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation and effective June 3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") completed the separation of its materials science business andterm "Dow Silicones" means Dow Inc. became the direct parent company of TDCC and its consolidatedSilicones Corporation, both wholly owned subsidiaries owning all of the outstanding common shares of TDCC.
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 (the "Merger Agreement"). TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries (“Historical DuPont”) each merged with subsidiaries of DowDuPont and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business.
The consolidated financial results of Dow for periods prior to April 1, 2019, reflect the distribution of TDCC’s agricultural sciences business (“AgCo”) and specialty products business (“SpecCo”) as discontinued operations for each period presented as well as reflect 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. See Note 3 to the Consolidated Financial Statements and Dow Inc.'s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on March 8, 2019, for additional information.
Throughout this Annual Report on Form 10-K, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.Company.
ABOUT DOW
Dow combinesis one of the world’s leading materials science companies, serving customers in high-growth markets such as packaging, infrastructure, mobility and consumer applications. The Company's global breadth, asset integration and scale, focused innovation, and leading business positions and commitment to sustainability enables the Company to achieve profitable growth. The Company’s ambition is to become the most innovative, customer centric, inclusivegrowth and sustainable materials science company, with a purpose tohelp deliver a sustainable future for the world through our materials science expertise and collaboration with our partners. Dow’s portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer care.future. Dow operates 106 manufacturing sites in 31 countries and employs approximately 35,70035,900 people.
Table In 2023, Dow delivered sales of Contentsapproximately $45 billion. Learn more about Dow's ambition to be the most innovative, customer-centric, inclusive and sustainable materials science company in the world by visiting www.dow.com.
BUSINESS SEGMENTS AND PRODUCTS
The Company conducts its worldwide operations through 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. See Part II, Item 7,7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2624 to the Consolidated Financial Statements for additional information concerning the Company’s operating segments.
PACKAGING & SPECIALTY PLASTICS
The Packaging & Specialty Plastics operating segment 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 worktechnologies. These differentiators, plus collaboration at the customer’s design table, throughoutenable the value chainsegment to deliver more reliable, durable, higher-performing solutions designed for recyclability and durable, higher performing,enhanced plastics circularity and more sustainable plastics tosustainability. The segment serves customers, brand owners and ultimately consumers in key markets including food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; mobility and transportation; and infrastructure.
The Company’s unique advantages compared with its competitors include: extensive low-cost feedstock positions around the world; unparalleled scale, global footprint and market reach; world-class manufacturing sites in every geographic region; deep customer and brand owner understanding; portfolio of higher-value functional polymers, such as polyolefin elastomers, semiconductive and jacketing compound solutions and wire and cable insulation; and market-driven application development and technical support.
The segment remains agile by participating in the entire ethylene-to-polyethylene chain integration, enabling the Company to manage market swings with industry-leading feedstock and derivative flexibility, and therefore optimize returns while reducing long-term earnings volatility. The Company’s unrivaled value chain ownership is further strengthened by its Pack Studio locations in every geographic region, which help customers and brand owners deliver faster and more efficient packaging product commercialization through a global network of laboratories, technical experts and testing equipment.
Hydrocarbons & Energy
Hydrocarbons & Energy is a leading global producer of ethylene, a key chemical building block that the Company consumes primarily within the Packaging & Specialty Plastics segment. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases. In addition to ethylene, the business is a leading producer of propylene and aromatics products that are used to manufacture materials consumers use every day. The business also produces and procures the power, steam and feedstocks used by the Company’s manufacturing sites.
Packaging and Specialty Plastics
Packaging and Specialty Plastics serves growing, high-value sectors using world-class technology, broad existing product lines, and a rich product pipeline that creates competitive advantages for the entire packaging value chain. The business is a recognized leader in the production, marketing and innovation of polyethylene. The business is also a leader in other ethylene derivatives, such as polyolefin elastomers, ethylene vinyl acetate and ethylene propylene diene monomer ("EPDM") rubber serving mobility and transportation, consumer, wire and cable and construction end-markets. Market growth is expected to be driven by major shifts in population demographics; improving socioeconomic status in emerging geographic regions; consumer and brand owner demand for increased functionality;functionality including sustainable offerings through lower-carbon and circular solutions; global efforts to reduce food waste; growth in telecommunications networks; global development of electrical transmission and distribution infrastructure; and renewable energy applications.applications such as wind power and solar (photovoltaic).
Details on Packaging & Specialty Plastics' 20202023 net sales, by business and geographic region, are as follows:
* Europe, Middle East, Africa and India ("EMEAI")
Products
Major applications/market segments and products are listed below by business:
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| Business | Applications/Market Segments | Major Products | Key Raw Materials | Key Competitors |
| Hydrocarbons & Energy | Purchaser of feedstocks; production of cost competitive hydrocarbon monomers utilized by Dow's derivative businesses; and energy, principally for use in Dow’s global operations | Ethylene, propylene, benzene, butadiene, octene, aromatics co-products, power, steam, other utilities | Butane, condensate, ethane, naphtha, natural gas, propane | Chevron Phillips Chemical, ExxonMobil, INEOS, LyondellBasell, SABIC, Shell, Sinopec |
| Packaging and Specialty Plastics | Adhesives; automotive; caps, closures and pipe applications; construction; cosmetics; electrical transmission and distribution; food and supply chain packaging; footwear; health and hygiene; housewares; industrial specialty applications using polyolefin elastomers, ethylene copolymers, and EPDM; irrigation pipe; mobility; photovoltaic encapsulants; sporting goods; telecommunications infrastructure; toys and infant products | Acrylics, bio-based plasticizers, copolymer, elastomers, ethylene copolymer resins, EPDM, ethylene vinyl acetate ("EVA"), methacrylic acid copolymer resins, polyethylene ("PE"), high-density polyethylene ("HDPE"), low-density polyethylene ("LDPE"), linear low-density polyethylene ("LLDPE"), polyolefin plastomers, resin additives and modifiers, semiconductive and jacketing compound solutions and wire and cable insulation
| Aliphatic solvent, butene, ethylene, hexene, octene, propylene | Borealis, ExxonMobil, INEOS, Lanxess, LyondellBasell, Nova, SABIC |
Joint Ventures:
This segment includes a portion of the Company's share of the results of the following joint ventures:
•EQUATE Petrochemical Company K.S.C.C. (“EQUATE”) - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
•The Kuwait Olefins Company K.S.C.C. (“TKOC”) - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
•Map Ta Phut Olefins Company Limited (“Map Ta Phut”) - a Thailand-based company that manufactures propylene and ethylene; the Company has an effective ownership of 32.77 percent (of which 20.27 percent is owned directly by the Company and aligned with the Industrial Intermediates & Infrastructure segment and 12.5 percent is owned indirectly through the Company’s equity interest in Siam Polyethylene Company Limited, an entity that is part of The SCG-DowSCGC-Dow Group and aligned with the Packaging & Specialty Plastics segment).
•Sadara Chemical Company ("Sadara") - a Saudi Arabian company that manufactures chlorine, ethylene, propylene and aromatics for internal consumption and manufactures and sells polyethylene, ethylene oxide and propylene oxide derivative products, and isocyanates; owned 35 percent by the Company. 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. 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.
This segment also includes the Company's share of the results of the following joint ventures:
•The Kuwait Styrene Company K.S.C.C. - a Kuwait-based company that manufactures styrene monomer; owned 42.5 percent by the Company.
•The SCG-DowSCGC-Dow Group - a group of Thailand-based companies (consisting of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Company Limited; and Siam Synthetic Latex Company Limited) that manufacturemanufactures polyethylene, polystyrene, styrene, latex and specialty elastomers; owned 50 percent by the Company.
Current and Future Investments
In 2018, the Company started up its new LDPE production facility and its new NORDEL™ Metallocene EPDM production facility, both located in Plaquemine, Louisiana. These key milestones enable the Company to capture benefits from increasing supplies of U.S. shale gas to deliver differentiated downstream solutions in its core market verticals. The Company also completed debottlenecking of an existing bi-modal gas phase polyethylene production facility in St. Charles, Louisiana, and started up a new High Melt Index ("HMI") AFFINITY™ polymer production facility in Freeport, Texas, in the fourth quarter of 2018. In 2020, the Company's integrated world-scale ethylene production facility in Freeport, Texas, was expanded to a capacity of 2,000 kilotonnes per annum ("KTA"), making it the largest ethylene cracker in the world. Recognized for efficiency in construction time and cost as a newly designed cracker, this facility is also known for its low operating cost, excellent safety, reliability and asset utilization performance.
Additionally, the Company has announced investments that are being progressed over the next several years thatand are expected to enhance competitiveness. These include:
•Incremental debottleneck projects across itsConstruction of the world's first net-zero Scope 1 and 2 CO2 equivalent ("CO2e") emissions integrated ethylene and derivatives complex in Alberta, Canada. This project is expected to deliver 2 million metric tons of organic growth in attractive, high-end markets while decarbonizing 20% of Dow's global asset network that will deliver approximately 350 KTA of additional polyethylene, the majority of which will be in the U.S. & Canada.ethylene capacity.
•Construction of a world-scale polyethylene unit on the U.S. Gulf Coast based on Dow’s proprietary process technologies, to meet consumer-driven demand in specialty packaging, health and hygiene, and industrial and consumer packaging applications.
•AOngoing collaboration with Mura Technology (“Mura”) to help solve the global plastics waste issue and advance circularity via circular feedstocks, which are converted into recycled plastics. Mura plans to construct a new catalyst production facility for key catalysts licensed by Univation Technologies, LLC,at Dow's Böhlen site in Germany, the latest in a wholly owned subsidiaryseries of planned facilities across the Company.United States and Europe to rapidly scale advanced recycling of plastics, and the first expected to be based at a Dow site.
•Addition ofPlans to construct a furnaceclean hydrogen plant in Europe where by-products from core production processes would be converted into hydrogen and CO2.The hydrogen plant would allow Dow's Terneuzen manufacturing site to its ethylene production facility in Alberta, Canada, incrementally expanding capacityreduce CO2e emissions by approximately 130,0001.4 million metric tons. Dow will co-invest in the expansion with a regional customer, evenly sharing project coststons per year. Project completion and ethylene output, with the additional ethylene to be consumed by existing polyethylene manufacturing assets in the region. The expansiondeployment is expected to come online in the first half of 2021.
The Company's ambition includes becoming the most sustainable materials science company, with a strategy to advance the well-being of humanity by helping lead the transition to a sustainable planet and society. This includes lowering energy and greenhouse gas ("GHG") emissions and further enabling a shift to a circular economy for plastics by focusing on resource efficiency and integrating recycled content and renewable feedstocks into its production processes. As part of that strategy, Dow announced the following:following investments that have been completed or are still being progressed in 2023:
•In 2020,2022, Dow commissioned the retrofit of its first UNIFINITYTM Fluidized Catalytic Dehydrogenation ("FCDh") technology for cost-advantaged propylene and waste-optimization specialist Avangard Innovative LP ("AI") announced that AIin 2023 has been optimizing operations of this new technology. The FCDh unit, located at one of Dow's mixed-feed crackers in Plaquemine, Louisiana, will supply post-consumer resin ("PCR") plastic film pellets to Dow, a significant addition to Dow’s plastic circularity portfolio.ultimately enable production of approximately 150,000 metric tons of additional on-purpose propylene at full run-rate. The breakthrough propylene manufacturing technology, which Dow will initially uselicense through Univation Technologies, LLC, a wholly owned subsidiary of the PCR pellets from AICompany, can reduce capital outlay by up to create linear low-density polyethylene25 percent while lowering energy usage and low-density polyethylene products.CO2e emissions by up to 20 percent. This project was originally announced in 2019.
•In 2020, Dow previously signed an agreement with French recycling company Valoregen to contribute to building the largest single hybrid recycling site in France, to be owned and operated by Valoregen. The project's 15,000 metric ton mechanical recycling line reached mechanical completion in the fourth quarter of 2023 and the advanced recycling line is expected to start-up in the first half of 2024. This will mark an important step in bringing together mechanical recycling (which processes certain plastic waste into secondary products) and newer, advanced recycling processes (which breaks down mixed, hard-to-recycle plastics into their original naphtha-like liquid form to manufacture new virgin-like polymers). Dow will be the main recipient of Valoregen’s post-consumer resins ("PCR"), which it will use to develop new plastic products marketed under Dow’s REVOLOOP™ product range. It will also support the development of Valoregen's recycling technology capabilities.
•The first Mura plant in the UK commenced commissioning of its 20,000 metric tons advanced recycling facility in the fourth quarter of 2023 and plans to produce feedstocks in the first half of 2024. Dow will be the main recipient of the product produced at this site.
•Dow announced a joint development agreement with X-energy, a nuclear energy innovation company which will help Dow advance its greenhouse gas emissions reduction goals through the development and commercializationdeployment of X-energy's advanced small modular nuclear technology at an industrial site in North America. In 2023, Dow selected its Seadrift Operations manufacturing site in Texas for its proposed advanced small modular reactor ("SMR") nuclear project. The project will be focused on providing the Seadrift site with safe, reliable, zero emissions power and steam as existing energy and steam assets near their end-of-life.
•Continued collaboration with Hanseatic Energy Hub GmbH ("HEH") as a new formulated post-consumer plastic resin designedminority stakeholder and is working with HEH's current members to advance Germany's capabilities to import supplies of liquified natural gas, bio-liquified natural gas and synthetic natural gas through the construction of an import terminal. The HEH consortium is planning to build, own, and operate an import terminal for collation shrink film applicationsliquified gases on Dow's Stade, Germany industrial park. The zero emission terminal will be co-located with Dow's facilities in Asia Pacific and the U.S. & Canada. The new resinStade. Dow is designed with up to 40 percent PCR content and creates a film with performance comparable to those made with virgin resins, which expands Dow’s circular technology portfolio to help more customers and brands achieve their sustainability goals.
making land available for the construction of the terminal as well as infrastructure services, off-gas heat, site services and mutual harbor use rights.
•In 2019, anDow and privately-held New Energy Blue have reached a long-term supply agreement with the Fuenix Ecogy Group, based in Weert, The Netherlands, for the supply of pyrolysis oil feedstock, which is made from recycled plastic waste. The feedstock will be used to produce virgin polymers at Dow’s production facilitiesbio-based ethylene from renewable agricultural residues. This is the first agreement in Terneuzen, The Netherlands. In additionNorth America to increasinggenerate plastic sourced materials from corn stover (stalks and leaves), and is the Company's first agreement in North America to utilize agriculture residues for plastic production. Under the terms of the deal, Dow will support the design of New Energy Freedom, a new facility in Iowa that is expected to process corn stover and produce commercial quantities of second-generation ethanol and clean lignin, with nearly half of the ethanol to be turned into bio-based ethylene feedstock flexibility, this is an important step forward to increase feedstock recycling - the process of breaking down mixed waste plastics into their original form to manufacture new virgin polymers. The polymers producedreducing CO2e emissions from this pyrolysis oil will be identical to products produced from traditional feedstocks,plastic production, and as such, they can be usedusing it in the samerecyclable applications including foodacross transportation, footwear, and packaging.
•In 2019,Dow and Reciclar S.A. joined forces to build an efficient model for plastic recycling in Argentina that will produce more than 6,500 tons of post-consumer plastic resin. This collaboration agreement with UPM Biofuels,Reciclar S.A. will last three years and aims to improve the capacity of Reciclar S.A. to process waste on a producer of biofuels, forlarger scale and produce high-quality post-consumer plastic materials under the supply and integration of wood-based UPM Bio Verno renewable naphtha - a key raw material used to develop plastics - into Dow's slate of raw materials, creating an alternative source for plastics production. Effectively increasing the Company's feedstock flexibility, the feedstock will be used to produce bio-based polyethylene at Dow's production facilities in Terneuzen, The Netherlands, for use in packaging applications such as food packaging, to reduce food waste.REVOLOOPTM brand.
•In 2019, the retrofit of one of its Louisiana steam crackers with Dow’s proprietary fluidized catalytic dehydrogenation ("FCDh") technologyDow has signed several renewable and cleaner power agreements which are expected to produce on-purpose propylene. The FCDh technology retrofit further improves Dow’s ability to continue to source the most advantaged feedstocks, while also producing reliable and cost-efficient on-purpose propylene to supply its integrated derivative units in Louisiana. The technology reduces capital outlay by up to 25 percent and lowers energy usage and GHGreduce Scope 2 emissions by up to 20 percent, thereby improving overall sustainability when compared with conventional propane dehydrogenation technologies. The project is expected to begin producing on-purpose propylene by the endmore than 600,000 metric tons of 2021.CO2e per year.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
The Industrial Intermediates & Infrastructure operating segment 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, furniture and bedding, construction, mobility and automotive, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The businesses' global scale and reach, of these businesses, world-class technology, research and R&Ddevelopment capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-addvalue-added 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.durability.
Industrial Solutions
Industrial Solutions provides a broad portfolio of solutions that enable and improve the manufacture of consumer and industrial goods and services. The business’ solutions minimize friction and heat in mechanical processes; manage the oil and water interface; deliver ingredients for maximum effectiveness; facilitate dissolvability; enable product identification; decarbonize oil and gas products; reduce energy and water use in textiles; and provide the foundational building blocks for the development of chemical technologies. The business supports manufacturers associated withacross a large variety of end-markets, notably coatings, detergents and cleaners, crop protection, pharmaceuticals, electronics, oil and gas, inks and textiles. The business is a leading producer of purified ethylene oxide.oxide, ethyleneamines and ethanolamines.
Polyurethanes & Construction Chemicals
Polyurethanes & Construction Chemicals consists of three businesses: Polyurethanes, Chlor-Alkali & Vinyl (“CAV”) and Construction Chemicals (“DCC”).Chemicals. The Polyurethanes business is the world’s largest producer of propylene oxide, propylene glycol and polyether polyols, and a leading producer of aromatic isocyanates and fully formulated polyurethane systems for rigid, semi-rigid and flexible foams, andas well as coatings, adhesives, sealants, elastomers and composites that serve energy efficiency, consumer comfort, industrial and enhanced mobility market sectors. The CAV business provides chlorine and caustic soda supply and markets caustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer. The CAV business' assets are predominantly in Western Europe and Latin America and largely produce materials for internal consumption. The DCCConstruction Chemicals business provides cellulose ethers, redispersible latex powders, and acrylic emulsions used as key building blocks for differentiated building and construction materials across many market segments and applications ranging from roofing and flooring to gypsum-, cement-, concrete- and dispersion-based building materials. Both Polyurethanes and Construction Chemicals deliver sustainable products aligned toward green building markets yielding reduced environmental impacts and lower product intensity compared to traditional offerings.
Details on Industrial Intermediates & Infrastructures' 20202023 net sales, by business and geographic region, are as follows:
Products
Major applications/market segments and products are listed below by business:
| | | | | | | | | | | | | | |
| Business | Applications/Market Segments | Major Products | Key Raw Materials | Key Competitors |
| Industrial Solutions | Broad range of products for specialty applications, including pharmaceuticals, agriculture crop protection offerings, aircraft deicing, solvents for coatings, heat transfer fluids for concentrated solar power, construction, solvents for electronics processing, food preservation, fuel markers, industrial and institutional cleaning, infrastructure applications, lubricant additives, paper, transportation and utilities; products for energy markets including exploration, production, transmission, refining, mining and gas processing to optimize supply, improve efficiencies and manage emissions | Butyl glycol ethers, VERSENE™VERSENE™ Chelants, UCAR™UCAR™ Deicing Fluids, ethanolamines, ethylene oxide ("EO"), ethyleneamines, UCON™UCON™ Fluids, DOWANOL™DOWANOL™ glycol ethers, DOWTHERM™DOWTHERM™ Heat Transfer Fluids, higher glycols, isopropanolamines, low-VOC solvents, methoxypolyethylene glycol, methyl isobutyl, polyalkylene glycol, CARBOWAX™ SENTRY™CARBOWAX ™ SENTRY™Polyethylene Glycol, TERGITOL™TERGITOL™, TRITON™ and TRITON™ECOFAST™ Pure Surfactants, demulsifiers, drilling and completion fluids, heat transfer fluids, rheology modifiers, scale inhibitors, shale inhibitors, specialty amine solvents, surfactants, water clarifiers, frothing separating agents | Ethylene,Ammonia, butene, ethylene, phenol, propylene | BASF, Eastman, Hexion, Huntsman, INEOS, LyondellBasell, SABIC, Sasol, Shell |
| Polyurethanes & Construction Chemicals | Aircraft deicing fluids; alumina, pulp and paper; appliances; automotive; bedding; building and construction; flooring; footwear; heat transfer fluids; hydraulic fluids; infrastructure; mobility; packaging; textiles and transportation; construction; caulks and sealants; cement-based tile adhesives; concrete solutions; elastomeric roof coatings; industrial non-wovens; plasters and renders; roof tiles and siding; sport grounds and tape joint compounds | Aniline, caustic soda, ethylene dichloride ("EDC"), methylene diphenyl diisocyanate (“MDI”), polyether polyols, propylene glycol ("PG"), propylene oxide ("PO"), polyurethane systems, toluene diisocyanate (“TDI”), vinyl chloride monomer ("VCM"), AQUASET™AQUASET™ Acrylic Thermosetting Resins, DOW™DOW™ Latex Powder, RHOPLEX™RHOPLEX™ and PRIMAL™PRIMAL™ Acrylic Emulsion Polymers, WALOCEL™WALOCEL™ Cellulose Ethers
| Aniline, benzene, carbon monoxide, caustic soda, cell effluent, cellulose, chlorine, electric power, ethylene, hydrogen peroxide, propylene, styrene | Arkema, Ashland, BASF, Covestro, Eastman, Huntsman, Wanhua |
Joint Ventures
This segment includes a portion of the Company's share of the results of EQUATE, TKOC, Map Ta Phut and Sadara.
Current and Future Investments
The Company expects to make investments over the next several years to enhance competitiveness in the Company’sits Polyurethanes & Construction Chemicals and Industrial Solutions businesses. The investments will include alkoxylation capacity expansions and finishing capabilities; investments to support growth in polyurethane systems; and efficiency improvements around the world.
In 2023, the Company benefited from the completion of an integrated MDI distillation and prepolymers facility along the U.S. Gulf Coast to increase distillation capabilities by 30 percent versus prior levels, which is expected to improve integrated margins for the portfolio. Also, in the past year, the Company further progressed and scaled key projects aligned to longer-term sustainability goals across the world leading propylene glycol franchise including propylene glycol RDC (lower carbon) featuring DECARBIATM bio-based technology from second generation bio-based raw material, and propylene glycol CIR (circular) featuring RENUVATM recycled content from post-consumer waste streams.
In 2023, the Industrial Solutions business completed investments on the U.S. Gulf Coast and in Europe to expand capacity of specialty amines and alkoxylation chemistries to serve fast growing energy transition, pharmaceutical, home care, cleaning, and agriculture end-markets.
In 2023, the Company progressed the following:
•Successful startup and operation of hydrogen to peroxide to propylene glycol pilot plant with Evonik at its site in Hanau, Germany. In contrast to the traditional process, where propylene is used to make propylene oxide, which is converted to propylene glycol through hydrolysis, the pilot plant will leverage the HYPROSYN® process, which uses a novel catalytic system to generate propylene glycol directly from propylene and hydrogen peroxide. The integration of all key reaction stages in a single reactor eliminates the need of additional investments in propylene oxide capacity and lowers capital requirements. The process also enables a reduced environmental footprint.
•Expansion of propylene glycol capacity at its existing joint venture facility in Map Ta Phut, Thailand by 80,000 tons per year – bringing total capacity to 250,000 tons per year. The additional capacity will support customer growth across Asia Pacific and India and is expected to come online in 2024.
•Expansion of alkoxylation capacity in the United States and Europe. These investments build on previously announced capacity expansions, increasing the Company's global alkoxylation capacity by 70 percent versus the 2020 baseline, collectively. The additional capacity is needed to support increasing demand across a wide range of fast-growing end-markets where the Company is delivering 10 percent to 15 percent annual growth rates, from home and personal care to industrial and institutional cleaning solutions and pharmaceuticals. The investments are backed by supply agreements with customers, including leading consumer brands, and are expected to come online in the United States and Europe in 2024 and 2025, respectively.
•Dow and Orion Chemicals Orgaform together with Eco-mobilier, H&S Anlagentechnik and The Vita Group have inaugurated a pioneering mattress recycling plant as part of the RENUVA™ program. This is a major step forward for the recovery and recycling of polyurethane foam and a significant advancement to close the loop for end-of-life mattresses. At full capacity, the plant will process up to 200,000 mattresses per year to address growing mattress waste.
PERFORMANCE MATERIALS & COATINGS
The Performance Materials & Coatings operating segment includes industry-leading franchises that deliver a wide array of solutions into consumer, infrastructure and infrastructuremobility 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; consumer and electronics; mobility and transportation; industrial and chemical processing; and building and infrastructure end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combinecombining chemistry platforms to deliver differentiated, offeringsmarket-driven and sustainable innovations to customers.
Coatings & Performance Monomers
Coatings & Performance Monomers consists of two businesses: Coating Materials and Performance Monomers. The Coating Materials business makes critical ingredients and additives that help advance the performance of paints and coatings. The business offers innovative and sustainable products to accelerate paint and coatings performance across diverse market segments, including architectural paints and coatings, as well as industrial coatings applications used in maintenance and protective industries, wood, metal packaging, traffic markings, thermal paper and leather. These products enhance coatings by improving hiding and coverage characteristics, enhancing durability against nature and the elements, lowering or eliminating volatile organic compounds (“VOC”) content, reducing maintenance and improving ease of application. The Performance Monomers business manufactures acrylics-based building blocks needed for the production of coatings, textiles, adhesives and home and personal care products.
Consumer Solutions
Consumer Solutions consists of threetwo businesses: Performance Silicones Home & Personal CareSpecialty Materials and Silicone Feedstocks & Intermediates. The Performance Silicones offers a& Specialty Materials business delivers an unmatched portfolio of innovative, versatile silicone-based technologyperformance-enhancing materials to provide ingredients and solutions to customers for addressing megatrends, including globalization, urbanization, sustainability and digitalization. The business servesmeet the diverse needs of customers in several globalfast-growing markets, with strong growth opportunities, including:including building and infrastructure; consumer and electronics; industrial and chemical processing; and mobility and transportation. Dow’s wide array of silicone-based productstransportation; home care; and personal care. It focuses resources on delivering valuable differentiation via market-driven innovations and sustainable solutions, enables customers to: increase the appeal of their products; extend shelf life; improve performance of products under a wider range of conditions;which address lower-carbon footprint and provide a more sustainable offering.circularity goals while enabling continued growth. The Home & Personal Care business collaborates closely with global and regional brand owners to deliver innovative solutions, leveraging acrylics, cellulosics and silicone technology platforms for creating new and unrivaled consumer benefits and experiences in cleaning, laundry and skin and hair care applications, among others. Silicone Feedstocks & Intermediates provides standalonebusiness focuses on maximizing productivity and optimizing margins by leveraging Dow’s scale and global reach. It is charged with producing silicon metal, siloxanes and intermediates, which are key materials to manufacture differentiated downstream silicone materials that are used as intermediates in a wide range of applications including adhesion promoters, coupling agents, crosslinking agents, dispersing agents and surface modifiers.products.
Details on Performance Materials & Coatings' 20202023 net sales, by business and geographic region, are as follows:
Products
Major applications/market segments and products are listed below by business:
| | | | | | | | | | | | | | |
| Business | Applications/Market Segments | Major Products | Key Raw Materials | Key Competitors |
| Coatings & Performance Monomers | Acrylic binders for architectural paints and coatings, industrial coatings and paper; adhesives; dispersants; impact modifiers; inks and paints; opacifiers and surfactants for both architectural and industrial applications; plastics additives; processing aids; protective and functional coatings; rheology modifiers
| ACOUSTICRYL™ACOUSTICRYL™ Liquid-Applied Sound Damping Technology; acrylates; ACRYSOL™ACRYSOL™ Rheology Modifiers; AVANSE™AVANSE™ Acrylic Binders; EVOQUE™EVOQUE™ Pre-Composite Polymer; foam cell promoters; FORMASHIELD™FORMASHIELD™ Acrylic Binder; high-quality impact modifiers; MAINCOTE™MAINCOTE™ Acrylic Epoxy Hybrid; methacrylates; processing aids; RHOPLEX™RHOPLEX™ Acrylic Resin; TAMOL™TAMOL™ Dispersants; FASTRACK™ Road Marking Resins; vinyl acetate monomers; weatherable acrylic capstock compounds for thermoplastic and thermosetting materials
| Acetic acid, acetone, acrylic acid, ammonia, butanol, butyl acrylate, methanol, methyl methacrylate, propylene, styrene | Arkema, BASF, Celanese, Evonik, LyondellBasell, Wacker Chemie |
| Consumer Solutions | Personal care color cosmetics, baby care,and home carecare; mobility and specialty applications with a key focus on hair care, skin care, sun care, cleansing, as well as fabric, dish, floor, hard surfacetransportation; building and air care applications; commercial glazing; electricalinfrastructure; consumer and high-voltage insulation; lampelectronics; industrial and luminaire modules assembly; mobility; oil and gas; paints and inks; release liners, specialty films and tapes; sporting goods; 3D printingchemical processing | Adhesives and sealants; antifoams and surfactants; coatings and controlled release; coupling agents and crosslinkers; IMAGIN3D™ Printing Technology; fluids, emulsions and dispersions; formulating and processing aids; granulation and binders; oils; polymers and emollients; opacifiers; reagents; resins, gels and powders; rheology modifiers; rubber; solubility enhancers; aerospace composites; surfactants and solvents; SILASTIC™ Silicone Elastomers; DOWSIL™ Silicone Products; SYL-OFF™encapsulants for solar photovoltaic applications; ACUSOL™ Prime 1 Polymer; AMPLIFYSilicone Release Coatings; AMPLIFY™™ Si PE 1000 Polymer SystemSystem; bio-based, readily biodegradable SunSpheres™ BIO SPF Booster; DOWSIL™ Silicone Products; SILASTIC™ Silicone Elastomers; SYL-OFF™ Silicone Release Coatings | Hydrochloric acid, methanol,Methanol, platinum, silica, silicon metal | Elkem, Momentive, Shin-Etsu, Wacker Chemie |
Current and Future Investments
In 2023, several key growth capital projects around the globe were brought online to meet customer needs in fast-growing markets. These include:
•Debottlenecking of silicone key intermediates enabling downstream growth globally across multiple end-markets, such as building and infrastructure, mobility and transportation, and consumer and electronics.
•Capacity expansions in EMEAI to meet demand growth for sustainable silicone solutions in the personal care industry.
•Capacity expansions in Asia Pacific to meet growing demand for mobility and transportation end-markets.
•Incremental capacity expansion in the United States to accelerate growth in targeted applications within consumer and electronics as well as the building and infrastructure end-markets.
The Company continues to make incremental investments in low-capital, high-returnlower-capital, higher-return projects in the silicones franchiseand coatings franchises to further enhance competitiveness. Investments include both debottleneckThe investments aim to expand manufacturing capacity and efficiency projects across its global footprint, including expansionincrease product mix offerings of silicone polymers, as well as investmentsintermediates and high-performance silicones to accelerate the downstream business growth. By leveraging global scale and a broad innovation portfolio, the Company is well-positioned to deliver differentiated solutions and sustainable materials in high-performance sealants.key end-markets, including building and infrastructure, electronics, industrial, mobility, and home and personal care.
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.
RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The major raw material stream that feeds the production of the Company's finished goods is hydrocarbon-based raw materials. The Company purchases hydrocarbonhydrocarbon-based raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases and sells certain monomers, primarily ethylene and propylene, to supplementbalance internal production.production and internal consumption. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. In addition, the Company produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; The Netherlands; the United Kingdom; and Germany.
The Company's primary source of these raw materials are natural gas liquids ("NGLs"), which are derived from shalenatural gas and crude oil production, and naphtha, which is produced during the processing and refining of crude oil. Given recent advancements in shale gas, shale oil and conventional drilling techniques, the Company expects these raw materials to be in abundant supply. The Company's suppliers of these raw materials include regional, international and national oil and gas companies.
The Company purchases raw materials on both short- and long-term contracts. The Company had adequate supplies of raw materials in 20202023 and expects to continue to have adequate supplies of raw materials in 2021.
2024.
INDUSTRY SEGMENTS AND GEOGRAPHIC REGION RESULTS
See Note 2624 to the Consolidated Financial Statements for information regarding net sales, pro forma net sales, Operating EBIT, pro forma Operating EBIT and total assets by segment, as well as net sales and long-lived assets by geographic region.
SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. In 2020,2023, no significant portion of the Company's sales was dependent upon a single customer.
PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2020,2023, the Company owned approximately 3,5003,900 active U.S. patents and 18,90025,000 active foreign patents as follows:
| | Remaining Life of Patents Owned at Dec 31, 2020 | United States | Rest of World |
| Remaining Life of Patents Owned at Dec 31, 2023 | | Remaining Life of Patents Owned at Dec 31, 2023 | United States | Rest of World |
| Within 5 years | Within 5 years | 800 | | 3,400 | |
| 6 to 10 years | 6 to 10 years | 1,000 | | 6,500 | |
| 11 to 15 years | 11 to 15 years | 1,500 | | 8,400 | |
| 16 to 20 years | 16 to 20 years | 200 | | 600 | |
| Total | Total | 3,500 | | 18,900 | |
The Company’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. The Company is party to a substantial number of patent licenses, including intellectual property cross-license agreements and other technology agreements, and also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.
PRINCIPAL PARTLY OWNED COMPANIES
The Company’s principal nonconsolidated affiliates at December 31, 2020,2023, including direct and indirect ownership interest for each, are listed below:
| | | | | | | | | | | |
| Principal Nonconsolidated Affiliate | Country | Ownership Interest | Business Description |
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins |
| | | |
| | | |
| | | |
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene and ethylene glycol |
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures styrene monomer |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | Manufactures propylene and ethylene |
Sadara Chemical Company 2 | Saudi Arabia | 35.00 | % | Manufactures chlorine, ethylene, propylene and aromatics for internal consumption and manufactures and sells polyethylene, ethylene oxide and propylene oxide derivative products, and isocyanates |
The SCG-DowSCGC-Dow Group: | | | |
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | Manufactures polyethylene |
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | Manufactures polystyrene |
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | Manufactures styrene |
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | Manufactures latex and specialty elastomers |
1.The Company's effective ownership of Map Ta Phut is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.512.50 percent through its equity interest in Siam Polyethylene Company Limited.
2.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. In March 2021, Dow and the Saudi Arabian Oil Company agreed to transition the marketing rights and responsibilities for Sadara’s finished products to levels more consistent with each partner’s equity ownership. This transition began in July 2021 and is being implemented through 2026.
See Note 1210 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.
PROTECTION OF THE ENVIRONMENTSUSTAINABILITY STRATEGY
Dow believes a sustainable future is attainable, but only if everyone comes together to drive forward science- and technology-based solutions to address global challenges. Dow is collaborating across value chains and using its materials science to scale business solutions and deliver transformational change that leads to a more circular, lower-carbon, more resource-efficient society and a healthier planet. By constantly innovating and improving how the Company sources, designs, manufactures and delivers material solutions, Dow is helping its customers make a positive contribution to society and the environment, while opening new paths for business growth.
Matters
Dow’s sustainability efforts are focused on three areas that are critical to the Company’s business and where Dow believes it can use its science, global reach and partnerships to make a positive impact. These focus areas guide Dow’s business decisions and sustainability framework.
Climate Protection – Dow is committed to protecting the planet by combating climate change, including contributing to lower CO2e emissions and conserving and restoring natural resources, such as native habitats and freshwater, within its operations and value chains.
Circular Economy – Dow is taking a leading role in driving a more circular economy by designing for circularity, building new business models for circular materials, and partnering in an industrial ecosystem to end plastic pollution.
Safer Materials – Dow is innovating new materials that offer more favorable health and environmental profiles over their life cycles than incumbent solutions.
To accelerate the Company's sustainability commitments, Dow has implemented and continues to expand on its multi-decade targets intended to put the Company on a path to achieve carbon neutrality and reduce plastic waste, which include the following:
•By 2030, Dow will reduce its net annual Scope 1 and 2 CO2e emissions by 5 million metric tons compared with its 2020 baseline, representing a 15 percent reduction from 2020 and a 30 percent reduction in greenhouse gas emissions since 2005.
•By 2030, Dow will transform plastic waste and other forms of alternative feedstock to commercialize 3 million metric tons of circular and renewable solutions annually. To do this, Dow is expanding its efforts to build industrial ecosystems to collect, reuse or recycle plastic waste and address waste management gaps. Dow is also working to close the loop by helping its customers design for recyclability and increasing its use of feedstocks from recycled and renewable sources.
•By 2050, Dow intends to be carbon neutral (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits).
The Company's progress in achieving these targets is reviewed regularly by management and with the Environment, Health, Safety & Technology Committee of the Dow Inc. Board of Directors ("Board").
Additional discussion of matters pertaining to the environment, are discussedincluding actions related to the Company's sustainability strategy, is included in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 1614 to the Consolidated Financial Statements. In addition, detailed information on the Company's performance regarding environmental matters and goals, including the Company's annual INtersections Report, is accessible through the Science & Sustainability webpage at www.dow.com/sustainability. Dow's website and its content are not deemed incorporated by reference into this report.
HUMAN CAPITAL
Dow’s ambition – to be the most innovative, customer-centric, inclusive and sustainable materials science company -in the world – starts with people. Dow employees create innovative and sustainable materials science solutions to advance the world. Every answer starts with asking the right questions. Thisquestions, which is why the diverse, dedicated Dow team collaborates with customers and other stakeholders to find solutions to the world's toughest challenges. The Company's values of Respect for People, Integrity and Protecting Our Planet are fundamental beliefs that are ingrained in each action taken, can never be compromised and are the foundation of the Company's Code of Conduct.
The Company is dedicated to employee health and safety and is invested in fostering a culture of inclusion and continuous learning while supporting its employees through its Total Rewards plans and programs to ensure all Dow employees are respected, valued and encouraged to make their fullest contribution.
Safety, Employee Health and Well-Being
A commitment to safety and employee health is engrainedingrained in Dow’s culture and central to how the Dow team works. Dow uses a comprehensive, integrated operating discipline management system that includes policies, requirements, best practices and procedures associated with health and safety. In 2020,2023, the Company achieved an Occupational Safety and Health Administration ("OSHA") Total Recordable Injury and Illness Rate of 0.12,0.18, based upon the number of incidents per 200,000 work hours for employees and contractors globally. This measure, along with a consistent set of globally applied, as well as locally defined, leading indicators of safety performance, are cornerstones of Dow's worker protection program. The Company maintains a robust, globally tracked near-miss program for situations that did not result in an injury, but could have been high consequence had circumstances been slightly different. This data is reviewed regularly by management and the Environment, Health, Safety & Technology Committee of the Dow Inc. Board, of Directors ("Board"), is visible to all employees and is built into digital dashboards that include actual injury information for every Dow location around the world.
As part of the Company’s total worker health strategy, employees have access to occupational health services at no cost through on-site, Company-managed clinics at its manufacturing locations or an offsite provider overseen by Dow Occupational Health. In addition to access for occupational health needs, the Company also maintainshas a comprehensive wellness program, recognizingwell-being strategy, which is framed across four dimensions – physical, mental, community and financial well-being – for an approach that is holistic, global, employee centered and outcome-driven. Key ambitions across the value of good physicalfour dimensions focus on elements such as well as mental health to employees, families and communities. In 2020, the Company also initiated an offering ofworkplace stress, psychological safety, training sessions to employees.resiliency, workload, healthy eating and activities, and social community and inclusion opportunities.
Dow maintains active Crisis Management Teams at the corporate level and in each region where the Company operates to ensure appropriate plans are in place in the event of natural disasters or other emergencies, and currently in response to the coronavirus disease 2019 ("COVID-19") pandemic. For additional information on the Company’s response to the COVID-19 pandemic, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.emergencies.
Inclusion, Diversity & DiversityEquity
At Dow, inclusion, diversity and diversityequity (“I&D”ID&E”) is a business imperative evidenced by inclusion serving as a core pillar of the Company's ambition statement. A strategic and intentional focus on I&DID&E not only enhances the employee experience and satisfaction, but it also supports innovation, customer experience and understanding of the communities the Company serves. In 2020,2023, Dow ranked #22advanced to #7 in the DiversityInc Top 50 Companies for Diversity.Diversity and for the third year in a row was named to the Fortune 100 Best Companies to Work For® list. These are significant accomplishments that represent only two of the many awards the Company received related to its efforts in ID&E.
Dow's strategic I&DID&E efforts are directed by its Chief Inclusion Officer and Office of Inclusion, which supports implementation throughout Dow’s businesses, functions and regions. Three Inclusion Councils drive the I&DID&E strategy from the top of the Company down and across the enterprise:
•The President’s Inclusion Council defines and supports the mandateDow's ID&E strategy from the top.
•A Senior Leaders’ Inclusion Council influences change through senior and mid-level business, geographic and functional leaders.
•A Joint Inclusion Council proactively engages with Dow’scollaborates to drive maximum employee engagement through Employee Resource Groups ("ERGs"Group (“ERG”) to ensure employee engagement at all levels.leadership.
Dow’s 10 ERGs are representative of the Company’s diverse workforce and help foster an inclusive workplace. Dow’s ERGs are organized around historically underrepresented groups including women, people of color, LGBTQ+ individuals, people with disabilities and veterans, as well as groups both for professionals who are new to the Company and those who are later in their careers.50 years or older. Senior leaders serve as executive sponsors for each ERG. In 2020, 49addition, Dow has a Paid Time Off Policy which provides employees time off to volunteer and engage in ERG activities. In 2023, 61 percent of Dow’s workforce and 98 percent of Dow people leaders participated in at least one ERG.
I&DInclusion and diversity metrics, including ERG participation, global representation of women and U.S. ethnic minority representation in the United States, are published internally on a quarterly basis, are embedded in the same scorecard where Dow’s financial and safety results are measured and are directly connected to leaders’ annual performance and compensation. This data is reviewed regularly by management and with the Compensation and Leadership Development Committee of the Board.
Global pay disparity studies have been conducted at Dow for over 20 years to assess fair treatment between genders and between U.S. ethnic minorities and non-minorities and to ensure Dow’s pay practices are being implemented as intended. As part of Dow’s ID&E efforts, the Company will continue to conduct annual pay gap studies and actively engage with an external partner to further develop and continue to apply best practices.
Total Rewards
To achieve Dow’s ambition to be the most innovative, customer-centric, inclusive and sustainable materials science company in the world, the Company invests in its people, who are at the heart of the Company, through its Total Rewards plans and programs. The Total Rewards plans and programs are structured to attract, retain and motivate Dow’s employees. Dow’s Total Rewards are designed to support all aspects of its employees – their compensation, future, health, life and career. The Company is committed to aligning its strategy and culture with the needs of its employees and optimizing the investment Dow makes in Total Rewards.
As a global company with a diverse team, Dow aims to ensure employees have access to resources that allow them to meet their unique needs. That is why Dow has established three guiding principles that define its Total Rewards strategy: 1) ensuring programs are market competitive, while leading peer companies in equitable and inclusive offerings; 2) providing employees with offerings that align with their preferences; and 3) offering programs that promote fulfilling career and life experiences. Dow adapts its programs for geography-specific requirements, as well as cultural standards and expectations.
Employee Engagement, Learning and Development
Throughout an employee’s career, the Company supports development through a blend of learning approaches including in-person and virtual trainings, digital learning platforms, on-the-job training and a series of leadership development programs. Annually, all employees have the opportunity to provide feedback on employee experience and offer insights into how to improve Dow’s working culture through a global employee opinion survey. A key component of the survey is an opportunity for employees to provide feedback on the effectiveness of their direct leader. In 2020, 742023, 72 percent of employees responded to the annual survey. The feedback received through this annual survey and additional quarterly checkpoint surveys is used to drive actions to improve the overall Dow experience for employees across the Company, as well as to support continuous improvement in leader effectiveness.
At December 31, 2020,2023, the Company permanently employed approximately 35,70035,900 people on a full-time basis.
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| * | U.S. Minority includesethnic minorities include employees who self-identify as Hispanic or Latino, Black or African American, Asian, American Indian or Alaskan Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or other Pacific Islander, or two or more races. Employees who self-identify as White are considered U.S. Non-Minority. |
Additional information regarding Dow’s human capital measures can be found in the Company's annual SustainabilityINtersections Report, accessible through the Science & Sustainability webpage at www.dow.com/sustainability, as well as Dow's annual Shine Inclusion Report and the U.S. Equal Employment Opportunity Report (EEO-1), accessible through the Inclusion &and Diversity webpage at www.dow.com/diversity. Dow’s website and its contentscontent are not deemed incorporated by reference into this report.
OTHER ACTIVITIES
The Company engages in property and casualty insurance and reinsurance primarily through its Liana Limited subsidiaries.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company's executive officers as of February 5, 2021:January 31, 2024:
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| Name, Age | Present Position with Registrant | Year Elected as Executive Officer of Dow Inc. | Other Business Experience since January 1, 20162019 |
Jack Broodo, 62 | President, Feedstocks & Energy | 2020 | Dow Inc.: President, Feedstocks & Energy since February 2020; Business President, Feedstocks & Energy from April 2019 to February 2020.
TDCC: President, Feedstocks & Energy since February 2020; Business President, Feedstocks & Energy from February 2016 to February 2020. Vice President, Investor Relations from November 2014 to January 2016. |
Karen S. Carter, 50Lisa Bryant, 48 | Chief Human Resources Officer and Chief Inclusion Officer | 20192022 | Dow Inc.DOW INC.: Chief Human Resources Officer and Chief Inclusion Officer since April 2019.
TDCC: Chief Human Resources Officer since October 2018;November 2022.
TDCC: Chief InclusionHuman Resources Officer since July 2017;November 2022; Senior Global Human Resources Director for Finance, Legal, Public Affairs, and Government Affairs from May 2020 to November 2022; North America Commercial Vice President, Dow Packaging and Specialty PlasticsHuman Resources Director from February 20162019 to July 2017;May 2020; Global BusinessHuman Resources Director Low Densityfor Marketing & Slurry Polyethylene, Packaging & Specialty PlasticsSales from April 2017 to February 2019; Global Human Resources Director for Coatings, Monomers & Plastics Additives from March 2015 to January 2016.February 2019. |
Diego Donoso,Karen S. Carter, 53 | President, Packaging & Specialty Plastics | 20202019 | Dow Inc.DOW INC.:President, Packaging & Specialty Plastics since February 2020; Business President, Packaging & Specialty PlasticsNovember 2022; Chief Human Resources Officer and Chief Inclusion Officer from April 2019 to February 2020.November 2022.
TDCC: President, Packaging & Specialty Plastics since November 2022; Chief Human Resources Officer from October 2018 to November 2022; Chief Inclusion Officer from July 2017 to November 2022.
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| Andrea L. Dominowski, 49 | Controller and Vice President of Controllers | 2024 | DOW INC.: Controller and Vice President of Controllers effective February 2020;1, 2024. TDCC:Controller and Vice President of Controllers effective February 1, 2024. Global Business President, PackagingDirector for Silicone Feedstocks & Specialty PlasticsIntermediates from August 20122020 to February 2024. Regional Finance Director for North America from January 2018 to August 2020. |
Ronald C. Edmonds, 6366 | Controller and Vice President of Controllers and Tax | 2019 | Dow Inc.DOW INC.: Controller and Vice President of Controllers and Tax sincefrom April 2019.2019 to February 1, 2024.
TDCC: Controller and Vice President since November 2009; Vice President of Tax sincefrom January 2016.2016 to February 1, 2024.
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Jim Fitterling, 5962 | ChairmanChair and Chief Executive Officer | 2018 | Dow Inc.DOW INC.: Chairman Chair since April 2020; Chief Executive Officer since August 2018.
TDCC: ChairmanChair since April 2020; Chief Executive Officer since July 2018; President and Chief Operating Officer from February 2016 to July 2018; Vice Chairman and Chief Operating Officer from October 2015 to February 2016.2018. |
Mauro Gregorio, 5861 | President, Performance Materials & Coatings | 2020 | Dow Inc.DOW INC.: President, Performance Materials & Coatings since February 2020; Business President, Performance Materials & Coatings from April 2019 to February 2020.
TDCC: President, Performance Materials & Coatings since February 2020; Business President, Consumer Solutions from January 2016 to February 2020. |
Jane M. Palmieri, 5154 | President, Industrial Intermediates & Infrastructure | 2020 | Dow Inc.DOW INC.: President, Industrial Intermediates & Infrastructure since February 2020;2020. Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2019 to February 2020.
TDCC: President, Industrial Intermediates & Infrastructure since February 2020; Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2018 to February 2020; Business President, Polyurethanes and Chlor-Alkali from October 2016 to April 2018; Business President, Building and Construction from June 2013 to April 2018.2020. |
John M. Sampson, 6063 | Senior Vice President, Operations, Manufacturing & Engineering | 2021 | Dow Inc.DOW INC.:Senior Vice President, Operations, Manufacturing & Engineering since October 2020.
Olin Corporation:
OLIN CORPORATION:Executive Vice President, Business Operations from April 2019 to September 2020; Vice President, Business Operations from October 2015 to April 2019. |
A. N. Sreeram, 5356 | Senior Vice President of Research & Development and Chief Technology Officer | 2019 | Dow Inc.DOW INC.: Senior Vice President of Research & Development and Chief Technology Officer since April 2019.
TDCC: Chief Technology Officer since October 2015; Senior Vice President of Research & Development since August 2013.
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Howard Ungerleider, 52Jeffrey L. Tate, 54 | President and Chief Financial Officer | 20182023 | Dow Inc.DOW INC.: Chief Financial Officer since November 2023.
LEGGETT & PLATT INCORPORATED: Executive Vice President and Chief Financial Officer since August 2018.from September 2019 to June 2023.
TDCC: Chief Financial Officer since October 2014;November 2023. Vice President since July 2018; Vice Chairmanand Business Finance Director, Packaging & Specialty Plastics from October 2015August 2017 to July 2018.August 2019.
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Amy E. Wilson, 5053 | General Counsel and Corporate Secretary | 2018 | Dow Inc.DOW INC.: General Counsel and Corporate Secretary since April 2019; Secretary from August 2018 to April 2019.
TDCC: General Counsel since October 2018; Corporate Secretary since February 2015; Associate General Counsel from April 2017 to September 2018; Assistant General Counsel from February 2015 to April 2017; Director of the Office of the Corporate Secretary from August 2013 to October 2018.2015.
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The factors described below represent the Company's principal risks.
COVID-19 CLIMATE CHANGE - RELATED RISKS
Climate Change: Climate change-related risks and uncertainties, legal or regulatory responses to climate change and failure to meet the Company’s climate change commitments could negatively impact the Company’s results of operations, financial condition and/or reputation.
The Company is subject to increasing climate-related risks and uncertainties, many of which are outside of its control. Climate change may result in more frequent and damaging severe weather and weather-related events, potential changes in precipitation patterns and extreme variability in weather patterns. These short- and long-term weather and weather-related events can disrupt the operations of the Company as well as those of its customers, partners and vendors due to damage to local infrastructure and other property damage limiting site access, and causing water scarcity and lack of access to high-quality water, among other factors. These risks and uncertainties may also directly or indirectly impact decisions to invest in the construction and/or renovation of new or existing manufacturing sites and other Company facilities and locations.
The transition to lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements and increases in climate-related lawsuits, insurance premiums and implementation of more robust disaster recovery and business continuity plans could increase costs to maintain or resume the Company’s operations or achieve its sustainability commitments in the expected timeframes, which would negatively impact the Company’s results of operations.
In 2020, the Company announced commitments to reduce its net annual Scope 1 and 2 CO2e emissions by an additional 5 million metric tons, or 15 percent compared with its 2020 baseline, by 2030 (the 2020 baseline represents a 15 percent reduction in greenhouse gas emissions since 2005) and 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). In November 2023, the Board approved the final investment decision to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, a key element for the Company to achieve its 2030 greenhouse gas emissions reduction commitment.
The commitments reflect the Company's current plans and targets and are not guarantees that it will be able to achieve them. The execution and achievement of the Company's commitments within projected cost estimates and expected timeframes, including the success of the Company's integrated ethylene cracker and derivatives facility in Alberta, Canada, are subject to risks and uncertainties which include, but are not limited to: advancement, availability, development and affordability of technology necessary to achieve these commitments; unforeseen design, operational and technological difficulties; availability and cost of necessary materials and components; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; changes in public sentiment and political leadership; and the Company’s ability to comply with changing regulations, taxes, mandates or requirements related to greenhouse gas emissions or other climate-related matters, including prescriptive reporting of climate-related matters. In addition, standards for tracking and reporting on sustainability matters have not been harmonized, continue to evolve and may change over time, which could result in significant revisions to the Company's performance metrics, commitments or reported progress in achieving such commitments. Given the focus on sustainable investing, if the Company fails to meet its climate change commitments within the committed timeframe, coupled with its significant investments to meet those commitments, and adopt policies and practices to enhance sustainability, the Company’s reputation and its customer and other stakeholder relationships could be negatively impacted, reducing demand for the Company's products, and it may be more difficult for the Company to compete effectively or gain access to financing on acceptable terms when needed, which could negatively impact the Company’s financial condition, results of operations and cash flows.
PANDEMIC - RELATED RISKS
Public Health Crisis: A public health crisis or global outbreak of disease including the pandemic caused by coronavirus disease 2019 (“COVID-19”) has had, and could continue to have a negative effect on the Company's manufacturing operations, supply chain and workforce, creating business disruptions that could continue to have a substantial negative impact on the Company’s results of operations, financial condition and cash flows.
TheA public health crisis, including a pandemic caused by COVID-19 has impactedsimilar in nature to coronavirus disease 2019, could impact all geographic regions where Dow products are produced and sold. The global, regional and local spread of COVID-19a public health crisis could result in, and in the past has resulted in, significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans,
mask and vaccination mandates, restrictions on large gatherings and restricted access to certain corporate facilities and manufacturing sites. Uncertainty with respect toBusiness disruptions and market volatility resulting from a public health crisis could have a substantial negative impact on the severityCompany’s results of operations, financial condition and durationcash flows. The adverse impact of a pandemic could include, and in the COVID-19 pandemic, coupled with oil price fluctuations due in part to the global spread of COVID-19 and the continued increase in global cases,past has contributed to the volatility of financial markets. While the severity and duration of the COVID-19 pandemic in key geographic regions and end-markets cannot be reasonably estimated at this time, impacts to the Company include, but are not limited to:included, without limitation, fluctuations in the Company’s stock price due to market volatility; a decrease in demand for certain Company products; price declines; reduced profitability; supply chain disruptions impeding the Company’s ability to ship and/or receive product; temporary idling or permanent closure of select manufacturing facilities and/or manufacturing assets; asset impairment charges; interruptions or limitations to manufacturing operations imposed by local, state or federal governments; reduced market liquidity and increased borrowing costs; workforce absenteeism and distraction; labor shortages; customer credit concerns; increased cyber securitycybersecurity risk and data accessibility disruptions due to remote working arrangements; workforce reductions and fluctuations in foreign currency markets. Additional risks may include, but are not limited to: shortages of key raw materials; potential impairment in the carrying value of goodwill; additional asset impairment charges; increased obligations related to the Company’s pension and other postretirement benefit plans; and tax valuation allowances. Business disruptionsallowance; and market volatility resulting from the COVID-19 pandemic have had and could continue to have a substantial negative impact on the Company’s results of operations, financial condition and cash flows. The adverse impact of the COVID-19 pandemic on the Company may also have the effect of heightening many of the other risks described in this "Risk Factors" section.
MACROECONOMIC RISKS
Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions, such as high interest rates, could reduce the Company’s flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company’s results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations,regulations; trade agreements,agreements; import and export controlscontrols; taxes; and duties and tariffs. The imposition of additional regulations, controls, taxes and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume, which could negatively impact the Company’s results of operations.
Economic conditions around the world, and in certain industries in which the Company does business, also impact sales price and volume. As a result,volume and affect the efficacy of the Company's supply chain. For example, market uncertainty orand an economic downturn driven by inflationary pressures have recently reduced demand for the Company's products, resulting in decreased sales volume. Adverse economic conditions also caused supply chain constraints. These factors have had a negative impact on the Company's results of operations. Additionally, political tensions,tensions; war, terrorism, epidemics, pandemicsincluding the ongoing conflicts in the Middle East and between Russia and Ukraine with the related sanctions and export restrictions; terrorism; epidemics; pandemics; or political instability in the geographic regions or industries in which the Company sells its products could also reduce demand for thesethe Company's products and result in decreased sales volume or supply chain disruptions, which could have a negative impact on the Company’s results of operations.
In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. Dow suspended purchases of feedstocks and energy from Russia and has significantly reduced its operations and product offerings in the country. Dow has also stopped all investments in Russia and is only supplying limited essential goods to Russia. These actions have not had and are not expected to have a material impact on the Company's financial condition or results of operations. However, the fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company’s financial condition, results of operations and cash flows. These include decreased sales; supply chain and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on and availability of raw materials and energy, most notably in Europe; and heightened cybersecurity threats. Further, the intensity and duration of the conflict in the Middle East and potential expansion of the hostilities in the region are difficult to predict and could disrupt the Company's supply chain operations, which could have a negative impact on the Company's results of operations.
In addition, volatility and disruption of financial markets could limit customers’ ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on the Company’s results of operations. The Company’s global business operations also give rise to market risk exposure
related to changes in inflation, foreign currency exchange rates, including the impact of foreign currency exchange rates resulting from highly inflationary economies such as Argentina, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, the Company enters into hedging and other investment transactions, where deemed appropriate, pursuant to established guidelines and policies. If the Company fails to effectively manage such risks, it could have a negative impact on its results of operations.
Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively impact its financial condition and results of operations.
TheWhile the Company has frozen its defined benefit plans and other postretirement benefit plans in the United States, the Company continues to sponsor these plans as well as defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries.countries (together with U.S. plans, the “plans”). The assets of the Company's funded plans are primarily invested in fixed income securities, equity securities of U.S. and foreign issuers and alternative investments, including investments in real estate, private equity and absolute return strategies. Changes in the market value of plan assets, investment returns, discount rates, mortality rates regulations and the rate of increase in compensation levelsregulations may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.
Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may result in excess capacity which can disrupt regional industry supply and demand balances, particularly in Europe, Middle East, Africa and resultIndia ("EMEAI") and Asia Pacific, resulting in downward pressure on prices due to the increase in supply,and decreased operating rates, which could negatively impact the Company’s results of operations.
LEGAL AND REGULATORY RISKS
Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, climate change, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In addition, the Company may have costs related to environmental remediation and restoration obligations associated with past and current sites as well as related to its past or current waste disposal practices or other hazardous materials handling. Although management will estimate and accrue liabilities for these obligations, it is reasonably possible that the Company’s ultimate cost with respect to these matters could be significantly higher, which could negatively impact the Company’s financial condition and results of operations. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. For additional information, see Part II, Item 7. Other Matters, Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Health and Safety: Increased concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on the environment hashave resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of
market acceptance and continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, its reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
Litigation: The Company is party to a number of 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 the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) and Chapter 11 related matters of Dow Silicones Corporation ("Dow Silicones") as described below, it is the opinion of the Company’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company’s consolidated financial statements.
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. At December 31, 2020,2023, Union Carbide's total asbestos-related liability, including future defense and processing costs, was $1,098$867 million ($1,165947 million at December 31, 2019)2022).
In 1995, Dow Silicones, a former 50:50 joint venture, voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Silicones emerged from the Chapter 11 Proceeding on June 1, 2004, 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. Dow Silicones’ liability for breast implant and other product liability claims was $160 million at December 31, 2020 ($165 million at December 31, 2019). See Note 16 to the Consolidated Financial Statements for additional information on litigation matters.
Plastic Waste: Increased concerns regarding plastic waste in the environment, consumersresulting in the demand for substitute materials; brand owners selectively reducing their consumptionuse of plastic products dueproducts; a lack of plastic waste collection and recycling infrastructure and a failure to recycling concerns,develop circular plastic materials or a circular economy for plastics; and/or the development of new or more restrictive regulations and rules related to plastic waste and related emissions could reduce demand for the Company’s plastic products and could negatively impact the Company’s financial results.
Local, state, federal and foreign governments have been increasingly proposing and in some cases approving bans on certain plastic-based products including single-use plastics, plastic straws and utensils. In addition, plasticsPlastics have faced increasedincreasing public scrutiny due to negative coveragelow recycling rates and the presence of plastic waste in the environment, including the world’s oceans. As oceans and rivers, and pollution associated with the manufacture of plastics. Accordingly, regulators, manufacturers, brand owners and consumers are driving demand for materials made with recycled content, bio-based materials and materials made with low or zero carbon emission options, and local, state, federal and foreign governments are proposing and implementing regulations to address the global plastic waste challenge, including, but not limited to, extended producer responsibility fees, recycled content mandates, taxes on plastics at the national level and bans on non-essential items. Further, an intergovernmental negotiation committee is in the process of negotiating an international legally binding instrument to end plastic pollution.
Dow is one of the world’s largest plastics producers and sells plastic products that continue to enable increasing quality and standards of living and offer significant greenhouse gas reductions compared with alternative solutions. In order to both maintain the benefits of plastics, meet growing demand for circular and renewable plastics and advance efforts to end plastic pollution in the environment, the Company is partnering with other organizations to bring the waste back into the circular economy. The Company's Transform the Waste target (announced in October 2022) aims to transform plastic waste and other forms of waste to commercialize 3 million metric tons of circular and renewable solutions by 2030. Further, the Company has committed to reducing its net annual greenhouse gas emissions and intends 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).
Without the expansion of proper waste collection and recycling infrastructure and the development of a circular economy for plastics at scale, along with increased regulation onpressure to reduce the use of plastics, the Company could causeexperience reduced demand for the Company’sits polyethylene products, which could negatively impact the Company’s financial condition, results of operations and cash flows.
OPERATIONAL AND STRATEGIC RISKS
Company Strategy: Implementing certain elements of the Company's strategy could negatively impact its financial results.
The Company currently has manufacturing operations, sales and marketing activities, and joint ventures in emerging geographic regions. Activities in these geographic regions are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project
funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement.
Additionally, disruptions to supply chains, distribution chains and/or public and private infrastructure and services, including those caused by industry capacity constraints, material availability, global logistics delays, and third party service and material providers; and constraints arising from, among other things, the transportation capacity of ocean shipping containers; global labor availability constraints; and/or disruptions to the Company's site operations caused by tenant and neighboring manufacturing operations, as well as the Company's ability to attract and retain a talented workforce, could materially and adversely impact the Company's business operations.
If the manufacturing operations, supply chains, sales and marketing activities are not reliable and/or the implementation of thesethe Company's projects is not successful, it could adversely affect the Company’s financial condition, cash flows and results of operations.
CyberCybersecurity Threat: TheDisruption of the Company's information technology, data security, and other operating or third-party systems, including disruption of the ability to safely and reliably operate the Company's facilities; the risk of loss of the Company’s intellectual property,proprietary information including trade secrets, know-how or other sensitive business informationinformation; and the risk of loss or disruptionsecurity of operationsthe private data of the Company, its customers and its employees could negatively impact the Company’s business strategy, results of operations, financial results.condition and reputation.
Cyber-attacks or security breaches could compromise confidential, business critical information, cause a disruption in the Company’s operations or harm the Company's reputation. The Company has attractiverelies on various information systems, including information systems operated by third-parties, to support safe, efficient and reliable business and operating processes and activities and to safeguard its proprietary information assets, including intellectual property, trade secrets, know-how and other sensitive, business critical information. These systems are critical to the Company's process to accurately report financial results for management and external reporting purposes and to ensure compliance with financial reporting, legal and tax requirements in the United States and around the world. These systems may also be used to collect and process sensitive customer and personal employee data the Company may be legally required to protect.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyberattacks continue to pose risks to the Company’s products, systems and networks, and the confidentiality, availability and integrity of the Company’s data. These vulnerabilities also expose the Company’s customers, suppliers and third-party service providers to loss. In addition, the Company is exposed to similar risks resulting from cyberattacks that are experienced by its suppliers and other vendors. As a result, cyberattacks, internal and external security breaches, and attacks and security breaches of third-party systems could disrupt the Company's operations, compromise Dow’s proprietary and confidential, business critical information, jeopardize the Company's ability to safeguard and maintain accurate data, including personal data, and harm the Company's reputation which could result in litigation, enforcement actions, including fines, penalties and disruption of the Company's right to operate in certain jurisdictions, and significant remediation costs. Additionally, the Company’s use of artificial intelligence software may create additional risks related to the unintentional disclosure of proprietary, confidential, personal or otherwise sensitive information.
While the Company has a comprehensive cyber-securitycybersecurity program that is continuously reviewed, maintained and upgraded, a significant cyber-attack could result in the losscyberattacks by nation-state organizations, crime organizations and other hackers have become increasingly sophisticated, and it is possible for such attacks to remain undetected for an extended period of critical business information and/or could negatively impact operations, whichtime. Such attacks could have a material negative impact on the Company’s business strategy, results of operations, financial results.position and reputation. More information on the Company’s processes for assessing, identifying and managing material risks from cybersecurity threats, including management’s role and the Board's oversight of such processes, can be found in Item 1C. Cybersecurity.
Goodwill: An impairment of goodwill could negatively impact the Company’s financial results.
At least annually, the Company assesses goodwill for impairment. If testing indicates that goodwill is impaired, the carrying value is written down based on fair value with a charge against earnings. Where the Company utilizes a discounted cash flow methodology in determining fair value, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations. See Note 1311 to the Consolidated Financial Statements for additional information regarding the Company's goodwill impairment testing.
Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations at each site, including maintenance of its facilities, the transportation of supplies and products, cyber-attacks,cyberattacks, pandemics and other public health-related events or severe weather conditions and other natural phenomena (such as freezing, drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.
Major hurricanes and other weather-related events have caused significant disruption in the Company's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of its products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact the Company's results of operations. Other non-weather-related unplanned events have also caused disruptions in the Company’s operations at various sites. While the Company has processes in place to minimize the risks and impacts of such events, such unplanned future events could negatively impact the Company’s results of operations.
Raw Materials: Availability of purchased feedstock and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks and also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company also purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.generation, and steam.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Power prices often follow general energy trends, and are additionally subject to short-term surfeits and shortages related to, for example, intermittent wind and solar generation, and power generation and transmission outages. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.
The Company has a number of investments on the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and natural gas liquids ("NGLs") derived from shale gas including: the St. Charles Operations ("SCO-2") ethylene production facility, which commenced operations in December 2012; an on-purpose propylene production facility, which commenced operations in December 2015; an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility’s ethylene production capacity and modifications to enable full ethane cracking flexibility; completion of a new integrated world-scale ethylene production facility and a new ELITE™ Enhanced Polyethylene production facility, both located in Freeport, Texas, in 2017, and a capacity expansion project which brought the facility’s total ethylene capacity to 2,000 kilotonnes per annum in 2020; and, the Company commenced operations in 2018 on its new LDPE production facility and its new NORDEL™ Metallocene EPDM production facility, both located in Plaquemine, Louisiana. As a result of these investments, the Company’s exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane- and propane-based feedstocks.
While the Company expects abundant and cost-advantaged supplies of NGLsnatural gas liquids ("NGLs") in the United States to persist for the foreseeable future, if NGLs become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstock and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company’s results of operations.
Separation from DowDuPont: Risks related to achieving the anticipated benefits of Dow's separation from DowDuPont.
Risks related to achieving the anticipated benefits of Dow's separation from DowDuPont include, but are not limited to, a number of conditions outside the control of Dow, including risks related to: (i) Dow's inability to achieve some or all of the benefits that it expects to receive from the separation from DowDuPont; (ii) certain tax risks associated with the separation; (iii) the failure of Dow's pro forma financial information to be a reliable indicator of Dow's future results; (iv) Dow's inability to receive third-party consents required under the separation agreement; (v) non-compete restrictions under the separation agreement; (vi) receipt of less favorable terms in the commercial agreements Dow entered into with DuPont and Corteva, Inc. ("Corteva"), including restrictions under intellectual property cross-license agreements, than Dow would have received from an unaffiliated third party; and (vii) Dow's obligation to indemnify DuPont and/or Corteva for certain liabilities.
| | |
| ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
Risk Management and Strategy
The Company has processes in place to identify, assess and monitor material risks from cybersecurity threats, which are part of the Company’s overall enterprise risk management process and have been embedded in the Company’s operating procedures, internal controls and information systems.
Dow's comprehensive cybersecurity and information security framework includes risk assessment and mitigation through a threat intelligence-driven approach, application controls, and enhanced security with ransomware defense. The framework leverages International Organization for Standardizations 27001/27002 standards for general information technology controls, International Society of Automation/International Electrotechnical Commission standards for industrial automation, the National Institute of Standards and Technology Cyber Security
Framework ("NIST CSF") for measuring overall readiness to respond to cyber threats, and Sarbanes-Oxley for assessment of internal controls.
Dow contracts with external firms to assess Dow’s cybersecurity controls relative to its peers using the NIST CSF. Dow also has a third-party risk management program that assesses risks from vendors and suppliers. In addition, the Company maintains business continuity and disaster recovery plans as well as a cybersecurity insurance policy.
Dow has established cybersecurity and information security awareness training programs. Formal training on topics relating to the Company’s cybersecurity, data privacy and information security policies and procedures is mandatory at least annually for all employees, contractors and third parties with access to the Company’s network. Training is administered and tracked through online learning modules. Training topics include how to escalate suspicious activities including phishing, viruses, spams, insider threats, suspect human behaviors or safety issues. Based on role and location, some employees receive additional in-depth training to provide more comprehensive knowledge on potential risks related to their individual job responsibilities. Training is supplemented through regular Company communications with frequent updates to educate on the latest adversary trends and social engineering techniques.
Additionally, Dow engages in cyber crisis response simulations to assess Dow’s ability to adapt to information and operational technology threats. Improper or illegitimate use of the Company’s information system resources or violation of the Company’s information security policies and procedures is subject to disciplinary action. Dow’s security posture is supported by a comprehensive defense-in-depth strategy that relies on layers of technology including Multi-Factor Authentication and principles of Zero Trust to ensure that access to information and communication is vetted and secure.
Dow also utilizes internal and external audits and assessments, vulnerability testing, governance processes over outsourced service providers, active risk management and benchmarking against peers in the industry to validate Dow’s security posture. The Company also engages external firms to measure Dow’s NIST CSF maturity level.
No risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
Governance
Role of Management
Dow’s Information Systems organization led by Dow’s Chief Information and Digital Officer, is responsible for administration of the cybersecurity and information security framework and risk management, with oversight by the Audit Committee.
The Company’s Chief Information and Digital Officer has formal education in information technology and extensive experience working in and leading Dow’s information systems and technology function. The Chief Information and Digital Officer receives regular updates on cybersecurity matters, results of mitigation efforts and cybersecurity incident response and remediation.
The Company’s management responsible for developing and executing Dow’s cybersecurity policies is comprised of individuals with either formal education and degrees in information technology or cybersecurity, or with experience working in information technology and cybersecurity, including relevant industry experience in security related industries. Additionally, leaders in the Company’s information technology function receive periodic training and education on cybersecurity related topics. Certain leaders also obtain industry certifications, such as Certified Information Systems Security Professional or Certified Information Security Manager.
The Company’s Cyber Security Operations Center (“CSOC”) serves as the central point for all cybersecurity incidents and reporting, including incidents that directly target employees or Dow internal information systems and incidents originating from third parties. The CSOC provides end-to-end operations for purposes of monitoring, detecting, alerting and responding to cybersecurity incidents. The CSOC evaluates each incident in terms of its impact on the Company’s operations, ability to conduct business with customers and suppliers, brand reputation and health, safety or the environment, and the speed and degree to which the incident has been contained. The CSOC is also responsible for activating the containment and resolution efforts and third-party service providers are engaged where appropriate to support the Company through the resolution of the incident. The CSOC escalates incidents with significant impact and pervasiveness to the Company’s Corporate Crisis Management Team for
further action. After initial identification, the CSOC monitors all cybersecurity incidents for changes in degree of impact or pervasiveness.
Role of the Board
Dow's Board recognizes the importance of cybersecurity in safeguarding the Company’s sensitive data. The Board is responsible for overseeing overall risk management for the Company, including review and approval of the enterprise risk management approach and processes implemented by management to identify, assess, manage and mitigate risk, at least annually. The Board has delegated responsibility for oversight of the Company’s cybersecurity and information security framework and risk management to the Audit Committee of the Board. The Audit Committee receives information and updates at least quarterly and actively engages with senior leaders, including the Chief Information and Digital Officer and Chief Information Security Officer, with respect to the effectiveness of the Company’s cybersecurity and information security framework, data privacy, and risk management. In addition, the Audit Committee receives reports summarizing threat detection and mitigation plans, audits of internal controls, training and certification, and other cyber priorities and initiatives, as well as timely updates from senior leaders on material incidents relating to information systems security, including cybersecurity incidents. The Audit Committee includes members with significant experience and/or expertise in technology or cybersecurity, including information systems.
The Company's corporate headquarters are located in Midland, Michigan. The Company's manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers are located throughout the world. The Company has investments in property, plant and equipment related to global manufacturing operations. Collectively, the Company operates 10698 manufacturing sites in 31 countries. The following table includes the major manufacturing sites by operating segment, including consolidated variable interest entities:
| | | | | | | | | | | |
| Major Manufacturing Sites by Segment | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings |
| Location |
| Bahia Blanca, Argentina | X | | |
| Candeias, Brazil | X | X | |
| Canada: | | | |
| Fort Saskatchewan, Alberta | X | | |
| Prentiss, Alberta | X | | |
| Joffre, Alberta | X | | |
| Zhangjiagang, China | X | X | X |
| Germany: | | | |
| Boehlen | X | X | | X
| Leuna | X | | |
| Schkopau | X | X | |
| Stade | | X | |
| Terneuzen, The Netherlands | X | X | |
| Tarragona, Spain | X | X | |
| Map Ta Phut, Thailand | | XX | X |
| Barry, United Kingdom | | | X |
| United States: | | | |
| Carrollton, Kentucky | | | X |
| Hahnville, Louisiana | X | X | X |
| Plaquemine, Louisiana | X | X | |
| Midland, Michigan | | | X |
| Deer Park, Texas | | X | X |
| Freeport, Texas | X | X | X |
| Orange, Texas | X | | |
| Seadrift, Texas | X | X | |
| Texas City, Texas | | X | X |
Including the major manufacturing sites, the Company has manufacturing sites and holdings in all geographic regions as follows:
| | | | | |
| Manufacturing Sites by Region |
| Asia Pacific | 1916 manufacturing sites in 10 countries |
EMEAI 1 | 3735 manufacturing sites in 15 countries |
| Latin America | 15 manufacturing sites in 4 countries |
| U.S. & Canada | 3532 manufacturing sites in 2 countries |
1.Europe, Middle East, Africa and India.
Properties of the Company include facilities which, in the opinion of management, are suitable and adequate for their use and will have sufficient capacity for the Company’s current needs and expected near-term growth. All of the Company’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value. No title examination of the properties has been made for the purpose of this report. Additional information with respect to the Company's property, plant and equipment and leases is contained in Notes 11,9, 13 and 15 and 17 to the Consolidated Financial Statements.
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| ITEM 3. LEGAL PROCEEDINGS |
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc.
For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 1614 to the Consolidated Financial Statements.
Environmental Proceedings
On July 5, 2018,May 17, 2021, the Company received a draft consent decreecivil complaint from the U.S. Environmental Protection AgencyState of Texas ("EPA"), the U.S. Department of Justice ("DOJ"State") and the Louisiana Department of Environmental Quality, relating to the operation of steam-assisted flares at the Company’s olefins manufacturing facilities in Freeport, Texas; Plaquemine, Louisiana; and St. Charles, Louisiana. On June 2, 2020, the EPA and the DOJ added Performance Materials NA, Inc., a wholly owned subsidiaryon behalf of the Company, as an additional signatory to the existing draft consent decree basedTexas Commission on the operation of steam-assisted flares at the Sabine olefins manufacturing facility in Orange, Texas (the "Orange, TX Facility"). Performance Materials NA, Inc. acquired the Orange, TX Facility in February 2019 and became a subsidiary of the Company in April 2019. On January 19, 2021, a proposed final consent decree wasEnvironmental Quality, filed in the U.S.250th District Court forof Travis County, Texas. The suit alleges environmental violations at the Eastern District of LouisianaCompany's Freeport, Texas, site involving several air emissions events, which allegedly occurred at the site between 2016 and 2021. The State is seeking monetary and injunctive relief to address these matters. Notice of the consent decree was published in the Federal Register on January 28, 2021 and public comments are required to be submitted within 30 days of that publication. The consent decree would requireprevent recurrence. Discussions between the Company to pay a $3 million civil penalty and $424,786 to specified local projects in Louisiana. The consent decree would further require the Company to install and operate additional air pollution control and monitoring technology on these steam-assisted flares at an estimated cost of approximately $294 million, to be completed over the next several years.
On August 27, 2019, the EPA, DOJ, Texas Environmental Quality Board, and Texas Office of the Attorney General (the “Government Agencies”) added Performance Materials NA, Inc., a wholly owned subsidiary of the Company, as an additional signatory to an existing draft consent decree relating to alleged environmental violations at the Orange, TX Facility. Performance Materials NA, Inc. acquired the Orange, TX Facility in February 2019 and became a subsidiary of the Company in April 2019. The alleged violations were first identified during multimedia environmental inspections that the EPA conducted at the Orange, TX Facility while under prior ownership in March 2009 and December 2015, and involve the management of materials in the Orange, TX Facility’s wastewater treatment system, hazardous waste management, and air emissions, including leak detection and repair. Discussions are ongoing between the Government Agencies, the Company, and the Orange, TX Facility’s prior owner, who is the other named signatory.
On November 8, 2019, a proposed consent decree was filed in the U.S. District Court for the Eastern District of Michigan, 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, Michigan, manufacturing facility. On November 14, 2019, a Notice of Lodging and Notice of Availability and Request for Comments on Draft Restoration Plan/Environmental Assessment was published in the Federal Register. The DOJ filed a Joint Motion for Entry of the Consent Decree on May 8, 2020, which was granted and entered as a final order on July 20, 2020. The consent decree required the Company to pay a $15 million cash settlement to be used for trustee-selected remediation projects and $6.75 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.ongoing.
On December 18, 2020, Dow and several other parties received16, 2022, the U.S. Department of Justice filed a complaint and proposed consent decree fromon behalf of the EPA relating to environmental contamination at the Gulfco Marine MaintenanceLower Passaic River Study Area Superfund Site in Freeport, Texas.New Jersey. The EPA filed an amended complaint and proposed consent decree on January 17, 2024. The proposed consent decree includes a requirement for threethat 85 settling defendants, toincluding the Company’s Essex Chemical Corporation subsidiary ("Essex"), make a collective payment of $1.2$150 million for the EPA’s past and anticipated future response costs, as well as an obligationwith Essex’s share of the group settlement costs being $1.15 million.
In June 2023, INEMA, the Bahia, Brazil, state environmental agency notified Dow Brasil Indústria e Comércio de Produtos Químicos Ltda of its intention to conduct certain response actionsimpose penalties relating to Dow’s historic brine mining operations on Matarandiba Island, which INEMA alleges have contributed to environmental issues at the site. The proposed consent decree was submitted for noticelocation. Discussions between Dow and a 30-day public comment period on December 29, 2020.the relevant government agencies are ongoing.
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| ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
| | | | | | | | |
| Dow Inc. and Subsidiaries | |
| The Dow Chemical Company and Subsidiaries | |
| PART II | |
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| ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc.) completed the separation of its materials science business and Dow Inc. becameis the direct parent company of The Dow Chemical Company and its consolidated subsidiaries, (“TDCC”("TDCC" and together with Dow Inc., “Dow”"Dow" or the “Company”"Company"), owning all of the outstanding common shares of TDCC. The principal market for Dow Inc. is now an independent, publicly traded company and Dow Inc.'s common stock is listed on the New York Stock Exchange, traded under the symbol “DOW.” Dow Inc. common stock began regular-way trading on April 2, 2019.
Dow Inc. has paid dividends on a quarterly basis since the separation from DowDuPont and expects to continue to do so, subject to approval by the Company’sDow Inc. Board of Directors.Directors ("Board"). Quarterly market price of common stock andAdditional dividend information can be found in Note 2716 to the Consolidated Financial Statements.Statements and Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
At JanuaryDecember 31, 2021,2023, there were 78,27664,818 stockholders of record.
See Part III, Item 11. Executive Compensation for information relating to shares authorized for issuance under Dow Inc.'s equity compensation plans.
The Company grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the form of stock incentive plans, which includeoptions, stock options, restrictedappreciation rights, performance stock units and restricted stock. The Company also provides stock-based compensation in the form of performance stock units. See Note 2119 to the Consolidated Financial Statements for additional information.
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of Dow Inc. common stock by the Company during the three months ended December 31, 2020:2023. The Company makes such purchases only during open windows subject to its insider trading policy.
| | | | | | | | | | | | | | |
Issuer Purchases of Equity Securities | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1
(In millions)
|
Period | Total number of shares purchased | Average price paid per share |
|
October 2020 | — | | $ | — | | — | | $ | 2,375 | |
November 2020 | — | | $ | — | | — | | $ | 2,375 | |
December 2020 | — | | $ | — | | — | | $ | 2,375 | |
Fourth quarter 2020 | — | | $ | — | | — | | $ | 2,375 | |
| | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1 (In millions) |
| Period | Total number of shares purchased | Average price paid per share |
|
| October 2023 | 486,206 | | $ | 48.06 | | 486,206 | | $ | 1,526 | |
| November 2023 | 2,074,955 | | $ | 48.98 | | 2,074,955 | | $ | 1,425 | |
| December 2023 | — | | $ | — | | — | | $ | 1,425 | |
| Fourth quarter 2023 | 2,561,161 | | $ | 48.81 | | 2,561,161 | | $ | 1,425 | |
1.On April 1, 2019, Dow Inc.'s13, 2022, the Board of Directors ratified theapproved a share repurchase program originally approved on March 15, 2019, authorizing up to $3.0 billion to be spent onfor the repurchase of the Company's common stock, with no expiration date.
| | |
ITEM 6. SELECTED FINANCIAL DATA |
| | | | | | | | | | | | | | | | | |
| Selected Financial Data - Dow Inc. | | | | | |
| In millions, except as noted (Unaudited) | 2020 | 2019 | 2018 | 2017 | 2016 |
| Summary of Operations | | | | | |
| Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | | $ | 43,730 | | $ | 36,264 | |
Income (loss) from continuing operations, net of tax 1 | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | | $ | (1,287) | | $ | 1,478 | |
| Per share of common stock (in dollars): | | | | | |
Earnings (loss) per common share from continuing operations - basic 1 | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | | $ | (1.88) | | $ | 1.57 | |
Earnings (loss) per common share from continuing operations - diluted 1 | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | | $ | (1.88) | | $ | 1.55 | |
Cash dividends declared per share of common stock 2 | $ | 2.80 | | $ | 2.10 | | $ | — | | $ | 1.38 | | $ | 1.84 | |
| Year-end Financial Position | | | | | |
| Total assets | $ | 61,470 | | $ | 60,524 | | $ | 83,699 | | $ | 85,852 | | $ | 79,511 | |
| Long-term debt | $ | 16,491 | | $ | 15,975 | | $ | 19,253 | | $ | 19,757 | | $ | 20,444 | |
| | | | | |
| Financial Ratios | | | | | |
| Research and development expenses as percent of net sales | 2.0 | % | 1.8 | % | 1.6 | % | 1.8 | % | 2.1 | % |
Income (loss) from continuing operations before income taxes as percent of net sales 1 | 5.4 | % | (2.9) | % | 7.6 | % | 0.5 | % | 3.5 | % |
Return on stockholders' equity 1 | 9.9 | % | (10.0) | % | 14.3 | % | 1.5 | % | 15.3 | % |
| Gross debt as a percent of total capitalization | 56.8 | % | 54.7 | % | 37.2 | % | 39.1 | % | 43.9 | % |
| Net debt as a percent of total capitalization | 47.9 | % | 50.9 | % | 33.7 | % | 31.1 | % | 35.1 | % |
| | | | | | | | | | | | | | | | | |
| Selected Financial Data - TDCC | | | | | |
| In millions, except as noted (Unaudited) | 2020 | 2019 | 2018 | 2017 | 2016 |
| Summary of Operations | | | | | |
| Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | | $ | 43,730 | | $ | 36,264 | |
Income (loss) from continuing operations, net of tax 1 | $ | 1,304 | | $ | (1,595) | | $ | 2,940 | | $ | (1,287) | | $ | 1,478 | |
| Year-end Financial Position | | | | | |
| Total assets | $ | 61,345 | | $ | 60,390 | | $ | 83,699 | | $ | 85,852 | | $ | 79,511 | |
| Long-term debt | $ | 16,491 | | $ | 15,975 | | $ | 19,253 | | $ | 19,757 | | $ | 20,444 | |
| | | | | |
| Financial Ratios | | | | | |
| Research and development expenses as percent of net sales | 2.0 | % | 1.8 | % | 1.6 | % | 1.8 | % | 2.1 | % |
Income (loss) from continuing operations before income taxes as percent of net sales 1 | 5.4 | % | (2.6) | % | 7.6 | % | 0.5 | % | 3.5 | % |
Return on stockholders' equity 1 | 9.5 | % | (8.6) | % | 14.3 | % | 1.5 | % | 15.3 | % |
| Gross debt as a percent of total capitalization | 55.8 | % | 53.3 | % | 37.2 | % | 39.1 | % | 43.9 | % |
| Net debt as a percent of total capitalization | 46.8 | % | 49.6 | % | 33.7 | % | 31.1 | % | 35.1 | % |
1.See Notes 3, 5, 6, 7, 8, 12, 13, 15 and 16 to the Consolidated Financial Statements for information on items materially impacting the results for the years ended December 31, 2020, 2019 and 2018, including the effects of the U.S. Tax Cuts and Jobs Act, enacted on December 22, 2017; Swiss tax reform; loss on early redemption of debt; integration and separation costs; charges related to restructuring programs; goodwill impairment and other asset related charges (including charges related to Sadara Chemical Company); a charge related to environmental remediation; litigation related charges, awards and adjustments; charges associated with agreements entered into with DuPont and Corteva as part of the separation from DowDuPont; adjustments to the warranty accrual of an exited business; and net gains on divestitures and asset sales.
2.Amounts shown for 2020 and 2019 represent dividends declared by Dow Inc. Amounts shown for 2017 and 2016 represent cash dividends declared by TDCC prior to the Merger. Subsequent to the Merger, TDCC has no common shares outstanding.
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| ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 scienceSTATEMENT ON CURRENCY EXCHANGE RATES
The Company's global 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”), owning all of the outstanding common shares of TDCC. For filingsoperations give rise to market risk exposure related to changes in foreign currency exchange rates and international capital flows that may be affected by extensive regulations and controls, especially in developing or highly inflationary countries such as Argentina. In December 2023, the period commencing April 1, 2019 and thereafter, TDCC was deemedArgentina government devalued 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 considering that the financial statements and disclosures of each company are 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.
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.
As of the effective date and time of the distribution, DowDuPont did not beneficially own any equity interest in Dow and no longer consolidated Dow and its consolidated subsidiaries into its financial results. The consolidated financial results of Dow for all periods presented reflect the distribution of TDCC’s agricultural sciences business (“AgCo”) and specialty products business (“SpecCo”) as discontinued operations, as well as reflect the receipt of Historical DuPont’s ethylene and ethylene copolymers businesses (other than its ethylene acrylic elastomers business) (“ECP”) as a common control transaction from the closing of the Merger on August 31, 2017 ("Merger Date"). See Note 3 to the Consolidated Financial Statements and Dow Inc.'s Amendment No. 4 to the Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission ("SEC") on March 8, 2019 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 terms "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of the Company, and "Dow Silicones" means Dow Silicones Corporation, a wholly owned subsidiary of the Company.
Items Affecting Comparability of Financial Results
As a result of the separation from DowDuPont, pro forma net sales and pro forma Operating EBIT for the years ended December 31, 2019 and 2018 are provided in this section and based on the consolidated financial statements of TDCC, adjusted to give effect to the separation from DowDuPont as if it had been consummated on January 1, 2017. Pro forma adjustments include (1) the margin impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva, Inc. ("Corteva") in connection with the separationArgentine peso, which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont, and (2) 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). These adjustments impacted the consolidated results as well as the reportable segments. See Note 26 to the Consolidated Financial Statements for a summary of the pro forma adjustments impacting segment measures for the years ended December 31, 2019 and 2018.
STATEMENT ON COVID-19 AND OIL PRICE VOLATILITY
Overview of Dow’s Response to COVID-19
The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where Dow products are produced and sold. Financial markets were volatile towards the end of the first quarter and early in the second quarter of 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic, coupled with fluctuations in crude oil prices due in part to the global spread of COVID-19. As the second quarter progressed, crude oil prices increased, driven by improved supply and demand fundamentals, which continued into the second half of 2020. Financial markets also continued a gradual and uneven recovery in the second half of 2020.
The global, regional and local spread of COVID-19 resulted in significant global mitigation measures, including government-directed quarantines, social distancingpretax charges for foreign currency exchange losses and shelter-in-place mandates, travel restrictions and/or bans, and restricted accessinventory valuation impacts of $177 million ($52 million related to certain corporate facilities and manufacturing sites. Most of the Company’s manufacturing facilities have been designated essential operations by local governments. As a result, nearly all of the Company’s manufacturing sites and facilities continuePackaging & Specialty Plastics, $16 million related to operate and are doing so safely, having implemented social distancing and enhanced health, safety and sanitization measures as directed by Dow's regional Crisis Management Teams (“CMTs”). The CMTs continue to work closely with site leadership and are adjusting alert levels as warranted on a site by site basis.
In the second quarter of 2020, the CMTs initiated implementation of the Company’s comprehensive Return to Workplace ("RTW") plan that is tailored for each site and includes several health and safety measures to be followed in a gradual and phased approach. Employees in Europe, Middle East, Africa, and India ("EMEAI") and Asia Pacific returned to the workplace throughout the third quarter of 2020. In the fourth quarter of 2020, many EMEAI sites once again reduced on-site workforce in accordance with governmental regulations. A significant number of employees in the U.S. & Canada and Latin America continue to work remotely as the Company monitors the pandemic evolution, awaiting acceptable and safe levels to implement its RTW phases. If ongoing mitigation efforts are successful, sites in the U.S. & Canada expect to implement additional RTW phases in the first and second quarters of 2021 and Latin America anticipates RTW during the second quarter of 2021. At the time of this filing, approximately half of Dow’s global workforce is working remotely. The Company continues to encourage its workforce to practice safe behaviors in the workplace and while away from work to help prevent community spread of COVID-19.
Dow’s materials science expertise and production capabilities are used to develop some of the most vital hygiene and medical products and technologies to fight the COVID-19 pandemic, such as disinfectants, sanitizers, cleansers, plastics used in the production of disposable personal protective equipment for medical professionals, and memory foam for hospital beds. The Company has continued to look for ways to contribute time, talent and materials science expertise to help fight and combat the pandemic while creating some new opportunities for innovation and business. Dow’s contributions to fight the COVID-19 pandemic included the following:
•The Company collaborated with nine key partners across a myriad of industries to develop and donate 100,000 isolation gowns to help equip frontline workers in Texas, Louisiana and Mexico.
•Dow, Whirlpool Corporation and Reynolds Consumer Products jointly developed a powered, air-purifying respirator which takes the place of a traditional medical face mask and face shield.
•Dow developed and shared an open source design for a simplified face shield and donated 100,000 face shields to hospitals in Michigan.
•Five Dow sites in the United States, Europe and Latin America produced more than 200 metric tons of hand sanitizer, equivalent to more than 880,000 eight-ounce bottles, which were primarily donated to local health systems and government agencies.
•The Company and The Dow Company Foundation committed $4 million to aid COVID-19 relief efforts, with donations going towards global relief organizations, as well as non-profits in communities where Dow operates.
During this public health crisis, the Company is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining the safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, the Company’s manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to stabilize in 2021. Contingency plans remain in place in the event of significant impacts from COVID-19 infection resurgences.
The Company continues to maintain a strong financial position and build further liquidity in the midst of the economic recession triggered by the COVID-19 pandemic. The Company started 2020 with significant committed liquidity facilities. As markets became more volatile and uncertain during the first quarter of 2020, the Company took proactive measures to further bolster liquidity by drawing down certain uncommitted credit facilities, which were subsequently repaid in the second quarter of 2020, and partially monetizing investments in company-owned life insurance policies, which were fully repaid in the fourth quarter of 2020. At December 31, 2020, the Company had cash and committed and available forms of liquidity of $14.6 billion. The Company also has no substantive long-term debt maturities until the second half of 2024.
The Company took proactive actions to electively focus on cash and maintain financial strength with a continued emphasis on safe, reliable operations and disciplined capital allocation. These actions included:
•Further reduced the 2020 capital expenditures to $1.25 billion.
•Decreased operating expenses by $500 million through structural cost improvements.
��Unlocked nearly $500 million in structural improvements in working capital.
•Temporarily suspended share repurchases.
•Delayed planned maintenance turnaround spending, where appropriate, without compromising safety or the ability to serve customer needs.
•Temporarily idled select manufacturing facilities to balance production to demand across markets more severely affected by restrained economic activity. This included the idling of three polyethylene production units and two elastomers units; running Dow's polyurethanes assets, including propylene oxide and methylene diphenyl diisocyanate, at reduced operating rates; reducing siloxanes operating rates globally and extending a planned maintenance turnaround at a silicones production unit in Zhangjiagang, China. All of these assets returned to more normalized operating rates in the third quarter of 2020.
•Implementing a restructuring program ("2020 Restructuring Program"), which was approved by the Board of Directors ("Board") of Dow Inc. on September 29, 2020, targeting more than $300 million in annualized Operating EBITDA1 benefit by the end of 2021. This program includes a 6 percent reduction in Dow’s global workforce costs as well as actions to rationalize the Company's manufacturing assets, including asset write-down and write-off charges, related contract termination fees and environmental remediation costs. See Note 6 to the Consolidated Financial Statements for additional information.
Review of 2020 Financial Impacts from COVID-19
Net sales were $38.5 billion in 2020, down 10 percent from net sales of $43.0 billion in 2019, as the COVID-19 pandemic disrupted the global economy and supply and demand fundamentals. The most significant impacts from the pandemic occurred in the first half of the year, with a gradual yet uneven recovery taking hold as the second half of the year progressed.
In the first six months of 2020, the Company's sales declined 18 percent compared with the same period last year, with the most significant impact on demand in the second quarter of 2020. Strong demand in food packaging, health and hygiene, home care and pharma end-markets was more than offset by volume declines for products used in consumer durable good end-markets, including construction, furniture and bedding and automotive, with the most notable impacts in the Industrial Intermediates & Infrastructure and Performance Materials & Coatings operating segments. Demand for products used in consumer durable goods remained lower through$109 million related to Corporate). The Company continues to monitor these situations and take appropriate actions as necessary to manage the second quarter largely duefinancial impact pursuant to the delayed restart in these industries from May to June.
1.Operating EBITDA is a non-GAAP measure. Dow defines Operating EBITDA as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, depreciationestablished guidelines and amortization, excluding the impact of significant items.
