Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 3.97M
2: EX-23 Ankura Consulting Group, LLC's Consent HTML 35K
3: EX-31.1 Certification Pursuant to Section 302 of the HTML 36K
Sarbanes-Oxley Act of 2002
4: EX-31.2 Certification Pursuant to Section 302 of the HTML 36K
Sarbanes-Oxley Act of 2002
5: EX-32.1 Certification Pursuant to Section 906 of the HTML 32K
Sarbanes-Oxley Act of 2002
6: EX-32.2 Certification Pursuant to Section 906 of the HTML 32K
Sarbanes-Oxley Act of 2002
12: R1 Cover Page HTML 110K
13: R2 Dow Consolidated Statements of Income Statement HTML 114K
14: R3 Dow Consolidated Statements of Comprehensive HTML 72K
Income Statement
15: R4 Dow Consolidated Balance Sheets Statement HTML 172K
16: R5 Dow Consolidated Balance Sheets Parentheticals HTML 44K
17: R6 Dow Consolidated Statements of Cash Flows HTML 146K
Statement
18: R7 Dow Consolidated Statements of Equity Statement HTML 101K
19: R8 Consolidated Statements of Income HTML 102K
20: R9 Consolidated Statements of Comprehensive Income HTML 76K
21: R10 TDCC Consolidated Balance Sheets (Statement) HTML 185K
22: R11 TDCC Consolidated Statements of Cash Flows HTML 154K
Statement
23: R12 Consolidated Statements of Equity HTML 88K
24: R13 Dow Consolidated Statements of Income - HTML 35K
Supplemental Info
25: R14 TDCC Consolidated Statements of Income - HTML 35K
Supplemental Info
26: R15 TDCC Consolidated Balance Sheets Parentheticals HTML 45K
27: R16 Consolidated Financial Statements (Notes) HTML 34K
28: R17 SEPARATION FROM DOWDUPONT Separation from HTML 34K
DowDuPont (Notes)
29: R18 Revenue (Notes) HTML 98K
30: R19 Restructuring and Asset Related Charges - Net HTML 89K
(Notes)
31: R20 Supplementary Information (Notes) HTML 68K
32: R21 Earnings Per Share (Notes) HTML 66K
33: R22 Inventories (Notes) HTML 42K
34: R23 Nonconsolidated Affiliates (Notes) HTML 45K
35: R24 Goodwill and Other Intangible Assets (Notes) HTML 83K
36: R25 Transfers of Financial Assets HTML 39K
37: R26 Notes Payable, Long-Term Debt and Available Credit HTML 111K
Facilities (Notes)
38: R27 Commitments and Contingencies (Notes) HTML 54K
39: R28 Leases (Notes) HTML 109K
40: R29 Accumulated Other Comprehensive Loss (Notes) HTML 121K
41: R30 NONCONTROLLING INTERESTS Noncontrolling Interests HTML 51K
42: R31 Pension Plans and Other Postretirement Benefits HTML 64K
43: R32 Stock-Based Compensation HTML 37K
44: R33 Financial Instruments (Notes) HTML 340K
45: R34 Fair Value Measurements (Notes) HTML 114K
46: R35 Variable Interest Entities (Notes) HTML 53K
47: R36 Relatd Party Transactions (Notes) HTML 40K
48: R37 Segments and Geographic Regions (Notes) HTML 166K
49: R38 Revenue (Tables) HTML 92K
50: R39 Restructuring and Related Activities (Tables) HTML 85K
51: R40 Supplementary Information (Tables) HTML 67K
52: R41 Earnings Per Share (Tables) HTML 66K
53: R42 Inventories (Tables) HTML 43K
54: R43 Nonconsolidated Affiliates (Tables) HTML 43K
55: R44 Goodwill and Other Intangible Assets (Tables) HTML 93K
56: R45 Notes Payable, Long-Term Debt and Available Credit HTML 114K
Facilities (Tables)
57: R46 Commitments and Contingencies (Tables) HTML 42K
58: R47 Leases (Tables) HTML 130K
59: R48 Accumulated Other Comprehensive Loss (Tables) HTML 115K
60: R49 NONCONTROLLING INTERESTS Noncontrolling Interests HTML 49K
(Tables)
61: R50 Pension Plans and Other Postretirement Benefits HTML 60K
(Tables)
62: R51 Financial Instruments (Tables) HTML 357K
63: R52 Fair Value Measurements (Tables) HTML 110K
64: R53 Variable Interest Entities (Tables) HTML 56K
65: R54 Related Party Transactions (Tables) HTML 38K
66: R55 Segments and Geographic Regions (Tables) HTML 170K
67: R56 SEPARATION FROM DOWDUPONT Separation, Distribution HTML 40K
and Tax Agreements (Details)
68: R57 Revenue (Details) HTML 105K
69: R58 Restructuring and related activities (2020 HTML 115K
Restructuring Program) (Details)
70: R59 Restructuring and Related Activities (Asset HTML 49K
Related Charges) (Details)
71: R60 Summary of Sundry Income (Expense) - Net (Details) HTML 52K
72: R61 Earnings Per Share (Details) HTML 77K
73: R62 Inventories (Details) HTML 45K
74: R63 Nonconsolidated Affiliates (Details) HTML 50K
75: R64 GOODWILL AND OTHER INTANGIBLE ASSETS - Summary of HTML 44K
Goodwill (Details)
76: R65 GOODWILL AND OTHER INTANGIBLE ASSETS - Summary of HTML 60K
Other Intangible Assets (Details)
77: R66 GOODWILL AND OTHER INTANGIBLE ASSETS - Summary of HTML 38K
Amortization Expense (Details)
78: R67 GOODWILL AND OTHER INTANGIBLE ASSETS - Summary of HTML 43K
Future Amortization Expense (Details)
79: R68 Transfers of Financial Assets (Details) HTML 38K
80: R69 NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT HTML 39K
FACILITIES Notes Payable (Details)
81: R70 NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT HTML 126K
FACILITIES Long-Term Debt (Details)
82: R71 NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT HTML 84K
FACILITIES Committed and Available Credit
Facilities (Details)
83: R72 Commitments and Contingencies (Environmental HTML 36K
Matters) (Details)
84: R73 Commitments and Contingencies (Asbestos-Related HTML 36K
Matters of Union Carbide Corporation) (Details)
85: R74 Commitments and Contingencies (Dow Silicones HTML 37K
Chapter 11 Related Matters) (Details)
86: R75 Commitments and Contingencies Indemnifications HTML 33K
with Corning (Details)
87: R76 Commitments and Contingencies (Nova Patent HTML 38K
Infringement Matter) (Details)
88: R77 Commitments and Contingencies Nova Ethylene Asset HTML 41K
Matter (Details)
89: R78 Commitment and Contingencies (Brazil Tax Credits) HTML 37K
(Details)
90: R79 Commitments and Contingencies (Guarantees) HTML 46K
(Details)
91: R80 Leases Costs and Other Information (Details