Local price declined in the first and second quarters of 2020, largely impacted by lower global energy prices. In March and April 2020, crude oil prices declined significantly, due in part to the COVID-19 pandemic, coupled with increased supply from oil producers. Crude oil prices increased in the latter half of the second quarter as supply and demand fundamentals improved, driving higher feedstock costs, which proved beneficial to product prices and margins in the third and fourth quarters of 2020.
In the third quarter of 2020, net sales increased 16 percent compared with the second quarter of 2020, due to increasing demand and higher local prices. Sales increased sequentially in all operating segments and geographic regions, reflecting improved demand trends in furniture and bedding, appliances, packaging, construction and automotive end-markets. Local price also increased sequentially, reflecting higher global energy prices and improved supply and demand fundamentals, with increases in all geographic regions. Local price increases were reported in Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure, which more than offset declines in Performance Materials & Coatings. Operating rates increased from second quarter lows, aspolicies. If the Company raised ratesis unable to match demand trends as the global economic recovery gained traction. The Company's deliberate focus on structural cost reductions and prudent cash management resultedmanage certain exposures in sequentially higher margins and cash flow in the third quarter of 2020.
Net sales in the fourth quarter of 2020 increased 10 percent sequentially, with continued demand recovery as the global economy continued to strengthen. Sales increased sequentially in all operating segments and geographic regions, reflecting strong supply and demand fundamentals which drove both price and volume gains. Local price increased in all segments and all geographic regions. Volume increased in all geographic regions and in Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure, reflecting consumer-driven demand and industrial market recovery. Volume declined in Performance Materials & Coatings, primarily due to seasonal demand declines for coating applications. Operating rates continued to increase in the fourth quarter of 2020 and margins expanded.
Notably, net sales in the fourth quarter of 2020 increased 5 percent compared with the fourth quarter of 2019, with increases in local price and volume. Local price increased 2 percent compared with the same quarter last year, primarily driven by improved pricing in polyethylene and polyurethane applications. Volume returned to pre-pandemic levels in all operating segments and was led by demand growth in Packaging & Specialty Plastics and Performance Materials & Coatings.
The Company enters 2021 with sequential momentum and is well-positioned for continued profitable growth in the ongoing economic recovery and improving industry cycle. The Company will maintain its disciplined focus on capital allocation priorities asa cost-effective manner it benefits from an improving cost structure, financial flexibility and a low-cost operating model. As the market recovery broadens, Dow anticipates increasing margins as differentiated parts of the portfolio see improving demand. Longer-term, the Company expects to deliver ongoing significant value through increased innovation, operational efficiencies and a leading environmental, social, and governance profile that will further distinguish Dow from its peers.
At the time of this filing, the ultimate severity and duration of the COVID-19 pandemic cannot be reasonably estimated. The COVID-19 pandemic has had, and could continue to have a substantialsignificant negative impact on the Company’sits future results of operations financial condition and cash flows. The effectsA detailed discussion of these and other principal risks and uncertainties, which may negatively impact the future results of the COVID-19 pandemic for the year ended December 31, 2020 and the additional risks associated with these conditionsCompany, are more fully discussed in this reportincluded in Part I, Item 1A,1A. Risk Factors. The Company is actively monitoring for potential financial impacts from the COVID-19 pandemic and oil price volatility, including, but not limited to: gauging the financial health of its customers; assessing liquidity; evaluating the recoverability of its assets; enhancing cyber security monitoring; and evaluating ongoing appropriateness of its estimates.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. While there have been no significant impacts to the Company's provision for income taxes on continuing operations in 2020 as a result of the CARES Act legislation, the Company filed a tax loss carryback claim for $291 million in accordance with the provisions of the CARES Act.
ABOUT DOW
Dow combinesis one of the world’s leading materials science companies, serving customers in high-growth markets such as packaging, infrastructure, mobility and consumer applications. The Company's global breadth, asset integration and scale, focused innovation, and leading business positions and commitment to sustainability enables the Company to achieve profitable growth. The Company’s ambition is to become the most innovative, customer centric, inclusivegrowth and sustainable materials science company, with a purpose tohelp deliver a sustainable future for the world through our materials science expertise and collaboration with our partners. Dow’s portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer care.future. Dow operates 106 manufacturing sites in 31 countries and employs approximately 35,70035,900 people.
In 2020,2023, the Company had annual sales of $38.5$45 billion, of which 3537 percent of the Company’s sales were to customers in the U.S. & Canada; 3433 percent were in EMEAI;Europe, Middle East, Africa and India ("EMEAI"); while the remaining 3130 percent were to customers in Asia Pacific and Latin America.
In 2020,2023, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Cuba, Iran, the Democratic People's Republic of Korea (North Korea), Sudan and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.
OVERVIEW
The following is a summary of the results from continuing operations for the Company for the year ended December 31, 2020:2023:
The Company reported net sales in 20202023 of $38.5$45 billion, down 1022 percent from $43.0$57 billion in 2019,2022, with declinesdecreases across all geographic regions and operating segments, reflecting the impact of the COVID-19 pandemic on economies and supply and demand fundamentals, most notably in the first half of the year. These declines were due todriven by a decrease in local price of 716 percent and a volume declinedecrease of 36 percent. Currency was flat.
Local price decreased 716 percent compared with the same period last year,2022, with decreases in all operating segments including a double-digit declineand geographic regions, driven by slower global macroeconomic activity creating unfavorable supply and demand dynamics, industry supply additions and lower global energy and feedstocks costs. Local price decreased in Packaging & Specialty Plastics (down 1116 percent). Local price decreased in all geographic regions, including a double-digit decline in EMEAI, Industrial Intermediates & Infrastructure (down 1214 percent) and Performance Materials & Coatings (down 15 percent).
Volume decreased 36 percent compared with 2019.2022, with decreases in Packaging & Specialty Plastics (down 5 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings reported volume declines (both down 6(down 5 percent) while Packaging & Specialty Plastics volume increased 1 percent.. Volume decreased in the U.S. & Canada (down 86 percent), EMEAI (down 9 percent), and Asia Pacific (down 4 percent), which was partially offset by an increase in EMEAILatin America (up 14 percent). Volume
Currency impact on net sales was flat in Asia Pacific and Latin America.compared with 2022.
Restructuring and asset related charges - net were $708$528 million in 2020,2023 primarily reflecting restructuring actions taken underapproved by the 2020 Restructuring Program.
Integrationseverance and separationrelated benefit costs for Dow Inc. and TDCC were $239 million in 2020, down from $1,063of $344 million and $1,039asset write-downs and write-offs of $191 million respectively, in 2019, reflecting the wind-downand were partially offset by other asset related credit adjustments of post-Merger integration and business separation activities. Integration and separation activities were completed as of December 31, 2020.$7 million related to a prior restructuring program.
Equity in earnings (losses)losses of nonconsolidated affiliates was a loss of $18$119 million in 2020,2023, compared with a lossearnings of $94$268 million in 2019. Equity in earnings (losses) of nonconsolidated affiliates improved2022, primarily due to lower equity losses fromdeclines at Sadara Chemical Company ("Sadara") which were partially offset by lower equity earnings fromand the Kuwait joint ventures.
Sundry income (expense) - net for Dow Inc. and TDCC was incomeexpense of $1,269$280 million and income of $1,274$327 million, respectively, in 20202023, compared with income of $461$727 million and income of $573$714 million, respectively, in 2019.2022. Sundry income (expense) - net increaseddecreased primarily due to gains on the sale of certain rail and marine and terminal operations and assets and gainsa non-cash settlement charge related to the Company's pension de-risking activities and higher foreign currency exchange losses, which included the impact of the December 2023 devaluation of the Argentine peso. Income from the successful and final resolution and recognition of a legal matter, which were partially offset by losses on the early extinguishment of debt.long-running patent infringement award was included in 2022.
Net income (loss) available for Dow Inc. and TDCC common stockholder(s) was income of $1,225$589 million and $1,235$556 million, respectively, in 2020,2023, compared with a loss of $1,359$4,582 million and $1,237$4,583 million, respectively, in 2019.2022. Earnings (loss) per share for Dow Inc. was earnings of $1.64$0.82 per share in 2020,2023, compared with a loss of $1.84$6.28 per share in 2019.2022.
In 2020,2023, Dow Inc. declared and paid dividends to common stockholders of $2.80 per share ($2,0711,972 million).
In 2020,2023, Dow Inc. repurchased $125$625 million of the Company's common stock.
Other notable events and highlights from the year ended December 31, 20202023 include:
•On January 25, 2023, the Board approved restructuring actions ("2023 Restructuring Program") to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. This program included a global workforce cost reduction program, decreased turnaround spending and actions that rationalized the Company’s manufacturing assets, which included asset write-down and write-off charges and related contract termination fees.
•On April 25, 2023, the Company announced that it had selected Linde as its industrial gas partner for the supply of circular hydrogen and nitrogen for its Fort Saskatchewan Path2Zero investment.
•On May 11, 2023, Dow Inc. announced Seadrift, Texas, as the location of its small modular nuclear reactor project as part of a joint development agreement with X-energy.
•On June 15, 2023, Fitch Ratings affirmed TDCC’s BBB+ long-term credit rating and announced a short-term credit rating upgrade to F1 from F2, and also revised its long-term outlook from positive to stable. On
August 22, 2023, Standard and Poor's affirmed TDCC's BBB and A-2 rating, and revised its outlook from positive to stable. These credit agencies' decisions were made as part of their annual review process and reflect the Company's supportive financial policies and strong operating performance.
•On June 19, 2023, Dow Inc. released its INtersections Progress Report, demonstrating how the Company's continued focus and actions align to its ambition and goal to deliver value growth; best-in-class performance; and innovative, sustainable solutions to address global challenges.
•On July 14, 2023, an incident occurred that included an explosion and subsequent fire at Dow's Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana. There were no injuries reported from the incident and it was limited to the Glycol-2 unit with minimal disruption to other site operations. The Company completed a root cause investigation and is executing a plan to restore operations. The Company's estimated impact on pretax earnings from the incident is $100 million per quarter. The Glycol-2 unit is expected to resume operations in the second quarter of 2024.
•On October 24, 2023, the Company announced that Howard Ungerleider, President and Chief Financial Officer, had elected to retire in January 2024 after 33 years of service with Dow.
•On October 24, 2023, the Company announced that Jeffrey L. Tate had been named Chief Financial Officer.
•On November 28, 2023, the Company announced the Board declared Final Investment Decision on the Company's Fort Saskatchewan Path2Zero investment to build the world's first net-zero Scope 1 and 2 emissions integrated ethylene cracker and derivatives facility in Alberta, Canada.
•On December 18, 2023, the Company announced that Ronald C. Edmonds, Controller and Vice President of Controllers and Tax, had elected to retire in July 2024, after 31 years of service with Dow.
•On December 18, 2023, the Company announced that Andrea L. Dominowski had been named Controller and Vice President of Controllers effective February 1, 2024.
•Dow was named byon the Human Rights Campaign ("HRC") Foundation to its 2020 list of “Best Places to Work” for LGBTQ+ equality. This marks the Company’s 15Top 100 Global Innovatorsth™ list for the 12th consecutive year receiving a perfect score on HRC’s Corporate Equality Index, a national benchmarking tool on corporate policies and practices pertinent to LGBTQ+ employees.year.
•Dow received two a record-setting nine 2023 Edison Awards2020™ (five gold, three silver and one bronze), once again earning more awards than any other organization for the sixth consecutive year.
•Dow was named to the JUST 100 list, placing 55th overall, an 11-place improvement from last year, and securing the top spot for Communities in the Chemicals sector.
•Dow was named to Bloomberg’s 2022 Gender-Equality Index for the third consecutive year.
•Dow earned a spot in the S&P Global Sustainability Yearbook, recognizing the Company as a top industry performer.
•Dow was honored as a winner of a 2023 Artificial Intelligence Award for the development of technology that identifies and predicts corrosion failures in metal coatings.
•Dow received five 2023 BIG Innovation Awards from the Business Intelligence Group for DOWSIL™ TC-3015 Reworkable Thermal Gel and ECOFAST™ Pure Sustainable Textile Treatment.™, the most received in a single Business Intelligence Group™ Awards program by the Company.
•In February 2020, TDCC announced the completion ofDow was recognized with a public offering of €2.25 billion aggregate principal amount of2023 CIO 100 Award for its notes.successful Smart Search tool, powered by CAS.
•InDow was titled a Supplier Engagement Leader by CDP, a result of actions taken by the first quarter of 2020, TDCC redeemed $1.25 billion of its 3.0 percent notes due November 15, 2022.Company to address climate change.
•In March 2020, Dow announced a commitmentadvanced to seventh place on the 2023 DiversityInc Top 50 Companies for Diversity list making it the sixth consecutive year on the list. Dow was also included on 15 of $3 million to aid COVID-19 relief efforts worldwide. This included $2 millionDiversityInc's Specialty Lists including: Top Companies for immediate support of impacts caused by COVID-19, including donations to the COVID-19 Solidarity Fund, Direct Relief,Executive Diversity Councils, Top Companies for People with Disabilities, Top Companies for Black Executives, Top Companies for Latino Executives, Top Companies for Executive Women, Top Companies for Employee Resource Groups and localTop Companies for Environmental, Social and regional nonprofit organizations in Dow communities around the globe and $1 million to build community resilience in the recovery phase.Governance.
•In response to global needs related to COVID-19, in March 2020, the Company announced plans to produce hand sanitizer at five of its manufacturing sites around the world: Auburn, Michigan; South Charleston, West Virginia; Seneffe, Belgium; Hortolandia, BrazilDow's EVOWASH™ Antifoam Agents and Stade, Germany. A majorityReadily Biodegradable Detergents and Dow's LuxSense™ Silicone Leather each received a SEAL (Sustainability, Environmental Achievement & Leadership) Sustainable Innovation Award. Dow's SYL-OFF™ EM-7920NF Emulsion Coating was a winner of the hand sanitizer produced was donated to health systems and government agencies for distribution.SEAL Sustainable Product Award.
•In April 2020, Dow announced the Company had developed a simplified face shield design and shared the design through an open-source file to help accelerate production rates of the critically-needed personal protective equipment.
•Effective April 9, 2020, following the Company's Annual Meeting of Stockholders ("2020 Meeting") Dow Inc.'s Board elected Jim Fitterling, Dow’s Chief Executive Officer, as Chairman. In connection with that election, the Board elected Jeff M. Fettig to serve as Lead Director until the 2021 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The Company also announced that Jill S. Wyant, currently Executive Vice President of Innovation and Transformation at Ecolab, Inc., was elected to the Boardreceived five awards (Overall Winner, three golds, one silver) at the 2020 Meeting and Ruth G. Shaw retired from the Board following the 2020 Meeting after 15 years of exemplary leadership, in accordance with director tenure requirements of the Company's Corporate Governance Guidelines.
•Effective April 9, 2020, following the 2020 Meeting, Dow Inc.'s Board designated Dow's business presidents Jack Broodo, Diego Donoso, Mauro Gregorio and Jane Palmieri, as Executive Officers of the Company.annual U.S Customer Experience Awards.
•On April 30, 2020,For the seventh consecutive year, Dow received a top score on the Disability Equality Index™, placing the Company announcedamong the temporary idling or operating rate reductions of select manufacturing assetsBest Places to balance production with demand across markets more severely affected by restrained economic activity. These assets returned to more normalized operating rates in the third quarter of 2020.Work for Disability Inclusion™ for 2023.
•Dow published its 2019 Shine Inclusion Report, providing progress onTechnology won the Company's inclusion2023 ICIS Innovation Award which recognizes companies that are paving the way in product, process, and diversity strategy, goals and performance.sustainability innovations across the chemicals industry.
•Dow was named one of the 2023 PEOPLE® Companies that Care by Great Place to the 2020 DiversityInc Top 50 Companies for Diversity listWork® and PEOPLE® for the thirdfourth consecutive year. Dow was also included on four of DiversityInc's Specialty Lists including: Top Companies for Employee Resource Groups, Top Companies for Supplier Diversity, Top Companies for People with Disabilities, and Top Companies for LGBT Employees.
•In May 2020, the Company’s global headquarters community of Midland, Michigan, experienced widespread devastation caused by heavy rain and two dam failures, which led to extensive flooding and damage to homes and businesses in the area. The Company’s manufacturing facilities were not significantly impacted by the flooding. In response to this natural disaster, Dow pledged $1 million in financial support for immediate relief and long-term recovery efforts associated with the impact of the flooding and its aftermath.
•In June 2020, the Company launched Dow ACTs (Advocacy, Community and Talent), a strategic framework that outlined a new set of actions Dow is taking to address systemic racism and racial injustice. In addition, Dow pledged $5 million over the next five years to help advance racial equality and social justice.
•In June 2020, Dow published its annual Sustainability Report and announced new sustainability targets, which align to and build upon its 2025 Sustainability Goals, including targets to Protect the Climate, Stop the Waste and Close the Loop. By 2030, Dow expects to reduce its net annual carbon emissions by five million metric tons, or 15 percent from its 2020 baseline. Additionally, Dow intends to be carbon neutral by 2050, in alignment with the Paris Agreement. By 2030, Dow plans to help stop the waste by enabling one million metric tons of plastic to be collected, reused or recycled through its direct actions and partnerships. By 2035, Dow will help close the loop with a target to have 100 percent of its products sold into packaging applications be reusable or recyclable.
•Dow was namedhonored by Great Place to the 2020 WorkDisability Equality Index® "Best Places to Work," by receiving the top score for the fourth year in a row.
•In July 2020, Dow launched its MobilityScience™ platform, designed to enhance the customer experience by tailoring technologies, products, and services from across Dow businesses to the transportation industry. The platform is pursuing accelerated growth by addressing mobility mega-trends with materials science innovation, and enabling a seamless experience for Dow’s customers and partners.
•On August 13, 2020, Gaurdie Banister Jr., former President and CEO of Aera Energy LLC, an oil and gas exploration and production company jointly owned by Shell Oil Company and ExxonMobil Corporation, was elected to Dow Inc.'s Board.
•In August 2020, TDCC announced the completion of a public offering® of $2.0 billion aggregate principal amount of its notes.
•Dow Silicones voluntarily repaid the full $2.0 billion outstanding principal balance under a certain third party credit agreement.
•In September 2020, TDCC and Union Carbide completed cash tender offers for certain debt securities. A total of $493 million aggregate principal amount was tendered and retired.
•Dow was namedFortune as one of the 2020 PEOPLE's "50 Companies that Care" by World's Best Workplaces. Dow was also certified as a Great Place to Work®Work® in 13 countries and PEOPLE.
•Dow received four 2020 Sustainability Awards from the Business Intelligence Group,ranked on 10 national Best Workplaces lists, including the Sustainability Initiative of the Year Award for Dow's Carbon Partnership with International Olympic Committee as well as the Sustainability Products of the Year Award for ECOFAST™ Pure Sustainable Textile Treatment and SunSpheres™ BIO SPF Booster.
•Fortune 100 Best Companies to Work ForOn September 15, 2020, the Company announced that John Sampson will rejoin Dow as Senior Vice President, Operations, Manufacturing and Engineering, succeeding Peter Holicki, who will retire in 2021 after more than 34 years of service with Dow.
•®On September 30, 2020, TDCC completed the sale of rail infrastructure operations and assets at six sites list in the U.S. & CanadaUnited States for gross cash proceeds in excess of $310 million.
•Dow was named to the Forbes JUST 100 list, recognizing the Company's commitment to serve all stakeholders. Dow was the top scoring chemical company in the workers category.
•In October 2020, Dow launched its first digital waste management platform, Rethink+. Rethink+ is a plastics take-back program that aims to prevent post-consumer plastic waste from going to landfills by digitally connecting waste generators, waste aggregators, waste processors and recyclers.
•Dow received five R&D 100 Awards from R&D Magazine for innovative technologies including: DOWSIL™EC-6601 Electrically Conductive Adhesive, DOWSIL™EI-2888 Primerless Silicone Encapsulant, ENGAGE™ 11000 Polyolefin Elastomers, NEOSEED® NE-8800 Emulsion, and RHOBARR™ 320 Polyolefin Dispersion for Paper and Board.
•Dow received the 2020 National Safety Council Green Cross for Safety® Innovation Award for its Aerial Lift Safety Project.third consecutive year.
•Dow was named to the Dow Jones Sustainability World Index - markingby S&P Dow Jones Indices, the 21st time the Company has been named to this global benchmark.
•On December 1, 2020, TDCC completed the sale of certain U.S. Gulf Coast marine and terminal operations and assets for gross cash proceeds of $620 million.
•In December 2020, Dow Inc.’s Board designated John Sampson as an Executive Officer of the Company, effective January 1, 2021.world's leading index provider focused on providing essential sustainability intelligence.
In addition to the highlights above, the following events occurred subsequent to December 31, 2020:2023:
•On January 28, 2021, Dow announced plans19, 2024, Moody's Investors Service affirmed TDCC's Baa1 and P-2 rating, and affirmed its outlook of stable.
•On January 25, 2024, the Company published its Green Finance Framework and related Second Party Opinion on its website, to further advance and expandsupport the execution of its digitalization efforts to deliver long-term value creation, by accelerating investment in three key areas (“Digital Acceleration”): expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and fulfillment experience for Dow's customers; and adopting real-time digital manufacturing insights, operational data intelligence and demand sensing to enhance the productivity and reliability of Dow’s operations. The Company expects more than $300 million in incremental annual run rate Operating EBITDA generation by the end of 2025 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. The activities related to Digital Acceleration are expected to result in additional cash expenditures of approximately $400 million, primarily through the end of 2022.sustainability strategy.
RESULTS OF OPERATIONS
For comparison of results of operations for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
Net Sales
The following tables summarize net sales pro forma net sales and sales variancevariances by operating segment and geographic region from the prior year:
| | Summary of Sales Results | Summary of Sales Results | | | |
| Summary of Sales Results | |
| Summary of Sales Results | |
| In millions | |
| In millions | |
| In millions | In millions | 2020 | 2019 | 2018 |
| Net sales | Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
| Pro forma net sales | | $ | 42,998 | | $ | 49,852 | |
| Net sales | |
| Net sales | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region |
| 2023 | 2022 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | | Total | Local Price & Product Mix | Currency | Volume | | Total |
| Packaging & Specialty Plastics | (16) | % | — | % | (5) | % | | (21) | % | 7 | % | (3) | % | — | % | | 4 | % |
| Industrial Intermediates & Infrastructure | (14) | | (1) | | (9) | | | (24) | | 11 | | (5) | | (7) | | | (1) | |
| Performance Materials & Coatings | (15) | | (1) | | (5) | | | (21) | | 21 | | (4) | | (6) | | | 11 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
| Total, excluding the Hydrocarbons & Energy business | (15) | % | (1) | % | (4) | % | | (20) | % | 10 | % | (4) | % | (5) | % | | 1 | % |
| U.S. & Canada | (15) | % | — | % | (6) | % | | (21) | % | 6 | % | — | % | 1 | % | | 7 | % |
| EMEAI | (17) | | — | | (9) | | | (26) | | 18 | | (9) | | (10) | | | (1) | |
| Asia Pacific | (14) | | (2) | | (4) | | | (20) | | 6 | | (3) | | — | | | 3 | |
| Latin America | (17) | | — | | 4 | | | (13) | | 6 | | — | | 1 | | | 7 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region - As Reported |
| 2020 | 2019 |
| 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 | (11) | % | — | % | 1 | % | — | % | (10) | % | (12) | % | (1) | % | (3) | % | — | % | (16) | % |
| Industrial Intermediates & Infrastructure | (5) | | — | | (6) | | — | | (11) | | (12) | | (1) | | — | | — | | (13) | |
| Performance Materials & Coatings | (6) | | — | | (6) | | 1 | | (11) | | (6) | | (2) | | (3) | | 3 | | (8) | |
| Total | (7) | % | — | % | (3) | % | — | % | (10) | % | (11) | % | (1) | % | (2) | % | 1 | % | (13) | % |
| Total, excluding the Hydrocarbons & Energy business | (5) | % | — | % | (4) | % | — | % | (9) | % | (11) | % | (2) | % | 1 | % | 1 | % | (11) | % |
| U.S. & Canada | (5) | % | — | % | (8) | % | — | % | (13) | % | (11) | % | — | % | (3) | % | 1 | % | (13) | % |
| EMEAI | (12) | | — | | 1 | | — | | (11) | | (9) | | (3) | | (4) | | — | | (16) | |
| Asia Pacific | (6) | | — | | — | | — | | (6) | | (12) | | (1) | | 5 | | — | | (8) | |
| Latin America | (7) | | — | | — | | — | | (7) | | (14) | | — | | (3) | | — | | (17) | |
| Total | (7) | % | — | % | (3) | % | — | % | (10) | % | (11) | % | (1) | % | (2) | % | 1 | % | (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 | 2018 |
| Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total |
| Packaging & Specialty Plastics | 1 | % | 2 | % | 5 | % | 5 | % | 13 | % |
| Industrial Intermediates & Infrastructure | 5 | | 1 | | 13 | | — | | 19 | |
| Performance Materials & Coatings | 10 | | 1 | | (2) | | — | | 9 | |
| Total | 4 | % | 1 | % | 6 | % | 2 | % | 13 | % |
| Total, excluding the Hydrocarbons & Energy business | 4 | % | 1 | % | 7 | % | 2 | % | 14 | % |
| U.S. & Canada | 4 | % | — | % | 2 | % | 2 | % | 8 | % |
| EMEAI | 5 | | 3 | | 4 | | 2 | | 14 | |
| Asia Pacific | 2 | | 1 | | 19 | | 3 | | 25 | |
| Latin America | 5 | | — | | 4 | | 2 | | 11 | |
| Total | 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.
20202023 Versus 20192022
The Company reported net sales of $38.5$44.6 billion in 2020,2023, down 1022 percent from $43.0$56.9 billion in 2019,2022, with local price down 716 percent, volume down 6 percent, and volume down 3 percent.currency flat. Net sales decreased by double digits in all operating segments and across all geographic regions, and operating segments, reflecting impacts from the global COVID-19 pandemic on economies and supplyprimarily driven by lower prices and demand fundamentals, most notably in the first half of the year.due to slower global macroeconomic activity. Local price decreased in all operating segments and inacross all geographic regions primarily in response todriven by industry supply additions and lower global energy prices.and feedstock costs. Local price decreased in Packaging & Specialty Plastics (down 1116 percent), Industrial Intermediates & Infrastructure (down 514 percent) and Performance Materials & Coatings (down 615 percent). Volume declined 3 percent, driven by the U.S. & Canada (down 8 percent), which was partially offset by demand growth in EMEAI (up 1 percent). Volume was flat in Asia Pacific and Latin America. Volume increased in Packaging & Specialty Plastics (up 1 percent) and decreased in Industrial Intermediates & Infrastructure and Performance Materials & Coatings (both down 6 percent). Excluding the Hydrocarbons & Energy business, sales declined 9 percent.
2019 Versus 2018
The Company reported net sales of $43.0 billion in 2019, down 13 percent from $49.6 billion in 2018, driven by a decrease in local price, decreased volume and the unfavorable impact of currency. Sales declines were broad-based and occurred in all operating 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 PacificLatin America (up 54 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 1 percent compared with the prior year, driven primarily by EMEAI (down 3 percent). Portfolio & Other improved sales by 1 percent. Excluding the Hydrocarbons & Energy business, sales declined 11 percent.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region - Pro Forma Basis |
| 2020 1 | 2019 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | Total | Local Price & Product Mix | Currency | Volume | Total |
| Packaging & Specialty Plastics | (11) | % | — | % | 1 | % | (10) | % | (12) | % | (1) | % | (3) | % | (16) | % |
| Industrial Intermediates & Infrastructure | (5) | | — | | (6) | | (11) | | (12) | | (2) | | 1 | | (13) | |
| Performance Materials & Coatings | (6) | | — | | (5) | | (11) | | (6) | | (2) | | (1) | | (9) | |
| Total | (7) | % | — | % | (3) | % | (10) | % | (11) | % | (1) | % | (2) | % | (14) | % |
| Total, excluding the Hydrocarbons & Energy business | (5) | % | — | % | (4) | % | (9) | % | (10) | % | (2) | % | 1 | % | (11) | % |
| U.S. & Canada | (5) | % | — | % | (8) | % | (13) | % | (11) | % | — | % | (2) | % | (13) | % |
| EMEAI | (12) | | — | | 1 | | (11) | | (9) | | (3) | | (4) | | (16) | |
| Asia Pacific | (6) | | — | | — | | (6) | | (12) | | (1) | | 5 | | (8) | |
| Latin America | (7) | | — | | — | | (7) | | (15) | | — | | (3) | | (18) | |
| Total | (7) | % | — | % | (3) | % | (10) | % | (11) | % | (1) | % | (2) | % | (14) | % |
1.As reported net sales for the year ended December 31, 2020 compared with pro forma net sales for the year ended December 31, 2019.
| | | | | | | | | | | | | | | | | |
Sales Variances by Operating Segment and Geographic Region - Pro Forma Basis
Percentage change from prior year | 2018 |
| Local Price & Product Mix | Currency | Volume | Portfolio & Other 1 | Total |
| Packaging & Specialty Plastics | 1 | % | 1 | % | 5 | % | — | % | 7 | % |
| Industrial Intermediates & Infrastructure | 5 | | 1 | | 13 | | — | | 19 | |
| Performance Materials & Coatings | 10 | | 1 | | (2) | | 2 | | 11 | |
| Total | 4 | % | 1 | % | 6 | % | — | % | 11 | % |
| Total, excluding the Hydrocarbons & Energy business | 4 | % | 1 | % | 7 | % | — | % | 12 | % |
| U.S. & Canada | 3 | % | — | % | 2 | % | 1 | % | 6 | % |
| EMEAI | 5 | | 3 | | 4 | | — | | 12 | |
| Asia Pacific | 3 | | 1 | | 18 | | — | | 22 | |
| Latin America | 5 | | — | | 4 | | — | | 9 | |
| Total | 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.
2020 Versus 2019 - Pro Forma
The Company reported net sales of $38.5 billion for 2020, down 10 percent from pro forma net sales of $43.0 billion in 2019, with local price down 7 percent and volume down 3 percent. Net sales decreased in all geographic regions and operating segments, reflecting impacts from the global COVID-19 pandemic on economies and supply and demand fundamentals, most notably in the first half of the year. Local price decreased in all operating segments and in all geographic regions, primarily in response to lower global energy prices. Local price decreased in Packaging & Specialty Plastics (down 115 percent), Industrial Intermediates & Infrastructure (down 5 percent) and Performance Materials & Coatings (down 6 percent). Volume declined 3 percent, driven by the U.S. & Canada (down 8 percent), which was partially offset by an increase in EMEAI (up 1 percent). Volume was flat in Asia Pacific and Latin America. Volume increased in Packaging & Specialty Plastics (up 1 percent) and decreased in Industrial Intermediates & Infrastructure (down 69 percent) and Performance Materials & Coatings (down 5 percent). Excluding the Hydrocarbons & Energy business, sales declined 9decreased 20 percent.
2019 Versus 2018 - Pro Forma
The Company reported pro forma net sales for 2019 of $43.0 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). Excluding the Hydrocarbons & Energy business, sales declined 11 percent.
Cost of Sales
Cost of sales ("COS") was $33.3$39.7 billion in 2020, down $3.4 billion2023, compared with $36.7$48.3 billion in 2019.2022. COS decreased in 20202023 primarily due to lower feedstock and other raw material costs decreased saleson lower volume, lower global energy and lower planned maintenance turnaroundfeedstock costs which were partially offset by higher performance-based compensation costs. Operating rates declined significantly inand the second quarterimpact of 2020, as the Company temporarily idled certain manufacturing facilities and selectively adjusted operating rates at other facilities to balance production to demand in response to the COVID-19 pandemic. These facilities returned to more normalized operating rates in the third quarter of 2020. Overall, operating rates increased in the third and fourth quarters of 2020. In 2019, COS also included $75 million of transaction-related costs resulting from the separation from DowDuPont (related to Corporate) and $399 million of environmental charges related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million).structural cost improvements. COS as a percentage of net sales was 86.589.1 percent in 20202023, compared with 85.384.9 percent in 2019.
COS was $36.7 billion in 2019, down $4.4 billion from $41.1 billion in 2018. COS decreased in 2019 primarily due to lower feedstock and 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 were partially offset by $75 million of transaction-related costs resulting from the separation from DowDuPont (related to Corporate) and $399 million of environmental charges related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million). COS as a percentage of sales was 85.3 percent in 2019 compared with 82.8 percent in 2018.2022.
Research and Development Expenses
Research and development ("R&D") expenses were $829 million in 2023, compared with $851 million in 2022. R&D expenses were $768 milliondecreased in 2020, compared with $765 million in 2019 and $800 million in 2018. R&D expenses in 2020 increased compared with 20192023 primarily due to higher performance-based compensation costs which were partially offset bythe impact of structural cost reductions. R&D expenses in 2019 decreased compared with 2018 primarily due to cost reductions andimprovements as well as lower performance-based compensation costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $1,471$1,627 million in 2020,2023, compared with $1,590 million and $1,585 million for Dow Inc. and TDCC, respectively, in 2019 and $1,782$1,675 million in 2018.2022. SG&A expenses decreased in 2020 decreased2023 primarily due to cost reductions which were partially offset by higher performance-based compensation costs. SG&A was also favorably impacted by the recovery of legal costs related to the Nova
Chemicals Corporation ("Nova") ethylene asset matter and the reversal of alower bad debt reserve related to an arbitration judgment. SG&A expenses in 2019 decreased compared with 2018 primarily due toexpense, the impact of structural cost reductions, cost synergies, stranded cost removalimprovements and lower performance-based compensation costs. SG&Acosts, which more than offset increases associated with the Company's restructuring implementation and efficiency actions and fringe benefit expenses were favorably impacted by a recovery of a portion of legal costs relatedtied to the Nova litigation matter in the third quarter of 2019. See Note 16 to the Consolidated Financial Statements for additional information on the Nova litigation matters.stock market changes.
Amortization of Intangibles
Amortization of intangibles was $401$324 million in 2020,2023, compared with $419$336 million in 2019 and $469 million in 2018.2022. Amortization of intangibles decreased primarily due to certain intangible assets becoming fully amortized. See Note 1311 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 $708 million in 2020, $3,219 million in 2019 and $221 million in 2018.
20202023 Restructuring Program
On September 29, 2020, Dow Inc.'sJanuary 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the COVID-19 pandemic. The restructuring program is designedglobal recessionary environment and to reduce structural costsenhance its agility and enablelong-term competitiveness across the Company to further enhance competitiveness while the COVID-19 economic recovery gains traction.cycle. These actions are expected to be substantially complete by the end of 2021.2024.
As a result of these actions, in 20202023 the Company recorded pretax restructuring charges of $573$535 million, consisting of severance and related benefit costs of $297$344 million and asset write-downs and write-offs of $196 million and costs associated with exit and disposal activities of $80 million. The restructuring charges by segment were as follows: $11 million in Packaging & Specialty Plastics, $22 million in Industrial Intermediates & Infrastructure, $177 million in Performance Materials & Coatings and $363 million in Corporate.
DowDuPont Cost Synergy Program
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 restructuring charges below reflect charges from continuing operations.
As a result of the Synergy Program, the Company recorded pretax restructuring charges of $184 million in 2018, 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.
In 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$191 million. The restructuring charges by segment were as follows: $1 million in Packaging & Specialty Plastics, $7$50 million in Industrial Intermediates & Infrastructure, $28$49 million in Performance Materials & Coatings and $256$435 million in Corporate.
In 2020, the Company recorded pretax restructuring These charges were partially offset by other asset related credit adjustments of $86$7 million for severance and related benefit costs,in Corporate related to Corporate. Cash expenditures related to the Synergy Program were substantially completed at the end of 2020.
2019 Goodwill Impairment
Upon completion of the goodwill impairment testing in the fourth quarter of 2019, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount. As a result, the Company recorded an impairment charge of $1,039 million in the fourth quarter of 2019 related to Performance Materials & Coatings.
Asset Related Charges
2020 Charges
In 2020, the Company recognized pretax impairment charges of $49 million, including additional pretax impairment charges for capital additions made to a bio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil ("Santa Vitoria"), which was impaired in 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 ($19 million), Performance Materials & Coatings ($15 million) and Corporate ($15 million).prior restructuring program. See Note 23 for additional information.
2019 Charges
On August 13, 2019, the Company entered into a definitive agreement to sell its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land, utilities and certain railcars. The Company remains at the Institute site as a tenant. As a result of the 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.
In 2019, the Company recognized additional pretax impairment charges of $58 million related primarily to capital additions at its Santa Vitoria manufacturing facility, 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.
2018 Charges
In 2018, the Company recognized additional pretax impairment charges of $34 million related primarily to capital additions at its Santa Vitoria manufacturing facility. The impairment charge was related to Packaging & Specialty Plastics.
See Note 64 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 post-Merger integration and business separation activities (through December 31, 2020) and the ownership restructure of Dow Silicones (through May 31, 2018), were $239 million in 2020, $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019 and $1,179 million in 2018. In 2018 and 2019, integration and separation costs were higher as a result of post-Merger integration and business separation activities. Integration and business separation activities were completed as of December 31, 2020. Integration and separation costs are related to Corporate.information.
Equity in Earnings (Losses) of Nonconsolidated Affiliates
The Company’s share of equity in earnings (losses)losses of nonconsolidated affiliates was $119 million in 2020 was a loss of $18 million,2023, compared with a lossearnings of $94$268 million in 20192022, with lower equity earnings at all principal joint ventures and earnings of $555 million in 2018. In 2020, equity losses decreased primarily due to lower equity losses frommargin compression at Sadara driven by improved industry supply and demand fundamentals in the third and fourth quarters of 2020, which were partially offset by lower equity earnings from the Kuwait joint ventures due toas a result of lower monoethylene glycol prices. The Company had equity losses in 2019 compared with equity earnings in 2018 primarily due to lower equity earnings from the Kuwait joint ventures due to lower monoethylene glycol and polyethylenelocal prices and the Thai joint ventures and increased equity losses from Sadara. See Note 12 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 2019.demand.
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 20202023 was incomeexpense of $1,274$327 million, compared with income of $573$714 million in 2019 and $96 million in 2018.2022.
In 2020,2023, sundry income (expense) - net included a $544$642 million gainnon-cash settlement charge related to the purchase of nonparticipating group annuity contracts for certain pension plans (related to Corporate) and foreign currency exchange losses, including $109 million related to the December 2023 devaluation of the Argentine peso (related to Corporate). These were partially offset by non-operating pension and postretirement benefit plan credits, a $106 million gain associated with a legal matter with Nova ethylene asset matterChemicals Corporation (related to Packaging & Specialty Plastics), a $499 million gain related to the sale of certain U.S. Gulf Coast marine and terminal operations and assets ($17 million related to Packaging & Specialty Plastics, $61 million related to Industrial Intermediates & Infrastructure and $421 million related to Corporate), a $233 million gain related to the sale of rail infrastructure operations and assets in the U.S. & Canada ($48 million related to Packaging & Specialty Plastics and $185 million related to Corporate), and non-operating pension and postretirement benefit plan credits. These were partially offset by a $149 million lossgains on the early extinguishmentsales of debt (related to Corporate), foreign currency exchange losses, $11 million in charges associated with agreements entered into with DuPontassets and Corteva as part of the separation and distribution, which provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after completion of the separation (related to Corporate), a $13 million loss related to the divestiture of a bio-ethanol manufacturing facility in Brazil (related to Packaging & Specialty Plastics) and a $2 million loss on an asset sale (related to Corporate).investments. See Notes 5, 7, 15, 16, 2014, 18 and 2624, to the Consolidated Financial Statements for additional information.
In 2019,2022, sundry income (expense) - net included foreign currency exchange gains,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 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 matter 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 7, 15, 16, 205, 13, 14, 18 and 26 to the Consolidated Financial Statements for additional information.
In 2018, sundry income (expense) - net included non-operating pension and other postretirement benefit plan credits, a $20 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) and a loss of $20 million for post-closing adjustments related to the Dow Silicones ownership restructure (related to Performance Materials & Coatings). See Notes 7, 15, 20, and 2624, to the Consolidated Financial Statements for additional information.
Dow Inc.
Sundry income (expense) - net for 20202023 was incomeexpense of $1,269$280 million, compared with income of $461$727 million in 2019 and $96 million in 2018.2022.
In 2020,2023, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included $10a $42 million in chargesnet gain associated with agreements and matters with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") (related to Corporate).
In 2022, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $4 million net gain associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate).
In 2019, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $51 million loss on post-closing adjustments related to a previous divestiture and $69 million in charges associated with the agreements entered into with DuPont and Corteva as part of the separation and distribution (both related to Corporate). See Notes 3, 7, 15, 16, 20 and 26 to the Consolidated Financial Statements for additional information.
Interest ExpenseCORPORATE
Corporate includes certain enterprise and Amortization of Debt Discount
Dow Inc.
Interest expensegovernance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; non-business aligned litigation expenses; and amortization of debt discount was $827 million in 2020, down from $933 million in 2019, primarily due to TDCC's redemption of long-term debt in 2019 and debt issuances at lower coupon rates in 2020. Interest expense and amortization of debt discount in 2019 was down from $1,063 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. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 11 and 15 to the Consolidated Financial Statements for additional information related to debt financing activity.
TDCC
Interest expense and amortization of debt discount was $827 million in 2020, down from $952 million in 2019 and $1,063 million in 2018. In addition to the amounts previously discussed above for Dow Inc., TDCC had interest expense related to an intercompany loan with Dow Inc. in 2019. See Note 25 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 8 to the Consolidated Financial Statements.
The CARES Act was enacted on March 27, 2020 in the United States. There were no significant impacts to the Company's provision for income taxes on continuing operations in 2020 as a result of the CARES Act legislation.
The provision for income taxes on continuing operations was $777 million in 2020, compared with $470 million in 2019 and $809 million in 2018. The tax rate for 2020 was unfavorably impacted by valuation allowances of $260 million related to foreign tax credits and other attributes that are more likely than not to remain unutilized prior to their expiration. The tax rate for 2020 was favorably impacted by a capital loss resulting from the divestiture of the Santa Vitoria manufacturing facility. This resulted in an effective tax rate of 37.5 percent for Dow Inc. in 2020.
The tax rate for 2019 was unfavorably impacted by non-deductible goodwill and investment impairments, geographic mix of earnings and reduced equity earnings. These factors resulted in a negative effective tax rate of 37.7 percent for Dow Inc. in 2019.
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 tax rate for 2018 was favorably impacted by the reduced U.S. federal corporate income tax rate as a result of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, 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.
Income from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax was $445 million in 2019 and $1,835 million in 2018, related to the distribution of AgCo and SpecCo to DowDuPont as a result of the separation. See Note 3 to the Consolidated Financial Statements for additional information.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $69 million in 2020, $87 million in 2019 and $134 million in 2018. 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 from discontinued operations of $13 million in 2019 and $32 million in 2018 related to the distribution of AgCo and SpecCo to DowDuPont as a result of the separation are included in the amounts above. See Notes 19 and 24 to the Consolidated Financial Statements for additional information.or non-aligned businesses.
Net Income (Loss) Available forRAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The major raw material stream that feeds the Common Stockholder(s)production of the Company's finished goods is hydrocarbon-based raw materials. The Company purchases hydrocarbon-based raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases and sells certain monomers, primarily ethylene and propylene, to balance internal production and internal consumption. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. In addition, the Company produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; The Netherlands; the United Kingdom; and Germany.
Dow Inc.
Net income (loss) available for Dow Inc. common stockholders was incomeThe Company's primary source of $1,225 millionthese raw materials are natural gas liquids ("NGLs"), which are derived from natural gas and crude oil production, and naphtha, which is produced during the processing and refining of crude oil. Given recent advancements in 2020, compared with a lossshale gas, shale oil and conventional drilling techniques, the Company expects these raw materials to be in abundant supply. The Company's suppliers of $1,359 millionthese raw materials include regional, international and national oil and gas companies.
The Company purchases raw materials on both short- and long-term contracts. The Company had adequate supplies of raw materials in 20192023 and incomeexpects to continue to have adequate supplies of $4,641 millionraw materials in 2018. Earnings (loss) per share of Dow Inc. was earnings of $1.64 per share in 2020, compared with a loss of $1.84 per share in 2019 and earnings of $6.21 per share in 2018. 2024.
INDUSTRY SEGMENTS AND GEOGRAPHIC REGION RESULTS
See Note 924 to the Consolidated Financial Statements for details on Dow Inc.'s earnings per share calculations.
TDCC
Net income (loss) available for TDCC common stockholder was income of $1,235 million in 2020, compared with loss of $1,237 million in 2019information regarding net sales, Operating EBIT and income of $4,641 million in 2018. Following the separation from DowDuPont, TDCC's common shares are owned solelytotal assets by Dow Inc.segment, as well as net sales and long-lived assets by geographic region.
SEGMENT RESULTSSIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. In 2023, no significant portion of the Company's sales was dependent upon a single customer.
PATENTS, LICENSES AND TRADEMARKS
The Company conducts its worldwide operations through six global businesses which are organized intocontinually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the following operating segments: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructureworld. At December 31, 2023, the Company owned approximately 3,900 active U.S. patents 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. The Company reports geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America and EMEAI. The Company transfers ethylene to its downstream derivative businesses at market prices. The Company also allocated costs previously assigned to AgCo and SpecCo ("stranded costs") to the operating segments.25,000 active foreign patents as follows:
| | | | | | | | |
| Remaining Life of Patents Owned at Dec 31, 2023 | United States | Rest of World |
| Within 5 years | 600 | | 3,700 | |
| 6 to 10 years | 1,300 | | 8,000 | |
| 11 to 15 years | 1,600 | | 11,600 | |
| 16 to 20 years | 400 | | 1,700 | |
| Total | 3,900 | | 25,000 | |
The Company’s measureprimary purpose in obtaining patents is to protect the results of profit/lossits research for segment reporting purposesuse in operations and licensing. The Company is Operating EBIT (forparty to a substantial number of patent licenses, including intellectual property cross-license agreements and other technology agreements, and also has a substantial number of trademarks and trademark registrations in the year endedUnited States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.
PRINCIPAL PARTLY OWNED COMPANIES
The Company’s principal nonconsolidated affiliates at December 31, 2020)2023, including direct and pro forma Operating EBIT (for the years ended December 31, 2019 and 2018) as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") beforeindirect ownership interest excluding the impact of significant items. The Company defines pro forma Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. Operating EBIT by segment and pro forma Operating EBIT by segment include all operating items relating to the businesses; items that principally apply to Dow as a wholefor each, are assigned to Corporate. The Company also presents pro forma net sales for the years ended December 31, 2019 and 2018, 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 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 26 to the Consolidated Financial Statements for reconciliations of these measures and a summary of the pro forma adjustments impacting segment measures, which are consistent with the pro forma adjustments included in the Current Report on Form 8-K filed on June 3, 2019, with the SEC.listed below:
| | | | | | | | | | | |
| Principal Nonconsolidated Affiliate | Country | Ownership Interest | Business Description |
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins |
| | | |
| | | |
| | | |
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene and ethylene glycol |
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures styrene monomer |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | Manufactures propylene and ethylene |
Sadara Chemical Company 2 | Saudi Arabia | 35.00 | % | Manufactures chlorine, ethylene, propylene and aromatics for internal consumption and manufactures and sells polyethylene, ethylene oxide and propylene oxide derivative products, and isocyanates |
| The SCGC-Dow Group: | | | |
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | Manufactures polyethylene |
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | Manufactures polystyrene |
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | Manufactures styrene |
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | Manufactures latex and specialty elastomers |
PACKAGING & SPECIALTY PLASTICS
Packaging & Specialty Plastics consists1.The Company's effective ownership 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; mobility and transportation; 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 Olefinsis 32.77 percent, of which the Company Limited ("Map Ta Phut")directly owns 20.27 percent and Sadara, all joint ventures of the Company.indirectly owns 12.50 percent through its equity interest in Siam Polyethylene Company Limited.
The Company is responsible for marketing athe majority of Sadara products outside of the Middle East zone through the Company's established sales channels. As part ofUnder this arrangement, the Company purchases and sells Sadara products for a marketing fee. In March 2021, Dow and the Saudi Arabian Oil Company agreed to transition the marketing rights and responsibilities for Sadara’s finished products to levels more consistent with each partner’s equity ownership. This transition began in July 2021 and is being implemented through 2026.
See Note 10 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.
SUSTAINABILITY STRATEGY
Dow believes a sustainable future is attainable, but only if everyone comes together to drive forward science- and technology-based solutions to address global challenges. Dow is collaborating across value chains and using its materials science to scale business solutions and deliver transformational change that leads to a more circular, lower-carbon, more resource-efficient society and a healthier planet. By constantly innovating and improving how the Company sources, designs, manufactures and delivers material solutions, Dow is helping its customers make a positive contribution to society and the environment, while opening new paths for business growth.
Dow’s sustainability efforts are focused on three areas that are critical to the Company’s business and where Dow believes it can use its science, global reach and partnerships to make a positive impact. These focus areas guide Dow’s business decisions and sustainability framework.
Climate Protection – Dow is committed to protecting the planet by combating climate change, including contributing to lower CO2e emissions and conserving and restoring natural resources, such as native habitats and freshwater, within its operations and value chains.
Circular Economy – Dow is taking a leading role in driving a more circular economy by designing for circularity, building new business models for circular materials, and partnering in an industrial ecosystem to end plastic pollution.
Safer Materials – Dow is innovating new materials that offer more favorable health and environmental profiles over their life cycles than incumbent solutions.
| | | | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| In millions | 2020 | 2019 | 2018 |
| Net sales | $ | 18,301 | | $ | 20,245 | | $ | 24,195 | |
| Pro forma net sales | | $ | 20,245 | | $ | 24,237 | |
| Operating EBIT | $ | 2,325 | | | |
| Pro forma Operating EBIT | | $ | 2,904 | | $ | 3,593 | |
| Equity earnings | $ | 173 | | $ | 162 | | $ | 287 | |
•By 2030, Dow will reduce its net annual Scope 1 and 2 CO2e emissions by 5 million metric tons compared with its 2020 baseline, representing a 15 percent reduction from 2020 and a 30 percent reduction in greenhouse gas emissions since 2005.
•By 2030, Dow will transform plastic waste and other forms of alternative feedstock to commercialize 3 million metric tons of circular and renewable solutions annually. To do this, Dow is expanding its efforts to build industrial ecosystems to collect, reuse or recycle plastic waste and address waste management gaps. Dow is also working to close the loop by helping its customers design for recyclability and increasing its use of feedstocks from recycled and renewable sources.
•By 2050, Dow intends to be carbon neutral (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits).
| | | | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| Percentage change from prior year | 2020 | 2019 | 2018 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (11) | % | (12) | % | 1 | % |
| Currency | — | | (1) | | 2 | |
| Volume | 1 | | (3) | | 5 | |
| Portfolio & other | — | | — | | 5 | |
| Total | (10) | % | (16) | % | 13 | % |
| Change in Pro Forma Net Sales from Prior Period due to: | | | |
| Local price & product mix | | (12) | % | 1 | % |
| Currency | | (1) | | 1 | |
| Volume | | (3) | | 5 | |
| | | |
| Total | | (16) | % | 7 | % |
2020 Versus 2019
Packaging & Specialty Plastics net sales were $18,301 million in 2020, down 10 percent from net sales and pro forma net salesAdditional discussion of $20,245 million in 2019, with local price down 11 percent and volume up 1 percent. Net sales declined in the first half of the year, reflecting the impact of the COVID-19 pandemic, while strong supply and demand fundamentals took hold in the second half of the year. Local price decreased in both businesses and across all geographic regions, driven by reduced polyethylene prices and lower global energy prices. Local price declined in Hydrocarbons & Energy as prices for co-products are generally correlated to Brent crude oil prices, which declined 33 percent compared with 2019. Volume increased in Hydrocarbons & Energy as increases in EMEAI were partially offset by declines in the U.S. & Canada, Asia Pacific and Latin America. Packaging and Specialty Plastics volume was flat as increases in flexible food and specialty packaging, industrial and consumer packaging and health and hygiene applications in Asia Pacific, Latin America and EMEAI were offset by reduced demand for functional polymers, primarily duematters pertaining to the COVID-19 pandemic,environment, including actions related to the Company's sustainability strategy, is included in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and lower catalyst licensing activity inAnalysis of Financial Condition and Results of Operations; and Notes 1 and 14 to the U.S.Consolidated Financial Statements. In addition, detailed information on the Company's performance regarding environmental matters and goals, including the Company's annual INtersections Report, is accessible through the Science & Canada.Sustainability webpage at www.dow.com/sustainability. Dow's website and its content are not deemed incorporated by reference into this report.
Operating EBIT was $2,325 million
HUMAN CAPITAL
Dow’s ambition – to be the most innovative, customer-centric, inclusive and sustainable materials science company in 2020, down 20 percent from pro forma Operating EBITthe world – starts with people. Dow employees create innovative and sustainable materials science solutions to advance the world. Every answer starts with asking the right questions, which is why the diverse, dedicated Dow team collaborates with customers and other stakeholders to find solutions to the world's toughest challenges. The Company's values of $2,904 millionRespect for People, Integrity and Protecting Our Planet are fundamental beliefs that are ingrained in 2019. Operating EBIT decreased primarily due to integrated margin compression in both businesses. These declines more than offset cost reductions, decreased planned maintenance turnaround costseach action taken, can never be compromised and increased equity earnings.are the foundation of the Company's Code of Conduct.
2019 Versus 2018
Packaging & Specialty Plastics net sales were $20,245 million in 2019, down 16 percent from net sales of $24,195 million in 2018. Pro forma net sales were $20,245 million in 2019, a decrease of 16 percent compared with pro forma net sales of $24,237 million in 2018, with local price down 12 percent, volume down 3 percent, and an unfavorable currency impact of 1 percent, primarily in EMEAI. Local price decreased in both businesses and across all geographic regions driven by reduced polyethylene prices and lower prices for Hydrocarbons & Energy co-products. Volume declined for the segment in all geographic regions, except Asia Pacific. Hydrocarbons & Energy volume declines more than offset volume gains in Packaging and Specialty Plastics. Volume decreased in Hydrocarbons & Energy primarily dueThe Company is dedicated to planned maintenance turnaround activity in Europe, increased internal consumption of ethylene on the U.S. Gulf Coast and lighter feedslate usage in Europe, leading to lower co-product production. Volume increased in Packaging and Specialty Plastics in Asia Pacific and EMEAI. Packaging and Specialty Plastics volume growth was driven by strong end-market growth in flexible food and specialty packaging, industrial and consumer packaging, andemployee health and hygiene applications.safety and is invested in fostering a culture of inclusion and continuous learning while supporting its employees through its Total Rewards plans and programs to ensure all Dow employees are respected, valued and encouraged to make their fullest contribution.
Safety, Employee Health and Well-Being
A commitment to safety and employee health is ingrained in Dow’s culture and central to how the Dow team works. Dow uses a comprehensive, integrated operating discipline management system that includes policies, requirements, best practices and procedures associated with health and safety. In 2023, the Company achieved an Occupational Safety and Health Administration Total Recordable Injury and Illness Rate of 0.18, based upon the number of incidents per 200,000 work hours for employees and contractors globally. This measure, along with a consistent set of globally applied, as well as locally defined, leading indicators of safety performance, are cornerstones of Dow's worker protection program. The Company maintains a robust, globally tracked near-miss program for situations that did not result in an injury, but could have been high consequence had circumstances been slightly different. This data is reviewed regularly by management and the Environment, Health, Safety & Technology Committee of the Board, is visible to all employees and is built into digital dashboards that include actual injury information for every Dow location around the world.
Pro forma Operating EBIT was $2,904 million in 2019, down 19 percent from pro forma Operating EBITAs part of $3,593 million in 2018. Pro forma Operating EBIT decreased primarily duethe Company’s total worker health strategy, employees have access to lower selling prices, reduced equity earningsoccupational health services at no cost through on-site, Company-managed clinics at its manufacturing locations or an offsite provider overseen by Dow Occupational Health. In addition to access for occupational health needs, the Kuwait joint ventures due to lower polyethylene margins, lower sales volume inCompany also has a comprehensive well-being strategy, which is framed across four dimensions – physical, mental, community and financial well-being – for an approach that is holistic, global, employee centered and outcome-driven. Key ambitions across the Hydrocarbons & Energy businessfour dimensions focus on elements such as workplace stress, psychological safety, resiliency, workload, healthy eating and the impact of an outage in Argentina, which more than offset lower feedstockactivities, and other raw material costs, volume gains in the Packagingsocial community and Specialty Plastics business and cost synergies.inclusion opportunities.
Dow maintains active Crisis Management Teams at the corporate level and in each region where the Company operates to ensure appropriate plans are in place in the event of natural disasters or other emergencies.
INDUSTRIAL INTERMEDIATES
Inclusion, Diversity & INFRASTRUCTUREEquity
Industrial Intermediates & Infrastructure consistsAt Dow, inclusion, diversity and equity (“ID&E”) is a business imperative evidenced by inclusion serving as a core pillar of the Company's ambition statement. A strategic and intentional focus on ID&E not only enhances the employee experience and satisfaction, but it also supports innovation, customer experience and understanding of the communities the Company serves. In 2023, Dow advanced to #7 in the DiversityInc Top 50 Companies for Diversity and for the third year in a row was named to the Fortune 100 Best Companies to Work For® list. These are significant accomplishments that represent only two customer-centric globalof the many awards the Company received related to its efforts in ID&E.
Dow's strategic ID&E efforts are directed by its Chief Inclusion Officer and Office of Inclusion, which supports implementation throughout Dow’s businesses, - Industrial Solutionsfunctions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals thatregions. Three Inclusion Councils drive the ID&E strategy from the top of the Company down and across the enterprise:
•The President’s Inclusion Council defines and supports Dow's ID&E strategy from the top.
•A Senior Leaders’ Inclusion Council influences change through senior and mid-level business, geographic and functional leaders.
•A Joint Inclusion Council collaborates to drive maximum employee engagement through Employee Resource Group (“ERG”) leadership.
Dow’s 10 ERGs are essential to manufacturing processes,representative of the Company’s diverse workforce and help foster an inclusive workplace. Dow’s ERGs are organized around historically underrepresented groups including women, people of color, LGBTQ+ individuals, people with disabilities and veterans, 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 thatgroups both for professionals who are alignednew to market segments as diverse as appliances, coatings, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company and those who are 50 years or older. Senior leaders serve as executive sponsors for each ERG. In addition, Dow has a Paid Time Off Policy which provides employees time off to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectivenessvolunteer and durability across a wide rangeengage in ERG activities. In 2023, 61 percent of home comfortDow’s workforce and appliances, building and construction, adhesives and lubricant applications, among others. This segment also includes a portion98 percent of the results of EQUATE, TKOC, Map Ta Phut and Sadara, all joint ventures of the Company.Dow people leaders participated in at least one ERG.
The CompanyInclusion and diversity metrics, including ERG participation, global representation of women and U.S. ethnic minority representation in the United States, are published internally on a quarterly basis, are embedded in the same scorecard where Dow’s financial and safety results are measured and are directly connected to leaders’ annual performance and compensation. This data is responsible for marketing a majority of Sadara products outsidereviewed regularly by management and with the Compensation and Leadership Development Committee 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.Board.
| | | | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| In millions | 2020 | 2019 | 2018 |
| Net sales | $ | 12,021 | | $ | 13,440 | | $ | 15,447 | |
| Pro forma net sales | | $ | 13,449 | | $ | 15,465 | |
| Operating EBIT | $ | 355 | | | |
| Pro forma Operating EBIT | | $ | 845 | | $ | 1,767 | |
| Equity earnings (losses) | $ | (166) | | $ | (241) | | $ | 284 | |
| | | | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| Percentage change from prior year | 2020 | 2019 | 2018 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (5) | % | (12) | % | 5 | % |
| Currency | — | | (1) | | 1 | |
| Volume | (6) | | — | | 13 | |
| | | |
| Total | (11) | % | (13) | % | 19 | % |
| 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 | % |
To achieve Dow’s ambition to be the most innovative, customer-centric, inclusive and sustainable materials science company in the world, the Company invests in its people, who are at the heart of the Company, through its Total Rewards plans and programs. The Total Rewards plans and programs are structured to attract, retain and motivate Dow’s employees. Dow’s Total Rewards are designed to support all aspects of its employees – their compensation, future, health, life and career. The Company is committed to aligning its strategy and culture with the needs of its employees and optimizing the investment Dow makes in Total Rewards.
2020 Versus 2019
Industrial Intermediates & Infrastructure net sales were $12,021 millionAs a global company with a diverse team, Dow aims to ensure employees have access to resources that allow them to meet their unique needs. That is why Dow has established three guiding principles that define its Total Rewards strategy: 1) ensuring programs are market competitive, while leading peer companies in 2020, down 11 percent from $13,440 million in 2019. Net sales decreased 11 percent from pro forma net sales of $13,449 million in 2019,equitable and inclusive offerings; 2) providing employees with volume down 6 percentofferings that align with their preferences; and local price down 5 percent. Weak demand3) offering programs that promote fulfilling career and life experiences. Dow adapts its programs for products used in consumer durable good end-markets, including construction, furnituregeography-specific requirements, as well as cultural standards and bedding, appliances and automotive, drove volume declines in Polyurethanes & Construction Chemicals in all geographic regions, reflecting the impact of the COVID-19 pandemic on consumer activities and buying patterns, most notably in the first half of the year. Volume in Industrial Solutions was also impacted by the COVID-19 pandemic, with decreases in the U.S. & Canada and Latin America which were partially offset by increases in Asia Pacific and EMEAI. The volume decline in Industrial Solutions was due to weakened demand in industrial, energy and automotive end-markets partially offset by stronger demand for products used in electronics, agriculture and pharma applications. Local price decreased in both businesses and in all geographic regions, primarily due to lower global energy prices and raw material costs.expectations.
Operating EBIT was $355 millionEmployee Engagement, Learning and Development
Throughout an employee’s career, the Company supports development through a blend of learning approaches including in-person and virtual trainings, digital learning platforms, on-the-job training and a series of leadership development programs. Annually, all employees have the opportunity to provide feedback on employee experience and offer insights into how to improve Dow’s working culture through a global employee opinion survey. A key component of the survey is an opportunity for employees to provide feedback on the effectiveness of their direct leader. In 2023, 72 percent of employees responded to the annual survey. The feedback received through this annual survey and additional quarterly checkpoint surveys is used to drive actions to improve the overall Dow experience for employees across the Company, as well as to support continuous improvement in 2020, down 58 percent from pro forma Operating EBIT of $845 million in 2019. Operating EBIT decreased due to lower demand and margin compression, which were partially offset by cost reductions, decreased equity losses and lower planned maintenance turnaround costs. The overall decrease in equity losses was driven by lower equity losses from Sadara partially offset by decreased equity earnings from EQUATE.leader effectiveness.
2019 Versus 2018
Industrial Intermediates & Infrastructure net sales were $13,440 million in 2019, down 13 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 million in 2018. Pro forma net sales decreased 13 percent in 2019, with local price down 12 percent and an unfavorable currency impact of 2 percent, primarily in EMEAI, which were partially offset byAt December 31, 2023, the Company permanently employed approximately 35,900 people on 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 and 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 the 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.full-time basis.
Pro forma Operating EBIT was $845 million
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| * | U.S. ethnic minorities include employees who self-identify as American Indian or Alaskan Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or other Pacific Islander, or two or more races. Employees who self-identify as White are considered U.S. Non-Minority. |
Additional information regarding Dow’s human capital measures can be found 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 businessesthe Company's annual INtersections Report, as well as lower equity earnings fromDow's U.S. Equal Employment Opportunity Report (EEO-1), accessible through the Kuwait joint venturesInclusion and increased equity losses from Sadara, which more than offset cost reductions.Diversity webpage at www.dow.com/diversity. Dow’s website and its content are not deemed incorporated by reference into this report.
PERFORMANCE MATERIALS & COATINGSOTHER ACTIVITIES
Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumerThe Company engages in property and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomerscasualty insurance and Consumer Solutions. These businessesreinsurance 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; consumer and electronics; mobility and transportation; industrial and chemical processing; and building and infrastructure end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.
| | | | | | | | | | | |
| Performance Materials & Coatings | | | |
| In millions | 2020 | 2019 | 2018 |
| Net sales | $ | 7,951 | | $ | 8,923 | | $ | 9,677 | |
| Pro forma net sales | | $ | 8,961 | | $ | 9,865 | |
| Operating EBIT | $ | 314 | | | |
| Pro forma Operating EBIT | | $ | 918 | | $ | 1,246 | |
| Equity earnings | $ | 6 | | $ | 5 | | $ | 4 | |
| | | | | | | | | | | |
| Performance Materials & Coatings | | | |
| Percentage change from prior year | 2020 | 2019 | 2018 |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (6) | % | (6) | % | 10 | % |
| Currency | — | | (2) | | 1 | |
| Volume | (6) | | (3) | | (2) | |
| Portfolio & other | 1 | | 3 | | — | |
| Total | (11) | % | (8) | % | 9 | % |
Change in Pro Forma Net Sales from Prior Period due to: 1 | | | |
| Local price & product mix | (6) | % | (6) | % | 10 | % |
| Currency | — | | (2) | | 1 | |
| Volume | (5) | | (1) | | (2) | |
| Portfolio & other | — | | — | | 2 | |
| Total | (11) | % | (9) | % | 11 | % |
1.As reported net sales for the year ended December 31, 2020 compared with pro forma net sales for the year ended December 31, 2019.
2020 Versus 2019
Performance Materials & Coatings net sales were $7,951 million in 2020, down 11 percent from net sales of $8,923 million in 2019. Net sales decreased 11 percent from pro forma net sales of $8,961 million in 2019, with local price down 6 percent and volume down 5 percent. Local price decreased in both businesses and all geographic regions. Consumer Solutions local price declined in all regions, primarily in upstream siloxanes due to weak supply and demand fundamentals. Local price decreased in Coatings & Performance Monomers in response to lower feedstock and other raw material costs. Volume declined in all geographic regions except Latin America, reflecting the impact from the COVID-19 pandemic. Consumer Solutions volume decreased as growth in home care applications was more than offset by lower demand for products used in automotive, industrial, construction and personal care end-markets as consumer activities and buying patterns were limited by the COVID-19 pandemic. Coatings & Performance Monomers volume increased in all geographic regions, except EMEAI. Volume gains were driven by higher demand for methacrylates used in protective applications, for architectural coatings as consumers continued do-it-yourself projects at home, and higher demand for vinyl acetate monomers.
Operating EBIT was $314 million in 2020, down 66 percent from pro forma Operating EBIT of $918 million in 2019. Operating EBIT decreased primarily due to margin compression, lower demand in siloxanes as a result of the COVID-19 pandemic and higher manufacturing and planned maintenance turnaround costs that more than offset volume gains in Coatings & Performance Monomers and lower SG&A costs.
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 the 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 and 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company's executive officers as of January 31, 2024:
| | | | | | | | | | | |
| Name, Age | Present Position with Registrant | Year Elected as Executive Officer of Dow Inc. | Other Business Experience since January 1, 2019 |
| Lisa Bryant, 48 | Chief Human Resources Officer | 2022 | DOW INC.: Chief Human Resources Officer since November 2022. TDCC: Chief Human Resources Officer since November 2022; Senior Global Human Resources Director for Finance, Legal, Public Affairs, and Government Affairs from May 2020 to November 2022; North America Human Resources Director from February 2019 to May 2020; Global Human Resources Director for Marketing & Sales from April 2017 to February 2019; Global Human Resources Director for Coatings, Monomers & Plastics Additives from March 2015 to February 2019. |
| Karen S. Carter, 53 | President, Packaging & Specialty Plastics | 2019 | DOW INC.:President, Packaging & Specialty Plastics since November 2022; Chief Human Resources Officer and Chief Inclusion Officer from April 2019 to November 2022. TDCC:President, Packaging & Specialty Plastics since November 2022; Chief Human Resources Officer from October 2018 to November 2022; Chief Inclusion Officer from July 2017 to November 2022. |
| Andrea L. Dominowski, 49 | Controller and Vice President of Controllers | 2024 | DOW INC.: Controller and Vice President of Controllers effective February 1, 2024. TDCC:Controller and Vice President of Controllers effective February 1, 2024. Global Business Director for Silicone Feedstocks & Intermediates from August 2020 to February 2024. Regional Finance Director for North America from January 2018 to August 2020. |
| Ronald C. Edmonds, 66 | Controller and Vice President of Controllers and Tax | 2019 | DOW INC.: Controller and Vice President of Controllers and Tax from April 2019 to February 1, 2024. TDCC:Controller and Vice President since November 2009; Vice President of Tax from January 2016 to February 1, 2024. |
| Jim Fitterling, 62 | Chair and Chief Executive Officer | 2018 | DOW INC.: Chair since April 2020; Chief Executive Officer since August 2018. TDCC:Chair since April 2020; Chief Executive Officer since July 2018. |
| Mauro Gregorio, 61 | President, Performance Materials & Coatings | 2020 | DOW INC.: President, Performance Materials & Coatings since February 2020; Business President, Performance Materials & Coatings from April 2019 to February 2020. TDCC: President, Performance Materials & Coatings since February 2020; Business President, Consumer Solutions from January 2016 to February 2020. |
| Jane M. Palmieri, 54 | President, Industrial Intermediates & Infrastructure | 2020 | DOW INC.: President, Industrial Intermediates & Infrastructure since February 2020. Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2019 to February 2020. TDCC: President, Industrial Intermediates & Infrastructure since February 2020; Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2018 to February 2020. |
| John M. Sampson, 63 | Senior Vice President, Operations, Manufacturing & Engineering | 2021 | DOW INC.:Senior Vice President, Operations, Manufacturing & Engineering since October 2020. OLIN CORPORATION:Executive Vice President, Business Operations from April 2019 to September 2020; Vice President, Business Operations from October 2015 to April 2019. |
| A. N. Sreeram, 56 | Senior Vice President of Research & Development and Chief Technology Officer | 2019 | DOW INC.: Senior Vice President of Research & Development and Chief Technology Officer since April 2019. TDCC: Chief Technology Officer since October 2015; Senior Vice President of Research & Development since August 2013. |
| Jeffrey L. Tate, 54 | Chief Financial Officer | 2023 | DOW INC.: Chief Financial Officer since November 2023. LEGGETT & PLATT INCORPORATED: Executive Vice President and Chief Financial Officer from September 2019 to June 2023. TDCC: Chief Financial Officer since November 2023. Vice President and Business Finance Director, Packaging & Specialty Plastics from August 2017 to August 2019. |
| Amy E. Wilson, 53 | General Counsel and Corporate Secretary | 2018 | DOW INC.: General Counsel and Corporate Secretary since April 2019; Secretary from August 2018 to April 2019. TDCC: General Counsel since October 2018; Corporate Secretary since February 2015. |
The factors described below represent the Company's principal risks.
CLIMATE CHANGE - RELATED RISKS
Climate Change: Climate change-related risks and uncertainties, legal or regulatory responses to climate change and failure to meet the Company’s climate change commitments could negatively impact the Company’s results of operations, financial condition and/or reputation.
The Company is subject to increasing climate-related risks and uncertainties, many of which are outside of its control. Climate change may result in more frequent and damaging severe weather and weather-related events, potential changes in precipitation patterns and extreme variability in weather patterns. These short- and long-term weather and weather-related events can disrupt the operations of the Company as well as those of its customers, partners and vendors due to damage to local infrastructure and other property damage limiting site access, and causing water scarcity and lack of access to high-quality water, among other factors. These risks and uncertainties may also directly or indirectly impact decisions to invest in the construction and/or renovation of new or existing manufacturing sites and other Company facilities and locations.
The transition to lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements and increases in climate-related lawsuits, insurance premiums and implementation of more robust disaster recovery and business continuity plans could increase costs to maintain or resume the Company’s operations or achieve its sustainability commitments in the expected timeframes, which would negatively impact the Company’s results of operations.
In 2020, the Company announced commitments to reduce its net annual Scope 1 and 2 CO2e emissions by an additional 5 million metric tons, or 15 percent compared with its 2020 baseline, by 2030 (the 2020 baseline represents a 15 percent reduction in greenhouse gas emissions since 2005) and 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). In November 2023, the Board approved the final investment decision to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, a key element for the Company to achieve its 2030 greenhouse gas emissions reduction commitment.
The commitments reflect the Company's current plans and targets and are not guarantees that it will be able to achieve them. The execution and achievement of the Company's commitments within projected cost estimates and expected timeframes, including the success of the Company's integrated ethylene cracker and derivatives facility in Alberta, Canada, are subject to risks and uncertainties which include, but are not limited to: advancement, availability, development and affordability of technology necessary to achieve these commitments; unforeseen design, operational and technological difficulties; availability and cost of necessary materials and components; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; changes in public sentiment and political leadership; and the Company’s ability to comply with changing regulations, taxes, mandates or requirements related to greenhouse gas emissions or other climate-related matters, including prescriptive reporting of climate-related matters. In addition, standards for tracking and reporting on sustainability matters have not been harmonized, continue to evolve and may change over time, which could result in significant revisions to the Company's performance metrics, commitments or reported progress in achieving such commitments. Given the focus on sustainable investing, if the Company fails to meet its climate change commitments within the committed timeframe, coupled with its significant investments to meet those commitments, and adopt policies and practices to enhance sustainability, the Company’s reputation and its customer and other stakeholder relationships could be negatively impacted, reducing demand for the Company's products, and it may be more difficult for the Company to compete effectively or gain access to financing on acceptable terms when needed, which could negatively impact the Company’s financial condition, results of operations and cash flows.
PANDEMIC - RELATED RISKS
Public Health Crisis: A public health crisis or global outbreak of disease could have a negative effect on the Company's manufacturing operations, supply chain and workforce, creating business disruptions that couldhave a substantial negative impact on the Company’s results of operations, financial condition and cash flows.
A public health crisis, including a pandemic similar in nature to coronavirus disease 2019, could impact all geographic regions where Dow products are produced and sold. The global, regional and local spread of a public health crisis could result in, and in the past has resulted in, significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans,
mask and vaccination mandates, restrictions on large gatherings and restricted access to certain corporate facilities and manufacturing sites. Business disruptions and market volatility resulting from a public health crisis could have a substantial negative impact on the Company’s results of operations, financial condition and cash flows. The adverse impact of a pandemic could include, and in the past has included, without limitation, fluctuations in the Company’s stock price due to market volatility; a decrease in demand for certain Company products; price declines; reduced profitability; supply chain disruptions impeding the Company’s ability to ship and/or receive product; temporary idling or permanent closure of select manufacturing facilities and/or manufacturing assets; asset impairment charges; interruptions or limitations to manufacturing operations imposed by local, state or federal governments; reduced market liquidity and increased borrowing costs; workforce absenteeism and distraction; labor shortages; customer credit concerns; increased cybersecurity risk and data accessibility disruptions due to remote working arrangements; workforce reductions and fluctuations in foreign currency markets. Additional risks may include, but are not limited to: shortages of key raw materials; potential impairment in the carrying value of goodwill; additional asset impairment charges; increased obligations related to the Company’s pension and other postretirement benefit plans; and tax valuation allowance; and may also have the effect of heightening many of the other risks described in this "Risk Factors" section.
MACROECONOMIC RISKS
Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions, such as high interest rates, could reduce the Company’s flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company’s results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations; trade agreements; import and export controls; taxes; and duties and tariffs. The imposition of additional regulations, controls, taxes and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume, which could negatively impact the Company’s results of operations.
Economic conditions around the world, and in certain industries in which the Company does business, also impact sales price and volume and affect the efficacy of the Company's supply chain. For example, market uncertainty and an economic downturn driven by inflationary pressures have recently reduced demand for the Company's products, resulting in decreased sales volume. Adverse economic conditions also caused supply chain constraints. These factors have had a negative impact on the Company's results of operations. Additionally, political tensions; war, including the ongoing conflicts in the Middle East and between Russia and Ukraine with the related sanctions and export restrictions; terrorism; epidemics; pandemics; or political instability in the geographic regions or industries in which the Company sells its products could also reduce demand for the Company's products and result in decreased sales volume or supply chain disruptions, which could have a negative impact on the Company’s results of operations.
In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. Dow suspended purchases of feedstocks and energy from Russia and has significantly reduced its operations and product offerings in the country. Dow has also stopped all investments in Russia and is only supplying limited essential goods to Russia. These actions have not had and are not expected to have a material impact on the Company's financial condition or results of operations. However, the fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company’s financial condition, results of operations and cash flows. These include decreased sales; supply chain and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on and availability of raw materials and energy, most notably in Europe; and heightened cybersecurity threats. Further, the intensity and duration of the conflict in the Middle East and potential expansion of the hostilities in the region are difficult to predict and could disrupt the Company's supply chain operations, which could have a negative impact on the Company's results of operations.
In addition, volatility and disruption of financial markets could limit customers’ ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on the Company’s results of operations. The Company’s global business operations also give rise to market risk exposure related to changes in inflation, foreign currency exchange rates, including the impact of foreign currency exchange rates resulting from highly inflationary economies such as Argentina, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, the Company enters into hedging and other investment transactions, where deemed appropriate, pursuant to established guidelines and policies. If the Company fails to effectively manage such risks, it could have a negative impact on its results of operations.
Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively impact its financial condition and results of operations.
While the Company has frozen its defined benefit plans and other postretirement benefit plans in the United States, the Company continues to sponsor these plans as well as defined benefit pension plans and other postretirement benefit plans in a number of other countries (together with U.S. plans, the “plans”). The assets of the Company's funded plans are primarily invested in fixed income securities, equity securities of U.S. and foreign issuers and alternative investments, including investments in real estate, private equity and absolute return strategies. Changes in the market value of plan assets, investment returns, discount rates, mortality rates and regulations may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.
Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may result in excess capacity which can disrupt regional industry supply and demand balances, particularly in Europe, Middle East, Africa and India ("EMEAI") and Asia Pacific, resulting in downward pressure on prices and decreased operating rates, which could negatively impact the Company’s results of operations.
LEGAL AND REGULATORY RISKS
Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, climate change, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In addition, the Company may have costs related to environmental remediation and restoration obligations associated with past and current sites as well as related to its past or current waste disposal practices or other hazardous materials handling. Although management will estimate and accrue liabilities for these obligations, it is reasonably possible that the Company’s ultimate cost with respect to these matters could be significantly higher, which could negatively impact the Company’s financial condition and results of operations. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. For additional information, see Part II, Item 7. Other Matters, Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Health and Safety: Increased concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of
market acceptance and continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, its reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
Litigation: The Company is party to a number of 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 the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) as described below, it is the opinion of the Company’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company’s consolidated financial statements.
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. At December 31, 2023, Union Carbide's total asbestos-related liability, including future defense and processing costs, was $867 million ($947 million at December 31, 2022).
Plastic Waste: Increased concerns regarding plastic waste in the environment, resulting in the demand for substitute materials; brand owners selectively reducing their use of plastic products; a lack of plastic waste collection and recycling infrastructure and a failure to develop circular plastic materials or a circular economy for plastics; and/or the development of new or more restrictive regulations and rules related to plastic waste and related emissions could reduce demand for the Company’s plastic products and could negatively impact the Company’s financial results.
Plastics have faced increasing public scrutiny due to low recycling rates and the presence of plastic waste in the environment, including the world’s oceans and rivers, and pollution associated with the manufacture of plastics. Accordingly, regulators, manufacturers, brand owners and consumers are driving demand for materials made with recycled content, bio-based materials and materials made with low or zero carbon emission options, and local, state, federal and foreign governments are proposing and implementing regulations to address the global plastic waste challenge, including, but not limited to, extended producer responsibility fees, recycled content mandates, taxes on plastics at the national level and bans on non-essential items. Further, an intergovernmental negotiation committee is in the process of negotiating an international legally binding instrument to end plastic pollution.
Dow is one of the world’s largest plastics producers and sells plastic products that continue to enable increasing quality and standards of living and offer significant greenhouse gas reductions compared with alternative solutions. In order to both maintain the benefits of plastics, meet growing demand for circular and renewable plastics and advance efforts to end plastic pollution in the environment, the Company is partnering with other organizations to bring the waste back into the circular economy. The Company's Transform the Waste target (announced in October 2022) aims to transform plastic waste and other forms of waste to commercialize 3 million metric tons of circular and renewable solutions by 2030. Further, the Company has committed to reducing its net annual greenhouse gas emissions and intends 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).
Without the expansion of proper waste collection and recycling infrastructure and the development of a circular economy for plastics at scale, along with increased pressure to reduce the use of plastics, the Company could experience reduced demand for its polyethylene products, which could negatively impact the Company’s financial condition, results of operations and cash flows.
OPERATIONAL AND STRATEGIC RISKS
Company Strategy: Implementing certain elements of the Company's strategy could negatively impact its financial results.
The Company currently has manufacturing operations, sales and marketing activities, and joint ventures in emerging geographic regions. Activities in these geographic regions are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project
funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement.
Additionally, disruptions to supply chains, distribution chains and/or public and private infrastructure and services, including those caused by industry capacity constraints, material availability, global logistics delays, and third party service and material providers; and constraints arising from, among other things, the transportation capacity of ocean shipping containers; global labor availability constraints; and/or disruptions to the Company's site operations caused by tenant and neighboring manufacturing operations, as well as the Company's ability to attract and retain a talented workforce, could materially and adversely impact the Company's business operations.
If the manufacturing operations, supply chains, sales and marketing activities are not reliable and/or the implementation of the Company's projects is not successful, it could adversely affect the Company’s financial condition, cash flows and results of operations.
Cybersecurity Threat: Disruption of the Company's information technology, data security, and other operating or third-party systems, including disruption of the ability to safely and reliably operate the Company's facilities; the risk of loss of the Company’s proprietary information including trade secrets, know-how or other sensitive business information; and the risk of loss or security of the private data of the Company, its customers and its employees could negatively impact the Company’s business strategy, results of operations, financial condition and reputation.
The Company relies on various information systems, including information systems operated by third-parties, to support safe, efficient and reliable business and operating processes and activities and to safeguard its proprietary information assets, including trade secrets, know-how and other sensitive, business critical information. These systems are critical to the Company's process to accurately report financial results for management and external reporting purposes and to ensure compliance with financial reporting, legal and tax requirements in the United States and around the world. These systems may also be used to collect and process sensitive customer and personal employee data the Company may be legally required to protect.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyberattacks continue to pose risks to the Company’s products, systems and networks, and the confidentiality, availability and integrity of the Company’s data. These vulnerabilities also expose the Company’s customers, suppliers and third-party service providers to loss. In addition, the Company is exposed to similar risks resulting from cyberattacks that are experienced by its suppliers and other vendors. As a result, cyberattacks, internal and external security breaches, and attacks and security breaches of third-party systems could disrupt the Company's operations, compromise Dow’s proprietary and confidential, business critical information, jeopardize the Company's ability to safeguard and maintain accurate data, including personal data, and harm the Company's reputation which could result in litigation, enforcement actions, including fines, penalties and disruption of the Company's right to operate in certain jurisdictions, and significant remediation costs. Additionally, the Company’s use of artificial intelligence software may create additional risks related to the unintentional disclosure of proprietary, confidential, personal or otherwise sensitive information.
While the Company has a comprehensive cybersecurity program that is continuously reviewed, maintained and upgraded, cyberattacks by nation-state organizations, crime organizations and other hackers have become increasingly sophisticated, and it is possible for such attacks to remain undetected for an extended period of time. Such attacks could have a material negative impact on the Company’s business strategy, results of operations, financial position and reputation. More information on the Company’s processes for assessing, identifying and managing material risks from cybersecurity threats, including management’s role and the Board's oversight of such processes, can be found in Item 1C. Cybersecurity.
Goodwill: An impairment of goodwill could negatively impact the Company’s financial results.
At least annually, the Company assesses goodwill for impairment. If testing indicates that goodwill is impaired, the carrying value is written down based on fair value with a charge against earnings. Where the Company utilizes a discounted cash flow methodology in determining fair value, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations. See Note 11 to the Consolidated Financial Statements for additional information regarding the Company's goodwill impairment testing.
Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations at each site, including maintenance of its facilities, the transportation of supplies and products, cyberattacks, pandemics and other public health-related events or severe weather conditions and other natural phenomena (such as freezing, drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.
Major hurricanes and other weather-related events have caused significant disruption in the Company's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of its products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact the Company's results of operations. Other non-weather-related unplanned events have also caused disruptions in the Company’s operations at various sites. While the Company has processes in place to minimize the risks and impacts of such events, such unplanned future events could negatively impact the Company’s results of operations.
Raw Materials: Availability of purchased feedstock and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks and purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company also purchases natural gas, primarily to generate electricity, electric power to supplement internal generation, and steam.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Power prices often follow general energy trends, and are additionally subject to short-term surfeits and shortages related to, for example, intermittent wind and solar generation, and power generation and transmission outages. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.
While the Company expects abundant and cost-advantaged supplies of natural gas liquids ("NGLs") in the United States to persist for the foreseeable future, if NGLs become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstock and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company’s results of operations.
| | |
| ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
Risk Management and Strategy
The Company has processes in place to identify, assess and monitor material risks from cybersecurity threats, which are part of the Company’s overall enterprise risk management process and have been embedded in the Company’s operating procedures, internal controls and information systems.
Dow's comprehensive cybersecurity and information security framework includes risk assessment and mitigation through a threat intelligence-driven approach, application controls, and enhanced security with ransomware defense. The framework leverages International Organization for Standardizations 27001/27002 standards for general information technology controls, International Society of Automation/International Electrotechnical Commission standards for industrial automation, the National Institute of Standards and Technology Cyber Security
Framework ("NIST CSF") for measuring overall readiness to respond to cyber threats, and Sarbanes-Oxley for assessment of internal controls.
Dow contracts with external firms to assess Dow’s cybersecurity controls relative to its peers using the NIST CSF. Dow also has a third-party risk management program that assesses risks from vendors and suppliers. In addition, the Company maintains business continuity and disaster recovery plans as well as a cybersecurity insurance policy.
Dow has established cybersecurity and information security awareness training programs. Formal training on topics relating to the Company’s cybersecurity, data privacy and information security policies and procedures is mandatory at least annually for all employees, contractors and third parties with access to the Company’s network. Training is administered and tracked through online learning modules. Training topics include how to escalate suspicious activities including phishing, viruses, spams, insider threats, suspect human behaviors or safety issues. Based on role and location, some employees receive additional in-depth training to provide more comprehensive knowledge on potential risks related to their individual job responsibilities. Training is supplemented through regular Company communications with frequent updates to educate on the latest adversary trends and social engineering techniques.
Additionally, Dow engages in cyber crisis response simulations to assess Dow’s ability to adapt to information and operational technology threats. Improper or illegitimate use of the Company’s information system resources or violation of the Company’s information security policies and procedures is subject to disciplinary action. Dow’s security posture is supported by a comprehensive defense-in-depth strategy that relies on layers of technology including Multi-Factor Authentication and principles of Zero Trust to ensure that access to information and communication is vetted and secure.
Dow also utilizes internal and external audits and assessments, vulnerability testing, governance processes over outsourced service providers, active risk management and benchmarking against peers in the industry to validate Dow’s security posture. The Company also engages external firms to measure Dow’s NIST CSF maturity level.
No risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
Governance
Role of Management
Dow’s Information Systems organization led by Dow’s Chief Information and Digital Officer, is responsible for administration of the cybersecurity and information security framework and risk management, with oversight by the Audit Committee.
The Company’s Chief Information and Digital Officer has formal education in information technology and extensive experience working in and leading Dow’s information systems and technology function. The Chief Information and Digital Officer receives regular updates on cybersecurity matters, results of mitigation efforts and cybersecurity incident response and remediation.
The Company’s management responsible for developing and executing Dow’s cybersecurity policies is comprised of individuals with either formal education and degrees in information technology or cybersecurity, or with experience working in information technology and cybersecurity, including relevant industry experience in security related industries. Additionally, leaders in the Company’s information technology function receive periodic training and education on cybersecurity related topics. Certain leaders also obtain industry certifications, such as Certified Information Systems Security Professional or Certified Information Security Manager.
The Company’s Cyber Security Operations Center (“CSOC”) serves as the central point for all cybersecurity incidents and reporting, including incidents that directly target employees or Dow internal information systems and incidents originating from third parties. The CSOC provides end-to-end operations for purposes of monitoring, detecting, alerting and responding to cybersecurity incidents. The CSOC evaluates each incident in terms of its impact on the Company’s operations, ability to conduct business with customers and suppliers, brand reputation and health, safety or the environment, and the speed and degree to which the incident has been contained. The CSOC is also responsible for activating the containment and resolution efforts and third-party service providers are engaged where appropriate to support the Company through the resolution of the incident. The CSOC escalates incidents with significant impact and pervasiveness to the Company’s Corporate Crisis Management Team for
further action. After initial identification, the CSOC monitors all cybersecurity incidents for changes in degree of impact or pervasiveness.
Role of the Board
Dow's Board recognizes the importance of cybersecurity in safeguarding the Company’s sensitive data. The Board is responsible for overseeing overall risk management for the Company, including review and approval of the enterprise risk management approach and processes implemented by management to identify, assess, manage and mitigate risk, at least annually. The Board has delegated responsibility for oversight of the Company’s cybersecurity and information security framework and risk management to the Audit Committee of the Board. The Audit Committee receives information and updates at least quarterly and actively engages with senior leaders, including the Chief Information and Digital Officer and Chief Information Security Officer, with respect to the effectiveness of the Company’s cybersecurity and information security framework, data privacy, and risk management. In addition, the Audit Committee receives reports summarizing threat detection and mitigation plans, audits of internal controls, training and certification, and other cyber priorities and initiatives, as well as timely updates from senior leaders on material incidents relating to information systems security, including cybersecurity incidents. The Audit Committee includes members with significant experience and/or expertise in technology or cybersecurity, including information systems.
The Company's corporate headquarters are located in Midland, Michigan. The Company's manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers are located throughout the world. The Company has investments in property, plant and equipment related to global manufacturing operations. Collectively, the Company operates 98 manufacturing sites in 31 countries. The following table includes the major manufacturing sites by operating segment, including consolidated variable interest entities:
| | | | | | | | | | | |
| Major Manufacturing Sites by Segment | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings |
| Location |
| Bahia Blanca, Argentina | X | | |
| Candeias, Brazil | X | X | |
| Canada: | | | |
| Fort Saskatchewan, Alberta | X | | |
| Prentiss, Alberta | X | | |
| Joffre, Alberta | X | | |
| Zhangjiagang, China | X | X | X |
| Germany: | | | |
| Boehlen | X | X | |
| Leuna | X | | |
| Schkopau | X | X | |
| Stade | | X | |
| Terneuzen, The Netherlands | X | X | |
| Tarragona, Spain | X | X | |
| Map Ta Phut, Thailand | | X | X |
| Barry, United Kingdom | | | X |
| United States: | | | |
| Carrollton, Kentucky | | | X |
| Hahnville, Louisiana | X | X | X |
| Plaquemine, Louisiana | X | X | |
| Midland, Michigan | | | X |
| Deer Park, Texas | | X | X |
| Freeport, Texas | X | X | X |
| Orange, Texas | X | | |
| Seadrift, Texas | X | X | |
| Texas City, Texas | | X | X |
Including the major manufacturing sites, the Company has manufacturing sites and holdings in all geographic regions as follows:
| | | | | |
| Manufacturing Sites by Region |
| Asia Pacific | 16 manufacturing sites in 10 countries |
EMEAI 1 | 35 manufacturing sites in 15 countries |
| Latin America | 15 manufacturing sites in 4 countries |
| U.S. & Canada | 32 manufacturing sites in 2 countries |
1.Europe, Middle East, Africa and India.
Properties of the Company include facilities which, in the opinion of management, are suitable and adequate for their use and will have sufficient capacity for the Company’s current needs and expected near-term growth. All of the Company’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value. No title examination of the properties has been made for the purpose of this report. Additional information with respect to the Company's property, plant and equipment and leases is contained in Notes 9, 13 and 15 to the Consolidated Financial Statements.
| | |
| ITEM 3. LEGAL PROCEEDINGS |
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc.
For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 14 to the Consolidated Financial Statements.
Environmental Proceedings
On May 17, 2021, the Company received a civil complaint from the State of Texas ("State") on behalf of the Texas Commission on Environmental Quality, filed in the 250th District Court of Travis County, Texas. The suit alleges environmental violations at the Company's Freeport, Texas, site involving several air emissions events, which allegedly occurred at the site between 2016 and 2021. The State is seeking monetary and injunctive relief to prevent recurrence. Discussions between the Company and the Texas Office of the Attorney General are ongoing.
On December 16, 2022, the U.S. Department of Justice filed a complaint and proposed consent decree on behalf of the EPA relating to environmental contamination at the Lower Passaic River Study Area Superfund Site in New Jersey. The EPA filed an amended complaint and proposed consent decree on January 17, 2024. The proposed consent decree includes a requirement that 85 settling defendants, including the Company’s Essex Chemical Corporation subsidiary ("Essex"), make a collective payment of $150 million for the EPA’s past and anticipated future response costs, with Essex’s share of the group settlement costs being $1.15 million.
In June 2023, INEMA, the Bahia, Brazil, state environmental agency notified Dow Brasil Indústria e Comércio de Produtos Químicos Ltda of its intention to impose penalties relating to Dow’s historic brine mining operations on Matarandiba Island, which INEMA alleges have contributed to environmental issues at the location. Discussions between Dow and the relevant government agencies are ongoing.
| | |
| ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
| | | | | | | | |
| Dow Inc. and Subsidiaries | |
| The Dow Chemical Company and Subsidiaries | |
| PART II | |
| | |
| ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Dow Inc. is the direct parent company of The Dow Chemical Company and its consolidated subsidiaries, ("TDCC" and together with Dow Inc., "Dow" or the "Company"), owning all of the outstanding common shares of TDCC. The principal market for Dow Inc.'s common stock is the New York Stock Exchange, traded under the symbol “DOW.”
Dow Inc. has paid dividends on a quarterly basis and expects to continue to do so, subject to approval by the Dow Inc. Board of Directors ("Board").Additional dividend information can be found in Note 16 to the Consolidated Financial Statements and Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
At December 31, 2023, there were 64,818 stockholders of record.
See Part III, Item 11. Executive Compensation for information relating to shares authorized for issuance under Dow Inc.'s equity compensation plans.
The Company grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the form of stock options, stock appreciation rights, performance stock units and restricted stock units. See Note 19 to the Consolidated Financial Statements for additional information.
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of Dow Inc. common stock by the Company during the three months ended December 31, 2023. The Company makes such purchases only during open windows subject to its insider trading policy.
| | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1 (In millions) |
| Period | Total number of shares purchased | Average price paid per share |
|
| October 2023 | 486,206 | | $ | 48.06 | | 486,206 | | $ | 1,526 | |
| November 2023 | 2,074,955 | | $ | 48.98 | | 2,074,955 | | $ | 1,425 | |
| December 2023 | — | | $ | — | | — | | $ | 1,425 | |
| Fourth quarter 2023 | 2,561,161 | | $ | 48.81 | | 2,561,161 | | $ | 1,425 | |
1.On April 13, 2022, the Board approved a share repurchase program authorizing up to $3.0 billion for the repurchase of the Company's common stock, with no expiration date.
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| ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
STATEMENT ON CURRENCY EXCHANGE RATES
The Company's global business operations give rise to market risk exposure related to changes in foreign currency exchange rates and international capital flows that may be affected by extensive regulations and controls, especially in developing or highly inflationary countries such as Argentina. In December 2023, the Argentina government devalued the Argentine peso, which resulted in pretax charges for foreign currency exchange losses and inventory valuation impacts of $177 million ($52 million related to Packaging & Specialty Plastics, $16 million related to Industrial Intermediates & Infrastructure and $109 million related to Corporate). The Company continues to monitor these situations and take appropriate actions as necessary to manage the financial impact pursuant to established guidelines and policies. If the Company is unable to manage certain exposures in a cost-effective manner it could have a significant negative impact on its future results of operations and cash flows. A detailed discussion of these and other principal risks and uncertainties, which may negatively impact the future results of the Company, are included in Part I, Item 1A. Risk Factors.
ABOUT DOW
Dow is one of the world’s leading materials science companies, serving customers in high-growth markets such as packaging, infrastructure, mobility and consumer applications. The Company's global breadth, asset integration and scale, focused innovation, leading business positions and commitment to sustainability enables the Company to achieve profitable growth and help deliver a sustainable future. Dow operates manufacturing sites in 31 countries and employs approximately 35,900 people.
In 2023, the Company had annual sales of $45 billion, of which 37 percent were to customers in the U.S. & Canada; 33 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 30 percent were to customers in Asia Pacific and Latin America.
In 2023, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Cuba, Iran, the Democratic People's Republic of Korea (North Korea) and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.
OVERVIEW
The following is a summary of the results for the Company for the year ended December 31, 2023:
The Company reported net sales in 2023 of $45 billion, down 22 percent from $57 billion in 2022, with decreases across all geographic regions and operating segments, and driven by a decrease in local price of 16 percent and a volume decrease of 6 percent.
Local price decreased 16 percent compared with 2022, with decreases in all operating segments and geographic regions, driven by slower global macroeconomic activity creating unfavorable supply and demand dynamics, industry supply additions and lower global energy and feedstocks costs. Local price decreased in Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates & Infrastructure (down 14 percent) and Performance Materials & Coatings (down 15 percent).
Volume decreased 6 percent compared with 2022, with decreases in Packaging & Specialty Plastics (down 5 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Volume decreased in the U.S. & Canada (down 6 percent), EMEAI (down 9 percent), and Asia Pacific (down 4 percent), which was partially offset by an increase in Latin America (up 4 percent).
Currency impact on net sales was flat compared with 2022.
Restructuring and asset related charges - net were $528 million in 2023 primarily reflecting restructuring actions approved by the Board in January 2023. The restructuring charges consisted of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million and were partially offset by other asset related credit adjustments of $7 million related to a prior restructuring program.
Equity in losses of nonconsolidated affiliates was $119 million in 2023, compared with earnings of $268 million in 2022, primarily due to declines at Sadara and the Kuwait joint ventures.
Sundry income (expense) - net for Dow Inc. and TDCC was expense of $280 million and $327 million, respectively, in 2023, compared with income of $727 million and $714 million, respectively, in 2022. Sundry income (expense) - net decreased primarily due to a non-cash settlement charge related to the Company's pension de-risking activities and higher foreign currency exchange losses, which included the impact of the December 2023 devaluation of the Argentine peso. Income from the successful and final resolution and recognition of a long-running patent infringement award was included in 2022.
Net income available for Dow Inc. and TDCC common stockholder(s) was $589 million and $556 million, respectively, in 2023, compared with $4,582 million and $4,583 million, respectively, in 2022. Earnings per share for Dow Inc. was $0.82 per share in 2023, compared with $6.28 per share in 2022.
In 2023, Dow Inc. declared and paid dividends to common stockholders of $2.80 per share ($1,972 million).
In 2023, Dow Inc. repurchased $625 million of the Company's common stock.
Other notable events and highlights from the year ended December 31, 2023 include:
•On January 25, 2023, the Board approved restructuring actions ("2023 Restructuring Program") to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. This program included a global workforce cost reduction program, decreased turnaround spending and actions that rationalized the Company’s manufacturing assets, which included asset write-down and write-off charges and related contract termination fees.
•On April 25, 2023, the Company announced that it had selected Linde as its industrial gas partner for the supply of circular hydrogen and nitrogen for its Fort Saskatchewan Path2Zero investment.
•On May 11, 2023, Dow Inc. announced Seadrift, Texas, as the location of its small modular nuclear reactor project as part of a joint development agreement with X-energy.
•On June 15, 2023, Fitch Ratings affirmed TDCC’s BBB+ long-term credit rating and announced a short-term credit rating upgrade to F1 from F2, and also revised its long-term outlook from positive to stable. On
August 22, 2023, Standard and Poor's affirmed TDCC's BBB and A-2 rating, and revised its outlook from positive to stable. These credit agencies' decisions were made as part of their annual review process and reflect the Company's supportive financial policies and strong operating performance.
•On June 19, 2023, Dow Inc. released its INtersections Progress Report, demonstrating how the Company's continued focus and actions align to its ambition and goal to deliver value growth; best-in-class performance; and innovative, sustainable solutions to address global challenges.
•On July 14, 2023, an incident occurred that included an explosion and subsequent fire at Dow's Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana. There were no injuries reported from the incident and it was limited to the Glycol-2 unit with minimal disruption to other site operations. The Company completed a root cause investigation and is executing a plan to restore operations. The Company's estimated impact on pretax earnings from the incident is $100 million per quarter. The Glycol-2 unit is expected to resume operations in the second quarter of 2024.
•On October 24, 2023, the Company announced that Howard Ungerleider, President and Chief Financial Officer, had elected to retire in January 2024 after 33 years of service with Dow.
•On October 24, 2023, the Company announced that Jeffrey L. Tate had been named Chief Financial Officer.
•On November 28, 2023, the Company announced the Board declared Final Investment Decision on the Company's Fort Saskatchewan Path2Zero investment to build the world's first net-zero Scope 1 and 2 emissions integrated ethylene cracker and derivatives facility in Alberta, Canada.
•On December 18, 2023, the Company announced that Ronald C. Edmonds, Controller and Vice President of Controllers and Tax, had elected to retire in July 2024, after 31 years of service with Dow.
•On December 18, 2023, the Company announced that Andrea L. Dominowski had been named Controller and Vice President of Controllers effective February 1, 2024.
•Dow was named on the Top 100 Global Innovators™ list for the 12th consecutive year.
•Dow received a record-setting nine 2023 Edison Awards™ (five gold, three silver and one bronze), once again earning more awards than any other organization for the sixth consecutive year.
•Dow was named to the JUST 100 list, placing 55th overall, an 11-place improvement from last year, and securing the top spot for Communities in the Chemicals sector.
•Dow was named to Bloomberg’s 2022 Gender-Equality Index for the third consecutive year.
•Dow earned a spot in the S&P Global Sustainability Yearbook, recognizing the Company as a top industry performer.
•Dow was honored as a winner of a 2023 Artificial Intelligence Award for the development of technology that identifies and predicts corrosion failures in metal coatings.
•Dow received five 2023 BIG Innovation Awards from the Business Intelligence Group™, the most received in a single Business Intelligence Group™ Awards program by the Company.
•Dow was recognized with a 2023 CIO 100 Award for its successful Smart Search tool, powered by CAS.
•Dow was titled a Supplier Engagement Leader by CDP, a result of actions taken by the Company to address climate change.
•Dow advanced to seventh place on the 2023 DiversityInc Top 50 Companies for Diversity list making it the sixth consecutive year on the list. Dow was also included on 15 of DiversityInc's Specialty Lists including: Top Companies for Executive Diversity Councils, Top Companies for People with Disabilities, Top Companies for Black Executives, Top Companies for Latino Executives, Top Companies for Executive Women, Top Companies for Employee Resource Groups and Top Companies for Environmental, Social and Governance.
•Dow's EVOWASH™ Antifoam Agents and Readily Biodegradable Detergents and Dow's LuxSense™ Silicone Leather each received a SEAL (Sustainability, Environmental Achievement & Leadership) Sustainable Innovation Award. Dow's SYL-OFF™ EM-7920NF Emulsion Coating was a winner of the SEAL Sustainable Product Award.
•Dow received five awards (Overall Winner, three golds, one silver) at the annual U.S Customer Experience Awards.
•For the seventh consecutive year, Dow received a top score on the Disability Equality Index™, placing the Company among the Best Places to Work for Disability Inclusion™ for 2023.
•Dow Technology won the 2023 ICIS Innovation Award which recognizes companies that are paving the way in product, process, and sustainability innovations across the chemicals industry.
•Dow was named one of the 2023 PEOPLE® Companies that Care by Great Place to Work® and PEOPLE® for the fourth consecutive year.
•Dow was honored by Great Place to Work® and Fortune as one of the World's Best Workplaces. Dow was also certified as a Great Place to Work® in 13 countries and ranked on 10 national Best Workplaces lists, including the Fortune 100 Best Companies to Work For® list in the United States for the third consecutive year.
•Dow was named to the Dow Jones Sustainability World Index by S&P Dow Jones Indices, the world's leading index provider focused on providing essential sustainability intelligence.
In addition to the highlights above, the following events occurred subsequent to December 31, 2023:
•On January 19, 2024, Moody's Investors Service affirmed TDCC's Baa1 and P-2 rating, and affirmed its outlook of stable.
•On January 25, 2024, the Company published its Green Finance Framework and related Second Party Opinion on its website, to support the execution of its sustainability strategy.
RESULTS OF OPERATIONS
For comparison of results of operations for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
Net Sales
The following tables summarize net sales and sales variances by operating segment and geographic region from the prior year:
| | | | | | | | | |
| Summary of Sales Results | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 44,622 | | $ | 56,902 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region |
| 2023 | 2022 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | | Total | Local Price & Product Mix | Currency | Volume | | Total |
| Packaging & Specialty Plastics | (16) | % | — | % | (5) | % | | (21) | % | 7 | % | (3) | % | — | % | | 4 | % |
| Industrial Intermediates & Infrastructure | (14) | | (1) | | (9) | | | (24) | | 11 | | (5) | | (7) | | | (1) | |
| Performance Materials & Coatings | (15) | | (1) | | (5) | | | (21) | | 21 | | (4) | | (6) | | | 11 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
| Total, excluding the Hydrocarbons & Energy business | (15) | % | (1) | % | (4) | % | | (20) | % | 10 | % | (4) | % | (5) | % | | 1 | % |
| U.S. & Canada | (15) | % | — | % | (6) | % | | (21) | % | 6 | % | — | % | 1 | % | | 7 | % |
| EMEAI | (17) | | — | | (9) | | | (26) | | 18 | | (9) | | (10) | | | (1) | |
| Asia Pacific | (14) | | (2) | | (4) | | | (20) | | 6 | | (3) | | — | | | 3 | |
| Latin America | (17) | | — | | 4 | | | (13) | | 6 | | — | | 1 | | | 7 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
2023 Versus 2022
The Company reported net sales of $44.6 billion in 2023, down 22 percent from $56.9 billion in 2022, with local price down 16 percent, volume down 6 percent, and currency flat. Net sales decreased by double digits in all operating segments and across all geographic regions, primarily driven by lower prices and demand due to slower global macroeconomic activity. Local price decreased in all operating segments and across all geographic regions driven by industry supply additions and lower global energy and feedstock costs. Local price decreased in Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates & Infrastructure (down 14 percent) and Performance Materials & Coatings (down 15 percent). Volume decreased in all operating segments and geographic regions, except Latin America (up 4 percent). Volume decreased in Packaging & Specialty Plastics (down 5 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Excluding the Hydrocarbons & Energy business, sales decreased 20 percent.
Cost of Sales
Cost of sales ("COS") was $39.7 billion in 2023, compared with $48.3 billion in 2022. COS decreased in 2023 primarily due to lower raw material costs on lower volume, lower global energy and feedstock costs and the impact of structural cost improvements. COS as a percentage of net sales was 89.1 percent in 2023, compared with 84.9 percent in 2022.
Research and Development Expenses
Research and development ("R&D") expenses were $829 million in 2023, compared with $851 million in 2022. R&D expenses decreased in 2023 primarily due to the impact of structural cost improvements as well as lower performance-based compensation costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $1,627 million in 2023, compared with $1,675 million in 2022. SG&A expenses decreased in 2023 primarily due to lower bad debt expense, the impact of structural cost improvements and lower performance-based compensation costs, which more than offset increases associated with the Company's restructuring implementation and efficiency actions and fringe benefit expenses tied to stock market changes.
Amortization of Intangibles
Amortization of intangibles was $324 million in 2023, compared with $336 million in 2022. Amortization of intangibles decreased primarily due to certain intangible assets becoming fully amortized. See Note 11 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring and Asset Related Charges - Net
2023 Restructuring Program
On January 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. These actions are expected to be substantially complete by the end of 2024.
As a result of these actions, in 2023 the Company recorded pretax restructuring charges of $535 million, consisting of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million. The restructuring charges by segment were as follows: $1 million in Packaging & Specialty Plastics, $50 million in Industrial Intermediates & Infrastructure, $49 million in Performance Materials & Coatings and $435 million in Corporate. These charges were partially offset by other asset related credit adjustments of $7 million in Corporate related to a prior restructuring program. See Note 4 to the Consolidated Financial Statements for additional information.
Equity in Earnings (Losses) of Nonconsolidated Affiliates
The Company’s share of equity in losses of nonconsolidated affiliates was $119 million in 2023, compared with earnings of $268 million in 2022, with lower equity earnings at all principal joint ventures and primarily due to margin compression at Sadara and the Kuwait joint ventures as a result of lower local prices and demand.
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 2023 was expense of $327 million, compared with income of $714 million in 2022.
In 2023, sundry income (expense) - net included a $642 million non-cash settlement charge related to the purchase of nonparticipating group annuity contracts for certain pension plans (related to Corporate) and foreign currency exchange losses, including $109 million related to the December 2023 devaluation of the Argentine peso (related to Corporate). These were partially offset by non-operating pension and postretirement benefit plan credits, a $106 million gain associated with a legal matter with Nova Chemicals Corporation (related to Packaging & Specialty Plastics), and gains on the sales of assets and investments. See Notes 5, 14, 18 and 24, to the Consolidated Financial Statements for additional information.
In 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 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. These were partially offset by foreign currency exchange losses and an $8 million loss on the early extinguishment of debt (related to Corporate). See Notes 5, 13, 14, 18 and 24, to the Consolidated Financial Statements for additional information.
Dow Inc.
Sundry income (expense) - net for 2023 was expense of $280 million, compared with income of $727 million in 2022.
In 2023, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $42 million net gain associated with agreements and matters with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") (related to Corporate).
In 2022, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $4 million net gain associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate).
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 | 2020 | 2019 | 2018 |
| Net sales | $ | 269 | | $ | 343 | | $ | 285 | |
| Pro forma net sales | | $ | 343 | | $ | 285 | |
| Operating EBIT | $ | (279) | | | |
| Pro forma Operating EBIT | | $ | (315) | | $ | (370) | |
| Equity losses | $ | (31) | | $ | (20) | | $ | (20) | |
RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The major raw material stream that feeds the production of the Company's finished goods is hydrocarbon-based raw materials. The Company purchases hydrocarbon-based raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases and sells certain monomers, primarily ethylene and propylene, to balance internal production and internal consumption. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. In addition, the Company produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; The Netherlands; the United Kingdom; and Germany.
The Company's primary source of these raw materials are natural gas liquids ("NGLs"), which are derived from natural gas and crude oil production, and naphtha, which is produced during the processing and refining of crude oil. Given recent advancements in shale gas, shale oil and conventional drilling techniques, the Company expects these raw materials to be in abundant supply. The Company's suppliers of these raw materials include regional, international and national oil and gas companies.
The Company purchases raw materials on both short- and long-term contracts. The Company had adequate supplies of raw materials in 2023 and expects to continue to have adequate supplies of raw materials in 2024.
INDUSTRY SEGMENTS AND GEOGRAPHIC REGION RESULTS
See Note 24 to the Consolidated Financial Statements for information regarding net sales, Operating EBIT and total assets by segment, as well as net sales and long-lived assets by geographic region.
SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. In 2023, no significant portion of the Company's sales was dependent upon a single customer.
PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2023, the Company owned approximately 3,900 active U.S. patents and 25,000 active foreign patents as follows:
| | | | | | | | |
| Remaining Life of Patents Owned at Dec 31, 2023 | United States | Rest of World |
| Within 5 years | 600 | | 3,700 | |
| 6 to 10 years | 1,300 | | 8,000 | |
| 11 to 15 years | 1,600 | | 11,600 | |
| 16 to 20 years | 400 | | 1,700 | |
| Total | 3,900 | | 25,000 | |
The Company’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. The Company is party to a substantial number of patent licenses, including intellectual property cross-license agreements and other technology agreements, and also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.
PRINCIPAL PARTLY OWNED COMPANIES
The Company’s principal nonconsolidated affiliates at December 31, 2023, including direct and indirect ownership interest for each, are listed below:
| | | | | | | | | | | |
| Principal Nonconsolidated Affiliate | Country | Ownership Interest | Business Description |
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins |
| | | |
| | | |
| | | |
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures ethylene and ethylene glycol |
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | Manufactures styrene monomer |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | Manufactures propylene and ethylene |
Sadara Chemical Company 2 | Saudi Arabia | 35.00 | % | Manufactures chlorine, ethylene, propylene and aromatics for internal consumption and manufactures and sells polyethylene, ethylene oxide and propylene oxide derivative products, and isocyanates |
| The SCGC-Dow Group: | | | |
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | Manufactures polyethylene |
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | Manufactures polystyrene |
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | Manufactures styrene |
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | Manufactures latex and specialty elastomers |
1.The Company's effective ownership of Map Ta Phut is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.50 percent through its equity interest in Siam Polyethylene Company Limited.
2.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. In March 2021, Dow and the Saudi Arabian Oil Company agreed to transition the marketing rights and responsibilities for Sadara’s finished products to levels more consistent with each partner’s equity ownership. This transition began in July 2021 and is being implemented through 2026.
See Note 10 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.
SUSTAINABILITY STRATEGY
Dow believes a sustainable future is attainable, but only if everyone comes together to drive forward science- and technology-based solutions to address global challenges. Dow is collaborating across value chains and using its materials science to scale business solutions and deliver transformational change that leads to a more circular, lower-carbon, more resource-efficient society and a healthier planet. By constantly innovating and improving how the Company sources, designs, manufactures and delivers material solutions, Dow is helping its customers make a positive contribution to society and the environment, while opening new paths for business growth.
Dow’s sustainability efforts are focused on three areas that are critical to the Company’s business and where Dow believes it can use its science, global reach and partnerships to make a positive impact. These focus areas guide Dow’s business decisions and sustainability framework.
Climate Protection – Dow is committed to protecting the planet by combating climate change, including contributing to lower CO2e emissions and conserving and restoring natural resources, such as native habitats and freshwater, within its operations and value chains.
Circular Economy – Dow is taking a leading role in driving a more circular economy by designing for circularity, building new business models for circular materials, and partnering in an industrial ecosystem to end plastic pollution.
Safer Materials – Dow is innovating new materials that offer more favorable health and environmental profiles over their life cycles than incumbent solutions.
To accelerate the Company's sustainability commitments, Dow has implemented and continues to expand on its multi-decade targets intended to put the Company on a path to achieve carbon neutrality and reduce plastic waste, which include the following:
•By 2030, Dow will reduce its net annual Scope 1 and 2 CO2e emissions by 5 million metric tons compared with its 2020 baseline, representing a 15 percent reduction from 2020 and a 30 percent reduction in greenhouse gas emissions since 2005.
•By 2030, Dow will transform plastic waste and other forms of alternative feedstock to commercialize 3 million metric tons of circular and renewable solutions annually. To do this, Dow is expanding its efforts to build industrial ecosystems to collect, reuse or recycle plastic waste and address waste management gaps. Dow is also working to close the loop by helping its customers design for recyclability and increasing its use of feedstocks from recycled and renewable sources.
•By 2050, Dow intends to be carbon neutral (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits).
The Company's progress in achieving these targets is reviewed regularly by management and with the Environment, Health, Safety & Technology Committee of the Dow Inc. Board of Directors ("Board").
Additional discussion of matters pertaining to the environment, including actions related to the Company's sustainability strategy, is included in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 14 to the Consolidated Financial Statements. In addition, detailed information on the Company's performance regarding environmental matters and goals, including the Company's annual INtersections Report, is accessible through the Science & Sustainability webpage at www.dow.com/sustainability. Dow's website and its content are not deemed incorporated by reference into this report.
HUMAN CAPITAL
Dow’s ambition – to be the most innovative, customer-centric, inclusive and sustainable materials science company in the world – starts with people. Dow employees create innovative and sustainable materials science solutions to advance the world. Every answer starts with asking the right questions, which is why the diverse, dedicated Dow team collaborates with customers and other stakeholders to find solutions to the world's toughest challenges. The Company's values of Respect for People, Integrity and Protecting Our Planet are fundamental beliefs that are ingrained in each action taken, can never be compromised and are the foundation of the Company's Code of Conduct.
The Company is dedicated to employee health and safety and is invested in fostering a culture of inclusion and continuous learning while supporting its employees through its Total Rewards plans and programs to ensure all Dow employees are respected, valued and encouraged to make their fullest contribution.
Safety, Employee Health and Well-Being
A commitment to safety and employee health is ingrained in Dow’s culture and central to how the Dow team works. Dow uses a comprehensive, integrated operating discipline management system that includes policies, requirements, best practices and procedures associated with health and safety. In 2023, the Company achieved an Occupational Safety and Health Administration Total Recordable Injury and Illness Rate of 0.18, based upon the number of incidents per 200,000 work hours for employees and contractors globally. This measure, along with a consistent set of globally applied, as well as locally defined, leading indicators of safety performance, are cornerstones of Dow's worker protection program. The Company maintains a robust, globally tracked near-miss program for situations that did not result in an injury, but could have been high consequence had circumstances been slightly different. This data is reviewed regularly by management and the Environment, Health, Safety & Technology Committee of the Board, is visible to all employees and is built into digital dashboards that include actual injury information for every Dow location around the world.
As part of the Company’s total worker health strategy, employees have access to occupational health services at no cost through on-site, Company-managed clinics at its manufacturing locations or an offsite provider overseen by Dow Occupational Health. In addition to access for occupational health needs, the Company also has a comprehensive well-being strategy, which is framed across four dimensions – physical, mental, community and financial well-being – for an approach that is holistic, global, employee centered and outcome-driven. Key ambitions across the four dimensions focus on elements such as workplace stress, psychological safety, resiliency, workload, healthy eating and activities, and social community and inclusion opportunities.
Dow maintains active Crisis Management Teams at the corporate level and in each region where the Company operates to ensure appropriate plans are in place in the event of natural disasters or other emergencies.
Inclusion, Diversity & Equity
At Dow, inclusion, diversity and equity (“ID&E”) is a business imperative evidenced by inclusion serving as a core pillar of the Company's ambition statement. A strategic and intentional focus on ID&E not only enhances the employee experience and satisfaction, but it also supports innovation, customer experience and understanding of the communities the Company serves. In 2023, Dow advanced to #7 in the DiversityInc Top 50 Companies for Diversity and for the third year in a row was named to the Fortune 100 Best Companies to Work For® list. These are significant accomplishments that represent only two of the many awards the Company received related to its efforts in ID&E.
Dow's strategic ID&E efforts are directed by its Chief Inclusion Officer and Office of Inclusion, which supports implementation throughout Dow’s businesses, functions and regions. Three Inclusion Councils drive the ID&E strategy from the top of the Company down and across the enterprise:
•The President’s Inclusion Council defines and supports Dow's ID&E strategy from the top.
•A Senior Leaders’ Inclusion Council influences change through senior and mid-level business, geographic and functional leaders.
•A Joint Inclusion Council collaborates to drive maximum employee engagement through Employee Resource Group (“ERG”) leadership.
Dow’s 10 ERGs are representative of the Company’s diverse workforce and help foster an inclusive workplace. Dow’s ERGs are organized around historically underrepresented groups including women, people of color, LGBTQ+ individuals, people with disabilities and veterans, as well as groups both for professionals who are new to the Company and those who are 50 years or older. Senior leaders serve as executive sponsors for each ERG. In addition, Dow has a Paid Time Off Policy which provides employees time off to volunteer and engage in ERG activities. In 2023, 61 percent of Dow’s workforce and 98 percent of Dow people leaders participated in at least one ERG.
Inclusion and diversity metrics, including ERG participation, global representation of women and U.S. ethnic minority representation in the United States, are published internally on a quarterly basis, are embedded in the same scorecard where Dow’s financial and safety results are measured and are directly connected to leaders’ annual performance and compensation. This data is reviewed regularly by management and with the Compensation and Leadership Development Committee of the Board.
Global pay disparity studies have been conducted at Dow for over 20 years to assess fair treatment between genders and between U.S. ethnic minorities and non-minorities and to ensure Dow’s pay practices are being implemented as intended. As part of Dow’s ID&E efforts, the Company will continue to conduct annual pay gap studies and actively engage with an external partner to further develop and continue to apply best practices.
Total Rewards
To achieve Dow’s ambition to be the most innovative, customer-centric, inclusive and sustainable materials science company in the world, the Company invests in its people, who are at the heart of the Company, through its Total Rewards plans and programs. The Total Rewards plans and programs are structured to attract, retain and motivate Dow’s employees. Dow’s Total Rewards are designed to support all aspects of its employees – their compensation, future, health, life and career. The Company is committed to aligning its strategy and culture with the needs of its employees and optimizing the investment Dow makes in Total Rewards.
As a global company with a diverse team, Dow aims to ensure employees have access to resources that allow them to meet their unique needs. That is why Dow has established three guiding principles that define its Total Rewards strategy: 1) ensuring programs are market competitive, while leading peer companies in equitable and inclusive offerings; 2) providing employees with offerings that align with their preferences; and 3) offering programs that promote fulfilling career and life experiences. Dow adapts its programs for geography-specific requirements, as well as cultural standards and expectations.
Employee Engagement, Learning and Development
Throughout an employee’s career, the Company supports development through a blend of learning approaches including in-person and virtual trainings, digital learning platforms, on-the-job training and a series of leadership development programs. Annually, all employees have the opportunity to provide feedback on employee experience and offer insights into how to improve Dow’s working culture through a global employee opinion survey. A key component of the survey is an opportunity for employees to provide feedback on the effectiveness of their direct leader. In 2023, 72 percent of employees responded to the annual survey. The feedback received through this annual survey and additional quarterly checkpoint surveys is used to drive actions to improve the overall Dow experience for employees across the Company, as well as to support continuous improvement in leader effectiveness.
At December 31, 2023, the Company permanently employed approximately 35,900 people on a full-time basis.
| | | | | |
| * | U.S. ethnic minorities include employees who self-identify as American Indian or Alaskan Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or other Pacific Islander, or two or more races. Employees who self-identify as White are considered U.S. Non-Minority. |
Additional information regarding Dow’s human capital measures can be found in the Company's annual INtersections Report, as well as Dow's U.S. Equal Employment Opportunity Report (EEO-1), accessible through the Inclusion and Diversity webpage at www.dow.com/diversity. Dow’s website and its content are not deemed incorporated by reference into this report.
OTHER ACTIVITIES
The Company engages in property and casualty insurance and reinsurance primarily through its Liana Limited subsidiaries.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company's executive officers as of January 31, 2024:
| | | | | | | | | | | |
| Name, Age | Present Position with Registrant | Year Elected as Executive Officer of Dow Inc. | Other Business Experience since January 1, 2019 |
| Lisa Bryant, 48 | Chief Human Resources Officer | 2022 | DOW INC.: Chief Human Resources Officer since November 2022. TDCC: Chief Human Resources Officer since November 2022; Senior Global Human Resources Director for Finance, Legal, Public Affairs, and Government Affairs from May 2020 to November 2022; North America Human Resources Director from February 2019 to May 2020; Global Human Resources Director for Marketing & Sales from April 2017 to February 2019; Global Human Resources Director for Coatings, Monomers & Plastics Additives from March 2015 to February 2019. |
| Karen S. Carter, 53 | President, Packaging & Specialty Plastics | 2019 | DOW INC.:President, Packaging & Specialty Plastics since November 2022; Chief Human Resources Officer and Chief Inclusion Officer from April 2019 to November 2022. TDCC:President, Packaging & Specialty Plastics since November 2022; Chief Human Resources Officer from October 2018 to November 2022; Chief Inclusion Officer from July 2017 to November 2022. |
| Andrea L. Dominowski, 49 | Controller and Vice President of Controllers | 2024 | DOW INC.: Controller and Vice President of Controllers effective February 1, 2024. TDCC:Controller and Vice President of Controllers effective February 1, 2024. Global Business Director for Silicone Feedstocks & Intermediates from August 2020 to February 2024. Regional Finance Director for North America from January 2018 to August 2020. |
| Ronald C. Edmonds, 66 | Controller and Vice President of Controllers and Tax | 2019 | DOW INC.: Controller and Vice President of Controllers and Tax from April 2019 to February 1, 2024. TDCC:Controller and Vice President since November 2009; Vice President of Tax from January 2016 to February 1, 2024. |
| Jim Fitterling, 62 | Chair and Chief Executive Officer | 2018 | DOW INC.: Chair since April 2020; Chief Executive Officer since August 2018. TDCC:Chair since April 2020; Chief Executive Officer since July 2018. |
| Mauro Gregorio, 61 | President, Performance Materials & Coatings | 2020 | DOW INC.: President, Performance Materials & Coatings since February 2020; Business President, Performance Materials & Coatings from April 2019 to February 2020. TDCC: President, Performance Materials & Coatings since February 2020; Business President, Consumer Solutions from January 2016 to February 2020. |
| Jane M. Palmieri, 54 | President, Industrial Intermediates & Infrastructure | 2020 | DOW INC.: President, Industrial Intermediates & Infrastructure since February 2020. Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2019 to February 2020. TDCC: President, Industrial Intermediates & Infrastructure since February 2020; Business President, Polyurethanes and Chlor-Alkali & Vinyl from April 2018 to February 2020. |
| John M. Sampson, 63 | Senior Vice President, Operations, Manufacturing & Engineering | 2021 | DOW INC.:Senior Vice President, Operations, Manufacturing & Engineering since October 2020. OLIN CORPORATION:Executive Vice President, Business Operations from April 2019 to September 2020; Vice President, Business Operations from October 2015 to April 2019. |
| A. N. Sreeram, 56 | Senior Vice President of Research & Development and Chief Technology Officer | 2019 | DOW INC.: Senior Vice President of Research & Development and Chief Technology Officer since April 2019. TDCC: Chief Technology Officer since October 2015; Senior Vice President of Research & Development since August 2013. |
| Jeffrey L. Tate, 54 | Chief Financial Officer | 2023 | DOW INC.: Chief Financial Officer since November 2023. LEGGETT & PLATT INCORPORATED: Executive Vice President and Chief Financial Officer from September 2019 to June 2023. TDCC: Chief Financial Officer since November 2023. Vice President and Business Finance Director, Packaging & Specialty Plastics from August 2017 to August 2019. |
| Amy E. Wilson, 53 | General Counsel and Corporate Secretary | 2018 | DOW INC.: General Counsel and Corporate Secretary since April 2019; Secretary from August 2018 to April 2019. TDCC: General Counsel since October 2018; Corporate Secretary since February 2015. |
The factors described below represent the Company's principal risks.
CLIMATE CHANGE - RELATED RISKS
Climate Change: Climate change-related risks and uncertainties, legal or regulatory responses to climate change and failure to meet the Company’s climate change commitments could negatively impact the Company’s results of operations, financial condition and/or reputation.
The Company is subject to increasing climate-related risks and uncertainties, many of which are outside of its control. Climate change may result in more frequent and damaging severe weather and weather-related events, potential changes in precipitation patterns and extreme variability in weather patterns. These short- and long-term weather and weather-related events can disrupt the operations of the Company as well as those of its customers, partners and vendors due to damage to local infrastructure and other property damage limiting site access, and causing water scarcity and lack of access to high-quality water, among other factors. These risks and uncertainties may also directly or indirectly impact decisions to invest in the construction and/or renovation of new or existing manufacturing sites and other Company facilities and locations.
The transition to lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements and increases in climate-related lawsuits, insurance premiums and implementation of more robust disaster recovery and business continuity plans could increase costs to maintain or resume the Company’s operations or achieve its sustainability commitments in the expected timeframes, which would negatively impact the Company’s results of operations.
In 2020, the Company announced commitments to reduce its net annual Scope 1 and 2 CO2e emissions by an additional 5 million metric tons, or 15 percent compared with its 2020 baseline, by 2030 (the 2020 baseline represents a 15 percent reduction in greenhouse gas emissions since 2005) and 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). In November 2023, the Board approved the final investment decision to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, a key element for the Company to achieve its 2030 greenhouse gas emissions reduction commitment.
The commitments reflect the Company's current plans and targets and are not guarantees that it will be able to achieve them. The execution and achievement of the Company's commitments within projected cost estimates and expected timeframes, including the success of the Company's integrated ethylene cracker and derivatives facility in Alberta, Canada, are subject to risks and uncertainties which include, but are not limited to: advancement, availability, development and affordability of technology necessary to achieve these commitments; unforeseen design, operational and technological difficulties; availability and cost of necessary materials and components; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; changes in public sentiment and political leadership; and the Company’s ability to comply with changing regulations, taxes, mandates or requirements related to greenhouse gas emissions or other climate-related matters, including prescriptive reporting of climate-related matters. In addition, standards for tracking and reporting on sustainability matters have not been harmonized, continue to evolve and may change over time, which could result in significant revisions to the Company's performance metrics, commitments or reported progress in achieving such commitments. Given the focus on sustainable investing, if the Company fails to meet its climate change commitments within the committed timeframe, coupled with its significant investments to meet those commitments, and adopt policies and practices to enhance sustainability, the Company’s reputation and its customer and other stakeholder relationships could be negatively impacted, reducing demand for the Company's products, and it may be more difficult for the Company to compete effectively or gain access to financing on acceptable terms when needed, which could negatively impact the Company’s financial condition, results of operations and cash flows.
PANDEMIC - RELATED RISKS
Public Health Crisis: A public health crisis or global outbreak of disease could have a negative effect on the Company's manufacturing operations, supply chain and workforce, creating business disruptions that couldhave a substantial negative impact on the Company’s results of operations, financial condition and cash flows.
A public health crisis, including a pandemic similar in nature to coronavirus disease 2019, could impact all geographic regions where Dow products are produced and sold. The global, regional and local spread of a public health crisis could result in, and in the past has resulted in, significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans,
mask and vaccination mandates, restrictions on large gatherings and restricted access to certain corporate facilities and manufacturing sites. Business disruptions and market volatility resulting from a public health crisis could have a substantial negative impact on the Company’s results of operations, financial condition and cash flows. The adverse impact of a pandemic could include, and in the past has included, without limitation, fluctuations in the Company’s stock price due to market volatility; a decrease in demand for certain Company products; price declines; reduced profitability; supply chain disruptions impeding the Company’s ability to ship and/or receive product; temporary idling or permanent closure of select manufacturing facilities and/or manufacturing assets; asset impairment charges; interruptions or limitations to manufacturing operations imposed by local, state or federal governments; reduced market liquidity and increased borrowing costs; workforce absenteeism and distraction; labor shortages; customer credit concerns; increased cybersecurity risk and data accessibility disruptions due to remote working arrangements; workforce reductions and fluctuations in foreign currency markets. Additional risks may include, but are not limited to: shortages of key raw materials; potential impairment in the carrying value of goodwill; additional asset impairment charges; increased obligations related to the Company’s pension and other postretirement benefit plans; and tax valuation allowance; and may also have the effect of heightening many of the other risks described in this "Risk Factors" section.
MACROECONOMIC RISKS
Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions, such as high interest rates, could reduce the Company’s flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company’s results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations; trade agreements; import and export controls; taxes; and duties and tariffs. The imposition of additional regulations, controls, taxes and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume, which could negatively impact the Company’s results of operations.
Economic conditions around the world, and in certain industries in which the Company does business, also impact sales price and volume and affect the efficacy of the Company's supply chain. For example, market uncertainty and an economic downturn driven by inflationary pressures have recently reduced demand for the Company's products, resulting in decreased sales volume. Adverse economic conditions also caused supply chain constraints. These factors have had a negative impact on the Company's results of operations. Additionally, political tensions; war, including the ongoing conflicts in the Middle East and between Russia and Ukraine with the related sanctions and export restrictions; terrorism; epidemics; pandemics; or political instability in the geographic regions or industries in which the Company sells its products could also reduce demand for the Company's products and result in decreased sales volume or supply chain disruptions, which could have a negative impact on the Company’s results of operations.
In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. Dow suspended purchases of feedstocks and energy from Russia and has significantly reduced its operations and product offerings in the country. Dow has also stopped all investments in Russia and is only supplying limited essential goods to Russia. These actions have not had and are not expected to have a material impact on the Company's financial condition or results of operations. However, the fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company’s financial condition, results of operations and cash flows. These include decreased sales; supply chain and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on and availability of raw materials and energy, most notably in Europe; and heightened cybersecurity threats. Further, the intensity and duration of the conflict in the Middle East and potential expansion of the hostilities in the region are difficult to predict and could disrupt the Company's supply chain operations, which could have a negative impact on the Company's results of operations.
In addition, volatility and disruption of financial markets could limit customers’ ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on the Company’s results of operations. The Company’s global business operations also give rise to market risk exposure related to changes in inflation, foreign currency exchange rates, including the impact of foreign currency exchange rates resulting from highly inflationary economies such as Argentina, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, the Company enters into hedging and other investment transactions, where deemed appropriate, pursuant to established guidelines and policies. If the Company fails to effectively manage such risks, it could have a negative impact on its results of operations.
Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively impact its financial condition and results of operations.
While the Company has frozen its defined benefit plans and other postretirement benefit plans in the United States, the Company continues to sponsor these plans as well as defined benefit pension plans and other postretirement benefit plans in a number of other countries (together with U.S. plans, the “plans”). The assets of the Company's funded plans are primarily invested in fixed income securities, equity securities of U.S. and foreign issuers and alternative investments, including investments in real estate, private equity and absolute return strategies. Changes in the market value of plan assets, investment returns, discount rates, mortality rates and regulations may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.
Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may result in excess capacity which can disrupt regional industry supply and demand balances, particularly in Europe, Middle East, Africa and India ("EMEAI") and Asia Pacific, resulting in downward pressure on prices and decreased operating rates, which could negatively impact the Company’s results of operations.
LEGAL AND REGULATORY RISKS
Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, climate change, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In addition, the Company may have costs related to environmental remediation and restoration obligations associated with past and current sites as well as related to its past or current waste disposal practices or other hazardous materials handling. Although management will estimate and accrue liabilities for these obligations, it is reasonably possible that the Company’s ultimate cost with respect to these matters could be significantly higher, which could negatively impact the Company’s financial condition and results of operations. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. For additional information, see Part II, Item 7. Other Matters, Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Health and Safety: Increased concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of
market acceptance and continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, its reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
Litigation: The Company is party to a number of 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 the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) as described below, it is the opinion of the Company’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company’s consolidated financial statements.
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. At December 31, 2023, Union Carbide's total asbestos-related liability, including future defense and processing costs, was $867 million ($947 million at December 31, 2022).
Plastic Waste: Increased concerns regarding plastic waste in the environment, resulting in the demand for substitute materials; brand owners selectively reducing their use of plastic products; a lack of plastic waste collection and recycling infrastructure and a failure to develop circular plastic materials or a circular economy for plastics; and/or the development of new or more restrictive regulations and rules related to plastic waste and related emissions could reduce demand for the Company’s plastic products and could negatively impact the Company’s financial results.
Plastics have faced increasing public scrutiny due to low recycling rates and the presence of plastic waste in the environment, including the world’s oceans and rivers, and pollution associated with the manufacture of plastics. Accordingly, regulators, manufacturers, brand owners and consumers are driving demand for materials made with recycled content, bio-based materials and materials made with low or zero carbon emission options, and local, state, federal and foreign governments are proposing and implementing regulations to address the global plastic waste challenge, including, but not limited to, extended producer responsibility fees, recycled content mandates, taxes on plastics at the national level and bans on non-essential items. Further, an intergovernmental negotiation committee is in the process of negotiating an international legally binding instrument to end plastic pollution.
Dow is one of the world’s largest plastics producers and sells plastic products that continue to enable increasing quality and standards of living and offer significant greenhouse gas reductions compared with alternative solutions. In order to both maintain the benefits of plastics, meet growing demand for circular and renewable plastics and advance efforts to end plastic pollution in the environment, the Company is partnering with other organizations to bring the waste back into the circular economy. The Company's Transform the Waste target (announced in October 2022) aims to transform plastic waste and other forms of waste to commercialize 3 million metric tons of circular and renewable solutions by 2030. Further, the Company has committed to reducing its net annual greenhouse gas emissions and intends 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).
Without the expansion of proper waste collection and recycling infrastructure and the development of a circular economy for plastics at scale, along with increased pressure to reduce the use of plastics, the Company could experience reduced demand for its polyethylene products, which could negatively impact the Company’s financial condition, results of operations and cash flows.
OPERATIONAL AND STRATEGIC RISKS
Company Strategy: Implementing certain elements of the Company's strategy could negatively impact its financial results.
The Company currently has manufacturing operations, sales and marketing activities, and joint ventures in emerging geographic regions. Activities in these geographic regions are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project
funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement.
Additionally, disruptions to supply chains, distribution chains and/or public and private infrastructure and services, including those caused by industry capacity constraints, material availability, global logistics delays, and third party service and material providers; and constraints arising from, among other things, the transportation capacity of ocean shipping containers; global labor availability constraints; and/or disruptions to the Company's site operations caused by tenant and neighboring manufacturing operations, as well as the Company's ability to attract and retain a talented workforce, could materially and adversely impact the Company's business operations.
If the manufacturing operations, supply chains, sales and marketing activities are not reliable and/or the implementation of the Company's projects is not successful, it could adversely affect the Company’s financial condition, cash flows and results of operations.
Cybersecurity Threat: Disruption of the Company's information technology, data security, and other operating or third-party systems, including disruption of the ability to safely and reliably operate the Company's facilities; the risk of loss of the Company’s proprietary information including trade secrets, know-how or other sensitive business information; and the risk of loss or security of the private data of the Company, its customers and its employees could negatively impact the Company’s business strategy, results of operations, financial condition and reputation.
The Company relies on various information systems, including information systems operated by third-parties, to support safe, efficient and reliable business and operating processes and activities and to safeguard its proprietary information assets, including trade secrets, know-how and other sensitive, business critical information. These systems are critical to the Company's process to accurately report financial results for management and external reporting purposes and to ensure compliance with financial reporting, legal and tax requirements in the United States and around the world. These systems may also be used to collect and process sensitive customer and personal employee data the Company may be legally required to protect.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyberattacks continue to pose risks to the Company’s products, systems and networks, and the confidentiality, availability and integrity of the Company’s data. These vulnerabilities also expose the Company’s customers, suppliers and third-party service providers to loss. In addition, the Company is exposed to similar risks resulting from cyberattacks that are experienced by its suppliers and other vendors. As a result, cyberattacks, internal and external security breaches, and attacks and security breaches of third-party systems could disrupt the Company's operations, compromise Dow’s proprietary and confidential, business critical information, jeopardize the Company's ability to safeguard and maintain accurate data, including personal data, and harm the Company's reputation which could result in litigation, enforcement actions, including fines, penalties and disruption of the Company's right to operate in certain jurisdictions, and significant remediation costs. Additionally, the Company’s use of artificial intelligence software may create additional risks related to the unintentional disclosure of proprietary, confidential, personal or otherwise sensitive information.
While the Company has a comprehensive cybersecurity program that is continuously reviewed, maintained and upgraded, cyberattacks by nation-state organizations, crime organizations and other hackers have become increasingly sophisticated, and it is possible for such attacks to remain undetected for an extended period of time. Such attacks could have a material negative impact on the Company’s business strategy, results of operations, financial position and reputation. More information on the Company’s processes for assessing, identifying and managing material risks from cybersecurity threats, including management’s role and the Board's oversight of such processes, can be found in Item 1C. Cybersecurity.
Goodwill: An impairment of goodwill could negatively impact the Company’s financial results.
At least annually, the Company assesses goodwill for impairment. If testing indicates that goodwill is impaired, the carrying value is written down based on fair value with a charge against earnings. Where the Company utilizes a discounted cash flow methodology in determining fair value, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations. See Note 11 to the Consolidated Financial Statements for additional information regarding the Company's goodwill impairment testing.
Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations at each site, including maintenance of its facilities, the transportation of supplies and products, cyberattacks, pandemics and other public health-related events or severe weather conditions and other natural phenomena (such as freezing, drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.
Major hurricanes and other weather-related events have caused significant disruption in the Company's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of its products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact the Company's results of operations. Other non-weather-related unplanned events have also caused disruptions in the Company’s operations at various sites. While the Company has processes in place to minimize the risks and impacts of such events, such unplanned future events could negatively impact the Company’s results of operations.
Raw Materials: Availability of purchased feedstock and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks and purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company also purchases natural gas, primarily to generate electricity, electric power to supplement internal generation, and steam.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Power prices often follow general energy trends, and are additionally subject to short-term surfeits and shortages related to, for example, intermittent wind and solar generation, and power generation and transmission outages. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.
While the Company expects abundant and cost-advantaged supplies of natural gas liquids ("NGLs") in the United States to persist for the foreseeable future, if NGLs become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstock and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company’s results of operations.
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| ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
Risk Management and Strategy
The Company has processes in place to identify, assess and monitor material risks from cybersecurity threats, which are part of the Company’s overall enterprise risk management process and have been embedded in the Company’s operating procedures, internal controls and information systems.
Dow's comprehensive cybersecurity and information security framework includes risk assessment and mitigation through a threat intelligence-driven approach, application controls, and enhanced security with ransomware defense. The framework leverages International Organization for Standardizations 27001/27002 standards for general information technology controls, International Society of Automation/International Electrotechnical Commission standards for industrial automation, the National Institute of Standards and Technology Cyber Security
Framework ("NIST CSF") for measuring overall readiness to respond to cyber threats, and Sarbanes-Oxley for assessment of internal controls.
Dow contracts with external firms to assess Dow’s cybersecurity controls relative to its peers using the NIST CSF. Dow also has a third-party risk management program that assesses risks from vendors and suppliers. In addition, the Company maintains business continuity and disaster recovery plans as well as a cybersecurity insurance policy.
Dow has established cybersecurity and information security awareness training programs. Formal training on topics relating to the Company’s cybersecurity, data privacy and information security policies and procedures is mandatory at least annually for all employees, contractors and third parties with access to the Company’s network. Training is administered and tracked through online learning modules. Training topics include how to escalate suspicious activities including phishing, viruses, spams, insider threats, suspect human behaviors or safety issues. Based on role and location, some employees receive additional in-depth training to provide more comprehensive knowledge on potential risks related to their individual job responsibilities. Training is supplemented through regular Company communications with frequent updates to educate on the latest adversary trends and social engineering techniques.
Additionally, Dow engages in cyber crisis response simulations to assess Dow’s ability to adapt to information and operational technology threats. Improper or illegitimate use of the Company’s information system resources or violation of the Company’s information security policies and procedures is subject to disciplinary action. Dow’s security posture is supported by a comprehensive defense-in-depth strategy that relies on layers of technology including Multi-Factor Authentication and principles of Zero Trust to ensure that access to information and communication is vetted and secure.
Dow also utilizes internal and external audits and assessments, vulnerability testing, governance processes over outsourced service providers, active risk management and benchmarking against peers in the industry to validate Dow’s security posture. The Company also engages external firms to measure Dow’s NIST CSF maturity level.
No risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
Governance
Role of Management
Dow’s Information Systems organization led by Dow’s Chief Information and Digital Officer, is responsible for administration of the cybersecurity and information security framework and risk management, with oversight by the Audit Committee.
The Company’s Chief Information and Digital Officer has formal education in information technology and extensive experience working in and leading Dow’s information systems and technology function. The Chief Information and Digital Officer receives regular updates on cybersecurity matters, results of mitigation efforts and cybersecurity incident response and remediation.
The Company’s management responsible for developing and executing Dow’s cybersecurity policies is comprised of individuals with either formal education and degrees in information technology or cybersecurity, or with experience working in information technology and cybersecurity, including relevant industry experience in security related industries. Additionally, leaders in the Company’s information technology function receive periodic training and education on cybersecurity related topics. Certain leaders also obtain industry certifications, such as Certified Information Systems Security Professional or Certified Information Security Manager.
The Company’s Cyber Security Operations Center (“CSOC”) serves as the central point for all cybersecurity incidents and reporting, including incidents that directly target employees or Dow internal information systems and incidents originating from third parties. The CSOC provides end-to-end operations for purposes of monitoring, detecting, alerting and responding to cybersecurity incidents. The CSOC evaluates each incident in terms of its impact on the Company’s operations, ability to conduct business with customers and suppliers, brand reputation and health, safety or the environment, and the speed and degree to which the incident has been contained. The CSOC is also responsible for activating the containment and resolution efforts and third-party service providers are engaged where appropriate to support the Company through the resolution of the incident. The CSOC escalates incidents with significant impact and pervasiveness to the Company’s Corporate Crisis Management Team for
further action. After initial identification, the CSOC monitors all cybersecurity incidents for changes in degree of impact or pervasiveness.
Role of the Board
Dow's Board recognizes the importance of cybersecurity in safeguarding the Company’s sensitive data. The Board is responsible for overseeing overall risk management for the Company, including review and approval of the enterprise risk management approach and processes implemented by management to identify, assess, manage and mitigate risk, at least annually. The Board has delegated responsibility for oversight of the Company’s cybersecurity and information security framework and risk management to the Audit Committee of the Board. The Audit Committee receives information and updates at least quarterly and actively engages with senior leaders, including the Chief Information and Digital Officer and Chief Information Security Officer, with respect to the effectiveness of the Company’s cybersecurity and information security framework, data privacy, and risk management. In addition, the Audit Committee receives reports summarizing threat detection and mitigation plans, audits of internal controls, training and certification, and other cyber priorities and initiatives, as well as timely updates from senior leaders on material incidents relating to information systems security, including cybersecurity incidents. The Audit Committee includes members with significant experience and/or expertise in technology or cybersecurity, including information systems.
The Company's corporate headquarters are located in Midland, Michigan. The Company's manufacturing, processing, marketing and research and development facilities, as well as regional purchasing offices and distribution centers are located throughout the world. The Company has investments in property, plant and equipment related to global manufacturing operations. Collectively, the Company operates 98 manufacturing sites in 31 countries. The following table includes the major manufacturing sites by operating segment, including consolidated variable interest entities:
| | | | | | | | | | | |
| Major Manufacturing Sites by Segment | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings |
| Location |
| Bahia Blanca, Argentina | X | | |
| Candeias, Brazil | X | X | |
| Canada: | | | |
| Fort Saskatchewan, Alberta | X | | |
| Prentiss, Alberta | X | | |
| Joffre, Alberta | X | | |
| Zhangjiagang, China | X | X | X |
| Germany: | | | |
| Boehlen | X | X | |
| Leuna | X | | |
| Schkopau | X | X | |
| Stade | | X | |
| Terneuzen, The Netherlands | X | X | |
| Tarragona, Spain | X | X | |
| Map Ta Phut, Thailand | | X | X |
| Barry, United Kingdom | | | X |
| United States: | | | |
| Carrollton, Kentucky | | | X |
| Hahnville, Louisiana | X | X | X |
| Plaquemine, Louisiana | X | X | |
| Midland, Michigan | | | X |
| Deer Park, Texas | | X | X |
| Freeport, Texas | X | X | X |
| Orange, Texas | X | | |
| Seadrift, Texas | X | X | |
| Texas City, Texas | | X | X |
Including the major manufacturing sites, the Company has manufacturing sites and holdings in all geographic regions as follows:
| | | | | |
| Manufacturing Sites by Region |
| Asia Pacific | 16 manufacturing sites in 10 countries |
EMEAI 1 | 35 manufacturing sites in 15 countries |
| Latin America | 15 manufacturing sites in 4 countries |
| U.S. & Canada | 32 manufacturing sites in 2 countries |
1.Europe, Middle East, Africa and India.
Properties of the Company include facilities which, in the opinion of management, are suitable and adequate for their use and will have sufficient capacity for the Company’s current needs and expected near-term growth. All of the Company’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value. No title examination of the properties has been made for the purpose of this report. Additional information with respect to the Company's property, plant and equipment and leases is contained in Notes 9, 13 and 15 to the Consolidated Financial Statements.
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| ITEM 3. LEGAL PROCEEDINGS |
Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc.
For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 14 to the Consolidated Financial Statements.
Environmental Proceedings
On May 17, 2021, the Company received a civil complaint from the State of Texas ("State") on behalf of the Texas Commission on Environmental Quality, filed in the 250th District Court of Travis County, Texas. The suit alleges environmental violations at the Company's Freeport, Texas, site involving several air emissions events, which allegedly occurred at the site between 2016 and 2021. The State is seeking monetary and injunctive relief to prevent recurrence. Discussions between the Company and the Texas Office of the Attorney General are ongoing.
On December 16, 2022, the U.S. Department of Justice filed a complaint and proposed consent decree on behalf of the EPA relating to environmental contamination at the Lower Passaic River Study Area Superfund Site in New Jersey. The EPA filed an amended complaint and proposed consent decree on January 17, 2024. The proposed consent decree includes a requirement that 85 settling defendants, including the Company’s Essex Chemical Corporation subsidiary ("Essex"), make a collective payment of $150 million for the EPA’s past and anticipated future response costs, with Essex’s share of the group settlement costs being $1.15 million.
In June 2023, INEMA, the Bahia, Brazil, state environmental agency notified Dow Brasil Indústria e Comércio de Produtos Químicos Ltda of its intention to impose penalties relating to Dow’s historic brine mining operations on Matarandiba Island, which INEMA alleges have contributed to environmental issues at the location. Discussions between Dow and the relevant government agencies are ongoing.
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| ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
| | | | | | | | |
| Dow Inc. and Subsidiaries | |
| The Dow Chemical Company and Subsidiaries | |
| PART II | |
| | |
| ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Dow Inc. is the direct parent company of The Dow Chemical Company and its consolidated subsidiaries, ("TDCC" and together with Dow Inc., "Dow" or the "Company"), owning all of the outstanding common shares of TDCC. The principal market for Dow Inc.'s common stock is the New York Stock Exchange, traded under the symbol “DOW.”
Dow Inc. has paid dividends on a quarterly basis and expects to continue to do so, subject to approval by the Dow Inc. Board of Directors ("Board").Additional dividend information can be found in Note 16 to the Consolidated Financial Statements and Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
At December 31, 2023, there were 64,818 stockholders of record.
See Part III, Item 11. Executive Compensation for information relating to shares authorized for issuance under Dow Inc.'s equity compensation plans.
The Company grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the form of stock options, stock appreciation rights, performance stock units and restricted stock units. See Note 19 to the Consolidated Financial Statements for additional information.
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of Dow Inc. common stock by the Company during the three months ended December 31, 2023. The Company makes such purchases only during open windows subject to its insider trading policy.
| | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities | Total number of shares purchased as part of the Company's publicly announced share repurchase program | Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program 1 (In millions) |
| Period | Total number of shares purchased | Average price paid per share |
|
| October 2023 | 486,206 | | $ | 48.06 | | 486,206 | | $ | 1,526 | |
| November 2023 | 2,074,955 | | $ | 48.98 | | 2,074,955 | | $ | 1,425 | |
| December 2023 | — | | $ | — | | — | | $ | 1,425 | |
| Fourth quarter 2023 | 2,561,161 | | $ | 48.81 | | 2,561,161 | | $ | 1,425 | |
1.On April 13, 2022, the Board approved a share repurchase program authorizing up to $3.0 billion for the repurchase of the Company's common stock, with no expiration date.
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| ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
STATEMENT ON CURRENCY EXCHANGE RATES
The Company's global business operations give rise to market risk exposure related to changes in foreign currency exchange rates and international capital flows that may be affected by extensive regulations and controls, especially in developing or highly inflationary countries such as Argentina. In December 2023, the Argentina government devalued the Argentine peso, which resulted in pretax charges for foreign currency exchange losses and inventory valuation impacts of $177 million ($52 million related to Packaging & Specialty Plastics, $16 million related to Industrial Intermediates & Infrastructure and $109 million related to Corporate). The Company continues to monitor these situations and take appropriate actions as necessary to manage the financial impact pursuant to established guidelines and policies. If the Company is unable to manage certain exposures in a cost-effective manner it could have a significant negative impact on its future results of operations and cash flows. A detailed discussion of these and other principal risks and uncertainties, which may negatively impact the future results of the Company, are included in Part I, Item 1A. Risk Factors.
ABOUT DOW
Dow is one of the world’s leading materials science companies, serving customers in high-growth markets such as packaging, infrastructure, mobility and consumer applications. The Company's global breadth, asset integration and scale, focused innovation, leading business positions and commitment to sustainability enables the Company to achieve profitable growth and help deliver a sustainable future. Dow operates manufacturing sites in 31 countries and employs approximately 35,900 people.
In 2023, the Company had annual sales of $45 billion, of which 37 percent were to customers in the U.S. & Canada; 33 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 30 percent were to customers in Asia Pacific and Latin America.
In 2023, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Cuba, Iran, the Democratic People's Republic of Korea (North Korea) and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.
OVERVIEW
The following is a summary of the results for the Company for the year ended December 31, 2023:
The Company reported net sales in 2023 of $45 billion, down 22 percent from $57 billion in 2022, with decreases across all geographic regions and operating segments, and driven by a decrease in local price of 16 percent and a volume decrease of 6 percent.
Local price decreased 16 percent compared with 2022, with decreases in all operating segments and geographic regions, driven by slower global macroeconomic activity creating unfavorable supply and demand dynamics, industry supply additions and lower global energy and feedstocks costs. Local price decreased in Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates & Infrastructure (down 14 percent) and Performance Materials & Coatings (down 15 percent).
Volume decreased 6 percent compared with 2022, with decreases in Packaging & Specialty Plastics (down 5 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Volume decreased in the U.S. & Canada (down 6 percent), EMEAI (down 9 percent), and Asia Pacific (down 4 percent), which was partially offset by an increase in Latin America (up 4 percent).
Currency impact on net sales was flat compared with 2022.
Restructuring and asset related charges - net were $528 million in 2023 primarily reflecting restructuring actions approved by the Board in January 2023. The restructuring charges consisted of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million and were partially offset by other asset related credit adjustments of $7 million related to a prior restructuring program.
Equity in losses of nonconsolidated affiliates was $119 million in 2023, compared with earnings of $268 million in 2022, primarily due to declines at Sadara and the Kuwait joint ventures.
Sundry income (expense) - net for Dow Inc. and TDCC was expense of $280 million and $327 million, respectively, in 2023, compared with income of $727 million and $714 million, respectively, in 2022. Sundry income (expense) - net decreased primarily due to a non-cash settlement charge related to the Company's pension de-risking activities and higher foreign currency exchange losses, which included the impact of the December 2023 devaluation of the Argentine peso. Income from the successful and final resolution and recognition of a long-running patent infringement award was included in 2022.
Net income available for Dow Inc. and TDCC common stockholder(s) was $589 million and $556 million, respectively, in 2023, compared with $4,582 million and $4,583 million, respectively, in 2022. Earnings per share for Dow Inc. was $0.82 per share in 2023, compared with $6.28 per share in 2022.
In 2023, Dow Inc. declared and paid dividends to common stockholders of $2.80 per share ($1,972 million).
In 2023, Dow Inc. repurchased $625 million of the Company's common stock.
Other notable events and highlights from the year ended December 31, 2023 include:
•On January 25, 2023, the Board approved restructuring actions ("2023 Restructuring Program") to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. This program included a global workforce cost reduction program, decreased turnaround spending and actions that rationalized the Company’s manufacturing assets, which included asset write-down and write-off charges and related contract termination fees.
•On April 25, 2023, the Company announced that it had selected Linde as its industrial gas partner for the supply of circular hydrogen and nitrogen for its Fort Saskatchewan Path2Zero investment.
•On May 11, 2023, Dow Inc. announced Seadrift, Texas, as the location of its small modular nuclear reactor project as part of a joint development agreement with X-energy.
•On June 15, 2023, Fitch Ratings affirmed TDCC’s BBB+ long-term credit rating and announced a short-term credit rating upgrade to F1 from F2, and also revised its long-term outlook from positive to stable. On
August 22, 2023, Standard and Poor's affirmed TDCC's BBB and A-2 rating, and revised its outlook from positive to stable. These credit agencies' decisions were made as part of their annual review process and reflect the Company's supportive financial policies and strong operating performance.
•On June 19, 2023, Dow Inc. released its INtersections Progress Report, demonstrating how the Company's continued focus and actions align to its ambition and goal to deliver value growth; best-in-class performance; and innovative, sustainable solutions to address global challenges.
•On July 14, 2023, an incident occurred that included an explosion and subsequent fire at Dow's Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana. There were no injuries reported from the incident and it was limited to the Glycol-2 unit with minimal disruption to other site operations. The Company completed a root cause investigation and is executing a plan to restore operations. The Company's estimated impact on pretax earnings from the incident is $100 million per quarter. The Glycol-2 unit is expected to resume operations in the second quarter of 2024.
•On October 24, 2023, the Company announced that Howard Ungerleider, President and Chief Financial Officer, had elected to retire in January 2024 after 33 years of service with Dow.
•On October 24, 2023, the Company announced that Jeffrey L. Tate had been named Chief Financial Officer.
•On November 28, 2023, the Company announced the Board declared Final Investment Decision on the Company's Fort Saskatchewan Path2Zero investment to build the world's first net-zero Scope 1 and 2 emissions integrated ethylene cracker and derivatives facility in Alberta, Canada.
•On December 18, 2023, the Company announced that Ronald C. Edmonds, Controller and Vice President of Controllers and Tax, had elected to retire in July 2024, after 31 years of service with Dow.
•On December 18, 2023, the Company announced that Andrea L. Dominowski had been named Controller and Vice President of Controllers effective February 1, 2024.
•Dow was named on the Top 100 Global Innovators™ list for the 12th consecutive year.
•Dow received a record-setting nine 2023 Edison Awards™ (five gold, three silver and one bronze), once again earning more awards than any other organization for the sixth consecutive year.
•Dow was named to the JUST 100 list, placing 55th overall, an 11-place improvement from last year, and securing the top spot for Communities in the Chemicals sector.
•Dow was named to Bloomberg’s 2022 Gender-Equality Index for the third consecutive year.
•Dow earned a spot in the S&P Global Sustainability Yearbook, recognizing the Company as a top industry performer.
•Dow was honored as a winner of a 2023 Artificial Intelligence Award for the development of technology that identifies and predicts corrosion failures in metal coatings.
•Dow received five 2023 BIG Innovation Awards from the Business Intelligence Group™, the most received in a single Business Intelligence Group™ Awards program by the Company.
•Dow was recognized with a 2023 CIO 100 Award for its successful Smart Search tool, powered by CAS.
•Dow was titled a Supplier Engagement Leader by CDP, a result of actions taken by the Company to address climate change.
•Dow advanced to seventh place on the 2023 DiversityInc Top 50 Companies for Diversity list making it the sixth consecutive year on the list. Dow was also included on 15 of DiversityInc's Specialty Lists including: Top Companies for Executive Diversity Councils, Top Companies for People with Disabilities, Top Companies for Black Executives, Top Companies for Latino Executives, Top Companies for Executive Women, Top Companies for Employee Resource Groups and Top Companies for Environmental, Social and Governance.
•Dow's EVOWASH™ Antifoam Agents and Readily Biodegradable Detergents and Dow's LuxSense™ Silicone Leather each received a SEAL (Sustainability, Environmental Achievement & Leadership) Sustainable Innovation Award. Dow's SYL-OFF™ EM-7920NF Emulsion Coating was a winner of the SEAL Sustainable Product Award.
•Dow received five awards (Overall Winner, three golds, one silver) at the annual U.S Customer Experience Awards.
•For the seventh consecutive year, Dow received a top score on the Disability Equality Index™, placing the Company among the Best Places to Work for Disability Inclusion™ for 2023.
•Dow Technology won the 2023 ICIS Innovation Award which recognizes companies that are paving the way in product, process, and sustainability innovations across the chemicals industry.
•Dow was named one of the 2023 PEOPLE® Companies that Care by Great Place to Work® and PEOPLE® for the fourth consecutive year.
•Dow was honored by Great Place to Work® and Fortune as one of the World's Best Workplaces. Dow was also certified as a Great Place to Work® in 13 countries and ranked on 10 national Best Workplaces lists, including the Fortune 100 Best Companies to Work For® list in the United States for the third consecutive year.
•Dow was named to the Dow Jones Sustainability World Index by S&P Dow Jones Indices, the world's leading index provider focused on providing essential sustainability intelligence.
In addition to the highlights above, the following events occurred subsequent to December 31, 2023:
•On January 19, 2024, Moody's Investors Service affirmed TDCC's Baa1 and P-2 rating, and affirmed its outlook of stable.
•On January 25, 2024, the Company published its Green Finance Framework and related Second Party Opinion on its website, to support the execution of its sustainability strategy.
RESULTS OF OPERATIONS
For comparison of results of operations for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
Net Sales
The following tables summarize net sales and sales variances by operating segment and geographic region from the prior year:
| | | | | | | | | |
| Summary of Sales Results | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 44,622 | | $ | 56,902 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Variances by Operating Segment and Geographic Region |
| 2023 | 2022 |
| Percentage change from prior year | Local Price & Product Mix | Currency | Volume | | Total | Local Price & Product Mix | Currency | Volume | | Total |
| Packaging & Specialty Plastics | (16) | % | — | % | (5) | % | | (21) | % | 7 | % | (3) | % | — | % | | 4 | % |
| Industrial Intermediates & Infrastructure | (14) | | (1) | | (9) | | | (24) | | 11 | | (5) | | (7) | | | (1) | |
| Performance Materials & Coatings | (15) | | (1) | | (5) | | | (21) | | 21 | | (4) | | (6) | | | 11 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
| Total, excluding the Hydrocarbons & Energy business | (15) | % | (1) | % | (4) | % | | (20) | % | 10 | % | (4) | % | (5) | % | | 1 | % |
| U.S. & Canada | (15) | % | — | % | (6) | % | | (21) | % | 6 | % | — | % | 1 | % | | 7 | % |
| EMEAI | (17) | | — | | (9) | | | (26) | | 18 | | (9) | | (10) | | | (1) | |
| Asia Pacific | (14) | | (2) | | (4) | | | (20) | | 6 | | (3) | | — | | | 3 | |
| Latin America | (17) | | — | | 4 | | | (13) | | 6 | | — | | 1 | | | 7 | |
| Total | (16) | % | — | % | (6) | % | | (22) | % | 11 | % | (4) | % | (3) | % | | 4 | % |
2023 Versus 20192022
The Company reported net sales of $44.6 billion in 2023, down 22 percent from $56.9 billion in 2022, with local price down 16 percent, volume down 6 percent, and currency flat. Net sales decreased by double digits in all operating segments and across all geographic regions, primarily driven by lower prices and demand due to slower global macroeconomic activity. Local price decreased in all operating segments and across all geographic regions driven by industry supply additions and lower global energy and feedstock costs. Local price decreased in Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates & Infrastructure (down 14 percent) and Performance Materials & Coatings (down 15 percent). Volume decreased in all operating segments and geographic regions, except Latin America (up 4 percent). Volume decreased in Packaging & Specialty Plastics (down 5 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Excluding the Hydrocarbons & Energy business, sales decreased 20 percent.
Cost of Sales
Cost of sales ("COS") was $39.7 billion in 2023, compared with $48.3 billion in 2022. COS decreased in 2023 primarily due to lower raw material costs on lower volume, lower global energy and feedstock costs and the impact of structural cost improvements. COS as a percentage of net sales was 89.1 percent in 2023, compared with 84.9 percent in 2022.
Research and Development Expenses
Research and development ("R&D") expenses were $829 million in 2023, compared with $851 million in 2022. R&D expenses decreased in 2023 primarily due to the impact of structural cost improvements as well as lower performance-based compensation costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $1,627 million in 2023, compared with $1,675 million in 2022. SG&A expenses decreased in 2023 primarily due to lower bad debt expense, the impact of structural cost improvements and lower performance-based compensation costs, which more than offset increases associated with the Company's restructuring implementation and efficiency actions and fringe benefit expenses tied to stock market changes.
Amortization of Intangibles
Amortization of intangibles was $324 million in 2023, compared with $336 million in 2022. Amortization of intangibles decreased primarily due to certain intangible assets becoming fully amortized. See Note 11 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring and Asset Related Charges - Net
2023 Restructuring Program
On January 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. These actions are expected to be substantially complete by the end of 2024.
As a result of these actions, in 2023 the Company recorded pretax restructuring charges of $535 million, consisting of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million. The restructuring charges by segment were as follows: $1 million in Packaging & Specialty Plastics, $50 million in Industrial Intermediates & Infrastructure, $49 million in Performance Materials & Coatings and $435 million in Corporate. These charges were partially offset by other asset related credit adjustments of $7 million in Corporate related to a prior restructuring program. See Note 4 to the Consolidated Financial Statements for additional information.
Equity in Earnings (Losses) of Nonconsolidated Affiliates
The Company’s share of equity in losses of nonconsolidated affiliates was $119 million in 2023, compared with earnings of $268 million in 2022, with lower equity earnings at all principal joint ventures and primarily due to margin compression at Sadara and the Kuwait joint ventures as a result of lower local prices and demand.
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 2023 was expense of $327 million, compared with income of $714 million in 2022.
In 2023, sundry income (expense) - net included a $642 million non-cash settlement charge related to the purchase of nonparticipating group annuity contracts for certain pension plans (related to Corporate) and foreign currency exchange losses, including $109 million related to the December 2023 devaluation of the Argentine peso (related to Corporate). These were partially offset by non-operating pension and postretirement benefit plan credits, a $106 million gain associated with a legal matter with Nova Chemicals Corporation (related to Packaging & Specialty Plastics), and gains on the sales of assets and investments. See Notes 5, 14, 18 and 24, to the Consolidated Financial Statements for additional information.
In 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 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. These were partially offset by foreign currency exchange losses and an $8 million loss on the early extinguishment of debt (related to Corporate). See Notes 5, 13, 14, 18 and 24, to the Consolidated Financial Statements for additional information.
Dow Inc.
Sundry income (expense) - net for 2023 was expense of $280 million, compared with income of $727 million in 2022.
In 2023, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $42 million net gain associated with agreements and matters with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") (related to Corporate).
In 2022, in addition to the amounts previously discussed above for TDCC, sundry income (expense) - net included a $4 million net gain associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate).
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $746 million in 2023, compared with $662 million in 2022. The increase in interest expense is primarily due to $1.5 billion of senior unsecured notes issued in the fourth quarter of 2022 and local country borrowings outside the United States in 2023. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 13 to the Consolidated Financial Statements for additional information related to debt financing activity.
Provision for Income Taxes
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 6 to the Consolidated Financial Statements.
The Company reported a tax credit of $4 million in 2023, resulting in an effective tax rate of negative 0.6 percent, compared with a tax provision of $1,450 million in 2022, resulting in an effective tax rate of 23.8 percent. The credit for income taxes and the lower effective tax rate in 2023 compared with 2022 were primarily due to a decrease in pretax income, changes to geographic mix of earnings, increases in tax basis in assets located in foreign jurisdictions, partially offset by changes in uncertain tax positions in various jurisdictions.
The Company continues to monitor and evaluate legislative developments related to the Global Anti-Base Erosion Proposal ("GloBE") established by the Organization of Economic Cooperation and Development’s ("OECD") Pillar
Two framework. Several countries in which the Company operates have adopted those rules into their legislation and several others are expected to implement in the future. The Company continues to evaluate impacts as further guidance is released.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $71 million in 2023, compared with $58 million in 2022. See Notes 17 and 22 to the Consolidated Financial Statements for additional information.
Net Income Available for the Common Stockholder(s)
Dow Inc.
Net income available for Dow Inc. common stockholders was $589 million in 2023, compared with $4,582 million in 2022. Earnings per share of Dow Inc. was $0.82 per share in 2023, compared with $6.28 per share in 2022. See Note 7 to the Consolidated Financial Statements for details on Dow Inc.'s earnings per share calculations.
TDCC
Net income available for TDCC common stockholder was $556 million in 2023, compared with $4,583 million in 2022. TDCC's common shares are owned solely by Dow Inc.
SEGMENT RESULTS
The Company conducts its worldwide operations through 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. The Company reports geographic information for the following regions: U.S. & Canada, EMEAI, Asia Pacific and Latin America. The Company transfers ethylene to its downstream derivative businesses at market prices. See Part I, Item 1. Business for further discussion of the Company's segments.
The Company’s measure of profit/loss for segment reporting purposes is 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 Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. 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. See Note 24 to the Consolidated Financial Statements for reconciliations of these measures.
For comparison of segment results for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
PACKAGING & SPECIALTY PLASTICS
| | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 23,149 | | $ | 29,260 | | |
| Operating EBIT | $ | 2,700 | | $ | 4,110 | | |
| Equity earnings | $ | 130 | | $ | 359 | | |
| | | | | | | | | |
| Packaging & Specialty Plastics | | | |
| Percentage change from prior year | 2023 | 2022 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (16) | % | 7 | % | |
| Currency | — | | (3) | | |
| Volume | (5) | | — | | |
| | | |
| Total | (21) | % | 4 | % | |
2023 Versus 2022
Packaging & Specialty Plastics net sales were $23,149 million in 2023, down 21 percent from net sales of $29,260 million in 2022, with local price down 16 percent, volume down 5 percent and currency flat. Local price decreased in Packaging and Specialty Plastics, in all geographic regions, primarily driven by lower polyethylene prices due to unfavorable industry supply and demand dynamics. Local price decreased in Hydrocarbons & Energy, in all geographic regions, as prices for co-products are generally correlated to Brent crude oil prices, which, on average, decreased 17 percent compared with 2022. Volume was flat in Packaging and Specialty Plastics, with an increase in Latin America offset by decreases in all other geographic regions. Volume decreased in Hydrocarbons & Energy, primarily in EMEAI and the U.S. & Canada, driven by lower sales of olefins and aromatics.
Operating EBIT was $2,700 million in 2023, down $1,410 million from Operating EBIT of $4,110 million in 2022. Operating EBIT decreased primarily due to lower selling prices, which was partially offset by lower raw material, energy and feedstock costs and the impact of structural cost improvements.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
| | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 12,538 | | $ | 16,606 | | |
| Operating EBIT | $ | 124 | | $ | 1,418 | | |
| Equity losses | $ | (276) | | $ | (91) | | |
| | | | | | | | | |
| Industrial Intermediates & Infrastructure | | | |
| Percentage change from prior year | 2023 | 2022 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (14) | % | 11 | % | |
| Currency | (1) | | (5) | | |
| Volume | (9) | | (7) | | |
| | | |
| Total | (24) | % | (1) | % | |
2023 Versus 2022
Industrial Intermediates & Infrastructure net sales were $12,538 million in 2023, down 24 percent from $16,606 million in 2022, with local price down 14 percent, volume down 9 percent and an unfavorable currency impact of 1 percent. Local price decreased in both businesses and across all geographic regions, driven by unfavorable supply and demand dynamics. Volume in Industrial Solutions decreased in all geographic regions, driven primarily by industrial, coatings and agricultural applications as well as a significant unplanned event at the Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana. Volume in Polyurethanes & Construction Chemicals decreased in all geographic regions, largely driven by lower demand, particularly in consumer durables and building and construction applications. Currency unfavorably impacted sales in both businesses, driven by Asia Pacific and EMEAI.
Operating EBIT was $124 million in 2023, down $1,294 million from Operating EBIT of $1,418 million in 2022. Operating EBIT decreased primarily due to lower selling prices and volume due to lower global demand and lower equity earnings at the Sadara and EQUATE joint ventures, which were partially offset by the impact of structural cost improvements.
PERFORMANCE MATERIALS & COATINGS
| | | | | | | | | |
| Performance Materials & Coatings | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 8,497 | | $ | 10,764 | | |
| Operating EBIT | $ | 219 | | $ | 1,328 | | |
| Equity earnings | $ | 20 | | $ | 10 | | |
| | | | | | | | | |
| Performance Materials & Coatings | | | |
| Percentage change from prior year | 2023 | 2022 | |
| Change in Net Sales from Prior Period due to: | | | |
| Local price & product mix | (15) | % | 21 | % | |
| Currency | (1) | | (4) | | |
| Volume | (5) | | (6) | | |
| | | |
| Total | (21) | % | 11 | % | |
2023 Versus 2022
Performance Materials & Coatings net sales were $8,497 million in 2023, down 21 percent from net sales of $10,764 million in 2022, with local price down 15 percent, volume down 5 percent and an unfavorable currency impact of 1 percent. Local price decreased in both businesses and across all geographic regions. Consumer Solutions local price decreased primarily due to unfavorable supply and demand dynamics in upstream siloxanes. Local price decreased in Coatings & Performance Monomers primarily in acrylic monomers and architectural coatings and was driven by lower raw material prices and unfavorable supply and demand dynamics. Volume decreased in Consumer Solutions in all regions, except for Asia Pacific, which was flat, driven by lower demand for upstream siloxanes, industrial and chemical processing and personal care applications, partially offset by higher demand in building and construction applications. Volume decreased in Coatings & Performance Monomers in all geographic regions and was driven by lower demand in residential construction applications. The unfavorable currency impact was driven by Asia Pacific.
Operating EBIT was $219 million in 2023, down $1,109 million from Operating EBIT of $1,328 million in 2022. Operating EBIT decreased primarily due to lower selling prices and lower demand in both businesses, which were partially offset by lower raw material costs and the impact of structural cost improvements.
CORPORATE
| | | | | | | | | |
| Corporate | | | |
| In millions | 2023 | 2022 | |
| Net sales | $ | 438 | | $ | 272 | | |
| Operating EBIT | $ | (265) | | $ | (266) | | |
| Equity earnings (losses) | $ | 7 | | $ | (10) | | |
2023 Versus 2022
Net sales for Corporate, which primarily relate to the Company's insurance operations, were $269$438 million in 2020, down2023, up from net sales and pro forma net sales of $343$272 million in 2019.2022.
Operating EBIT was a loss of $279$265 million in 2020,2023, compared with a pro forma Operating EBIT loss of $315$266 million in 2019. Compared with 2019, Operating EBIT improved primarily due to cost reductions2022. Improvements in insurance operations and stranded cost removal throughout 2019.equity earnings were offset by increased environmental costs.
Net sales and pro forma net sales for Corporate, which primarily relate to the Company's insurance operations, were $343 million in 2019, up from net sales and pro forma net sales of $285 million in 2018.
Pro forma Operating EBIT was a loss of $315 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.
OUTLOOK
Operating Segments & End-Market Expectations
In 2021, the Company expects continued volatility across crude oil, natural gas and feedstocks, driven by external macroeconomic and geopolitical factors, including the continuation of an uneven recovery from the COVID-19 pandemic. Overall, the Company expects crude oil prices to be, on average, higher than 2020 with an expectation of firming prices in the second half of the year. Crude oil fundamentals suggest global supply will meet or slightly lag demand; however, the uneven pandemic recovery could slow demand, leading to further volatility in prices.
The Company expects natural gas prices to remain competitive. The Company expects the U.S. & Canada gas supply to continue to recover through 2021. Robust supplies of natural gas are expected to keep domestic prices globally competitive. U.S. exports of liquefied natural gas ("LNG") are expected to remain strong. In Europe, the supply of natural gas is expected to continue to be plentiful, both from pipeline supply and from growing LNG imports.
In Packaging & Specialty Plastics, the global economic recovery is expected to drive demand growth, notably for flexible food and specialty packaging, industrial and consumer packaging and functional polymers. Integrated margins are expected to improve, supported by strong supply and demand fundamentals expected in the first half of the year and the Company’s regional feedstock cost advantages. Profitability could vary materially, particularly in the latter part of the year, depending on supply and demand dynamics, global gross domestic product ("GDP") growth rates, industry operating rates, timing of new industry capacity startups and fluctuations in global crude oil, natural gas and feedstock prices. The Hydrocarbons & Energy business expects to bring online approximately 130,000 metric tons of additional ethylene capacity in Canada as part of its suite of incremental growth investments. The new capacity is expected to come online in the first half of 2021.
In Industrial Intermediates & Infrastructure, above GDP top line growth is expected, driven by strong demand for products used in furniture and bedding, appliances, automotive, construction, electronics and pharma applications. Prices are expected to increase for most products, including continued recovery in monoethylene glycol pricing.
SupplyOUTLOOK
Operating Segments & End-Market Expectations
In 2024, Dow is expected to maintain its commitment to financial and operational discipline while navigating dynamic market conditions. While the Company expects softness in industrial and durable goods demand fundamentals for methylene diphenyl diisocyanateto continue in the first quarter, early positive signals in areas including construction, automotive and propylene oxideconsumer electronics are encouraging. The Company's strong balance sheet and cash generation provide flexibility to cover all capital allocation priorities as the Company progresses through the economic cycle and advances its Decarbonize & Grow and Transform the Waste strategies. A cost-advantaged footprint, leadership in attractive end-markets, and strategic growth investments position the Company well to create long-term value.
In Packaging & Specialty Plastics, moderately improving macroeconomic conditions are expected to support demand growth, notably in higher-value functional polymers and flexible food and specialty packaging. Integrated margins are expected to improve in the second half of the year on industry operating rate recoveries. The Company’s feedstock flexibility and advantaged regional footprint will continue to position the segment well to navigate market dynamics throughout the year. In-region presence and superior derivative flexibility will allow the segment to continue to optimize price and volume mix.
In Industrial Intermediates & Infrastructure, market fundamentals are expected to remain consistent with what was experienced in 2020, with additionalpressured for propylene oxide, polyols, isocyanates, construction chemicals and derivatives, largely driven by recent industry capacity anticipatedadditions. Resilient demand is expected in food and pharma end-markets, and the Company will benefit from its multi-year growth project that will expand propylene glycol production at its Map Ta Phut site, which is expected to come online in 2021. Margins are also2024. Additionally, the Glycol-2 unit at Dow's Louisiana Operations in Plaquemine, Louisiana, is expected to improve, driven byresume operations in the second quarter of 2024. Recent and soon-to-be-completed investments in specialty amines and alkoxylation capacity are expected to serve resilient consumer demand growth.in home care, pharmaceuticals and energy transition. While sales are expected to be relatively flat, the Company will focus on capturing volume growth in key markets.
In Performance Materials & Coatings, prices for siloxanesperformance silicone products are expectedwell-positioned to improve compared with 2020, but remain below peak pricing that was seendeliver volume growth in 2018. Downstream silicones volumekey markets. Volume growth is expected to grow in excess of GDP, particularly for products usedfeedstocks and intermediates as well as modest price increases, driven by moderately improved industry supply and demand dynamics. Demand and local prices in mobility and transportation, high performance building and construction, industrial and consumer and electronics applications. The Company will continue to pursue incremental downstream silicones capacity debottleneck and growth projects to meet expected demand in consumer driven end-markets. Global architectural coatings and industrial coatings demand is anticipated to see continued recovery as the do-it-yourself and retail end-markets remain strong and contractor demand improves. Highly competitive environments in both architectural and industrial coatings are expected to continue, butface uncertainty given their correlation with the Company looks to capture opportunities from customers’ shift to sustainable chemistries where Dow has unique technologiesbuilding and solutions to compete.construction market as well as interest rates.
Other factors impacting operating segment profitability include:
•Planned maintenance turnaround spending isinclude an expected to be approximately $400 million higher, including joint ventures. Spending will be higherincrease in the second and third quarters, as the COVID-19 pandemic delayed certain planned maintenance turnaround activities in 2020.
•Equity in earnings (losses) of nonconsolidated affiliates is expected to be flat compared with 2020 as projected margin improvements are expected to be partially offset by increased planned maintenance turnaround spending at joint ventures.of approximately $200 million compared with 2023.
Projected Uses of Cash
Items that may impact the consolidated statements of cash flows in 20212024 include:
•Required cashCash contributions to global pension plans are expected to be approximately $300$150 million.
•Capital expenditures are expected to be approximately $1.6$3 billion. The Company will adjust its spending through the year as economic conditions develop.
•Cash expenditures related to the Digital Acceleration program announced on January 28, 2021 are expected to be approximately $150 million in 2021.
•Cash outflows related to the Company's 2020 Restructuring Program, including restructuring implementation costs, are expected to be approximately $350 million.
•Cash dividends from equity companies are expected to be approximately $200 million lower than 2020.million.
•Cash outflows related to drive further deleveragingthe Company's 2023 Restructuring Program, including restructuring implementation costs, are expected to be $1 billion.approximately $400 million.
Sadara debt re-profile
In January 2021, Sadara reached an agreement in principle with its lenders to re-profile Sadara’s outstanding project financing debt. Key features of the Sadara debt re-profile are expected to include:
•An extension of the contractual debt maturity from 2029 to 2038.
•A modified repayment schedule aligned with Sadara’s projected cash generation profile, including a grace period until June 2026 during which interest-only payments are required, and an excess cash sweep mechanism to prepay debt.
•No change to the notional debt amount and no other early repayment requirements.
As a result, Sadara is expected to have significantly improved cash flow self-sufficiency. The re-profiling agreements have not been finalized and remain subject to modification until the transaction formally closes, which is expected to occur in the first quarter of 2021. The impacts to Dow’s commitments are expected to include the following, which are in proportion to Dow’s 35 percent ownership interest in Sadara:
•Dow will provide guarantees for $1.3 billion of Sadara’s debt, effectively replacing approximately $4.0 billion of prior guarantees.
•Additionally, Dow will provide guarantees for its portion of all Sadara interest payments due during the grace period. Dow's pro-rata share of any potential shortfall will be funded by a new $500 million revolving credit facility guaranteed by Dow, which is expected to be established by Sadara in the first quarter of 2021.
•Dow’s existing $220 million letter of credit related to the guarantee of one future Sadara debt service schedule payment will be cancelled.
As a result of these actions, the Company does not expect to provide any shareholder loans or equity contributions to Sadara in 2021. The impact of the debt re-profiling efforts and related actions taken by the Company are not expected to have a material impact on the Company’s results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $5,104$2,987 million at December 31, 20202023 and $2,367$3,886 million at December 31, 2019,2022, of which $862$1,984 million at December 31, 20202023 and $986$1,789 million at December 31, 2019,2022, 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 cashCash 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.,United States, 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, 2020,2023, 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, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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:
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| Cash Flow Summary | Dow Inc. | TDCC |
| In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
| Cash provided by (used for): | | | | | | |
| Operating activities - continuing operations | $ | 6,252 | | $ | 5,713 | | $ | 3,096 | | $ | 6,263 | | $ | 5,706 | | $ | 3,096 | |
| Operating activities - discontinued operations | (26) | | 217 | | 1,158 | | — | | 371 | | 1,158 | |
| Operating activities | 6,226 | | 5,930 | | 4,254 | | 6,263 | | 6,077 | | 4,254 | |
| Investing activities - continuing operations | (841) | | (2,158) | | (1,826) | | (841) | | (2,158) | | (1,826) | |
| Investing activities - discontinued operations | — | | (34) | | (369) | | — | | (34) | | (369) | |
| Investing activities | (841) | | (2,192) | | (2,195) | | (841) | | (2,192) | | (2,195) | |
| Financing activities - continuing operations | (2,764) | | (4,077) | | (5,351) | | (2,801) | | (4,224) | | (5,351) | |
| Financing activities - discontinued operations | — | | (18) | | (53) | | — | | (18) | | (53) | |
| Financing activities | (2,764) | | (4,095) | | (5,404) | | (2,801) | | (4,242) | | (5,404) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 107 | | (27) | | (99) | | 107 | | (27) | | (99) | |
| Summary | | | | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 2,728 | | (384) | | (3,444) | | 2,728 | | (384) | | (3,444) | |
| Cash, cash equivalents and restricted cash at beginning of year | 2,380 | | 2,764 | | 6,208 | | 2,380 | | 2,764 | | 6,208 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 4 | | 13 | | 40 | | 4 | | 13 | | 40 | |
| Cash and cash equivalents at end of year | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | |
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| Cash Flow Summary | Dow Inc. | TDCC | |
| In millions | 2023 | 2022 | | 2023 | 2022 | |
| Cash provided by (used for): | | | | | | |
| Operating activities - continuing operations | $ | 5,164 | | $ | 7,486 | | | $ | 5,109 | | $ | 7,519 | | |
| Operating activities - discontinued operations | 32 | | (11) | | | — | | — | | |
| Operating activities | $ | 5,196 | | $ | 7,475 | | | $ | 5,109 | | $ | 7,519 | | |
| Investing activities | $ | (2,928) | | $ | (2,970) | | | $ | (2,928) | | $ | (2,970) | | |
| Financing activities | $ | (3,115) | | $ | (3,361) | | | $ | (3,028) | | $ | (3,405) | | |
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Cash Flows from Operating Activities
Cash provided by operating activities from continuing operations increased in 2020 compared with 2019. The improvement2023 was primarily due to a decrease in integrationdriven by the Company's cash earnings, dividends from equity method investments and separation costs. Also contributing to the improvement from the prior year was a decrease in performance-based compensation payments, a cash receipt for the refund of withholding tax related to the Nova ethylene asset matter and an increase in advance payments from customers,provided by working capital, which were partially offset by a decrease in dividends received from nonconsolidated affiliates, a reduction in cash generated from working capital and a cash receipt in 2019performance-based compensation payments, severance payments related to the Nova ethylene asset matter.2023 Restructuring Program and pension contributions. 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.
| | Net Working Capital and Current Ratio at Dec 31 | Net Working Capital and Current Ratio at Dec 31 | Dow Inc. | TDCC | Net Working Capital and Current Ratio at Dec 31 | Dow Inc. | TDCC |
| In millions | In millions | 2020 | 2019 | 2020 | 2019 | In millions | 2023 | 2022 | 2023 | 2022 |
| Current assets | Current assets | $ | 19,084 | | $ | 16,815 | | $ | 18,998 | | $ | 16,733 | |
| Current liabilities | Current liabilities | 11,108 | | 10,679 | | 10,574 | | 10,150 | |
| Net working capital | Net working capital | $ | 7,976 | | $ | 6,136 | | $ | 8,424 | | $ | 6,583 | |
| Current ratio | Current ratio | 1.72:1 | 1.57:1 | 1.80:1 | 1.65:1 | Current ratio | 1.77:1 | 1.81:1 | 1.79:1 | 1.82:1 |
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| Working Capital Metrics | Three Months Ended 1 | Twelve Months Ended |
| Mar 31, 2020 | Jun 30, 2020 | Sep 30, 2020 | Dec 31, 2020 | Dec 31, 2020 | Dec 31, 2019 |
| Days sales outstanding in trade receivables | 45 | | 50 | | 43 | | 41 | | 46 | | 45 | |
| Days sales in inventory | 69 | | 72 | | 63 | | 57 | | 65 | | 65 | |
| Days payables outstanding | 63 | | 68 | | 58 | | 56 | | 66 | | 65 | |
1.Due to the impacts related to the COVID-19 pandemic, quarterly working capital metrics are presented for 2020. | | | | | | | | | | | | |
| Working Capital Metrics | | Twelve Months Ended |
| | | | | Dec 31, 2023 | Dec 31, 2022 |
| Days sales outstanding in trade receivables | | | | | 42 | | 40 | |
| Days sales in inventory | | | | | 60 | | 54 | |
| Days payables outstanding | | | | | 64 | | 60 | |
Cash provided by (used for)used for operating activities from discontinued operations in 2020 and 2019 primarily related toreflected cash payments and receipts the Company had with DuPont and Corteva that related tofor certain agreements and matters related to the Company's separation from DowDuPont. Cash provided by operating activities from discontinued operations decreased in 2019 compared with 2018, primarily due to the separation of AgCo and SpecCo on April 1, 2019. See Note 3 to the Consolidated Financial Statements for additional information.DowDuPont Inc.
Cash Flows from Investing Activities
Cash used for investing activities from continuing operations in 2020 was primarily for capital expenditures, purchases of investments, investments in2023 and loans to nonconsolidated affiliates (related to Sadara) and acquisitions of property and businesses, which were partially offset by proceeds from sales and maturities of investments and proceeds from sales of property and businesses. 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 and proceeds from interests in trade accounts receivable conduits.
The Company loaned Sadara $333 million in 2020 ($473 million in 2019 and zero in 2018). As a result of Sadara's debt re-profiling, the Company does not expect to provide any shareholder loans or equity contributions to Sadara in 2021. See Notes 12 and 16 to the Consolidated Financial Statements for additional information.investments.
The Company's capital expenditures related to continuing operations, including capital expenditures of consolidated variable interest entities, were $1,252$2,356 million in 2020, $1,9612023 and $1,823 million in 2019 and $2,091 million in 2018.2022. Capital spending was lowerhigher in 20202023 as the Company proactively reducedcontinued the ramp up of investments in its capital expenditures to focus on cashhigher return, lower risk and maintaining financial strength during the COVID-19 pandemic.quick payback incremental growth projects. The Company expects capital spending in 20212024 to be approximately $1.6 billion.$3 billion, which includes the ramp up of the construction of the Company's Fort Saskatchewan Path2Zero project. The Company will adjust itsexpects capital spending to average $1 billion annually through 2029 for this key growth project. Enterprise-wide capital spending is expected to exceed depreciation and amortization through 2027, during the year as economic conditions develop.first phase of the project.
Capital spending in 2018, 2019 and 2020,recent years has included spending related to certain U.S. Gulf Coast investment projects including: a NORDEL™ Metallocene EPDM production facility, a Low Density Polyethylene ("LDPE") production facility, a High Melt Index ("HMI") AFFINITY™ polymer production facility and debottlenecking of an existing bi-modal gas phase polyethylene production facility, all of which commenced operations in 2018; an expansion of the Company's new ethylene production facility in Freeport, Texas, which commenced operations in 2020, bringing the facility's total ethylene capacity to 2,000 kilotonnes per annum and making it the largest ethylene cracker in the world; the addition of a furnace to the Company's ethylene production facility in Alberta, Canada, which is expected to commence operations in the first half of 2021; and the retrofit of one 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 specialty alkoxylation reactor in Plaquemine, Louisiana, which is expected bywere both completed in 2022; the endaddition of 2021.
Cash used for investing activities from discontinued operationsan integrated methylene diphenyl diisocyanate ("MDI") distillation and prepolymers facility at its site in 2019Freeport, Texas, which was primarily for capital expenditures, partially offset by proceeds fromcompleted in 2023; and construction of a world-scale polyethylene unit on 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.U.S. Gulf Coast.
Cash Flows from Financing Activities
Cash used for financing activities from continuing operations in 20202023 was primarily for debt related activities. In addition, Dow Inc. included cash outflows 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 in 2022 included payments on long-term debt, changes in short-term notes payable and transaction financing, debt issuance and other costs, which were partiallywas more than offset by proceeds from issuance of long-term debt. In addition, Dow Inc. included cash outflows for dividends paid to stockholders and purchases of treasury stock andstock. TDCC included cash outflows for dividends paid to Dow Inc. Cash used for financing activities from continuing operations in 2019 included payments on long-term debt and dividends paid to DowDuPont, which were partially offset by proceeds from issuance of long-term debt. In addition, Dow Inc. received cash as part of the separation from DowDuPont, which was more than offset by dividends paid to stockholders and purchases of treasury stock. Cash used for financing activities in continuing operations in 2018 included dividends paid to DowDuPont and payments of long-term debt, which were partially offset by proceeds from issuance of long-term debt. See Notes 1513 and 1816 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 and 2018 primarily related to distributions to noncontrolling interests and employee taxes paid for share-based payment arrangements.
Non-GAAP Cash Flow Measures
Free Cash Flows from Operating Activities - Continuing Operations - Excluding Impact of ASU 2016-15Flow
Dow defines Free Cash flows from operating activities - continuing operations, excluding the impact of Accounting Standards Update ("ASU") 2016-15, is definedFlow as cash"Cash provided by 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. This measure is only applicable for the year ended December 31, 2018 as there were no sales of trade accounts receivable under the applicable programs for the years ended December 31, 2020 and 2019.
Free Cash Flow
Dow defines free cash flow as cash flows from 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, represents 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.
Operating EBITDA and Pro Forma Operating EBITDA
Dow defines Operating EBITDA (for the year ended December 31, 2020) as earnings (i.e., "Income from continuing operations before income taxes") before interest, depreciation and amortization, excluding the impact of significant items. Pro forma Operating EBITDA (for the years ended December 31, 2019 and 2018) is defined as earnings (i.e. "Income (loss) from continuing operations before income taxes") before interest, depreciation and amortization, plus pro forma adjustments, excluding the impact of significant items.
Cash Flow Conversion (Cash Flow From Operations to Operating EBITDA)
Dow defines cash flow conversion (Operating EBITDA or pro forma Operating EBITDA to cashCash Flow Conversion (Cash flow from operations)operations to Operating EBITDA) as cash flows from"Cash provided by operating activities - continuing operations, excluding the impact of ASU 2016-15," divided by Operating EBITDA or 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. GAAP") 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.
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| Reconciliation of Non-GAAP Cash Flow Measures | Dow Inc. | |
| In millions | 2020 | 2019 | 2018 | | | |
| Cash provided by operating activities - continuing operations (GAAP) | $ | 6,252 | | $ | 5,713 | | $ | 3,096 | | | | |
| Impact of ASU 2016-15 and related interpretive guidance | — | | — | | 657 | | | | |
| Cash flows from operating activities - continuing operations - excluding impact of ASU 2016-15 (non-GAAP) | $ | 6,252 | | $ | 5,713 | | $ | 3,753 | | | | |
| Capital expenditures | (1,252) | | (1,961) | | (2,091) | | | | |
| Free cash flow (non-GAAP) | $ | 5,000 | | $ | 3,752 | | $ | 1,662 | | | | |
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| Reconciliation of Cash Flow Conversion | Dow Inc. |
| In millions | 2020 | 2019 1 | 2018 1 |
| Income (loss) from continuing operations, net of tax (GAAP) | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | |
| + Provision for income taxes on continuing operations | 777 | | 470 | | 809 | |
| Income (loss) from continuing operations before income taxes | $ | 2,071 | | $ | (1,247) | | $ | 3,749 | |
| - Interest income | 38 | | 81 | | 82 | |
| + Interest expense and amortization of debt discount | 827 | | 933 | | 1,063 | |
| + Pro forma adjustments ² | — | | 65 | | 180 | |
| - Significant items ³ | 145 | | (4,682) | | (1,326) | |
| Operating EBIT (non-GAAP) | $ | 2,715 | | $ | 4,352 | | $ | 6,236 | |
| + Depreciation and amortization | 2,874 | | 2,938 | | 2,909 | |
| Operating EBITDA (non-GAAP) | $ | 5,589 | | $ | 7,290 | | $ | 9,145 | |
| Cash flows from operating activities - continuing operations - excluding impact of ASU 2016-15 (non-GAAP) | $ | 6,252 | | $ | 5,713 | | $ | 3,753 | |
| Cash flow conversion (Operating EBITDA or pro forma Operating EBITDA to cash flow from operations) (non-GAAP) | 111.9 | % | 78.4 | % | 41.0 | % |
1.Operating EBIT, depreciation and amortization and Operating EBITDA for the years ended December 31, 2019 and 2018 are presented on a pro forma basis.
2.Pro forma adjustments for the years ended December 31, 2019 and 2018 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 and (2) 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).
3.The year ended December 31, 2020 includes integration and separation costs, restructuring and asset related charges - net, a gain on a warranty accrual adjustment of an exited business, restructuring implementation costs, a net gain on divestitures and asset sale, a gain related to a legal matter with Nova, a loss on early extinguishment of debt and a loss associated with agreements entered into with DuPont and Corteva as part of the separation and distribution. The year ended December 31, 2019 includes integration and separation costs, restructuring, goodwill impairment and asset related charges - net, a gain on a warranty accrual adjustment of an exited business, environmental charges, a loss related to previous divestitures, a loss on early extinguishment of debt, a net gain related to litigation matters and a loss associated with agreements entered into with DuPont and Corteva as part of the separation and distribution. The year ended December 31, 2018 includes a post-closing adjustment related to the Dow Silicones ownership restructure, integration and separation costs, restructuring and asset related charges - net, a gain on divestiture and a loss on early extinguishment of debt. See Note 26 to the Consolidated Financial Statements for additional information.
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| Reconciliation of Non-GAAP Cash Flow Measures | Dow Inc. | |
| In millions | 2023 | 2022 | |
| Cash provided by operating activities - continuing operations (GAAP) | $ | 5,164 | | $ | 7,486 | | |
| Capital expenditures | (2,356) | | (1,823) | | |
| Free Cash Flow (non-GAAP) | $ | 2,808 | | $ | 5,663 | | |
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| Reconciliation of Cash Flow Conversion (Cash Flow From Operations to Operating EBITDA) | Dow Inc. | |
| In millions | 2023 | 2022 | |
| Net income (GAAP) | $ | 660 | $ | 4,640 | |
| + Provision (credit) for income taxes | (4) | 1,450 | |
| Income before income taxes | $ | 656 | $ | 6,090 | |
| - Interest income | 229 | 173 | |
| + Interest expense and amortization of debt discount | 746 | 662 | |
- Significant items 1 | (1,605) | (11) | |
| Operating EBIT (non-GAAP) | $ | 2,778 | $ | 6,590 | |
| + Depreciation and amortization | 2,611 | 2,758 | |
| Operating EBITDA (non-GAAP) | $ | 5,389 | $ | 9,348 | |
| Cash provided by operating activities - continuing operations (GAAP) | $ | 5,164 | $ | 7,486 | |
| Cash flow from operations to net income (GAAP) | 782.4 | % | 161.3 | % | |
| Cash Flow Conversion (Cash flow from operations to Operating EBITDA) (non-GAAP) | 95.8 | % | 80.1 | % | |
1.The year ended December 31, 2023, includes restructuring charges and implementation and efficiency costs associated with the Company's 2023 Restructuring Program, certain gains and losses associated with previously impaired equity investments, a loss associated with legacy agricultural products groundwater contamination matters, a gain associated with a legal matter with Nova Chemicals Corporation, foreign currency losses and inventory valuation impacts related to the devaluation of the Argentine peso, non-cash settlement charges related to the purchase of nonparticipating group annuity contracts for certain Company pension plans in the United States and Canada and activity related to the separation from DowDuPont. 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 Chemicals Corporation, a gain related to an adjustment of the Dow Silicones breast implant liability, a loss on the early extinguishment of debt and activity related to the separation from DowDuPont. See Note 24 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, committed and uncommitted accounts receivable facilities, a medium-term notes program, a U.S. retail note program (“InterNotes®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, 2020.2023. Cash and committed and available forms of liquidity were $14.6$12.8 billion at December 31, 2020.2023, a decrease of $900 million from December 31, 2022. The Company also has no substantive long-term debt maturities due until the second half of 2024.2027. 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 no commercial paper outstanding at December 31, 20202023 ($151299 million at December 31, 2019)2022). 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, 2020,2023, TDCC issued approximately $1.3 billion$0 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, 2020,2023, TDCC had total committed and available credit facilities of $8.1$8.4 billion. In 2020, Dow Silicones voluntarily repaid $2.0 billion of principal under a certain third party credit agreement. See Note 1513 to the Consolidated Financial Statements for additional information on committed and available credit facilities.
Committed 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. The Company had no drawdowns outstanding at December 31, 2023.
Accounts Receivable Facilities
In addition to the above committed credit facilities, the Company maintains a committed accounts receivable facility in the U.S.United States 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 €400€500 million, may be sold at any point in time. Sales of receivables under these committed facilities were not material in 2023. At December 31, 2023, approximately $5 million of receivables remained unremitted. In addition, the Company has an uncommitted accounts receivable facility in the United States providing additional liquidity. Sales of receivables under this facility were not material in 2023. See Note 1412 to the Consolidated Financial Statements for additional information.
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.
Accounts Receivable Discounting Facilities
The Company has access to accounts receivable discounting facilities, under which receivables are transferred with limited recourse. The Company retains no interest in the transferred receivables once sold. The Company maintains these facilities and also participates in certain customers’ supply chain financing and other early pay programs as a routine source of working capital.
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 $600 million of outstanding letters of credit at any given time.
Company-Owned Life Insurance
The Company has investments in company-owned life insurance ("COLI") policies, which are recorded at their cash surrender value as of each balance sheet date. The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2019,2023, the Company had monetized $85$97 million of its existing COLI policies' value. In the first nine months of 2020, the Company monetized an additional $211 million as a proactive measure to bolster liquidity at the onset of the COVID-19 pandemic. In the fourth quarter of 2020, the Company repaid all existing drawdowns against the cash surrender value, which resulted in no monetization of its existing COLI policies' value at December 31, 2020.value. See Note 75 to the Consolidated Financial Statements for additional information.
Uncommitted Credit Facilities
Dow 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. In the first quarter of 2020, the Company took proactive measures to further bolster liquidity by drawing down certain uncommitted credit facilities, which were subsequently repaid in the second quarter of 2020.
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 million of outstanding letters of credit at any given time. In addition, at December 31, 2020, the Company had a $220 million outstanding letter of credit related to the Company’s share of one future debt service schedule payment of Sadara. See Note 16 to the Consolidated Financial Statements for additional information related to guarantees.
Shelf Registration - U.S.United States
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®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, 2020, net debt as a percent of total capitalization for Dow Inc. and TDCC decreased to 47.9 percent and 46.8 percent, respectively, compared with 50.9 percent and 49.6 percent, respectively, at December 31, 2019.
| | Total Debt at Dec 31 | Total Debt at Dec 31 | Dow Inc. | TDCC | Total Debt at Dec 31 | Dow Inc. | TDCC |
| In millions | In millions | 2020 | 2019 | 2020 | 2019 | In millions | 2023 | 2022 | 2023 | 2022 |
| Notes payable | Notes payable | $ | 156 | | $ | 586 | | $ | 156 | | $ | 586 | | Notes payable | $ | 62 | $ | 362 | $ | 62 | $ | 362 |
| Long-term debt due within one year | Long-term debt due within one year | 460 | | 435 | | 460 | | 435 | | Long-term debt due within one year | 117 | 362 | 117 | 362 |
| Long-term debt | Long-term debt | 16,491 | | 15,975 | | 16,491 | | 15,975 | | Long-term debt | 14,907 | 14,698 | 14,907 | 14,698 |
| Gross debt | Gross debt | $ | 17,107 | | $ | 16,996 | | $ | 17,107 | | $ | 16,996 | | Gross debt | $ | 15,086 | $ | 15,422 | $ | 15,086 | $ | 15,422 |
| - Cash and cash equivalents | - Cash and cash equivalents | 5,104 | | 2,367 | | 5,104 | | 2,367 | | - Cash and cash equivalents | 2,987 | 3,886 | 2,987 | 3,886 |
- Marketable securities 1 | - Marketable securities 1 | 45 | | 21 | | 45 | | 21 | | - Marketable securities 1 | 1,300 | 939 | 1,300 | 939 |
| Net debt | $ | 11,958 | | $ | 14,608 | | $ | 11,958 | | $ | 14,608 | |
| Gross debt as a percent of total capitalization | 56.8 | % | 54.7 | % | 55.8 | % | 53.3 | % |
| Net debt as a percent of total capitalization | 47.9 | % | 50.9 | % | 46.8 | % | 49.6 | % |
| Net debt (non-GAAP) | | Net debt (non-GAAP) | $ | 10,799 | $ | 10,597 | $ | 10,799 | $ | 10,597 |
| Total equity | | Total equity | $ | 19,108 | $ | 21,247 | $ | 19,406 | $ | 21,489 |
| Gross debt as a percentage of total capitalization | | Gross debt as a percentage of total capitalization | 44.1 | % | 42.1 | % | 43.7 | % | 41.8 | % |
| Net debt as a percentage of total capitalization (non-GAAP) | | Net debt as a percentage of total capitalization (non-GAAP) | 36.1 | % | 33.3 | % | 35.8 | % | 33.0 | % |
1.Included in "Other current assets" in the consolidated balance sheets.
In February 2020,the fourth quarter of 2023, 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, €750redeemed $23 million aggregate principal amount of 1.1252.100 percent notes due 2032 and €500November 2030, $14 million aggregate principal amount of 1.8754.625 percent notes due 2040. The Euro Notes have a weighted average coupon rateOctober 2044, and $1 million aggregate principal amount of approximately 1.0 percent. In addition, the Company redeemed $1.25 billion of 3.04.375 percent notes issued by the Company with maturity in 2022.due November 2042.
In August 2020,2023, the Company issued $2.0 billionan 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"). In September 2020, TDCC also used $556$80 million of aggregate proceeds fromInterNotes®. Additionally, the Notes to fund cash tender offers for certainCompany repaid $250 million of itslong-term debt securities and certain debt securities of Union Carbide, of which $493 million aggregate principal amount was tendered and retired.at maturity.
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 0.530.41 to 1.00 at December 31, 2020.2023. Management believes TDCC was in compliance with all of its covenants and default provisions at December 31, 2020.
Table of Contents2023. For information on TDCC's debt covenants and default provisions, see Note 13. There were no material changes to the debt covenants and default provisions related to TDCC’s outstanding long-term debt and primary, private credit agreements in 2023.
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 1513 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.
While 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, 20212024 were as follows:
| | | | | | | | | | | |
| Credit Ratings | Long-Term Rating | Short-Term Rating | Outlook |
Standard & Poor’sFitch Ratings | BBB-BBB+ | A-3F1 | Stable |
| Moody’s Investors Service | Baa2Baa1 | P-2 | Stable |
Fitch RatingsStandard & Poor’s | BBB+BBB | F2A-2 | NegativeStable |
On April 9, 2020, Standard & Poor's ("S&P")June 15, 2023, Fitch Ratings affirmed TDCC’s BBB+ long-term credit rating and announced a short-term credit rating change for TDCCupgrade to F1 from F2, and also revised its long-term outlook from positive to stable. On August 22, 2023, Standard and Poor's affirmed TDCC's BBB and A-2 to BBB- and A-3, maintaining stable outlook. The decision was made as part of S&P’s broader review of the chemicals sector, in light of the global impact of COVID-19 and lower oil prices. On April 13, 2020, Fitch Ratings ("Fitch") re-affirmed TDCC’s BBB+ and F2 rating, and revised its outlook from positive to negative from stable. The decision wasSubsequent to 2023, on January 19, 2024, Moody's Investors Service affirmed TDCC's Baa1 and P-2 rating, and affirmed its outlook of stable. These credit agencies' decisions were made as part of Fitch’stheir annual review process.
Downgrades in TDCC’s credit ratings will increase borrowing costs on certain indenturesprocess 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 Board. The dividends declared by the Board align to the Company's strategy announced in 2018 of returning approximately 45 percent of Operating Net Income to shareholders through dividends and total shareholder remuneration of approximately 65 percent, when including share repurchases, over the economic cycle. The Company defines Operating Net Income, a non-GAAP measure, as "Net income available for Dow Inc. common stockholders," excluding the impact of significant items. The following table providestables provide information on dividends declared and paid to common stockholders for the years ended December 31, 2020, 2019 and 2018:stockholders:
| | Dividends Paid for the Years Ended Dec 31 | Dividends Paid for the Years Ended Dec 31 | 2020 | 2019 1 | 2018 2 |
| Dividends Paid for the Years Ended Dec 31 | |
| Dividends Paid for the Years Ended Dec 31 | |
| In millions, except per share amounts | |
| In millions, except per share amounts | |
| In millions, except per share amounts | In millions, except per share amounts | 2020 | 2019 1 | 2018 2 |
Dividends paid, per common share | | Dividends paid to common stockholders | Dividends paid to common stockholders | $ | 2,071 | | $ | 1,550 | | N/A |
| Dividends paid to common stockholders | |
| Dividends paid to common stockholders | |
|
1.Reflects Dow Inc. activity subsequent to the separation from DowDuPont.
2.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. | | | | | | | | | | | |
| Dow Inc. Cash Dividends Declared and Paid |
| Declaration Date | Record Date | Payment Date | Amount (per share) |
| February 9, 2023 | February 28, 2023 | March 10, 2023 | $ | 0.70 | |
| April 13, 2023 | May 31, 2023 | June 9, 2023 | $ | 0.70 | |
| August 9, 2023 | August 31, 2023 | September 8, 2023 | $ | 0.70 | |
| October 12, 2023 | November 30, 2023 | December 8, 2023 | $ | 0.70 | |
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 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. TDCC declared and paid dividends to DowDuPont of $535 million for the year ended December 31, 2019 and $3,711 million for the year ended December 31, 2018. See Note 25 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 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, 2020,2023, TDCC declared and paid dividends to Dow Inc. of $2,233$2,510 million ($2014,375 million for the year ended December 31, 2019)2022). At December 31, 2020,2023, TDCC's intercompany loan balance with Dow Inc. was insignificant. See Note 2523 to the Consolidated Financial Statements for additional information.
Share Repurchase Program
Dow Inc.
On April 1, 2019, Dow Inc.'s13, 2022, the Board ratified theapproved a share repurchase program originally approved on March 15, 2019, authorizing up to $3.0$3 billion to be spent onfor the repurchase of the Company's common stock, with no expiration date. In 2020, Dow Inc.The Company repurchased $125$625 million of the Company'sits common stock.stock in 2023. At December 31, 2020,2023, approximately $2.4 billion$1,425 million of the share repurchase program authorization remained available for repurchases. TheAs previously announced, the Company will continueintends to evaluate the repurchase of additional shares to cover dilution asover 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 dividends, are intended to implement the long-term strategy of targeting shareholder remuneration of approximately 65 percent over the economic conditions develop.cycle.
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. AsOn 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 froze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the U.S. Plans. In recent years, the Company had significantly increased funding of its U.S. plans while employing certain pension de-risking strategies. Accordingly, in the fourth quarter of 2023, the Company’s pension plans in the United States and Canada purchased or converted to nonparticipating group annuity contracts, irrevocably transferring benefit obligations of $1,681 million for certain participants and $1,617 million of related plan assets to the insurers, requiring no additional cash funding from the Company, with no impact on the pension benefits of participants. These transactions resulted in non-cash pretax settlement charges of $642 million in 2023, related to the accelerated recognition of a resultportion 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 resultaccumulated actuarial losses 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.plans.
The Company’s funding policy for its pension plans is to contribute to funded plans when pension laws and/or economics either require or encourage funding. In 2020, 20192023 and 2018,2022, the Company contributed $299 million, $261$142 million and $1,651$235 million to its continuing operations pension plans, respectively, including contributions to fund benefit payments for its non-qualifiedunfunded pension plans ($299 million, $266 million and $1,656 million, including contributions to plans of discontinued operations). Inplans. Additionally, in the thirdsecond quarter of 2018,2023, the Company madereceived a $1,100pension asset reversion of approximately $90 million discretionary contribution tofor a portion of the excess funding of one of its principal U.S. pension plan,plans in Europe, which is included in "Other assets and liabilities, net" in the 2018 contribution amount above. The discretionary contribution was primarily based on the Company's funding policy, which permits contributions to defined benefit pension plans when economics encourage funding, and reflected considerations relating to tax deductibility and capital structure.
consolidated statements of cash flows. The Company expects to contribute approximately $300$150 million to its pension plans in 2021.2024. See Note 2018 to the Consolidated Financial Statements for additional information concerning the Company’s pension plans.
Restructuring Programs
The actions related to the 20202023 Restructuring Program are expected to result in additional cash expenditures of approximately $365$122 million, primarily through the first quarter of 2022, consisting2024 and consist primarily of severance and related benefit costscosts. Restructuring implementation and costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation. Restructuring implementationefficiency costs, primarily decommissioning and demolition activities related to asset actions, and costs associated with the Company's productivity and efficiency actions, are expected to result in additional cash expenditures of approximately $150$285 million, primarily through the third quarterend of 2022.
The activities related to the Synergy Program are expected to result2024. Restructuring implementation and efficiency costs totaled $243 million in additional cash payments of approximately $35 million, primarily through the second quarter of 2021, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including environmental remediation.2023.
The Company expects to incur additional costs in the future related to its restructuring activities, 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. See Note 64 to the Consolidated Financial Statements for additional information on the Company's restructuring activities.
On January 28, 2021, Dow announced plans for Digital Acceleration: expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and fulfillment experience for Dow's customers; and adopting real-time digital manufacturing insights, operational data intelligence and demand sensing to enhance the productivity and reliability
Integration and Separation Costs
Integration and separation costs, which reflect costs related to post-Merger integration and business separation activities and costs related to the ownership restructure of Dow Silicones, were $239 million in 2020, $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019 and $1,179 million in 2018. Integration and separation costs related to post-Merger integration and business separation activities were completed as of December 31, 2020.
Contractual Obligations
The following table summarizes the Company’s contractual obligations, commercial commitments and expected cash requirements for interest at December 31, 2020.2023. Additional information related to these obligations can be found in Notes 13, 14, 15 16, 17 and 2018 to the Consolidated Financial Statements.
| | Contractual Obligations at Dec 31, 2020 | Payments Due In | |
| Contractual Obligations at Dec 31, 2023 | |
| In millions | |
| In millions | |
| In millions | In millions | 2021 | 2022-2023 | 2024-2025 | 2026 and beyond | Total | 2024 | 2025-2026 | 2027-2028 | 2029 and beyond | Total |
| Dow Inc. | Dow Inc. | | |
Long-term debt obligations 1 | |
Long-term debt obligations 1 | |
Long-term debt obligations 1 | Long-term debt obligations 1 | $ | 460 | | $ | 617 | | $ | 1,796 | | $ | 14,443 | | $ | 17,316 | |
Expected cash requirements for interest 2 | Expected cash requirements for interest 2 | 764 | | 1,453 | | 1,354 | | 8,368 | | 11,939 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 421 | | 1,201 | | 1,586 | | 8,625 | | 11,833 | |
Operating leases 3 | Operating leases 3 | 477 | | 699 | | 406 | | 703 | | 2,285 | |
Purchase obligations 4 | Purchase obligations 4 | 2,624 | | 4,082 | | 3,292 | | 3,384 | | 13,382 | |
Other noncurrent obligations 5 | Other noncurrent obligations 5 | — | | 1,059 | | 717 | | 1,394 | | 3,170 | |
| Total | Total | $ | 4,746 | | $ | 9,111 | | $ | 9,151 | | $ | 36,917 | | $ | 59,925 | |
| TDCC | TDCC | | |
Long-term debt obligations 1 | Long-term debt obligations 1 | $ | 460 | | $ | 617 | | $ | 1,796 | | $ | 14,443 | | $ | 17,316 | |
Long-term debt obligations 1 | |
Long-term debt obligations 1 | |
Expected cash requirements for interest 2 | Expected cash requirements for interest 2 | 764 | | 1,453 | | 1,354 | | 8,368 | | 11,939 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 421 | | 1,201 | | 1,586 | | 8,625 | | 11,833 | |
Operating leases 3 | Operating leases 3 | 477 | | 699 | | 406 | | 703 | | 2,285 | |
Purchase obligations 4 | Purchase obligations 4 | 2,624 | | 4,082 | | 3,292 | | 3,384 | | 13,382 | |
Other noncurrent obligations 5 | Other noncurrent obligations 5 | — | | 1,025 | | 619 | | 1,371 | | 3,015 | |
| Total | Total | $ | 4,746 | | $ | 9,077 | | $ | 9,053 | | $ | 36,894 | | $ | 59,770 | |
1.Excludes unamortized debt discount and issuance costs of $365$258 million. Includes finance lease obligations of $518$873 million.
2.Cash requirements for interest on long-term debt was calculated using current interest rates at December 31, 2020,2023, and includes $235$10 million of various floating rate notes.
3.Includes imputed interest of $348$259 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 and negative investment balances related to equity method investments as these items doit 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 2422 to the Consolidated Financial Statements). In addition, see Note 1412 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, 2020 of $251 million, compared with $3,952 million at December 31, 2019. In the fourth quarter of 2020, the remaining project completion conditions related to the Sadara project finance guarantees were fulfilled. Additional information related to guarantees can be found in the “Guarantees” section of Note 1614 to the Consolidated Financial Statements.
Fair Value Measurements
See Note 2018 to the Consolidated Financial Statements for information related to fair value measurements of pension and other postretirement benefit plan assets; see Note 2220 for information related to other-than-temporary impairments; and, see Note 2321 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 U.S. 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 16 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 1614 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, 2020,2023, the Company had accrued obligations of $1,244$1,180 million for probable environmental remediation and restoration costs, including $248$241 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 1614 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, 2020, 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.
2020 Goodwill Impairment Testing
In 2020, there were no events or changes in circumstances that warranted interim goodwill impairment testing. In the fourth quarter of 2020, qualitative testing was performed for all reporting units carrying goodwill. Based on the results of the qualitative testing, quantitative testing was performed on one reporting unit. For the qualitative assessments, management considered factors at both the Company level and the reporting unit level. Based on the qualitative assessments for the reporting units, 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. For the quantitative testing, the fair value exceeded the carrying value of the reporting unit.
Pension and Other Postretirement Benefits
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, 2020,2023, 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 2018 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 6872 percent of the Company’s pension plan assets and 6970 percent of the pension obligations. The U.S. pension plans were frozen effective December 31, 2023, and therefore, participants will not accrue additional benefits for future service and compensation.
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.United States and other selected countries. Under the spot rate approach, the Company calculates service cost and interest cost 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 20202023 was 7.957.46 percent. The weighted-average assumption to be used for determining 20212024 net periodic pension expense is 7.967.07 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 decreased to 2.715.30 percent at December 31, 2020,2023, from 3.415.64 percent at December 31, 2019.2022.
At December 31, 2020,2023, the net underfunded status of the U.S. qualifiedtax-qualified plans were underfunded on a projected benefit obligation basis by $5,873was $1,192 million. The net underfunded amount increased $1,105$647 million compared with December 31, 2019.2022. The increase in the net underfunded amount in 20202023 was primarily due to the market-related impact of lower discount rates, which was partially offset by overall favorable asset returns. The Company did not make contributions to the U.S. qualified plans in 2020.
The assumption for the long-term rate for the compensation levels for the U.S. qualified plans was unchanged.rates. 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, 2020,2023, net gainslosses of $1,396$2,661 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 gainslosses is presented in the following table:
| | | | | |
| Net Increase in Market-Related Asset Value Due to Recognition of Prior Gains |
| In millions |
| 2021 | $ | 359 | |
| 2022 | 182 | |
| 2023 | 627 | |
| 2024 | 228 | |
| Total | $ | 1,396 | |
| | | | | |
| Net Decrease in Market-Related Asset Value Due to Recognition of Prior Losses |
| In millions |
| 2024 | $ | 697 | |
| 2025 | 902 | |
| 2026 | 1,038 | |
| 2027 | 24 | |
| Total | $ | 2,661 | |
At December 31, 2020,Exclusive of the one-time settlement charge recognized in 2023, the Company expects pension expensenet periodic benefit cost ("NPBC") to decrease in 20212024 by approximately $25$96 million. The decrease in pension expense is primarily due to the lower interest cost component.freeze of pension
benefits in the United States, effective December 31, 2023, and other de-risking activities, partially offset by discount rate decreases.
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 20212024 by $61$53 million. A 25 basis point increase in the discount rate assumption would lowerincrease the Company's total pension expenseNPBC credit for 20212024 by $55$7 million. A 25 basis point decrease in the discount rate assumption would increasedecrease the Company's total pension expenseNPBC credit for 20212024 by $60$16 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 2021.
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, 2020,2023, the Company had a net deferred tax asset balance of $1,810$1,087 million, after valuation allowances of $1,302$2,948 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, 2020, theThe Company had deferredfiles tax assets for tax lossreturns in multiple jurisdictions and tax credit carryforwards of $2,004 million, $708 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 2021 through 2025. 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 $27,331 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 from 2021 through 2025 is approximately $6,405 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, 2020,2023, the Company had uncertain tax positions for both domestic and foreign issues of $373 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, 2020, the Company had a non-income tax contingency reserve for both domestic and foreign issues of $33 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, 2020, indemnification assets were $225$513 million and $115$561 million for Dow Inc.interest and TDCC, respectively ($210 million and $100 million for Dow Inc. and TDCC respectively at December 31, 2019).
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, 2020, indemnification liabilities related to the agreements were $657 million for Dow Inc. and zero for TDCC ($848 million for Dow Inc. and zero for TDCC at December 31, 2019). 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 3 and 16 to the Consolidated Financial Statements.penalties.
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 the American Chemistry Council's Responsible Care®, andCare® program, a strong commitment to achieve the Company's 2025 Sustainability Goals –and Dow's drive to deliver against its targets around a circular economy and climate protection. 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, the 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®Care® and with outside specifications such as ISO-14001. The Company continues to be a global champion of Responsible Care®Care® and has worked to broaden the application and impact of Responsible Care®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 emitting 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 corporate environmental reporting purposes.
Dow's EH&S policies helpedhelp to achieveensure the Company achieves its annual health and safety performance targets in 2020. The Company’s safety continuedand the Company seeks to continuously improve in 2020 based on these targets through process and personal safety project 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 2021 as the Company continues to implement theits 2025 Sustainability Goals and new, progressive, multi-decade sustainability targets aroundthat include advancing a circular economy and climate protection. Progress is reviewed annually by management and with the Environment, Health, Safety & Technology Committee of the Board.
Detailed information on Dow’s performance regarding environmental matters and goals is 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 cybercybersecurity incidents have increased global 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 Company is subject to U.S. regulations set forthwith established risk-based and performance-based standards that must be met at U.S. Coast Guard-regulated facilities. The Company is subject to U.S. Chemical Plant Security regulations and Chemical Facility Anti-Terrorism Standards which were implementedfacilities promulgated by the U.S. Department of Homeland Security. The Company is also 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.
Since 1988, theThe Company has maintainedmaintains a comprehensive, multi-level security plan that focuses on security, emergency planning, preparedness and response. This plan, which has been activated in response to significant world and national events, 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 designed to avert interruptions of normal business operations that could materially and adversely affect the Company’s results of operations, financial condition and cash flows.
The Company played a key role in the development and implementation of the American Chemistry Council’s Responsible Care®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 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, the Company is well-positioned to comply with U.S. chemical facility regulations and other regulatory security frameworks. The Company participates 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®Care®, supply chain design, emergency preparedness, shipment visibility and transportation of hazardous materials. The Company cooperated 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 addresses 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 U.S. delegation to the G7 Global Partnership Sub-Working GroupCongress on Chemical Security.Security and Emerging Threats and in positions of leadership in the U.S. Chemical Sector Coordinating Council.
Climate Change
Climate change mattersEvaluation of climate-related risks and opportunities continues to be a catalyst for the Company are likelydevelopment of the Company’s Decarbonize & Grow strategy (Dow’s climate transition plan), its water-intensity goal and its Valuing Nature goal. Dow's science-based strategy includes a phased approach to be driven by several categories of risks related to the transitiondecarbonize while meeting growing demand for Dow's products and contributing to a lower-carbon economy (“Transition Risks”)low-carbon future through continued investment in new products, technologies and risks relatedprocesses. In 2020, Dow announced commitments to the physical impacts of climate change (“Physical Risks”).
Transition Risks
Transition Risks include carbon pricing mechanisms, transition to lower emissions technology, increased cost of raw materials,reduce its net annual Scope 1 and mandates on and regulation of existing products and services. Carbon pricing is a market-based strategy for lowering global warming2 CO2e emissions by puttingan additional 5 million metric tons by 2030 versus its 2020 baseline, a monetary value on carbon emissions, allowing for the costs of climate impacts15 percent reduction versus 2020 and opportunities for low-carbon energy options to be reflecteda 30 percent reduction in production and consumption choices. Approximately 35 percent of Dow’s carbon emissions are generated from operations in Canada and the European Union (“EU”) where carbon pricing is already in place. As part of the European Green Deal, the European Commission proposed a 2030 greenhouse gas (“GHG”) emissions reduction target of at least 55 percent below 1990 levels, with a goal for the EUsince 2005. Additionally, Dow announced its intention to be carbon neutral by 2050.2050 (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits). In China, an2021, Dow outlined a path to decarbonize its production processes (Scope 1 and 2 CO2e emissions), utilizing a phased approach in which end-of-life capacity is replaced with higher-efficiency, lower greenhouse gas emitting assets. Reflecting Dow's focus to make meaningful progress in the near term, Dow intends to reduce its CO2e emissions trading system, initially proposedby approximately 2 million metric tons by 2025 versus its 2020 baseline while growing underlying earnings and plans to coverbuild the power sector only,world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, which is expected to gradually expandadd approximately 1,885 KTA of ethylene and polyethylene capacity by 2029. Dow is also committed to coveradvancing 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 totalglobal target to reduce freshwater intake intensity by 20 percent at six key water-stressed sites by 2025. Additionally, Dow has implemented a robust process to quantify the value of eight sectors,products and projects that are better for nature, including the petrochemical and chemical industries, though no specific timeline for implementation and expansion has been outlined.nature-based solutions.
These carbon pricing mechanisms will not only increaseDespite 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 direct costs to operate but will also result in increased energy costs. Dow mitigates the direct cost impactresults of existing regulation through researchoperations, financial condition and/or reputation. Climate-related risks include both physical and development projects designed to increase energy efficiency, and capital investment projects that will reduce the Company’s energy usage and carbon footprint. The Company is also exploring options for carbon capture, utilization and storage (“CCUS”) and electrification of Dow’s processes. Dow sees CCUS as a mechanism to help bridge the time period between the onset of increased carbon regulation and the technology available to economically reduce Dow’s GHG emissions. Dow also incorporates a theoretical internal carbon price into its business planning and risk management strategies. This theoretical price of carbon is also included in internal calculations used for prioritizing capital projects. Ultimately the goal of utilizing an internal carbon price is to mitigate the risk of Dow’s carbon exposure to help ensure future resiliency.transition risks.
Physical Risks
Operationally, climate change may result inClimate-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 operations. Severalthe operations of Dow’s production facilities are located in water-scarce areasthe Company as well as those of its customers, partners and water shortages could impact normal production. Changes in average precipitation could have an impact on the availability and price of water. The Company has engineered susceptible facilities, particularly on the U.S. Gulf Coast, to better withstand severe weather and rising sea levels, and continues to study the long-term implications of changing climate parameters on water availability, plant siting issues and other impacts. Preparedness plans are developed that detail actions needed 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.vendors.
In 2019, the most recent period for which data is available,To evaluate physical risks, Dow partnered with S&P Global Trucost (“Trucost”) to assess the Company’s greenhouse gas intensity was down approximately 3 percent from 2018exposure to physical risks based on the geographic location of its manufacturing operations. The risks assessed included water stress, flood, heat waves, cold waves, hurricanes, wildfires and bysea level rise. The analysis included an assessment of the physical risks using a total of approximately 13 percent since the baseline year of 2006. In addition,2020 with time periods for medium- (year 2030) and long-term (year 2050) using the CompanyIntergovernmental Panel on Climate Change representative concentration pathways. These pathways represent varying degrees of global atmospheric greenhouse gas concentrations (low, medium and high), and thus different expectations on global temperature rise. Results will be incorporated into Dow’s long-term assessments of its manufacturing sites, which is on track to meet its target of purchasing 750 megawatts of renewable power by 2025.a key input into Dow’s capital approval process.
The Company continues progress toward its defined 2025 Sustainability GoalsTransition Risks
Climate-related transition risks include the availability, development and is taking further actionaffordability of lower greenhouse gas emissions technology, the effects of CO2e pricing, and changes in public sentiment, regulations, taxes, public mandates or requirements as they relate to lessen its carbon impact moving forward. In June 2020, the Company announced a new, multi-decade carbon target to reduce its net annual carbon emission by 5 million metric tons compared with its 2020 baseline, a reduction of approximately 15 percent, and an intention to be carbon neutral (Scopes 1+2+3, as defined by the Greenhouse Gas Protocol, plus product benefits) by 2050.
CO
Climate-related risks, including both physical and transition risks, are assessed with input from internal and external sources including corporate, business, function and geographic leaders; subject matter experts; investors; and other stakeholders. The evaluation of climate-related risks and opportunities is integrated into an annual company-wide
risk management process, known as enterprise risk management (“ERM”). ERM identifies significant or major risks to the Company and develops action plans to modify or mitigate risks.
Every few years, Dow also utilizes a robust scenario analysis to assess the long-term materiality and impact of climate-related risks and opportunities. Scenario analysis is used to challenge business-as-usual assumptions and strengthen the resiliency of the Company’s Decarbonize & Grow strategy. Scenarios are used to evaluate both physical and transition risk and are particularly useful in evaluating the potential and impact of emerging risks.
Decarbonize & Grow
Dow’s action planDecarbonize & Grow strategy involves specific actions to achieve carbon neutrality by 2050 includes:mitigate identified climate-related physical and transition risks, while also advancing opportunities in several key areas. These include:
•Optimizing energy efficiency of facilitiesManufacturing Facilities and processesProcesses for Sustainability: Dow is investing approximately $1 billion in annual capital across the economic cycle to decarbonize assets, in a phased approach, while growing capacity.
•Increasing renewablesClean Energy in purchased power mix
•InvestmentsPurchased Power Mix: Dow continues to invest in CCUScost-efficient clean energy, including wind, solar, biomass and hydropower, across operations.
•Developing low-carbonNext Generation, Low-Carbon Manufacturing Technologies: Dow is investing in longer-term, future-focused manufacturing technologies for emission reductionsthat will be critical in the decarbonization of the Company's manufacturing.
•DeployingBuilding a Value-Generating Scope 3 Decarbonization Pathway: Approximately two-thirds of Dow’s emissions footprint fall into the Scope 3 categories and more than half of those come from the raw materials, transportation and other services purchased as a company. The Company was recognized as a Supplier Engagement Leader for the second straight year by CDP, a global non-profit that directs the world’s environmental disclosure system for companies, cities, states and regions. Dow has significantly advanced its Scope 3 strategy by improving emissions accounting, advancing transparency along the value chain, and working closely with key suppliers to enableset and meet emissions reduction targets.
•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, lightweighting, fuel transition, circularity, increased operational efficiency, resource reductions for customers and industriesreduced emissions.
The Company intends to meet its commitment to implement the recommendationsAdvancing Water Stewardship and Resilience
As one of the Task Force on Climate-related Financial Disclosures ("TCFD") over the next two years. Disclosures aligned with TCFD recommendations will be includedlargest materials science companies in the world, Dow depends on a steady supply of fresh water to create the products that are essential for everyday life and human progress. Dow strives to use the Company’s annual Sustainability Report.technology, expertise and partnerships to help conserve and promote regenerative water use, protect watersheds and create a future where clean water is abundant and available to all. Effective water stewardship is also required for long-term company viability and Dow’s senior executive leadership team oversees the Company’s water strategy.
Dow’s water risk management approach recognizes that every site and every business is accountable for water while certain watersheds require additional measures to address specific water stress challenges. Key Dow locations have specific water action plans to address risk to operations given their dependence on a stressed watershed. These action plans include mitigations for local water scarcity or quality issues and consider the needs of other local users for freshwater. Additionally, Dow identified six sites in 2015, located in Texas (2); Bahia Blanca, Argentina; Terneuzen, The Netherlands; Böhlen, Germany; and Tarragona, Spain; where operations are located in a water-stressed watershed, have local water quality issues, have competition among local users for water, or have some local knowledge of watershed challenges, and these six sites have been the focus of actions since that time.
Advancing a Circular Economy
Dow is committed to turning the tide on plastic waste and meeting customers’ increasing demands for more sustainable and circular products through Dow's materials science expertise and its investments in circular innovations and partnerships – from designing for recyclability at the beginning of a product’s life to building materials ecosystems that will help turn plastic waste into a valuable resource that can be used to create new products. Dow is working to advance circularity for its key materials and, to this end, is working to deliver on its
enterprise target to Transform the Waste, which entails transforming plastic waste and other forms of feedstocks to deliver 3 million metric tons of circular and renewable solutions annually by 2030. To reach the target, Dow is collaborating with other stakeholders across value chains to build materials ecosystems to collect, reuse or recycle plastic waste. This, in turn, will enable Dow to return more plastic waste into the circular system, and scale production of circular and low-carbon emissions solutions.
Since 2020, Dow has invested more than $200 million into impact funds, recycling infrastructure, venture capital, research and development and key technologies to transform waste into solutions that support a circular economy. Dow is 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, Closed Loop Partners and Lombard Odier Global Plastic Circularity Fund. Additionally, Dow is making progress on its Transform the Waste target through several recently announced circular and renewable offtake agreements and projects that will help contribute to achieving the new target. See Item 1. Business for updates on these investments, partnerships and projects.
In support of, and in collaboration with, value chain partners and customers, Dow is aligning its innovation and application development programs so its products are recycle-ready at the outset or enable circularity in customers’ products and processes. Designing for circularity at the molecular level expands the possibilities for recycling across a variety of applications, and ultimately lessens the environmental impact of Dow's customers’ products.
Dow's efforts under Transform the Waste expand beyond packaging. In 2023, the Company launched and/or commercialized a number of other circular solutions like SPECFLEX C, a recycled polyurethane solution for the automotive sector and Propylene Glycol CIR.
Developing Safer Materials
How the Company manufactures, distributes and enables the proper use and disposal of its products can have a large and meaningful impact on the environment. Dow’s vision is a future where every material it brings to market is sustainable for the people and the planet. Dow is working to deliver that sustainable future through its materials science expertise and collaboration with its customers. By constantly innovating how it sources, manufactures and delivers material solutions, Dow helps customers achieve their goals and create a better tomorrow. Dow has an impact on safer materials directly through the manufacture and delivery of solutions and indirectly through the chemicals that are sourced.
Dow is committed to demonstrating the value of chemistry and materials science to society and improving the way the world understands and considers science in decision-making to maximize benefits to businesses, society and the planet. Through Dow’s 2025 Safe Materials for a Sustainable Planet goal, the Company has made progress toward this vision by innovating sustainable materials of tomorrow, leading candid conversations about product safety and committing to the advancement of open and transparent chemistry with value chain partners, customers and the public.
Environmental Remediation
For comparison of environmental remediation-related matters for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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 $996$939 million at December 31, 2020,2023, related to the remediation of current or former Dow-owned sites. At December 31, 2019,2022, the liability related to remediation was $948 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 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 $248$241 million at December 31, 20202023 ($207244 million at December 31, 2019)2022). 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 | Environmental Sites | Dow-owned Sites 1 | Superfund Sites 2 | Environmental Sites | Dow-owned Sites 1 | Superfund Sites 2 |
| 2020 | 2019 | 2020 | 2019 |
| 2023 | | | 2023 | 2022 | 2023 | 2022 |
| Number of sites at Jan 1 | Number of sites at Jan 1 | 178 | | 178 | | 133 | | 131 | |
| Sites added during year | Sites added during year | 7 | | 7 | | — | | 6 | |
| Sites closed during year | Sites closed during year | — | | (7) | | (1) | | (4) | |
| Number of sites at Dec 31 | Number of sites at Dec 31 | 185 | | 178 | | 132 | | 133 | |
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, 2020,2023, 24 of these sites (28(24 sites at December 31, 2019)2022) 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.
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 1614 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. The PRP Group has been approached by the EPA to convene discussions for the Remedial Action Consent Decree the EPA is preparing for the Berry’s Creek Site. The group submitted the 60 percent design for EPA review and has identified and contracted with a Remedial Action contractor to support completion of the 95 percent design. Allocation remains incomplete.
At December 31, 2020,2023, the Company had accrued liabilities totaling $370$319 million ($368339 million at December 31, 2019)2022) for environmental remediation at the Midland and Wood-Ridge sites. In 2020,2023, the Company spent $53$48 million ($3237 million in 2019)2022) for environmental remediation at the Midland and Wood-Ridge sites.
During the third quarter of 2020, the Company accrued additional liabilities totaling $106 million related to environmental remediation matters resulting from the Company's evaluation of the costs required to manage remediation activities at sites Dow will permanently shut down as part of its 2020 Restructuring Program. In addition, the Company recorded indemnification assets of $50 million related to Dow Silicones' environmental matters. Net of indemnifications, the Company recognized a pretax charge of $56 million related to these environmental matters, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income.
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 $1,244$1,180 million at December 31, 2020,2023, compared with $1,155$1,192 million at December 31, 2019.2022. 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 $234$203 million in 2020, $588 million in 20192023 and $176 million in 2018.2022. The amounts charged to income on a pretax basis related to operating the Company's current pollution abatement facilities, excluding internal recharges, totaled $616$758 million in 2020, $6772023 and $773 million in 2019 and $695 million in 2018.2022. Capital expenditures for environmental protection were $80$228 million in 2020, $832023 and $137 million in 2019 and $55 million in 2018.2022.
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, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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 | Asbestos-Related Claim Activity | 2020 | 2019 | 2018 |
| Asbestos-Related Claim Activity | |
| Asbestos-Related Claim Activity | |
| Claims unresolved at Jan 1 | |
| Claims unresolved at Jan 1 | |
| Claims unresolved at Jan 1 | Claims unresolved at Jan 1 | 11,117 | | 12,780 | | 15,427 | |
| Claims filed | Claims filed | 4,857 | | 5,743 | | 6,599 | |
| Claims filed | |
| Claims filed | |
| Claims settled, dismissed or otherwise resolved | |
| Claims settled, dismissed or otherwise resolved | |
| Claims settled, dismissed or otherwise resolved | Claims settled, dismissed or otherwise resolved | (6,848) | | (7,406) | | (9,246) | |
| Claims unresolved at Dec 31 | Claims unresolved at Dec 31 | 9,126 | | 11,117 | | 12,780 | |
| Claims unresolved at Dec 31 | |
| Claims unresolved at Dec 31 | |
| Claimants with claims against both Union Carbide and Amchem | |
| Claimants with claims against both Union Carbide and Amchem | |
| Claimants with claims against both Union Carbide and Amchem | Claimants with claims against both Union Carbide and Amchem | (2,904) | | (3,837) | | (4,675) | |
| Individual claimants at Dec 31 | Individual claimants at Dec 31 | 6,222 | | 7,280 | | 8,105 | |
| Individual claimants at Dec 31 | |
| Individual claimants at Dec 31 | |
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 1614 to the Consolidated Financial Statements.
| | |
| 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, and the Thai baht and the Argentinian peso, although exposures also exist in other currencies in Asia Pacific, Canada, Latin America, the Middle East, Africa India and Canada.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 debt and 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 20202023 and 20192022 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 | Total Daily VAR by Exposure Type at Dec 31 | 2020 | 2019 | Total Daily VAR by Exposure Type at Dec 31 | 2023 | 2022 |
| In millions | In millions | Year-end | Average | Year-end | Average | In millions | Year-end | Average | Year-end | Average |
| Commodities | Commodities | $ | 23 | | $ | 19 | | $ | 7 | | $ | 12 | |
| Equity securities | Equity securities | 18 | | 17 | | 10 | | 11 | |
| Foreign exchange | Foreign exchange | 11 | | 15 | | 43 | | 36 | |
| Interest rate | Interest rate | 142 | | 153 | | 77 | | 69 | |
| Composite | Composite | $ | 194 | | $ | 204 | | $ | 137 | | $ | 128 | |
The Company’s compositedaily VAR for the aggregate of all positions increaseddecreased from $137a composite VAR of $341 million at December 31, 20192022 to $194a composite VAR of $179 million at December 31, 2020.2023. The commoditiesinterest rate VAR decreased due to a decrease in interest rate volatility and a decrease in interest rate exposure. The equity securities VAR decreased due to a decrease in equity volatility and a decrease in equity exposure. The foreign exchange VAR increased due to an increase in managed exposuresoutstanding derivatives and an increase in commodity volatility.bonds designated as hedging instruments. The equity securities VAR increased due to an increase in equity volatility. The foreign exchangecommodities VAR decreased due to a decrease in managed exposures. The interest rate VAR increased due to an increaseexposures and a decrease in interest rate volatility and an increase in interest rate exposure.commodity volatility. See Note 2220 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, 20202023 and 2019,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2020,2023, 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, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2023, 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, 2020,2023, 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 5, 2021,January 31, 2024, 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 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)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 matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relatesrelate 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill – Annual Impairment Assessment –
Uncertain Tax Positions — Refer to NoteNotes 1 and Note 136 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 value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue growth rates, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”). Changes in these assumptions could have a significant impact on the fair value of the reporting unit and the amount of any goodwill impairment charge. As of December 31, 2020, the Company has six reporting units, all but one of which have goodwill.be
Throughout 2020,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 apply specialized skill, knowledge, and significant judgment related to the Coronavirus (COVID-19) has had substantial negative impact on the resultsidentified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the Company’s operationscomplexity of tax laws, regulations and financial performance of its reporting units. With unprecedented volatilitylegal interpretations relevant to numerous taxing jurisdictions in global financial and commodities markets, the Company’s reporting units experienced decreased demand in certain end-customer markets, changes in supply and demand fundamentals, and margin compression caused by lowering of global energy prices. Given the uncertainty as to the ultimate severity and duration of the COVID-19 pandemic, the volatility in the value of Company’s shares, and uneven course of economic recovery, leading up to its annual goodwill impairment test in the fourth quarterwhich the Company continuously monitoredoperates, auditing uncertain tax positions and the impactdetermination of whether the pandemic on its reporting units to determine if it was more likely than not that the fair valuethreshold was less than the carrying value for any of its reporting units. Based on the results of qualitative assessments completed as part of the annual impairment test for all reporting units, the Company moved to performing a quantitative test for one reporting unit. The discounted cash flows of this reporting unit supported a fair value in excess of the carrying value and as such no goodwill impairment charges were recorded.
Given the significant judgments made by management to estimate the fair value of the 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 requiredmet requires a high degree of auditor judgment and an increased extent of effort, including the assistanceinvolvement of our fair valueincome tax 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 reporting unit subject to the quantitative testuncertain tax positions included the following, among other procedures:others:
•With the assistance of our fair value specialists, weWe tested the effectiveness of internal controls over the goodwill impairment evaluation,income taxes, including controlsthose over the selection of the discount ratesidentifying uncertain tax positions 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 2020 to the forecasted results from 2019.
•We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.measuring liabilities.
•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.
•Withwith the assistance of our fair valueincome tax specialists, we performed a benchmarking exercise comparing management’s estimatesthe Company’s uncertain tax positions by performing the following:
–Obtaining Company and assumptions related to revenue growth, EBITDAthird-party opinions or memoranda regarding the uncertain tax positions.
–Identifying key judgements underlying the Company’s position and EBITDA margin forevaluating whether the reporting unit asconclusions are consistent with our interpretation of the measurement date to the revenue growth, EBITDArelevant laws and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.regulations.
•–WithEvaluating the assistanceCompany’s method of our fair value specialists, we evaluated (1)measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the valuation methodology usedbasis for certain intercompany transactions, such as transfer pricing, by comparison to economic studies performed by management and (2) the projectionsthird-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation 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.applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
February 5, 2021January 31, 2024 |
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, 20202023 and 2019,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2020,2023, 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, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2023, 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, 2020,2023, 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 5, 2021,January 31, 2024, 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 2019, the Company changed the method of accounting for leases due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.it relates.
Goodwill – Annual Impairment Assessment –
Uncertain Tax Positions — Refer to NoteNotes 1 and Note 136 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 ofuncertain tax position will be sustained upon examination. The Company recognizes a reporting unit has declined below its carrying value. In performing quantitative assessments,benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be realized. The Company utilizesestablishes a discounted cash flow methodology to calculate the fair value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue growth rates, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”), and EBITDA margin. Changes in these assumptions could have a significant impact on the fair value of the reporting unit and the amount of any goodwill impairment charge. At December 31, 2020, the Company has six reporting units, all but one of which have goodwill.
Throughout 2020,evaluation of each uncertain tax position requires management to apply specialized skill, knowledge, and significant judgment related to the Coronavirus (COVID-19) has had substantial negative impact on the resultsidentified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the Company’s operationscomplexity of tax laws, regulations and financial performance of its reporting units. With unprecedented volatilitylegal interpretations relevant to numerous taxing jurisdictions in global financial and commodities markets, the Company’s reporting units experienced decreased demand in certain end-customer markets, changes in supply and demand fundamentals, and margin compression caused by lowering of global energy prices. Given the uncertainty as to the ultimate severity and duration of the COVID-19 pandemic, the volatility in the value of Company’s shares, and uneven course of economic recovery, leading up to its annual goodwill impairment test in the fourth quarterwhich the Company continuously monitoredoperates, auditing uncertain tax positions and the impactdetermination of whether the pandemic on its reporting units to determine if it was more likely than not that the fair valuethreshold was less than the carrying value for any of its reporting units. Based on the results of qualitative assessments completed as part of the annual impairment test for all reporting units, the Company moved to performing a quantitative test for one reporting unit. The discounted cash flows of this reporting unit supported a fair value in excess of the carrying value and as such no goodwill impairment charges were recorded.
Given the significant judgments made by management to estimate the fair value of the 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 requiredmet requires a high degree of auditor judgment and an increased extent of effort, including the assistanceinvolvement of our fair valueincome tax 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 reporting unit subject to the quantitative testuncertain tax positions included the following, among other procedures:others:
•With the assistance of our fair value specialists, weWe tested the effectiveness of internal controls over the goodwill impairment evaluation,income taxes, including quarterly impairment monitoring controlsthose over identifying uncertain tax positions and controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.
•We performed a retrospective review comparing actual revenue and EBITDA results of the reporting unit for 2020 to the forecasted results from 2019.
•We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.measuring liabilities.
•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.
•Withwith the assistance of our fair valueincome tax specialists, we performed a benchmarking exercise comparing management’s estimatesthe Company’s uncertain tax positions by performing the following:
–Obtaining Company and assumptions related to revenue growth, EBITDAthird-party opinions or memoranda regarding the uncertain tax positions.
–Identifying key judgements underlying the Company’s position and EBITDA margin forevaluating whether the reporting unit asconclusions are consistent with our interpretation of the measurement date to the revenue growth, EBITDArelevant laws and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.regulations.
•–WithEvaluating the assistanceCompany’s method of our fair value specialists, we evaluated (1)measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the valuation methodology usedbasis for certain intercompany transactions, such as transfer pricing, by comparison to economic studies performed by management and (2) the projectionsthird-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation 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.applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
February 5, 2021January 31, 2024 |
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, | 2020 | 2019 | 2018 |
| Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
| Cost of sales | 33,346 | | 36,657 | | 41,074 | |
| Research and development expenses | 768 | | 765 | | 800 | |
| Selling, general and administrative expenses | 1,471 | | 1,590 | | 1,782 | |
| Amortization of intangibles | 401 | | 419 | | 469 | |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| Integration and separation costs | 239 | | 1,063 | | 1,179 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (18) | | (94) | | 555 | |
| Sundry income (expense) - net | 1,269 | | 461 | | 96 | |
| Interest income | 38 | | 81 | | 82 | |
| Interest expense and amortization of debt discount | 827 | | 933 | | 1,063 | |
| Income (loss) from continuing operations before income taxes | 2,071 | | (1,247) | | 3,749 | |
| Provision for income taxes on continuing operations | 777 | | 470 | | 809 | |
| Income (loss) from continuing operations, net of tax | 1,294 | | (1,717) | | 2,940 | |
| Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
| Net income (loss) | 1,294 | | (1,272) | | 4,775 | |
| Net income attributable to noncontrolling interests | 69 | | 87 | | 134 | |
| Net income (loss) available for Dow Inc. common stockholders | $ | 1,225 | | $ | (1,359) | | $ | 4,641 | |
| | | |
| | | |
| Per common share data: | | | |
| Earnings (loss) per common share from continuing operations - basic | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
| Earnings per common share from discontinued operations - basic | 0 | | 0.58 | | 2.41 | |
| Earnings (loss) per common share - basic | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| Earnings (loss) per common share from continuing operations - diluted | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
| Earnings per common share from discontinued operations - diluted | 0 | | 0.58 | | 2.41 | |
| Earnings (loss) per common share - diluted | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| | | |
| Weighted-average common shares outstanding - basic | 740.5 | | 742.5 | | 747.2 | |
| Weighted-average common shares outstanding - diluted | 742.3 | | 742.5 | | 747.2 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| Net income (loss) | $ | 1,294 | | $ | (1,272) | | $ | 4,775 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized gains (losses) on investments | 40 | | 115 | | (67) | |
| Cumulative translation adjustments | 205 | | (32) | | (225) | |
| Pension and other postretirement benefit plans | (778) | | (899) | | (40) | |
| Derivative instruments | (76) | | (338) | | 75 | |
| Total other comprehensive loss | (609) | | (1,154) | | (257) | |
| Comprehensive income (loss) | 685 | | (2,426) | | 4,518 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 69 | | 99 | | 97 | |
| Comprehensive income (loss) attributable to Dow Inc. | $ | 616 | | $ | (2,525) | | $ | 4,421 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2020 | 2019 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | $ | 5,104 | | $ | 2,367 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | 4,839 | | 4,844 | |
| Other | 2,551 | | 2,711 | |
| Inventories | 5,701 | | 6,214 | |
| Other current assets | 889 | | 679 | |
| | |
| Total current assets | 19,084 | | 16,815 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,327 | | 1,404 | |
| Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | 2,775 | | 2,588 | |
| Noncurrent receivables | 465 | | 1,063 | |
| Total investments | 4,567 | | 5,055 | |
| Property | | |
| Property | 56,325 | | 54,910 | |
| Less: Accumulated depreciation | 36,086 | | 33,914 | |
| Net property (variable interest entities restricted - 2020: $232; 2019: $330) | 20,239 | | 20,996 | |
| Other Assets | | |
| Goodwill | 8,908 | | 8,796 | |
| Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | 3,352 | | 3,759 | |
| Operating lease right-of-use assets | 1,856 | | 2,072 | |
| Deferred income tax assets | 2,215 | | 2,213 | |
| Deferred charges and other assets | 1,249 | | 818 | |
| Total other assets | 17,580 | | 17,658 | |
| Total Assets | $ | 61,470 | | $ | 60,524 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 156 | | $ | 586 | |
| Long-term debt due within one year | 460 | | 435 | |
| Accounts payable: | | |
| Trade | 3,763 | | 3,889 | |
| Other | 2,126 | | 2,064 | |
| Operating lease liabilities - current | 416 | | 421 | |
| Income taxes payable | 397 | | 522 | |
| | |
| Accrued and other current liabilities | 3,790 | | 2,762 | |
| | |
| Total current liabilities | 11,108 | | 10,679 | |
| Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | 16,491 | | 15,975 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 405 | | 347 | |
| Pension and other postretirement benefits - noncurrent | 11,648 | | 10,083 | |
| Asbestos-related liabilities - noncurrent | 1,013 | | 1,060 | |
| Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
| Other noncurrent obligations | 6,279 | | 6,547 | |
| Total other noncurrent liabilities | 20,866 | | 19,776 | |
| Stockholders’ Equity | | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2020: 755,993,198 shares; 2019: 751,228,644 shares) | 8 | | 8 | |
| Additional paid-in capital | 7,595 | | 7,325 | |
| Retained earnings | 16,361 | | 17,045 | |
| Accumulated other comprehensive loss | (10,855) | | (10,246) | |
| Unearned ESOP shares | (49) | | (91) | |
| Treasury stock at cost (2020: 12,803,303 shares; 2019: 9,729,834 shares) | (625) | | (500) | |
| Dow Inc.’s stockholders’ equity | 12,435 | | 13,541 | |
| Noncontrolling interests | 570 | | 553 | |
| Total equity | 13,005 | | 14,094 | |
| Total Liabilities and Equity | $ | 61,470 | | $ | 60,524 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | |
(In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| Operating Activities | | | |
| Net income (loss) | $ | 1,294 | | $ | (1,272) | | $ | 4,775 | |
| Less: Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
| Income (loss) from continuing operations, net of tax | 1,294 | | (1,717) | | 2,940 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,874 | | 2,938 | | 2,909 | |
| Provision (credit) for deferred income tax | 258 | | (228) | | (429) | |
| Earnings of nonconsolidated affiliates less than dividends received | 443 | | 1,114 | | 108 | |
| Net periodic pension benefit cost | 266 | | 144 | | 279 | |
| Pension contributions | (299) | | (261) | | (1,651) | |
| Net gain on sales of assets, businesses and investments | (802) | | (81) | | (38) | |
| | | |
| | | |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| | | |
| Other net loss | 318 | | 198 | | 415 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 171 | | 1,253 | | (855) | |
| Inventories | 515 | | 668 | | (859) | |
| Accounts payable | (84) | | (948) | | 787 | |
| Other assets and liabilities, net | 590 | | (586) | | (731) | |
| Cash provided by operating activities - continuing operations | 6,252 | | 5,713 | | 3,096 | |
| Cash provided by (used for) operating activities - discontinued operations | (26) | | 217 | | 1,158 | |
| Cash provided by operating activities | 6,226 | | 5,930 | | 4,254 | |
| Investing Activities | | | |
| Capital expenditures | (1,252) | | (1,961) | | (2,091) | |
| Investment in gas field developments | (5) | | (76) | | (114) | |
| | | |
| | | |
| Purchases of previously leased assets | (5) | | (9) | | (26) | |
| Proceeds from sales of property and businesses, net of cash divested | 929 | | 84 | | 47 | |
| Acquisitions of property and businesses, net of cash acquired | (130) | | 0 | | (20) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (333) | | (638) | | (18) | |
| Distributions and loan repayments from nonconsolidated affiliates | 7 | | 89 | | 55 | |
| | | |
| Purchases of investments | (1,203) | | (899) | | (1,530) | |
| Proceeds from sales and maturities of investments | 1,122 | | 1,252 | | 1,214 | |
| Proceeds from interests in trade accounts receivable conduits | 0 | | 0 | | 657 | |
| Other investing activities, net | 29 | | 0 | | 0 | |
| Cash used for investing activities - continuing operations | (841) | | (2,158) | | (1,826) | |
| Cash used for investing activities - discontinued operations | 0 | | (34) | | (369) | |
| Cash used for investing activities | (841) | | (2,192) | | (2,195) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (431) | | 307 | | (178) | |
| Proceeds from issuance of short-term debt greater than three months | 163 | | 0 | | 0 | |
| Payments on short-term debt greater than three months | (163) | | 0 | | 0 | |
| Proceeds from issuance of long-term debt | 4,672 | | 2,287 | | 1,999 | |
| Payments on long-term debt | (4,653) | | (5,561) | | (3,054) | |
| Purchases of treasury stock | (125) | | (500) | | 0 | |
| Proceeds from issuance of stock | 108 | | 93 | | 112 | |
| | | |
| Transaction financing, debt issuance and other costs | (175) | | (119) | | (70) | |
| Employee taxes paid for share-based payment arrangements | (27) | | (60) | | (77) | |
| | | |
| Distributions to noncontrolling interests | (62) | | (77) | | (135) | |
| Purchases of noncontrolling interests | 0 | | (297) | | 0 | |
| | | |
| Dividends paid to stockholders | (2,071) | | (1,550) | | 0 | |
| Dividends paid to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
| Settlements and transfers related to separation from DowDuPont Inc. | 0 | | 1,935 | | (240) | |
| Other financing activities, net | 0 | | 0 | | 3 | |
| Cash used for financing activities - continuing operations | (2,764) | | (4,077) | | (5,351) | |
| Cash used for financing activities - discontinued operations | 0 | | (18) | | (53) | |
| Cash used for financing activities | (2,764) | | (4,095) | | (5,404) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 107 | | (27) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 2,728 | | (384) | | (3,444) | |
| Cash, cash equivalents and restricted cash at beginning of year | 2,380 | | 2,764 | | 6,208 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 4 | | 13 | | 40 | |
| Cash and cash equivalents at end of year | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Equity
| | | | | | | | | | | |
| (In millions, except per share amounts) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| | | |
| | | |
| | | |
| | | |
| Common Stock | | | |
| Balance at beginning of year | $ | 8 | | $ | 0 | | $ | 0 | |
| | | |
| Common stock issued | 0 | | 8 | | 0 | |
| Balance at end of year | 8 | | 8 | | 0 | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 7,325 | | 7,042 | | 6,553 | |
| Common stock issued / sold | 108 | | 57 | | 0 | |
| Issuance of parent company stock - DowDuPont Inc. | 0 | | 28 | | 112 | |
| Stock-based compensation and allocation of ESOP shares | 162 | | 235 | | 377 | |
| | | |
| | | |
| Other | 0 | | (37) | | 0 | |
| Balance at end of year | 7,595 | | 7,325 | | 7,042 | |
| Retained Earnings | | | |
| Balance at beginning of year | 17,045 | | 35,460 | | 33,742 | |
| Net income (loss) available for Dow Inc.'s common stockholders | 1,225 | | (1,359) | | 4,641 | |
| Dividends to stockholders | (2,071) | | (1,550) | | 0 | |
| Dividends to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
| Common control transaction | 177 | | (14,806) | | (182) | |
| Adoption of accounting standards (Note 1) | 0 | | (151) | | 989 | |
| Other | (15) | | (14) | | (19) | |
| Balance at end of year | 16,361 | | 17,045 | | 35,460 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (10,246) | | (9,885) | | (8,591) | |
| Other comprehensive loss | (609) | | (1,154) | | (257) | |
| Common control transaction | 0 | | 793 | | 0 | |
| Adoption of accounting standards (Note 1) | 0 | | 0 | | (1,037) | |
| Balance at end of year | (10,855) | | (10,246) | | (9,885) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | (91) | | (134) | | (189) | |
| Stock-based compensation and allocation of ESOP shares | 42 | | 45 | | 55 | |
| ESOP shares acquired | 0 | | (2) | | 0 | |
| Balance at end of year | (49) | | (91) | | (134) | |
| Treasury Stock | | | |
| Balance at beginning of year | (500) | | 0 | | 0 | |
| | | |
| Treasury stock purchases | (125) | | (500) | | 0 | |
| | | |
| | | |
| Balance at end of year | (625) | | (500) | | 0 | |
| Dow Inc.'s stockholders' equity | 12,435 | | 13,541 | | 32,483 | |
| Noncontrolling Interests | 570 | | 553 | | 1,138 | |
| Total Equity | $ | 13,005 | | $ | 14,094 | | $ | 33,621 | |
| | | |
| Dividends declared per share of common stock | $ | 2.80 | | $ | 2.10 | | $ | 0 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
| | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| (In millions, except per share amounts) For the years ended Dec 31, | | (In millions, except per share amounts) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net sales | Net sales | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
| Cost of sales | Cost of sales | 33,343 | | 36,657 | | 41,074 | |
| Research and development expenses | Research and development expenses | 768 | | 765 | | 800 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 1,471 | | 1,585 | | 1,782 | |
| Amortization of intangibles | Amortization of intangibles | 401 | | 419 | | 469 | |
| Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| Integration and separation costs | 239 | | 1,039 | | 1,179 | |
| | Restructuring and asset related charges - net | |
| Equity in earnings (losses) of nonconsolidated affiliates | Equity in earnings (losses) of nonconsolidated affiliates | (18) | | (94) | | 555 | |
| Sundry income (expense) - net | Sundry income (expense) - net | 1,274 | | 573 | | 96 | |
| Interest income | Interest income | 40 | | 81 | | 82 | |
| Interest expense and amortization of debt discount | Interest expense and amortization of debt discount | 827 | | 952 | | 1,063 | |
| Income (loss) from continuing operations before income taxes | 2,081 | | (1,125) | | 3,749 | |
| Provision for income taxes on continuing operations | 777 | | 470 | | 809 | |
| Income (loss) from continuing operations, net of tax | 1,304 | | (1,595) | | 2,940 | |
| Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
| Net income (loss) | 1,304 | | (1,150) | | 4,775 | |
| Income before income taxes | |
| Provision (credit) for income taxes | |
| Net income | |
| Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | 69 | | 87 | | 134 | |
| Net income available for Dow Inc. common stockholders | |
| | Net income (loss) available for The Dow Chemical Company common stockholder | $ | 1,235 | | $ | (1,237) | | $ | 4,641 | |
| Per common share data: | |
| | Per common share data: | |
| | Per common share data: | |
| Earnings per common share - basic | |
| Earnings per common share - basic | |
| Earnings per common share - basic | |
| Earnings per common share - diluted | |
| | Weighted-average common shares outstanding - basic | |
| Weighted-average common shares outstanding - basic | |
| Weighted-average common shares outstanding - basic | |
| Weighted-average common shares outstanding - diluted | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical CompanyInc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | (In millions) For the years ended Dec 31, | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 | (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net income (loss) | $ | 1,304 | | $ | (1,150) | | $ | 4,775 | |
| Net income | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | |
| Unrealized gains (losses) on investments | 40 | | 115 | | (67) | |
| Unrealized losses on investments | |
| Unrealized losses on investments | |
| Unrealized losses on investments | |
| Cumulative translation adjustments | Cumulative translation adjustments | 205 | | (32) | | (225) | |
| Pension and other postretirement benefit plans | Pension and other postretirement benefit plans | (778) | | (899) | | (40) | |
| Derivative instruments | Derivative instruments | (76) | | (338) | | 75 | |
| Total other comprehensive loss | (609) | | (1,154) | | (257) | |
| Comprehensive income (loss) | 695 | | (2,304) | | 4,518 | |
| Total other comprehensive income (loss) | |
| Comprehensive income | |
| Comprehensive income attributable to noncontrolling interests, net of tax | Comprehensive income attributable to noncontrolling interests, net of tax | 69 | | 99 | | 97 | |
| Comprehensive income (loss) attributable to The Dow Chemical Company | $ | 626 | | $ | (2,403) | | $ | 4,421 | |
| Comprehensive income attributable to Dow Inc. | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical CompanyInc. and Subsidiaries
Consolidated Balance Sheets
| | (In millions, except share amounts) At Dec 31, | (In millions, except share amounts) At Dec 31, | 2020 | 2019 | (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | Assets | | |
| Current Assets | Current Assets | | |
| Cash and cash equivalents (variable interest entities restricted - 2020: $26; 2019: $37) | $ | 5,104 | | $ | 2,367 | |
| Current Assets | |
| Current Assets | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| | Accounts and notes receivable: | Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2020: $51; 2019: $45) | 4,839 | | 4,844 | |
| Accounts and notes receivable: | |
| Accounts and notes receivable: | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | |
| Other | Other | 2,553 | | 2,716 | |
| Inventories | Inventories | 5,701 | | 6,214 | |
| Other current assets | Other current assets | 801 | | 592 | |
| | Total current assets | Total current assets | 18,998 | | 16,733 | |
| Total current assets | |
| Total current assets | |
| Investments | Investments | | |
| Investment in nonconsolidated affiliates | Investment in nonconsolidated affiliates | 1,327 | | 1,404 | |
| Other investments (investments carried at fair value - 2020: $1,674; 2019: $1,584) | 2,775 | | 2,588 | |
| Investment in nonconsolidated affiliates | |
| Investment in nonconsolidated affiliates | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | |
| Noncurrent receivables | Noncurrent receivables | 426 | | 1,011 | |
| Total investments | Total investments | 4,528 | | 5,003 | |
| Property | Property | | |
| Property | Property | 56,325 | | 54,910 | |
| Property | |
| Property | |
| Less: Accumulated depreciation | Less: Accumulated depreciation | 36,086 | | 33,914 | |
| Net property (variable interest entities restricted - 2020: $232; 2019: $330) | 20,239 | | 20,996 | |
| Net property | |
| Other Assets | Other Assets | | |
| Goodwill | Goodwill | 8,908 | | 8,796 | |
| Other intangible assets (net of accumulated amortization - 2020: $4,428; 2019: $3,886) | 3,352 | | 3,759 | |
| Goodwill | |
| Goodwill | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 1,856 | | 2,072 | |
| Deferred income tax assets | Deferred income tax assets | 2,215 | | 2,213 | |
| | Deferred charges and other assets | Deferred charges and other assets | 1,249 | | 818 | |
| | Total other assets | Total other assets | 17,580 | | 17,658 | |
| Total Assets | Total Assets | $ | 61,345 | | $ | 60,390 | |
| Liabilities and Equity | Liabilities and Equity | | |
| Current Liabilities | Current Liabilities | | |
| Current Liabilities | |
| Current Liabilities | |
| Notes payable | |
| Notes payable | |
| Notes payable | Notes payable | $ | 156 | | $ | 586 | |
| Long-term debt due within one year | Long-term debt due within one year | 460 | | 435 | |
| Accounts payable: | Accounts payable: | | |
| Trade | Trade | 3,763 | | 3,889 | |
| Trade | |
| Trade | |
| Other | Other | 2,126 | | 2,064 | |
| Operating lease liabilities - current | Operating lease liabilities - current | 416 | | 421 | |
| Income taxes payable | Income taxes payable | 397 | | 522 | |
| | Accrued and other current liabilities | |
| Accrued and other current liabilities | |
| Accrued and other current liabilities | Accrued and other current liabilities | 3,256 | | 2,233 | |
| | Total current liabilities | Total current liabilities | 10,574 | | 10,150 | |
| Long-Term Debt (variable interest entities nonrecourse - 2020: $6; 2019: $34) | 16,491 | | 15,975 | |
| Total current liabilities | |
| Total current liabilities | |
| Long-Term Debt | |
| Other Noncurrent Liabilities | Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | |
| Deferred income tax liabilities | |
| Deferred income tax liabilities | Deferred income tax liabilities | 405 | | 347 | |
| Pension and other postretirement benefits - noncurrent | Pension and other postretirement benefits - noncurrent | 11,648 | | 10,083 | |
| Asbestos-related liabilities - noncurrent | Asbestos-related liabilities - noncurrent | 1,013 | | 1,060 | |
| Operating lease liabilities - noncurrent | Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
| Other noncurrent obligations | Other noncurrent obligations | 6,124 | | 6,174 | |
| | Total other noncurrent liabilities | Total other noncurrent liabilities | 20,711 | | 19,403 | |
| | Stockholder's Equity | | |
| Common stock (authorized and issued 100 shares of $0.01 par value each) | 0 | | 0 | |
| Stockholders’ Equity | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | |
| Additional paid-in capital | Additional paid-in capital | 7,603 | | 7,333 | |
| Retained earnings | Retained earnings | 16,300 | | 17,313 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (10,855) | | (10,246) | |
| Unearned ESOP shares | (49) | | (91) | |
| | The Dow Chemical Company’s stockholder's equity | 12,999 | | 14,309 | |
| Treasury stock at cost (2023: 76,302,081 shares; 2022: 66,798,605 shares) | |
| Dow Inc.’s stockholders’ equity | |
| Noncontrolling interests | Noncontrolling interests | 570 | | 553 | |
| Total equity | Total equity | 13,569 | | 14,862 | |
| Total Liabilities and Equity | Total Liabilities and Equity | $ | 61,345 | | $ | 60,390 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical CompanyInc. and Subsidiaries
Consolidated Statements of Cash Flows
| (In millions) For the years ended Dec 31, | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 | (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Operating Activities | Operating Activities | | |
| Net income (loss) | $ | 1,304 | | $ | (1,150) | | $ | 4,775 | |
| Less: Income from discontinued operations, net of tax | 0 | | 445 | | 1,835 | |
| Income (loss) from continuing operations, net of tax | 1,304 | | (1,595) | | 2,940 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| Net income | |
| Net income | |
| Net income | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Depreciation and amortization | Depreciation and amortization | 2,874 | | 2,938 | | 2,909 | |
| Provision (credit) for deferred income tax | Provision (credit) for deferred income tax | 258 | | (228) | | (429) | |
| Earnings of nonconsolidated affiliates less than dividends received | 443 | | 1,114 | | 108 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | |
| Net periodic pension benefit cost | Net periodic pension benefit cost | 266 | | 144 | | 279 | |
| Pension contributions | Pension contributions | (299) | | (261) | | (1,651) | |
| Net gain on sales of assets, businesses and investments | Net gain on sales of assets, businesses and investments | (802) | | (81) | | (38) | |
| | Restructuring, goodwill impairment and asset related charges - net | 708 | | 3,219 | | 221 | |
| Restructuring and asset related charges - net | |
| | Restructuring and asset related charges - net | |
| | Restructuring and asset related charges - net | |
| | Other net loss | Other net loss | 320 | | 213 | | 415 | |
| Other net loss | |
| Other net loss | |
| 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 | |
| Accounts and notes receivable | |
| Accounts and notes receivable | Accounts and notes receivable | 171 | | 1,253 | | (855) | |
| Inventories | Inventories | 515 | | 668 | | (859) | |
| Accounts payable | Accounts payable | (84) | | (948) | | 787 | |
| Other assets and liabilities, net | Other assets and liabilities, net | 589 | | (730) | | (731) | |
| Cash provided by operating activities - continuing operations | Cash provided by operating activities - continuing operations | 6,263 | | 5,706 | | 3,096 | |
| Cash provided by operating activities - discontinued operations | 0 | | 371 | | 1,158 | |
| Cash provided by (used for) operating activities - discontinued operations | |
| Cash provided by operating activities | Cash provided by operating activities | 6,263 | | 6,077 | | 4,254 | |
| Investing Activities | Investing Activities | | |
| Capital expenditures | |
| Capital expenditures | |
| Capital expenditures | Capital expenditures | (1,252) | | (1,961) | | (2,091) | |
| Investment in gas field developments | Investment in gas field developments | (5) | | (76) | | (114) | |
| | Purchases of previously leased assets | Purchases of previously leased assets | (5) | | (9) | | (26) | |
| Proceeds from sales of property and businesses, net of cash divested | 929 | | 84 | | 47 | |
| | Purchases of previously leased assets | |
| | Purchases of previously leased assets | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | |
| Acquisitions of property and businesses, net of cash acquired | Acquisitions of property and businesses, net of cash acquired | (130) | | 0 | | (20) | |
| | Investments in and loans to nonconsolidated affiliates | Investments in and loans to nonconsolidated affiliates | (333) | | (638) | | (18) | |
| Investments in and loans to nonconsolidated affiliates | |
| Investments in and loans to nonconsolidated affiliates | |
| Distributions and loan repayments from nonconsolidated affiliates | Distributions and loan repayments from nonconsolidated affiliates | 7 | | 89 | | 55 | |
| | Proceeds from sales of ownership interests in nonconsolidated affiliates | |
| Purchases of investments | Purchases of investments | (1,203) | | (899) | | (1,530) | |
| Proceeds from sales and maturities of investments | Proceeds from sales and maturities of investments | 1,122 | | 1,252 | | 1,214 | |
| Proceeds from interests in trade accounts receivable conduits | 0 | | 0 | | 657 | |
| | Other investing activities, net | Other investing activities, net | 29 | | 0 | | 0 | |
| Cash used for investing activities - continuing operations | (841) | | (2,158) | | (1,826) | |
| Cash used for investing activities - discontinued operations | 0 | | (34) | | (369) | |
| Other investing activities, net | |
| Other investing activities, net | |
| Cash used for investing activities | Cash used for investing activities | (841) | | (2,192) | | (2,195) | |
| Financing Activities | Financing Activities | | |
| Changes in short-term notes payable | |
| Changes in short-term notes payable | |
| Changes in short-term notes payable | Changes in short-term notes payable | (431) | | 307 | | (178) | |
| Proceeds from issuance of short-term debt greater than three months | Proceeds from issuance of short-term debt greater than three months | 163 | | 0 | | 0 | |
| Payments on short-term debt greater than three months | Payments on short-term debt greater than three months | (163) | | 0 | | 0 | |
| Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | 4,672 | | 2,287 | | 1,999 | |
| Payments on long-term debt | Payments on long-term debt | (4,653) | | (5,561) | | (3,054) | |
| | Collections on securitization programs | |
| Purchases of treasury stock | |
| Proceeds from issuance of stock | Proceeds from issuance of stock | 108 | | 93 | | 112 | |
| | Transaction financing, debt issuance and other costs | |
| Transaction financing, debt issuance and other costs | |
| Transaction financing, debt issuance and other costs | Transaction financing, debt issuance and other costs | (175) | | (119) | | (70) | |
| Employee taxes paid for share-based payment arrangements | Employee taxes paid for share-based payment arrangements | (27) | | (60) | | (77) | |
| | Distributions to noncontrolling interests | Distributions to noncontrolling interests | (62) | | (77) | | (135) | |
| Purchases of noncontrolling interests | 0 | | (297) | | 0 | |
| Distributions to noncontrolling interests | |
| Distributions to noncontrolling interests | |
| | Dividends paid to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
| Dividends paid to Dow Inc. | (2,233) | | (201) | | 0 | |
| Settlements and transfers related to separation from DowDuPont Inc. | 0 | | (61) | | (240) | |
| Other financing activities, net | 0 | | 0 | | 3 | |
| Cash used for financing activities - continuing operations | (2,801) | | (4,224) | | (5,351) | |
| Cash used for financing activities - discontinued operations | 0 | | (18) | | (53) | |
| Dividends paid to stockholders | |
| | Dividends paid to stockholders | |
| | Dividends paid to stockholders | |
| | Cash used for financing activities | |
| Cash used for financing activities | |
| Cash used for financing activities | Cash used for financing activities | (2,801) | | (4,242) | | (5,404) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | 107 | | (27) | | (99) | |
| Summary | Summary | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | |
| Increase (decrease) in cash, cash equivalents and restricted cash | |
| Increase (decrease) in cash, cash equivalents and restricted cash | Increase (decrease) in cash, cash equivalents and restricted cash | 2,728 | | (384) | | (3,444) | |
| Cash, cash equivalents and restricted cash at beginning of year | Cash, cash equivalents and restricted cash at beginning of year | 2,380 | | 2,764 | | 6,208 | |
| Cash, cash equivalents and restricted cash at end of year | Cash, cash equivalents and restricted cash at end of year | $ | 5,108 | | $ | 2,380 | | $ | 2,764 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | Less: Restricted cash and cash equivalents, included in "Other current assets" | 4 | | 13 | | 40 | |
| Cash and cash equivalents at end of year | Cash and cash equivalents at end of year | $ | 5,104 | | $ | 2,367 | | $ | 2,724 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical CompanyInc. and Subsidiaries
Consolidated Statements of Equity
| | (In millions, except per share amounts) For the years ended Dec 31, | (In millions, except per share amounts) For the years ended Dec 31, | 2020 | 2019 | 2018 | (In millions, except per share amounts) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| | Common Stock | Common Stock | | |
| Balance at beginning and end of year | |
| Balance at beginning and end of year | |
| Balance at beginning and end of year | Balance at beginning and end of year | $ | 0 | | $ | 0 | | $ | 0 | |
| | Additional Paid-in Capital | Additional Paid-in Capital | | |
| | Additional Paid-in Capital | |
| | Additional Paid-in Capital | |
| Balance at beginning of year | Balance at beginning of year | 7,333 | | 7,042 | | 6,553 | |
| | Issuance of parent company stock - Dow Inc. | 108 | | 65 | | 0 | |
| Issuance of parent company stock - DowDuPont Inc. | 0 | | 28 | | 112 | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Common stock issued / sold | |
| Stock-based compensation and allocation of ESOP shares | Stock-based compensation and allocation of ESOP shares | 162 | | 235 | | 377 | |
| | Treasury stock issuances - compensation and benefit plans | |
| Other | Other | 0 | | (37) | | 0 | |
| Balance at end of year | Balance at end of year | 7,603 | | 7,333 | | 7,042 | |
| Retained Earnings | Retained Earnings | | |
| Balance at beginning of year | Balance at beginning of year | 17,313 | | 35,460 | | 33,742 | |
| Net income (loss) available for The Dow Chemical Company's common stockholder | 1,235 | | (1,237) | | 4,641 | |
| | Dividends to Dow Inc. | (2,233) | | (201) | | 0 | |
| Dividends to DowDuPont Inc. | 0 | | (535) | | (3,711) | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Net income available for Dow Inc.'s common stockholders | |
| Dividends to stockholders | |
| Common control transaction | Common control transaction | 0 | | (16,009) | | (182) | |
| Adoption of accounting standards (Note 1) | 0 | | (151) | | 989 | |
| Other | Other | (15) | | (14) | | (19) | |
| Balance at end of year | Balance at end of year | 16,300 | | 17,313 | | 35,460 | |
| Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | | |
| Balance at beginning of year | Balance at beginning of year | (10,246) | | (9,885) | | (8,591) | |
| Other comprehensive loss | (609) | | (1,154) | | (257) | |
| Common control transaction | 0 | | 793 | | 0 | |
| Adoption of accounting standards (Note 1) | 0 | | 0 | | (1,037) | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Other comprehensive income (loss) | |
| Balance at end of year | Balance at end of year | (10,855) | | (10,246) | | (9,885) | |
| Unearned ESOP Shares | Unearned ESOP Shares | | |
| Balance at beginning of year | Balance at beginning of year | (91) | | (134) | | (189) | |
| Stock-based compensation and allocation of ESOP shares | 42 | | 45 | | 55 | |
| ESOP shares acquired | 0 | | (2) | | 0 | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Allocation of ESOP shares | |
| | Balance at end of year | Balance at end of year | (49) | | (91) | | (134) | |
| | The Dow Chemical Company's stockholder's equity | 12,999 | | 14,309 | | 32,483 | |
| Balance at end of year | |
| Balance at end of year | |
| Treasury Stock | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Treasury stock purchases | |
| Treasury stock issuances - compensation and benefit plans | |
| Balance at end of year | |
| Dow Inc.'s stockholders' equity | |
| Noncontrolling Interests | Noncontrolling Interests | 570 | | 553 | | 1,138 | |
| Total Equity | Total Equity | $ | 13,569 | | $ | 14,862 | | $ | 33,621 | |
| | Dividends declared per share of common stock | |
| Dividends declared per share of common stock | |
| Dividends declared per share of common stock | |
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, | 2023 | 2022 | 2021 |
| Net sales | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| Cost of sales | 39,738 | | 48,332 | | 44,187 | |
| Research and development expenses | 829 | | 851 | | 857 | |
| Selling, general and administrative expenses | 1,627 | | 1,675 | | 1,645 | |
| Amortization of intangibles | 324 | | 336 | | 388 | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | | 268 | | 975 | |
| Sundry income (expense) - net | (327) | | 714 | | (79) | |
| Interest income | 239 | | 181 | | 56 | |
| Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| Income before income taxes | 623 | | 6,091 | | 8,106 | |
| Provision (credit) for income taxes | (4) | | 1,450 | | 1,738 | |
| Net income | 627 | | 4,641 | | 6,368 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
| | | |
| Net income available for The Dow Chemical Company common stockholder | $ | 556 | | $ | 4,583 | | $ | 6,274 | |
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, | 2023 | 2022 | 2021 |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized losses on investments | — | | (312) | | (45) | |
| Cumulative translation adjustments | 43 | | (579) | | (425) | |
| Pension and other postretirement benefit plans | (609) | | 2,457 | | 2,225 | |
| Derivative instruments | 24 | | 272 | | 123 | |
| Total other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Comprehensive income | 85 | | 6,479 | | 8,246 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | | 58 | | 94 | |
| Comprehensive income attributable to The Dow Chemical Company | $ | 14 | | $ | 6,421 | | $ | 8,152 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 2,987 | | $ | 3,886 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | | 5,611 | |
| Other | 1,997 | | 2,211 | |
| Inventories | 6,076 | | 6,988 | |
| Other current assets | 1,898 | | 1,815 | |
| | |
| Total current assets | 17,676 | | 20,511 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,267 | | 1,589 | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | | 2,793 | |
| Noncurrent receivables | 424 | | 650 | |
| Total investments | 4,431 | | 5,032 | |
| Property | | |
| Property | 60,203 | | 58,055 | |
| Less: Accumulated depreciation | 39,137 | | 37,613 | |
| Net property | 21,066 | | 20,442 | |
| Other Assets | | |
| Goodwill | 8,641 | | 8,644 | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | | 2,442 | |
| Operating lease right-of-use assets | 1,320 | | 1,227 | |
| Deferred income tax assets | 1,486 | | 960 | |
| Deferred charges and other assets | 1,323 | | 1,363 | |
| Total other assets | 14,842 | | 14,636 | |
| Total Assets | $ | 58,015 | | $ | 60,621 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 62 | | $ | 362 | |
| Long-term debt due within one year | 117 | | 362 | |
| Accounts payable: | | |
| Trade | 4,529 | | 4,940 | |
| Other | 1,818 | | 2,349 | |
| Operating lease liabilities - current | 329 | | 287 | |
| Income taxes payable | 419 | | 334 | |
| Accrued and other current liabilities | 2,575 | | 2,613 | |
| | |
| Total current liabilities | 9,849 | | 11,247 | |
| Long-Term Debt | 14,907 | | 14,698 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 399 | | 1,110 | |
| Pension and other postretirement benefits - noncurrent | 4,932 | | 3,808 | |
| Asbestos-related liabilities - noncurrent | 788 | | 857 | |
| Operating lease liabilities - noncurrent | 1,032 | | 997 | |
| Other noncurrent obligations | 6,702 | | 6,415 | |
| | |
| Total other noncurrent liabilities | 13,853 | | 13,187 | |
| | |
| Stockholder's Equity | | |
| Common stock (authorized and issued 100 shares of $0.01 par value each) | — | | — | |
| Additional paid-in capital | 9,091 | | 8,627 | |
| Retained earnings | 17,495 | | 19,472 | |
| Accumulated other comprehensive loss | (7,681) | | (7,139) | |
| | |
| | |
| The Dow Chemical Company’s stockholder's equity | 18,905 | | 20,960 | |
| Noncontrolling interests | 501 | | 529 | |
| Total equity | 19,406 | | 21,489 | |
| Total Liabilities and Equity | $ | 58,015 | | $ | 60,621 | |
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, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,611 | | 2,758 | | 2,842 | |
| Provision (credit) for deferred income tax | (1,222) | | 80 | | 278 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | | 696 | | (651) | |
| Net periodic pension benefit cost | 548 | | 23 | | 39 | |
| Pension contributions | (142) | | (235) | | (1,219) | |
| Net gain on sales of assets, businesses and investments | (70) | | (19) | | (105) | |
| | | |
| | | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| | | |
| Other net loss | 797 | | 221 | | 927 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 1,161 | | 1,187 | | (2,132) | |
| Inventories | 844 | | 347 | | (1,768) | |
| Accounts payable | (734) | | (1,255) | | 2,458 | |
| Other assets and liabilities, net | (226) | | (1,043) | | 157 | |
| Cash provided by operating activities | 5,109 | | 7,519 | | 7,200 | |
| Investing Activities | | | |
| Capital expenditures | (2,356) | | (1,823) | | (1,501) | |
| Investment in gas field developments | (215) | | (190) | | (92) | |
| | | |
| | | |
| Purchases of previously leased assets | (7) | | (7) | | (694) | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | | 32 | | 68 | |
| Acquisitions of property and businesses, net of cash acquired | (114) | | (228) | | (129) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (5) | | (148) | | — | |
| Distributions and loan repayments from nonconsolidated affiliates | 2 | | 52 | | 51 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | | 11 | | — | |
| Purchases of investments | (2,288) | | (1,366) | | (1,366) | |
| Proceeds from sales and maturities of investments | 1,958 | | 747 | | 759 | |
| | | |
| Other investing activities, net | (61) | | (50) | | (10) | |
| Cash used for investing activities | (2,928) | | (2,970) | | (2,914) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (249) | | 253 | | (48) | |
| Proceeds from issuance of short-term debt greater than three months | — | | — | | 144 | |
| Payments on short-term debt greater than three months | — | | (14) | | (130) | |
| Proceeds from issuance of long-term debt | 104 | | 1,667 | | 109 | |
| Payments on long-term debt | (446) | | (1,006) | | (2,771) | |
| Collections on securitization programs | 18 | | — | | — | |
| Proceeds from issuance of stock | 188 | | 212 | | 320 | |
| | | |
| Transaction financing, debt issuance and other costs | (2) | | (24) | | (537) | |
| Employee taxes paid for share-based payment arrangements | (42) | | (35) | | (12) | |
| | | |
| Distributions to noncontrolling interests | (89) | | (83) | | (73) | |
| | | |
| | | |
| | | |
| Dividends paid to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| | | |
| Cash used for financing activities | (3,028) | | (3,405) | | (6,262) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | | (237) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | | 907 | | (2,075) | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | | 3,033 | | 5,108 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | | $ | 3,940 | | $ | 3,033 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | | 54 | | 45 | |
| Cash and cash equivalents at end of year | $ | 2,987 | | $ | 3,886 | | $ | 2,988 | |
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, | 2023 | 2022 | 2021 |
| | | |
| | | |
| | | |
| | | |
| Common Stock | | | |
| Balance at beginning and end of year | $ | — | | $ | — | | $ | — | |
| | | |
| | | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 8,627 | | 8,159 | | 7,603 | |
| | | |
| Issuance of parent company stock - Dow Inc. | 188 | | 212 | | 320 | |
| Stock-based compensation and allocation of ESOP shares | 276 | | 258 | | 236 | |
| Other | — | | (2) | | — | |
| Balance at end of year | 9,091 | | 8,627 | | 8,159 | |
| Retained Earnings | | | |
| Balance at beginning of year | 19,472 | | 19,288 | | 16,300 | |
| Net income available for The Dow Chemical Company's common stockholder | 556 | | 4,583 | | 6,274 | |
| Dividends to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| Other | (23) | | (24) | | (22) | |
| Balance at end of year | 17,495 | | 19,472 | | 19,288 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (7,139) | | (8,977) | | (10,855) | |
| Other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| | | |
| | | |
| Balance at end of year | (7,681) | | (7,139) | | (8,977) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | — | | (15) | | (49) | |
| Allocation of ESOP shares | — | | 15 | | 34 | |
| | | |
| Balance at end of year | — | | — | | (15) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| The Dow Chemical Company's stockholder's equity | 18,905 | | 20,960 | | 18,455 | |
| Noncontrolling Interests | 501 | | 529 | | 574 | |
| Total Equity | $ | 19,406 | | $ | 21,489 | | $ | 19,029 | |
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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| 25 | | |
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| 27 | | |
|
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 (the "Merger Agreement"). TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries (“Historical DuPont”) each merged with subsidiaries of DowDuPont and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business. See Note 3 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 considering that the financial statements and disclosures of each company are 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 no longer beneficially owned any equity interest in Dow and no longer consolidated 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 Note 323 for additional information.
The Company conducts its worldwide operations through 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 2624 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 25 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 term "Union Carbide" means Union Carbide Corporation a wholly owned subsidiary ofand the Company, andterm "Dow Silicones" means Dow Silicones Corporation, 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 1614 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.
Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income.
Inventories
Inventories are stated at the lower of cost or net realizable value. The method of determining cost for each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year. At December 31, 2020, approximately 30 percent, 58 percent and 12 percent of the Company's inventories were accountedSee Note 8 for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2019, approximately 32 percent, 58 percent and 10 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.additional information.
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. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service.disposed. 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 AssetsIncome Taxes
The Company evaluates long-livedDeferred tax assets and certain identifiable intangibleliabilities are determined based on temporary differences between the financial reporting and tax bases of 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 notand liabilities, applying enacted tax rates expected to be sufficientin effect for the year in which the differences are expected to recover an asset’s carrying amount,reverse. Based on the assetevaluation 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 written downconsidered to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.be more likely than not.
Long-lived assets to be disposedAt December 31, 2023, the Company had a net deferred tax asset balance of by sale, if material, are classified as held for sale and reported at the lower$1,087 million, after valuation allowances of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized over the remaining useful life of the assets.$2,948 million.
GoodwillIn 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 Other Intangible Assetsforecasted taxable income using historical and projected future operating results.
The Company records goodwill whenfiles tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the purchase priceworld. Tax authorities have the ability to review and challenge matters that could be subject to differing interpretation of a business combination exceedsapplicable tax laws and regulations as they relate to the estimated fair valueamount, character, timing or inclusion of netrevenue 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, 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. Ifconsiders and interprets complex tax laws and regulations in order to determine the need for recognizing a provision in its financial statements. Significant judgment is required in determining the timing and measurement of uncertain tax positions. The Company utilizes internal and external expertise in interpreting tax laws to support the Company's tax positions. The Company recognizes the financial statement effects of an initial qualitative assessment identifies thatuncertain income tax position when it is more likely than not, based on technical merits, that the fair valueposition will be sustained upon examination. At December 31, 2023, the Company had uncertain tax positions for both domestic and foreign issues 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$513 million 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$561 million for interest and its fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units.penalties.
Finite-lived intangible assets such
Environmental Matters
Environmental Policies
Dow is committed to world-class environmental, health and safety (“EH&S”) performance, as developed technology, customer-related, trademarks, tradenamesdemonstrated by industry-leading results, a long-standing commitment to the American Chemistry Council's Responsible Care® program, a strong commitment to achieve the Company's 2025 Sustainability Goals and software, are amortized over their estimated useful lives, generallyDow's drive to deliver against its targets around a circular economy and climate protection. These goals and targets set the standard for sustainability in the chemical industry, focusing on a straight-line basis for periods ranging primarily from 3improvements in the Company’s local corporate citizenship and product stewardship, and by actively pursuing methods to 20 years. Indefinite-lived intangible assets are reviewed for impairment or obsolescence annually, or more frequently when events or changes in circumstances indicate thatreduce 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.Company's environmental impact.
Asset Retirement ObligationsTo 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 implement the Company’s policies and requirements and meet performance objectives, leadership expectations and public commitments. To ensure effective utilization, the EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources.
The Company records asset retirement obligations as incurredbelieves third-party verification and reasonably estimable, including obligations for whichtransparent 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 timing and/or method of settlement are conditional on a future event that may or may not be within the controlU.S. & Canada have received third-party verification of the Company.Company’s compliance with Responsible Care® and with outside specifications such as ISO-14001. The fair valuesCompany continues to be a global champion of obligations are recorded as liabilities on a discounted basisResponsible Care® and are accreted over time forhas worked to broaden the change in present value. Costs associatedapplication and impact of Responsible Care® around the world through engagement with the liabilities are capitalizedsuppliers, customers and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less.joint venture partners.
Investments
InvestmentsDow manages environmental data for reporting with a waste, water and emissions inventory system. All emitting manufacturing sites globally record their emissions and water use in debt securities, primarily heldthe system. The data is reviewed at the facility level and then 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.global coordinators before being aggregated for corporate environmental reporting purposes.
InvestmentsDow's EH&S policies help to ensure the Company achieves its annual health and safety performance targets and the Company seeks to continuously improve on these targets through process and personal safety project implementations. Improvement in equity securitiesthese areas, as well as environmental compliance, remains a top management priority, as the Company continues to implement its 2025 Sustainability Goals and progressive, multi-decade sustainability targets that include advancing a circular economy and climate protection. Progress is reviewed annually by management and with a readily determinable fair valuethe Environment, Health, Safety & Technology Committee of the Board.
Detailed information on Dow’s performance regarding environmental matters and goals is accessible through the Company's Science & Sustainability webpage at www.dow.com/sustainability. Dow's website and its content are reportednot 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. Sabotage, terrorism, war, natural disasters and cybersecurity incidents have increased global 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 Company is subject to U.S. regulations with established risk-based and performance-based standards that must be met at fair value with unrealized gains and losses relatedU.S. Coast Guard-regulated facilities promulgated by the U.S. Department of Homeland Security. The Company is also subject to mark-to-market adjustments included in income. Equity securities without a readily determinable fair value are accountedthe 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 at cost, adjusted for impairments and observable price changes in orderly transactions.securing the chemical industry.
The Company routinely reviewsmaintains a comprehensive, multi-level security plan that focuses on security, emergency planning, preparedness and response. This plan, which has been activated in response to significant world and national events, is reviewed on an annual basis. The Company continues to improve its investments for declines in fair value belowsecurity plans, placing emphasis on the cost basis. When events or changes in circumstances indicatesafety 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 designed to avert interruptions of normal business operations that could materially and adversely affect the carrying valueCompany’s results of an asset may not be recoverable, the security is written down, establishing a new cost basis.operations, financial condition and cash flows.
Leases
The Company determines whetherplayed a contract contains a lease at contract inception. A contract contains a lease if there is an identified assetkey 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 rightlevel of security – not just in the 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 control the asset.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.
Operating lease right-of-use (“ROU”) assets representThrough the Company's rightimplementation of the Security Code, including voluntary security enhancements and upgrades, the Company is well-positioned to use an underlying asset for the lease term,comply with U.S. chemical facility regulations 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.other regulatory security frameworks. The Company usesparticipates with the incremental borrowing rate in determiningAmerican Chemistry Council to periodically review and update 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.Security Code.
The Company has lease agreementscontinues to work collaboratively across the supply chain on Responsible Care®, supply chain design, emergency preparedness, shipment visibility and transportation of hazardous materials. The Company cooperated with leasepublic and non-lease components, which are accounted for as a single lease component for nearlyprivate entities to lead the implementation of advanced tank car design, and track and trace technologies. Further, the Company’s Distribution Risk Review process addresses potential threats in all classesmodes of leased assets for whichtransportation across the Company’s supply chain. To reduce vulnerabilities, the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assetsmaintains security measures that meet or exceed regulatory 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 Note 17 for additional information.
Revenue
The Company recognizes revenue when its customer obtains control of promised goods or servicesindustry security standards in an amount that reflects the considerationall areas in which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, 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 4 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.
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.
IntegrationThe Company's initiatives relative to chemical security, emergency preparedness and Separation Costsresponse, Community Awareness and Emergency Response 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. Chemical Sector Coordinating Council.
Climate Protection
Evaluation of climate-related risks and opportunities continues to be a catalyst for the development of the Company’s Decarbonize & Grow strategy (Dow’s climate transition plan), its water-intensity goal and its Valuing Nature goal. Dow's 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 CO2e emissions by an additional 5 million metric tons by 2030 versus its 2020 baseline, a 15 percent reduction versus 2020 and a 30 percent reduction in greenhouse gas emissions since 2005. 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). In 2021, Dow outlined a path to decarbonize its production processes (Scope 1 and 2 CO2e emissions), utilizing a phased approach in which end-of-life capacity is replaced with higher-efficiency, lower greenhouse gas emitting assets. Reflecting Dow's focus to make meaningful progress in the near term, Dow intends to reduce its CO2e emissions by approximately 2 million metric tons by 2025 versus its 2020 baseline while growing underlying earnings and plans to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, which is expected to add approximately 1,885 KTA of ethylene and polyethylene capacity by 2029. 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 six key water-stressed sites by 2025. Additionally, Dow has implemented a robust process to quantify the value of products and projects that are better for nature, including nature-based solutions.
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 results of 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.
To evaluate physical risks, Dow partnered with S&P Global Trucost (“Trucost”) to assess the Company’s exposure to physical risks based on the geographic location of its manufacturing operations. The risks assessed included water stress, flood, heat waves, cold waves, hurricanes, wildfires and sea level rise. The analysis included an assessment of the physical risks using a baseline year of 2020 with time periods for medium- (year 2030) and long-term (year 2050) using the Intergovernmental Panel on Climate Change representative concentration pathways. These pathways represent varying degrees of global atmospheric greenhouse gas concentrations (low, medium and high), and thus different expectations on global temperature rise. Results will be incorporated into Dow’s long-term assessments of its manufacturing sites, which is a key input into Dow’s capital approval process.
Transition Risks
Climate-related transition risks include the availability, development and affordability of lower greenhouse gas emissions technology, the effects of CO2e pricing, and changes in public sentiment, regulations, taxes, public mandates or requirements as they relate to CO2e, water or land use.
Climate-related risks, including both physical and transition risks, are assessed with input from internal and external sources including corporate, business, function and geographic leaders; subject matter experts; investors; and other stakeholders. The evaluation of climate-related risks and opportunities is integrated into an annual company-wide
risk management process, known as enterprise risk management (“ERM”). ERM identifies significant or major risks to the Company and develops action plans to modify or mitigate risks.
Every few years, Dow also utilizes a robust scenario analysis to assess the long-term materiality and impact of climate-related risks and opportunities. Scenario analysis is used to challenge business-as-usual assumptions and strengthen the resiliency of the Company’s Decarbonize & Grow strategy. Scenarios are used to evaluate both physical and transition risk and are particularly useful in evaluating the potential and impact of emerging risks.
Decarbonize & Grow
Dow’s Decarbonize & Grow strategy involves 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 across the economic cycle to decarbonize assets, in a phased approach, while growing capacity.
•Increasing Clean Energy in Purchased Power Mix: Dow continues to invest in cost-efficient clean energy, including wind, solar, biomass and hydropower, across operations.
•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.
•Building a Value-Generating Scope 3 Decarbonization Pathway: Approximately two-thirds of Dow’s emissions footprint fall into the Scope 3 categories and more than half of those come from the raw materials, transportation and other services purchased as a company. The Company was recognized as a Supplier Engagement Leader for the second straight year by CDP, a global non-profit that directs the world’s environmental disclosure system for companies, cities, states and regions. Dow has significantly advanced its Scope 3 strategy by improving emissions accounting, advancing transparency along the value chain, and working closely with key suppliers to set and meet emissions reduction targets.
•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, lightweighting, fuel transition, circularity, increased operational efficiency, resource reductions and reduced emissions.
Advancing Water Stewardship and Resilience
As one of the largest materials science companies in the world, Dow depends on a steady supply of fresh water to create the products that are essential for everyday life and human progress. Dow strives to use the Company’s technology, expertise and partnerships to help conserve and promote regenerative water use, protect watersheds and create a future where clean water is abundant and available to all. Effective water stewardship is also required for long-term company viability and Dow’s senior executive leadership team oversees the Company’s water strategy.
Dow’s water risk management approach recognizes that every site and every business is accountable for water while certain watersheds require additional measures to address specific water stress challenges. Key Dow locations have specific water action plans to address risk to operations given their dependence on a stressed watershed. These action plans include mitigations for local water scarcity or quality issues and consider the needs of other local users for freshwater. Additionally, Dow identified six sites in 2015, located in Texas (2); Bahia Blanca, Argentina; Terneuzen, The Netherlands; Böhlen, Germany; and Tarragona, Spain; where operations are located in a water-stressed watershed, have local water quality issues, have competition among local users for water, or have some local knowledge of watershed challenges, and these six sites have been the focus of actions since that time.
Advancing a Circular Economy
Dow is committed to turning the tide on plastic waste and meeting customers’ increasing demands for more sustainable and circular products through Dow's materials science expertise and its investments in circular innovations and partnerships – from designing for recyclability at the beginning of a product’s life to building materials ecosystems that will help turn plastic waste into a valuable resource that can be used to create new products. Dow is working to advance circularity for its key materials and, to this end, is working to deliver on its
enterprise target to Transform the Waste, which entails transforming plastic waste and other forms of feedstocks to deliver 3 million metric tons of circular and renewable solutions annually by 2030. To reach the target, Dow is collaborating with other stakeholders across value chains to build materials ecosystems to collect, reuse or recycle plastic waste. This, in turn, will enable Dow to return more plastic waste into the circular system, and scale production of circular and low-carbon emissions solutions.
Since 2020, Dow has invested more than $200 million into impact funds, recycling infrastructure, venture capital, research and development and key technologies to transform waste into solutions that support a circular economy. Dow is 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, Closed Loop Partners and Lombard Odier Global Plastic Circularity Fund. Additionally, Dow is making progress on its Transform the Waste target through several recently announced circular and renewable offtake agreements and projects that will help contribute to achieving the new target. See Item 1. Business for updates on these investments, partnerships and projects.
In support of, and in collaboration with, value chain partners and customers, Dow is aligning its innovation and application development programs so its products are recycle-ready at the outset or enable circularity in customers’ products and processes. Designing for circularity at the molecular level expands the possibilities for recycling across a variety of applications, and ultimately lessens the environmental impact of Dow's customers’ products.
Dow's efforts under Transform the Waste expand beyond packaging. In 2023, the Company launched and/or commercialized a number of other circular solutions like SPECFLEX C, a recycled polyurethane solution for the automotive sector and Propylene Glycol CIR.
Developing Safer Materials
How the Company manufactures, distributes and enables the proper use and disposal of its products can have a large and meaningful impact on the environment. Dow’s vision is a future where every material it brings to market is sustainable for the people and the planet. Dow is working to deliver that sustainable future through its materials science expertise and collaboration with its customers. By constantly innovating how it sources, manufactures and delivers material solutions, Dow helps customers achieve their goals and create a better tomorrow. Dow has an impact on safer materials directly through the manufacture and delivery of solutions and indirectly through the chemicals that are sourced.
Dow is committed to demonstrating the value of chemistry and materials science to society and improving the way the world understands and considers science in decision-making to maximize benefits to businesses, society and the planet. Through Dow’s 2025 Safe Materials for a Sustainable Planet goal, the Company has made progress toward this vision by innovating sustainable materials of tomorrow, leading candid conversations about product safety and committing to the advancement of open and transparent chemistry with value chain partners, customers and the public.
Environmental Remediation
For comparison of environmental remediation-related matters for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
The Company classifies expensesaccrues 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 $939 million at December 31, 2023, related to the Mergerremediation of current or former Dow-owned sites. At December 31, 2022, the liability related to remediation was $948 million.
In addition to current and separationformer 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 been named potentially responsible parties (“PRPs”) at each site, the estimated apportionment of costs among all PRPs, and the ownership restructurefinancial ability and commitment of each to pay its expected share. The Company’s remaining liability for the remediation of Superfund sites was $241 million at December 31, 2023 ($244 million at December 31, 2022). 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 |
| 2023 | 2022 | 2023 | 2022 |
| Number of sites at Jan 1 | 171 | | 171 | | 130 | | 134 | |
| Sites added during year | 6 | | — | | 4 | | 2 | |
| Sites closed during year | (23) | | — | | (1) | | (6) | |
| Number of sites at Dec 31 | 154 | | 171 | | 133 | | 130 | |
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, 2023, 24 of these sites (24 sites at December 31, 2022) 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.
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 14 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. The PRP Group has been approached by the EPA to convene discussions for the Remedial Action Consent Decree the EPA is preparing for the Berry’s Creek Site. The group submitted the 60 percent design for EPA review and has identified and contracted with a Remedial Action contractor to support completion of the 95 percent design. Allocation remains incomplete.
At December 31, 2023, the Company had accrued liabilities totaling $319 million ($339 million at December 31, 2022) for environmental remediation at the Midland and Wood-Ridge sites. In 2023, the Company spent $48 million ($37 million in 2022) for environmental remediation at the Midland and Wood-Ridge sites.
In total, the Company’s accrued liability for probable environmental remediation and restoration costs was $1,180 million at December 31, 2023, compared with $1,192 million at December 31, 2022. 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 two 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 $203 million in 2023 and $176 million in 2022. The amounts charged to income on a pretax basis related to operating the Company's current pollution abatement facilities, excluding internal recharges, totaled $758 million in 2023 and $773 million in 2022. Capital expenditures for environmental protection were $228 million in 2023 and $137 million in 2022.
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, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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 | 2023 | 2022 | |
| Claims unresolved at Jan 1 | 6,873 | | 8,747 | | |
| Claims filed | 4,199 | | 4,664 | | |
| Claims settled, dismissed or otherwise resolved | (4,705) | | (6,538) | | |
| Claims unresolved at Dec 31 | 6,367 | | 6,873 | | |
| Claimants with claims against both Union Carbide and Amchem | (1,236) | | (1,530) | | |
| Individual claimants at Dec 31 | 5,131 | | 5,343 | | |
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. 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 14 to the Consolidated Financial Statements.
| | |
| 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 Argentinian peso, although exposures also exist in other currencies in Asia Pacific, Canada, Latin America, the Middle East, Africa and 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 debt and 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 2023 and 2022 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 | 2023 | 2022 |
| In millions | Year-end | Average | Year-end | Average |
| Commodities | $ | 14 | | $ | 11 | | $ | 72 | | $ | 56 | |
| Equity securities | 6 | | 8 | | 10 | | 9 | |
| Foreign exchange | 20 | | 17 | | 7 | | 18 | |
| Interest rate | 139 | | 177 | | 252 | | 230 | |
| Composite | $ | 179 | | $ | 213 | | $ | 341 | | $ | 313 | |
The Company’s daily VAR for the aggregate of all positions decreased from a composite VAR of $341 million at December 31, 2022 to a composite VAR of $179 million at December 31, 2023. The interest rate VAR decreased due to a decrease in interest rate volatility and a decrease in interest rate exposure. The equity securities VAR decreased due to a decrease in equity volatility and a decrease in equity exposure. The foreign exchange VAR increased due to an increase in outstanding derivatives and bonds designated as hedging instruments. The commodities VAR decreased due to a decrease in managed exposures and a decrease in commodity volatility. See Note 20 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 Silicones as "IntegrationInc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dow Inc. and separation costs" in the consolidated statements of income. Merger and separation related costs include: post-Merger integration expenses, costs incurred for the separation of AgCo and SpecCo and costs related to the integration of ECP. The Dow Silicones-related costs include integration expenses incurred after the close of the ownership restructure. Integration and separation costs primarily consist of financial adviser, information technology, legal, accounting, consulting and other professional advisory fees associated with preparation and execution of these activities. Integration and separation costs related to the Dow Silicones ownership restructure were completed as of May 31, 2018. Integration and separation costs related to the Merger and separation were completedsubsidiaries (the "Company") as of December 31, 2020.2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has 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 amount 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 uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be
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 apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
•We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
•We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain 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 transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| January 31, 2024 |
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, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has 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 amount 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 uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be 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 apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
•We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
•We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain 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 transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| January 31, 2024 |
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, | 2023 | 2022 | 2021 |
| Net sales | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| Cost of sales | 39,742 | | 48,338 | | 44,191 | |
| Research and development expenses | 829 | | 851 | | 857 | |
| Selling, general and administrative expenses | 1,627 | | 1,675 | | 1,645 | |
| Amortization of intangibles | 324 | | 336 | | 388 | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | | 268 | | 975 | |
| Sundry income (expense) - net | (280) | | 727 | | (35) | |
| Interest income | 229 | | 173 | | 55 | |
| Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| Income before income taxes | 656 | | 6,090 | | 8,145 | |
| Provision (credit) for income taxes | (4) | | 1,450 | | 1,740 | |
| Net income | 660 | | 4,640 | | 6,405 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| Net income available for Dow Inc. common stockholders | $ | 589 | | $ | 4,582 | | $ | 6,311 | |
| | | |
| | | |
| Per common share data: | | | |
| Earnings per common share - basic | $ | 0.82 | | $ | 6.32 | | $ | 8.44 | |
| Earnings per common share - diluted | $ | 0.82 | | $ | 6.28 | | $ | 8.38 | |
| | | |
| Weighted-average common shares outstanding - basic | 705.7 | | 721.0 | | 743.6 | |
| Weighted-average common shares outstanding - diluted | 709.0 | | 725.6 | | 749.0 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized losses on investments | — | | (312) | | (45) | |
| Cumulative translation adjustments | 43 | | (579) | | (425) | |
| Pension and other postretirement benefit plans | (609) | | 2,457 | | 2,225 | |
| Derivative instruments | 24 | | 272 | | 123 | |
| Total other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Comprehensive income | 118 | | 6,478 | | 8,283 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | | 58 | | 94 | |
| Comprehensive income attributable to Dow Inc. | $ | 47 | | $ | 6,420 | | $ | 8,189 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 2,987 | | $ | 3,886 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | | 5,611 | |
| Other | 1,896 | | 2,144 | |
| Inventories | 6,076 | | 6,988 | |
| Other current assets | 1,937 | | 1,848 | |
| | |
| Total current assets | 17,614 | | 20,477 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,267 | | 1,589 | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | | 2,793 | |
| Noncurrent receivables | 438 | | 666 | |
| Total investments | 4,445 | | 5,048 | |
| Property | | |
| Property | 60,203 | | 58,055 | |
| Less: Accumulated depreciation | 39,137 | | 37,613 | |
| Net property | 21,066 | | 20,442 | |
| Other Assets | | |
| Goodwill | 8,641 | | 8,644 | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | | 2,442 | |
| Operating lease right-of-use assets | 1,320 | | 1,227 | |
| Deferred income tax assets | 1,486 | | 960 | |
| Deferred charges and other assets | 1,323 | | 1,363 | |
| Total other assets | 14,842 | | 14,636 | |
| Total Assets | $ | 57,967 | | $ | 60,603 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 62 | | $ | 362 | |
| Long-term debt due within one year | 117 | | 362 | |
| Accounts payable: | | |
| Trade | 4,529 | | 4,940 | |
| Other | 1,797 | | 2,276 | |
| Operating lease liabilities - current | 329 | | 287 | |
| Income taxes payable | 419 | | 334 | |
| | |
| Accrued and other current liabilities | 2,704 | | 2,770 | |
| | |
| Total current liabilities | 9,957 | | 11,331 | |
| Long-Term Debt | 14,907 | | 14,698 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 399 | | 1,110 | |
| Pension and other postretirement benefits - noncurrent | 4,932 | | 3,808 | |
| Asbestos-related liabilities - noncurrent | 788 | | 857 | |
| Operating lease liabilities - noncurrent | 1,032 | | 997 | |
| Other noncurrent obligations | 6,844 | | 6,555 | |
| Total other noncurrent liabilities | 13,995 | | 13,327 | |
| Stockholders’ Equity | | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | 8 | | 8 | |
| Additional paid-in capital | 8,880 | | 8,540 | |
| Retained earnings | 21,774 | | 23,180 | |
| Accumulated other comprehensive loss | (7,681) | | (7,139) | |
| Treasury stock at cost (2023: 76,302,081 shares; 2022: 66,798,605 shares) | (4,374) | | (3,871) | |
| Dow Inc.’s stockholders’ equity | 18,607 | | 20,718 | |
| Noncontrolling interests | 501 | | 529 | |
| Total equity | 19,108 | | 21,247 | |
| Total Liabilities and Equity | $ | 57,967 | | $ | 60,603 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,611 | | 2,758 | | 2,842 | |
| Provision (credit) for deferred income tax | (1,222) | | 79 | | 278 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | | 696 | | (651) | |
| Net periodic pension benefit cost | 548 | | 23 | | 39 | |
| Pension contributions | (142) | | (235) | | (1,219) | |
| Net gain on sales of assets, businesses and investments | (70) | | (19) | | (105) | |
| | | |
| | | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| | | |
| Other net loss | 796 | | 212 | | 921 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 1,161 | | 1,187 | | (2,132) | |
| Inventories | 844 | | 347 | | (1,768) | |
| Accounts payable | (734) | | (1,255) | | 2,458 | |
| Other assets and liabilities, net | (203) | | (1,065) | | (5) | |
| Cash provided by operating activities - continuing operations | 5,164 | | 7,486 | | 7,069 | |
| Cash provided by (used for) operating activities - discontinued operations | 32 | | (11) | | (60) | |
| Cash provided by operating activities | 5,196 | | 7,475 | | 7,009 | |
| Investing Activities | | | |
| Capital expenditures | (2,356) | | (1,823) | | (1,501) | |
| Investment in gas field developments | (215) | | (190) | | (92) | |
| | | |
| | | |
| Purchases of previously leased assets | (7) | | (7) | | (694) | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | | 32 | | 68 | |
| Acquisitions of property and businesses, net of cash acquired | (114) | | (228) | | (129) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (5) | | (148) | | — | |
| Distributions and loan repayments from nonconsolidated affiliates | 2 | | 52 | | 51 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | | 11 | | — | |
| Purchases of investments | (2,288) | | (1,366) | | (1,366) | |
| Proceeds from sales and maturities of investments | 1,958 | | 747 | | 759 | |
| | | |
| Other investing activities, net | (61) | | (50) | | (10) | |
| Cash used for investing activities | (2,928) | | (2,970) | | (2,914) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (249) | | 253 | | (48) | |
| Proceeds from issuance of short-term debt greater than three months | — | | — | | 144 | |
| Payments on short-term debt greater than three months | — | | (14) | | (130) | |
| Proceeds from issuance of long-term debt | 104 | | 1,667 | | 109 | |
| Payments on long-term debt | (446) | | (1,006) | | (2,771) | |
| Collections on securitization programs | 18 | | — | | — | |
| Purchases of treasury stock | (625) | | (2,325) | | (1,000) | |
| Proceeds from issuance of stock | 188 | | 212 | | 320 | |
| | | |
| Transaction financing, debt issuance and other costs | (2) | | (24) | | (537) | |
| Employee taxes paid for share-based payment arrangements | (42) | | (35) | | (12) | |
| | | |
| Distributions to noncontrolling interests | (89) | | (83) | | (73) | |
| | | |
| | | |
| Dividends paid to stockholders | (1,972) | | (2,006) | | (2,073) | |
| | | |
| Cash used for financing activities | (3,115) | | (3,361) | | (6,071) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | | (237) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | | 907 | | (2,075) | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | | 3,033 | | 5,108 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | | $ | 3,940 | | $ | 3,033 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | | 54 | | 45 | |
| Cash and cash equivalents at end of year | $ | 2,987 | | $ | 3,886 | | $ | 2,988 | |
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, | 2023 | 2022 | 2021 |
| Common Stock | | | |
| Balance at beginning and end of year | $ | 8 | | $ | 8 | | $ | 8 | |
| | | |
| | | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 8,540 | | 8,151 | | 7,595 | |
| Common stock issued / sold | 188 | | 212 | | 320 | |
| Stock-based compensation and allocation of ESOP shares | 276 | | 258 | | 236 | |
| Treasury stock issuances - compensation and benefit plans | (124) | | (79) | | — | |
| Other | — | | (2) | | — | |
| Balance at end of year | 8,880 | | 8,540 | | 8,151 | |
| Retained Earnings | | | |
| Balance at beginning of year | 23,180 | | 20,623 | | 16,361 | |
| Net income available for Dow Inc.'s common stockholders | 589 | | 4,582 | | 6,311 | |
| Dividends to stockholders | (1,972) | | (2,006) | | (2,073) | |
| Common control transaction | — | | — | | 46 | |
| Other | (23) | | (19) | | (22) | |
| Balance at end of year | 21,774 | | 23,180 | | 20,623 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (7,139) | | (8,977) | | (10,855) | |
| Other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Balance at end of year | (7,681) | | (7,139) | | (8,977) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | — | | (15) | | (49) | |
| Allocation of ESOP shares | — | | 15 | | 34 | |
| | | |
| Balance at end of year | — | | — | | (15) | |
| Treasury Stock | | | |
| Balance at beginning of year | (3,871) | | (1,625) | | (625) | |
| Treasury stock purchases | (627) | | (2,325) | | (1,000) | |
| Treasury stock issuances - compensation and benefit plans | 124 | | 79 | | — | |
| Balance at end of year | (4,374) | | (3,871) | | (1,625) | |
| Dow Inc.'s stockholders' equity | 18,607 | | 20,718 | | 18,165 | |
| Noncontrolling Interests | 501 | | 529 | | 574 | |
| Total Equity | $ | 19,108 | | $ | 21,247 | | $ | 18,739 | |
| | | |
| 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, | 2023 | 2022 | 2021 |
| Net sales | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| Cost of sales | 39,738 | | 48,332 | | 44,187 | |
| Research and development expenses | 829 | | 851 | | 857 | |
| Selling, general and administrative expenses | 1,627 | | 1,675 | | 1,645 | |
| Amortization of intangibles | 324 | | 336 | | 388 | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | | 268 | | 975 | |
| Sundry income (expense) - net | (327) | | 714 | | (79) | |
| Interest income | 239 | | 181 | | 56 | |
| Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| Income before income taxes | 623 | | 6,091 | | 8,106 | |
| Provision (credit) for income taxes | (4) | | 1,450 | | 1,738 | |
| Net income | 627 | | 4,641 | | 6,368 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
| | | |
| Net income available for The Dow Chemical Company common stockholder | $ | 556 | | $ | 4,583 | | $ | 6,274 | |
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, | 2023 | 2022 | 2021 |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized losses on investments | — | | (312) | | (45) | |
| Cumulative translation adjustments | 43 | | (579) | | (425) | |
| Pension and other postretirement benefit plans | (609) | | 2,457 | | 2,225 | |
| Derivative instruments | 24 | | 272 | | 123 | |
| Total other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Comprehensive income | 85 | | 6,479 | | 8,246 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | | 58 | | 94 | |
| Comprehensive income attributable to The Dow Chemical Company | $ | 14 | | $ | 6,421 | | $ | 8,152 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 2,987 | | $ | 3,886 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | | 5,611 | |
| Other | 1,997 | | 2,211 | |
| Inventories | 6,076 | | 6,988 | |
| Other current assets | 1,898 | | 1,815 | |
| | |
| Total current assets | 17,676 | | 20,511 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,267 | | 1,589 | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | | 2,793 | |
| Noncurrent receivables | 424 | | 650 | |
| Total investments | 4,431 | | 5,032 | |
| Property | | |
| Property | 60,203 | | 58,055 | |
| Less: Accumulated depreciation | 39,137 | | 37,613 | |
| Net property | 21,066 | | 20,442 | |
| Other Assets | | |
| Goodwill | 8,641 | | 8,644 | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | | 2,442 | |
| Operating lease right-of-use assets | 1,320 | | 1,227 | |
| Deferred income tax assets | 1,486 | | 960 | |
| Deferred charges and other assets | 1,323 | | 1,363 | |
| Total other assets | 14,842 | | 14,636 | |
| Total Assets | $ | 58,015 | | $ | 60,621 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 62 | | $ | 362 | |
| Long-term debt due within one year | 117 | | 362 | |
| Accounts payable: | | |
| Trade | 4,529 | | 4,940 | |
| Other | 1,818 | | 2,349 | |
| Operating lease liabilities - current | 329 | | 287 | |
| Income taxes payable | 419 | | 334 | |
| Accrued and other current liabilities | 2,575 | | 2,613 | |
| | |
| Total current liabilities | 9,849 | | 11,247 | |
| Long-Term Debt | 14,907 | | 14,698 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 399 | | 1,110 | |
| Pension and other postretirement benefits - noncurrent | 4,932 | | 3,808 | |
| Asbestos-related liabilities - noncurrent | 788 | | 857 | |
| Operating lease liabilities - noncurrent | 1,032 | | 997 | |
| Other noncurrent obligations | 6,702 | | 6,415 | |
| | |
| Total other noncurrent liabilities | 13,853 | | 13,187 | |
| | |
| Stockholder's Equity | | |
| Common stock (authorized and issued 100 shares of $0.01 par value each) | — | | — | |
| Additional paid-in capital | 9,091 | | 8,627 | |
| Retained earnings | 17,495 | | 19,472 | |
| Accumulated other comprehensive loss | (7,681) | | (7,139) | |
| | |
| | |
| The Dow Chemical Company’s stockholder's equity | 18,905 | | 20,960 | |
| Noncontrolling interests | 501 | | 529 | |
| Total equity | 19,406 | | 21,489 | |
| Total Liabilities and Equity | $ | 58,015 | | $ | 60,621 | |
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, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,611 | | 2,758 | | 2,842 | |
| Provision (credit) for deferred income tax | (1,222) | | 80 | | 278 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | | 696 | | (651) | |
| Net periodic pension benefit cost | 548 | | 23 | | 39 | |
| Pension contributions | (142) | | (235) | | (1,219) | |
| Net gain on sales of assets, businesses and investments | (70) | | (19) | | (105) | |
| | | |
| | | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| | | |
| Other net loss | 797 | | 221 | | 927 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 1,161 | | 1,187 | | (2,132) | |
| Inventories | 844 | | 347 | | (1,768) | |
| Accounts payable | (734) | | (1,255) | | 2,458 | |
| Other assets and liabilities, net | (226) | | (1,043) | | 157 | |
| Cash provided by operating activities | 5,109 | | 7,519 | | 7,200 | |
| Investing Activities | | | |
| Capital expenditures | (2,356) | | (1,823) | | (1,501) | |
| Investment in gas field developments | (215) | | (190) | | (92) | |
| | | |
| | | |
| Purchases of previously leased assets | (7) | | (7) | | (694) | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | | 32 | | 68 | |
| Acquisitions of property and businesses, net of cash acquired | (114) | | (228) | | (129) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (5) | | (148) | | — | |
| Distributions and loan repayments from nonconsolidated affiliates | 2 | | 52 | | 51 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | | 11 | | — | |
| Purchases of investments | (2,288) | | (1,366) | | (1,366) | |
| Proceeds from sales and maturities of investments | 1,958 | | 747 | | 759 | |
| | | |
| Other investing activities, net | (61) | | (50) | | (10) | |
| Cash used for investing activities | (2,928) | | (2,970) | | (2,914) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (249) | | 253 | | (48) | |
| Proceeds from issuance of short-term debt greater than three months | — | | — | | 144 | |
| Payments on short-term debt greater than three months | — | | (14) | | (130) | |
| Proceeds from issuance of long-term debt | 104 | | 1,667 | | 109 | |
| Payments on long-term debt | (446) | | (1,006) | | (2,771) | |
| Collections on securitization programs | 18 | | — | | — | |
| Proceeds from issuance of stock | 188 | | 212 | | 320 | |
| | | |
| Transaction financing, debt issuance and other costs | (2) | | (24) | | (537) | |
| Employee taxes paid for share-based payment arrangements | (42) | | (35) | | (12) | |
| | | |
| Distributions to noncontrolling interests | (89) | | (83) | | (73) | |
| | | |
| | | |
| | | |
| Dividends paid to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| | | |
| Cash used for financing activities | (3,028) | | (3,405) | | (6,262) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | | (237) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | | 907 | | (2,075) | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | | 3,033 | | 5,108 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | | $ | 3,940 | | $ | 3,033 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | | 54 | | 45 | |
| Cash and cash equivalents at end of year | $ | 2,987 | | $ | 3,886 | | $ | 2,988 | |
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, | 2023 | 2022 | 2021 |
| | | |
| | | |
| | | |
| | | |
| Common Stock | | | |
| Balance at beginning and end of year | $ | — | | $ | — | | $ | — | |
| | | |
| | | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 8,627 | | 8,159 | | 7,603 | |
| | | |
| Issuance of parent company stock - Dow Inc. | 188 | | 212 | | 320 | |
| Stock-based compensation and allocation of ESOP shares | 276 | | 258 | | 236 | |
| Other | — | | (2) | | — | |
| Balance at end of year | 9,091 | | 8,627 | | 8,159 | |
| Retained Earnings | | | |
| Balance at beginning of year | 19,472 | | 19,288 | | 16,300 | |
| Net income available for The Dow Chemical Company's common stockholder | 556 | | 4,583 | | 6,274 | |
| Dividends to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| Other | (23) | | (24) | | (22) | |
| Balance at end of year | 17,495 | | 19,472 | | 19,288 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (7,139) | | (8,977) | | (10,855) | |
| Other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| | | |
| | | |
| Balance at end of year | (7,681) | | (7,139) | | (8,977) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | — | | (15) | | (49) | |
| Allocation of ESOP shares | — | | 15 | | 34 | |
| | | |
| Balance at end of year | — | | — | | (15) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| The Dow Chemical Company's stockholder's equity | 18,905 | | 20,960 | | 18,455 | |
| Noncontrolling Interests | 501 | | 529 | | 574 | |
| Total Equity | $ | 19,406 | | $ | 21,489 | | $ | 19,029 | |
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
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.
Dow Inc. owns all of the outstanding common shares of TDCC. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and considering that the financial statements and disclosures of each company are 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. Transactions between TDCC and Dow Inc. are treated as related party transactions for TDCC. See Note 23 for additional information.
The Company conducts its worldwide operations through 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 24 for additional information.
Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation and the term "Dow Silicones" means Dow Silicones Corporation, both wholly owned subsidiaries 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 14 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.
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. See Note 8 for additional information.
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. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are disposed. 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.
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, 2023, the Company had a net deferred tax asset balance of $1,087 million, after valuation allowances of $2,948 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.
The Company files tax returns in multiple jurisdictions and is subject to examination 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 order to determine the need for recognizing a provision in its financial statements. Significant judgment is required in determining the timing and measurement of uncertain tax positions. The Company utilizes internal and external expertise in interpreting tax laws to support the Company's tax 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, 2023, the Company had uncertain tax positions for both domestic and foreign issues of $513 million and $561 million for interest and penalties.
Environmental Matters
Environmental Policies
Dow is committed to world-class environmental, health and safety (“EH&S”) performance, as demonstrated by industry-leading results, a long-standing commitment to the American Chemistry Council's Responsible Care® program, a strong commitment to achieve the Company's 2025 Sustainability Goals and Dow's drive to deliver against its targets around a circular economy and climate protection. These goals and targets set the standard for sustainability in the chemical industry, focusing on improvements in the Company’s local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the 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 implement the Company’s policies and requirements and meet performance objectives, leadership expectations and public commitments. To ensure effective utilization, the EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources.
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 emitting manufacturing sites globally record their emissions and water use in the system. The data is reviewed at the facility level and then by global coordinators before being aggregated for corporate environmental reporting purposes.
Dow's EH&S policies help to ensure the Company achieves its annual health and safety performance targets and the Company seeks to continuously improve on these targets through process and personal safety project implementations. Improvement in these areas, as well as environmental compliance, remains a top management priority, as the Company continues to implement its 2025 Sustainability Goals and progressive, multi-decade sustainability targets that include advancing a circular economy and climate protection. Progress is reviewed annually by management and with the Environment, Health, Safety & Technology Committee of the Board.
Detailed information on Dow’s performance regarding environmental matters and goals is accessible through the Company's Science & Sustainability webpage at www.dow.com/sustainability. Dow'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. Sabotage, terrorism, war, natural disasters and cybersecurity incidents have increased global 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 Company is subject to U.S. regulations with established risk-based and performance-based standards that must be met at U.S. Coast Guard-regulated facilities promulgated by the U.S. Department of Homeland Security. The Company is also 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 Company maintains a comprehensive, multi-level security plan that focuses on security, emergency planning, preparedness and response. This plan, which has been activated in response to significant world and national events, 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 designed to avert interruptions of normal business operations that could materially and adversely affect the Company’s results of operations, financial condition and 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 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, the Company is well-positioned to comply with U.S. chemical facility regulations and other regulatory security frameworks. The Company participates 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 visibility and transportation of hazardous materials. The Company cooperated 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 addresses 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 Response 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. Chemical Sector Coordinating Council.
Climate Protection
Evaluation of climate-related risks and opportunities continues to be a catalyst for the development of the Company’s Decarbonize & Grow strategy (Dow’s climate transition plan), its water-intensity goal and its Valuing Nature goal. Dow's 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 CO2e emissions by an additional 5 million metric tons by 2030 versus its 2020 baseline, a 15 percent reduction versus 2020 and a 30 percent reduction in greenhouse gas emissions since 2005. 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). In 2021, Dow outlined a path to decarbonize its production processes (Scope 1 and 2 CO2e emissions), utilizing a phased approach in which end-of-life capacity is replaced with higher-efficiency, lower greenhouse gas emitting assets. Reflecting Dow's focus to make meaningful progress in the near term, Dow intends to reduce its CO2e emissions by approximately 2 million metric tons by 2025 versus its 2020 baseline while growing underlying earnings and plans to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, which is expected to add approximately 1,885 KTA of ethylene and polyethylene capacity by 2029. 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 six key water-stressed sites by 2025. Additionally, Dow has implemented a robust process to quantify the value of products and projects that are better for nature, including nature-based solutions.
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 results of 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.
To evaluate physical risks, Dow partnered with S&P Global Trucost (“Trucost”) to assess the Company’s exposure to physical risks based on the geographic location of its manufacturing operations. The risks assessed included water stress, flood, heat waves, cold waves, hurricanes, wildfires and sea level rise. The analysis included an assessment of the physical risks using a baseline year of 2020 with time periods for medium- (year 2030) and long-term (year 2050) using the Intergovernmental Panel on Climate Change representative concentration pathways. These pathways represent varying degrees of global atmospheric greenhouse gas concentrations (low, medium and high), and thus different expectations on global temperature rise. Results will be incorporated into Dow’s long-term assessments of its manufacturing sites, which is a key input into Dow’s capital approval process.
Transition Risks
Climate-related transition risks include the availability, development and affordability of lower greenhouse gas emissions technology, the effects of CO2e pricing, and changes in public sentiment, regulations, taxes, public mandates or requirements as they relate to CO2e, water or land use.
Climate-related risks, including both physical and transition risks, are assessed with input from internal and external sources including corporate, business, function and geographic leaders; subject matter experts; investors; and other stakeholders. The evaluation of climate-related risks and opportunities is integrated into an annual company-wide
risk management process, known as enterprise risk management (“ERM”). ERM identifies significant or major risks to the Company and develops action plans to modify or mitigate risks.
Every few years, Dow also utilizes a robust scenario analysis to assess the long-term materiality and impact of climate-related risks and opportunities. Scenario analysis is used to challenge business-as-usual assumptions and strengthen the resiliency of the Company’s Decarbonize & Grow strategy. Scenarios are used to evaluate both physical and transition risk and are particularly useful in evaluating the potential and impact of emerging risks.
Decarbonize & Grow
Dow’s Decarbonize & Grow strategy involves 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 across the economic cycle to decarbonize assets, in a phased approach, while growing capacity.
•Increasing Clean Energy in Purchased Power Mix: Dow continues to invest in cost-efficient clean energy, including wind, solar, biomass and hydropower, across operations.
•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.
•Building a Value-Generating Scope 3 Decarbonization Pathway: Approximately two-thirds of Dow’s emissions footprint fall into the Scope 3 categories and more than half of those come from the raw materials, transportation and other services purchased as a company. The Company was recognized as a Supplier Engagement Leader for the second straight year by CDP, a global non-profit that directs the world’s environmental disclosure system for companies, cities, states and regions. Dow has significantly advanced its Scope 3 strategy by improving emissions accounting, advancing transparency along the value chain, and working closely with key suppliers to set and meet emissions reduction targets.
•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, lightweighting, fuel transition, circularity, increased operational efficiency, resource reductions and reduced emissions.
Advancing Water Stewardship and Resilience
As one of the largest materials science companies in the world, Dow depends on a steady supply of fresh water to create the products that are essential for everyday life and human progress. Dow strives to use the Company’s technology, expertise and partnerships to help conserve and promote regenerative water use, protect watersheds and create a future where clean water is abundant and available to all. Effective water stewardship is also required for long-term company viability and Dow’s senior executive leadership team oversees the Company’s water strategy.
Dow’s water risk management approach recognizes that every site and every business is accountable for water while certain watersheds require additional measures to address specific water stress challenges. Key Dow locations have specific water action plans to address risk to operations given their dependence on a stressed watershed. These action plans include mitigations for local water scarcity or quality issues and consider the needs of other local users for freshwater. Additionally, Dow identified six sites in 2015, located in Texas (2); Bahia Blanca, Argentina; Terneuzen, The Netherlands; Böhlen, Germany; and Tarragona, Spain; where operations are located in a water-stressed watershed, have local water quality issues, have competition among local users for water, or have some local knowledge of watershed challenges, and these six sites have been the focus of actions since that time.
Advancing a Circular Economy
Dow is committed to turning the tide on plastic waste and meeting customers’ increasing demands for more sustainable and circular products through Dow's materials science expertise and its investments in circular innovations and partnerships – from designing for recyclability at the beginning of a product’s life to building materials ecosystems that will help turn plastic waste into a valuable resource that can be used to create new products. Dow is working to advance circularity for its key materials and, to this end, is working to deliver on its
enterprise target to Transform the Waste, which entails transforming plastic waste and other forms of feedstocks to deliver 3 million metric tons of circular and renewable solutions annually by 2030. To reach the target, Dow is collaborating with other stakeholders across value chains to build materials ecosystems to collect, reuse or recycle plastic waste. This, in turn, will enable Dow to return more plastic waste into the circular system, and scale production of circular and low-carbon emissions solutions.
Since 2020, Dow has invested more than $200 million into impact funds, recycling infrastructure, venture capital, research and development and key technologies to transform waste into solutions that support a circular economy. Dow is 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, Closed Loop Partners and Lombard Odier Global Plastic Circularity Fund. Additionally, Dow is making progress on its Transform the Waste target through several recently announced circular and renewable offtake agreements and projects that will help contribute to achieving the new target. See Item 1. Business for updates on these investments, partnerships and projects.
In support of, and in collaboration with, value chain partners and customers, Dow is aligning its innovation and application development programs so its products are recycle-ready at the outset or enable circularity in customers’ products and processes. Designing for circularity at the molecular level expands the possibilities for recycling across a variety of applications, and ultimately lessens the environmental impact of Dow's customers’ products.
Dow's efforts under Transform the Waste expand beyond packaging. In 2023, the Company launched and/or commercialized a number of other circular solutions like SPECFLEX C, a recycled polyurethane solution for the automotive sector and Propylene Glycol CIR.
Developing Safer Materials
How the Company manufactures, distributes and enables the proper use and disposal of its products can have a large and meaningful impact on the environment. Dow’s vision is a future where every material it brings to market is sustainable for the people and the planet. Dow is working to deliver that sustainable future through its materials science expertise and collaboration with its customers. By constantly innovating how it sources, manufactures and delivers material solutions, Dow helps customers achieve their goals and create a better tomorrow. Dow has an impact on safer materials directly through the manufacture and delivery of solutions and indirectly through the chemicals that are sourced.
Dow is committed to demonstrating the value of chemistry and materials science to society and improving the way the world understands and considers science in decision-making to maximize benefits to businesses, society and the planet. Through Dow’s 2025 Safe Materials for a Sustainable Planet goal, the Company has made progress toward this vision by innovating sustainable materials of tomorrow, leading candid conversations about product safety and committing to the advancement of open and transparent chemistry with value chain partners, customers and the public.
Environmental Remediation
For comparison of environmental remediation-related matters for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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 $939 million at December 31, 2023, related to the remediation of current or former Dow-owned sites. At December 31, 2022, the liability related to remediation was $948 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 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 $241 million at December 31, 2023 ($244 million at December 31, 2022). 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 |
| 2023 | 2022 | 2023 | 2022 |
| Number of sites at Jan 1 | 171 | | 171 | | 130 | | 134 | |
| Sites added during year | 6 | | — | | 4 | | 2 | |
| Sites closed during year | (23) | | — | | (1) | | (6) | |
| Number of sites at Dec 31 | 154 | | 171 | | 133 | | 130 | |
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, 2023, 24 of these sites (24 sites at December 31, 2022) 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.
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 14 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. The PRP Group has been approached by the EPA to convene discussions for the Remedial Action Consent Decree the EPA is preparing for the Berry’s Creek Site. The group submitted the 60 percent design for EPA review and has identified and contracted with a Remedial Action contractor to support completion of the 95 percent design. Allocation remains incomplete.
At December 31, 2023, the Company had accrued liabilities totaling $319 million ($339 million at December 31, 2022) for environmental remediation at the Midland and Wood-Ridge sites. In 2023, the Company spent $48 million ($37 million in 2022) for environmental remediation at the Midland and Wood-Ridge sites.
In total, the Company’s accrued liability for probable environmental remediation and restoration costs was $1,180 million at December 31, 2023, compared with $1,192 million at December 31, 2022. 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 two 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 $203 million in 2023 and $176 million in 2022. The amounts charged to income on a pretax basis related to operating the Company's current pollution abatement facilities, excluding internal recharges, totaled $758 million in 2023 and $773 million in 2022. Capital expenditures for environmental protection were $228 million in 2023 and $137 million in 2022.
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, 2022 and 2021, 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, 2022, filed with the SEC on February 1, 2023.
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 | 2023 | 2022 | |
| Claims unresolved at Jan 1 | 6,873 | | 8,747 | | |
| Claims filed | 4,199 | | 4,664 | | |
| Claims settled, dismissed or otherwise resolved | (4,705) | | (6,538) | | |
| Claims unresolved at Dec 31 | 6,367 | | 6,873 | | |
| Claimants with claims against both Union Carbide and Amchem | (1,236) | | (1,530) | | |
| Individual claimants at Dec 31 | 5,131 | | 5,343 | | |
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. 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 14 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 Argentinian peso, although exposures also exist in other currencies in Asia Pacific, Canada, Latin America, the Middle East, Africa and 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 debt and 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 2023 and 2022 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 | 2023 | 2022 |
| In millions | Year-end | Average | Year-end | Average |
| Commodities | $ | 14 | | $ | 11 | | $ | 72 | | $ | 56 | |
| Equity securities | 6 | | 8 | | 10 | | 9 | |
| Foreign exchange | 20 | | 17 | | 7 | | 18 | |
| Interest rate | 139 | | 177 | | 252 | | 230 | |
| Composite | $ | 179 | | $ | 213 | | $ | 341 | | $ | 313 | |
The Company’s daily VAR for the aggregate of all positions decreased from a composite VAR of $341 million at December 31, 2022 to a composite VAR of $179 million at December 31, 2023. The interest rate VAR decreased due to a decrease in interest rate volatility and a decrease in interest rate exposure. The equity securities VAR decreased due to a decrease in equity volatility and a decrease in equity exposure. The foreign exchange VAR increased due to an increase in outstanding derivatives and bonds designated as hedging instruments. The commodities VAR decreased due to a decrease in managed exposures and a decrease in commodity volatility. See Note 20 to the Consolidated Financial Statements for further disclosure regarding market risk.
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| 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, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has 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 amount 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 uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be
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 apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
•We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
•We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain 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 transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| January 31, 2024 |
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, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has 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 amount 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 uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be 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 apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
•We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
•We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain 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 transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| | |
| /s/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
| January 31, 2024 |
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, | 2023 | 2022 | 2021 |
| Net sales | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| Cost of sales | 39,742 | | 48,338 | | 44,191 | |
| Research and development expenses | 829 | | 851 | | 857 | |
| Selling, general and administrative expenses | 1,627 | | 1,675 | | 1,645 | |
| Amortization of intangibles | 324 | | 336 | | 388 | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | | 268 | | 975 | |
| Sundry income (expense) - net | (280) | | 727 | | (35) | |
| Interest income | 229 | | 173 | | 55 | |
| Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| Income before income taxes | 656 | | 6,090 | | 8,145 | |
| Provision (credit) for income taxes | (4) | | 1,450 | | 1,740 | |
| Net income | 660 | | 4,640 | | 6,405 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| Net income available for Dow Inc. common stockholders | $ | 589 | | $ | 4,582 | | $ | 6,311 | |
| | | |
| | | |
| Per common share data: | | | |
| Earnings per common share - basic | $ | 0.82 | | $ | 6.32 | | $ | 8.44 | |
| Earnings per common share - diluted | $ | 0.82 | | $ | 6.28 | | $ | 8.38 | |
| | | |
| Weighted-average common shares outstanding - basic | 705.7 | | 721.0 | | 743.6 | |
| Weighted-average common shares outstanding - diluted | 709.0 | | 725.6 | | 749.0 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized losses on investments | — | | (312) | | (45) | |
| Cumulative translation adjustments | 43 | | (579) | | (425) | |
| Pension and other postretirement benefit plans | (609) | | 2,457 | | 2,225 | |
| Derivative instruments | 24 | | 272 | | 123 | |
| Total other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Comprehensive income | 118 | | 6,478 | | 8,283 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | | 58 | | 94 | |
| Comprehensive income attributable to Dow Inc. | $ | 47 | | $ | 6,420 | | $ | 8,189 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 2,987 | | $ | 3,886 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | | 5,611 | |
| Other | 1,896 | | 2,144 | |
| Inventories | 6,076 | | 6,988 | |
| Other current assets | 1,937 | | 1,848 | |
| | |
| Total current assets | 17,614 | | 20,477 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,267 | | 1,589 | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | | 2,793 | |
| Noncurrent receivables | 438 | | 666 | |
| Total investments | 4,445 | | 5,048 | |
| Property | | |
| Property | 60,203 | | 58,055 | |
| Less: Accumulated depreciation | 39,137 | | 37,613 | |
| Net property | 21,066 | | 20,442 | |
| Other Assets | | |
| Goodwill | 8,641 | | 8,644 | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | | 2,442 | |
| Operating lease right-of-use assets | 1,320 | | 1,227 | |
| Deferred income tax assets | 1,486 | | 960 | |
| Deferred charges and other assets | 1,323 | | 1,363 | |
| Total other assets | 14,842 | | 14,636 | |
| Total Assets | $ | 57,967 | | $ | 60,603 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 62 | | $ | 362 | |
| Long-term debt due within one year | 117 | | 362 | |
| Accounts payable: | | |
| Trade | 4,529 | | 4,940 | |
| Other | 1,797 | | 2,276 | |
| Operating lease liabilities - current | 329 | | 287 | |
| Income taxes payable | 419 | | 334 | |
| | |
| Accrued and other current liabilities | 2,704 | | 2,770 | |
| | |
| Total current liabilities | 9,957 | | 11,331 | |
| Long-Term Debt | 14,907 | | 14,698 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 399 | | 1,110 | |
| Pension and other postretirement benefits - noncurrent | 4,932 | | 3,808 | |
| Asbestos-related liabilities - noncurrent | 788 | | 857 | |
| Operating lease liabilities - noncurrent | 1,032 | | 997 | |
| Other noncurrent obligations | 6,844 | | 6,555 | |
| Total other noncurrent liabilities | 13,995 | | 13,327 | |
| Stockholders’ Equity | | |
Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | 8 | | 8 | |
| Additional paid-in capital | 8,880 | | 8,540 | |
| Retained earnings | 21,774 | | 23,180 | |
| Accumulated other comprehensive loss | (7,681) | | (7,139) | |
| Treasury stock at cost (2023: 76,302,081 shares; 2022: 66,798,605 shares) | (4,374) | | (3,871) | |
| Dow Inc.’s stockholders’ equity | 18,607 | | 20,718 | |
| Noncontrolling interests | 501 | | 529 | |
| Total equity | 19,108 | | 21,247 | |
| Total Liabilities and Equity | $ | 57,967 | | $ | 60,603 | |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,611 | | 2,758 | | 2,842 | |
| Provision (credit) for deferred income tax | (1,222) | | 79 | | 278 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | | 696 | | (651) | |
| Net periodic pension benefit cost | 548 | | 23 | | 39 | |
| Pension contributions | (142) | | (235) | | (1,219) | |
| Net gain on sales of assets, businesses and investments | (70) | | (19) | | (105) | |
| | | |
| | | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| | | |
| Other net loss | 796 | | 212 | | 921 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 1,161 | | 1,187 | | (2,132) | |
| Inventories | 844 | | 347 | | (1,768) | |
| Accounts payable | (734) | | (1,255) | | 2,458 | |
| Other assets and liabilities, net | (203) | | (1,065) | | (5) | |
| Cash provided by operating activities - continuing operations | 5,164 | | 7,486 | | 7,069 | |
| Cash provided by (used for) operating activities - discontinued operations | 32 | | (11) | | (60) | |
| Cash provided by operating activities | 5,196 | | 7,475 | | 7,009 | |
| Investing Activities | | | |
| Capital expenditures | (2,356) | | (1,823) | | (1,501) | |
| Investment in gas field developments | (215) | | (190) | | (92) | |
| | | |
| | | |
| Purchases of previously leased assets | (7) | | (7) | | (694) | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | | 32 | | 68 | |
| Acquisitions of property and businesses, net of cash acquired | (114) | | (228) | | (129) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (5) | | (148) | | — | |
| Distributions and loan repayments from nonconsolidated affiliates | 2 | | 52 | | 51 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | | 11 | | — | |
| Purchases of investments | (2,288) | | (1,366) | | (1,366) | |
| Proceeds from sales and maturities of investments | 1,958 | | 747 | | 759 | |
| | | |
| Other investing activities, net | (61) | | (50) | | (10) | |
| Cash used for investing activities | (2,928) | | (2,970) | | (2,914) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (249) | | 253 | | (48) | |
| Proceeds from issuance of short-term debt greater than three months | — | | — | | 144 | |
| Payments on short-term debt greater than three months | — | | (14) | | (130) | |
| Proceeds from issuance of long-term debt | 104 | | 1,667 | | 109 | |
| Payments on long-term debt | (446) | | (1,006) | | (2,771) | |
| Collections on securitization programs | 18 | | — | | — | |
| Purchases of treasury stock | (625) | | (2,325) | | (1,000) | |
| Proceeds from issuance of stock | 188 | | 212 | | 320 | |
| | | |
| Transaction financing, debt issuance and other costs | (2) | | (24) | | (537) | |
| Employee taxes paid for share-based payment arrangements | (42) | | (35) | | (12) | |
| | | |
| Distributions to noncontrolling interests | (89) | | (83) | | (73) | |
| | | |
| | | |
| Dividends paid to stockholders | (1,972) | | (2,006) | | (2,073) | |
| | | |
| Cash used for financing activities | (3,115) | | (3,361) | | (6,071) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | | (237) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | | 907 | | (2,075) | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | | 3,033 | | 5,108 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | | $ | 3,940 | | $ | 3,033 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | | 54 | | 45 | |
| Cash and cash equivalents at end of year | $ | 2,987 | | $ | 3,886 | | $ | 2,988 | |
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, | 2023 | 2022 | 2021 |
| Common Stock | | | |
| Balance at beginning and end of year | $ | 8 | | $ | 8 | | $ | 8 | |
| | | |
| | | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 8,540 | | 8,151 | | 7,595 | |
| Common stock issued / sold | 188 | | 212 | | 320 | |
| Stock-based compensation and allocation of ESOP shares | 276 | | 258 | | 236 | |
| Treasury stock issuances - compensation and benefit plans | (124) | | (79) | | — | |
| Other | — | | (2) | | — | |
| Balance at end of year | 8,880 | | 8,540 | | 8,151 | |
| Retained Earnings | | | |
| Balance at beginning of year | 23,180 | | 20,623 | | 16,361 | |
| Net income available for Dow Inc.'s common stockholders | 589 | | 4,582 | | 6,311 | |
| Dividends to stockholders | (1,972) | | (2,006) | | (2,073) | |
| Common control transaction | — | | — | | 46 | |
| Other | (23) | | (19) | | (22) | |
| Balance at end of year | 21,774 | | 23,180 | | 20,623 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (7,139) | | (8,977) | | (10,855) | |
| Other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Balance at end of year | (7,681) | | (7,139) | | (8,977) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | — | | (15) | | (49) | |
| Allocation of ESOP shares | — | | 15 | | 34 | |
| | | |
| Balance at end of year | — | | — | | (15) | |
| Treasury Stock | | | |
| Balance at beginning of year | (3,871) | | (1,625) | | (625) | |
| Treasury stock purchases | (627) | | (2,325) | | (1,000) | |
| Treasury stock issuances - compensation and benefit plans | 124 | | 79 | | — | |
| Balance at end of year | (4,374) | | (3,871) | | (1,625) | |
| Dow Inc.'s stockholders' equity | 18,607 | | 20,718 | | 18,165 | |
| Noncontrolling Interests | 501 | | 529 | | 574 | |
| Total Equity | $ | 19,108 | | $ | 21,247 | | $ | 18,739 | |
| | | |
| 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, | 2023 | 2022 | 2021 |
| Net sales | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| Cost of sales | 39,738 | | 48,332 | | 44,187 | |
| Research and development expenses | 829 | | 851 | | 857 | |
| Selling, general and administrative expenses | 1,627 | | 1,675 | | 1,645 | |
| Amortization of intangibles | 324 | | 336 | | 388 | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | | 268 | | 975 | |
| Sundry income (expense) - net | (327) | | 714 | | (79) | |
| Interest income | 239 | | 181 | | 56 | |
| Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| Income before income taxes | 623 | | 6,091 | | 8,106 | |
| Provision (credit) for income taxes | (4) | | 1,450 | | 1,738 | |
| Net income | 627 | | 4,641 | | 6,368 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
| | | |
| Net income available for The Dow Chemical Company common stockholder | $ | 556 | | $ | 4,583 | | $ | 6,274 | |
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, | 2023 | 2022 | 2021 |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Other comprehensive income (loss), net of tax | | | |
| Unrealized losses on investments | — | | (312) | | (45) | |
| Cumulative translation adjustments | 43 | | (579) | | (425) | |
| Pension and other postretirement benefit plans | (609) | | 2,457 | | 2,225 | |
| Derivative instruments | 24 | | 272 | | 123 | |
| Total other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| Comprehensive income | 85 | | 6,479 | | 8,246 | |
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | | 58 | | 94 | |
| Comprehensive income attributable to The Dow Chemical Company | $ | 14 | | $ | 6,421 | | $ | 8,152 | |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 2,987 | | $ | 3,886 | |
| | |
| Accounts and notes receivable: | | |
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | | 5,611 | |
| Other | 1,997 | | 2,211 | |
| Inventories | 6,076 | | 6,988 | |
| Other current assets | 1,898 | | 1,815 | |
| | |
| Total current assets | 17,676 | | 20,511 | |
| Investments | | |
| Investment in nonconsolidated affiliates | 1,267 | | 1,589 | |
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | | 2,793 | |
| Noncurrent receivables | 424 | | 650 | |
| Total investments | 4,431 | | 5,032 | |
| Property | | |
| Property | 60,203 | | 58,055 | |
| Less: Accumulated depreciation | 39,137 | | 37,613 | |
| Net property | 21,066 | | 20,442 | |
| Other Assets | | |
| Goodwill | 8,641 | | 8,644 | |
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | | 2,442 | |
| Operating lease right-of-use assets | 1,320 | | 1,227 | |
| Deferred income tax assets | 1,486 | | 960 | |
| Deferred charges and other assets | 1,323 | | 1,363 | |
| Total other assets | 14,842 | | 14,636 | |
| Total Assets | $ | 58,015 | | $ | 60,621 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable | $ | 62 | | $ | 362 | |
| Long-term debt due within one year | 117 | | 362 | |
| Accounts payable: | | |
| Trade | 4,529 | | 4,940 | |
| Other | 1,818 | | 2,349 | |
| Operating lease liabilities - current | 329 | | 287 | |
| Income taxes payable | 419 | | 334 | |
| Accrued and other current liabilities | 2,575 | | 2,613 | |
| | |
| Total current liabilities | 9,849 | | 11,247 | |
| Long-Term Debt | 14,907 | | 14,698 | |
| Other Noncurrent Liabilities | | |
| Deferred income tax liabilities | 399 | | 1,110 | |
| Pension and other postretirement benefits - noncurrent | 4,932 | | 3,808 | |
| Asbestos-related liabilities - noncurrent | 788 | | 857 | |
| Operating lease liabilities - noncurrent | 1,032 | | 997 | |
| Other noncurrent obligations | 6,702 | | 6,415 | |
| | |
| Total other noncurrent liabilities | 13,853 | | 13,187 | |
| | |
| Stockholder's Equity | | |
| Common stock (authorized and issued 100 shares of $0.01 par value each) | — | | — | |
| Additional paid-in capital | 9,091 | | 8,627 | |
| Retained earnings | 17,495 | | 19,472 | |
| Accumulated other comprehensive loss | (7,681) | | (7,139) | |
| | |
| | |
| The Dow Chemical Company’s stockholder's equity | 18,905 | | 20,960 | |
| Noncontrolling interests | 501 | | 529 | |
| Total equity | 19,406 | | 21,489 | |
| Total Liabilities and Equity | $ | 58,015 | | $ | 60,621 | |
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, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income | $ | 627 | | $ | 4,641 | | $ | 6,368 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 2,611 | | 2,758 | | 2,842 | |
| Provision (credit) for deferred income tax | (1,222) | | 80 | | 278 | |
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | | 696 | | (651) | |
| Net periodic pension benefit cost | 548 | | 23 | | 39 | |
| Pension contributions | (142) | | (235) | | (1,219) | |
| Net gain on sales of assets, businesses and investments | (70) | | (19) | | (105) | |
| | | |
| | | |
| Restructuring and asset related charges - net | 528 | | 118 | | 6 | |
| | | |
| Other net loss | 797 | | 221 | | 927 | |
| Changes in assets and liabilities, net of effects of acquired and divested companies: | | | |
| Accounts and notes receivable | 1,161 | | 1,187 | | (2,132) | |
| Inventories | 844 | | 347 | | (1,768) | |
| Accounts payable | (734) | | (1,255) | | 2,458 | |
| Other assets and liabilities, net | (226) | | (1,043) | | 157 | |
| Cash provided by operating activities | 5,109 | | 7,519 | | 7,200 | |
| Investing Activities | | | |
| Capital expenditures | (2,356) | | (1,823) | | (1,501) | |
| Investment in gas field developments | (215) | | (190) | | (92) | |
| | | |
| | | |
| Purchases of previously leased assets | (7) | | (7) | | (694) | |
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | | 32 | | 68 | |
| Acquisitions of property and businesses, net of cash acquired | (114) | | (228) | | (129) | |
| | | |
| Investments in and loans to nonconsolidated affiliates | (5) | | (148) | | — | |
| Distributions and loan repayments from nonconsolidated affiliates | 2 | | 52 | | 51 | |
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | | 11 | | — | |
| Purchases of investments | (2,288) | | (1,366) | | (1,366) | |
| Proceeds from sales and maturities of investments | 1,958 | | 747 | | 759 | |
| | | |
| Other investing activities, net | (61) | | (50) | | (10) | |
| Cash used for investing activities | (2,928) | | (2,970) | | (2,914) | |
| Financing Activities | | | |
| Changes in short-term notes payable | (249) | | 253 | | (48) | |
| Proceeds from issuance of short-term debt greater than three months | — | | — | | 144 | |
| Payments on short-term debt greater than three months | — | | (14) | | (130) | |
| Proceeds from issuance of long-term debt | 104 | | 1,667 | | 109 | |
| Payments on long-term debt | (446) | | (1,006) | | (2,771) | |
| Collections on securitization programs | 18 | | — | | — | |
| Proceeds from issuance of stock | 188 | | 212 | | 320 | |
| | | |
| Transaction financing, debt issuance and other costs | (2) | | (24) | | (537) | |
| Employee taxes paid for share-based payment arrangements | (42) | | (35) | | (12) | |
| | | |
| Distributions to noncontrolling interests | (89) | | (83) | | (73) | |
| | | |
| | | |
| | | |
| Dividends paid to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| | | |
| Cash used for financing activities | (3,028) | | (3,405) | | (6,262) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | | (237) | | (99) | |
| Summary | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | | 907 | | (2,075) | |
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | | 3,033 | | 5,108 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | | $ | 3,940 | | $ | 3,033 | |
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | | 54 | | 45 | |
| Cash and cash equivalents at end of year | $ | 2,987 | | $ | 3,886 | | $ | 2,988 | |
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, | 2023 | 2022 | 2021 |
| | | |
| | | |
| | | |
| | | |
| Common Stock | | | |
| Balance at beginning and end of year | $ | — | | $ | — | | $ | — | |
| | | |
| | | |
| Additional Paid-in Capital | | | |
| Balance at beginning of year | 8,627 | | 8,159 | | 7,603 | |
| | | |
| Issuance of parent company stock - Dow Inc. | 188 | | 212 | | 320 | |
| Stock-based compensation and allocation of ESOP shares | 276 | | 258 | | 236 | |
| Other | — | | (2) | | — | |
| Balance at end of year | 9,091 | | 8,627 | | 8,159 | |
| Retained Earnings | | | |
| Balance at beginning of year | 19,472 | | 19,288 | | 16,300 | |
| Net income available for The Dow Chemical Company's common stockholder | 556 | | 4,583 | | 6,274 | |
| Dividends to Dow Inc. | (2,510) | | (4,375) | | (3,264) | |
| Other | (23) | | (24) | | (22) | |
| Balance at end of year | 17,495 | | 19,472 | | 19,288 | |
| Accumulated Other Comprehensive Loss | | | |
| Balance at beginning of year | (7,139) | | (8,977) | | (10,855) | |
| Other comprehensive income (loss) | (542) | | 1,838 | | 1,878 | |
| | | |
| | | |
| Balance at end of year | (7,681) | | (7,139) | | (8,977) | |
| Unearned ESOP Shares | | | |
| Balance at beginning of year | — | | (15) | | (49) | |
| Allocation of ESOP shares | — | | 15 | | 34 | |
| | | |
| Balance at end of year | — | | — | | (15) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| The Dow Chemical Company's stockholder's equity | 18,905 | | 20,960 | | 18,455 | |
| Noncontrolling Interests | 501 | | 529 | | 574 | |
| Total Equity | $ | 19,406 | | $ | 21,489 | | $ | 19,029 | |
See Notes to the Consolidated Financial Statements.
| | |
Dow Inc. and Subsidiaries
The Dow Chemical Company and Subsidiaries |
| Notes to the Consolidated Financial Statements |
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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Dow Inc. owns all of the outstanding common shares of TDCC. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and considering that the financial statements and disclosures of each company are 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. Transactions between TDCC and Dow Inc. are treated as related party transactions for TDCC. See Note 23 for additional information.
The Company conducts its worldwide operations through 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 24 for additional information.
Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation and the term "Dow Silicones" means Dow Silicones Corporation, both wholly owned subsidiaries 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 14 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.
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. See Note 8 for additional information.
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. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are disposed. 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 (property, finite-lived intangible assets and lease 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 depreciation/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 depreciation/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 developed technology, 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.
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 assets.
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, establishing a new cost basis.
Leases
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 Note 15 for additional information.
Revenue
The 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, 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 3 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.
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.
Government Assistance
The Company receives grants, subsidies and incentives (collectively "incentives") from governments in various jurisdictions in support of its operations and capital projects. The incentives are recorded when there is reasonable assurance that the Company will comply with the terms and conditions attached to the incentives and that the incentives will be received. Incentives are recognized on a systematic basis over the periods in which the related cost or expenditures occur and are included in the Company's financial statements as reductions of "Cost of sales" or "Research and development expenses" in the Company’s consolidated statements of income or as a reduction of "Property" in the consolidated balance sheets.
In 2023, the Company received $183 million of government incentives primarily related to the cost of energy used in the Company’s production processes ($260 million in 2022). These incentives, from various governments, are typically based on level of energy consumption and are recorded as a reduction to "Cost of sales" in the consolidated statements of income and as "Accounts and notes receivable - Other" until received or as a reduction to "Accounts payable - Trade" in the consolidated balance sheets. Other forms of government assistance received by the Company in 2023 and 2022 were not material.
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 recorded 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 computed the amount due to DowDuPont for their share of taxable income and tax attributes and obligations on DowDuPont’s consolidated tax return. The amounts reported as income tax payable or receivable represent the Company’s payment obligation (or refundable amount) to DowDuPont based on a theoretical tax liability calculated based on the methodologies agreed, elected or required in each combined or consolidated filing jurisdiction. Since April 1, 2019, the Company no longer has consolidated income tax return filings with Historical DuPont entities.
The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the Company's common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.
Adoption of Accounting Standards
2019
Effective January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842),” and the associated ASUs (collectively, "Topic 842") and added the accounting policy on leases discussed in the section above. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $2.3 billion at January 1, 2019. The net impact to “Retained earnings” was an increase of $32 million and was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction. The impact is reflected in the "Adoption of accounting standards" line in the consolidated statements of equity of both Dow Inc. and TDCC. See Note 17 for additional information.
In addition, the consolidated financial statements reflect the impact of the adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," and the associated ASUs (collectively, "Topic 606") at January 1, 2019 by certain nonconsolidated affiliates of the Company, which were subsequently distributed as part of the separation from DowDuPont. The net impact was reflected in assets and liabilities of discontinued operations with a corresponding reduction to "Retained earnings" of $183 million in the consolidated balance sheets at January 1, 2019. The impact is reflected in the "Adoption of accounting standards" line in the consolidated statements of equity of both Dow Inc. and TDCC.
2018
The adoption of 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" in the first quarter of 2018 resulted in a net decrease of $68 million to "Retained earnings" and a decrease of $20 million to AOCL in the consolidated statements of equity at January 1, 2018. In the second quarter of 2018, the Company early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")." The adoption of this standard resulted in a $1,057 million increase to "Retained earnings" due to the reclassification from AOCL in the consolidated statements of equity at April 1, 2018. The impacts are reflected in the "Adoption of accounting standards" line in the consolidated statements of equity.
Change in Financial Statement Presentation
Consolidated Balance Sheets
In 2020, the Company elected to reclassify "Marketable securities" to "Other current assets" in the consolidated balance sheets and, as a result, the prior period amounts have been reclassified to conform to current year presentation. Changes made to the consolidated balance sheets were as follows:
| | | | | | | | | | | | | | |
| Changes to the Consolidated Balance Sheets | Dec 31, 2019 |
| Dow Inc. | TDCC |
| In millions | As Filed | Updated | As Filed | Updated |
| Marketable securities | $ | 21 | $ | 0 | $ | 21 | $ | 0 |
| Other current assets | $ | 658 | $ | 679 | $ | 571 | $ | 592 |
TDCC Dividends
Effective with the Merger, TDCC no longer had publicly traded common stock. TDCC's common shares were owned solely by its parent company, DowDuPont, prior to separation, and TDCC's Board of Directors ("Board") determined whether or not there would be a dividend distribution to DowDuPont. Effective with the separation from DowDuPont, TDCC 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. See Notes 1816 and 2523 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In the first quarter of 2020,2023, the Company adopted ASU 2018-13, "Fair Value Measurement (Topic 820)the disclosure requirements of Accounting Standards Update ("ASU") 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure Framework - Changesof Supplier Finance Program Obligations," including early adoption of the requirement to disclose rollforward information on a prospective basis. The ASU, which is intended to enhance the transparency of supplier finance programs, requires 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. See Note 5 for disclosures related to the Disclosure Requirements for Fair Value Measurement," which is part of the Financial Accounting Standards Board's ("FASB") disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement," with certain requirements applied prospectively and all other requirements applied retrospectively. The adoption of this guidance did not have a material impact on the consolidated financial statements. See Note 23 for additional information.
In the first quarter of 2020, the Company adopted ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement 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 Company elected to apply the standard prospectively and the adoption of this guidance did not have a material impact on the consolidated financial statements.
In the first quarter of 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and the associated ASUs. The amendments replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Accordingly, companies are required to consider forward-looking information to estimate credit losses expected to occur over the estimated life of an asset, including losses that may be incurred in future periods. The amendments in the standard required application through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In the third quarter of 2020, the Company adopted ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The new standard is effective March 12, 2020 through December 31, 2022, with the adoption date dependent upon the Company’s election. The Company has elected to apply the optional expedients and exceptions provided by the new guidance as modifications are made to relevant contracts, hedging relationships and other transactions during the reference rate reform transition period. As the amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting, the application of this guidance has not and will not have a material impact on the consolidated financial statements.Company's supplier finance program.
Accounting Guidance Issued But Not Adopted at December 31, 20202023
In December 2019,March 2023, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes2023-02, "Investments — Equity Method and Joint Ventures (Topic 740)323): Simplifying the Accounting for Income Taxes.Investments in Tax Credit Structures Using the Proportional Amortization Method." The amendments simplifypermit reporting entities to elect to account for their tax equity investments using the accounting for income taxes by removingproportional amortization method if certain exceptionsconditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the general principlesincome tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of Topic 740, "Income Taxes"income tax expense (benefit). The amendments also require certain disclosures in annual and also improve consistent application by clarifying and amending existing guidance.interim reporting periods about an entity's tax credit programs. The new standard is effective for public companies for fiscal years andbeginning after December 15, 2023, including interim periods within those fiscal years, beginning after December 15, 2020.and the amendments must be applied on either a modified retrospective or a retrospective basis. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment.permitted. The Company will adopt the new guidance in the first quarter of 2021 and the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
NOTE 3 – SEPARATION FROM DOWDUPONT
Effective August 31, 2017, TDCCIn November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and Historical DuPont completed the mergerentity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of equals transaction contemplated by the Merger Agreement, by and among TDCC, Historical DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuantsignificant segment expenses that are regularly provided to the Merger Agreement, (i) Diamond Merger Sub, Inc. was mergedchief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and into TDCC, with TDCC survivingrequiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the merger as a subsidiaryASU only requires additional disclosures about the Company's operating segments, the Company is currently evaluating the impact of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into Historical DuPont, with Historical DuPont survivingadopting this guidance on 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.consolidated financial statements.
On April 1, 2019, DowDuPont completedIn December 2023, the previously announced separationFASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of its materials science business.income tax disclosures. The separation was effected by way ofamendments in this ASU require a pro rata distribution of allpublic entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the then-issuedstates and outstanding shares of Dow Inc. common stock to DowDuPont stockholders of record aslocal jurisdictions that make up the majority 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 aseffect of the Record Date ("Distribution Ratio"). No fractional sharesstate and local income tax category and the net amount of Dow Inc. common stock were issued. Instead, cash in lieuincome taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Although the ASU only modifies the Company's required income tax disclosures, the Company is currently evaluating the impact 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 listedadopting this guidance 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.consolidated financial statements.
Effective April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. As of the effective date and time of the distribution, DowDuPont did not beneficially own any equity interest in Dow and no longer consolidated 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 ASC 205-20 “Discontinued Operations” (“ASC 205-20”). The results of operations of AgCo and SpecCo are presented as discontinued operations in the consolidated statements of income and are summarized in the following table:
| | | | | | | | |
| Results of Operations of AgCo and SpecCo | 2019 1 | 2018 |
| In millions |
| Net sales | $ | 2,953 | | $ | 12,187 | |
| Cost of sales | 1,804 | | 7,668 | |
| Research and development expenses | 175 | | 761 | |
| Selling, general and administrative expenses | 262 | | 1,108 | |
| Amortization of intangibles | 61 | | 249 | |
| Restructuring and asset related charges - net | 78 | | 411 | |
| | |
| Equity in earnings of nonconsolidated affiliates | 28 | | 400 | |
| Sundry income (expense) - net | (18) | | (13) | |
| Interest income | 3 | | 26 | |
| Interest expense and amortization of debt discount | 7 | | 56 | |
| Income from discontinued operations before income taxes | $ | 579 | | $ | 2,347 | |
| Provision for income taxes | 134 | | 512 | |
| Income from discontinued operations, net of tax | $ | 445 | | $ | 1,835 | |
1. Results through March 31, 2019.
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., related to Corporate.
At December 31, 2020, the Company had assets of $77 million ($58 million at December 31, 2019) included in "Other current assets" and $33 million ($52 million at December 31, 2019) included in "Noncurrent receivables" and liabilities of $412 million ($352 million at December 31, 2019) included in "Accrued and other current liabilities" and $46 million ($96 million at December 31, 2019) included in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. related to the Agreements. Any adjustments to these assets and liabilities in subsequent periods will be recorded in Dow Inc.'s results of operations.
In addition, the Company deferred approximately $400 million of the cash distribution received from DowDuPont at separation and recorded an associated liability with an offset to "Retained earnings" in the consolidated balance sheets of Dow Inc. At December 31, 2020, $103 million ($130 million at December 31, 2019) of this liability was recorded in "Accrued and other current liabilities" and $96 million ($270 million at December 31, 2019) was recorded in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. Based on notices received in the fourth quarter of 2020, Dow Inc. reversed $177 million of the liability and the impact is reflected in the "Common control transaction" line in the consolidated statements of equity of Dow Inc. The final resolution of the remaining liability is uncertain and any subsequent adjustments to the carrying value of this liability will be reflected in equity of Dow Inc.
In 2020, Dow Inc. made net cash payments of $18 million ($215 million in 2019) related to the Agreements, recorded in "Cash flows from operating activities - discontinued operations" in the Dow Inc. consolidated statements of cash flows. The Company also received $98 million in 2019 related to the Agreements, recorded in "Other assets and liabilities, net" within "Cash flows from operating activities - continuing operations" in the Dow Inc. consolidated statements of cash flows.
Continuing Involvement
The Company has certain product and service agreements with DuPont and Corteva that were considered intercompany transactions prior to the separation, but are trade transactions subsequent to the separation. These transactions have been retrospectively reclassified as trade transactions in the consolidated financial statements. Based on the Company’s assessment of the specific factors identified in ASC Topic 205, “Presentation of Financial Statements,” the Company concluded that these agreements do not constitute significant continuing involvement in AgCo or SpecCo.
Integration and Separation Costs
Integration and separation costs, which reflect costs related to post-Merger integration and business separation activities, as well as the ownership restructure of Dow Silicones (through May 31, 2018), were $239 million in 2020, compared with $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019 and $1,179 million in 2018. Integration and separation costs related to post-Merger integration and business separation activities were completed as of December 31, 2020.
NOTE 43 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2020, 992023, 98 percent of the Company's revenue related to product sales (98(99 percent in 20192022 and 99 percent in 2018)2021). 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 | 2023 | 2022 | 2021 |
| In millions |
| Hydrocarbons & Energy | $ | 6,566 | | $ | 9,414 | | $ | 8,149 | |
| Packaging and Specialty Plastics | 16,583 | | 19,846 | | 19,979 | |
| Packaging & Specialty Plastics | $ | 23,149 | | $ | 29,260 | | $ | 28,128 | |
| Industrial Solutions | $ | 4,207 | | $ | 5,682 | | $ | 5,139 | |
| Polyurethanes & Construction Chemicals | 8,316 | | 10,907 | | 11,700 | |
| Others | 15 | | 17 | | 12 | |
| Industrial Intermediates & Infrastructure | $ | 12,538 | | $ | 16,606 | | $ | 16,851 | |
| Coatings & Performance Monomers | $ | 3,337 | | $ | 4,051 | | $ | 4,050 | |
| Consumer Solutions | 5,160 | | 6,713 | | 5,622 | |
| Performance Materials & Coatings | $ | 8,497 | | $ | 10,764 | | $ | 9,672 | |
| Corporate | $ | 438 | | $ | 272 | | $ | 317 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| | | | | | | | | | | |
| Net Trade Sales by Geographic Region | 2023 | 2022 | 2021 |
| In millions |
| U.S. & Canada | $ | 16,640 | | $ | 20,945 | | $ | 19,613 | |
EMEAI 1 | 14,537 | | 19,631 | | 19,746 | |
| Asia Pacific | 8,266 | | 10,344 | | 10,043 | |
| Latin America | 5,179 | | 5,982 | | 5,566 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
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, 2020,2023, the Company had unfulfilled performance obligations of $977$744 million ($826840 million at December 31, 2019)2022) related to the licensing of technology and expects revenue to be recognized for the remaining performance obligations over the next seven years.
The Company has additional 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"right to invoiceinvoice" practical expedient, orand variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 21 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.
Disaggregation of Revenue
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 | 2020 | 2019 | 2018 |
| In millions |
| Hydrocarbons & Energy | $ | 4,271 | | $ | 5,357 | | $ | 7,587 | |
| Packaging and Specialty Plastics | 14,030 | | 14,888 | | 16,608 | |
| Packaging & Specialty Plastics | $ | 18,301 | | $ | 20,245 | | $ | 24,195 | |
| Industrial Solutions | $ | 3,929 | | $ | 4,310 | | $ | 4,812 | |
| Polyurethanes & Construction Chemicals | 8,080 | | 9,117 | | 10,615 | |
| Others | 12 | | 13 | | 20 | |
| Industrial Intermediates & Infrastructure | $ | 12,021 | | $ | 13,440 | | $ | 15,447 | |
| Coatings & Performance Monomers | $ | 3,258 | | $ | 3,517 | | $ | 3,979 | |
| Consumer Solutions | 4,693 | | 5,406 | | 5,698 | |
| Performance Materials & Coatings | $ | 7,951 | | $ | 8,923 | | $ | 9,677 | |
| Corporate | $ | 269 | | $ | 343 | | $ | 285 | |
| Total | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
| | | | | | | | | | | |
| Net Trade Sales by Geographic Region | 2020 | 2019 | 2018 |
| In millions |
| U.S. & Canada | $ | 13,582 | | $ | 15,549 | | $ | 17,809 | |
EMEAI 1 | 12,969 | | 14,612 | | 17,406 | |
| Asia Pacific | 8,165 | | 8,676 | | 9,404 | |
| Latin America | 3,826 | | 4,114 | | 4,985 | |
| Total | $ | 38,542 | | $ | 42,951 | | $ | 49,604 | |
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 recognized in revenue when the 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.
Revenue recognized in 20202023 from amounts included in contract liabilities at the beginning of the period was approximately $145$315 million (approximately $145$250 million in 20192022 and $205$295 million in 2018)2021). In 2020,2023, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $25$45 million (approximately $15 million in 2019)2022). The Company did not recognize any asset impairment charges related to contract assets in 2020, 2019, or 2018.2023 (immaterial in 2022 and no impairment charges in 2021).
The following table summarizes the contract assets and liabilities at December 31, 20202023 and 2019:2022:
| | | | | | | | | |
| Contract Assets and Liabilities at Dec 31 | 2020 | 2019 | |
| In millions |
| Accounts and notes receivable - Trade | $ | 4,839 | | $ | 4,844 | | |
Contract assets - current 1 | $ | 58 | | $ | 41 | | |
Contract assets - noncurrent 2 | $ | 11 | | $ | 4 | | |
Contract liabilities - current 3 | $ | 349 | | $ | 193 | | |
Contract liabilities - noncurrent 4 | $ | 1,915 | | $ | 1,607 | | |
| | | | | | | | | | | | |
| Contract Assets and Liabilities at Dec 31 | Balance Sheet Classification | 2023 | 2022 | |
| In millions |
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 4,718 | | $ | 5,611 | | |
| Contract assets - current | Other current assets | $ | 13 | | $ | 48 | | |
| Contract assets - noncurrent | Deferred charges and other assets | $ | 4 | | $ | 16 | | |
Contract liabilities - current 1 | Accrued and other current liabilities | $ | 195 | | $ | 275 | | |
Contract liabilities - noncurrent 2 | Other noncurrent obligations | $ | 1,642 | | $ | 1,725 | | |
1.Included in "Other current assets" in the consolidated balance sheets.
2.Included in "Deferred charges and other assets" in the consolidated balance sheets.
3.Included in "Accrued and other current liabilities" in the consolidated balance sheets. The increasedecrease from December 31, 20192022 to December 31, 20202023 was primarily due to advance payments from customers related torecognition of deferred royalty agreements.payments.
4.2.Included in "Other noncurrent obligations" in the consolidated balance sheets. The increasedecrease from December 31, 20192022 to December 31, 20202023 was primarily due to an advance payment from a customer related to arecognition of revenue on long-term product supply agreement.agreements.
NOTE 54 – DIVESTITURES
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 U.S. & Canada to an affiliate of Watco Companies, L.L.C. for cash proceeds of $303 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; Freeport and Seadrift, Texas; and Fort Saskatchewan and Prentiss, Alberta, Canada. Divested operations included property with a 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 sites 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 $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.
The Company evaluated the divestiture of the rail 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, the divestiture is not reported as discontinued operations.
Divestiture of Marine and Terminal Operations and Assets
On December 1, 2020, TDCC sold certain U.S. Gulf Coast marine and terminal operations and assets, including existing agreements to provide marine and terminal services to unrelated third parties, at three U.S. sites to an affiliate of Royal Vopak for cash proceeds of $600 million, net of costs to sell and other adjustments and subject to customary post-closing adjustments. These assets are located at TDCC's sites in Plaquemine and St. Charles, Louisiana, and Freeport, Texas. Divested operations included property with a net book value of $93 million and goodwill of $8 million ($7 million related to Packaging & Specialty Plastics, $17 million related to Industrial Intermediates & Infrastructure and $77 million related to Corporate). TDCC retained ownership of the sites and the underlying real property where the divested operations are located. TDCC and the buyer entered into mutual long-term service agreements designed to ensure the continuation of marine and terminal services for TDCC's existing operations at each site. The marine and terminal service agreements include fixed and variable fees that have initial terms of up to 25 years. In the fourth quarter of 2020, TDCC recognized a pretax gain of $499 million on the sale ($17 million related to Packaging & Specialty Plastics, $61 million related to Industrial Intermediates & Infrastructure and $421 million related to Corporate), included in "Sundry income (expense) - net" in the consolidated statements of income.
The Company evaluated the divestiture of the marine and terminal operations and assets and determined it did not represent a strategic shift that had a major effect on the Company’s operations and financial results and did not qualify as an individually significant component of the Company. As a result, the divestiture is not reported as discontinued operations.
NOTE 6 – RESTRUCTURING GOODWILL IMPAIRMENT AND ASSET RELATED CHARGES - NET
The "Restructuring goodwill impairment and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs goodwill impairments, and other asset related charges, which includes other asset impairments.
Restructuring Programs
20202023 Restructuring Program
On September 29, 2020,January 25, 2023, the Board of Dow Inc. approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the coronavirus disease 2019 ("COVID-19") pandemic. The restructuring program is designedglobal recessionary environment and to reduce structural costsenhance its agility and enablelong-term competitiveness across the economic cycle. As a result of these actions the Company to further enhance competitiveness whilerecorded pretax restructuring charges of $541 million in the COVID-19 economic recovery gains traction. This program includesfirst quarter of 2023, additional pretax restructuring charges of $8 million in the second quarter of 2023, and a global workforce cost reduction$14 million net credit adjustment in the fourth quarter of approximately 6 percent and actions to rationalize the Company's manufacturing assets, which include asset write-down and write-off charges, related contract termination fees and environmental remediation costs ("2020 Restructuring Program").2023. These actions are expected to be substantially complete by the end of 2021.2024.
As a result of these actions, in the third quarter of 2020 the Company recorded pretax restructuring charges of $575 million, consisting of severance and related benefit costs of $297 million, asset write-downs and write-offs of $197 million and costs associated with exit and disposal activities of $81 million. The impact of these charges is shown as "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income. In the fourth quarter of 2020, the Company recorded net favorable pretax restructuring credits of $1 million related to asset write-downs and write-offs and $1 million related to costs associated with exit and disposal activities (related to Performance Materials & Coatings and Corporate). The adjustment to costs associated with exit and disposal activities included curtailment costs associated with a defined benefit pension plan. See Note 20 for additional information. The following table summarizes the activities related to the 20202023 Restructuring Program:Program, including segment information:
| | 2020 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
| 2023 Restructuring Program | | 2023 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Total |
| In millions | In millions | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total | In millions |
Packaging & Specialty Plastics | | Industrial Intermediates & Infrastructure | Industrial Intermediates & Infrastructure | 0 | | 22 | | 0 | | 22 | |
| Performance Materials & Coatings | Performance Materials & Coatings | 0 | | 116 | | 61 | | 177 | |
| Corporate | Corporate | 297 | | 47 | | 19 | | 363 | |
| Total restructuring charges | Total restructuring charges | $ | 297 | | $ | 196 | | $ | 80 | | $ | 573 | |
| Charges against the reserve | Charges against the reserve | 0 | | (196) | | (5) | | (201) | |
| Cash payments | Cash payments | (8) | | 0 | | 0 | | (8) | |
| Reserve balance at Dec 31, 2020 | $ | 289 | | $ | 0 | | $ | 75 | | $ | 364 | |
| Reserve balance at Dec 31, 2023 | |
At December 31, 2020, $2272023, $101 million of the reserve balance was included in "Accrued and other current liabilities" and $137$21 million was included in "Other noncurrent obligations" in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $535 million inception-to-date under the 2023 Restructuring Program, consisting of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million.
Severance and Related Benefit Costs
Severance benefits are provided to employees primarily under Dow's ongoing benefit arrangements and are accrued against the Corporate segment once management commits to a plan of termination. The 20202023 Restructuring Program included a charge for severance and related benefit costs of $297$344 million for a global workforce cost reduction of approximately 6 percent,2,000 employees. The majority of separations occurred by the end of the second quarter of 2023 with separationsthe remaining occurring primarily through the end of 2021, and impacting Corporate. At December 31, 2020, $8 million in severance payments had been made.2024.
Asset Write-downs and Write-offs
The 20202023 Restructuring Program included charges related to the write-down and write-off of assets totaling $196$191 million. Details regarding the asset write-downs and write-offs are as follows:
•PackagingIndustrial Intermediates & Specialty Plastics recorded a chargeInfrastructure charges relate to the shutdown of $11 millioncertain polyurethanes assets and the write-off of other assets. The majority of the impacted facilities are expected to rationalize its production capacity by shutting down a small-scale production unit. The production unit will be shut downshutdown by the end of the third quarter of 2022.2024.
•Industrial IntermediatesPerformance Materials & InfrastructureCoatings recorded a charge of $22 millioncharges to rationalize its asset footprint by shutting down certain amines and solventscoatings assets. These facilities in the United States and Europe as well as select, small-scale downstream polyurethanes manufacturing facilities. The facilities willare expected to be shut downshutdown by the end of 2021.
•Performance Materials & Coatings recorded a charge of $116 million to shut down manufacturing assets, primarily related to small-scale coatings reactors, and will also rationalize its upstream asset footprint in Europe and the U.S. & Canada by adjusting the supply of siloxane and silicon metal to balance to regional needs. The impacted facilities will be shut down by the end of 2021.2024.
•Corporate recorded a charge of $47 millioncharges related to the write-down of Company owned and leased, non-manufacturing facilities, and the write-down of miscellaneous assets.primarily related to office space rationalization.
Costs Associated with ExitRestructuring implementation costs, primarily decommissioning and Disposal Activities
The 2020 Restructuring Program included charges of $80 million for costs associated with exit and disposaldemolition activities which included $19 million for contract termination fees related to the asset actions listed above, impacting Performance Materials & Coatings ($9 million) and Corporate ($10 million), as well as $56 million for environmental remediation, impacting Performance Materials & Coatings ($52 million) and Corporate ($4 million) and $5 million related to curtailment costs associated with a defined benefit pension plan, impacting Corporate.
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont approved post-Merger restructuring actions under the DowDuPont Cost Synergy Program (the "Synergy Program") which was designed to integrate and optimize the organization following the Merger and in preparation for the business separations. The Company expected (prior to the impact of any discontinued operations) to record total pretax restructuring charges of approximately $1.3 billion, which included initial estimates of approximately $525 million to $575 million of severance and related benefit costs, $400 million to $440 million of asset write-downs and write-offs, and $290 million to $310 million of costs associated with exit and disposal activities. The restructuring charges below reflect charges from continuing operations. The impact of the charges are shown as "Restructuring, goodwill impairment and asset related charges ‑ net" in the consolidated statements of income.
The Company recorded pretax restructuring charges of $184 million in 2018, consisting of severance and related benefit costs of $137 million, asset write-downs and write-offs of $33 million and costs associated with exitthe Company's productivity and disposal activitiesefficiency actions, are expected to result in additional cash expenditures of $14 million.approximately $285 million, primarily through the end of 2024.
The Company recorded pretax restructuring charges of $292 million in 2019, consisting of severance and related benefit costs of $123 million, assets write-downs and write-offs of $143 million and costs associated with exit and disposal activities of $26 million.
For the year ended December 31, 2020, the Company recorded pretax restructuring charges of $86 million for severance and related benefit costs. Cash expenditures related to the Synergy Program were substantially complete at December 31, 2020.
The following table summarizes the activities related to the Synergy Program. At December 31, 2020, $21 million was included in "Accrued and other current liabilities" ($52 million at December 31, 2019) and $13 million ($19 million at December 31, 2019) was included in "Other noncurrent obligations" 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 |
| Reserve balance at Dec 31, 2017 | $ | 270 | | $ | 0 | | $ | 5 | | 275 |
| 2018 restructuring charges | | | | |
| Packaging & Specialty Plastics | $ | 0 | | $ | 10 | | $ | 3 | | $ | 13 | |
| Industrial Intermediates & Infrastructure | 0 | | 0 | | 11 | | 11 | |
| Performance Materials & Coatings | 0 | | 7 | | 0 | | 7 | |
| Corporate | 137 | | 16 | | 0 | | 153 | |
| Total 2018 restructuring charges | $ | 137 | | $ | 33 | | $ | 14 | | $ | 184 | |
| Charges against the reserve | 0 | | (33) | | 0 | | (33) | |
| Cash payments | (197) | | 0 | | (12) | | (209) | |
| Reserve balance at Dec 31, 2018 | $ | 210 | | $ | 0 | | $ | 7 | | $ | 217 | |
| 2019 restructuring charges | | | | |
| Packaging & Specialty Plastics | $ | 0 | | $ | 0 | | $ | 1 | | $ | 1 | |
| Industrial Intermediates & Infrastructure | 0 | | 2 | | 5 | | 7 | |
| Performance Materials & Coatings | 0 | | 28 | | 0 | | 28 | |
| Corporate | 123 | | 113 | | 20 | | 256 | |
| Total 2019 restructuring charges | $ | 123 | | $ | 143 | | $ | 26 | | $ | 292 | |
| Charges against the reserve | 0 | | (143) | | 0 | | (143) | |
| Cash payments | (279) | | 0 | | (16) | | (295) | |
| Reserve balance at Dec 31, 2019 | $ | 54 | | $ | 0 | | $ | 17 | | $ | 71 | |
| 2020 restructuring charges | | | | |
| | | | |
| | | | |
| | | | |
| Corporate | 90 | | 0 | | 0 | | 90 | |
| Total 2020 restructuring charges | $ | 90 | | $ | 0 | | $ | 0 | | $ | 90 | |
| Charges against the reserve | (4) | | 0 | | 0 | | (4) | |
| Cash payments | (121) | | 0 | | (2) | | (123) | |
| Reserve balance at Dec 31, 2020 | $ | 19 | | $ | 0 | | $ | 15 | | $ | 34 | |
The Company recorded pretax restructuring charges of $961 million inception-to-date under the Synergy Program on a continuing operations basis, consisting of severance and related benefit costs of $653 million, asset write-downs and write-offs of $263 million and costs associated with exit and disposal activities of $45 million.
Asset Write-downs and Write-offs
The restructuring charges related to the write-down and write-off of assets in 2018 under the Synergy Program were as follows:
•The Company recorded a charge of $33 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of leased, non-manufacturing assets and certain corporate facilities. The charge related to Packaging & Specialty Plastics ($10 million), Performance Materials & Coatings ($7 million) and Corporate ($16 million). These manufacturing facilities were shut down by the end of 2019.
The restructuring charges related to the write-down and write-off of assets in 2019 under the Synergy Program were as follows:
•The Company recorded a charge of $143 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets and certain corporate facilities. The charge related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million). These manufacturing facilities were substantially shut down by the end of 2020.
There were no restructuring charges related to the write-down and write-off of assets in 2020 under the Synergy Program.
Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation liabilities, totaled $14 million in 2018, $26 million in 2019 and 0 in 2020.
The Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities and restructuring implementation costs. These costs will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
2019 Goodwill Impairment
Upon completion of the goodwill impairment testing in the fourth quarter of 2019, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount. As a result, the Company recorded an impairment charge of $1,039 million in the fourth quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings. See Note 13 for additional information.
Asset Related Charges
2020 ChargesIn 2023, the Company recorded pretax asset related credits of $7 million in Corporate related to a prior restructuring program.
In 2020,2022, the Company recognizedrecorded pretax impairmentasset related charges of $49$118 million including additional pretax impairmentdue to the Russia and Ukraine conflict and the expectation that certain assets would not be recoverable. These charges for capital additions made to a bio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil ("Santa Vitoria"), which was impaired in 2017 and divested in 2020, as well as charges for miscellaneous write-offs and write-downs of non-manufacturing assets andincluded the write-down of certain corporate leased equipment. Theinventory, the recording of bad debt reserves and the impairment charges were included in “Restructuring, goodwill impairment and assetof other assets. Asset related charges - net”by segment in the consolidated statements of income and related to2022 were as follows: $8 million in Packaging & Specialty Plastics, ($19 million),$73 million in Industrial Intermediates & Infrastructure, $6 million in Performance Materials & Coatings ($15 million) and Corporate ($15 million). See Note 23 for additional information.
2019 Charges
On August 13, 2019, the Company entered into a definitive agreement to sell its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land, utilities and certain railcars. The Company remains at the Institute site as a tenant. As a result of the planned transaction, the Company recognized a pretax impairment charge of $75$31 million in the third quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million). See Note 23 for additional information.Corporate.
NOTE 5 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | |
| Dow Inc. Sundry Income (Expense) – Net | 2023 | 2022 | 2021 | |
| In millions | | | |
Non-operating pension and other postretirement benefit plan net (cost) credits 1 | $ | (264) | | $ | 358 | | $ | 332 | | | | |
Foreign exchange losses 2 | (340) | | (117) | | (8) | | | | |
Gain on sales of other assets and investments 3 | 80 | | 78 | | 105 | | | | |
Asset impairments and related costs 4 | (18) | | — | | — | | | | |
Gain (loss) on early extinguishment of debt 5 | 5 | | (8) | | (574) | | | | |
Indemnification and other transaction related costs 6 | 26 | | 4 | | 30 | | | | |
Gain related to Nova legal matter 7 | 106 | | 321 | | — | | | | |
| Dow Silicones breast implant liability adjustment | — | | 60 | | — | | | | |
Luxi arbitration award 7 | — | | — | | 54 | | | | |
Gain on divestitures and asset sale 8 | — | | — | | 16 | | | | |
| Other - net | 125 | | 31 | | 10 | | | | |
| Total sundry income (expense) – net | $ | (280) | | $ | 727 | | $ | (35) | | | | |
1.The year ended December 31, 2023, includes pretax pension settlement charges of $642 million related to the transfer of certain plan benefit obligations to insurance companies. See Note 18 for additional information about the Company's pension and other postretirement plans, including pension settlement charges.
2.Foreign exchange losses in 2023 relate primarily to exposures in the Argentine peso, including $109 million related to the devaluation of the Argentine peso by the Argentina government in December 2023. Foreign exchange losses in 2022relate primarily to exposures in the Argentine peso.
3.The year ended December 31, 2023, includes gains associated with the sale of shares of a previously impaired equity method investment.
4.Certain obligations associated with a previously impaired equity method investment.
5.See Note 13 for additional information.
6.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution.
7.See Note 14 for additional information.
8.The year ended December 31, 2021, includes post-closing adjustments on a previous divestiture, related to Packaging & Specialty Plastics.
Sundry income (expense) - net for TDCC for the years ended December 31, 2023, 2022 and 2021, is substantially the same as that of Dow Inc., with the primary difference related to indemnification and other transaction related costs recorded on Dow Inc. Therefore, TDCC sundry income (expense) - net is not disclosed separately.
Other Investments
The Company has investments in company-owned life insurance policies ("COLI"), which are recorded at their cash surrender value as of each balance sheet date, as provided below:
| | | | | | | | |
| Investments in Company-Owned Life Insurance | Dec 31, 2023 | Dec 31, 2022 |
| In millions |
| Gross cash value | $ | 623 | | $ | 708 | |
Less: Existing drawdowns 1 | 97 | | — | |
Investments in company-owned life insurance 2 | $ | 526 | | $ | 708 | |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2023, the Company had monetized $97 million of its existing COLI policies' value (zero at December 31, 2022).
InSupplier Finance Program
The Company facilitates a supply chain financing (“SCF”) program in the fourth quarterordinary course of 2019, upon completionbusiness in order to extend payment terms with vendors. Under the terms of this program, a vendor can voluntarily enter into an evaluation ofagreement with a participating financial intermediary to sell its equity method investment in Sadara Chemical Company ("Sadara") for other-than-temporary impairment,receivables due from the Company. The vendor receives payment from the financial intermediary, and the Company determined that its investment in Sadara was other-than-temporarily impairedpays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and it was written down to zero. Additionally, as part of Dow's evaluation of Sadara, the Company reserved certain of its notesis not a party to that agreement. The financial intermediary may allow the participating vendor to utilize the Company’s creditworthiness in establishing credit spreads and accounts receivableassociated costs, which may provide the vendor with Sadara duemore favorable terms than they would be able to uncertaintysecure on the timing of collection. As a result, thetheir own. The Company recorded a $1,755 million chargedoes not provide guarantees related to Sadara,the SCF program. At December 31, 2023, outstanding obligations confirmed as valid under the SCF program were $285 million ($267 million at December 31, 2022), included in “Restructuring, goodwill impairment and asset related charges - net"“Accounts payable – Trade” 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 12 and 23 for additional information.
In 2019, the Company recognized additional pretax impairment charges of $58 million related primarily to capital additions at Santa Vitoria. The impairment charges were included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($44 million), Performance Materials & Coatings ($9 million) and Corporate ($5 million). See Note 23 for additional information.
2018 Charges
In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions at Santa Vitoria. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note 23 for additional information.
NOTE 7 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | | | | | | | |
Sundry Income (Expense) – Net 1 | Dow Inc. | TDCC |
| In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
Non-operating pension and other postretirement benefit plan net credits 2 | $ | 103 | | $ | 205 | | $ | 123 | | $ | 103 | | $ | 205 | | $ | 123 | |
| Foreign exchange gains (losses) | (62) | | 91 | | (119) | | (65) | | 77 | | (119) | |
Gain on divestiture of marine and terminal operations and assets 3 | 233 | | 0 | | 0 | | 233 | | 0 | | 0 | |
Gain on divestiture of rail infrastructure operations and assets 3 | 499 | | 0 | | 0 | | 499 | | 0 | | 0 | |
Loss on early extinguishment of debt 4 | (149) | | (102) | | (54) | | (149) | | (102) | | (54) | |
Gain (loss) on divestitures and asset sale 5 | (15) | | (49) | | 0 | | (15) | | 2 | | 0 | |
Gain related to Nova ethylene asset matter 6 | 544 | | 170 | | 0 | | 544 | | 170 | | 0 | |
| Gain on sales of other assets and investments | 48 | | 67 | | 18 | | 48 | | 67 | | 18 | |
Dow Silicones breast implant liability adjustment 6 | 5 | | 85 | | 0 | | 5 | | 85 | | 0 | |
Indemnification and other transaction related credits (costs) 7 | (21) | | (69) | | 0 | | (11) | | 6 | | 0 | |
Loss on Dow Silicones commercial creditor matters 6 | 0 | | (50) | | 0 | | 0 | | (50) | | 0 | |
| Post-closing adjustments related to Dow Silicones ownership restructure | 0 | | 0 | | (20) | | 0 | | 0 | | (20) | |
| Post-closing adjustments on divestiture of MEGlobal | 0 | | 0 | | 20 | | 0 | | 0 | | 20 | |
| Other - net | 84 | | 113 | | 128 | | 82 | | 113 | | 128 | |
| Total sundry income (expense) – net | $ | 1,269 | | $ | 461 | | $ | 96 | | $ | 1,274 | | $ | 573 | | $ | 96 | |
1.Prior period amounts were updated to conform withThe following table summarizes the current year presentation.
2.See Note 20outstanding obligations confirmed as valid under the SCF program for additional information.
3.See Note 5 for additional information.
4.See Note 15 for additional information.
5.Thethe year ended December 31, 2020 primarily relates to a loss on the divestiture of a bio-ethanol manufacturing facility in Brazil, related to Packaging & Specialty Plastics. The year ended December 31, 2019 includes post-closing adjustments on previous divestitures, related to Corporate.
6.See Note 16 for additional information.
7.See Note 3 for additional information.2023:
Table of Contents | | | | | | |
| Supplier Finance Program Activity | 2023 | |
| In millions |
| Confirmed obligations outstanding at Jan 1 | $ | 267 | | |
| Invoices confirmed to financial intermediary | 1,308 | | |
| Confirmed invoices paid to financial intermediary | (1,290) | | |
| Confirmed obligations outstanding at Dec 31 | $ | 285 | | |
Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $3,790$2,704 million and $3,256$2,575 million at December 31, 20202023 and $2,762$2,770 million and $2,233$2,613 million at December 31, 2019,2022, for Dow Inc. and TDCC, 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 $866$714 million at December 31, 20202023 and $284$650 million at December 31, 2019.2022. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.
Other Investments
The Company has investments in company-owned life insurance policies ("COLI"), which are recorded at their cash surrender value as of each balance sheet date, as provided below:
| | | | | | | | |
| Investments in Company-Owned Life Insurance | Dec 31, 2020 | Dec 31, 2019 |
| In millions |
| Gross cash value | $ | 807 | | $ | 820 | |
Less: Existing drawdowns 1 | 0 | | 85 | |
Investments in company-owned life insurance 2 | $ | 807 | | $ | 735 | |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2019, the Company had monetized $85 million of its existing COLI policies' value. In the first nine months of 2020, the Company monetized an additional $211 million. In the fourth quarter of 2020, the Company repaid all existing drawdowns against the cash surrender value, which resulted in no monetization of its existing COLI policies' value at December 31, 2020. The repayment was reflected in "Purchases of investments" in the consolidated statements of cash flows.
Supplemental Cash Flow Information
The following table shows cash paid for interest and income taxes for the years ended December 31, 2020, 20192023, 2022 and 2018:2021:
| | Supplemental Cash Flow Information | Supplemental Cash Flow Information | 2020 | 2019 | 2018 | Supplemental Cash Flow Information | 2023 | 2022 | 2021 |
| In millions | In millions | In millions |
| Cash paid during year for: | Cash paid during year for: | | |
| Interest | Interest | $ | 842 | | $ | 993 | | $ | 1,143 | |
| Interest | |
| Interest | |
| Income taxes | Income taxes | $ | 518 | | $ | 881 | | $ | 1,193 | |
NOTE 86 – INCOME TAXES
The financial statements for Dow Inc. and TDCC are substantially similar, including the reporting of current and deferred tax expense (benefit), provision for income taxes, on continuing operations, and deferred tax asset and liability balances. As a result, the following income tax discussion pertains to Dow Inc. only.
| | Geographic Allocation of Income and Provision for Income Taxes on Continuing Operations | | |
| Geographic Allocation of Income and Provision (Credit) for Income Taxes | |
| In millions | In millions | 2020 | 2019 | 2018 |
| Income (loss) from continuing operations before income taxes | | |
Domestic 1 | $ | (681) | | $ | (1,196) | | $ | 745 | |
Foreign 2 | 2,752 | | (51) | | 3,004 | |
| Income (loss) from continuing operations before income taxes | $ | 2,071 | | $ | (1,247) | | $ | 3,749 | |
| In millions | |
| In millions | | 2023 | 2022 | 2021 |
| Income (loss) before income taxes | |
| Domestic | |
| Domestic | |
| Domestic | |
| Foreign | |
| Income before income taxes | |
| Current tax expense (benefit) | Current tax expense (benefit) | | |
| Federal | |
| Federal | |
| Federal | Federal | $ | (176) | | $ | (287) | | $ | 324 | |
| State and local | State and local | 4 | | 25 | | 13 | |
| Foreign | Foreign | 691 | | 960 | | 901 | |
| Total current tax expense | Total current tax expense | $ | 519 | | $ | 698 | | $ | 1,238 | |
| Deferred tax expense (benefit) | Deferred tax expense (benefit) | | |
Federal 3 | $ | 184 | | $ | 52 | | $ | (318) | |
| Federal | |
| Federal | |
| Federal | |
| State and local | State and local | 19 | | 19 | | (32) | |
| Foreign | Foreign | 55 | | (299) | | (79) | |
| Total deferred tax expense (benefit) | Total deferred tax expense (benefit) | $ | 258 | | $ | (228) | | $ | (429) | |
| Provision for income taxes on continuing operations | $ | 777 | | $ | 470 | | $ | 809 | |
| Income (loss) from continuing operations, net of tax | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | |
| Provision (credit) for income taxes | |
| Net income | |
| | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2023 | 2022 | 2021 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| Equity earnings effect | 4.2 | | (1.2) | | (2.2) | |
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | 8.3 | | (1.4) | | (1.3) | |
| U.S. tax effect of foreign earnings and dividends | (13.0) | | 1.2 | | 1.7 | |
| Unrecognized tax benefits | 33.1 | | 1.3 | | 4.7 | |
| | | |
| Changes in valuation allowances | 18.8 | | (2.8) | | 2.6 | |
| Federal tax accrual adjustment | (21.2) | | 0.6 | | (5.3) | |
| State and local income taxes | 3.0 | | 2.8 | | 0.2 | |
| | | |
Change in tax basis in foreign assets 1 | (56.0) | | — | | — | |
| | | |
| Other - net | 1.2 | | 2.3 | | — | |
| Effective tax rate | (0.6) | % | 23.8 | % | 21.4 | % |
1.The 2019 amount includes approximately $1.4 billion of expense related to goodwill impairment and environmental matters. See Notes 13 and 16 for additional information.
2.The 2019 amount includes approximately $1.8 billion of expense for Sadara related charges. See Note 12 for additional information.
3.The 2018 amount reflects2023 impact primarily represents the tax impact of the Tax Cuts and Jobs Act which accelerated the utilization of tax credits and required remeasurement of all U.S. deferred tax assets and liabilities.
| | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2020 | 2019 | 2018 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| Equity earnings effect | 0.2 | | (3.2) | | (3.3) | |
Foreign income taxed at rates other than the statutory U.S. federal income tax rate 1 | 1.7 | | (14.8) | | 6.7 | |
| U.S. tax effect of foreign earnings and dividends | 3.9 | | 1.9 | | (0.7) | |
| Unrecognized tax benefits | 3.3 | | 1.0 | | 0.2 | |
Divestitures 2 | (5.1) | | 0 | | 0.8 | |
| Changes in valuation allowances | 12.6 | | 0 | | 0 | |
Impact of tax reform 3 | 0 | | 11.1 | | (3.4) | |
Federal tax accrual adjustment 4 | 0 | | 10.4 | | 0 | |
| State and local income taxes | 0.3 | | (4.4) | | 0.4 | |
Sadara related charges 5 | 0 | | (29.5) | | 0 | |
Goodwill impairment 6 | 0 | | (17.5) | | 0 | |
| | | |
| Other - net | (0.4) | | (13.7) | | (0.1) | |
| Effective tax rate | 37.5 | % | (37.7) | % | 21.6 | % |
1.Includes the impact of valuation allowances and interest and penalties associated with uncertain tax positions in foreign jurisdictions. The 2020 impact from interest and penalties increased the effective tax rate by approximately 4 percent.
2.The 2020 impact relates to the divestiture of a bio-ethanol manufacturing facility in Brazil. See Note 6 for additional information.
3.Includes the impact of tax reform in Switzerland and the United States.
4.Primarily related to the favorable impact of the restorationinitial recognition of tax basis in intangible assets driven by a court judgment that did not involvein foreign jurisdictions and the Company.
5.See Note 12 for additional information.
6.See Note 13 for additional information.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. While the CARES Act has had no significant impact on the Company's provision for income taxes on continuing operations in 2020, the Company filed a tax loss carryback claim for $291 million in accordance with the provisions of the CARES Act. This resulted in an increase in "Accounts and notes receivable - other" and a decrease in "Deferred income tax assets" in the consolidated balance sheets. | | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2023 | 2022 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | 404 | | $ | 2,663 | | $ | 505 | | $ | 3,001 | |
| Tax loss and credit carryforwards | 1,754 | | — | | 1,472 | | — | |
| Postretirement benefit obligations | 983 | | 196 | | 749 | | 239 | |
| Other accruals and reserves | 1,923 | | 521 | | 1,497 | | 279 | |
Intangibles 1 | 2,090 | | 331 | | 36 | | 415 | |
| Inventory | 114 | | 272 | | 129 | | 278 | |
| | | | |
| Investments | 166 | | 34 | | 116 | | 41 | |
| | | | |
| Other – net | 733 | | 115 | | 999 | | 131 | |
| Subtotal | $ | 8,167 | | $ | 4,132 | | $ | 5,503 | | $ | 4,384 | |
Valuation allowances 1 | (2,948) | | — | | (1,269) | | — | |
| Total | $ | 5,219 | | $ | 4,132 | | $ | 4,234 | | $ | 4,384 | |
InThe change in 2023 primarily represents the fourth quarterinitial recognition of 2020, a valuation allowance of $260 million was recordedtax basis in the United States, primarily due to filing of the final combined Dow and DuPont tax return and related unutilizedintangible assets in foreign tax credits. The Company projects it is more likely than not that a portion of these foreign tax credits and other tax attributes will remain unutilized prior to their expiration.
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. While the Company made a reasonable estimate of the effects of The Act on its deferred tax balancesjurisdictions and the one-time transition tax at December 31, 2017, in accordance with Staff Accounting Bulletin 118, the income tax effects of The Act were refined upon obtaining, preparing and analyzing additional information during the measurement period as follows:
•In 2018, the Company completed the remeasurement of its U.S. federal deferred tax assets and liabilities based on rates at which they are expected to reverse in the future, which is generally 21 percent, and recorded a benefit of $79 million to “Provision for income taxes on continuing operations” in the consolidated statements of income with respect to the remeasurement of the Company's deferred tax balances.
•The Company adjusted the impact of the mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits, which resulted in a one-time transition tax, and recorded a benefit in 2018 of $85 million to "Provision for income taxes on continuing operations" in the consolidated statements of income with respect to the one-time transition tax. The Company had sufficient tax credits to offset the tax liability associated with the one-time transition tax.
•In 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to inventory was a charge of $38 million to "Provision for income taxes on continuing operations" in the consolidated statements of income.valuation allowance.
| | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2020 | 2019 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | 499 | | $ | 3,388 | | $ | 494 | | $ | 3,177 | |
| Tax loss and credit carryforwards | 2,004 | | — | | 1,920 | | — | |
| Postretirement benefit obligations | 2,712 | | 250 | | 2,432 | | 210 | |
| Other accruals and reserves | 1,507 | | 43 | | 1,678 | | 43 | |
| Intangibles | 124 | | 638 | | 120 | | 688 | |
| Inventory | 30 | | 198 | | 28 | | 234 | |
| | | | |
| Investments | 142 | | 51 | | 125 | | 48 | |
| | | | |
| Other – net | 858 | | 196 | | 851 | | 120 | |
| Subtotal | $ | 7,876 | | $ | 4,764 | | $ | 7,648 | | $ | 4,520 | |
| Valuation allowances | (1,302) | | — | | (1,262) | | — | |
| Total | $ | 6,574 | | $ | 4,764 | | $ | 6,386 | | $ | 4,520 | |
| | Operating Loss and Tax Credit Carryforwards at Dec 31 | Operating Loss and Tax Credit Carryforwards at Dec 31 | 2020 | 2019 | Operating Loss and Tax Credit Carryforwards at Dec 31 | 2023 | 2022 |
| In millions | In millions | Assets | Assets | In millions | Assets | Assets |
| Operating loss carryforwards | Operating loss carryforwards | | |
| Expire within 5 years | Expire within 5 years | $ | 274 | | $ | 263 | |
| Expire within 5 years | |
| Expire within 5 years | |
| Expire after 5 years or indefinite expiration | Expire after 5 years or indefinite expiration | 1,031 | | 1,133 | |
| Total operating loss carryforwards | Total operating loss carryforwards | $ | 1,305 | | $ | 1,396 | |
| Tax credit carryforwards | Tax credit carryforwards | | |
| Expire within 5 years | Expire within 5 years | $ | 434 | | $ | 32 | |
| Expire within 5 years | |
| Expire within 5 years | |
| Expire after 5 years or indefinite expiration | Expire after 5 years or indefinite expiration | 265 | | 492 | |
| Total tax credit carryforwards | Total tax credit carryforwards | $ | 699 | | $ | 524 | |
| Total operating loss and tax credit carryforwards | $ | 2,004 | | $ | 1,920 | |
| Capital loss carryforwards | |
| Expire within 5 years | |
| Expire within 5 years | |
| Expire within 5 years | |
| Total tax loss and tax credit carryforwards | |
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,401$7,148 million at December 31, 20202023 and $6,851$6,013 million at December 31, 2019.2022. Undistributed earnings are 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 | Total Gross Unrecognized Tax Benefits | | |
| In millions | |
| In millions | |
| In millions | In millions | 2020 | 2019 | 2018 | 2023 | 2022 | 2021 |
| Total unrecognized tax benefits at Jan 1 | Total unrecognized tax benefits at Jan 1 | $ | 319 | | $ | 314 | | $ | 255 | |
| Decreases related to positions taken on items from prior years | Decreases related to positions taken on items from prior years | (1) | | (1) | | (8) | |
| Increases related to positions taken on items from prior years | Increases related to positions taken on items from prior years | 52 | | 16 | | 68 | |
| Increases related to positions taken in the current year | Increases related to positions taken in the current year | 18 | | 10 | | 2 | |
| Settlement of uncertain tax positions with tax authorities | Settlement of uncertain tax positions with tax authorities | (14) | | (19) | | 0 | |
| Decreases due to expiration of statutes of limitations | Decreases due to expiration of statutes of limitations | (1) | | 0 | | (1) | |
| Foreign exchange gain | 0 | | (1) | | (2) | |
| Foreign exchange loss (gain) | |
| Total unrecognized tax benefits at Dec 31 | Total unrecognized tax benefits at Dec 31 | $ | 373 | | $ | 319 | | $ | 314 | |
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 285 | | $ | 234 | | $ | 235 | |
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes on continuing operations" | $ | 84 | | $ | (11) | | $ | (12) | |
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes" | |
| Total accrual for interest and penalties recognized in the consolidated balance sheets | Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 144 | | $ | 100 | | $ | 109 | |
Prior to the separation, TDCC and its consolidated subsidiaries were included in DowDuPont's consolidated federal income tax group and consolidated tax return. Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year was apportioned among the members of the consolidated group based on each member’s separate taxable income. TDCC and DuPont intend that, to the extent federal and/or state corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax sharing agreement and/or tax matters agreement. At December 31, 2020, the Company had a receivable of $261 million related to the tax sharing agreement, which is included in "Other current assets" in the consolidated balance sheets ($312 million included in "Noncurrent receivables" at December 31, 2019).
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, 2020 | Earliest Open Year |
Jurisdiction |
Argentina | 2014 |
Brazil | 2015 |
Canada | 2012 |
China | 2010 |
Germany | 2014 |
Italy | 2016 |
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 for taxes in foreign locations was $33 million at December 31, 2020 ($44 million at December 31, 2019). This is management’s best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions’ tax court systems. It is the opinion of the Company’s management that the possibility is remote that costs in excess of those accrued will have a material impact on the Company’s consolidated financial statements.jurisdictions.
NOTE 97 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2020, 2019,2023, 2022 and 2018.2021. In accordance with the accounting guidance for earnings per share, earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.
| | | | | | | | | | | |
| Net Income (Loss) for Earnings Per Share Calculations | 2020 | 2019 | 2018 |
| In millions |
| Income (loss) from continuing operations, net of tax | $ | 1,294 | | $ | (1,717) | | $ | 2,940 | |
| Net income attributable to noncontrolling interests - continuing operations | (69) | | (74) | | (102) | |
| | | |
Net income attributable to participating securities - continuing operations 1 | (9) | | (6) | | 0 | |
| Income (loss) from continuing operations attributable to common stockholders | $ | 1,216 | | $ | (1,797) | | $ | 2,838 | |
| Income from discontinued operations, net of tax | $ | 0 | | $ | 445 | | $ | 1,835 | |
| Net income attributable to noncontrolling interests - discontinued operations | 0 | | (13) | | (32) | |
| | | |
| Income from discontinued operations attributable to common stockholders | $ | 0 | | $ | 432 | | $ | 1,803 | |
| Net income (loss) attributable to common stockholders | $ | 1,216 | | $ | (1,365) | | $ | 4,641 | |
| | | | | | | | | | | |
| Earnings (Loss) Per Share Calculations - Basic | 2020 | 2019 | 2018 |
| Dollars per share |
| Income (loss) from continuing operations attributable to common stockholders | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
| Income from discontinued operations, net of tax | 0 | | 0.58 | | 2.41 | |
| Net income (loss) attributable to common stockholders | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| | | | | | | | | | | |
| Earnings (Loss) Per Share Calculations - Diluted | 2020 | 2019 | 2018 |
| Dollars per share |
| Income (loss) from continuing operations attributable to common stockholders | $ | 1.64 | | $ | (2.42) | | $ | 3.80 | |
| Income from discontinued operations, net of tax | 0 | | 0.58 | | 2.41 | |
| Net income (loss) attributable to common stockholders | $ | 1.64 | | $ | (1.84) | | $ | 6.21 | |
| | | | | | | | | | | |
| Share Count Information | 2020 | 2019 | 2018 |
| Shares in millions |
Weighted-average common shares outstanding - basic 2 | 740.5 | | 742.5 | | 747.2 | |
Plus dilutive effect of equity compensation plans 3 | 1.8 | | 0 | | 0 | |
Weighted-average common shares outstanding - diluted 2, 3 | 742.3 | | 742.5 | | 747.2 | |
Stock options and restricted stock units excluded from EPS calculations 4 | 14.2 | | 20.8 | | 0 | |
| | | | | | | | | | | |
| Net Income for Earnings Per Share Calculations | 2023 | 2022 | 2021 |
| In millions |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
Net income attributable to participating securities 1 | 11 | | 24 | | 32 | |
| Net income attributable to common stockholders | $ | 578 | | $ | 4,558 | | $ | 6,279 | |
1.Restricted stock units are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
2.
| | | | | | | | | | | |
| Earnings Per Share - Basic and Diluted | 2023 | 2022 | 2021 |
| Dollars per share |
| Earnings per common share - basic | $ | 0.82 | | $ | 6.32 | | $ | 8.44 | |
| Earnings per common share - diluted | $ | 0.82 | | $ | 6.28 | | $ | 8.38 | |
Share amounts for the year ended December 31, 2018 were based on 2,246.3 million DowDuPont common shares outstanding as
3.
The year ended December 31, 2019 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis.
| | | | | | | | | | | |
| Share Count Information | 2023 | 2022 | 2021 |
| Shares in millions |
| Weighted-average common shares outstanding - basic | 705.7 | | 721.0 | | 743.6 | |
| Plus dilutive effect of equity compensation plans | 3.3 | | 4.6 | | 5.4 | |
| Weighted-average common shares outstanding - diluted | 709.0 | | 725.6 | | 749.0 | |
Stock options and restricted stock units excluded from EPS calculations 1 | 9.6 | | 7.6 | | 5.8 | |
4.1.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. For the year ended
NOTE 8 – INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2023 | 2022 |
| Finished goods | $ | 3,413 | | $ | 4,150 | |
| Work in process | 1,234 | | 1,476 | |
| Raw materials | 746 | | 954 | |
| Supplies | 992 | | 892 | |
| Total | $ | 6,385 | | $ | 7,472 | |
| Adjustment of inventories to the LIFO basis | (309) | | (484) | |
| Total inventories | $ | 6,076 | | $ | 6,988 | |
At December 31, 2018,2023, approximately 29 percent, 60 percent and 11 percent of the Company did not engage in activities giving rise to dilution.Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2022, approximately 27 percent, 64 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.
NOTE 9 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful
Lives (Years) | 2023 | 2022 |
| In millions |
| Land and land improvements | 0-25 | $ | 2,218 | | $ | 2,129 | |
| Buildings | 5-50 | 5,216 | | 5,045 | |
| Machinery and equipment | 3-25 | 43,343 | | 42,131 | |
| Other property | 3-50 | 6,865 | | 6,622 | |
| Construction in progress | — | | 2,561 | | 2,128 | |
| Total property | | $ | 60,203 | | $ | 58,055 | |
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Depreciation expense | $ | 1,932 | | $ | 1,958 | | $ | 2,063 | |
| Capitalized interest | $ | 88 | | $ | 63 | | $ | 59 | |
NOTE 10 – INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2020 | 2019 |
| Finished goods | $ | 3,140 | | $ | 3,505 | |
| Work in process | 996 | | 1,122 | |
| Raw materials | 598 | | 628 | |
| Supplies | 933 | | 845 | |
| Total | $ | 5,667 | | $ | 6,100 | |
| Adjustment of inventories to the LIFO basis | 34 | | 114 | |
| Total inventories | $ | 5,701 | | $ | 6,214 | |
Inventories valued on the LIFO basis represented 30 percent of the total inventories at December 31, 2020 and 32 percent of the total inventories at December 31, 2019.
NOTE 11 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful
Lives (Years) | 2020 | 2019 |
| In millions |
| Land and land improvements | 0-25 | $ | 2,011 | | $ | 2,177 | |
| Buildings | 5-50 | 4,976 | | 4,742 | |
| Machinery and equipment | 3-25 | 42,108 | | 40,651 | |
| Other property | 3-50 | 5,626 | | 5,354 | |
Construction in progress 1 | — | | 1,604 | | 1,986 | |
| Total property | | $ | 56,325 | | $ | 54,910 | |
1.The decrease is primarily related to the Company proactively reducing capital spending in 2020 to focus on cash and maintaining financial strength during the COVID-19 pandemic.
| | | | | | | | | | | |
| In millions | 2020 | 2019 | 2018 |
| Depreciation expense | $ | 2,092 | | $ | 2,156 | | $ | 2,174 | |
| Capitalized interest | $ | 64 | | $ | 80 | | $ | 88 | |
NOTE 12 – 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 | Investments in Nonconsolidated Affiliates at Dec 31 | 2020 1 | 2019 1 | Investments in Nonconsolidated Affiliates at Dec 31 | 2023 1 | 2022 1 |
| In millions | In millions | In millions |
| Investment in nonconsolidated affiliates | Investment in nonconsolidated affiliates | $ | 1,327 | | $ | 1,404 | |
| Other noncurrent obligations | Other noncurrent obligations | (169) | | (80) | |
| Net investment in nonconsolidated affiliates | Net investment in nonconsolidated affiliates | $ | 1,158 | | $ | 1,324 | |
1.The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2020,2023 and 2022, was $55 million less than its share of the investees’ net assets, ($51 million less at December 31, 2019), exclusive of additional differences relating to Sadara, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.
| | Dividends Received from Nonconsolidated Affiliates | Dividends Received from Nonconsolidated Affiliates | 2020 | 2019 | 2018 | Dividends Received from Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions | In millions | In millions |
| Dividends from nonconsolidated affiliates | $ | 425 | | $ | 1,020 | | $ | 663 | |
Dividends from nonconsolidated affiliates 1 | |
1.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
Except for AFSI, theThe 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.
The Company’s investment in Sadara was $1,618$1,387 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara at December 31, 20202023 ($1,7051,464 million less at December 31, 2019)2022). This basis difference, which resulted from the 2019 impairment of the investment, is primarily attributed to the long-lived assets of Sadara and is being amortized over the remaining useful lives of the assets. At December 31, 2020,2023, the Company had a negative investment balance in Sadara of $22$128 million (0classified as "Other noncurrent obligations" ($322 million at December 31, 2019) classified as “Other noncurrent obligations”2022 included in “Investment in nonconsolidated affiliates”) in the Company’s consolidated balance sheets, related to the Company’s share of Sadara’s AOCL in 2020 offset by the basis difference amortization. The Company expects to continue to recognize its share of potential future losses reported by Sadara.sheets. See Note 1614 for additional information related to guarantees.
In 2019, the Company recorded impairment charges related to its investment in Sadara. The joint venture achieved full commercial operations of all its facilities in 2017. In December 2018, the joint venture successfully completed its Creditors Reliability Test, an extensive operational testing program designed to demonstrate the reliability of the joint venture’s full chemical complex by operating at high rates for an extended period of time. While Sadara had reached these operational milestones and had been generating positive EBITDA (a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization), the joint venture had 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 23 for additional information on the fair value measurement). The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around prospects for recovery in Sadara’s financial condition. In addition, the Company reserved certain accounts and notes receivable and accrued interest balances associated with Sadara due to uncertainty around the timing of collection. In total, the Company recorded a $1,755 million pretax charge in the fourth quarter of 2019 related to Sadara, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million).
In 2020, the Company loaned $333 million to Sadara that was accounted for as in substance common stock and classified as "Investment in nonconsolidated affiliates" in the Company's consolidated balance sheets. The Company loaned $473 million to Sadara and converted $380 million of the notes and accounts receivable into equity during 2019. In 2018, the Company converted $382 million of outstanding notes and accounts receivable with Sadara into equity, primarily due to a shareholder loan reduction agreement with Sadara. At December 31, 2020 and 2019, the Company's note receivable with Sadara was 0.
EQUATE
TheAt December 31, 2023, the Company had a negative investment balance in EQUATE of $147$101 million classified as "Other noncurrent obligations" ($144 million at December 31, 2020 (negative $80 million at December 31, 2019), classified as "Other noncurrent obligations"2022) in the consolidated balance sheets. The Company's investment in EQUATE was $475$432 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 20202023 ($489447 million less at December 31, 2019)2022), 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 $155$111 million at December 31, 20202023 ($169126 million at December 31, 2019)2022), is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At DecemberMarch 31, 2020,2023, the Company's previously impaired investment in AFSI was converted to cash upon completion of the AFSI shareholder-approved go-private transaction. The Company had an investment balance in AFSI of 0 ($35 millionzero at December 31, 2019), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets.2023 and 2022. At December 31, 2020,2022, the Company's investment in AFSI was $108$72 million less than the Company's proportionate share of AFSI's underlying net assets ($102 million less at December 31, 2019). This amount primarily relates to an other-than-temporary decline in the Company's investment in AFSI.assets. At December 31, 2020,2023, the Company held a 40no ownership interest in AFSI (40 percent ownership interest in AFSI (41 percent at December 31, 2019)2022).
Transactions with Nonconsolidated Affiliates
The Company has service agreements with certain nonconsolidated affiliates, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase, lease and sublease agreements.
The Company sells excess ethylene glycol produced at manufacturing facilities in the United States and Europe to MEGlobal, a subsidiary of EQUATE. The Company also sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in Canada. Sales of these products to MEGlobal represented 1 percent of total net sales in 2020, 20192023, 2022 and 2018.2021. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 2 percent of the segment's sales in 2020 (1 percent in 20192023, 2022 and 2018).2021. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2020 (1 percent in 20192023, 2022 and 2 percent in 2018).2021.
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 86 percent of "Cost of sales" in 2020 (82023 (7 percent in 20192022 and 9 percent in 2018)2021).
The Company purchases products from The SCG-DowSCGC-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCG-DowSCGC-Dow Group represented 3 percent of "Cost of sales" in 2020 (2 percent in 20192023, 2022 and 2018).2021.
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, 2023 and 2022, were as follows:
| | | | | | | | |
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions |
| Accounts and notes receivable - Other | $ | 189 | | $ | 307 | |
| | |
| | |
| | |
| Accounts payable - Other | $ | 823 | | $ | 1,083 | |
| | |
Balances due to or due from nonconsolidated affiliates at December 31, 2020 and 2019 were as follows:
| | | | | | | | |
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2020 | 2019 |
| In millions |
| Accounts and notes receivable - Other | $ | 229 | | $ | 211 | |
| | |
| | |
| | |
| Accounts payable - Other | $ | 1,075 | | $ | 1,092 | |
| | |
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 3538 nonconsolidated affiliates at December 31, 20202023 (37 at December 31, 2019)2022). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2020, 20192023, 2022 and 20182021, are as follows:
| | Principal Nonconsolidated Affiliates at Dec 31 | Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest | Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest |
| | | 2020 | 2019 | 2018 | | 2023 | 2022 | 2021 |
| EQUATE Petrochemical Company K.S.C.C. | EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % | EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Olefins Company K.S.C.C. | The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % | The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Styrene Company K.S.C.C. | The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.5 | % | 42.5 | % | 42.5 | % | The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
Map Ta Phut Olefins Company Limited 1 | Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % | Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % |
| | Sadara Chemical Company | Sadara Chemical Company | Saudi Arabia | 35 | % | 35 | % | 35 | % |
| The SCG-Dow Group: | | |
| Sadara Chemical Company | |
| Sadara Chemical Company | | Saudi Arabia | 35.00 | % | 35.00 | % | 35.00 | % |
| The SCGC-Dow Group: | |
| Siam Polyethylene Company Limited | |
| Siam Polyethylene Company Limited | |
| Siam Polyethylene Company Limited | Siam Polyethylene Company Limited | Thailand | 50 | % | 50 | % | 50 | % | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Polystyrene Company Limited | Siam Polystyrene Company Limited | Thailand | 50 | % | 50 | % | 50 | % | Siam Polystyrene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Styrene Monomer Company Limited | Siam Styrene Monomer Company Limited | Thailand | 50 | % | 50 | % | 50 | % | Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Synthetic Latex Company Limited | Siam Synthetic Latex Company Limited | Thailand | 50 | % | 50 | % | 50 | % | Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
|
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 12.512.50 percent through its equity interest in Siam Polyethylene Company Limited.
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are shown in the tables below:as follows:
| | Investment in Principal Nonconsolidated Affiliates at Dec 31 | Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2020 | 2019 | Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions | In millions | In millions |
| Investment in nonconsolidated affiliates | $ | 922 | | $ | 963 | |
| Investment in principal nonconsolidated affiliates | |
| Other noncurrent obligations | Other noncurrent obligations | (169) | | (80) | |
| Net investment in principal nonconsolidated affiliates | Net investment in principal nonconsolidated affiliates | $ | 753 | | $ | 883 | |
| | | | | | | | | | | |
| Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2020 | 2019 | 2018 |
| In millions |
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (16) | | $ | 21 | | $ | 561 | |
Table of Contents | | | | | | | | | | | |
| Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions |
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (192) | | $ | 192 | | $ | 918 | |
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 | Summarized Balance Sheet Information at Dec 31 | 2020 | 2019 | Summarized Balance Sheet Information at Dec 31 | 2023 | 2022 |
| In millions | In millions | In millions |
| Current assets | Current assets | $ | 5,044 | | $ | 5,302 | |
| Noncurrent assets | Noncurrent assets | 25,298 | | 26,477 | |
| Total assets | Total assets | $ | 30,342 | | $ | 31,779 | |
| Current liabilities | Current liabilities | $ | 3,942 | | $ | 3,743 | |
| Noncurrent liabilities | Noncurrent liabilities | 20,144 | | 20,271 | |
| Total liabilities | Total liabilities | $ | 24,086 | | $ | 24,014 | |
| Noncontrolling interests | Noncontrolling interests | $ | 132 | | $ | 110 | |
| Summarized Income Statement Information 1 | Summarized Income Statement Information 1 | 2020 | 2019 | 2018 | Summarized Income Statement Information 1 | 2023 | 2022 | 2021 |
| In millions | In millions | In millions |
| Sales | Sales | $ | 9,470 | | $ | 10,905 | | $ | 14,461 | |
| Gross profit | Gross profit | $ | 619 | | $ | 644 | | $ | 2,320 | |
| Income (loss) from continuing operations, net of tax | $ | (461) | | $ | (277) | | $ | 1,173 | |
| Income (loss), net of tax | |
1.The results in this table reflectinclude purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.
NOTE 1311 – 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, 20202023 and 2019:2022:
| | | | | | | | | | | | | | |
| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
| In millions |
| Balance at Jan 1, 2019 | $ | 5,101 | | $ | 1,095 | | $ | 3,650 | | $ | 9,846 | |
| Foreign currency impact | 8 | | 6 | | (24) | | (10) | |
| | | | |
| Goodwill Impairment | 0 | | 0 | | (1,039) | | (1,039) | |
| Other | 0 | | (1) | | 0 | | (1) | |
| Balance at Dec 31, 2019 | $ | 5,109 | | $ | 1,100 | | $ | 2,587 | | $ | 8,796 | |
| Foreign currency impact | 12 | | 4 | | 106 | | 122 | |
| Sale of rail infrastructure | (2) | | 0 | | 0 | | (2) | |
| Sale of marine and terminal infrastructure | (4) | | (4) | | 0 | | (8) | |
| | | | |
| Balance at Dec 31, 2020 | $ | 5,115 | | $ | 1,100 | | $ | 2,693 | | $ | 8,908 | |
| | | | | | | | | | | | | | |
| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
| In millions |
| Balance at Jan 1, 2022 | $ | 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 | |
| Foreign currency impact | 3 | | 1 | | (7) | | (3) | |
| | | | |
| Balance at Dec 31, 2023 | $ | 5,103 | | $ | 1,094 | | $ | 2,444 | | $ | 8,641 | |
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, 2020,2023, goodwill was carried by all reporting units except Coatings & Performance Monomers (“C&PM”).Monomers.
Goodwill Impairments
The carrying amounts of goodwill at December 31, 20202023 and 20192022, were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure and $2,530 million in Performance Materials & Coatings.
Goodwill Impairment Testing
The Company performs an impairment test of goodwill annually in the fourth quarter. In 2020,2023, the Company performed qualitative assessmentstesting for all reporting units that carried goodwill. Based on the results of the qualitative assessments,testing, the Company performeddid not perform quantitative testing for 1on any reporting unit (2units in 20192023, 2022, and 1 in 2018).2021. The qualitative assessmentstesting on the remaining reporting units indicated that it was not more likely than not that fair value was less than the carrying value for thosethe reporting units.
The quantitative testing conducted in 2020 and 2018 concluded that no goodwill impairments 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 | Other Intangible Assets at Dec 31 | 2020 | 2019 | Other Intangible Assets at Dec 31 | 2023 | 2022 |
| In millions | In millions | Gross
Carrying
Amount | Accum Amort | Net | Gross
Carrying
Amount | Accum Amort | Net | In millions | Gross
Carrying
Amount | Accum Amort | Net | Gross
Carrying
Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | |
| Intangible assets: | |
| Developed technology | |
| Developed technology | |
| Developed technology | Developed technology | $ | 2,638 | | $ | (1,677) | | $ | 961 | | $ | 2,634 | | $ | (1,467) | | $ | 1,167 | |
| Software | Software | 1,489 | | (989) | | 500 | | 1,449 | | (893) | | 556 | |
| Trademarks/tradenames | Trademarks/tradenames | 352 | | (343) | | 9 | | 352 | | (342) | | 10 | |
| Customer-related | Customer-related | 3,301 | | (1,419) | | 1,882 | | 3,207 | | (1,184) | | 2,023 | |
| | Total other intangible assets, finite lives | $ | 7,780 | | $ | (4,428) | | $ | 3,352 | | $ | 7,642 | | $ | (3,886) | | $ | 3,756 | |
| In-process research and development | 0 | | 0 | | 0 | | 3 | | 0 | | 3 | |
| Total other intangible assets | Total other intangible assets | $ | 7,780 | | $ | (4,428) | | $ | 3,352 | | $ | 7,645 | | $ | (3,886) | | $ | 3,759 | |
| Total other intangible assets | |
| Total other intangible assets | |
The following table provides information regarding amortization expense from continuing operations related to intangible assets:
| | Amortization Expense from Continuing Operations | 2020 | 2019 | 2018 |
| Amortization Expense | | Amortization Expense | 2023 | 2022 | 2021 |
| In millions | In millions | 2020 | 2019 | 2018 | In millions |
Other intangible assets, excluding software | | Software, included in "Cost of sales" | Software, included in "Cost of sales" | $ | 96 | | $ | 96 | | $ | 93 | |
Total estimated amortization expense from continuing operations for the next five fiscal years, including amounts expected to be capitalized, is as follows:
| | Estimated Amortization Expense for Next Five Years | Estimated Amortization Expense for Next Five Years | Estimated Amortization Expense for Next Five Years |
In millions | | 2021 | $ | 477 | |
| 2022 | $ | 415 | |
| 2023 | $ | 384 | |
| 2024 | 2024 | $ | 366 | |
| 2025 | 2025 | $ | 275 | |
| 2026 | |
| 2027 | |
| 2028 | |
NOTE 1412 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains committed accounts receivable facilities with various financial institutions, includingwith committed and uncommitted facilities in the United States and a committed accounts receivable facility in Europe (collectively, "the Programs"), which expiresare both set to expire in November 2022 (“U.S. A/R Program”) and in Europe, which expires in July 2023 (“Europe A/R Program” and together with the U.S. A/R Program, "the Programs").2025. Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. A/R Programcommitted facility, and up to €400€500 million for the Europe A/R Program.committed facility. 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 1614 for additional information related to guarantees. There were 0In 2023, the Company sold $112 million of receivables sold under the Programs during the years ended December 31, 2020 and 2019.($391 million in 2022).
Accounts Receivable Securitization Facilities
TheBeginning in 2023, the Company historically sold tradehas access to an 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 interestsdiscounting facility that covers receivables generated from sales in specified assets of the conduits (the receivables sold by the Company) that entitled the Company to the residual cash flows of such specified assets in the conduits after the commercial paper had been repaid. Neither the conduits nor the investors in those entities had recourse to other assets of the Company in the event of nonpayment by the debtors.
In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In 2018, the Company recognized a loss of $7 million on the sale of these receivables, which is included in “Interest expense and amortization of debt discount” in the consolidated statements of income. The Company's interests in the conduits were reflected in "Investing Activities" in the consolidated statements of cash flows and were $657 million in 2018. In September and October 2018, the North American and European facilities, respectively, were amended andEMEAI. Under the terms of the agreements changed from off-balance sheet arrangements to secured borrowing arrangements.discounting facility, the Company retains no interest in the transferred receivables once sold and receivables are transferred with limited recourse. In November 2019 and July 2020,2023, the North American and European facilities, respectively, were amended and are no longer secured borrowing arrangements. These facilities were not drawn upon duringCompany sold $91 million of receivables into the period they were secured borrowing arrangements. See Note 15 for additional information on the secured borrowing arrangements.
NOTE 1513 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| | Notes Payable at Dec 31 | Notes Payable at Dec 31 | | |
| In millions | |
| In millions | |
| In millions | In millions | 2020 | 2019 | 2023 | 2022 |
| Commercial paper | Commercial paper | $ | 0 | | $ | 151 | |
| Notes payable to banks and other lenders | Notes payable to banks and other lenders | 156 | | 435 | |
| | Total notes payable | Total notes payable | $ | 156 | | $ | 586 | |
| Year-end average interest rates | 3.89 | % | 6.30 | % |
| | Total notes payable | |
| | Total notes payable | |
Year-end average interest rates 1 | | Year-end average interest rates 1 | 33.84 | % | 6.55 | % |
1.The average interest rate increase from 2022 to 2023 is primarily due to interest rates in Argentina.
| | Long-Term Debt at Dec 31 | Long-Term Debt at Dec 31 | 2020 Average Rate | 2020 | 2019
Average
Rate | 2019 | Long-Term Debt at Dec 31 | 2023 Average Rate | 2023 | 2022
Average
Rate | 2022 |
In millions | | Promissory notes and debentures: | Promissory notes and debentures: | | |
| Final maturity 2020 | 0 | % | $ | 0 | | 8.44 | % | $ | 76 | |
| Final maturity 2021 | 8.95 | % | 173 | | 8.95 | % | 174 | |
| Final maturity 2022 | 8.64 | % | 121 | | 3.50 | % | 1,372 | |
| Final maturity 2023 | Final maturity 2023 | 7.63 | % | 250 | | 7.64 | % | 325 | |
Final maturity 2024 1 | 3.43 | % | 1,017 | | 3.37 | % | 1,397 | |
| Final maturity 2023 | |
| Final maturity 2023 | |
| Final maturity 2025 | Final maturity 2025 | 5.13 | % | 625 | | 5.26 | % | 662 | |
Final maturity 2026 and thereafter 1 | 5.22 | % | 10,888 | | 5.73 | % | 8,820 | |
| Final maturity 2028 | |
| Final maturity 2029 and thereafter 1 | |
Final maturity 2029 and thereafter 1 | |
Final maturity 2029 and thereafter 1 | |
| Other facilities: | Other facilities: | | |
| U.S. dollar loans | 0 | % | 0 | | 2.55 | % | 2,000 | |
| | Foreign currency notes and loans, various rates and maturities | Foreign currency notes and loans, various rates and maturities | 1.41 | % | 3,189 | | 3.26 | % | 592 | |
| InterNotes®, varying maturities through 2050 | 3.56 | % | 535 | | 3.44 | % | 928 | |
| | Foreign currency notes and loans, various rates and maturities | |
| | Foreign currency notes and loans, various rates and maturities | |
InterNotes®, varying maturities through 2053 | |
| Finance lease obligations 2 | |
Finance lease obligations 2 | |
Finance lease obligations 2 | Finance lease obligations 2 | | 518 | | | 395 | |
| Unamortized debt discount and issuance costs | Unamortized debt discount and issuance costs | | (365) | | | (331) | |
Long-term debt due within one year 3 | Long-term debt due within one year 3 | | (460) | | | (435) | |
| Long-term debt | Long-term debt | | $ | 16,491 | | | $ | 15,975 | |
1.Cost includes net fair value hedge adjustment gains of $69$49 million at December 31, 20202023 ($146 million at December 31, 2019)2022). See Note 2220 for additional information.
2.See Note 1715 for additional information.
3.Presented net of current portion of unamortized debt issuance costs.
| | | | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2020 |
| In millions |
| 2021 | $ | 460 | |
| 2022 | $ | 236 | |
| 2023 | $ | 381 | |
| 2024 | $ | 1,079 | |
| 2025 | $ | 717 | |
| | | | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2023 |
| In millions |
| 2024 | $ | 115 | |
| 2025 | $ | 443 | |
| 2026 | $ | 120 | |
| 2027 | $ | 1,261 | |
| 2028 | $ | 683 | |
20202023 Activity
In February 2020,the fourth quarter of 2023, the Company issued €2.25 billion aggregate principal amount of notes (“Euro Notes”). The Euro Notes included €1 billion aggregate principal amount of 0.50 percent notes due 2027, €750redeemed $23 million aggregate principal amount of 1.1252.100 percent notes due 2032 and €500November 2030, $14 million aggregate principal amount of 1.8754.625 percent notes due 2040. The Euro Notes haveOctober 2044, and $1 million aggregate principal amount of 4.375 percent notes due November 2042. As a weighted average coupon rate of approximately 1.0 percent. With the net proceeds from the issuanceresult 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,redemption, 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 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 lossgain on the early extinguishment of debt of $2$5 million, included in “Sundry income (expense) – net” in the consolidated statements of income and related to Corporate. Additionally, the Company repaid $134 million of long-term debt at maturity and approximately $29 million of long-term debt was repaid by consolidated variable interest entities.
Subsequent Event
On January 15, 2021, the Company announced a call for $118 million of InterNotes® with various maturities, which will settle on February 15, 2021.
2019 Activity
In 2019, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $750 million aggregate principal amount of 4.80 percent notes due 2049; $750 million aggregate principal amount of 3.625 percent notes due 2026; and $500 million aggregate principal amount of 3.15 percent notes due 2024. In addition, the Company redeemed $1.5 billion of 4.25 percent notes with maturity in 2020 and $1.25 billion of 4.125 percent notes with maturity in 2021. As a result, the Company recognized a pretax loss of $100 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. The
In 2023, the Company also issued an aggregate principal amount of $277$80 million of InterNotes®, and redeemed an aggregate principal amount of $122 million at maturity. Approximately $149InterNotes®. Additionally, the Company repaid $250 million of long-term debt (net of $16at maturity and approximately $3 million of issuances)long-term debt was repaid by consolidated variable interest entities.
2022 Activity
In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026. As a result of the redemption, the Company recognized a pretax loss 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 2019, Dow Silicones voluntarily repaid $2.5the fourth quarter of 2022, the Company issued $1.5 billion of senior unsecured notes. The offering included $600 million aggregate principal underamount of 6.30 percent notes due 2033 and $900 million aggregate principal amount of 6.90 percent notes due 2053.
In 2022, the Term Loan Facility.Company issued an aggregate principal amount of $167 million of InterNotes®. Additionally, the Company repaid $121 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2021 Activity
In the second quarter of 2021, the Company redeemed $208 million aggregate principal amount of 3.15 percent notes due May 2024 and $811 million aggregate principal amount of 3.50 percent notes due October 2024. As a result Dow Siliconesof the redemptions, the Company recognized a pretax loss of $2$101 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In October 2019, TDCC launched exchangethe third quarter of 2021, the Company completed cash tender 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 were 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
certain debt securities. In 2018, the Company redeemed $333 million of 5.70 percent notes at maturity and an aggregate principal amount of $91 million of InterNotes® at maturity. In addition, approximately $138 million of long-term debt was repaid by consolidated variable interest entities. The Company also called an aggregate principal amount of $343 million tax-exempt bonds of various interest rates and maturities in 2029, 2033 and 2038. As a result of these redemptions, the Company recognized a pretax loss of $6 million on the early extinguishment of debt, included in “Sundry income (expense) - net” in the consolidated statements of income and related to Corporate.
In November 2018, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $900total, $1,042 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 Companywas tendered and redeemed $2.1 billion of 8.55 percent notes issued by the Company with maturity in 2019.retired. As a result, the Company recognized a pretax loss of $48$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 long-term debt due within one year.
In 2021, the Company issued an aggregate principal amount of $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 $25 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, 2020 |
| In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | October 2024 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | November 2021 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | December 2021 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | December 2021 | Floating rate |
| Bilateral Revolving Credit Facility | | 150 | | 150 | | March 2022 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | June 2022 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2022 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | | 250 | | 250 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | October 2024 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | October 2024 | Floating rate |
| Bilateral Revolving Credit Facility | | 200 | | 200 | | November 2024 | Floating rate |
| Bilateral Revolving Credit Facility | | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 250 | | 250 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 350 | | 350 | | March 2025 | Floating rate |
| Total Committed and Available Credit Facilities | | $ | 8,100 | | $ | 8,100 | | | |
Secured Borrowings
In September 2018, the Company renewed its North American accounts receivable securitization facility for a one year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to $800 million. Under the structure of the amended agreement, the Company had the option to use select trade accounts receivable to collateralize the credit facility with certain lenders. In November 2019, the facility was amended and is no longer a secured borrowing arrangement. It was not drawn upon during its term as a secured borrowing arrangement.
In October 2018, the Company renewed its European accounts receivable securitization facility for a two year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to €400 million. Under the structure of the amended agreement, the Company had the option to use select trade accounts receivable to collateralize the credit facility with certain lenders. In July 2020, the facility was amended and is no longer a secured borrowing arrangement. It was not drawn upon during its term as a secured borrowing arrangement. See Note 14 for additional information related to the accounts receivable programs. | | | | | | | | | | | | | | | |
| Committed and Available Credit Facilities at Dec 31, 2023 |
| In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | November 2028 | Floating rate |
| Bilateral Revolving Credit Facility | | 375 | | 375 | | October 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 | | 200 | | 200 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 175 | | 175 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | November 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | February 2026 | 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 |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | May 2028 | Floating rate |
| Total Committed and Available Credit Facilities | | $ | 8,400 | | $ | 8,400 | | | |
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. In addition, at December 31, 2020, the Company had a $220 million outstanding letter of credit related to a guarantee of the Company’s share of one future debt service schedule payment for Sadara. See Note 16 for additional information related to guarantees.
Debt Covenants and Default Provisions
TDCC’s outstanding long-term debt has been issued primarily under indentures which contain, among other provisions, certain customary restrictive covenants with which TDCC must comply while the underlying notes are outstanding. Failure of TDCC to comply with any of its covenants, could result in a default under the applicable indenture and allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the underlying notes.
TDCC's indenture covenants include obligations to not allow liens on principal U.S. manufacturing facilities, enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, merge or consolidate with any other corporation, or sell, lease or convey, directly or indirectly, all or substantially all of TDCC’s assets. The outstanding debt also contains customary default provisions. TDCC remains in compliance with these covenants.
TDCC’s primary, private credit agreements also contain certain customary restrictive covenant and default provisions in addition to the covenants set forth above with respect to TDCC’s debt. Significant other restrictive covenants and default provisions related to these agreements include:
(a) the obligation to maintain the ratio of TDCC’s consolidated indebtedness to consolidated capitalization at no greater than 0.650.70 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") dated October 30, 2018,November 23, 2021, 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.
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 1614 – 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, 2020,2023, the Company had accrued obligations of $1,244$1,180 million for probable environmental remediation and restoration costs ($1,192 million at December 31, 2022), including $248$241 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 ($244 million at December 31, 2022). 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, 2019, the Company had accrued obligations
As part of the Company's 2020 Restructuring Program, in the third quarter of 2020, the Company recorded a pretax charge related to environmental remediation matters. This charge resulted from the Company's evaluation of the costs required to manage remediation activities at sites Dow will permanently shut down as part of its 2020 Restructuring Program. In addition, the Company recorded indemnification assets of $50 million related to Dow Silicones' environmental matters. The Company recognized a pretax charge, net of indemnifications, of $56 million, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($52 million) and Corporate ($4 million). See Note 6 for additional information.Contents
In the third quarter of 2019, the Company recorded a pretax charge related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted from: the culmination of long-standing negotiations and discussions with regulators and agencies, including technical studies supporting higher cost estimates for final or staged remediation plans; the Company’s evaluation of the cost required to manage remediation activities at sites affected by Dow’s separation from DowDuPont and related agreements with Corteva and DuPont; and, the Company’s review of its closure strategies and obligations to monitor ongoing operations and maintenance activities. In addition, the Company recorded indemnification assets of $48 million related to Dow Silicones’ environmental matters. The Company recognized a pretax charge, net of indemnifications, of $399 million related to these environmental matters, included in “Cost of sales” in the consolidated statements of income and related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million).
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 20202023 and 2019:2022:
| | Accrued Obligations for Environmental Matters | Accrued Obligations for Environmental Matters | 2020 | 2019 | Accrued Obligations for Environmental Matters | 2023 | 2022 |
| In millions | In millions | In millions |
| Balance at Jan 1 | Balance at Jan 1 | $ | 1,155 | | $ | 810 | |
| Accrual adjustment | Accrual adjustment | 285 | | 590 | |
| Payments against reserve | Payments against reserve | (198) | | (241) | |
| Foreign currency impact | Foreign currency impact | 2 | | (4) | |
| Balance at Dec 31 | Balance at Dec 31 | $ | 1,244 | | $ | 1,155 | |
The amounts charged to income on a pretax basis related to environmental remediation totaled $234$203 million in 2020, $5882023, $176 million in 20192022 and $176$158 million in 2018.2021. Capital expenditures for environmental protection were $80$228 million in 2020, $832023, $137 million in 20192022 and $55$65 million in 2018.
Midland Off-Site Environmental Matters
On June 12, 2003, the Michigan Department of Environmental Quality ("MDEQ") issued a Hazardous Waste Operating License (the "License") to the Company’s Midland, Michigan, manufacturing site (the “Midland Site”), which was renewed and replaced by the MDEQ on September 25, 2015, and included provisions requiring the Company to conduct an investigation to determine the nature and extent of off-site contamination in the City of Midland soils, the Tittabawassee River and Saginaw River sediment and floodplain soils, and the Saginaw Bay, and, if necessary, undertake remedial action. In 2016, final regulatory approval was received from the MDEQ for the City of Midland and the Company is continuing the long termlong-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 two 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. In 2023, Dow started evaluation of the final geographic segment of the first Operable Unit. 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 and, in 2023, submitted a Completion Report for those limited remedial actions.
Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice 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 July 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. The consent decree required the Company to pay a $15 million cash settlement to be used for long-term maintenance and trustee-selected remediation projects with an additional $7 million to specified local projects managed by third parties. These funds were paid in December 2020. The consent decree further requires the Company to complete or fund 13 additional environmental restoration projects which are valued by the trustees at approximately $77 million, to be conducted over the next several years. To date, three projects have been completed, including two environmental restoration projects/public amenities opened to the public. The Company continues to work with the trustees on the remaining projects.
At December 31, 2020,2023, the accrual for these off-site matters was $107$89 million (included in the total accrued obligation of $1,244 million)$1,180 million). At December 31, 2019,2022, the Company had an accrual for these off-site matters of $135$92 million (included in the total accrued obligation of $1,155 million)$1,192 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.
In December 2018, Ankura completed a study of At each balance sheet date, Union Carbide's historicalCarbide also compares current asbestos claim and resolution activity, through September 30, 2018, including asbestos-related defense and processing costs, and provided estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049. Based on the study and Union Carbide's internal review process, it was determined that no adjustment to the results of the most recent Ankura study to determine whether the accrual was required.continues to be appropriate.
In December 2019,2021, Ankura stated that an update of its December 20182020 study would not provide a more likely estimate of future events than the estimate reflected in thethat study and, therefore, the estimate in thethat study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required. At December 31, 2019, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,165 million, and approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.
In December 2020,2022, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2020,2022, 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, 2020,2022, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,098$947 million, and approximately 2223 percent of the recorded liability related to pending claims and approximately 7877 percent related to future claims.
In December 2023, Ankura stated that an update of its December 2022 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no adjustment to the accrual was required. At December 31, 2023, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $867 million, and approximately 25 percent of the recorded liability related to pending claims and approximately 75 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 MattersGroundwater Contamination
Introduction
The Company is the subject of various complaints related to alleged groundwater contamination based on decades-old sales and applications of certain agricultural chemical products ("Legacy Liabilities"). The costs associated with these Legacy Liabilities were previously covered by insurance policies that have since been depleted. In 1995, Dow Silicones, then a 50:50 joint venture betweenthe first quarter of 2023, the Company and Corning Incorporated ("Corning"), voluntarily filed for protection under Chapter 11completed a study of the U.S. Bankruptcy Code in orderLegacy Liabilities now deemed to resolve Dow Silicones’ breast implant liabilitiesbe probable and related matters (the “Chapter 11 Proceeding”). Dow Silicones emerged fromestimable based on the Chapter 11 Proceeding on June 1, 2004 (the “Effective Date”)public reporting of sampling data 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. As of June 1, 2016, Dow Silicones ishistorical information to develop a wholly owned subsidiaryreasonable estimate of the Company.
Breast Implantcost of pending and Other Product Liability Claims
Under the Plan,future claims. As a product liability settlement program administered by an independent claims office (the “Settlement Facility”) was created to resolve breast implant and other product liability claims. Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Under the Plan, total payments committed by Dow Silicones to resolving product liability claims are capped at a maximum $2,350 million net present value (“NPV”) determined as of the Effective Date using a discount rate of 7 percent (approximately $4,081 million undiscounted at December 31, 2020). Of this amount, no more than $400 million NPV determined as of the Effective Date can be used to fund the Litigation Facility.
Dow Silicones had an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At December 31, 2020, Dow Silicones and its insurers have made life-to-date payments of $1,762 million to the Settlement Facility and the Settlement Facility reported an unexpended balance of $58 million.
In accordance with ASC Topic 450 "Accounting for Contingencies,"result, the Company recordsrecorded a liability for breast implant and other product liability claims (“Implant Liability”), which reflects the estimated impactpretax charge of the settlement of pending claims. The claim filing deadline passed in June 2019. All claims have been received and are being processed. Based on the claims filed at and before the deadline, Dow Silicones estimates that it will be obligated to contribute an additional $160$177 million, after the Settlement Facility balance is exhausted.
In the third quarter of 2019, with the assistance of a third party consultant ("Consultant"), Dow Silicones updated its Implant Liability estimate, primarily reflecting a decrease in Class 16 claims, a decrease resulting from the passage of time, decreased claim filing activity and administrative costs compared with the previous estimate, and an increase in investment income resulting from insurance proceeds. Based on the Consultant's updated estimate and Dow Silicones own review of claim filing activity, Dow Silicones determined that an adjustment to the Implant Liability was required. Accordingly, in the third quarter of 2019, Dow Silicones decreased its Implant Liability $98 million and decreased its corresponding Class 16 receivable $13 million, both included in “Sundry income (expense) - net”"Cost of sales" in the consolidated statements of income and related to Corporate. The estimate was updated again in the second quarter of 2020 with the assistance of the Consultant, which primarily reflected decreased administrative costs compared with the previous estimate and an increase in investment income resulting from insurance proceeds.
Dow Silicones' Implant Liability was $160 million atIndustrial Intermediates & Infrastructure. At December 31, 2020 ($1652023, the total liability related to such alleged Legacy Liabilities settlements was $232 million, at December 31, 2019), of which $46 million ($20 million at December 31, 2019) was included in “Accrued and other current liabilities” and $114 million ($145 million at December 31, 2019) was included in "Other noncurrent obligations" in the consolidated balance sheets.
Dow SiliconesThe Company is also the subject of other groundwater contamination complaints, including claims related to1,4-dioxane. The Company continues to defend itself in this litigation and it has determined that the Company's exposure to liability, if any, 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 controversiescurrently probable 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.estimable.
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. On August 19, 2019, Dow Silicones entered into a settlement agreement with the Commercial Creditors related to the remaining, disputed portion, obligating Dow Silicones to pay $172 million, inclusive of the Commercial Creditors' legal costs. The settlement was approved by the District Court. As a result of the settlement agreement, in the third quarter of 2019, the Company recorded a pretax charge of $50 million, net of indemnifications of $37 million, included in "Sundry Income (expense) - net" in the consolidated statements of income and related to Corporate. The settlement was paid to the Commercial Creditors in the fourth quarter of 2019. The litigation is now concluded.
Summary
The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.
Other Litigation MattersAsset Retirement Obligations
In additionThe 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 assets.
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 specific matters described above,cost basis. When events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the security is written down, establishing a new cost basis.
Leases
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 partythe 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 number ofstraight-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 claimsreasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and lawsuits arising outare not presented as part of the normal courseROU asset or lease liability. See Note 15 for additional information.
Revenue
The Company recognizes revenue when its customer obtains control of businesspromised 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, the Company performs the following five steps: (1) identify the contract(s) with respecta customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to product liability, patent infringement, employment matters, governmental tax and regulation disputes,the performance obligations in the contract and commercial litigation, and other actions. Certain(5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 3 for additional information.
Revenue related to the Company's insurance operations includes third-party insurance premiums, which are earned over the terms 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 numerousthe related 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 CorningSeverance Costs
In connectionThe 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.
Government Assistance
The Company receives grants, subsidies and incentives (collectively "incentives") from governments in various jurisdictions in support of its operations and capital projects. The incentives are recorded when there is reasonable assurance that the Company will comply with the June 1, 2016 ownership restructure of Dow Silicones,terms and conditions attached to the Company is indemnified by Corning for at least 50 percent of future losses associated with certain pre-closing liabilities, includingincentives and that the Implant Liability, Commercial Creditors issuesincentives will be received. Incentives are recognized on a systematic basis over the periods in which the related cost or expenditures occur and certain environmental matters describedare included in the preceding sections, subject to certain conditionsCompany's financial statements as reductions of "Cost of sales" or "Research and limits. The maximum amountdevelopment expenses" in the Company’s consolidated statements of indemnified losses which may be recovered are subject toincome or as a cap that declines over time. Indemnified losses are capped at $1 billion between May 31, 2018 and May 31, 2023, and 0 recoveries are permitted after May 31, 2023. The Company had indemnification assetsreduction of $115 million at December 31, 2020 ($100 million at December 31, 2019), of which 0 ($37 million at December 31, 2019) was included in "Other current assets" and $115 million ($63 million at December 31, 2019) was included in "Noncurrent receivables""Property" in the consolidated balance sheets.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
In December 2010, Dow filed suit in the Federal Court in Ontario, Canada ("Federal Court") alleging that Nova Chemicals Corporation ("Nova") was infringing the Company's Canadian polyethylene patent 2,106,705 (the "'705 Patent"). Nova counterclaimed on the grounds of invalidity and non-infringement. In accordance with Canadian practice, the suit was bifurcated into a merits phase, followed by a damages phase. Following trial in the merits phase, in May 2014 the Federal Court ruled that the Company's '705 Patent was valid and infringed by Nova. Nova appealed to the Canadian Federal Court of Appeal, which affirmed the Federal Court decision in August 2016. Nova then sought leave to appeal its loss to the Supreme Court of Canada ("Court"), which dismissed Nova’s petition in April 2017. As a result, Nova has exhausted all appeal rights on the merits, and it is undisputed that Nova owes the Company the profits it earned from its infringing sales as determined in the trial for the damages phase.
In April 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. In June 2017, the Federal Court ordered Nova to pay $645 million Canadian dollars (equivalent to $495 million U.S. dollars) to the Company, plus pre- and post-judgment interest, for which2023, the Company received payment$183 million of $501 million from Nova in July 2017. Although Nova is appealing portions of the damages judgment, certain portions of it are indisputable and can be retained 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.
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 Court. Briefing is expected to be completed in early 2021 and the Company anticipates a decision in the first half of 2021 as to whether the Court will accept the appeal. The Court has complete discretion on whether to grant leave applications. At December 31, 2020, the Company had $341 million (0 at December 31, 2019) included in "Accrued and other current liabilities" and 0 ($341 million at December 31, 2019) included in "Other noncurrent obligations"government incentives primarily related to the disputed portioncost of energy used in the damages judgment. The Company is confidentCompany’s production processes ($260 million in 2022). These incentives, from various governments, are typically based on level of its chances to continue to defend the entire judgment if the Court agrees to review it, particularly the trial and appellate courts' determinations on important factual issues, which will be accorded deferential review on appeal.
Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter
On September 18, 2019, the Court of the Queen’s Bench in Alberta, Canada, signed a judgment ordering Nova to pay the Company $1.43 billion Canadian dollars (equivalent to approximately $1.08 billion U.S. dollars) by October 11, 2019, for damages the Company incurred through 2012 related to the companies’ jointly-owned ethylene asset in Joffre, Alberta, Canada. The Court of the Queen's Bench in Alberta, Canada, which initially ruled in June 2018, found that Nova failed to operate the ethylene asset at full capacity for more than ten years, and furthermore, that Nova violated several contractual agreements related to the Company receiving its share of the asset’s ethylene production. These actions resulted in reduced productivity and sales for the Company. Nova has appealed the judgment, however, certain portions of it are not in disputeenergy consumption and are owedrecorded as a reduction to the Company regardless"Cost of the outcome of Nova's appeal. As a result of these actions and in accordance with ASC Topic 450-30 “Gain Contingencies,” the Company recorded a $186 million pretax gain in the third quarter of 2019, of which $170 million was included in "Sundry income (expense) - net" and $16 million was included in "Selling, general and administrative expenses"sales" in the consolidated statements of income and as "Accounts and notes receivable - Other" until received or as a reduction to "Accounts payable - Trade" in the consolidated balance sheets. Other forms of government assistance received by the Company in 2023 and 2022 were not material.
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.
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 to Packaging & Specialty Plastics. In October 2019, Nova paid $1.08 billion Canadian dollars (equivalent to approximately $0.8 billion U.S. dollars) directlycompanies to the Company, and remitted $347 million Canadian dollarsextent that such earnings are not deemed to be permanently invested.
Earnings per Common Share
The calculation of earnings per common share is based on the Canada Revenue Agency ("CRA") for the tax account of oneweighted-average number of the Company's subsidiaries.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.
TDCC Dividends
TDCC is 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 Notes 16 and 23 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2023, the Company adopted the disclosure requirements of Accounting Standards Update ("ASU") 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," including early adoption of the requirement to disclose rollforward information on a prospective basis. The ASU, which is intended to enhance the transparency of supplier finance programs, requires 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. See Note 5 for disclosures related to the Company's supplier finance program.
Accounting Guidance Issued But Not Adopted at December 31, 2023
In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-02, "Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The amendments permit reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). The amendments also require certain disclosures in annual and interim reporting periods about an entity's tax credit programs. The new standard is effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the amendments must be applied on either a modified retrospective or a retrospective basis. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the ASU only requires additional disclosures about the Company's operating segments, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Although the ASU only modifies the Company's required income tax disclosures, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
NOTE 3 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2023, 98 percent of the Company's revenue related to product sales (99 percent in 2022 and 2021). 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 | 2023 | 2022 | 2021 |
| In millions |
| Hydrocarbons & Energy | $ | 6,566 | | $ | 9,414 | | $ | 8,149 | |
| Packaging and Specialty Plastics | 16,583 | | 19,846 | | 19,979 | |
| Packaging & Specialty Plastics | $ | 23,149 | | $ | 29,260 | | $ | 28,128 | |
| Industrial Solutions | $ | 4,207 | | $ | 5,682 | | $ | 5,139 | |
| Polyurethanes & Construction Chemicals | 8,316 | | 10,907 | | 11,700 | |
| Others | 15 | | 17 | | 12 | |
| Industrial Intermediates & Infrastructure | $ | 12,538 | | $ | 16,606 | | $ | 16,851 | |
| Coatings & Performance Monomers | $ | 3,337 | | $ | 4,051 | | $ | 4,050 | |
| Consumer Solutions | 5,160 | | 6,713 | | 5,622 | |
| Performance Materials & Coatings | $ | 8,497 | | $ | 10,764 | | $ | 9,672 | |
| Corporate | $ | 438 | | $ | 272 | | $ | 317 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| | | | | | | | | | | |
| Net Trade Sales by Geographic Region | 2023 | 2022 | 2021 |
| In millions |
| U.S. & Canada | $ | 16,640 | | $ | 20,945 | | $ | 19,613 | |
EMEAI 1 | 14,537 | | 19,631 | | 19,746 | |
| Asia Pacific | 8,266 | | 10,344 | | 10,043 | |
| Latin America | 5,179 | | 5,982 | | 5,566 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
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 soughtconsiders order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a refundcustomer. 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 entire amountproduct, 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 CRA. On March 31, 2020,governmental authorities are excluded from revenues. The Company elected to use the Company receivedpractical expedient to expense cash and non-cash sales incentives, as the full refund from CRA, equivalentamortization period for the costs to $259 million U.S. dollars.obtain the contract would have been one year or less.
In preparation forCertain long-term contracts include a series of distinct goods that are delivered continuously to the June 2020 appellate hearing oncustomer through a pipeline (e.g., feedstocks). For these types of product sales, the case, Nova providedCompany invoices the Court customer in an amount that directly corresponds with the value to the customer 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 entitledCompany’s performance to retain an amount in excess of the gain recognized in 2019.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, 2023, the Company had unfulfilled performance obligations of $744 million ($840 million at December 31, 2022) related to the licensing of technology and expects revenue to be recognized for the remaining performance obligations over the next seven years.
The Company has additional remaining performance obligations 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, and variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 21 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.
Contract Assets and Liabilities
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded an $18when 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 recognized in revenue when the 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.
Revenue recognized in 2023 from amounts included in contract liabilities at the beginning of the period was approximately $315 million (approximately $250 million in 2022 and $295 million in 2021). In 2023, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $45 million (approximately $15 million in 2022). The Company did not recognize any asset impairment charges related to contract assets in 2023 (immaterial in 2022 and no impairment charges in 2021).
The following table summarizes contract assets and liabilities at December 31, 2023 and 2022:
| | | | | | | | | | | | |
| Contract Assets and Liabilities at Dec 31 | Balance Sheet Classification | 2023 | 2022 | |
| In millions |
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 4,718 | | $ | 5,611 | | |
| Contract assets - current | Other current assets | $ | 13 | | $ | 48 | | |
| Contract assets - noncurrent | Deferred charges and other assets | $ | 4 | | $ | 16 | | |
Contract liabilities - current 1 | Accrued and other current liabilities | $ | 195 | | $ | 275 | | |
Contract liabilities - noncurrent 2 | Other noncurrent obligations | $ | 1,642 | | $ | 1,725 | | |
1.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of deferred royalty payments.
2.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of revenue on long-term product supply agreements.
NOTE 4 – RESTRUCTURING AND ASSET RELATED CHARGES - NET
The "Restructuring and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs and other asset related charges, which includes other asset impairments.
Restructuring Programs
2023 Restructuring Program
On January 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. As a result of these actions the Company recorded pretax gainrestructuring charges of $541 million in the first quarter of 2023, additional pretax restructuring charges of $8 million in the second quarter of 2020,2023, and a $14 million net credit adjustment in the fourth quarter of which $122023. These actions are expected to be substantially complete by the end of 2024.
The following table summarizes the activities related to the 2023 Restructuring Program, including segment information:
| | | | | | | | | | | |
| 2023 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Total |
| In millions |
| Packaging & Specialty Plastics | $ | — | | $ | 1 | | $ | 1 | |
| Industrial Intermediates & Infrastructure | — | | 50 | | 50 | |
| Performance Materials & Coatings | — | | 49 | | 49 | |
| Corporate | 344 | | 91 | | 435 | |
| Total restructuring charges | $ | 344 | | $ | 191 | | $ | 535 | |
| Charges against the reserve | — | | (191) | | (191) | |
| Cash payments | (222) | | — | | (222) | |
| Reserve balance at Dec 31, 2023 | $ | 122 | | $ | — | | $ | 122 | |
At December 31, 2023, $101 million of the reserve balance was included in "Accrued and other current liabilities" and $21 million was included in "Selling, general"Other noncurrent obligations" in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $535 million inception-to-date under the 2023 Restructuring Program, consisting of severance and administrative expenses"related benefit costs of $344 million and asset write-downs and write-offs of $191 million.
Severance and Related Benefit Costs
Severance benefits are provided to employees primarily under Dow's ongoing benefit arrangements and are accrued against the Corporate segment once management commits to a plan of termination. The 2023 Restructuring Program included a charge for severance and related benefit costs of $344 million for a global workforce reduction of approximately 2,000 employees. The majority of separations occurred by the end of the second quarter of 2023 with the remaining occurring primarily through the end of 2024.
Asset Write-downs and Write-offs
The 2023 Restructuring Program included charges related to the write-down and write-off of assets totaling $191 million. Details regarding the asset write-downs and write-offs are as follows:
•Industrial Intermediates & Infrastructure charges relate to the shutdown of certain polyurethanes assets and the write-off of other assets. The majority of the impacted facilities are expected to be shutdown by the end of 2024.
•Performance Materials & Coatings recorded charges to rationalize its asset footprint by shutting down certain coatings assets. These facilities are expected to be shutdown by the end of 2024.
•Corporate recorded charges related to the write-down of Company owned and leased, non-manufacturing facilities, primarily related to office space rationalization.
Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions and costs associated with the Company's productivity and efficiency actions, are expected to result in additional cash expenditures of approximately $285 million, primarily through the end of 2024.
Asset Related Charges
In 2023, the Company recorded pretax asset related credits of $7 million in Corporate related to a prior restructuring program.
In 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.
NOTE 5 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | |
| Dow Inc. Sundry Income (Expense) – Net | 2023 | 2022 | 2021 | |
| In millions | | | |
Non-operating pension and other postretirement benefit plan net (cost) credits 1 | $ | (264) | | $ | 358 | | $ | 332 | | | | |
Foreign exchange losses 2 | (340) | | (117) | | (8) | | | | |
Gain on sales of other assets and investments 3 | 80 | | 78 | | 105 | | | | |
Asset impairments and related costs 4 | (18) | | — | | — | | | | |
Gain (loss) on early extinguishment of debt 5 | 5 | | (8) | | (574) | | | | |
Indemnification and other transaction related costs 6 | 26 | | 4 | | 30 | | | | |
Gain related to Nova legal matter 7 | 106 | | 321 | | — | | | | |
| Dow Silicones breast implant liability adjustment | — | | 60 | | — | | | | |
Luxi arbitration award 7 | — | | — | | 54 | | | | |
Gain on divestitures and asset sale 8 | — | | — | | 16 | | | | |
| Other - net | 125 | | 31 | | 10 | | | | |
| Total sundry income (expense) – net | $ | (280) | | $ | 727 | | $ | (35) | | | | |
1.The year ended December 31, 2023, includes pretax pension settlement charges of $642 million related to the transfer of certain plan benefit obligations to insurance companies. See Note 18 for additional information about the Company's pension and other postretirement plans, including pension settlement charges.
2.Foreign exchange losses in 2023 relate primarily to exposures in the Argentine peso, including $109 million related to the devaluation of the Argentine peso by the Argentina government in December 2023. Foreign exchange losses in 2022relate primarily to exposures in the Argentine peso.
3.The year ended December 31, 2023, includes gains associated with the sale of shares of a previously impaired equity method investment.
4.Certain obligations associated with a previously impaired equity method investment.
5.See Note 13 for additional information.
6.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution.
7.See Note 14 for additional information.
8.The year ended December 31, 2021, includes post-closing adjustments on a previous divestiture, related to Packaging & Specialty Plastics.
Sundry income (expense) - net for TDCC for the years ended December 31, 2023, 2022 and 2021, is substantially the same as that of Dow Inc., with the primary difference related to indemnification and other transaction related costs recorded on Dow Inc. Therefore, TDCC sundry income (expense) - net is not disclosed separately.
Other Investments
The Company has investments in company-owned life insurance policies ("COLI"), which are recorded at their cash surrender value as of each balance sheet date, as provided below:
| | | | | | | | |
| Investments in Company-Owned Life Insurance | Dec 31, 2023 | Dec 31, 2022 |
| In millions |
| Gross cash value | $ | 623 | | $ | 708 | |
Less: Existing drawdowns 1 | 97 | | — | |
Investments in company-owned life insurance 2 | $ | 526 | | $ | 708 | |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2023, the Company had monetized $97 million of its existing COLI policies' value (zero at December 31, 2022).
Supplier Finance Program
The Company facilitates a supply chain financing (“SCF”) program in the ordinary course of business in order to extend payment terms with vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Company. The vendor receives payment from the financial intermediary, and the Company pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Company is not a party to that agreement. The financial intermediary may allow the participating vendor to utilize the Company’s creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. The Company does not provide guarantees related to the SCF program. At December 31, 2023, outstanding obligations confirmed as valid under the SCF program were $285 million ($267 million at December 31, 2022), included in “Accounts payable – Trade” in the consolidated balance sheets.
The following table summarizes the outstanding obligations confirmed as valid under the SCF program for the year ended December 31, 2023:
| | | | | | |
| Supplier Finance Program Activity | 2023 | |
| In millions |
| Confirmed obligations outstanding at Jan 1 | $ | 267 | | |
| Invoices confirmed to financial intermediary | 1,308 | | |
| Confirmed invoices paid to financial intermediary | (1,290) | | |
| Confirmed obligations outstanding at Dec 31 | $ | 285 | | |
Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $2,704 million and $2,575 million at December 31, 2023 and $2,770 million and $2,613 million at December 31, 2022, for Dow Inc. and TDCC, respectively. Accrued payroll, which is a component of "Accrued and other current liabilities" and includes liabilities related to payroll, performance-based compensation and severance, was include$714 million at December 31, 2023 and $650 million at December 31, 2022. 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, 2023, 2022 and 2021:
| | | | | | | | | | | |
| Supplemental Cash Flow Information | 2023 | 2022 | 2021 |
| In millions |
| Cash paid during year for: | | | |
| Interest | $ | 800 | | $ | 675 | | $ | 801 | |
| Income taxes | $ | 735 | | $ | 793 | | $ | 731 | |
NOTE 6 – 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, 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 (Credit) for Income Taxes | | | |
| In millions | 2023 | 2022 | 2021 |
| Income (loss) before income taxes | | | |
| Domestic | $ | (602) | | $ | 2,383 | | $ | 1,523 | |
| Foreign | 1,258 | | 3,707 | | 6,622 | |
| Income before income taxes | $ | 656 | | $ | 6,090 | | $ | 8,145 | |
| Current tax expense (benefit) | | | |
| Federal | $ | 249 | | $ | 434 | | $ | (46) | |
| State and local | 18 | | 82 | | 48 | |
| Foreign | 951 | | 855 | | 1,460 | |
| Total current tax expense | $ | 1,218 | | $ | 1,371 | | $ | 1,462 | |
| Deferred tax expense (benefit) | | | |
| Federal | $ | (445) | | $ | 63 | | $ | 130 | |
| State and local | 3 | | 1 | | 26 | |
| Foreign | (780) | | 15 | | 122 | |
| Total deferred tax expense (benefit) | $ | (1,222) | | $ | 79 | | $ | 278 | |
| Provision (credit) for income taxes | $ | (4) | | $ | 1,450 | | $ | 1,740 | |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2023 | 2022 | 2021 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| Equity earnings effect | 4.2 | | (1.2) | | (2.2) | |
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | 8.3 | | (1.4) | | (1.3) | |
| U.S. tax effect of foreign earnings and dividends | (13.0) | | 1.2 | | 1.7 | |
| Unrecognized tax benefits | 33.1 | | 1.3 | | 4.7 | |
| | | |
| Changes in valuation allowances | 18.8 | | (2.8) | | 2.6 | |
| Federal tax accrual adjustment | (21.2) | | 0.6 | | (5.3) | |
| State and local income taxes | 3.0 | | 2.8 | | 0.2 | |
| | | |
Change in tax basis in foreign assets 1 | (56.0) | | — | | — | |
| | | |
| Other - net | 1.2 | | 2.3 | | — | |
| Effective tax rate | (0.6) | % | 23.8 | % | 21.4 | % |
1.dThe 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2023 | 2022 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | 404 | | $ | 2,663 | | $ | 505 | | $ | 3,001 | |
| Tax loss and credit carryforwards | 1,754 | | — | | 1,472 | | — | |
| Postretirement benefit obligations | 983 | | 196 | | 749 | | 239 | |
| Other accruals and reserves | 1,923 | | 521 | | 1,497 | | 279 | |
Intangibles 1 | 2,090 | | 331 | | 36 | | 415 | |
| Inventory | 114 | | 272 | | 129 | | 278 | |
| | | | |
| Investments | 166 | | 34 | | 116 | | 41 | |
| | | | |
| Other – net | 733 | | 115 | | 999 | | 131 | |
| Subtotal | $ | 8,167 | | $ | 4,132 | | $ | 5,503 | | $ | 4,384 | |
Valuation allowances 1 | (2,948) | | — | | (1,269) | | — | |
| Total | $ | 5,219 | | $ | 4,132 | | $ | 4,234 | | $ | 4,384 | |
1.The change in 2023 primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| | | | | | | | |
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2023 | 2022 |
| In millions | Assets | Assets |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 213 | | $ | 158 | |
| Expire after 5 years or indefinite expiration | 727 | | 752 | |
| Total operating loss carryforwards | $ | 940 | | $ | 910 | |
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 80 | | $ | 77 | |
| Expire after 5 years or indefinite expiration | 317 | | 96 | |
| Total tax credit carryforwards | $ | 397 | | $ | 173 | |
| Capital loss carryforwards | | |
| Expire within 5 years | $ | 417 | | $ | 389 | |
| Total tax loss and tax credit carryforwards | $ | 1,754 | | $ | 1,472 | |
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,148 million at December 31, 2023 and $6,013 million at December 31, 2022. Undistributed earnings are 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 | 2023 | 2022 | 2021 |
| Total unrecognized tax benefits at Jan 1 | $ | 520 | | $ | 580 | | $ | 373 | |
| Decreases related to positions taken on items from prior years | (58) | | (47) | | (3) | |
| Increases related to positions taken on items from prior years | 89 | | 53 | | 187 | |
| Increases related to positions taken in the current year | 77 | | 46 | | 44 | |
| Settlement of uncertain tax positions with tax authorities | (109) | | (111) | | (18) | |
| Decreases due to expiration of statutes of limitations | (11) | | — | | (1) | |
| Foreign exchange loss (gain) | 5 | | (1) | | (2) | |
| Total unrecognized tax benefits at Dec 31 | $ | 513 | | $ | 520 | | $ | 580 | |
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 513 | | $ | 520 | | $ | 501 | |
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes" | $ | 126 | | $ | (27) | | $ | 359 | |
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 561 | | $ | 498 | | $ | 502 | |
The Company files tax returns in multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. Open 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 credits for a given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations. The earliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the United States and 2011 for taxes in foreign jurisdictions.
NOTE 7 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2023, 2022 and 2021. 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 | 2023 | 2022 | 2021 |
| In millions |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
Net income attributable to participating securities 1 | 11 | | 24 | | 32 | |
| Net income attributable to common stockholders | $ | 578 | | $ | 4,558 | | $ | 6,279 | |
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 | 2023 | 2022 | 2021 |
| Dollars per share |
| Earnings per common share - basic | $ | 0.82 | | $ | 6.32 | | $ | 8.44 | |
| Earnings per common share - diluted | $ | 0.82 | | $ | 6.28 | | $ | 8.38 | |
| | | | | | | | | | | |
| Share Count Information | 2023 | 2022 | 2021 |
| Shares in millions |
| Weighted-average common shares outstanding - basic | 705.7 | | 721.0 | | 743.6 | |
| Plus dilutive effect of equity compensation plans | 3.3 | | 4.6 | | 5.4 | |
| Weighted-average common shares outstanding - diluted | 709.0 | | 725.6 | | 749.0 | |
Stock options and restricted stock units excluded from EPS calculations 1 | 9.6 | | 7.6 | | 5.8 | |
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 8 – INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2023 | 2022 |
| Finished goods | $ | 3,413 | | $ | 4,150 | |
| Work in process | 1,234 | | 1,476 | |
| Raw materials | 746 | | 954 | |
| Supplies | 992 | | 892 | |
| Total | $ | 6,385 | | $ | 7,472 | |
| Adjustment of inventories to the LIFO basis | (309) | | (484) | |
| Total inventories | $ | 6,076 | | $ | 6,988 | |
At December 31, 2023, approximately 29 percent, 60 percent and 11 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2022, approximately 27 percent, 64 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.
NOTE 9 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful
Lives (Years) | 2023 | 2022 |
| In millions |
| Land and land improvements | 0-25 | $ | 2,218 | | $ | 2,129 | |
| Buildings | 5-50 | 5,216 | | 5,045 | |
| Machinery and equipment | 3-25 | 43,343 | | 42,131 | |
| Other property | 3-50 | 6,865 | | 6,622 | |
| Construction in progress | — | | 2,561 | | 2,128 | |
| Total property | | $ | 60,203 | | $ | 58,055 | |
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Depreciation expense | $ | 1,932 | | $ | 1,958 | | $ | 2,063 | |
| Capitalized interest | $ | 88 | | $ | 63 | | $ | 59 | |
NOTE 10 – 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 | 2023 1 | 2022 1 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,267 | | $ | 1,589 | |
| Other noncurrent obligations | (229) | | (144) | |
| Net investment in nonconsolidated affiliates | $ | 1,038 | | $ | 1,445 | |
1.The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2023 and 2022, was $55 million less than its share of the investees’ net assets, exclusive of additional differences relating to Sadara, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.
| | | | | | | | | | | |
| Dividends Received from Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions |
Dividends from nonconsolidated affiliates 1 | $ | 268 | | $ | 964 | | $ | 324 | |
1.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
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.
The Company’s investment in Sadara was $1,387 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara at December 31, 2023 ($1,464 million less at December 31, 2022). This basis difference, which resulted from the 2019 impairment of the investment, is primarily attributed to the long-lived assets of Sadara and is being amortized over the remaining useful lives of the assets. At December 31, 2023, the Company had a negative investment balance in Sadara of $128 million classified as "Other noncurrent obligations" ($322 million at December 31, 2022 included in “Investment in nonconsolidated affiliates”) in the Company’s consolidated balance sheets. See Note 14 for additional information related to guarantees.
EQUATE
At December 31, 2023, the Company had a negative investment balance in EQUATE of $101 million classified as "Other noncurrent obligations" ($144 million at December 31, 2022) in the consolidated balance sheets. The Company's investment in EQUATE was $432 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 2023 ($447 million less at December 31, 2022), 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 $111 million at December 31, 2023 ($126 million at December 31, 2022), is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At March 31, 2023, the Company's previously impaired investment in AFSI was converted to cash upon completion of the AFSI shareholder-approved go-private transaction. The Company had an investment balance in AFSI of zero at December 31, 2023 and 2022. At December 31, 2022, the Company's investment in AFSI was $72 million less than the Company's proportionate share of AFSI's underlying net assets. At December 31, 2023, the Company held no ownership interest in AFSI (40 percent ownership interest in AFSI at December 31, 2022).
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 2023, 2022 and 2021. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 2 percent of the segment's sales in 2023, 2022 and 2021. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2023, 2022 and 2021.
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 6 percent of "Cost of sales" in 2023 (7 percent in 2022 and 9 percent in 2021).
The Company purchases products from The SCGC-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCGC-Dow Group represented 3 percent of "Cost of sales" in 2023, 2022 and 2021.
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, 2023 and 2022, were as follows:
| | | | | | | | |
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions |
| Accounts and notes receivable - Other | $ | 189 | | $ | 307 | |
| | |
| | |
| | |
| Accounts payable - Other | $ | 823 | | $ | 1,083 | |
| | |
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 38 nonconsolidated affiliates at December 31, 2023 (37 at December 31, 2022). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2023, 2022 and 2021, are as follows:
| | | | | | | | | | | | | | |
| Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest |
| | 2023 | 2022 | 2021 |
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % |
| | | | |
| Sadara Chemical Company | Saudi Arabia | 35.00 | % | 35.00 | % | 35.00 | % |
| The SCGC-Dow Group: | | | | |
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| | | | |
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 12.50 percent through its equity interest in Siam Polyethylene Company Limited.
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are as follows:
| | | | | | | | |
| Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions |
| Investment in principal nonconsolidated affiliates | $ | 754 | | $ | 1,116 | |
| Other noncurrent obligations | (229) | | (144) | |
| Net investment in principal nonconsolidated affiliates | $ | 525 | | $ | 972 | |
| | | | | | | | | | | |
| Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions |
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (192) | | $ | 192 | | $ | 918 | |
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 | 2023 | 2022 |
| In millions |
| Current assets | $ | 4,904 | | $ | 6,241 | |
| Noncurrent assets | 21,832 | | 22,526 | |
| Total assets | $ | 26,736 | | $ | 28,767 | |
| Current liabilities | $ | 3,490 | | $ | 3,754 | |
| Noncurrent liabilities | 18,794 | | 18,999 | |
| Total liabilities | $ | 22,284 | | $ | 22,753 | |
| Noncontrolling interests | $ | 157 | | $ | 223 | |
| | | | | | | | | | | |
Summarized Income Statement Information 1 | 2023 | 2022 | 2021 |
| In millions |
| Sales | $ | 11,102 | | $ | 14,026 | | $ | 14,969 | |
| Gross profit | $ | 289 | | $ | 1,246 | | $ | 3,219 | |
| Income (loss), net of tax | $ | (1,053) | | $ | (91) | | $ | 2,013 | |
1.The results in this table include purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.
NOTE 11 – 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, 2023 and 2022:
| | | | | | | | | | | | | | |
| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
| In millions |
| Balance at Jan 1, 2022 | $ | 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 | |
| Foreign currency impact | 3 | | 1 | | (7) | | (3) | |
| | | | |
| Balance at Dec 31, 2023 | $ | 5,103 | | $ | 1,094 | | $ | 2,444 | | $ | 8,641 | |
At December 31, 2023, goodwill was carried by all reporting units except Coatings & Performance Monomers.
Goodwill Impairments
The carrying amounts of goodwill at December 31, 2023 and 2022, were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure and $2,530 million in Performance Materials & Coatings.
Goodwill Impairment Testing
The Company performs an impairment test of goodwill annually in the fourth quarter. In 2023, 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 on any reporting units in 2023, 2022, and 2021. The qualitative testing on the reporting units indicated that it was not more likely than not that fair value was less than the carrying value for the reporting units.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| Other Intangible Assets at Dec 31 | 2023 | 2022 |
| In millions | Gross
Carrying
Amount | Accum Amort | Net | Gross
Carrying
Amount | Accum Amort | Net |
| Intangible assets: | | | | | | |
| Developed technology | $ | 2,634 | | $ | (2,181) | | $ | 453 | | $ | 2,651 | | $ | (2,025) | | $ | 626 | |
| Software | 1,352 | | (981) | | 371 | | 1,358 | | (962) | | 396 | |
| Trademarks/tradenames | 352 | | (346) | | 6 | | 352 | | (345) | | 7 | |
| Customer-related | 3,108 | | (1,866) | | 1,242 | | 3,103 | | (1,690) | | 1,413 | |
| | | | | | |
| Total other intangible assets | $ | 7,446 | | $ | (5,374) | | $ | 2,072 | | $ | 7,464 | | $ | (5,022) | | $ | 2,442 | |
The following table provides information regarding amortization expense related to intangible assets:
| | | | | | | | | | | |
| Amortization Expense | 2023 | 2022 | 2021 |
| In millions |
| Other intangible assets, excluding software | $ | 324 | | $ | 336 | | $ | 388 | |
| Software, included in "Cost of sales" | $ | 70 | | $ | 80 | | $ | 90 | |
Total estimated amortization expense for the next five fiscal years, including amounts expected to be capitalized, is as follows:
| | | | | |
| Estimated Amortization Expense for Next Five Years |
| In millions |
| 2024 | $ | 379 | |
| 2025 | $ | 288 | |
| 2026 | $ | 213 | |
| 2027 | $ | 178 | |
| 2028 | $ | 157 | |
NOTE 12 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains accounts receivable facilities with various financial institutions, with committed and uncommitted facilities in the United States and a committed accounts receivable facility in Europe (collectively, "the Programs"), which are both set to expire in November 2025. Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. committed facility, and €500 million for the Europe committed facility. 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 14 for additional information related to guarantees. In 2023, the Company sold $112 million of receivables under the Programs ($391 million in 2022).
Beginning in 2023, the Company has access to an accounts receivable discounting facility that covers receivables generated from sales in EMEAI. Under the terms of the discounting facility, the Company retains no interest in the transferred receivables once sold and receivables are transferred with limited recourse. In 2023, the Company sold $91 million of receivables into the facility.
NOTE 13 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| | | | | | | | |
| Notes Payable at Dec 31 | | |
| In millions | 2023 | 2022 |
| Commercial paper | $ | — | | $ | 299 | |
| Notes payable to banks and other lenders | 62 | | 63 | |
| | |
| | |
| Total notes payable | $ | 62 | | $ | 362 | |
Year-end average interest rates 1 | 33.84 | % | 6.55 | % |
1.The average interest rate increase from 2022 to 2023 is primarily due to interest rates in Argentina.
| | | | | | | | | | | | | | |
| Long-Term Debt at Dec 31 | 2023 Average Rate | 2023 | 2022
Average
Rate | 2022 |
| In millions |
| Promissory notes and debentures: | | | | |
| Final maturity 2023 | — | % | $ | — | | 7.63 | % | $ | 250 | |
| Final maturity 2025 | 5.63 | % | 333 | | 5.63 | % | 333 | |
| Final maturity 2028 | 4.80 | % | 600 | | 4.80 | % | 600 | |
| | | | |
Final maturity 2029 and thereafter 1 | 5.40 | % | 10,228 | | 5.39 | % | 10,264 | |
| Other facilities: | | | | |
| | | | |
| Foreign currency notes and loans, various rates and maturities | 1.18 | % | 2,653 | | 1.16 | % | 2,562 | |
InterNotes®, varying maturities through 2053 | 4.12 | % | 595 | | 3.87 | % | 543 | |
| | | | |
Finance lease obligations 2 | | 873 | | | 790 | |
| Unamortized debt discount and issuance costs | | (258) | | | (282) | |
Long-term debt due within one year 3 | | (117) | | | (362) | |
| Long-term debt | | $ | 14,907 | | | $ | 14,698 | |
1.Cost includes net fair value hedge adjustment gains of $49 million at December 31, 2023 ($46 million at December 31, 2022). See Note 20 for additional information.
2.See Note 15 for additional information.
3.Presented net of current portion of unamortized debt issuance costs.
| | | | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2023 |
| In millions |
| 2024 | $ | 115 | |
| 2025 | $ | 443 | |
| 2026 | $ | 120 | |
| 2027 | $ | 1,261 | |
| 2028 | $ | 683 | |
2023 Activity
In the fourth quarter of 2023, the Company redeemed $23 million aggregate principal amount of 2.100 percent notes due November 2030, $14 million aggregate principal amount of 4.625 percent notes due October 2044, and $1 million aggregate principal amount of 4.375 percent notes due November 2042. As a result of the redemption, the Company recognized a pretax gain on the early extinguishment of debt of $5 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Packaging & Specialty Plastics. On September 16, 2020, the Court of Appeal of Alberta issued its decision, affirming the trial court's liability finding, upholding the majority of Dow's damages and requiring the trial court to recalculate a portion of damages. Corporate.
In the fourth quarter of 2020, Nova chose not to petition the Court to review the appellate court decision, making additional portions of the ruling in Dow’s favor final and no longer subject to dispute. As a result,2023, the Company recorded a $552issued an aggregate principal amount of $80 million pretax gain inof InterNotes®. Additionally, the fourth quarterCompany repaid $250 million of 2020,long-term debt at maturity and approximately $3 million of which $538 millionlong-term debt was included in "Sundry income (expense) - net" and $14 million was included in "Selling, general and administrative expenses" in therepaid by consolidated statements of income and related to Packaging & Specialty Plastics. At December 31, 2020, $323 million ($893 million at December 31, 2019) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment. Dow continues to seek an award of additional damages for the period from 2013 through 2018.variable interest entities.
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, 2020 and 2019.
Guarantees
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for guarantees:
| | | | | | | | | | | | | | | | | | | | |
| Guarantees | Dec 31, 2020 | Dec 31, 2019 |
| In millions | Final
Expiration | Maximum Future Payments | Recorded Liability | Final
Expiration | Maximum Future Payments | Recorded Liability |
| Guarantees | 2023 | $ | 251 | | $ | 2 | | 2023 | $ | 3,952 | | $ | 10 | |
| | | | | | |
Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to less than three years. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
The Company has entered into guarantee agreements related to Sadara, a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara was approximately $12.5 billion. Sadara had $10.8 billion of Total Project Financing debt outstanding at December 31, 2019. In November 2020, the remaining project completion conditions related to the Total Project Financing guarantees were fulfilled and the Company's guarantee obligations terminated. Subsequently, the Company provided a new guarantee in the form of a letter of credit for its share of one future debt service schedule payment up to $220 million. The guarantee is in proportion to the Company’s 35 percent ownership interest in Sadara and is expected to remain in effect until the re-profiling of Sadara’s debt is completed which is expected in the first quarter of 2021. See Note 12 for additional information.
In January 2021, Sadara reached an agreement in principle with its lenders to re-profile Sadara's outstanding project financing debt. In conjunction with completion of the Sadara debt re-profiling, the Company expects to guarantee approximately $1.3 billion of Sadara’s debt. The debt re-profiling is expected to include a grace period until June 2026, during which Sadara is obligated to make interest-only payments. Dow will also provide guarantees for its portion of all Sadara interest payments due during the grace period. Dow's pro-rata share of any potential shortfall during the grace period will be funded by a new $500 million revolving credit facility guaranteed by Dow,
2022 Activity
In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026. As a result of the redemption, the Company recognized a pretax loss 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 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 issued an aggregate principal amount of $167 million of InterNotes®. Additionally, the Company repaid $121 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2021 Activity
In the second quarter of 2021, the Company redeemed $208 million aggregate principal amount of 3.15 percent notes due May 2024 and $811 million aggregate principal amount of 3.50 percent notes due October 2024. As a result of the redemptions, the Company recognized a pretax loss of $101 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 third quarter of 2021, the Company completed 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 long-term debt due within one year.
In 2021, the Company issued an aggregate principal amount of $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 $25 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, 2023 |
| In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | November 2028 | Floating rate |
| Bilateral Revolving Credit Facility | | 375 | | 375 | | October 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 | | 200 | | 200 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 175 | | 175 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | November 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | February 2026 | 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 |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | May 2028 | Floating rate |
| Total Committed and Available Credit Facilities | | $ | 8,400 | | $ | 8,400 | | | |
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 $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,
(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.
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.
Dow Inc. is expectedobligated, 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 14 – COMMITMENTS AND CONTINGENCIES
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, 2023, the Company had accrued obligations of $1,180 million for probable environmental remediation and restoration costs ($1,192 million at December 31, 2022), including $241 million for the remediation of Superfund sites ($244 million at December 31, 2022). 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 two 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.
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 2023 and 2022:
| | | | | | | | |
| Accrued Obligations for Environmental Matters | 2023 | 2022 |
| In millions |
| Balance at Jan 1 | $ | 1,192 | | $ | 1,220 | |
| Accrual adjustment | 211 | | 184 | |
| Payments against reserve | (229) | | (204) | |
| Foreign currency impact | 6 | | (8) | |
| Balance at Dec 31 | $ | 1,180 | | $ | 1,192 | |
The amounts charged to income on a pretax basis related to environmental remediation totaled $203 million in 2023, $176 million in 2022 and $158 million in 2021. Capital expenditures for environmental protection were $228 million in 2023, $137 million in 2022 and $65 million in 2021.
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 established by Sadaraconducted 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 2021. Dow's existing $220 million letter2012, 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 creditthe Floodplain. The remedial work is expected to continue 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. In 2023, Dow started evaluation of the final geographic segment of the first Operable Unit. 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 and, in 2023, submitted a Completion Report for those limited remedial actions.
Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice 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 guaranteeCity of one future Sadara debt service schedule payment will be cancelled upon completionMidland, 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 July 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 full re-profilingCompany’s Midland Site. The consent decree required the Company to pay a $15 million cash settlement to be used for long-term maintenance and trustee-selected remediation projects with an additional $7 million to specified local projects managed by third parties. These funds were paid in December 2020. The consent decree further requires the Company to complete or fund 13 additional environmental restoration projects which are valued by the trustees at approximately $77 million, to be conducted over the next several years. To date, three projects have been completed, including two environmental restoration projects/public amenities opened to the public. The Company continues to work with the trustees on the remaining projects.
At December 31, 2023, the accrual for these off-site matters was $89 million (included in the total accrued obligation of Sadara's debt. All guarantees$1,180 million). At December 31, 2022, the Company had an accrual for these off-site matters of $92 million (included in the total accrued obligation of $1,192 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
Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura") to perform periodic studies to estimate 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. 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 2021, Ankura stated that an update of its December 2020 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required.
In December 2022, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 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, 2022, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $947 million, and approximately 23 percent of the recorded liability related to pending claims and approximately 77 percent related to future claims.
In December 2023, Ankura stated that an update of its December 2022 study would not provide a more likely estimate of future events than the debt re-profileestimate reflected in that study and, revolving credit facility aretherefore, the estimate in proportionthat study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no adjustment to Dow’s 35the accrual was required. At December 31, 2023, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $867 million, and approximately 25 percent ownership interestof the recorded liability related to pending claims and approximately 75 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 Sadara.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 these actions,disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on the Company does not expect to provide any shareholder loans or equity contributions to Sadara in 2021.Company's results of operations and cash flows for a particular period and on the consolidated financial position.
Groundwater Contamination
The Company is the subject of various complaints related to alleged groundwater contamination based on decades-old sales and applications of certain agricultural chemical products ("Legacy Liabilities"). The costs associated with these Legacy Liabilities were previously covered by insurance policies that have since been depleted. In the first quarter of 2023, the Company completed a study of the Legacy Liabilities now deemed to be probable and estimable based on the public reporting of sampling data and historical information to develop a reasonable estimate of the cost of pending and future claims. As a result, the Company recorded a pretax charge of $177 million, included in "Cost of sales" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure. At December 31, 2023, the total liability related to such alleged Legacy Liabilities settlements was $232 million, which was included in “Accrued and other current liabilities” and "Other noncurrent obligations" in the consolidated balance sheets.
The Company is also the subject of other groundwater contamination complaints, including claims related to1,4-dioxane. The Company continues to defend itself in this litigation and it has determined that the Company's exposure to liability, if any, is not currently probable or estimable.
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 assets.
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, establishing a new cost basis.
Leases
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 Note 15 for additional information.
Revenue
The 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, 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 3 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.
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.
Government Assistance
The Company receives grants, subsidies and incentives (collectively "incentives") from governments in various jurisdictions in support of its operations and capital projects. The incentives are recorded when there is reasonable assurance that the Company will comply with the terms and conditions attached to the incentives and that the incentives will be received. Incentives are recognized on a systematic basis over the periods in which the related cost or expenditures occur and are included in the Company's financial statements as reductions of "Cost of sales" or "Research and development expenses" in the Company’s consolidated statements of income or as a reduction of "Property" in the consolidated balance sheets.
In 2023, the Company received $183 million of government incentives primarily related to the cost of energy used in the Company’s production processes ($260 million in 2022). These incentives, from various governments, are typically based on level of energy consumption and are recorded as a reduction to "Cost of sales" in the consolidated statements of income and as "Accounts and notes receivable - Other" until received or as a reduction to "Accounts payable - Trade" in the consolidated balance sheets. Other forms of government assistance received by the Company in 2023 and 2022 were not material.
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.
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.
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.
TDCC Dividends
TDCC is 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 Notes 16 and 23 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2023, the Company adopted the disclosure requirements of Accounting Standards Update ("ASU") 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," including early adoption of the requirement to disclose rollforward information on a prospective basis. The ASU, which is intended to enhance the transparency of supplier finance programs, requires 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. See Note 5 for disclosures related to the Company's supplier finance program.
Accounting Guidance Issued But Not Adopted at December 31, 2023
In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-02, "Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The amendments permit reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). The amendments also require certain disclosures in annual and interim reporting periods about an entity's tax credit programs. The new standard is effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the amendments must be applied on either a modified retrospective or a retrospective basis. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the ASU only requires additional disclosures about the Company's operating segments, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Although the ASU only modifies the Company's required income tax disclosures, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
NOTE 3 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2023, 98 percent of the Company's revenue related to product sales (99 percent in 2022 and 2021). 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 | 2023 | 2022 | 2021 |
| In millions |
| Hydrocarbons & Energy | $ | 6,566 | | $ | 9,414 | | $ | 8,149 | |
| Packaging and Specialty Plastics | 16,583 | | 19,846 | | 19,979 | |
| Packaging & Specialty Plastics | $ | 23,149 | | $ | 29,260 | | $ | 28,128 | |
| Industrial Solutions | $ | 4,207 | | $ | 5,682 | | $ | 5,139 | |
| Polyurethanes & Construction Chemicals | 8,316 | | 10,907 | | 11,700 | |
| Others | 15 | | 17 | | 12 | |
| Industrial Intermediates & Infrastructure | $ | 12,538 | | $ | 16,606 | | $ | 16,851 | |
| Coatings & Performance Monomers | $ | 3,337 | | $ | 4,051 | | $ | 4,050 | |
| Consumer Solutions | 5,160 | | 6,713 | | 5,622 | |
| Performance Materials & Coatings | $ | 8,497 | | $ | 10,764 | | $ | 9,672 | |
| Corporate | $ | 438 | | $ | 272 | | $ | 317 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
| | | | | | | | | | | |
| Net Trade Sales by Geographic Region | 2023 | 2022 | 2021 |
| In millions |
| U.S. & Canada | $ | 16,640 | | $ | 20,945 | | $ | 19,613 | |
EMEAI 1 | 14,537 | | 19,631 | | 19,746 | |
| Asia Pacific | 8,266 | | 10,344 | | 10,043 | |
| Latin America | 5,179 | | 5,982 | | 5,566 | |
| Total | $ | 44,622 | | $ | 56,902 | | $ | 54,968 | |
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, 2023, the Company had unfulfilled performance obligations of $744 million ($840 million at December 31, 2022) related to the licensing of technology and expects revenue to be recognized for the remaining performance obligations over the next seven years.
The Company has additional remaining performance obligations 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, and variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 21 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.
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 recognized in revenue when the 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.
Revenue recognized in 2023 from amounts included in contract liabilities at the beginning of the period was approximately $315 million (approximately $250 million in 2022 and $295 million in 2021). In 2023, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $45 million (approximately $15 million in 2022). The Company did not recognize any asset impairment charges related to contract assets in 2023 (immaterial in 2022 and no impairment charges in 2021).
The following table summarizes contract assets and liabilities at December 31, 2023 and 2022:
| | | | | | | | | | | | |
| Contract Assets and Liabilities at Dec 31 | Balance Sheet Classification | 2023 | 2022 | |
| In millions |
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 4,718 | | $ | 5,611 | | |
| Contract assets - current | Other current assets | $ | 13 | | $ | 48 | | |
| Contract assets - noncurrent | Deferred charges and other assets | $ | 4 | | $ | 16 | | |
Contract liabilities - current 1 | Accrued and other current liabilities | $ | 195 | | $ | 275 | | |
Contract liabilities - noncurrent 2 | Other noncurrent obligations | $ | 1,642 | | $ | 1,725 | | |
1.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of deferred royalty payments.
2.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of revenue on long-term product supply agreements.
NOTE 4 – RESTRUCTURING AND ASSET RELATED CHARGES - NET
The "Restructuring and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs and other asset related charges, which includes other asset impairments.
Restructuring Programs
2023 Restructuring Program
On January 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. As a result of these actions the Company recorded pretax restructuring charges of $541 million in the first quarter of 2023, additional pretax restructuring charges of $8 million in the second quarter of 2023, and a $14 million net credit adjustment in the fourth quarter of 2023. These actions are expected to be substantially complete by the end of 2024.
The following table summarizes the activities related to the 2023 Restructuring Program, including segment information:
| | | | | | | | | | | |
| 2023 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Total |
| In millions |
| Packaging & Specialty Plastics | $ | — | | $ | 1 | | $ | 1 | |
| Industrial Intermediates & Infrastructure | — | | 50 | | 50 | |
| Performance Materials & Coatings | — | | 49 | | 49 | |
| Corporate | 344 | | 91 | | 435 | |
| Total restructuring charges | $ | 344 | | $ | 191 | | $ | 535 | |
| Charges against the reserve | — | | (191) | | (191) | |
| Cash payments | (222) | | — | | (222) | |
| Reserve balance at Dec 31, 2023 | $ | 122 | | $ | — | | $ | 122 | |
At December 31, 2023, $101 million of the reserve balance was included in "Accrued and other current liabilities" and $21 million was included in "Other noncurrent obligations" in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $535 million inception-to-date under the 2023 Restructuring Program, consisting of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million.
Severance and Related Benefit Costs
Severance benefits are provided to employees primarily under Dow's ongoing benefit arrangements and are accrued against the Corporate segment once management commits to a plan of termination. The 2023 Restructuring Program included a charge for severance and related benefit costs of $344 million for a global workforce reduction of approximately 2,000 employees. The majority of separations occurred by the end of the second quarter of 2023 with the remaining occurring primarily through the end of 2024.
Asset Write-downs and Write-offs
The 2023 Restructuring Program included charges related to the write-down and write-off of assets totaling $191 million. Details regarding the asset write-downs and write-offs are as follows:
•Industrial Intermediates & Infrastructure charges relate to the shutdown of certain polyurethanes assets and the write-off of other assets. The majority of the impacted facilities are expected to be shutdown by the end of 2024.
•Performance Materials & Coatings recorded charges to rationalize its asset footprint by shutting down certain coatings assets. These facilities are expected to be shutdown by the end of 2024.
•Corporate recorded charges related to the write-down of Company owned and leased, non-manufacturing facilities, primarily related to office space rationalization.
Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions and costs associated with the Company's productivity and efficiency actions, are expected to result in additional cash expenditures of approximately $285 million, primarily through the end of 2024.
Asset Related Charges
In 2023, the Company recorded pretax asset related credits of $7 million in Corporate related to a prior restructuring program.
In 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.
NOTE 5 – SUPPLEMENTARY INFORMATION
| | | | | | | | | | | | | | |
| Dow Inc. Sundry Income (Expense) – Net | 2023 | 2022 | 2021 | |
| In millions | | | |
Non-operating pension and other postretirement benefit plan net (cost) credits 1 | $ | (264) | | $ | 358 | | $ | 332 | | | | |
Foreign exchange losses 2 | (340) | | (117) | | (8) | | | | |
Gain on sales of other assets and investments 3 | 80 | | 78 | | 105 | | | | |
Asset impairments and related costs 4 | (18) | | — | | — | | | | |
Gain (loss) on early extinguishment of debt 5 | 5 | | (8) | | (574) | | | | |
Indemnification and other transaction related costs 6 | 26 | | 4 | | 30 | | | | |
Gain related to Nova legal matter 7 | 106 | | 321 | | — | | | | |
| Dow Silicones breast implant liability adjustment | — | | 60 | | — | | | | |
Luxi arbitration award 7 | — | | — | | 54 | | | | |
Gain on divestitures and asset sale 8 | — | | — | | 16 | | | | |
| Other - net | 125 | | 31 | | 10 | | | | |
| Total sundry income (expense) – net | $ | (280) | | $ | 727 | | $ | (35) | | | | |
1.The year ended December 31, 2023, includes pretax pension settlement charges of $642 million related to the transfer of certain plan benefit obligations to insurance companies. See Note 18 for additional information about the Company's pension and other postretirement plans, including pension settlement charges.
2.Foreign exchange losses in 2023 relate primarily to exposures in the Argentine peso, including $109 million related to the devaluation of the Argentine peso by the Argentina government in December 2023. Foreign exchange losses in 2022relate primarily to exposures in the Argentine peso.
3.The year ended December 31, 2023, includes gains associated with the sale of shares of a previously impaired equity method investment.
4.Certain obligations associated with a previously impaired equity method investment.
5.See Note 13 for additional information.
6.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution.
7.See Note 14 for additional information.
8.The year ended December 31, 2021, includes post-closing adjustments on a previous divestiture, related to Packaging & Specialty Plastics.
Sundry income (expense) - net for TDCC for the years ended December 31, 2023, 2022 and 2021, is substantially the same as that of Dow Inc., with the primary difference related to indemnification and other transaction related costs recorded on Dow Inc. Therefore, TDCC sundry income (expense) - net is not disclosed separately.
Other Investments
The Company has investments in company-owned life insurance policies ("COLI"), which are recorded at their cash surrender value as of each balance sheet date, as provided below:
| | | | | | | | |
| Investments in Company-Owned Life Insurance | Dec 31, 2023 | Dec 31, 2022 |
| In millions |
| Gross cash value | $ | 623 | | $ | 708 | |
Less: Existing drawdowns 1 | 97 | | — | |
Investments in company-owned life insurance 2 | $ | 526 | | $ | 708 | |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2023, the Company had monetized $97 million of its existing COLI policies' value (zero at December 31, 2022).
Supplier Finance Program
The Company facilitates a supply chain financing (“SCF”) program in the ordinary course of business in order to extend payment terms with vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Company. The vendor receives payment from the financial intermediary, and the Company pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Company is not a party to that agreement. The financial intermediary may allow the participating vendor to utilize the Company’s creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. The Company does not provide guarantees related to the SCF program. At December 31, 2023, outstanding obligations confirmed as valid under the SCF program were $285 million ($267 million at December 31, 2022), included in “Accounts payable – Trade” in the consolidated balance sheets.
The following table summarizes the outstanding obligations confirmed as valid under the SCF program for the year ended December 31, 2023:
| | | | | | |
| Supplier Finance Program Activity | 2023 | |
| In millions |
| Confirmed obligations outstanding at Jan 1 | $ | 267 | | |
| Invoices confirmed to financial intermediary | 1,308 | | |
| Confirmed invoices paid to financial intermediary | (1,290) | | |
| Confirmed obligations outstanding at Dec 31 | $ | 285 | | |
Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $2,704 million and $2,575 million at December 31, 2023 and $2,770 million and $2,613 million at December 31, 2022, for Dow Inc. and TDCC, respectively. Accrued payroll, which is a component of "Accrued and other current liabilities" and includes liabilities related to payroll, performance-based compensation and severance, was $714 million at December 31, 2023 and $650 million at December 31, 2022. 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, 2023, 2022 and 2021:
| | | | | | | | | | | |
| Supplemental Cash Flow Information | 2023 | 2022 | 2021 |
| In millions |
| Cash paid during year for: | | | |
| Interest | $ | 800 | | $ | 675 | | $ | 801 | |
| Income taxes | $ | 735 | | $ | 793 | | $ | 731 | |
NOTE 6 – 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, 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 (Credit) for Income Taxes | | | |
| In millions | 2023 | 2022 | 2021 |
| Income (loss) before income taxes | | | |
| Domestic | $ | (602) | | $ | 2,383 | | $ | 1,523 | |
| Foreign | 1,258 | | 3,707 | | 6,622 | |
| Income before income taxes | $ | 656 | | $ | 6,090 | | $ | 8,145 | |
| Current tax expense (benefit) | | | |
| Federal | $ | 249 | | $ | 434 | | $ | (46) | |
| State and local | 18 | | 82 | | 48 | |
| Foreign | 951 | | 855 | | 1,460 | |
| Total current tax expense | $ | 1,218 | | $ | 1,371 | | $ | 1,462 | |
| Deferred tax expense (benefit) | | | |
| Federal | $ | (445) | | $ | 63 | | $ | 130 | |
| State and local | 3 | | 1 | | 26 | |
| Foreign | (780) | | 15 | | 122 | |
| Total deferred tax expense (benefit) | $ | (1,222) | | $ | 79 | | $ | 278 | |
| Provision (credit) for income taxes | $ | (4) | | $ | 1,450 | | $ | 1,740 | |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2023 | 2022 | 2021 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| Equity earnings effect | 4.2 | | (1.2) | | (2.2) | |
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | 8.3 | | (1.4) | | (1.3) | |
| U.S. tax effect of foreign earnings and dividends | (13.0) | | 1.2 | | 1.7 | |
| Unrecognized tax benefits | 33.1 | | 1.3 | | 4.7 | |
| | | |
| Changes in valuation allowances | 18.8 | | (2.8) | | 2.6 | |
| Federal tax accrual adjustment | (21.2) | | 0.6 | | (5.3) | |
| State and local income taxes | 3.0 | | 2.8 | | 0.2 | |
| | | |
Change in tax basis in foreign assets 1 | (56.0) | | — | | — | |
| | | |
| Other - net | 1.2 | | 2.3 | | — | |
| Effective tax rate | (0.6) | % | 23.8 | % | 21.4 | % |
1.The 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2023 | 2022 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | 404 | | $ | 2,663 | | $ | 505 | | $ | 3,001 | |
| Tax loss and credit carryforwards | 1,754 | | — | | 1,472 | | — | |
| Postretirement benefit obligations | 983 | | 196 | | 749 | | 239 | |
| Other accruals and reserves | 1,923 | | 521 | | 1,497 | | 279 | |
Intangibles 1 | 2,090 | | 331 | | 36 | | 415 | |
| Inventory | 114 | | 272 | | 129 | | 278 | |
| | | | |
| Investments | 166 | | 34 | | 116 | | 41 | |
| | | | |
| Other – net | 733 | | 115 | | 999 | | 131 | |
| Subtotal | $ | 8,167 | | $ | 4,132 | | $ | 5,503 | | $ | 4,384 | |
Valuation allowances 1 | (2,948) | | — | | (1,269) | | — | |
| Total | $ | 5,219 | | $ | 4,132 | | $ | 4,234 | | $ | 4,384 | |
1.The change in 2023 primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| | | | | | | | |
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2023 | 2022 |
| In millions | Assets | Assets |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 213 | | $ | 158 | |
| Expire after 5 years or indefinite expiration | 727 | | 752 | |
| Total operating loss carryforwards | $ | 940 | | $ | 910 | |
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 80 | | $ | 77 | |
| Expire after 5 years or indefinite expiration | 317 | | 96 | |
| Total tax credit carryforwards | $ | 397 | | $ | 173 | |
| Capital loss carryforwards | | |
| Expire within 5 years | $ | 417 | | $ | 389 | |
| Total tax loss and tax credit carryforwards | $ | 1,754 | | $ | 1,472 | |
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,148 million at December 31, 2023 and $6,013 million at December 31, 2022. Undistributed earnings are 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 | 2023 | 2022 | 2021 |
| Total unrecognized tax benefits at Jan 1 | $ | 520 | | $ | 580 | | $ | 373 | |
| Decreases related to positions taken on items from prior years | (58) | | (47) | | (3) | |
| Increases related to positions taken on items from prior years | 89 | | 53 | | 187 | |
| Increases related to positions taken in the current year | 77 | | 46 | | 44 | |
| Settlement of uncertain tax positions with tax authorities | (109) | | (111) | | (18) | |
| Decreases due to expiration of statutes of limitations | (11) | | — | | (1) | |
| Foreign exchange loss (gain) | 5 | | (1) | | (2) | |
| Total unrecognized tax benefits at Dec 31 | $ | 513 | | $ | 520 | | $ | 580 | |
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 513 | | $ | 520 | | $ | 501 | |
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes" | $ | 126 | | $ | (27) | | $ | 359 | |
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 561 | | $ | 498 | | $ | 502 | |
The Company files tax returns in multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. Open 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 credits for a given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations. The earliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the United States and 2011 for taxes in foreign jurisdictions.
NOTE 7 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2023, 2022 and 2021. 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 | 2023 | 2022 | 2021 |
| In millions |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| Net income attributable to noncontrolling interests | 71 | | 58 | | 94 | |
| | | |
Net income attributable to participating securities 1 | 11 | | 24 | | 32 | |
| Net income attributable to common stockholders | $ | 578 | | $ | 4,558 | | $ | 6,279 | |
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 | 2023 | 2022 | 2021 |
| Dollars per share |
| Earnings per common share - basic | $ | 0.82 | | $ | 6.32 | | $ | 8.44 | |
| Earnings per common share - diluted | $ | 0.82 | | $ | 6.28 | | $ | 8.38 | |
| | | | | | | | | | | |
| Share Count Information | 2023 | 2022 | 2021 |
| Shares in millions |
| Weighted-average common shares outstanding - basic | 705.7 | | 721.0 | | 743.6 | |
| Plus dilutive effect of equity compensation plans | 3.3 | | 4.6 | | 5.4 | |
| Weighted-average common shares outstanding - diluted | 709.0 | | 725.6 | | 749.0 | |
Stock options and restricted stock units excluded from EPS calculations 1 | 9.6 | | 7.6 | | 5.8 | |
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 8 – INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2023 | 2022 |
| Finished goods | $ | 3,413 | | $ | 4,150 | |
| Work in process | 1,234 | | 1,476 | |
| Raw materials | 746 | | 954 | |
| Supplies | 992 | | 892 | |
| Total | $ | 6,385 | | $ | 7,472 | |
| Adjustment of inventories to the LIFO basis | (309) | | (484) | |
| Total inventories | $ | 6,076 | | $ | 6,988 | |
At December 31, 2023, approximately 29 percent, 60 percent and 11 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2022, approximately 27 percent, 64 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.
NOTE 9 – PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful
Lives (Years) | 2023 | 2022 |
| In millions |
| Land and land improvements | 0-25 | $ | 2,218 | | $ | 2,129 | |
| Buildings | 5-50 | 5,216 | | 5,045 | |
| Machinery and equipment | 3-25 | 43,343 | | 42,131 | |
| Other property | 3-50 | 6,865 | | 6,622 | |
| Construction in progress | — | | 2,561 | | 2,128 | |
| Total property | | $ | 60,203 | | $ | 58,055 | |
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Depreciation expense | $ | 1,932 | | $ | 1,958 | | $ | 2,063 | |
| Capitalized interest | $ | 88 | | $ | 63 | | $ | 59 | |
NOTE 10 – 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 | 2023 1 | 2022 1 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,267 | | $ | 1,589 | |
| Other noncurrent obligations | (229) | | (144) | |
| Net investment in nonconsolidated affiliates | $ | 1,038 | | $ | 1,445 | |
1.The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2023 and 2022, was $55 million less than its share of the investees’ net assets, exclusive of additional differences relating to Sadara, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.
| | | | | | | | | | | |
| Dividends Received from Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions |
Dividends from nonconsolidated affiliates 1 | $ | 268 | | $ | 964 | | $ | 324 | |
1.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
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.
The Company’s investment in Sadara was $1,387 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara at December 31, 2023 ($1,464 million less at December 31, 2022). This basis difference, which resulted from the 2019 impairment of the investment, is primarily attributed to the long-lived assets of Sadara and is being amortized over the remaining useful lives of the assets. At December 31, 2023, the Company had a negative investment balance in Sadara of $128 million classified as "Other noncurrent obligations" ($322 million at December 31, 2022 included in “Investment in nonconsolidated affiliates”) in the Company’s consolidated balance sheets. See Note 14 for additional information related to guarantees.
EQUATE
At December 31, 2023, the Company had a negative investment balance in EQUATE of $101 million classified as "Other noncurrent obligations" ($144 million at December 31, 2022) in the consolidated balance sheets. The Company's investment in EQUATE was $432 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 2023 ($447 million less at December 31, 2022), 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 $111 million at December 31, 2023 ($126 million at December 31, 2022), is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At March 31, 2023, the Company's previously impaired investment in AFSI was converted to cash upon completion of the AFSI shareholder-approved go-private transaction. The Company had an investment balance in AFSI of zero at December 31, 2023 and 2022. At December 31, 2022, the Company's investment in AFSI was $72 million less than the Company's proportionate share of AFSI's underlying net assets. At December 31, 2023, the Company held no ownership interest in AFSI (40 percent ownership interest in AFSI at December 31, 2022).
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 2023, 2022 and 2021. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 2 percent of the segment's sales in 2023, 2022 and 2021. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2023, 2022 and 2021.
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 6 percent of "Cost of sales" in 2023 (7 percent in 2022 and 9 percent in 2021).
The Company purchases products from The SCGC-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCGC-Dow Group represented 3 percent of "Cost of sales" in 2023, 2022 and 2021.
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, 2023 and 2022, were as follows:
| | | | | | | | |
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions |
| Accounts and notes receivable - Other | $ | 189 | | $ | 307 | |
| | |
| | |
| | |
| Accounts payable - Other | $ | 823 | | $ | 1,083 | |
| | |
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 38 nonconsolidated affiliates at December 31, 2023 (37 at December 31, 2022). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2023, 2022 and 2021, are as follows:
| | | | | | | | | | | | | | |
| Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest |
| | 2023 | 2022 | 2021 |
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % |
Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % |
| | | | |
| Sadara Chemical Company | Saudi Arabia | 35.00 | % | 35.00 | % | 35.00 | % |
| The SCGC-Dow Group: | | | | |
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % |
| | | | |
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 12.50 percent through its equity interest in Siam Polyethylene Company Limited.
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are as follows:
| | | | | | | | |
| Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 |
| In millions |
| Investment in principal nonconsolidated affiliates | $ | 754 | | $ | 1,116 | |
| Other noncurrent obligations | (229) | | (144) | |
| Net investment in principal nonconsolidated affiliates | $ | 525 | | $ | 972 | |
| | | | | | | | | | | |
| Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2023 | 2022 | 2021 |
| In millions |
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (192) | | $ | 192 | | $ | 918 | |
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 | 2023 | 2022 |
| In millions |
| Current assets | $ | 4,904 | | $ | 6,241 | |
| Noncurrent assets | 21,832 | | 22,526 | |
| Total assets | $ | 26,736 | | $ | 28,767 | |
| Current liabilities | $ | 3,490 | | $ | 3,754 | |
| Noncurrent liabilities | 18,794 | | 18,999 | |
| Total liabilities | $ | 22,284 | | $ | 22,753 | |
| Noncontrolling interests | $ | 157 | | $ | 223 | |
| | | | | | | | | | | |
Summarized Income Statement Information 1 | 2023 | 2022 | 2021 |
| In millions |
| Sales | $ | 11,102 | | $ | 14,026 | | $ | 14,969 | |
| Gross profit | $ | 289 | | $ | 1,246 | | $ | 3,219 | |
| Income (loss), net of tax | $ | (1,053) | | $ | (91) | | $ | 2,013 | |
1.The results in this table include purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.
NOTE 11 – 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, 2023 and 2022:
| | | | | | | | | | | | | | |
| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
| In millions |
| Balance at Jan 1, 2022 | $ | 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 | |
| Foreign currency impact | 3 | | 1 | | (7) | | (3) | |
| | | | |
| Balance at Dec 31, 2023 | $ | 5,103 | | $ | 1,094 | | $ | 2,444 | | $ | 8,641 | |
At December 31, 2023, goodwill was carried by all reporting units except Coatings & Performance Monomers.
Goodwill Impairments
The carrying amounts of goodwill at December 31, 2023 and 2022, were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure and $2,530 million in Performance Materials & Coatings.
Goodwill Impairment Testing
The Company performs an impairment test of goodwill annually in the fourth quarter. In 2023, 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 on any reporting units in 2023, 2022, and 2021. The qualitative testing on the reporting units indicated that it was not more likely than not that fair value was less than the carrying value for the reporting units.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| Other Intangible Assets at Dec 31 | 2023 | 2022 |
| In millions | Gross
Carrying
Amount | Accum Amort | Net | Gross
Carrying
Amount | Accum Amort | Net |
| Intangible assets: | | | | | | |
| Developed technology | $ | 2,634 | | $ | (2,181) | | $ | 453 | | $ | 2,651 | | $ | (2,025) | | $ | 626 | |
| Software | 1,352 | | (981) | | 371 | | 1,358 | | (962) | | 396 | |
| Trademarks/tradenames | 352 | | (346) | | 6 | | 352 | | (345) | | 7 | |
| Customer-related | 3,108 | | (1,866) | | 1,242 | | 3,103 | | (1,690) | | 1,413 | |
| | | | | | |
| Total other intangible assets | $ | 7,446 | | $ | (5,374) | | $ | 2,072 | | $ | 7,464 | | $ | (5,022) | | $ | 2,442 | |
The following table provides information regarding amortization expense related to intangible assets:
| | | | | | | | | | | |
| Amortization Expense | 2023 | 2022 | 2021 |
| In millions |
| Other intangible assets, excluding software | $ | 324 | | $ | 336 | | $ | 388 | |
| Software, included in "Cost of sales" | $ | 70 | | $ | 80 | | $ | 90 | |
Total estimated amortization expense for the next five fiscal years, including amounts expected to be capitalized, is as follows:
| | | | | |
| Estimated Amortization Expense for Next Five Years |
| In millions |
| 2024 | $ | 379 | |
| 2025 | $ | 288 | |
| 2026 | $ | 213 | |
| 2027 | $ | 178 | |
| 2028 | $ | 157 | |
NOTE 12 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains accounts receivable facilities with various financial institutions, with committed and uncommitted facilities in the United States and a committed accounts receivable facility in Europe (collectively, "the Programs"), which are both set to expire in November 2025. Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. committed facility, and €500 million for the Europe committed facility. 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 14 for additional information related to guarantees. In 2023, the Company sold $112 million of receivables under the Programs ($391 million in 2022).
Beginning in 2023, the Company has access to an accounts receivable discounting facility that covers receivables generated from sales in EMEAI. Under the terms of the discounting facility, the Company retains no interest in the transferred receivables once sold and receivables are transferred with limited recourse. In 2023, the Company sold $91 million of receivables into the facility.
NOTE 13 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| | | | | | | | |
| Notes Payable at Dec 31 | | |
| In millions | 2023 | 2022 |
| Commercial paper | $ | — | | $ | 299 | |
| Notes payable to banks and other lenders | 62 | | 63 | |
| | |
| | |
| Total notes payable | $ | 62 | | $ | 362 | |
Year-end average interest rates 1 | 33.84 | % | 6.55 | % |
1.The average interest rate increase from 2022 to 2023 is primarily due to interest rates in Argentina.
| | | | | | | | | | | | | | |
| Long-Term Debt at Dec 31 | 2023 Average Rate | 2023 | 2022
Average
Rate | 2022 |
| In millions |
| Promissory notes and debentures: | | | | |
| Final maturity 2023 | — | % | $ | — | | 7.63 | % | $ | 250 | |
| Final maturity 2025 | 5.63 | % | 333 | | 5.63 | % | 333 | |
| Final maturity 2028 | 4.80 | % | 600 | | 4.80 | % | 600 | |
| | | | |
Final maturity 2029 and thereafter 1 | 5.40 | % | 10,228 | | 5.39 | % | 10,264 | |
| Other facilities: | | | | |
| | | | |
| Foreign currency notes and loans, various rates and maturities | 1.18 | % | 2,653 | | 1.16 | % | 2,562 | |
InterNotes®, varying maturities through 2053 | 4.12 | % | 595 | | 3.87 | % | 543 | |
| | | | |
Finance lease obligations 2 | | 873 | | | 790 | |
| Unamortized debt discount and issuance costs | | (258) | | | (282) | |
Long-term debt due within one year 3 | | (117) | | | (362) | |
| Long-term debt | | $ | 14,907 | | | $ | 14,698 | |
1.Cost includes net fair value hedge adjustment gains of $49 million at December 31, 2023 ($46 million at December 31, 2022). See Note 20 for additional information.
2.See Note 15 for additional information.
3.Presented net of current portion of unamortized debt issuance costs.
| | | | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2023 |
| In millions |
| 2024 | $ | 115 | |
| 2025 | $ | 443 | |
| 2026 | $ | 120 | |
| 2027 | $ | 1,261 | |
| 2028 | $ | 683 | |
2023 Activity
In the fourth quarter of 2023, the Company redeemed $23 million aggregate principal amount of 2.100 percent notes due November 2030, $14 million aggregate principal amount of 4.625 percent notes due October 2044, and $1 million aggregate principal amount of 4.375 percent notes due November 2042. As a result of the redemption, the Company recognized a pretax gain on the early extinguishment of debt of $5 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In 2023, the Company issued an aggregate principal amount of $80 million of InterNotes®. Additionally, the Company repaid $250 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2022 Activity
In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026. As a result of the redemption, the Company recognized a pretax loss 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 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 issued an aggregate principal amount of $167 million of InterNotes®. Additionally, the Company repaid $121 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2021 Activity
In the second quarter of 2021, the Company redeemed $208 million aggregate principal amount of 3.15 percent notes due May 2024 and $811 million aggregate principal amount of 3.50 percent notes due October 2024. As a result of the redemptions, the Company recognized a pretax loss of $101 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 third quarter of 2021, the Company completed 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 long-term debt due within one year.
In 2021, the Company issued an aggregate principal amount of $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 $25 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, 2023 |
| In millions | | Committed Credit | Credit Available | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | | $ | 5,000 | | $ | 5,000 | | November 2028 | Floating rate |
| Bilateral Revolving Credit Facility | | 375 | | 375 | | October 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 | | 200 | | 200 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 175 | | 175 | | September 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | November 2025 | Floating rate |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | February 2026 | 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 |
| Bilateral Revolving Credit Facility | | 300 | | 300 | | May 2028 | Floating rate |
| Total Committed and Available Credit Facilities | | $ | 8,400 | | $ | 8,400 | | | |
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 $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,
(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.
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.
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 14 – COMMITMENTS AND CONTINGENCIES
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, 2023, the Company had accrued obligations of $1,180 million for probable environmental remediation and restoration costs ($1,192 million at December 31, 2022), including $241 million for the remediation of Superfund sites ($244 million at December 31, 2022). 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 two 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.
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 2023 and 2022:
| | | | | | | | |
| Accrued Obligations for Environmental Matters | 2023 | 2022 |
| In millions |
| Balance at Jan 1 | $ | 1,192 | | $ | 1,220 | |
| Accrual adjustment | 211 | | 184 | |
| Payments against reserve | (229) | | (204) | |
| Foreign currency impact | 6 | | (8) | |
| Balance at Dec 31 | $ | 1,180 | | $ | 1,192 | |
The amounts charged to income on a pretax basis related to environmental remediation totaled $203 million in 2023, $176 million in 2022 and $158 million in 2021. Capital expenditures for environmental protection were $228 million in 2023, $137 million in 2022 and $65 million in 2021.
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 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. In 2023, Dow started evaluation of the final geographic segment of the first Operable Unit. 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 and, in 2023, submitted a Completion Report for those limited remedial actions.
Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice 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 July 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. The consent decree required the Company to pay a $15 million cash settlement to be used for long-term maintenance and trustee-selected remediation projects with an additional $7 million to specified local projects managed by third parties. These funds were paid in December 2020. The consent decree further requires the Company to complete or fund 13 additional environmental restoration projects which are valued by the trustees at approximately $77 million, to be conducted over the next several years. To date, three projects have been completed, including two environmental restoration projects/public amenities opened to the public. The Company continues to work with the trustees on the remaining projects.
At December 31, 2023, the accrual for these off-site matters was $89 million (included in the total accrued obligation of $1,180 million). At December 31, 2022, the Company had an accrual for these off-site matters of $92 million (included in the total accrued obligation of $1,192 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
Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura") to perform periodic studies to estimate 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. 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 2021, Ankura stated that an update of its December 2020 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required.
In December 2022, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 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, 2022, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $947 million, and approximately 23 percent of the recorded liability related to pending claims and approximately 77 percent related to future claims.
In December 2023, Ankura stated that an update of its December 2022 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no adjustment to the accrual was required. At December 31, 2023, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $867 million, and approximately 25 percent of the recorded liability related to pending claims and approximately 75 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.
Groundwater Contamination
The Company is the subject of various complaints related to alleged groundwater contamination based on decades-old sales and applications of certain agricultural chemical products ("Legacy Liabilities"). The costs associated with these Legacy Liabilities were previously covered by insurance policies that have since been depleted. In the first quarter of 2023, the Company completed a study of the Legacy Liabilities now deemed to be probable and estimable based on the public reporting of sampling data and historical information to develop a reasonable estimate of the cost of pending and future claims. As a result, the Company recorded a pretax charge of $177 million, included in "Cost of sales" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure. At December 31, 2023, the total liability related to such alleged Legacy Liabilities settlements was $232 million, which was included in “Accrued and other current liabilities” and "Other noncurrent obligations" in the consolidated balance sheets.
The Company is also the subject of other groundwater contamination complaints, including claims related to1,4-dioxane. The Company continues to defend itself in this litigation and it has determined that the Company's exposure to liability, if any, is not currently probable or estimable.
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 Incorporated ("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, 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 billion between May 31, 2018 and May 31, 2023, and no recoveries are permitted on claims initially submitted after May 31, 2023. The Company had indemnification assets of $100 million at December 31, 2023 ($98 million at December 31, 2022), which was included in "Other current assets" and "Noncurrent receivables" in the consolidated balance sheets.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
In December 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 exhausted all appeal rights on the merits, and it was undisputed that Nova owed the Company the profits it earned from its infringing sales as determined in the trial for the damages phase.
In April 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. In June 2017, the Federal Court ordered Nova to pay $645 million Canadian dollars to the Company, plus pre- and post-judgment interest, for which the Company received payment equivalent to $501 million U.S. dollars in July 2017. Although Nova was appealing portions of the damages judgment, certain portions of it were indisputable and could be retained 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.
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 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 $321 million was included in "Sundry income (expense) - net," related to Packaging & Specialty Plastics, and $20 million was included in "Selling, general and administrative expenses" in the consolidated statements of income.
Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter
On September 18, 2019, the Court of the King'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, which has been received by the Company. The Court of the King'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 deprived the Company of millions of pounds of ethylene. Nova appealed the judgment; however, certain portions were no longer in dispute and would be retained by the Company regardless of the outcome of any further appeals by Nova. As a result and in accordance with ASC Topic 450-30 “Gain Contingencies,” the Company recorded a $186 million pretax gain in 2019. In 2020 and 2023, further actions by Nova and/or related court decisions upholding the majority of Dow's damages made additional portions of the ruling in Dow's favor final and no longer subject to dispute. As a result, the Company recorded additional pretax gains of $570 million in 2020 and $122 million in 2023. In 2023, $106 million of the pretax gain was included in "Sundry income (expense) - net," related to Packaging & Specialty Plastics, and $16 million was included in "Selling, general and administrative expenses" in the consolidated statements of income.
At December 31, 2023, $201 million ($323 million at December 31, 2022) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment. Dow continues 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 that began in the trial court in November 2021 to resolve the impact of the appellate ruling and quantify Dow's damages for the 2013-2018 period has concluded; the parties are awaiting the court's ruling. 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 butanol 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 $54 million included in “Sundry income (expense) – net” in the consolidated 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 seeking clarification of the amount 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, 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 the 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, 2023, related tax credits available and expected to be applied to future required federal tax payments totaled $114 million ($126 million at December 31, 2022).
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, 2023 and 2022.
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, 2023 | Dec 31, 2022 |
| In millions | Final
Expiration | Maximum Future Payments 1 | Recorded Liability | Final
Expiration | Maximum Future Payments 1 | Recorded Liability |
| Guarantees | 2038 | $ | 1,385 | | $ | 196 | | 2038 | $ | 1,236 | | $ | 200 | |
| | | | | | |
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 $298 million at December 31, 2023 ($393 million at December 31, 2022). 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 15 years. The
Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
TDCC has entered into guarantee agreements related to Sadara, a nonconsolidated affiliate. Sadara reached an agreement with its lenders to re-profile its outstanding project financing 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 debt re-profiling includes a grace period until June 2026, during which Sadara is obligated to make interest-only payments which are guaranteed by TDCC in proportion to the Company's 35 percent ownership interest. As part of the debt 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 any potential shortfall during the grace period. See Note 10 for additional information on Dow's investment in Sadara.
Asset Retirement Obligations
The Company has 10698 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, Japan, Brazil, China, Singapore and United Arab Emirates, Canada and Argentina; and capping activities at landfill sites in the United States, Brazil and 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 Europe, Argentina and Japan.Europe. The aggregate carrying amount of conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown below) was $14$21 million at December 31, 20202023 ($1911 million at December 31, 2019)2022).
The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 20202023 and 2019:2022:
| | Asset Retirement Obligations | Asset Retirement Obligations | 2020 | 2019 | Asset Retirement Obligations | 2023 | 2022 |
| In millions | In millions | In millions |
| Balance at Jan 1 | Balance at Jan 1 | $ | 104 | | $ | 109 | |
| Additional accruals | Additional accruals | 6 | | 10 | |
| Liabilities settled | Liabilities settled | (3) | | (7) | |
| Accretion expense | Accretion expense | 3 | | 2 | |
| Revisions in estimated cash flows | Revisions in estimated cash flows | 7 | | 3 | |
| Other | Other | (5) | | (13) | |
| Balance at Dec 31 | Balance at Dec 31 | $ | 112 | | $ | 104 | |
The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2020,2023, was 0.425.07 percent (2.12(5.53 percent at December 31, 2019)2022). 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 129 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 1715 - 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 5551 years. See Note 1 for additional information on leases.
The components of lease cost for operating and finance leases for the years ended December 31, 20202023, 2022 and 20192021, were as follows:
| | | | | | | | |
| Lease Cost | 2020 | 2019 |
| In millions |
| Operating lease cost | $ | 484 | | $ | 532 | |
| Finance lease cost | | |
| Amortization of right-of-use assets - finance | $ | 58 | | $ | 39 | |
| Interest on lease liabilities - finance | 25 | | 25 | |
| Total finance lease cost | $ | 83 | | $ | 64 | |
| Short-term lease cost | $ | 213 | | $ | 204 | |
| Variable lease cost | 199 | | 198 | |
| Sublease income | (5) | | (4) | |
| Total lease cost | $ | 974 | | $ | 994 | |
The following table provides supplemental cash flow information related to leases:
| | | | | | | | |
| Other Lease Information | 2020 | 2019 |
| In millions |
| | |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows for operating leases | $ | 482 | | $ | 544 | |
| Operating cash flows for finance leases | $ | 25 | | $ | 25 | |
| Financing cash flows for finance leases | $ | 58 | | $ | 34 | |
| | |
| | | | | | | | | | | |
| Lease Cost | 2023 | 2022 | 2021 |
| In millions |
| Operating lease cost | $ | 426 | | $ | 397 | | $ | 494 | |
| Finance lease cost | | | |
| Amortization of right-of-use assets - finance | 106 | | 105 | | 76 | |
| Interest on lease liabilities - finance | 34 | | 32 | | 27 | |
| Total finance lease cost | 140 | | 137 | | 103 | |
| Short-term lease cost | 255 | | 255 | | 238 | |
| Variable lease cost | 929 | | 611 | | 381 | |
| Sublease income | (9) | | (10) | | (6) | |
| Total lease cost | $ | 1,741 | | $ | 1,390 | | $ | 1,210 | |
The following table provides supplemental cash flow and other information related to leases:
| | | | | | | | | | | |
| Other Lease Information | 2023 | 2022 | 2021 |
| In millions |
| | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows for operating leases | $ | 424 | | $ | 393 | | $ | 497 | |
| Operating cash flows for finance leases | $ | 34 | | $ | 32 | | $ | 27 | |
| Financing cash flows for finance leases | $ | 127 | | $ | 114 | | $ | 74 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases 1 | $ | 309 | | $ | 151 | | $ | (25) | |
Finance leases 1 | $ | 234 | | $ | 62 | | $ | 512 | |
1.In 2023, $98 million of leased assets were reclassified from Operating leases to Finance leases due to an amendment that extended the term of the agreement. 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, 20202023 and 2019.2022:
| | Lease Position | Lease Position | Balance Sheet Classification | Dec 31, 2020 | Dec 31, 2019 | Lease Position | Balance Sheet Classification | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | In millions |
| Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases 1 | | $ | 185 | | $ | 2,476 | |
| Finance leases | | $ | 178 | | $ | 89 | |
| Assets | Assets | | |
| Operating lease assets | |
| Operating lease assets | |
| Operating lease assets | Operating lease assets | Operating lease right-of-use assets | $ | 1,856 | | $ | 2,072 | |
| Finance lease assets | Finance lease assets | Property | 665 | | 486 | |
| Finance lease amortization | Finance lease amortization | Accumulated depreciation | (216) | | (167) | |
| Total lease assets | Total lease assets | | $ | 2,305 | | $ | 2,391 | |
| Liabilities | Liabilities | | |
| Current | Current | | |
| Current | |
| Current | |
| Operating | |
| Operating | |
| Operating | Operating | Operating lease liabilities - current | $ | 416 | | $ | 421 | |
| Finance | Finance | Long-term debt due within one year | 54 | | 32 | |
| Noncurrent | Noncurrent | | |
| Operating | Operating | Operating lease liabilities - noncurrent | 1,521 | | 1,739 | |
| Operating | |
| Operating | |
| Finance | Finance | Long-Term Debt | 464 | | 363 | |
| Total lease liabilities | Total lease liabilities | | $ | 2,455 | | $ | 2,555 | |
1.
Includes $2.3 billion for
In 2023, the period ended December 31, 2019Company amended an agreement to extend leases of certain assets. The amendment and related remeasurement resulted in a reclassification of $47 million from "Operating lease liabilities - noncurrent" to "Long-Term Debt" and $10 million from "Operating lease liabilities - current" to "Long-term debt due within one year." In addition to the adoption of Topic 842. See Note 1 for additional information.reclassifications, the amendment increased "Long-Term Debt" by $61 million and decreased "Long-term debt due within one year" by $4 million.
The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at December 31, 20202023 and 20192022 are provided below:
| | Lease Term and Discount Rate | Lease Term and Discount Rate | Dec 31, 2020 | Dec 31, 2019 | Lease Term and Discount Rate | Dec 31, 2023 | Dec 31, 2022 |
| Weighted-average remaining lease term | Weighted-average remaining lease term | | |
| Operating leases | Operating leases | 7.6 years | 8.0 years |
| Operating leases | |
| Operating leases | | 6.9 years | 7.6 years |
| Finance leases | Finance leases | 11.6 years | 12.3 years | Finance leases | 10.5 years | 11.0 years |
| Weighted-average discount rate | Weighted-average discount rate | | |
| Operating leases | Operating leases | 3.84 | % | 4.09 | % |
| Operating leases | |
| Operating leases | | 4.82 | % | 4.49 | % |
| Finance leases | Finance leases | 5.41 | % | 6.28 | % | Finance leases | 4.84 | % | 4.29 | % |
The following table provides the maturities of lease liabilities at December 31, 2020:2023:
| | Maturities of Lease Liabilities | Maturities of Lease Liabilities | Operating Leases | Finance Leases | Maturities of Lease Liabilities | Operating Leases | Finance Leases |
| In millions | In millions | In millions |
| 2021 | $ | 477 | | $ | 78 | |
| 2022 | 387 | | 74 | |
| 2023 | 312 | | 98 | |
| 2024 | 2024 | 242 | | 45 | |
| 2025 | 2025 | 164 | | 41 | |
| 2026 and thereafter | 703 | | 373 | |
| 2026 | |
| 2027 | |
| 2028 | |
| 2029 and thereafter | |
| Total future undiscounted lease payments | Total future undiscounted lease payments | $ | 2,285 | | $ | 709 | |
| Less: Imputed interest | Less: Imputed interest | 348 | | 191 | |
| Total present value of lease liabilities | Total present value of lease liabilities | $ | 1,937 | | $ | 518 | |
At December 31, 2020,2023, Dow had additional leases of approximately $56$359 million, primarily for buildings and equipment, which had not yet commenced. These leases are expected to commence in 2021between 2024 and 2022,2026, with lease terms of up to 1020 years.
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, 20202023 and 2019. There was $22 million of recorded liability related to these residual value guarantees at December 31, 2020 (0 at December 31, 2019), as payment of such residual value guarantees was determined to be probable.2022. The lease agreements do not contain any material restrictive covenants.
| | Lease Guarantees | Lease Guarantees | Dec 31, 2020 | Dec 31, 2019 | Lease Guarantees | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability | In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
| Residual value guarantees | Residual value guarantees | 2030 | $ | 818 | | $ | 22 | | 2028 | $ | 792 | | $ | 0 | |
NOTE 1816 – STOCKHOLDERS’ EQUITY
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.The principal market for Dow Inc.'s common stock was solely owned by DowDuPont through March 31, 2019, and on April 1, 2019, Dow Inc. became an independent, publiclyis the New York Stock Exchange, traded company. Dow Inc. common stock is listed on the NYSE under the symbol “DOW.” See Note 3 for additional information.Dow Inc. is the direct parent company of The Dow Chemical Company and 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 out of treasury stock or as new shares of common stock for options exercised and for the release of restricted stock units ("RSUs"), performance stock units ("PSUs"), the Employee Stock Purchase Plan ("ESPP") and restricted stock.the Employees' Savings Plan (the "Savings Plan"). Common stock shares issued to employees and non-employee directors was approximately 4.86.9 million in 2020. Subsequent to the separation from DowDuPont, the number of new Dow Inc. common stock shares issued to employees and non-employee directors was approximately 2.52023 (7.5 million in 2019.2022 and 8.2 million in 2021). See Note 2119 for additional information on the Company's equity 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 Note 3 for additional information.
Retained Earnings
Dow Inc.
There are no significant restrictions limiting Dow Inc.’s ability to pay dividends. Dow Inc. declared dividends of $2.80 per share in 2020 ($2.10 per share in 2019, subsequent to the separation from DowDuPont).2023, 2022 and 2021.
Undistributed earnings of nonconsolidated affiliates included in retained earnings were $716was $684 million at December 31, 20202023 and $852$669 million at December 31, 2019.2022.
TDCC
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 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 BoardDirectors determines whether or not there will be a dividend distribution to Dow Inc. In 2020 and 2019, TDCC declared and paid dividends to Dow Inc. of $2,233$2,510 million in 2023, $4,375 million in 2022 and $201$3,264 million respectively. In 2019 and 2018, TDCC declared and paid dividends to DowDuPont of $535 million and $3,711 million, respectively.
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 “Savings Plan”). A significant majority of full-time employeesallocated the remaining shares in the United States are eligible to participate in the Savings Plan. The Company uses the ESOP to provide its matching contribution in the form of stock to Plan participants. 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 Savings Plan, and the Company assumed the $78 million balance of debt at 9.8 percent interest with final maturity in 2020 that was used to finance share purchases by the Rohm and Haas ESOP in 1990. The debt was fully repaid in 2020 which resulted in an outstanding balance of 0remained unallocated at December 31, 2020 ($3 million2022 and December 31, 2023. Unallocated shares at December 31, 2019).
Dividends on unallocated shares held by the ESOP are used by the ESOP to make debt service payments and to purchase additional shares if dividends exceed the debt service payments. Dividends on allocated shares are used by the ESOP to make debt service payments to the extent needed; otherwise, they are paid to the Savings Plan participants. Shares are released for allocation to participants based on the ratio of the current year’s debt service to the sum of the principal and interest payments over the life of the loan. The shares are allocated to Plan participants in accordance with the terms of the Savings Plan. The unallocated shares are2021, were excluded from the Company's earnings per share calculation.
Compensation expense for allocated shares is recorded at the fair value of the shares on the date of allocation. As all remaining ESOP shares were allocated in 2022, there was no compensation expense recorded in 2023 for allocated ESOP shares. Compensation expense reflected in income from continuing operationsbefore income taxes for ESOP shares allocated was $72$31 million in 2020,2022 and $77 million in 2019 and $144 million in 2018. At December 31, 2020, 4.4 million shares out of a total 6.1 million shares held by the ESOP had been allocated to participants’ accounts and 1.7 million shares, at a fair value of $93 million, were considered unearned.2021.
Treasury Stock
Dow Inc.
On April 1, 2019, Dow Inc.'sthe Board 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 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 2020, Dow Inc.2023, the Company repurchased $125$625 million of Dow Inc.its common stock ($5002,325 million in 2019)2022 and $1,000 million in 2021). Excise tax for repurchased shares was $2 million in 2023 (zero in 2022 and 2021), and was included in treasury stock at cost. At December 31, 2020, $2.4 billion2023, $1,425 million of the share repurchase program authorization remained available for repurchases.
The Company may issue shares of Dow Inc. common stock out of treasury stock or as new shares of common stock for options exercised and for the release of RSUs, PSUs and restricted stock. The Company did not issue anybegan issuing treasury shares to employees and non-employee directorssatisfy its obligations to make matching contributions to plan participants under The Dow Employees' Savings Plan in the first quarter of 2022. The Company issued 2.3 million treasury shares under its stock-based compensation programsand benefit plans in 2023 and 1.5 million in 2022
Compensation expense for issued shares is recorded at the years ended December 31, 2020fair value of the shares on the date of issuance. Compensation expense reflected in income before income taxes for treasury shares issued was $120 million in 2023 and 2019. See Note 21 for additional information on changes to the Company's equity awards$94 million in connection with the separation from DowDuPont.2022.
The following table provides a reconciliation of Dow Inc. common stock activity for the years ended December 31, 20202023, 2022 and 2019:2021:
| | Shares of Dow Inc. Common Stock | Shares of Dow Inc. Common Stock | Issued | Held in Treasury | Shares of Dow Inc. Common Stock | Issued | Held in Treasury |
| | Balance at Jan 1, 2019 | 100 | | 0 | |
| Impact of recapitalization | 748,771,140 | | 0 | |
| Balance at Jan 1, 2021 | |
| Balance at Jan 1, 2021 | |
| Balance at Jan 1, 2021 | |
Issued 1 | Issued 1 | 2,457,404 | | 0 | |
| Repurchased | Repurchased | — | | 9,729,834 | |
| Balance at Jan 1, 2020 | 751,228,644 | | 9,729,834 | |
| | Balance at Jan 1, 2022 | |
Issued 1 | Issued 1 | 4,764,554 | | 0 | |
| Repurchased | Repurchased | — | | 3,073,469 | |
| Balance at Dec 31, 2020 | 755,993,198 | | 12,803,303 | |
| Balance at Jan 1, 2023 | |
Issued 1 | |
| Repurchased | |
| Balance at Dec 31, 2023 | |
1.Shares issued to employees and non-employee directors under the Company's equity compensation plans.
Accumulated Other Comprehensive Loss
The changes in each component of AOCL for the years ended December 31, 2020, 20192023, 2022 and 20182021 were as follows:
| | Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | 2020 | 2019 | 2018 | Accumulated Other Comprehensive Loss | 2023 | 2022 | 2021 |
| In millions | In millions | In millions |
| Unrealized Gains (Losses) on Investments | Unrealized Gains (Losses) on Investments | | |
| Beginning balance | Beginning balance | $ | 64 | | $ | (51) | | $ | 17 | |
| Beginning balance | |
| Beginning balance | |
| Unrealized gains (losses) on investments | Unrealized gains (losses) on investments | 104 | | 178 | | (93) | |
| Less: Tax (expense) benefit | (23) | | (38) | | 19 | |
| Tax (expense) benefit | |
| Net unrealized gains (losses) on investments | Net unrealized gains (losses) on investments | 81 | | 140 | | (74) | |
(Gains) losses reclassified from AOCL to net income 1 | (Gains) losses reclassified from AOCL to net income 1 | (54) | | (33) | | 9 | |
Less: Tax expense (benefit) 2 | 13 | | 8 | | (2) | |
Tax expense (benefit) 2 | |
| Net (gains) losses reclassified from AOCL to net income | Net (gains) losses reclassified from AOCL to net income | (41) | | (25) | | 7 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | 40 | | 115 | | (67) | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (1) | |
| Ending balance | Ending balance | $ | 104 | | $ | 64 | | $ | (51) | |
| Cumulative Translation Adjustment | Cumulative Translation Adjustment | | |
| Beginning balance | Beginning balance | $ | (1,135) | | $ | (1,813) | | $ | (1,481) | |
| Beginning balance | |
| Beginning balance | |
| Gains (losses) on foreign currency translation | Gains (losses) on foreign currency translation | 227 | | 59 | | (215) | |
| Less: Tax (expense) benefit | 25 | | (2) | | (6) | |
| Tax (expense) benefit | |
| Net gains (losses) on foreign currency translation | Net gains (losses) on foreign currency translation | 252 | | 57 | | (221) | |
(Gains) losses reclassified from AOCL to net income 4 | (47) | | (89) | | (4) | |
(Gains) losses reclassified from AOCL to net income 3 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | 205 | | (32) | | (225) | |
Impact of common control transaction 5 | 0 | | 710 | | 0 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (107) | |
| Ending balance | Ending balance | $ | (930) | | $ | (1,135) | | $ | (1,813) | |
| Pension and Other Postretirement Benefits | Pension and Other Postretirement Benefits | | |
| Beginning balance | Beginning balance | $ | (8,781) | | $ | (7,965) | | $ | (6,998) | |
| Beginning balance | |
| Beginning balance | |
| Gains (losses) arising during the period | Gains (losses) arising during the period | (1,769) | | (1,699) | | (625) | |
| Less: Tax (expense) benefit | 411 | | 413 | | 130 | |
| Tax (expense) benefit | |
| Net gains (losses) arising during the period | Net gains (losses) arising during the period | (1,358) | | (1,286) | | (495) | |
Amortization and recognition of net loss and prior service credits 6 | 753 | | 504 | | 594 | |
Less: Tax expense (benefit) 2 | (173) | | (117) | | (139) | |
Amortization of net loss and prior service credits reclassified from AOCL to net income 4 | |
Tax expense (benefit) 2 | |
| Net loss and prior service credits reclassified from AOCL to net income | Net loss and prior service credits reclassified from AOCL to net income | 580 | | 387 | | 455 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | (778) | | (899) | | (40) | |
Impact of common control transaction 5 | 0 | | 83 | | 0 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (927) | |
| Ending balance | Ending balance | $ | (9,559) | | $ | (8,781) | | $ | (7,965) | |
| Derivative Instruments | Derivative Instruments | | |
| Beginning balance | Beginning balance | $ | (394) | | $ | (56) | | $ | (109) | |
| Beginning balance | |
| Beginning balance | |
| Gains (losses) on derivative instruments | Gains (losses) on derivative instruments | (96) | | (470) | | 6 | |
| Less: Tax (expense) benefit | (1) | | 101 | | (2) | |
| Tax (expense) benefit | |
| Net gains (losses) on derivative instruments | Net gains (losses) on derivative instruments | (97) | | (369) | | 4 | |
(Gains) losses reclassified from AOCL to net income 7 | 30 | | 44 | | 89 | |
Less: Tax expense (benefit) 2 | (9) | | (13) | | (18) | |
(Gains) losses reclassified from AOCL to net income 5 | |
Tax expense (benefit) 2 | |
| Net (gains) losses reclassified from AOCL to net income | Net (gains) losses reclassified from AOCL to net income | 21 | | 31 | | 71 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | (76) | | (338) | | 75 | |
Reclassification of stranded tax effects 3 | 0 | | 0 | | (22) | |
| Ending balance | Ending balance | $ | (470) | | $ | (394) | | $ | (56) | |
| Total AOCL ending balance | Total AOCL ending balance | $ | (10,855) | | $ | (10,246) | | $ | (9,885) | |
1.Reclassified to "Net sales" and "Sundry income (expense) - net."
2.Reclassified to "Provision for income taxes on continuing operations.taxes."
3.Amounts reclassified to "Retained earnings" as a result of the adoption of ASU 2018-02.
4.Reclassified to "Sundry income (expense) - net."
5.Reclassified to "Retained earnings" as a result of the separation from DowDuPont on April 1, 2019. See Note 3 for additional information.
6.4.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 2018 for additional information.
7.5.Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."
NOTE 1917 – NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income.
The following table summarizes the activity for equity attributable to noncontrolling interests for the years ended December 31, 2020, 20192023, 2022 and 2018:2021:
| | Noncontrolling Interests | Noncontrolling Interests | | |
| In millions | In millions | 2020 | 2019 | 2018 |
| In millions | |
| In millions | | 2023 | 2022 | 2021 |
| Balance at Jan 1 | Balance at Jan 1 | $ | 553 | | $ | 1,138 | | $ | 1,186 | |
| Net income attributable to noncontrolling interests - continuing operations | 69 | | 74 | | 102 | |
| Net income attributable to noncontrolling interests - discontinued operations | 0 | | 13 | | 32 | |
Distributions to noncontrolling interests 1 | (55) | | (77) | | (145) | |
| Impact of common control transaction 2 | 0 | | (353) | | 0 | |
Purchase of noncontrolling interests 3 | 0 | | (254) | | 0 | |
Net income attributable to noncontrolling interests 1 | |
Distributions to noncontrolling interests 2 | |
| Deconsolidation of noncontrolling interests 4 | (7) | | 0 | | 0 | |
| | Cumulative translation adjustments | |
| | Cumulative translation adjustments | |
| | Cumulative translation adjustments | Cumulative translation adjustments | 9 | | 12 | | (39) | |
| Other | Other | 1 | | 0 | | 2 | |
| Balance at Dec 31 | Balance at Dec 31 | $ | 570 | | $ | 553 | | $ | 1,138 | |
1.2022 includes the portion of asset related charges attributable to noncontrolling interests related to a joint venture in Russia. See Note 4 for additional information.
2.Distributions to noncontrolling interests are net of $7$8 million in 20202023 ($7 million in 20192022 and $27 million in 2018)2021) in dividends paid to a joint venture, which were reclassified to "Equity in earnings (losses) of nonconsolidated affiliates" in the consolidated statements of income. Also includes amounts attributable to discontinued operations of $7 million in 2019 and $37 million in 2018.
2.Related to the separation from DowDuPont. See Note 3 for additional information.
3.Related to the acquisition of full ownership in a propylene oxide manufacturing joint venture, which occurred on October 1, 2019. See Note 24 for additional information. As a result of this arrangement, the carrying value of the noncontrolling interest was removed, and “Additional paid-in capital” was adjusted by $38 million.
4.Related to the divestiture of the Company's interest in a cogeneration facility in Brazil in the third quarter of 2020. See Note 24 for additional information.
NOTE 2018 – PENSION PLANS AND OTHER POSTRETIREMENT 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 coveringadministered by the parent company is the largest plan. BenefitsOn March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified pension plans, which covered substantially all U.S. employees. As a result, effective December 31, 2023, the Company froze the pensionable compensation and credited service amounts used to calculate pension benefits for substantially all employees hired before January 1, 2008, are based on length ofwho participate in its U.S. tax-qualified and non-qualified retirement programs (collectively, the "U.S. Plans"), and, therefore, impacted employees will not accrue additional benefits for future service and compensation. In connection with these plan amendments, the employee’s three highest consecutive yearsCompany remeasured its U.S. Plans in the first quarter of compensation. Employees hired after January 1, 2008, earn2021, which resulted in a pretax actuarial gain of $1,268 million, included in other comprehensive income and a pretax curtailment gain of $19 million.
Separately, in the fourth quarter of 2023, certain Company pension plans in the United States and Canada purchased or converted to nonparticipating group annuity contracts from certain insurance companies, irrevocably transferring approximately $1,681 million of benefit obligations and $1,617 million of related plan assets to the insurers. These transactions did not require any cash funding from the Company and did not impact the pension benefits that are based onof participants. As a set percentageresult of annual pay, plus interest.these transactions, the Company recognized pretax, non-cash settlement charges of $642 million in 2023, primarily related to the accelerated recognition of a portion of the accumulated actuarial losses of the plans, recorded in “Sundry income (expense) – net” in the consolidated statements of income and related to Corporate.
The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2020, the Company contributed $299Total global pension contributions were $142 million to its pension plans, includingin 2023, which includes contributions necessary to fund benefit payments for the Company's unfunded pension plans. Additionally, in the second quarter of 2023, the Company received a pension plan reversion of approximately $90 million for a portion of the excess funding of one of its plans in Europe, included in "Other assets and liabilities, net" in the consolidated statements of cash flows. The Company expects to contribute approximately $300$150 million to its pension plans in 2021.2024.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costscost for all plans are summarized in the table below:
| | Weighted-Average Assumptions for All Pension Plans | Weighted-Average Assumptions for All Pension Plans | Benefit Obligations
at Dec 31 | Net Periodic Costs
for the Year Ended | Weighted-Average Assumptions for All Pension Plans | Benefit Obligations
at Dec 31 | Net Periodic Benefit Cost
for the Year Ended |
| | | 2020 | 2019 | 2020 | 2019 | 2018 | | 2023 | 2022 | 2023 | 2022 | 2021 |
| Discount rate | Discount rate | 2.20 | % | 2.81 | % | 2.81 | % | 3.50 | % | 3.17 | % | Discount rate | 4.73 | % | 5.18 | % | 5.26 | % | 2.57 | % | 2.40 | % |
| Interest crediting rate for applicable benefits | Interest crediting rate for applicable benefits | 3.55 | % | 3.51 | % | 3.51 | % | 3.72 | % | 3.61 | % | Interest crediting rate for applicable benefits | 3.99 | % | 4.19 | % | 4.19 | % | 3.57 | % | 3.55 | % |
| Rate of compensation increase | Rate of compensation increase | 3.91 | % | 3.92 | % | 3.92 | % | 3.92 | % | 3.88 | % | Rate of compensation increase | 3.80 | % | 4.05 | % | 4.05 | % | 3.94 | % | 3.91 | % |
| Expected return on plan assets | Expected return on plan assets | | 7.00 | % | 7.11 | % | 7.11 | % | Expected return on plan assets | | | 6.62 | % | 6.68 | % | 6.86 | % |
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costscost for U.S. plans are summarized in the table below:
| | Weighted-Average Assumptions for U.S. Pension Plans | Weighted-Average Assumptions for U.S. Pension Plans | Benefit Obligations
at Dec 31 | Net Periodic Costs
for the Year Ended | Weighted-Average Assumptions for U.S. Pension Plans | Benefit Obligations
at Dec 31 | Net Periodic Benefit Cost
for the Year Ended |
| 2020 | 2019 | 2020 | 2019 | 2018 |
| 2023 | | | 2023 | 2022 | 2023 | 2022 | 2021 |
| Discount rate | Discount rate | 2.71 | % | 3.41 | % | 3.41 | % | 4.15 | % | 3.66 | % | Discount rate | 5.30 | % | 5.64 | % | 5.76 | % | 3.04 | % | 3.03 | % |
| Interest crediting rate for applicable benefits | Interest crediting rate for applicable benefits | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | Interest crediting rate for applicable benefits | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
| Rate of compensation increase | Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
| Expected return on plan assets | Expected return on plan assets | | 7.95 | % | 7.92 | % | 7.92 | % | Expected return on plan assets | | | 7.46 | % | 7.95 | % | 7.96 | % |
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 2020,2023, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2020.2023. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2021.2024.
The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit costscost for the U.S. plans are provided below:
| | Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans | Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans | Benefit Obligations
at Dec 31 | Net Periodic Costs
for the Year Ended | Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans | Benefit Obligations
at Dec 31 | Net Periodic Benefit Cost
for the Year Ended |
| 2020 | 2019 | 2020 | 2019 | 2018 |
| 2023 | | | 2023 | 2022 | 2023 | 2022 | 2021 |
| Discount rate | Discount rate | 2.38 | % | 3.19 | % | 3.19 | % | 4.01 | % | 3.51 | % | Discount rate | 5.23 | % | 5.57 | % | 5.57 | % | 2.85 | % | 2.38 | % |
| Health care cost trend rate assumed for next year | Health care cost trend rate assumed for next year | 6.75 | % | 6.25 | % | 6.25 | % | 6.50 | % | 6.75 | % | Health care cost trend rate assumed for next year | 6.61 | % | 6.79 | % | 6.79 | % | 6.50 | % | 6.75 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate) | 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 | % | 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 | Year that the rate reaches the ultimate health care cost trend rate | 2028 | 2025 | 2025 | Year that the rate reaches the ultimate health care cost trend rate | 2033 | 2028 | 2028 |
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.United States and other selected countries. Under the spot rate approach, the Company calculates service cost and interest cost 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. 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 U.S. 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.
Separation from DowDuPont
As a result of the Company’s separation from DowDuPont in 2019, the number of significant defined benefit pension plans administered by the Company decreased from 45 plans to 35 plans, with approximately $270 million of net unfunded pension liabilities transferred to DowDuPont. Plans administered by other subsidiaries of DowDuPont that were transferred to the Company were not significant. There were no changes in the number of significant other postretirement benefit plans administered by the Company as a result of the separation. Existing Company plans that were significantly impacted by the transfer of active plan participants to DowDuPont were remeasured, resulting in curtailment gains and losses and recognition of special termination benefits.
Summarized information on the Company's pension and other postretirement benefit plans is as follows:
| | Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans | Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| In millions | In millions | 2020 | 2019 | 2020 | 2019 | In millions | 2023 | 2022 | 2023 | 2022 |
| Change in projected benefit obligations: | Change in projected benefit obligations: | | |
| Benefit obligations at beginning of year | Benefit obligations at beginning of year | $ | 32,621 | | $ | 29,600 | | $ | 1,535 | | $ | 1,478 | |
| Impact of plans transferred to DowDuPont at separation | 0 | | (331) | | 0 | | 0 | |
| Benefit obligations at beginning of year | |
| Benefit obligations at beginning of year | |
| Service cost | Service cost | 399 | | 396 | | 7 | | 8 | |
| Interest cost | Interest cost | 767 | | 921 | | 40 | | 49 | |
| Plan participants' contributions | Plan participants' contributions | 12 | | 12 | | 0 | | 0 | |
| Actuarial changes in assumptions and experience | Actuarial changes in assumptions and experience | 3,021 | | 3,904 | | 7 | | 148 | |
| Benefits paid | Benefits paid | (1,569) | | (1,684) | | (132) | | (148) | |
| Plan amendments | Plan amendments | 8 | | 0 | | 0 | | 0 | |
Acquisitions/divestitures/other 1 | Acquisitions/divestitures/other 1 | (692) | | (37) | | 0 | | 0 | |
| Effect of foreign exchange rates | Effect of foreign exchange rates | 791 | | 14 | | 7 | | 3 | |
Termination benefits/curtailments/settlements 2 | (49) | | (174) | | 0 | | (3) | |
Termination benefits/settlements 2 | |
| Benefit obligations at end of year | Benefit obligations at end of year | $ | 35,309 | | $ | 32,621 | | $ | 1,464 | | $ | 1,535 | |
| | Change in plan assets: | Change in plan assets: | | |
| Change in plan assets: | |
| Change in plan assets: | |
| Fair value of plan assets at beginning of year | Fair value of plan assets at beginning of year | $ | 24,908 | | $ | 22,544 | | $ | 0 | | $ | 0 | |
| Impact of plans transferred to DowDuPont at separation | 0 | | (61) | | 0 | | 0 | |
| Fair value of plan assets at beginning of year | |
| Fair value of plan assets at beginning of year | |
| Actual return on plan assets | Actual return on plan assets | 2,877 | | 3,790 | | 0 | | 0 | |
| Employer contributions | Employer contributions | 299 | | 266 | | 0 | | 0 | |
| Plan participants' contributions | Plan participants' contributions | 12 | | 12 | | 0 | | 0 | |
| Benefits paid | Benefits paid | (1,569) | | (1,684) | | 0 | | 0 | |
Other 3 | (681) | | 0 | | 0 | | 0 | |
Settlements 3 | |
Other 4 | |
| Effect of foreign exchange rates | Effect of foreign exchange rates | 571 | | 41 | | 0 | | 0 | |
| Settlements | (11) | | 0 | | 0 | | 0 | |
| | Fair value of plan assets at end of year | |
| Fair value of plan assets at end of year | |
| Fair value of plan assets at end of year | Fair value of plan assets at end of year | $ | 26,406 | | $ | 24,908 | | $ | 0 | | $ | 0 | |
| | Funded status: | Funded status: | | |
| Funded status: | |
| Funded status: | |
| U.S. plans with plan assets | |
| U.S. plans with plan assets | |
| U.S. plans with plan assets | U.S. plans with plan assets | $ | (5,873) | | $ | (4,768) | | $ | — | | $ | — | |
| Non-U.S. plans with plan assets | Non-U.S. plans with plan assets | (2,222) | | (2,207) | | — | | — | |
| All other plans | All other plans | (808) | | (738) | | (1,464) | | (1,535) | |
| | Funded status at end of year | Funded status at end of year | $ | (8,903) | | $ | (7,713) | | $ | (1,464) | | $ | (1,535) | |
| Funded status at end of year | |
| Funded status at end of year | |
| | Amounts recognized in the consolidated balance sheets at Dec 31: | Amounts recognized in the consolidated balance sheets at Dec 31: | | |
| Amounts recognized in the consolidated balance sheets at Dec 31: | |
| Amounts recognized in the consolidated balance sheets at Dec 31: | |
| Deferred charges and other assets | |
| Deferred charges and other assets | |
| Deferred charges and other assets | Deferred charges and other assets | $ | 1,007 | | $ | 623 | | $ | 0 | | $ | 0 | |
| Accrued and other current liabilities | Accrued and other current liabilities | (54) | | (49) | | (113) | | (128) | |
| Pension and other postretirement benefits - noncurrent | Pension and other postretirement benefits - noncurrent | (9,856) | | (8,287) | | (1,351) | | (1,407) | |
| | Net amount recognized | Net amount recognized | $ | (8,903) | | $ | (7,713) | | $ | (1,464) | | $ | (1,535) | |
| | Net amount recognized | |
| | Net amount recognized | |
| | Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | | |
| Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | |
| Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | |
| Net loss (gain) | |
| Net loss (gain) | |
| Net loss (gain) | Net loss (gain) | $ | 12,736 | | $ | 11,761 | | $ | (129) | | $ | (147) | |
| Prior service credit | Prior service credit | (154) | | (177) | | 0 | | 0 | |
| Pretax balance in accumulated other comprehensive loss at end of year | Pretax balance in accumulated other comprehensive loss at end of year | $ | 12,582 | | $ | 11,584 | | $ | (129) | | $ | (147) | |
1.The 20202022 impact relates primarily to the transfer of certain benefit obligations in the U.S.United States through the purchase of annuity contracts from an insurance company. The 2019 impact includes the divestiture of a business with pension benefit obligations of $53 million.
2.The 20202023 impact primarily relates to pension plan curtailments of a European plan resulting from the 2020 Restructuring Program and the settlementtransfer of certain planpension benefit obligations in the United States and Canada through the purchase of a U.S. non-qualified pension plan resultingor conversion to annuity contracts from lump-sum payments. The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation due to the separation from DowDuPont.insurance companies, triggering settlement accounting.
3.The 20202023 impact primarily relates to the purchase of annuity contracts associated with the transfer of certain pension benefit obligations to an insurance company.companies, triggering settlement accounting.
4.The 2023 impact primarily relates to a reversion of pension plan funds for a portion of the excess funding of one of its plans in Europe. The 2022 impact primarily relates to the purchase of annuity contracts associated with the transfer of certain pension benefit obligations to insurance companies.
A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2023, was due to the irrevocable transfer of certain benefit obligations to third-party insurance companies, partially offset by the change in weighted-average discount rates, which decreased from 5.18 percent at December 31, 2022, to 4.73 percent at December 31, 2023. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2022, was due to the change in weighted-average discount rates, which increased from 2.57 percent at December 31, 2021, to 5.18 percent at December 31, 2022.
A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2020 was due to the change in weighted-average discount rates, which decreased from 2.81 percent at December 31, 2019 to 2.20 percent at December 31, 2020. A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2019 was due to the change in weighted-average discount rates, which decreased from 3.69 percent at December 31, 2018 to 2.81 percent at December 31, 2019.
The accumulated benefit obligation for all significant pension plans was $34.1$22.3 billion and $31.4$22.6 billion at December 31, 20202023 and 2019,2022, respectively.
| | Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | 2020 | 2019 | Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | 2023 | 2022 |
| In millions | In millions | In millions |
| Accumulated benefit obligations | Accumulated benefit obligations | $ | 29,084 | | $ | 26,959 | |
| Fair value of plan assets | Fair value of plan assets | $ | 20,130 | | $ | 19,571 | |
| | Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2020 | 2019 | Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2023 | 2022 |
| In millions | In millions | In millions |
| Projected benefit obligations | Projected benefit obligations | $ | 30,161 | | $ | 28,013 | |
| | Fair value of plan assets | Fair value of plan assets | $ | 20,251 | | $ | 19,677 | |
| Fair value of plan assets | |
| Fair value of plan assets | |
| | Net Periodic Benefit Costs for All Significant Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| Net Periodic Benefit Cost (Credit) for All Significant Plans for the Year Ended Dec 31 | | Net Periodic Benefit Cost (Credit) for All Significant Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| In millions | In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | In millions | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 |
| Net Periodic Benefit Costs: | Net Periodic Benefit Costs: | | |
| Service cost | |
| Service cost | |
| Service cost | Service cost | $ | 399 | | $ | 396 | | $ | 520 | | $ | 7 | | $ | 8 | | $ | 12 | |
| Interest cost | Interest cost | 767 | | 921 | | 886 | | 40 | | 49 | | 45 | |
| Expected return on plan assets | Expected return on plan assets | (1,658) | | (1,679) | | (1,644) | | 0 | | 0 | | 0 | |
| Amortization of prior service credit | Amortization of prior service credit | (19) | | (20) | | (24) | | 0 | | 0 | | 0 | |
| Amortization of unrecognized (gain) loss | Amortization of unrecognized (gain) loss | 773 | | 574 | | 642 | | (10) | | (20) | | (24) | |
Curtailment/settlement/other 1 | Curtailment/settlement/other 1 | 9 | | (27) | | 0 | | 0 | | (3) | | 0 | |
| Net periodic benefit costs | $ | 271 | | $ | 165 | | $ | 380 | | $ | 37 | | $ | 34 | | $ | 33 | |
| Less: discontinued operations | 0 | | 21 | | 101 | | 0 | | 0 | | 3 | |
| Net periodic benefit costs - continuing operations | $ | 271 | | $ | 144 | | $ | 279 | | $ | 37 | | $ | 34 | | $ | 30 | |
| Net periodic benefit cost (credit) | |
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | |
| Net (gain) loss | Net (gain) loss | $ | 1,753 | | $ | 1,606 | | $ | 584 | | $ | 8 | | $ | 145 | | $ | (13) | |
| Prior service cost | 8 | | 0 | | 17 | | 0 | | 0 | | 0 | |
| Net (gain) loss | |
| Net (gain) loss | |
| Prior service cost (credit) | |
| Amortization of prior service credit | Amortization of prior service credit | 19 | | 20 | | 24 | | 0 | | 0 | | 0 | |
| Amortization of unrecognized gain (loss) | Amortization of unrecognized gain (loss) | (773) | | (574) | | (642) | | 10 | | 20 | | 24 | |
Common control transaction 2 | 0 | | (112) | | 0 | | 0 | | 0 | | 0 | |
Curtailment and settlement gain (loss) 1 | Curtailment and settlement gain (loss) 1 | (9) | | 27 | | 0 | | 0 | | 3 | | 0 | |
| Total recognized in other comprehensive (income) loss | Total recognized in other comprehensive (income) loss | $ | 998 | | $ | 967 | | $ | (17) | | $ | 18 | | $ | 168 | | $ | 11 | |
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 1,269 | | $ | 1,132 | | $ | 363 | | $ | 55 | | $ | 202 | | $ | 44 | |
1.The 20202023 impact relates to pension plan curtailments of a European plan resulting from the 2020 Restructuring Program and the settlement of certain planpension benefit obligations in the United States and Canada through the purchase of a U.S. non-qualified pension plan resultingor conversion to annuity contracts from lump-sum payments.insurance companies. The 20192021 impact primarily relates to plan curtailmentsthe freeze of pensionable compensation and associated special termination benefits resulting fromcredited service amounts for employees that participate in the reduction in plan participation due to the separation from DowDuPont.
2.The 2019 impact is the result of the separation from DowDuPont.U.S. Plans.
Except for plan curtailment costs related to the 2020 Restructuring Program, which are included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income, non-service cost components of netNet periodic benefit cost, areother than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income. See Notes 6 and 7Note 5 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, 2020 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| In millions |
| 2021 | $ | 1,647 | | $ | 114 | |
| 2022 | 1,595 | | 103 | |
| 2023 | 1,593 | | 102 | |
| 2024 | 1,604 | | 101 | |
| 2025 | 1,641 | | 100 | |
| 2026-2030 | 8,419 | | 449 | |
| Total | $ | 16,499 | | $ | 969 | |
| | | | | | | | |
| Estimated Future Benefit Payments at Dec 31, 2023 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans |
| In millions |
| 2024 | $ | 1,493 | | $ | 88 | |
| 2025 | 1,359 | | 86 | |
| 2026 | 1,374 | | 83 | |
| 2027 | 1,393 | | 82 | |
| 2028 | 1,416 | | 80 | |
| 2029-2033 | 7,160 | | 348 | |
| Total | $ | 14,195 | | $ | 767 | |
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S.United States and foreign issuers, and include alternative investments, such as real estate, private equity and absolute return strategies. Plan assets totaled $26.4$19.6 billion at December 31, 20202023 and $24.9$21.2 billion at December 31, 20192022 and included no directly held common stock of Dow Inc.
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 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.
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 31 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, 20202023 | Target Allocation |
| Asset Category |
| Equity securities | 3520 | % |
| Fixed income securities | 3653 | |
| Alternative investments | 2826 | |
| Other investments | 1 | |
| Total | 100 | % |
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.
Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.
The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 20202023 and 2019:2022:
| | Basis of Fair Value Measurements | Basis of Fair Value Measurements | Dec 31, 2020 | Dec 31, 2019 | Basis of Fair Value Measurements | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,298 | | $ | 1,103 | | $ | 195 | | $ | 0 | | $ | 754 | | $ | 675 | | $ | 79 | | $ | 0 | |
| Equity securities: | Equity securities: | | |
U.S. equity securities 1 | $ | 3,934 | | $ | 3,911 | | $ | 22 | | $ | 1 | | $ | 3,844 | | $ | 3,752 | | $ | 91 | | $ | 1 | |
| U.S. equity securities | |
| U.S. equity securities | |
| U.S. equity securities | |
| Non - U.S. equity securities | Non - U.S. equity securities | 5,186 | | 4,213 | | 964 | | 9 | | 4,646 | | 3,819 | | 801 | | 26 | |
| Total equity securities | Total equity securities | $ | 9,120 | | $ | 8,124 | | $ | 986 | | $ | 10 | | $ | 8,490 | | $ | 7,571 | | $ | 892 | | $ | 27 | |
| Fixed income securities: | Fixed income securities: | | |
| Debt - government-issued | |
| Debt - government-issued | |
| Debt - government-issued | Debt - government-issued | $ | 4,998 | | $ | 128 | | $ | 4,870 | | $ | 0 | | $ | 4,992 | | $ | 197 | | $ | 4,795 | | $ | 0 | |
| Debt - corporate-issued | Debt - corporate-issued | 3,970 | | 553 | | 3,416 | | 1 | | 3,697 | | 607 | | 3,089 | | 1 | |
| Debt - asset-backed | Debt - asset-backed | 103 | | 0 | | 102 | | 1 | | 70 | | 0 | | 69 | | 1 | |
| Total fixed income securities | Total fixed income securities | $ | 9,071 | | $ | 681 | | $ | 8,388 | | $ | 2 | | $ | 8,759 | | $ | 804 | | $ | 7,953 | | $ | 2 | |
| Alternative investments: | Alternative investments: | | |
| | Private markets | |
| | Private markets | |
| | Private markets | Private markets | $ | 13 | | $ | 0 | | $ | 0 | | $ | 13 | | $ | 11 | | $ | 0 | | $ | 0 | | $ | 11 | |
| Real estate | Real estate | 51 | | 51 | | 0 | | 0 | | 25 | | 25 | | 0 | | 0 | |
| Derivatives - asset position | Derivatives - asset position | 697 | | 2 | | 695 | | 0 | | 574 | | 2 | | 572 | | 0 | |
| Derivatives - liability position | Derivatives - liability position | (594) | | (1) | | (593) | | 0 | | (513) | | (2) | | (511) | | 0 | |
| Total alternative investments | Total alternative investments | $ | 167 | | $ | 52 | | $ | 102 | | $ | 13 | | $ | 97 | | $ | 25 | | $ | 61 | | $ | 11 | |
| Other investments | Other investments | $ | 472 | | $ | 22 | | $ | 448 | | $ | 2 | | $ | 411 | | $ | 28 | | $ | 383 | | $ | 0 | |
| Subtotal | Subtotal | $ | 20,128 | | $ | 9,982 | | $ | 10,119 | | $ | 27 | | $ | 18,511 | | $ | 9,103 | | $ | 9,368 | | $ | 40 | |
| Investments measured at net asset value: | Investments measured at net asset value: | | | | | | | |
| Hedge funds | Hedge funds | $ | 1,350 | | | | $ | 1,595 | | | | |
| Hedge funds | |
| Hedge funds | |
| Private markets | |
| Private markets | |
| Private markets | Private markets | 3,135 | | | | 2,794 | | | | |
| Real estate | Real estate | 1,886 | | | | 2,110 | | | | |
| Real estate | |
| Real estate | |
| Total investments measured at net asset value | |
| Total investments measured at net asset value | |
| Total investments measured at net asset value | Total investments measured at net asset value | $ | 6,371 | | | | $ | 6,499 | | | | |
| Items to reconcile to fair value of plan assets: | Items to reconcile to fair value of plan assets: | | | | | | | |
Pension trust receivables 2 | $ | 66 | | | | $ | 70 | | | | |
Pension trust payables 3 | (159) | | | | (172) | | | | |
| Items to reconcile to fair value of plan assets: | |
| Items to reconcile to fair value of plan assets: | |
Pension trust receivables 1 | |
Pension trust receivables 1 | |
Pension trust receivables 1 | | $ | 42 | | | | $ | 31 | | | | |
Pension trust payables 2 | | Pension trust payables 2 | (115) | | | | (77) | | | | |
| Total | Total | $ | 26,406 | | | | $ | 24,908 | | | | | Total | $ | 19,634 | | | | | $ | 21,231 | | | | | |
1.No Dow Inc. common stock was directly held at December 31, 2020 or December 31, 2019.
2.Primarily receivables for investment securities sold.
3.2.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, 20202023 and 2019:2022:
| | Fair Value Measurement of Level 3 Pension Plan Assets | Fair Value Measurement of Level 3 Pension Plan Assets | Equity Securities | Fixed Income Securities | Alternative Investments | Other Investments | Total | Fair Value Measurement of Level 3 Pension Plan Assets | Equity Securities | Fixed Income Securities | Alternative Investments | Other Investments | Total |
| In millions | In millions | In millions |
| Balance at Jan 1, 2019 | $ | 39 | | $ | 1 | | $ | 1 | | $ | 0 | | $ | 41 | |
| Balance at Jan 1, 2022 | |
| Actual return on assets: | Actual return on assets: | | |
| Relating to assets sold during 2019 | (2) | | 0 | | 0 | | 0 | | (2) | |
| Relating to assets held at Dec 31, 2019 | 1 | | 0 | | (14) | | 0 | | (13) | |
| | Relating to assets held at Dec 31, 2022 | |
| | Relating to assets held at Dec 31, 2022 | |
| | Relating to assets held at Dec 31, 2022 | |
| Purchases, sales and settlements, net | |
| Transfers into Level 3, net | |
| | Balance at Dec 31, 2022 | |
| Balance at Dec 31, 2022 | |
| Balance at Dec 31, 2022 | |
| Actual return on assets: | |
| | Relating to assets held at Dec 31, 2023 | |
| | Relating to assets held at Dec 31, 2023 | |
| | Relating to assets held at Dec 31, 2023 | |
| Purchases, sales and settlements, net | Purchases, sales and settlements, net | (11) | | 1 | | 24 | | 0 | | 14 | |
| | Balance at Dec 31, 2019 | $ | 27 | | $ | 2 | | $ | 11 | | $ | 0 | | $ | 40 | |
| Actual return on assets: | | |
| Relating to assets sold during 2020 | 0 | | 0 | | (11) | | 0 | | (11) | |
| Relating to assets held at Dec 31, 2020 | (1) | | 0 | | 8 | | (1) | | 6 | |
| Purchases, sales and settlements, net | (19) | | (1) | | 5 | | 3 | | (12) | |
| Transfers into Level 3, net | 3 | | 1 | | 0 | | 0 | | 4 | |
| Balance at Dec 31, 2023 | |
| | Balance at Dec 31, 2020 | $ | 10 | | $ | 2 | | $ | 13 | | $ | 2 | | $ | 27 | |
| Balance at Dec 31, 2023 | |
| | Balance at Dec 31, 2023 | |
Defined Contribution Plans
U.S. employees may participate in defined contribution 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 China, Brazil, The Netherlands, Canada, Belgium,Korea, Spain and the United Kingdom. Expense of continuing operations recognized for all defined contribution plans was $156$214 million in 2020, $1632023, $150 million in 20192022 and $186$165 million in 2018.2021.
On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified defined contribution plans. Effective January 1, 2022, contributions to U.S. tax-qualified and non-qualified defined contribution plans were harmonized across the Company's U.S. eligible employee population. The matching contribution allows all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.
NOTE 2119 – STOCK-BASED COMPENSATION
The Company provides stock-based compensation in the form of the Employee Stock Purchase Plan, which grants eligible employees the right to purchase shares of the Company's common stock at a discounted price. The Company also grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the form of stock incentive plans, which include stock options, stock appreciation rights, RSUsPSUs and restricted stock. The Company also provides stock-based compensation in the form of PSUs.
In connection with the Merger, on August 31, 2017 ("Conversion Date"), all outstanding TDCC stock options and RSU awards were converted into stock options and RSU awards with respect to DowDuPont common stock. The stock options and RSU awards had the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested PSU awards were converted into RSU awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. TDCC and Historical DuPont did not merge their stock-based compensation plans as a result of the Merger. TDCC and Historical DuPont stock-based compensation plans were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.
In connection with the separation on April 1, 2019, outstanding stock options, RSU and PSU awards were converted to Dow Inc. denominated awards under the “Employer Method,” or DowDuPont denominated awards under the “Shareholder Method,” and adjusted to maintain the intrinsic value of those awards before and after the date of the separation. In connection with the Corteva separation transaction on June 3, 2019, the outstanding DowDuPont denominated stock options, RSU and PSU awards were converted to Corteva and DuPont denominated awards and adjusted to maintain the intrinsic value of those awards before and after the date of the Corteva separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the separation transactions.
The conversions of stock awards resulted in 0 incremental compensation expense. Approximately 5,000 employees were impacted by the conversion on April 1, 2019 in connection with Dow Inc.'s separation from DowDuPont. Approximately 4,000 employees were impacted by the conversion on June 3, 2019 in connection with the Corteva separation transaction.RSUs.
The total stock-based compensation expense included in continuing operations in the consolidated statements of income was $171$212 million, $158$211 million and $188$276 million in 2020, 20192023, 2022 and 2018,2021, respectively. The income tax benefits related to stock-based compensation arrangements were $39$47 million, $36$47 million and $42$62 million in 2020, 20192023, 2022 and 2018,2021, 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 uses the Black-Scholes option valuation model to estimate the fair value of stock options. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| | Weighted-Average Assumptions | Weighted-Average Assumptions | 2020 | 2019 | 2018 | Weighted-Average Assumptions | 2023 | 2022 | 2021 |
| Dividend yield | Dividend yield | 5.80 | % | 5.10 | % | 2.13 | % | Dividend yield | 4.74 | % | 4.59 | % | 4.86 | % |
| Expected volatility | Expected volatility | 26.70 | % | 26.10 | % | 23.34 | % | Expected volatility | 30.30 | % | 30.20 | % | 33.40 | % |
| Risk-free interest rate | Risk-free interest rate | 1.49 | % | 2.43 | % | 2.83 | % | Risk-free interest rate | 3.83 | % | 2.00 | % | 0.68 | % |
| Expected life of stock options granted during period (years) | Expected life of stock options granted during period (years) | 6.1 | 6.2 | Expected life of stock options granted during period (years) | 6.00 | 6.25 | 6.25 |
|
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 20202023, 2022 and 2021 on Dow Inc. Common Stock ($0.70 per share in 2019 on Dow Inc. Common Stock and $0.38 per share in 2018 on DowDuPont Common Stock).common stock. The expected volatility assumptions for the 2020, 20192023, 2022 and 20182021 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 20202023, 2022 and 20192021 PSU awards were based on historical daily volatility for the term of the award. The risk-free interest rate was based on the U.S. Treasury strip rates over the expected life of the 2020, 20192023, 2022 and 20182021 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 of Directors 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 of Directors 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, 2020,2023, there were approximately 1646 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 2020:2023:
| | Stock Options | Stock Options | 2020 | Stock Options | 2023 |
| Shares in thousands | Shares in thousands | Shares | Exercise Price 1 | Shares in thousands | Shares | Exercise Price 1 |
| Outstanding at Jan 1, 2020 | 21,265 | | $ | 45.96 | |
| Outstanding at Jan 1, 2023 | |
| Granted | Granted | 2,191 | | $ | 48.30 | |
| Exercised | Exercised | (3,002) | | $ | 36.78 | |
| Forfeited/Expired | Forfeited/Expired | (202) | | $ | 59.70 | |
| Outstanding at Dec 31, 2020 | 20,252 | | $ | 47.44 | |
| Outstanding at Dec 31, 2023 | |
| Remaining contractual life in years | Remaining contractual life in years | | 4.63 | Remaining contractual life in years | | 4.72 |
| Aggregate intrinsic value in millions | Aggregate intrinsic value in millions | $ | 209 | | |
| Exercisable at Dec 31, 2020 | 16,564 | | $ | 46.11 | |
| Exercisable at Dec 31, 2023 | |
| Exercisable at Dec 31, 2023 | |
| Exercisable at Dec 31, 2023 | |
| Remaining contractual life in years | Remaining contractual life in years | | 3.76 | Remaining contractual life in years | | 3.96 |
| Aggregate intrinsic value in millions | Aggregate intrinsic value in millions | $ | 192 | | |
1.Weighted-average per share.
| | Additional Information about Stock Options | Additional Information about Stock Options | | |
| In millions, except per share amounts | |
| In millions, except per share amounts | |
| In millions, except per share amounts | In millions, except per share amounts | 2020 | 2019 | 2018 | 2023 | 2022 | 2021 |
| Weighted-average fair value per share of options granted | Weighted-average fair value per share of options granted | $ | 5.89 | | $ | 7.99 | | $ | 15.38 | |
| Total compensation expense for stock option plans | Total compensation expense for stock option plans | $ | 22 | | $ | 23 | | $ | 68 | |
| Related tax benefit | Related tax benefit | $ | 5 | | $ | 5 | | $ | 15 | |
| Total amount of cash received from the exercise of options | Total amount of cash received from the exercise of options | $ | 108 | | $ | 93 | | $ | 112 | |
Total intrinsic value of options exercised 1 | Total intrinsic value of options exercised 1 | $ | 41 | | $ | 77 | | $ | 160 | |
| Related tax benefit | Related tax benefit | $ | 9 | | $ | 17 | | $ | 36 | |
1.Difference between the market price at exercise and the price paid by the employee to exercise the options.
Total unrecognized compensation cost related to unvested stock option awards of $8$4 million at December 31, 2020,2023, is expected to be recognized over a weighted-average period of 1.341.60 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 | RSU Awards | 2020 | RSU Awards | 2023 |
| Shares in thousands | Shares in thousands | Shares | Grant Date Fair Value 1 | Shares in thousands | Shares | Grant Date Fair Value 1 |
| Nonvested at Jan 1, 2020 | 2,454 | | $ | 59.98 | |
| Nonvested at Jan 1, 2023 | |
| Granted | Granted | 2,065 | | $ | 47.66 | |
| Vested | Vested | (1,422) | | $ | 55.53 | |
| Canceled | Canceled | (90) | | $ | 54.69 | |
| Nonvested at Dec 31, 2020 | 3,007 | | $ | 53.78 | |
| Nonvested at Dec 31, 2023 | |
1.Weighted-average per share.
| | | | | | | | | | | |
| Additional Information about RSUs | | | |
| In millions, except per share amounts | 2020 | 2019 | 2018 |
| Weighted-average fair value per share of RSUs granted | $ | 47.66 | | $ | 54.78 | | $ | 71.46 | |
Total fair value of RSUs vested 1 | $ | 106 | | $ | 264 | | $ | 382 | |
| Related tax benefit | $ | 24 | | $ | 59 | | $ | 86 | |
| Total compensation expense for RSU awards | $ | 93 | | $ | 110 | | $ | 144 | |
| Related tax benefit | $ | 21 | | $ | 25 | | $ | 32 | |
| | | |
| | | |
| | | | | | | | | | | |
| Additional Information about RSUs | | | |
| In millions, except per share amounts | 2023 | 2022 | 2021 |
| Weighted-average fair value per share of RSUs granted | $ | 58.39 | | $ | 58.60 | | $ | 57.96 | |
Total fair value of RSUs vested 1 | $ | 117 | | $ | 102 | | $ | 33 | |
| Related tax benefit | $ | 26 | | $ | 23 | | $ | 7 | |
| Total compensation expense for RSU awards | $ | 103 | | $ | 99 | | $ | 95 | |
| Related tax benefit | $ | 23 | | $ | 22 | | $ | 21 | |
| | | |
| | | |
1.Includes the fair value of shares vested in prior years and delivered in the reporting year.
In 2020, the Company paid $4 million in cash, equal to the value of the stock award on the date of delivery, to certain executive employees to settle approximately 85,000 RSUs (341,000 RSUs settled in cash for $19 million in 2019 and 625,000 RSUs settled in cash for $45 million in 2018). Total unrecognized compensation cost related to RSU awards of $75$89 million at December 31, 20202023 is expected to be recognized over a weighted-average period of 1.691.83 years. At December 31, 2020,2023, approximately 1.31.7 million RSUs with a grant date weighted-average fair value per share of $53.91$58.76 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.
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 |
| 2020 | Jan 1, 2020 – Dec 31, 2022 | 1,426 | | $ | 48.35 | |
| 2019 | Apr 1, 2019 – Dec 31, 2021 | 1,173 | | $ | 57.58 | |
| 2017 | Sep 1, 2017 – Aug 31, 2019 | 232 | | $ | 71.16 | |
2017 3 | Jan 1, 2017 – Dec 31, 2019 | 1,728 | | $ | 81.99 | |
| | | |
| | | | | | | | | | | |
| PSU Awards | Target Shares Granted 1 | Grant Date Fair Value 2 |
| Shares in thousands |
| Year | Performance Period |
| 2023 | Dec 18, 2023 – Dec 18, 2026 | 13 | | $ | 54.25 | |
| 2023 | Jan 1, 2023 – Dec 31, 2025 | 1,233 | | $ | 64.04 | |
| 2022 | Jan 1, 2022 – Dec 31, 2024 | 1,157 | | $ | 65.83 | |
| 2021 | Jan 1, 2021 – Dec 31, 2023 | 1,223 | | $ | 61.48 | |
| | | |
| | | |
| | | |
1.At the end of the performance period, the actual number of shares issued can range from 0zero to 200 percent of target shares granted.granted for the Jan 1 - Dec 31, 2023, 2022 and 2021 awards, and zero to 100 percent of target shares granted for the Dec 18, 2023 - Dec 18, 2026 awards.
2.Weighted-average per share.
3.Converted to RSUs as a result of the Merger.
The following table shows changes in nonvested PSUs:
| | PSUs | PSUs | 2020 | PSUs | 2023 |
| Shares in thousands | Shares in thousands | Shares | Grant Date Fair Value 1 | Shares in thousands | Shares | Grant Date Fair Value 1 |
| Nonvested at Jan 1, 2020 | 1,121 | | $ | 57.58 | |
| Nonvested at Jan 1, 2023 | |
| Granted | Granted | 1,426 | | $ | 48.35 | |
| Vested | Vested | 0 | | $ | 0 | |
| Canceled | Canceled | (59) | | $ | 53.09 | |
| Nonvested at Dec 31, 2020 | 2,488 | | $ | 53.78 | |
| Nonvested at Dec 31, 2023 | |
1.Weighted-average per share.
| | | | | | | | | | | |
| Additional Information about PSUs | | | |
| In millions, except share amounts | 2020 | 2019 | 2018 |
Total fair value of PSUs vested and delivered 1 | $ | 0 | | $ | 18 | | $ | 0 | |
| Related tax benefit | $ | 0 | | $ | 4 | | $ | 0 | |
| Total compensation expense for PSU awards | $ | 56 | | $ | 25 | | $ | 12 | |
| Related tax benefit | $ | 13 | | $ | 6 | | $ | 3 | |
Shares of PSUs settled in cash (in thousands) 2 | 0 | | 162 | | 0 | |
Total cash paid to settle PSUs 3 | $ | 0 | | $ | 13 | | $ | 0 | |
| | | | | | | | | | | |
| Additional Information about PSUs | | | |
| In millions, except share amounts | 2023 | 2022 | 2021 |
Total fair value of PSUs vested and delivered 1 | $ | 77 | | $ | 51 | | $ | — | |
| Related tax benefit | $ | 17 | | $ | 11 | | $ | — | |
| Total compensation expense for PSU awards | $ | 67 | | $ | 70 | | $ | 138 | |
| Related tax benefit | $ | 15 | | $ | 16 | | $ | 31 | |
Shares of PSUs settled in cash (in thousands) 2 | 369 | | 162 | | — | |
Total cash paid to settle PSUs 3 | $ | 21 | | $ | 10 | | $ | — | |
1.Includes the fair value of shares vested in prior years and delivered in the reporting year.
2.PSU awards vested in prior years and delivered in the reporting year.
3.Cash paid to certain executive employees for PSU awards vested in prior periods and delivered in the reporting year, equal to the value of the stock award on the date of delivery.
Total unrecognized compensation cost related to PSU awards of $31$26 million at December 31, 2020,2023, is expected to be recognized over a weighted-average period of 1.67 years.
RestrictedEmployee Stock Purchase Plan
The Board unanimously approved the Dow Inc. 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which was approved by the Company's stockholders at the 2021 Annual Meeting of Stockholders held on April 15, 2021. Under the 2012 Plan,2023 ESPP offering, most employees were eligible to purchase shares of common stock of Dow Inc. valued at up to 10 percent of their annual total base salary or wages. The number of shares purchased was determined using the Company granted shares (including options, stock appreciation rights, stock units and restricted stock) to non-employee directors overamount contributed by the 10-year durationemployee divided by the plan price. The plan price of the program, subjectstock was equal to 85 percent of the fair market value (closing price) of the common stock at May 1, 2023 (beginning) or November 3, 2023 (ending) of the offering period, whichever was lower.
In 2023, employees subscribed to the plan's aggregate limit as well as annual individual limits.right to purchase approximately 2.6 million shares at a weighted-average price of $42.27 per share. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferredprice was fixed upon the close of the offering period. The shares were delivered to employees in the fourth quarter of 2023.
In 2022, employees subscribed to the right to purchase approximately 2.7 million shares at a weighted-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 2022.
| | | | | | | | | |
| Additional Information about Employee Stock Purchase Plan | | | |
| In millions, except per share amounts | 2023 | 2022 | |
| Weighted-average fair value per share of purchase rights granted | $ | 11.75 | | $ | 14.28 | | |
| Total compensation expense for ESPP | $ | 29 | | $ | 29 | | |
| Related tax benefit | $ | 6 | | $ | 7 | | |
| Total amount of cash received from the exercise of purchase rights | $ | 111 | | $ | 103 | | |
Total intrinsic value of purchase rights exercised 1 | $ | 20 | | $ | 18 | | |
| Related tax benefit | $ | 4 | | $ | 4 | | |
1.Difference between the market price at exercise and the price paid by the non-employee director, until retirement or termination of serviceemployee to exercise the Company. In 2018, 36,000 shares of restricted stock with a weighted average fair value of $62.82 were issued under this plan. In 2019 and 2020, there were 0 restricted stock shares issued under this plan.
purchase rights.
NOTE 2220 – FINANCIAL INSTRUMENTS
The following table summarizesRefer to Note 21 for a summary of the fair value of financial instruments at December 31, 20202023 and 2019:2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments at Dec 31 | 2020 | 2019 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | 980 | | $ | 0 | | $ | 0 | | $ | 980 | | $ | 220 | | $ | 0 | | $ | 0 | | $ | 220 | |
| Money market funds | 484 | | 0 | | 0 | | 484 | | 408 | | 0 | | 0 | | 408 | |
| Total cash equivalents | $ | 1,464 | | $ | 0 | | $ | 0 | | $ | 1,464 | | $ | 628 | | $ | 0 | | $ | 0 | | $ | 628 | |
Marketable securities 2 | $ | 45 | | $ | 0 | | $ | 0 | | $ | 45 | | $ | 21 | | $ | 0 | | $ | 0 | | $ | 21 | |
| Other investments: | | | | | | | | |
| Debt securities: | | | | | | | | |
Government debt 3 | $ | 673 | | $ | 35 | | $ | (10) | | $ | 698 | | $ | 533 | | $ | 33 | | $ | (11) | | $ | 555 | |
| Corporate bonds | 822 | | 119 | | (5) | | 936 | | 944 | | 80 | | (10) | | 1,014 | |
| Total debt securities | $ | 1,495 | | $ | 154 | | $ | (15) | | $ | 1,634 | | $ | 1,477 | | $ | 113 | | $ | (21) | | $ | 1,569 | |
Equity securities 4 | 6 | | 34 | | 0 | | 40 | | 10 | | 6 | | (1) | | 15 | |
| Total other investments | $ | 1,501 | | $ | 188 | | $ | (15) | | $ | 1,674 | | $ | 1,487 | | $ | 119 | | $ | (22) | | $ | 1,584 | |
| Total cash equivalents, marketable securities and other investments | $ | 3,010 | | $ | 188 | | $ | (15) | | $ | 3,183 | | $ | 2,136 | | $ | 119 | | $ | (22) | | $ | 2,233 | |
Long-term debt including debt due within one year 5 | $ | (16,951) | | $ | 6 | | $ | (3,659) | | $ | (20,604) | | $ | (16,410) | | $ | 7 | | $ | (2,258) | | $ | (18,661) | |
| Derivatives relating to: | | | | | | | | |
Interest rates 6 | $ | — | | $ | 41 | | $ | (182) | | $ | (141) | | $ | — | | $ | 8 | | $ | (283) | | $ | (275) | |
| Foreign currency | — | | 69 | | (84) | | (15) | | — | | 101 | | (21) | | 80 | |
Commodities 6 | — | | 63 | | (84) | | (21) | | — | | 59 | | (115) | | (56) | |
| Total derivatives | $ | — | | $ | 173 | | $ | (350) | | $ | (177) | | $ | — | | $ | 168 | | $ | (419) | | $ | (251) | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company's investments in marketable securities are included in "Other current assets" in the consolidated balance sheets.
3.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities’ obligations.
4.Equity securities with a readily determinable fair value.
5.Cost includes fair value hedge adjustment gains of $69 million at December 31, 2020 and losses of $1 million at December 31, 2019 on $3,314 million of debt at December 31, 2020 and $3,490 million of debt at December 31, 2019.
6.Presented net of cash collateral where master netting arrangements allow.
Cost approximates fair value for all other financial instruments.
Debt Securities
The Company’s investments in debt securities are primarily classified as available-for-sale. The following table provides the investing results from available-for-sale securities for the years ended December 31, 2020, 20192023, 2022 and 2018.2021.
| | Investing Results | Investing Results | | |
| In millions | |
| In millions | |
| In millions | In millions | 2020 | 2019 | 2018 | 2023 | 2022 | 2021 |
| Proceeds from sales of available-for-sale securities | Proceeds from sales of available-for-sale securities | $ | 837 | | $ | 1,138 | | $ | 1,053 | |
| Gross realized gains | Gross realized gains | $ | 94 | | $ | 51 | | $ | 21 | |
| Gross realized losses | Gross realized losses | $ | 40 | | $ | 18 | | $ | 30 | |
The following table summarizes the contractual maturities of the Company’s investments in debt securities:
| | | | | | | | |
Contractual Maturities of Debt Securities at Dec 31, 2020 1 | Cost | Fair
Value |
| In millions |
| Within one year | $ | 25 | | $ | 25 | |
| One to five years | 406 | | 448 | |
| Six to ten years | 649 | | 685 | |
| After ten years | 415 | | 476 | |
| Total | $ | 1,495 | | $ | 1,634 | |
1.Includes marketable securities with maturities of less than one year. | | | | | | | | |
| Contractual Maturities of Debt Securities at Dec 31, 2023 | Cost | Fair
Value |
| In millions |
| Within one year | $ | 66 | | $ | 62 | |
| One to five years | 1,124 | | 970 | |
| Six to ten years | 443 | | 407 | |
| After ten years | 505 | | 421 | |
| Total | $ | 2,138 | | $ | 1,860 | |
Portfolio managers regularly review the Company’s holdings to determine if any investments in debt securities are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired.
The credit rating of the issuer, current credit rating trends, the trends of the issuer’s overall sector, the ability of the issuer to pay expected cash flows and the length of time the security has been in a loss position are considered in determining whether unrealized losses represent an other-than-temporary impairment. The Company did not have any credit-related losses in 2020, 20192023, 2022 or 2018.2021.
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, 20202023 and 2019,2022, aggregated by investment category:
| Temporarily Impaired Debt Securities at
Dec 31 | Temporarily Impaired Debt Securities at
Dec 31 | Less than 12 months | 12 months or more | Total | 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 | Fair
Value | Unrealized
Losses | Fair
Value | Unrealized
Losses | Fair Value | Unrealized Losses |
| In millions | In millions | In millions |
| 2020 | | |
| 2023 | |
Government debt 1 | |
Government debt 1 | |
Government debt 1 | Government debt 1 | $ | 124 | | $ | (3) | | $ | 7 | | $ | (7) | | $ | 131 | | $ | (10) | |
| Corporate bonds | Corporate bonds | 55 | | (3) | | 12 | | (2) | | 67 | | (5) | |
| Total temporarily impaired debt securities | Total temporarily impaired debt securities | $ | 179 | | $ | (6) | | $ | 19 | | $ | (9) | | $ | 198 | | $ | (15) | |
| 2019 | | |
| 2022 | |
Government debt 1 | |
Government debt 1 | |
Government debt 1 | Government debt 1 | $ | 55 | | $ | (3) | | $ | 23 | | $ | (8) | | $ | 78 | | $ | (11) | |
| Corporate bonds | Corporate bonds | 79 | | (3) | | 52 | | (7) | | 131 | | (10) | |
| Total temporarily impaired debt securities | Total temporarily impaired debt securities | $ | 134 | | $ | (6) | | $ | 75 | | $ | (15) | | $ | 209 | | $ | (21) | |
1.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
Equity Securities
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, 2020.2023. The net unrealized gain recognized in earnings on equity securities totaled $32$7 million for the year ended December 31, 20202023 ($58 million net unrealized gainloss for the year ended December 31, 2019)2022).
| | Investments in Equity Securities | Investments in Equity Securities | Dec 31, 2020 | Dec 31, 2019 | Investments in Equity Securities | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | In millions |
| Readily determinable fair value | Readily determinable fair value | $ | 40 | | $ | 15 | |
| Not readily determinable fair value | Not readily determinable fair value | $ | 215 | | $ | 189 | |
Risk Management
The Company’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per
the accounting guidance related to derivatives and hedging activities, where appropriate. A secondary objective is to add value by creating additional non-specific exposure within established limits and policies; derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional 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, 2020.2023. 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 2021.2024.
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, 20202023 and 2019,2022, were as follows:
| | Notional Amounts - Net | Dec 31, 2020 | Dec 31, 2019 |
Notional Amounts 1 | | Notional Amounts 1 | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | Dec 31, 2020 | Dec 31, 2019 | In millions |
Derivatives designated as hedging instruments | | Interest rate contracts | |
| Interest rate contracts | |
| Interest rate contracts | Interest rate contracts | $ | 612 | | $ | 922 | |
| Foreign currency contracts | Foreign currency contracts | $ | 3,784 | | $ | 6,253 | |
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | |
| Interest rate contracts | Interest rate contracts | $ | 94 | | $ | 145 | |
| Interest rate contracts | |
| Interest rate contracts | |
| Foreign currency contracts | Foreign currency contracts | $ | 9,187 | | $ | 5,567 | |
1.Notional amounts represent the absolute value of open derivative positions at the end of the period. Multi-leg option positions are reflected at the maximum notional position at expiration.
The notional amounts of the Company's commodity derivatives presented on a net basis at December 31, 20202023 and 2019,2022, were as follows:
| | Commodity Notionals - Net | Dec 31, 2020 | Dec 31, 2019 | Notional Volume Unit |
Commodity Notionals 1 | | Commodity Notionals 1 | Dec 31, 2023 | Dec 31, 2022 | Notional Volume Unit |
| | Dec 31, 2020 | Dec 31, 2019 | Notional Volume Unit |
Derivatives designated as hedging instruments | | Derivatives designated as hedging instruments | |
| Derivatives designated as hedging instruments | |
| Hydrocarbon derivatives | |
| Hydrocarbon derivatives | |
| Hydrocarbon derivatives | Hydrocarbon derivatives | 10.9 | | 6.1 | | million barrels of oil equivalent | 3.7 | | 19.2 | 19.2 | | million barrels of oil equivalent | million barrels of oil equivalent |
| | Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | |
| Hydrocarbon derivatives | 0 | | 0.1 | | million barrels of oil equivalent |
| Power derivatives | 0 | | 87.5 | | thousands of megawatt hours |
| | | Derivatives not designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| Hydrocarbon derivatives | |
| Hydrocarbon derivatives | |
| Hydrocarbon derivatives | | 1.4 | | — | | million barrels of oil equivalent |
|
1.Notional amounts represent the net volume of open derivative positions outstanding at the end of the period.
| | | | | |
| Maturity Dates of Derivatives Designated as Hedging Instruments | Year |
| Interest rate contracts | 20212025 |
| Foreign currency contracts | 20212025 |
| Commodity contracts | 20222026 |
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.income, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.
Commodity swaps, futures and option contracts with maturities of not more than 60 months are utilized and designated as cash flow hedges of forecasted commodity purchases. 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 $194$2,629 million at December 31, 20202023 ($184152 million at December 31, 2019)2022).
The following tables provide the fair value and balance sheet classification of derivative instruments at December 31, 20202023 and 2019:2022:
| | | | | | | | | | | | | | |
| Fair Value of Derivative Instruments | Dec 31, 2020 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheets |
| Asset derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 3 | | $ | (3) | | $ | 0 | |
| Foreign currency contracts | Other current assets | 39 | | (19) | | 20 | |
| Commodity contracts | Other current assets | 146 | | (109) | | 37 | |
| Commodity contracts | Deferred charges and other assets | 31 | | (8) | | 23 | |
| Total | | $ | 219 | | $ | (139) | | $ | 80 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Deferred charges and other assets | $ | 41 | | $ | 0 | | $ | 41 | |
| Foreign currency contracts | Other current assets | 74 | | (25) | | 49 | |
| Commodity contracts | Other current assets | 4 | | (1) | | 3 | |
| Total | | $ | 119 | | $ | (26) | | $ | 93 | |
| Total asset derivatives | | $ | 338 | | $ | (165) | | $ | 173 | |
| | | | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 7 | | $ | (3) | | $ | 4 | |
| Foreign currency contracts | Accrued and other current liabilities | 93 | | (19) | | 74 | |
| Commodity contracts | Accrued and other current liabilities | 151 | | (112) | | 39 | |
| Commodity contracts | Other noncurrent obligations | 48 | | (9) | | 39 | |
| Total | | $ | 299 | | $ | (143) | | $ | 156 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Other noncurrent obligations | $ | 178 | | $ | 0 | | $ | 178 | |
| Foreign currency contracts | Accrued and other current liabilities | 35 | | (25) | | 10 | |
| Commodity contracts | Accrued and other current liabilities | 9 | | (3) | | 6 | |
| Total | | $ | 222 | | $ | (28) | | $ | 194 | |
| Total liability derivatives | | $ | 521 | | $ | (171) | | $ | 350 | |
1.Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
| | | | | | | | | | | | | | |
| Fair Value of Derivative Instruments | Dec 31, 2019 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheets |
| Asset derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 21 | | $ | (13) | | $ | 8 | |
| Foreign currency contracts | Other current assets | 105 | | (36) | | 69 | |
| Commodity contracts | Other current assets | 44 | | (25) | | 19 | |
| Commodity contracts | Deferred charges and other assets | 28 | | (3) | | 25 | |
| Total | | $ | 198 | | $ | (77) | | $ | 121 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Other current assets | $ | 14 | | $ | (14) | | $ | 0 | |
| | | | |
| Foreign currency contracts | Other current assets | 44 | | (12) | | 32 | |
| Commodity contracts | Other current assets | 18 | | (3) | | 15 | |
| | | | |
| Total | | $ | 76 | | $ | (29) | | $ | 47 | |
| Total asset derivatives | | $ | 274 | | $ | (106) | | $ | 168 | |
| | | | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 23 | | $ | (13) | | $ | 10 | |
| Interest rate contracts | Other noncurrent obligations | 1 | | 0 | | 1 | |
| Foreign currency contracts | Accrued and other current liabilities | 46 | | (36) | | 10 | |
| Commodity contracts | Accrued and other current liabilities | 95 | | (29) | | 66 | |
| Commodity contracts | Other noncurrent obligations | 38 | | (4) | | 34 | |
| Total | | $ | 203 | | $ | (82) | | $ | 121 | |
| Derivatives not designated as hedging instruments | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 136 | | $ | (14) | | $ | 122 | |
| Interest rate contracts | Other noncurrent obligations | 150 | | 0 | | 150 | |
| Foreign currency contracts | Accrued and other current liabilities | 23 | | (12) | | 11 | |
| Commodity contracts | Accrued and other current liabilities | 17 | | (3) | | 14 | |
| Commodity contracts | Other noncurrent obligations | 1 | | 0 | | 1 | |
| Total | | $ | 327 | | $ | (29) | | $ | 298 | |
| Total liability derivatives | | $ | 530 | | $ | (111) | | $ | 419 | |
| | | | | | | | | | | | | | | | | | | | |
| Fair Value of Derivative Instruments | Dec 31, 2023 | Dec 31, 2022 |
| In millions | Gross | Counterparty and Cash Collateral Netting 1 | Net 2 | Gross | Counterparty and Cash Collateral Netting 1 | Net 2 |
| Asset derivatives | | | | | | |
| Derivatives designated as hedging instruments | | | | | | |
Interest rate contracts 3 | $ | 73 | | $ | (73) | | $ | — | | $ | 351 | | $ | (246) | | $ | 105 | |
Interest rate contracts 4 | 59 | | (56) | | 3 | | — | | — | | — | |
Foreign currency contracts 3 | 21 | | (5) | | 16 | | 58 | | (39) | | 19 | |
Foreign currency contracts 4 | 5 | | — | | 5 | | — | | — | | — | |
Commodity contracts 3 | 27 | | (21) | | 6 | | 199 | | (148) | | 51 | |
Commodity contracts 4 | 2 | | (1) | | 1 | | — | | — | | — | |
| Total | $ | 187 | | $ | (156) | | $ | 31 | | $ | 608 | | $ | (433) | | $ | 175 | |
| Derivatives not designated as hedging instruments | | | | | | |
Interest rate contracts 3 | $ | 4 | | $ | (3) | | $ | 1 | | $ | — | | $ | — | | $ | — | |
| | | | | | |
Foreign currency contracts 3 | 33 | | (16) | | 17 | | 146 | | (50) | | 96 | |
| | | | | | |
Commodity contracts 3 | 33 | | (28) | | 5 | | 22 | | (1) | | 21 | |
| | | | | | |
| Total | $ | 70 | | $ | (47) | | $ | 23 | | $ | 168 | | $ | (51) | | $ | 117 | |
| Total asset derivatives | $ | 257 | | $ | (203) | | $ | 54 | | $ | 776 | | $ | (484) | | $ | 292 | |
| Liability derivatives | | | | | | |
| Derivatives designated as hedging instruments | | | | | | |
Interest rate contracts 5 | $ | 95 | | $ | (73) | | $ | 22 | | $ | 246 | | $ | (246) | | $ | — | |
Interest rate contracts 6 | 56 | | (56) | | — | | — | | — | | — | |
Foreign currency contracts 5 | 8 | | (5) | | 3 | | 58 | | (39) | | 19 | |
| | | | | | |
Commodity contracts 5 | 34 | | (22) | | 12 | | 258 | | (198) | | 60 | |
Commodity contracts 6 | 2 | | (1) | | 1 | | — | | — | | — | |
| Total | $ | 195 | | $ | (157) | | $ | 38 | | $ | 562 | | $ | (483) | | $ | 79 | |
| Derivatives not designated as hedging instruments | | | | | | |
Interest rate contracts 5 | $ | 3 | | $ | (3) | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | |
Foreign currency contracts 5 | 38 | | (16) | | 22 | | 61 | | (50) | | 11 | |
| | | | | | |
Commodity contracts 5 | 34 | | (28) | | 6 | | 12 | | (11) | | 1 | |
| | | | | | |
| Total | $ | 75 | | $ | (47) | | $ | 28 | | $ | 73 | | $ | (61) | | $ | 12 | |
| Total liability derivatives | $ | 270 | | $ | (204) | | $ | 66 | | $ | 635 | | $ | (544) | | $ | 91 | |
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.
2.Represents the net amounts included in the consolidated balance sheets.
3.Included in "Other current assets" in the consolidated balance sheets.
4.Included in "Deferred charges and other assets" in the consolidated balance sheets.
5.Included in "Accrued and other current liabilities" in the consolidated balance sheets.
6.Included in "Other noncurrent obligations" in the consolidated balance sheets.
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 $7$22 million at December 31, 20202023 ($580 million at December 31, 2019)2022). NaNNo cash collateral was posted by counterparties with the Company at December 31, 20202023 ($32 million at December 31, 2019)2022).
The following table summarizes the gain (loss) of derivative instruments in the consolidated statements of income and comprehensive income for the years ended December 31, 2020, 20192023, 2022 and 2018:2021:
| | Effect of Derivative Instruments | Effect of Derivative Instruments | Amount of gain (loss) recognized in OCI 1 | Amount of gain (loss) recognized in income 2 | Income Statement Classification | Effect of Derivative Instruments | Gain (loss) recognized in OCI 1 | Gain (loss) recognized in income 2 |
| In millions | In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | In millions | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | |
| Fair value hedges: | Fair value hedges: | | |
| Interest rate contracts | $ | 0 | | $ | 0 | | $ | 0 | | $ | 69 | | $ | 17 | | $ | 0 | | Interest expense and amortization of debt discount 3 |
Excluded components 4 | 7 | | (3) | | 0 | | 0 | | 0 | | 0 | | Interest expense and amortization of debt discount |
| Fair value hedges: | |
| Fair value hedges: | |
Interest rate contracts 3, 4 | |
Interest rate contracts 3, 4 | |
Interest rate contracts 3, 4 | |
Excluded components 3, 5 | |
| Cash flow hedges: | Cash flow hedges: | | |
| Interest rate contracts | 0 | | (316) | | 26 | | (2) | | 1 | | (3) | | Interest expense and amortization of debt discount |
Interest rate contracts 3 | |
Interest rate contracts 3 | |
Interest rate contracts 3 | |
Foreign currency contracts 6 | |
| Commodity contracts 6 | |
Commodity contracts 6 | |
Commodity contracts 6 | |
Excluded components 5, 6 | |
| Net foreign investment hedges: | |
| Foreign currency contracts | Foreign currency contracts | (20) | | 16 | | 19 | | 3 | | 28 | | (18) | | Cost of sales |
| Foreign currency contracts | Foreign currency contracts | 0 | | 10 | | (3) | | 0 | | 8 | | 0 | | Sundry income (expense) - net |
| Commodity contracts | (8) | | (6) | | (46) | | (31) | | (81) | | (69) | | Cost of sales |
| Net foreign investment hedges: | | |
| Foreign currency contracts | Foreign currency contracts | (38) | | (52) | | 116 | | 0 | | 0 | | 0 | | |
Excluded components 4 | 27 | | 162 | | 0 | | 20 | | 99 | | 0 | | Sundry income (expense) - net |
Excluded components 5, 7 | |
| Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | $ | (32) | | $ | (189) | | $ | 112 | | $ | 59 | | $ | 72 | | $ | (90) | | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | |
| Interest rate contracts | $ | 0 | | $ | 0 | | $ | 0 | | $ | (16) | | $ | (4) | | $ | 0 | | Interest expense and amortization of debt discount |
| Foreign currency contracts | 0 | | 0 | | 0 | | 28 | | 45 | | 101 | | Sundry income (expense) - net |
| Commodity contracts | 0 | | 0 | | 0 | | 11 | | (28) | | (12) | | Cost of sales |
Interest rate contracts 3 | |
Interest rate contracts 3 | |
Interest rate contracts 3 | |
Foreign currency contracts 7 | |
Commodity contracts 6 | |
Total return swap 6 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 0 | | $ | 0 | | $ | 0 | | $ | 23 | | $ | 13 | | $ | 89 | | |
| Total derivatives | Total derivatives | $ | (32) | | $ | (189) | | $ | 112 | | $ | 82 | | $ | 85 | | $ | (1) | | |
1.OCI is defined as other comprehensive income (loss).
2.Pretax amounts.
3.Included in "Interest expense and amortization of debt discount" in the consolidated statements of income.
4.Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of the hedged item.
4.5.The excluded components are related to the time value of the derivatives designated as hedges.
6.Included in "Cost of sales" in the consolidated statements of income.
7.Included in "Sundry income (expense) - net" in the consolidated statements of income.
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,
20202023 |
| Cash flow hedges: | |
| Interest rate contracts | $ | (8)(7) | |
| Commodity contracts | $ | (1)(9) | |
| Foreign currency contracts | $ | (18)2 | |
| Excluded components | $ | (3) | |
| Net foreign investment hedges: | |
| Excluded components | $ | 2 | |
NOTE 2321 – 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 | Dec 31, 2020 | Dec 31, 2019 |
| Fair Value Measurements on a Recurring Basis | | Fair Value Measurements on a Recurring Basis | | Dec 31, 2023 | Dec 31, 2022 |
| In millions | In millions | Level 1 | Level 2 | | Total | Level 1 | Level 2 | | Total | In millions | Fair Value Level | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Assets at fair value: | Assets at fair value: | | | | | |
| Cash equivalents: | Cash equivalents: | | | | | |
| Cash equivalents: | |
| Cash equivalents: | |
Held-to-maturity securities 1 | |
Held-to-maturity securities 1 | |
Held-to-maturity securities 1 | Held-to-maturity securities 1 | $ | 0 | | $ | 980 | | | $ | 980 | | $ | 0 | | $ | 220 | | | $ | 220 | |
| Money market funds | Money market funds | 0 | | 484 | | | 484 | | 0 | | 408 | | | 408 | |
Marketable securities 2 | Marketable securities 2 | 0 | | 45 | | | 45 | | 0 | | 21 | | | 21 | |
Equity securities 3 | 40 | | 0 | | | 40 | | 15 | | 0 | | | 15 | |
Debt securities: 3 | | | | | |
Government debt 4 | 0 | | 698 | | | 698 | | 0 | | 555 | | | 555 | |
Nonconsolidated affiliates 3 | |
| Other investments: | |
Debt securities: 4 | |
Debt securities: 4 | |
Debt securities: 4 | |
Government debt 5 | |
Government debt 5 | |
Government debt 5 | |
| Corporate bonds | Corporate bonds | 28 | | 908 | | | 936 | | 22 | | 992 | | | 1,014 | |
Derivatives relating to: 5 | | | | | |
| Corporate bonds | |
| Corporate bonds | |
Equity securities 4, 6 | |
Derivatives relating to: 7 | |
| Interest rates | |
| Interest rates | |
| Interest rates | Interest rates | 0 | | 44 | | | 44 | | 0 | | 35 | | | 35 | |
| Foreign currency | Foreign currency | 0 | | 113 | | | 113 | | 0 | | 149 | | | 149 | |
| Commodities | Commodities | 8 | | 173 | | | 181 | | 23 | | 67 | | | 90 | |
| Commodities | |
| Total assets at fair value | Total assets at fair value | $ | 76 | | $ | 3,445 | | | $ | 3,521 | | $ | 60 | | $ | 2,447 | | | $ | 2,507 | |
| Liabilities at fair value: | Liabilities at fair value: | | | | | | | | Liabilities at fair value: | | | | | | | | |
Long-term debt including debt due within one year 6 | $ | 0 | | $ | 20,604 | | | $ | 20,604 | | $ | 0 | | $ | 18,661 | | | $ | 18,661 | |
| Derivatives relating to: 5 | | | | | |
Long-term debt including debt due within one year 8 | |
Guarantee liability 9 | |
Derivatives relating to: 7 | |
| Interest rates | |
| Interest rates | |
| Interest rates | Interest rates | 0 | | 185 | | | 185 | | 0 | | 310 | | | 310 | |
| Foreign currency | Foreign currency | 0 | | 128 | | | 128 | | 0 | | 69 | | | 69 | |
| Commodities | Commodities | 7 | | 201 | | | 208 | | 14 | | 137 | | | 151 | |
| Commodities | |
| Total liabilities at fair value | Total liabilities at fair value | $ | 7 | | $ | 21,118 | | | $ | 21,125 | | $ | 14 | | $ | 19,177 | | | $ | 19,191 | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company's investments in marketable securities are included in "Other current assets" in the consolidated balance sheets.
3.Estimated asset for an investment in a limited liability company included in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
4.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.
4.5.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
5.6.Equity securities with a readily determinable fair value.
7.See Note 2220 for the classification of derivatives in the consolidated balance sheets.
6.8.Cost includes fair value hedge adjustment gains of $49 million at December 31, 2023 and $46 million at December 31, 2022 on $4,479 million of debt at December 31, 2023 and $2,279 million of debt at December 31, 2022. See Note 2220 for information on fair value measurements of long-term debt.
9.Estimated liability for TDCC's guarantee of Sadara's debt which is included in "Other noncurrent obligations" in the consolidated balance sheets. See Note 14 for additional information.
Cost approximates fair value for all other financial instruments.
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 2220 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, 20202023 and 2019.2022.
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 corporate bond, accounted for as a debt security and an investment in a limited liability company, accounted for as an investment in nonconsolidated affiliates. There was no unfunded commitment on the investment in a limited liability company at December 31, 2023 and 2022.
The following table summarizes the changes in fair value measurements of the investment in a corporate bond using Level 3 inputs for the year ended December 31, 2023:
| | | | | |
| Fair Value Measurements Using Level 3 Inputs for Investment in Corporate Bond at Dec 31, | 2023 |
| In millions |
| Balance at Jan 1 | $ | — | |
Recognition of asset 1 | 200 | |
Loss included in AOCL 2 | (89) | |
| Balance at Dec 31 | $ | 111 | |
1.Included in "Other investments" in the consolidated balance sheets.
2.Included in "Accumulated other comprehensive loss" in the consolidated balance sheets.
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 14 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, 2023 and 2022:
| | | | | | | | |
| Fair Value Measurements Using Level 3 Inputs for Accrued Liability of Sadara Guarantee at Dec 31, | 2023 | 2022 |
| In millions |
| Balance at Jan 1 | $ | (199) | | $ | (220) | |
| | |
Gain included in earnings 1 | 21 | | 21 | |
| Balance at Dec 31 | $ | (178) | | $ | (199) | |
1.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 $111 million in private equity and $19 million in real estate at December 31, 2020 ($117$86 million in private equity and $18 million in real estate at December 31, 2019)2023 ($92 million in private equity and $20 million in real estate at December 31, 2022). There are no redemption restrictions and the unfunded commitments on these investments were $63$75 million at December 31, 20202023 ($7654 million at December 31, 2019)2022).
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 | 2018 |
In millions |
Balance at Jan 1 | $ | 677 | |
Gain (loss) included in earnings 1
| 3 | |
| |
Settlements 2
| (680) | |
Balance at Dec 31 | $ | 0 | |
1.Included in "Selling, general and administrative expenses" in the consolidated statements of income.
2.Includes noncash transactions of $23 million for the year ended December 31, 2018.
Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the bases used to measure certain assets at fair value on a nonrecurring basis in the consolidated balance sheets in 2020, 2019 and 2018:sheets:
| | Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | | (Level 3) | Total Losses |
| Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | |
| Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | | | (Level 3) | Total Losses |
| In millions | In millions | (Level 3) | Total Losses | In millions | Total Losses |
| 2020 | |
| 2023 | |
| Assets at fair value: | |
| Assets at fair value: | |
| Assets at fair value: | Assets at fair value: | | | |
| Long-lived assets and other assets | Long-lived assets and other assets | | $ | 121 | | $ | (245) | |
| 2019 | | | |
| Assets at fair value: | | | |
| Long-lived assets, other assets and equity method investments | | $ | 162 | | $ | (2,031) | |
| Goodwill | | $ | 0 | | $ | (1,039) | |
| 2018 | | | |
| Assets at fair value: | | | |
| Long-lived assets and other assets | |
| Long-lived assets and other assets | Long-lived assets and other assets | | $ | 0 | | $ | (67) | |
| |
20202023 Fair Value Measurements on a Nonrecurring Basis
As part of the 20202023 Restructuring Program, the Company has or will shut down and write off several smalla number of manufacturing facilities, corporate facilities and miscellaneous assets around the world. The assets associated with this plan were written down to zero. In addition, impairmentsImpairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to a fair value of $110$9 million using unobservable inputs. The impairment charges related to the 20202023 Restructuring Program, totaling $196$191 million, were included in "Restructuring goodwill impairment and asset related charges - net" in the consolidated
statements of income and related to Packaging & Specialty Plastics ($11 million), Industrial Intermediates & Infrastructure ($22 million), Performance Materials & Coatings ($116 million) and Corporate ($47 million).
In 2020, the Company recognized impairment charges of $30 million related to the write-down of a non-manufacturing asset and certain corporate leased equipment and the write-off of a capital project. The assets, classified as Level 3 measurements, were valued at $11 million using unobservable inputs. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($15 million) and Corporate ($15 million).
In 2020, the Company recognized an additional pretax impairment charge of $19 million related to capital additions made to a bio-ethanol manufacturing facility in Santa Vitoria, Minas Gerais, Brazil, which was impaired in 2017. The assets were written down to zero in 2020. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics. On September 29, 2020, the Company divested the bio-ethanol manufacturing facility. See Note 6 for additional information.
2019 Fair Value Measurements on a Nonrecurring Basis
As part of the Synergy Program, the Company has or will shut down and write-off several small manufacturing facilities, non-manufacturing assets and certain corporate facilities around the world. In 2019, manufacturing facilities associated with this plan were written down to zero. In addition, impairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to a fair value of $152 million using unobservable inputs. The impairment charges related to the Synergy Program, totaling $143 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million).
In 2019, the Company recognized an additional pretax impairment charge of $44 million related to capital additions made to Santa Vitoria, which was impaired in 2017. The assets were written down to zero in 2019. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics.
In 2019, the Company recognized impairment charges of $14 million related to non-manufacturing assets. The assets, classified as Level 3 measurements, were valued at $10 million using unobservable inputs. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($9 million) and Corporate ($5 million).
In 2019, the Company recognized an impairment charge of $75 million resulting from the planned divestiture of its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The assets, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero in 2019, except for inventory, which was sold at the lower of cost or market. The impairment charge was included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million).
In the fourth quarter of 2019, the Company performed its annual goodwill impairment testing utilizing a discounted cash flow methodology as its valuation technique. As a result, the Company determined the fair value of the C&PM reporting unit was lower than its carrying amount and recorded an impairment charge of $1,039 million, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 13 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 ($3701 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million). See Note 12 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 ($1050 million), Performance Materials & Coatings ($749 million) and Corporate ($1691 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.
See Note 64 for additional information on the Company's restructuring activities.
The Company's fair value measurements on a nonrecurring basis were insignificant in 2022 and 2021.
NOTE 2422 – 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 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 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 BrazilAccounts Receivable Monetization
The Company heldholds a variable interestsinterest in a cogeneration facility in Brazil that provided poweran entity created to monetize accounts receivable of select European entities. The Company is the Company's bio-ethanol manufacturing facility. The Company's variable interests were theprimary beneficiary of this entity as a result of a tolling arrangement where it provided fuel toholding subordinated notes while maintaining servicing responsibilities for the entity and purchased a majority of the cogeneration facility’s output on terms that ensured a return to the entity’s equity holders. On September 29, 2020, the Company divested its bio-ethanol manufacturing facility and is no longer a party to the tolling arrangement with the cogeneration facility.accounts receivable.
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, 20202023 and 2019:2022:
| | Assets and Liabilities of Consolidated VIEs at Dec 31 | Assets and Liabilities of Consolidated VIEs at Dec 31 | | |
| In millions | |
| In millions | |
| In millions | In millions | 2020 | 2019 | 2023 | 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 26 | | $ | 37 | |
| Other current assets | Other current assets | 44 | | 51 | |
| Net property | Net property | 232 | | 330 | |
| Other noncurrent assets | Other noncurrent assets | 17 | | 18 | |
Total assets 1 | Total assets 1 | $ | 319 | | $ | 436 | |
| Current liabilities | Current liabilities | $ | 73 | | $ | 141 | |
| Long-term debt | 6 | | 34 | |
| | Other noncurrent obligations | |
| Other noncurrent obligations | |
| Other noncurrent obligations | Other noncurrent obligations | 18 | | 21 | |
Total liabilities 2 | Total liabilities 2 | $ | 97 | | $ | 196 | |
1.AllRestricted assets were restrictedtotaled $216 million and $227 million at December 31, 20202023 and 2019.2022, respectively.
2.All liabilities were nonrecourse at December 31, 20202023 and 2019.2022.
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 20202023 and 20192022, are adjusted for intercompany eliminations.
Nonconsolidated VIEs
The Company holds a variable interest in the following entities for which the Company is not the primary beneficiary:
Silicon Joint 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, 2020,2023, the Company's investment in these joint ventures was $107$134 million ($100113 million at December 31, 2019)2022), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, representing the Company's maximum exposure to loss.
NOTE 2523 – 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, as approved by Dow Inc.'sthe 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. In 2020 and 2019,The following table summarizes cash dividends TDCC declared and paid dividends to Dow Inc. of $2,233 millionfor the years ended 2023, 2022 and $201 million, respectively. 2021.
| | | | | | | | | | | |
| TDCC Cash Dividends Declared and Paid | 2023 | 2022 | 2021 |
| In millions |
| Cash dividends declared and paid | $ | 2,510 | | $ | 4,375 | | $ | 3,264 | |
At December 31, 20202023 and 2019,2022, TDCC's intercompany loan balance with Dow Inc. was insignificant.
DowDuPont
Pursuant to the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, and prior to the separation from DowDuPont, TDCC committed to fund a portion of DowDuPont's dividends paid to common stockholders and certain governance expenses. In addition, share repurchases by DowDuPont were partially funded by TDCC through 2018. In 2019, TDCC declared and paid dividends to DowDuPont of $535 million ($3,711 million in 2018).
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 revenue earned and expenses incurred related to transactions with Historical DuPont and its affiliates:
| | | | | | | | |
| 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 2624 – SEGMENTS AND GEOGRAPHIC REGIONS
Dow combines global breadth, asset integration and scale, focused innovation and leading business positions to achieve profitable growth. The Company's ambition is to become the most innovative, customer centric, inclusive and sustainable materials science company, with a purpose to deliver a sustainable future for the world through our materials science expertise and collaboration with our partners. Dow’s portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer care. Dow operates 106 manufacturing sites in 31 countries and employs approximately 35,700 people.
The Company conducts its worldwide operations through 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. The Company reports geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America and EMEAI. The Company transfers ethylene to its downstream derivative businesses at market prices. The Company also allocated costs previously assigned to AgCo and SpecCo ("stranded costs") to the operating segments.
Dow’s measure of profit/loss for segment reporting purposes is Operating EBIT (for the year ended December 31, 2020) and pro forma Operating EBIT (for the years ended December 31, 2019 and 2018) as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, excluding the impact of significant items. The Company defines pro forma Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. Operating EBIT and pro forma Operating EBIT by segment include 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 for the years ended December 31, 2019 and 2018 in this footnote as it is included in management's measure of segment performance and is regularly reviewed by the CODM. Pro forma net sales includes the impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont.
Corporate Profile
Dow conducts its worldwide operations through global businesses which are reflected in the following reportable segments:
Packaging & Specialty Plastics
Packaging & Specialty Plastics consists of two highly integrated global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The segment employs the industry’s broadest polyolefin product portfolio, supported by the Company’s proprietary catalyst and manufacturing process technologies, to work at the customer’s design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; mobility and transportation; and infrastructure. This segment includes the results of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group, as well as a portion of the results of EQUATE, The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut and Sadara, all joint ventures of the Company.
Industrial Intermediates & Infrastructure
Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others. This segment includes a portion of the Company's share of the results of EQUATE, TKOC, Map Ta Phut and Sadara.
Performance Materials & Coatings
Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumer and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings; home care and personal care; consumer and electronics; mobility and transportation; industrial and chemical processing; and building and infrastructure end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.
Corporate
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; non-business aligned litigation expenses; and discontinued or non-aligned businesses.
Sales are attributed to geographic region based on customer location; long-lived assets are attributed to geographic region based on asset location.
| | Geographic Region Information | Geographic Region Information | United
States | EMEAI | Rest of
World | Total | Geographic Region Information | United
States | EMEAI | Rest of
World | Total |
| In millions | In millions | In millions |
| 2020 | | |
| 2023 | |
| Sales to external customers | |
| Sales to external customers | |
| Sales to external customers | Sales to external customers | $ | 12,547 | | $ | 12,969 | | $ | 13,026 | | $ | 38,542 | |
| Long-lived assets | Long-lived assets | $ | 13,833 | | $ | 2,813 | | $ | 3,593 | | $ | 20,239 | |
| 2019 | | |
| 2022 | |
| Sales to external customers | |
| Sales to external customers | |
| Sales to external customers | Sales to external customers | $ | 14,437 | | $ | 14,612 | | $ | 13,902 | | $ | 42,951 | |
| Long-lived assets | Long-lived assets | $ | 14,571 | | $ | 2,649 | | $ | 3,776 | | $ | 20,996 | |
| 2018 | | |
| 2021 | |
| Sales to external customers | |
| Sales to external customers | |
| Sales to external customers | Sales to external customers | $ | 16,613 | | $ | 17,406 | | $ | 15,585 | | $ | 49,604 | |
| Long-lived assets | Long-lived assets | $ | 14,750 | | $ | 2,657 | | $ | 4,011 | | $ | 21,418 | |
See Part I, Item 1. Business for further discussion of the Company's segments.
Dow’s measure of profit/loss for segment reporting purposes is Operating EBIT as this is the manner in which the CODM assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. 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.
| | Segment Information | Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions | In millions | In millions |
| 2020 | | |
| 2023 | |
| Net sales | |
| Net sales | |
| Net sales | Net sales | $ | 18,301 | | $ | 12,021 | | $ | 7,951 | | $ | 269 | | $ | 38,542 | |
Restructuring and asset related charges - net 1 | Restructuring and asset related charges - net 1 | 30 | | 22 | | 192 | | 464 | | 708 | |
| Equity in earnings (losses) of nonconsolidated affiliates | Equity in earnings (losses) of nonconsolidated affiliates | 173 | | (166) | | 6 | | (31) | | (18) | |
Operating EBIT 2 | Operating EBIT 2 | 2,325 | | 355 | | 314 | | (279) | | 2,715 | |
| Depreciation and amortization | Depreciation and amortization | 1,372 | | 605 | | 870 | | 27 | | 2,874 | |
| Total assets | Total assets | 30,069 | | 12,220 | | 13,915 | | 5,266 | | 61,470 | |
| Investments in nonconsolidated affiliates | Investments in nonconsolidated affiliates | 661 | | 531 | | 108 | | 27 | | 1,327 | |
| Capital expenditures | Capital expenditures | 678 | | 268 | | 306 | | 0 | | 1,252 | |
| 2019 | | |
| 2022 | |
| Net sales | 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 | |
| Net sales | |
| Net sales | |
Restructuring and asset related charges - net 1 | |
| Equity in earnings (losses) of nonconsolidated affiliates | Equity in earnings (losses) of nonconsolidated affiliates | 162 | | (241) | | 5 | | (20) | | (94) | |
Pro forma Operating EBIT 3 | 2,904 | | 845 | | 918 | | (315) | | 4,352 | |
Operating EBIT 2 | |
| Depreciation and amortization | Depreciation and amortization | 1,435 | | 594 | | 877 | | 32 | | 2,938 | |
| Total assets | Total assets | 29,522 | | 11,753 | | 14,059 | | 5,190 | | 60,524 | |
| Investments in nonconsolidated affiliates | Investments in nonconsolidated affiliates | 675 | | 568 | | 101 | | 60 | | 1,404 | |
| Capital expenditures | Capital expenditures | 1,039 | | 452 | | 470 | | 0 | | 1,961 | |
| 2018 | | |
| 2021 | |
| Net sales | 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 | |
| Net sales | |
| Net sales | |
Restructuring and asset related charges (credits) - net 1 | |
| Equity in earnings (losses) of nonconsolidated affiliates | Equity in earnings (losses) of nonconsolidated affiliates | 287 | | 284 | | 4 | | (20) | | 555 | |
Pro forma Operating EBIT 3 | 3,593 | | 1,767 | | 1,246 | | (370) | | 6,236 | |
Operating EBIT 2 | |
| Depreciation and amortization | Depreciation and amortization | 1,385 | | 607 | | 888 | | 29 | | 2,909 | |
Total assets 4 | 30,279 | | 14,092 | | 16,050 | | 3,378 | | 63,799 | |
| Total assets | |
| Investments in nonconsolidated affiliates | Investments in nonconsolidated affiliates | 1,278 | | 1,850 | | 99 | | 93 | | 3,320 | |
| Capital expenditures | Capital expenditures | 1,231 | | 433 | | 427 | | 0 | | 2,091 | |
1.See Note 64 for information regarding the Company's restructuring programs goodwill impairment and other asset related charges.
2.Operating EBIT for TDCC in 20202023, 2022 and 2021, is substantially the same as that of Dow Inc. and therefore is not disclosed separately in the table above. A reconciliation of "Income from continuing operations, net of tax""Net income" to Operating EBIT is provided onin the following page.table.
3.Pro forma Operating EBIT for TDCC in 2019 is substantially the same as that of Dow Inc. (same for 2018) and therefore is not disclosed separately in the table above. A reconciliation of "Income (loss) from continuing operations, net of tax" to pro forma Operating EBIT is provided on the following page.
4.Excludes assets of discontinued operations of $19,900 million. | | | | | | | | | | | |
| Reconciliation of "Net income" to Operating EBIT | 2023 | 2022 | 2021 |
| In millions |
| Net income | $ | 660 | | $ | 4,640 | | $ | 6,405 | |
| + Provision (credit) for income taxes | (4) | | 1,450 | | 1,740 | |
| Income before income taxes | $ | 656 | | $ | 6,090 | | $ | 8,145 | |
| - Interest income | 229 | | 173 | | 55 | |
| + Interest expense and amortization of debt discount | 746 | | 662 | | 731 | |
| - Significant items | (1,605) | | (11) | | (712) | |
| Operating EBIT | $ | 2,778 | | $ | 6,590 | | $ | 9,533 | |
| | | | | |
Reconciliation of "Income from continuing operations, net of tax" to Operating EBIT | 2020 |
In millions |
Income from continuing operations, net of tax | $ | 1,294 | |
+ Provision for income taxes on continuing operations | 777 | |
Income from continuing operations before income taxes | $ | 2,071 | |
- Interest income | 38 | |
+ Interest expense and amortization of debt discount | 827 | |
- Significant items | 145 | |
Operating EBIT | $ | 2,715 | |
| | | | | | | | |
| Reconciliation of "Income (loss) from continuing operations, net of tax" to Pro Forma Operating EBIT | 2019 | 2018 |
| In millions |
| Income (loss) from continuing operations, net of tax | $ | (1,717) | | $ | 2,940 | |
| + Provision for income taxes on continuing operations | 470 | | 809 | |
| Income (loss) from continuing operations before income taxes | $ | (1,247) | | $ | 3,749 | |
| - Interest income | 81 | | 82 | |
| + Interest expense and amortization of debt discount | 933 | | 1,063 | |
+ Pro forma adjustments 1 | 65 | | 180 | |
| - Significant items | (4,682) | | (1,326) | |
| Pro forma Operating EBIT | $ | 4,352 | | $ | 6,236 | |
| | |
| | |
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 removal of the amortization of ECP's inventory step-up recognized in connection with the Merger and (3) 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).
The following tables summarize the pretax impact of significant items by segment that are excluded from Operating EBIT and pro forma Operating EBIT:
| | | | | | | | | | | | | | | | | |
| Significant Items by Segment for 2020 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
Integration and separation costs 1 | $ | 0 | | $ | 0 | | $ | 0 | | $ | (239) | | $ | (239) | |
Restructuring and asset related charges - net 2 | (30) | | (22) | | (192) | | (464) | | (708) | |
Warranty accrual adjustment of exited business 3 | 0 | | 0 | | 0 | | 11 | | 11 | |
Restructuring implementation costs 4 | 0 | | 0 | | 0 | | (10) | | (10) | |
Net gain on divestitures and asset sale 5 | 52 | | 61 | | 0 | | 604 | | 717 | |
Litigation related charges, awards and adjustments 6 | 544 | | 0 | | 0 | | 0 | | 544 | |
Loss on early extinguishment of debt 7 | 0 | | 0 | | 0 | | (149) | | (149) | |
Indemnification and other transaction related costs 8 | 0 | | 0 | | 0 | | (21) | | (21) | |
| Total | $ | 566 | | $ | 39 | | $ | (192) | | $ | (268) | | $ | 145 | |
| | | | | | | | | | | | | | | | | |
| Significant Items by Segment for 2023 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
| | | | | |
Restructuring, implementation and efficiency costs, and asset related charges - net 1 | $ | (1) | | $ | (50) | | $ | (67) | | $ | (623) | | $ | (741) | |
| | | | | |
| | | | | |
Litigation related charges, awards and adjustments 2 | 106 | | (177) | | — | | — | | (71) | |
Argentine peso devaluation 3 | (52) | | (16) | | — | | (109) | | (177) | |
Pension settlement charges 4 | — | | — | | — | | (642) | | (642) | |
Indemnification and other transaction related costs 5 | — | | — | | — | | 26 | | 26 | |
| Total | $ | 53 | | $ | (243) | | $ | (67) | | $ | (1,348) | | $ | (1,605) | |
1.CostsIncludes restructuring charges and implementation and efficiency costs associated with the Company's 2023 Restructuring Program, partially offset by a credit related to business separation activities.a prior restructuring program. Also includes certain gains and losses associated with previously impaired equity investments.
2.Includes Board approved restructuring plans and asset-related charges, which include other asset impairments.a loss associated with legacy agricultural products groundwater contamination matters, partially offset by a gain associated with a legal matter with Nova Chemicals Corporation. See Note 614 for additional information.
3.Includes an adjustmentForeign currency losses and inventory valuation impacts related to the warranty accrualdevaluation of an exited business.the Argentine peso by the Argentina government in December 2023.
4.Includes costs associated with implementing the Company's 2020 Restructuring Program.
5.PrimarilyNon-cash settlement charges related to a gain on the salepurchase of rail infrastructurenonparticipating group annuity contracts for certain Company pension plans in the U.S.United States and Canada and a gain on the sale of marine and terminal operations and assets in the U.S.Canada. See Notes 5 and 7Note 18 for additional information.
6.Includes recognition of gains associated with a legal matter with Nova. See Note 16 for additional information.
7.The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 15 for additional information.
8.5.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 |
Integration and separation costs 1 | $ | 0 | | $ | 0 | | $ | 0 | | $ | (1,013) | | $ | (1,013) | |
Restructuring, goodwill impairment and asset related charges - net 2 | (439) | | (1,175) | | (1,076) | | (529) | | (3,219) | |
Warranty accrual adjustment of exited business 3 | 0 | | 0 | | 0 | | 39 | | 39 | |
Environmental charges 4 | (5) | | (8) | | (50) | | (336) | | (399) | |
Loss on divestitures 5 | 0 | | (5) | | 0 | | (44) | | (49) | |
Loss on early extinguishment of debt 6 | 0 | | 0 | | 0 | | (102) | | (102) | |
Litigation related charges, awards and adjustments 7 | 170 | | 0 | | 0 | | 35 | | 205 | |
Indemnification and other transaction related costs 8 | 0 | | 0 | | 0 | | (144) | | (144) | |
| Total | $ | (274) | | $ | (1,188) | | $ | (1,126) | | $ | (2,094) | | $ | (4,682) | |
| | | | | | | | | | | | | | | | | |
| 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.Costs related to post-Merger integration and business separation activities. Excludes one-time transactionIncludes costs directly attributable toassociated with implementing the Merger.Company's Digital Acceleration program.
2.Includes Board approved restructuring plans and asset related charges (see Note 6 for additional information); a charge related to Sadara (see Note 12 for additional information) and an impairment charge related to goodwillcosts associated with implementing the Coatings & Performance Monomers reporting unit (see Note 13 for additional information).Company's 2020 Restructuring Program.
3.Includes an adjustmentAsset related charges due to the warranty accrual of an exited business.
4.Related to environmental remediation, primarily resulting from the culmination of long-standing negotiations with regulators and/or agenciesRussia and review of additional costs to manage ongoing remediation activities resulting from Dow’s separation from DowDuPont and related agreements with Corteva and DuPont.Ukraine conflict. See Note 164 for additional information.
5.Includes post-closing adjustments on previous divestitures.
6.4.The Company retiredredeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 1513 for additional information.
7.5.Includes a gain associated with a legal matter with Nova as well asChemicals Corporation and a gain related to an adjustment of the Implant Liability and a charge related to the settlement of the Commercial Creditor matters.Dow Silicones breast implant liability. See Note 1614 for additional information.
8.6.IncludesPrimarily related to charges primarily associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
| | | | | | | | | | | | | | | | | |
| Significant Items by Segment for 2018 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
Impact of Dow Silicones ownership restructure 1 | $ | 0 | | $ | 0 | | $ | (20) | | $ | 0 | | $ | (20) | |
Integration and separation costs 2 | 0 | | 0 | | 0 | | (1,074) | | (1,074) | |
Restructuring and asset related charges - net 3 | (46) | | (11) | | (21) | | (120) | | (198) | |
Gain on divestiture 4 | 0 | | 20 | | 0 | | 0 | | 20 | |
Loss on early extinguishment of debt 5 | 0 | | 0 | | 0 | | (54) | | (54) | |
| Total | $ | (46) | | $ | 9 | | $ | (41) | | $ | (1,248) | | $ | (1,326) | |
1.Includes a loss related to a post-closing adjustment related to the Dow Silicones ownership restructure.
2.Costs related to post-Merger integration and separation and distribution activities, and costs related to the Dow Silicones ownership restructure.
3.Includes Board approved restructuring plans and asset-related charges, which include other asset impairments. See Note 6 for additional information.
4.Includes a gain related to the Company's sale of its equity interest in MEGlobal.
5.The Company retired outstanding notes payable resulting in a loss on early extinguishment. See Note 15 for additional information.
NOTE 27 - SELECTED QUARTERLY FINANCIAL DATA
| | | | | | | | | | | | | | | | | |
| 2020 | | | | | |
| In millions, except per share amounts (Unaudited) | 1st | 2nd | 3rd | 4th | Year |
| Dow Inc. | | | | | |
| Net sales | $ | 9,770 | | $ | 8,354 | | $ | 9,712 | | $ | 10,706 | | $ | 38,542 | |
| Cost of sales | $ | 8,230 | | $ | 7,610 | | $ | 8,371 | | $ | 9,135 | | $ | 33,346 | |
| Gross margin | $ | 1,540 | | $ | 744 | | $ | 1,341 | | $ | 1,571 | | $ | 5,196 | |
Restructuring and asset related charges (credits) - net 1 | $ | 96 | | $ | 6 | | $ | 617 | | $ | (11) | | $ | 708 | |
Integration and separation costs 2 | $ | 65 | | $ | 46 | | $ | 63 | | $ | 65 | | $ | 239 | |
| | | | | |
Net income (loss) 3 | $ | 258 | | $ | (217) | | $ | (1) | | $ | 1,254 | | $ | 1,294 | |
| Net income (loss) attributable to Dow Inc. | $ | 239 | | $ | (225) | | $ | (25) | | $ | 1,236 | | $ | 1,225 | |
Earnings (loss) per common share from continuing operations - basic 4 | $ | 0.32 | | $ | (0.31) | | $ | (0.04) | | $ | 1.66 | | $ | 1.64 | |
Earnings (loss) per common share from continuing operations - diluted 4 | $ | 0.32 | | $ | (0.31) | | $ | (0.04) | | $ | 1.65 | | $ | 1.64 | |
| Dividends declared per share of common stock | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 2.80 | |
| Market price range of common stock: | | | | | |
| High | $ | 53.75 | | $ | 45.90 | | $ | 51.07 | | $ | 57.73 | | $ | 57.73 | |
| Low | $ | 22.00 | | $ | 27.04 | | $ | 39.44 | | $ | 45.18 | | $ | 22.00 | |
| TDCC | | | | | |
| Net sales | $ | 9,770 | | $ | 8,354 | | $ | 9,712 | | $ | 10,706 | | $ | 38,542 | |
| Cost of sales | $ | 8,230 | | $ | 7,608 | | $ | 8,371 | | $ | 9,134 | | $ | 33,343 | |
| Gross margin | $ | 1,540 | | $ | 746 | | $ | 1,341 | | $ | 1,572 | | $ | 5,199 | |
Restructuring and asset related charges (credits) - net 1 | $ | 96 | | $ | 6 | | $ | 617 | | $ | (11) | | $ | 708 | |
Integration and separation costs 2 | $ | 65 | | $ | 46 | | $ | 63 | | $ | 65 | | $ | 239 | |
| | | | | |
| | | | | |
Net income (loss) 3 | $ | 258 | | $ | (217) | | $ | (1) | | $ | 1,264 | | $ | 1,304 | |
| Net income (loss) attributable to The Dow Chemical Company | $ | 239 | | $ | (225) | | $ | (25) | | $ | 1,246 | | $ | 1,235 | |
1.See Note 6 for additional information.
2.See Note 3 for additional information.
3.See Notes 5, 7, 15 and 16 for information on additional items materially impacting "Net income (loss)." The fourth quarter of 2020 includes a gain related to the sale of marine and terminal operations and assets and a gain associated with a legal matter with Nova. The third quarter of 2020 includes a gain related to the sale of rail infrastructure operations and assets and a loss on the early extinguishment of debt. The first quarter of 2020 includes a loss on the early extinguishment of debt.
4.Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. Due to quarterly changes in the share count and the allocation of income to participating securities, the sum of the four quarters does not equal the earnings per share amount calculated for the year.
| | | | | | | | | | | | | | | | | |
| 2019 | | | | | |
| In millions, except per share amounts (Unaudited) | 1st | 2nd | 3rd | 4th | Year |
| Dow Inc. | | | | | |
| Net sales | $ | 10,969 | | $ | 11,014 | | $ | 10,764 | | $ | 10,204 | | $ | 42,951 | |
| Cost of sales | $ | 9,142 | | $ | 9,420 | | $ | 9,377 | | $ | 8,718 | | $ | 36,657 | |
| Gross margin | $ | 1,827 | | $ | 1,594 | | $ | 1,387 | | $ | 1,486 | | $ | 6,294 | |
Restructuring, goodwill impairment and asset related charges - net 1 | $ | 156 | | $ | 65 | | $ | 147 | | $ | 2,851 | | $ | 3,219 | |
Integration and separation costs 2 | $ | 452 | | $ | 348 | | $ | 164 | | $ | 99 | | $ | 1,063 | |
| Income (loss) from continuing operations, net of tax | $ | 156 | | $ | 90 | | $ | 347 | | $ | (2,310) | | $ | (1,717) | |
| Income from discontinued operations net of tax | $ | 445 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 445 | |
Net income (loss) 3 | $ | 601 | | $ | 90 | | $ | 347 | | $ | (2,310) | | $ | (1,272) | |
| Net income (loss) attributable to Dow Inc. | $ | 556 | | $ | 75 | | $ | 333 | | $ | (2,323) | | $ | (1,359) | |
Earnings (loss) per common share from continuing operations - basic 4 | $ | 0.16 | | $ | 0.10 | | $ | 0.45 | | $ | (3.14) | | $ | (2.42) | |
Earnings (loss) per common share from continuing operations - diluted 4 | $ | 0.16 | | $ | 0.10 | | $ | 0.45 | | $ | (3.14) | | $ | (2.42) | |
Dividends declared per share of common stock 5 | N/A | $ | 0.70 | | $ | 0.70 | | $ | 0.70 | | $ | 2.10 | |
| Market price range of common stock: | | | | | |
High 5 | N/A | $ | 59.71 | | $ | 52.79 | | $ | 55.99 | | $ | 59.71 | |
Low 5 | N/A | $ | 46.76 | | $ | 40.71 | | $ | 43.85 | | $ | 40.71 | |
| TDCC | | | | | |
| Net sales | $ | 10,969 | | $ | 11,014 | | $ | 10,764 | | $ | 10,204 | | $ | 42,951 | |
| Cost of sales | $ | 9,142 | | $ | 9,419 | | $ | 9,377 | | $ | 8,719 | | $ | 36,657 | |
| Gross margin | $ | 1,827 | | $ | 1,595 | | $ | 1,387 | | $ | 1,485 | | $ | 6,294 | |
Restructuring, goodwill impairment and asset related charges - net 1 | $ | 156 | | $ | 65 | | $ | 147 | | $ | 2,851 | | $ | 3,219 | |
Integration and separation costs 2 | $ | 452 | | $ | 324 | | $ | 164 | | $ | 99 | | $ | 1,039 | |
| Income (loss) from continuing operations, net of tax | $ | 156 | | $ | 217 | | $ | 324 | | $ | (2,292) | | $ | (1,595) | |
| Income from discontinued operations net of tax | $ | 445 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 445 | |
Net income (loss) 3 | $ | 601 | | $ | 217 | | $ | 324 | | $ | (2,292) | | $ | (1,150) | |
| Net income (loss) attributable to The Dow Chemical Company | $ | 556 | | $ | 202 | | $ | 310 | | $ | (2,305) | | $ | (1,237) | |
| | | | | | | | | | | | | | | | | |
| 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.See Note 6 for additional information.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 34 for additional information.
3.See Notes 3, 8, 15 and 16 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 andCompany redeemed outstanding long-term debt resulting in a loss on the early extinguishment of debt. The third quarter of 2019 includedextinguishment. See Note 13 for additional information.
4.Includes post-closing adjustments on a chargeprevious divestiture.
5.Related to an arbitration award received from Luxi Chemical Group Co., Ltd. See Note 14 for additional information.
6.Primarily related to environmental remediation, a charge related to the settlement of the Commercial Creditor matters, a gain related to an adjustment to the Implant Liability and a gain associated with a legal matter with Nova. The second quarter of 2019 included charges associated with agreements entered into with DuPont and Corteva as part of the separation from DowDuPont.
4.Earnings per common share amounts relate onlyand distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, Dow Inc. as TDCC common shares are not publicly tradedat and are all owned by Dow Inc. Due to quarterly changes inafter the share count and the allocation of income to participating securities, the sumcompletion of the four quarters does not equal the earnings per share amount calculated for the year.
5.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.
| | |
| 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, 2023, 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, 2020,2023, 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.
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, 2020,2023, 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, 2020,2023, 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, 2020,2023, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 5, 2021,January 31, 2024, expressed an unqualified opinion on those financial statements and financial statement schedule.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | |
/S/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
February 5, 2021January 31, 2024 |
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, 2020,2023, 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, 2020,2023, 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, 2020,2023, of the Company and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 5, 2021,January 31, 2024, expressed an unqualified opinion on those financial statements and financial statement schedule.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | |
/S/ DELOITTE & TOUCHE LLP |
| Midland, Michigan |
February 5, 2021January 31, 2024 |
| | |
| 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 20212024 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 20212024 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 20212024 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 20212024 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 20212024 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 20212024 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-approvalpreapproval policies and procedures of the Audit Committee of the Board are contained in the definitive Proxy Statement for the 20212024 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, 2020 and 2019. Professional services were performed by Deloitte, its member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (“Deloitte Entities”). Total fees paid to the Deloitte Entities are shown by category in the following table:
| | | | | | | | |
| Type of Fees | | |
| In thousands | 2020 | 2019 |
Audit Fees 1 | $ | 21,237 | | $ | 25,142 | |
Audit-Related Fees 2 | 2,807 | | 4,438 | |
Tax Fees 3 | 2,053 | | 2,780 | |
| Total | $ | 26,097 | | $ | 32,360 | |
1.The aggregate fees billed for the integrated audit of the Company's annual financial statements and internal control over financial reporting, the reviews of the financial statements in quarterly reports on Form 10-Q, comfort letters, consents, statutory audits, and other regulatory filings. For 2020 and 2019, the fees include $135,000 and $850,000 respectively, which were associated with supporting the DuPont de Nemours, Inc. filings with the U.S. Securities and Exchange Commission ("SEC") for the period prior to the separation from DowDuPont Inc.
2.The aggregate fees billed primarily for audits of carve-out financial statements, assessment of controls relating to outsourced services, audits and reviews supporting divestiture activities, and agreed-upon procedures engagements.
3.The aggregate fees billed primarily for corporate tax consulting services, the preparation of expatriate employees' tax returns and tax compliance services.
| | |
| 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:
(1) The Company’s 20202023 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: | | | | | |
| 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:
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| Exhibit No. | Description of Exhibit |
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| 2.1 | |
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| 2.2 | |
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| 2.3 | |
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| 2.3.1 | |
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| 3.1 | |
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| 3.2 | |
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| 3.3 |
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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| 3.4 | |
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| 4.1 | |
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4.1.1Supplemental Indenture, dated as of January 1, 1994, between The Dow Chemical Company and The First National Bank of Chicago, as trustee, to the 1992 Indenture (incorporated by reference to Exhibit 4.2 to the S-3 Registration Statement).
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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| 4.1.2 | |
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| 4.1.3 | |
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| 4.2 | |
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| 4.2.1 | |
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| 4.2.2 | |
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| 4.3 | |
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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. |
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| 4.5 | |
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| 10.1 | |
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| 10.2 | |
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| 10.3 | |
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| 10.4 | |
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| 10.5 | |
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| 10.5.1 | |
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| 23.2* | |
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| 31.1* | |
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| 31.2* | |
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| 32.1* | |
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| 32.2* | |
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| 97* | |
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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. |
| 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 | 10.9 The Dow Chemical Company Elective Deferral Plan (Post 2004), restated and effective as of April 1, 2019 (incorporated by reference to Exhibit 4.1 to The Dow Chemical Company's Registration Statement on Form S-8 POS filed with the SEC on April 1, 2019).
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.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
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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*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.
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| Dow Inc. and Subsidiaries | |
| The Dow Chemical Company and Subsidiaries | |
| Valuation and Qualifying Accounts | Schedule II |
| | (In millions) For the years ended Dec 31, | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 | (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Accounts Receivable - Allowance for Doubtful Receivables | Accounts Receivable - Allowance for Doubtful Receivables | | |
| Balance at beginning of year | Balance at beginning of year | $ | 45 | | $ | 42 | | $ | 59 | |
Additions charged to expenses 1 | 22 | | 24 | | 10 | |
Additions charged to other accounts 2 | 0 | | 0 | | 4 | |
Deductions from reserves 3 | (16) | | (21) | | (31) | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Additions charged to expenses | |
| Deductions from reserves 1 | |
Deductions from reserves 1 | |
Deductions from reserves 1 | |
| Balance at end of year | Balance at end of year | $ | 51 | | $ | 45 | | $ | 42 | |
| Inventory - Obsolescence Reserve | Inventory - Obsolescence Reserve | | |
| Balance at beginning of year | Balance at beginning of year | $ | 35 | | $ | 23 | | $ | 18 | |
| Balance at beginning of year | |
| Balance at beginning of year | |
| Additions charged to expenses | Additions charged to expenses | 2 | | 19 | | 7 | |
Deductions from reserves 4 | (14) | | (7) | | (2) | |
Deductions from reserves 2 | |
| Balance at end of year | Balance at end of year | $ | 23 | | $ | 35 | | $ | 23 | |
| Reserves for Other Investments and Noncurrent Receivables | Reserves for Other Investments and Noncurrent Receivables | | |
| Balance at beginning of year | Balance at beginning of year | $ | 2,215 | | $ | 460 | | $ | 430 | |
Additions charged to expenses 1 | 7 | | 1,758 | | 44 | |
Deductions from reserves 5 | (129) | | (3) | | (14) | |
| Balance at beginning of year | |
| Balance at beginning of year | |
Additions charged to expenses 3 | |
Deductions from reserves 4 | |
| Balance at end of year | Balance at end of year | $ | 2,093 | | $ | 2,215 | | $ | 460 | |
| Deferred Tax Assets - Valuation Allowance | Deferred Tax Assets - Valuation Allowance | | |
| Balance at beginning of year | Balance at beginning of year | $ | 1,262 | | $ | 1,225 | | $ | 1,255 | |
| Additions charged to expenses | 313 | | 140 | | 152 | |
| Balance at beginning of year | |
| Balance at beginning of year | |
Additions charged to expenses 5 | |
| Deductions from reserves | Deductions from reserves | (273) | | (103) | | (182) | |
| Balance at end of year | Balance at end of year | $ | 1,302 | | $ | 1,262 | | $ | 1,225 | |
1.In 2019, additions charged to expenses for "Accounts Receivable - Allowance for Doubtful Receivables" included $2 million and additions charged to expenses for "Reserves for Other Investments and Noncurrent Receivables" included $1,753 million related to the Company's investment in Sadara Chemical Company ("Sadara"). See Note 12 to the Consolidated Financial Statements for additional information.
2.Additions to allowance for doubtful receivables charged to other accounts were classified as "Accounts and notes receivable - Other" in the consolidated balance sheets. These reserves relate to the Company's sale of trade accounts receivable. Anticipated credit losses in the portfolio of receivables sold were used to fair value the Company's interests held in trade accounts receivable conduits. See Notes 14 and 23 to the Consolidated Financial Statements for additional information.
3.Deductions included write-offs, recoveries, currency translation adjustments and other miscellaneous items.items, including a $23 million reclassification to "Reserves for Other Investments and Noncurrent Receivables" in 2023.
4.2.Deductions included disposals and currency translation adjustments.
5.3.In 2020, deductionsAdditions included a $23 million reclassification from reserves"Accounts Receivable - Allowance for "Reserves for Other InvestmentsDoubtful Receivables" in 2023.
4.Deductions included $143 million in 2023 related to the Company's investment in AgroFresh Solutions Inc., which was converted to cash, and Noncurrent Receivables" included $77 million in 2023, 2022 and 2021 related to the Company's investment in Sadara. See Note 1210 to the Consolidated Financial Statements for additional information.
5.Additions in 2023 include increases in valuation allowances related to foreign tax assets that are expected to expire without being utilized.
| | | | | | | | | | | | | | |
| | 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 Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 5, 2021.January 31, 2024.
| | |
| DOW INC. |
| THE DOW CHEMICAL COMPANY |
|
| /s/ RONALD C. EDMONDS |
Ronald C. Edmonds, Controller and Vice President of Controllers and Tax
(Authorized Signatory and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on February 5, 2021January 31, 2024, by the following persons on behalf of the registrant and in the capacities indicated.
| | | | | | | | |
| | |
| /s/ SAMUEL R. ALLEN | | /s/ RONALD C. EDMONDSJEFF M. FETTIG |
| Samuel R. Allen, Director, Dow Inc. | | Jeff M. Fettig, Director, Dow Inc. |
| | |
| /s/ GAURDIE E. BANISTER JR. | | /s/ JIM FITTERLING |
| Gaurdie E. Banister Jr., Director, Dow Inc. | | Jim Fitterling, Director, Chair and Chief Executive Officer, Dow Inc. and TDCC (Principal Executive Officer) |
| | |
| /s/ WESLEY G. BUSH | | /s/ JACQUELINE C. HINMAN |
| Wesley G. Bush, Director, Dow Inc. | | Jacqueline C. Hinman, Director, Dow Inc. |
| | |
| /s/ RICHARD K. DAVIS | | /s/ LUIS ALBERTO MORENO MEJIA |
| Richard K. Davis, Lead Director, Dow Inc. | | Luis Alberto Moreno Mejia, Director, Dow Inc. |
| | |
| /s/ JERRI DEVARD | | /s/ JEFFREY L. TATE |
| Jerri DeVard, Director, Dow Inc. | | Jeffrey L. Tate, Chief Financial Officer, Dow Inc. and TDCC; Director, TDCC
(Principal Financial Officer) |
| | |
| /s/ DEBRA L. DIAL | | /s/ JILL S. WYANT |
| Debra L. Dial, Director, Dow Inc. | | Jill S. Wyant, Director, Dow Inc. |
| | |
| /s/ RONALD C. EDMONDS | | /s/ DANIEL W. YOHANNES |
Ronald C. Edmonds, Controller and Vice President of Controllers and Tax, Dow Inc.
and TDCC (Authorized Signatory and Principal Accounting Officer) |
| | |
/s/ AJAY BANGA | | /s/ JEFF M. FETTIG |
Ajay Banga, Director, Dow Inc. | | Jeff M. Fettig, Lead Director, Dow Inc. |
| | |
/s/ GAURDIE BANISTER JR. | | /s/ JIM FITTERLING |
Gaurdie Banister Jr., Director, Dow Inc. | | Jim Fitterling, Director, Chairman and Chief Executive Officer, Dow Inc. and TDCC (Principal Executive Officer) |
| | |
/s/ JACQUELINE K. BARTON | | /s/ JACQUELINE C. HINMAN |
Jacqueline K. Barton, Director, Dow Inc. | | Jacqueline C. Hinman, Director, Dow Inc. |
| | |
/s/ JAMES A. BELL | | /s/ HOWARD UNGERLEIDER |
James A. Bell, Director, Dow Inc. | | Howard Ungerleider, President and Chief Financial Officer, Dow Inc. and TDCC;
Director, TDCC (Principal Financial Officer) |
| | |
/s/ WESLEY G. BUSH | | /s/ JILL S. WYANT |
Wesley G. Bush, Director, Dow Inc. | | Jill S. Wyant, Director, Dow Inc. |
| | |
/s/ RICHARD K. DAVIS | | /s/ DANIEL W. YOHANNES |
Richard K. Davis, Director, Dow Inc. | | Daniel W. Yohannes, Director, Dow Inc. |
| | |
| | |
Dow Inc. and Subsidiaries
The Dow Chemical Company and Subsidiaries |
| Trademark Listing |
The following trademarks or service marks of The Dow Chemical Company and certain affiliated companies of Dow appear in this report: ACOUSTICRYL, ACRYSOL, AFFINITY,ACUSOL, AMPLIFY, AQUASET, AVANSE, CARBOWAX, DECARBIA, DOW, DOWANOL, DOWSIL, DOWTHERM, ECOFAST, ELITE, ENGAGE,ECOSENSE, EVOQUE, EVOWASH, FASTRACK, FORMASHIELD, IMAGIN3D,LP OXO, LUXSENSE, MAINCOTE, MOBILITYSCIENCE, NEOSEED, NORDEL, PRIMAL, RHOBARR,RENUVA, REVOLOOP, RHOPLEX, SENTRY, SILASTIC, SUNSPHERES, SURLYN, SYL-OFF, TAMOL, TERGITOL, TRITON, UCAR, UCON, UNIFINITY, VERSENE, 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®Care®
The following trademark of the Business Intelligence Group™ appears in this report: BIG Innovation Awards
The following trademark of Clarivate™ appears in this report: Top 100 Global Innovators™
The following registered trademark of US Business Leadership Network, Inc. appears in this report: Disability Equality Index™, Best Places to Work for Disability Inclusion™
The following trademark of The Edison Awards™ appears in this report: Edison Awards™
The following trademark of Evonik Operations GmbH appears in this report: HYPROSYN™
The following trademarks and registered trademarks of Great Place to Work®Work® Institute, Inc. appears in this report: Great Place to Work®Work®, Fortune 100 Best Companies to Work For®
The following registered trademarktrademarks of The National Safety CouncilTi Gotham Inc. appears in this report: Green Cross for Safety®PEOPLE®, PEOPLE® Companies that Care
The following registered trademark of InspereX Holdings LLC appears in this report: InterNotes®
® ™ Trademark of The Dow Chemical Company ("TDCC") or an affiliated company, except as otherwise specified.
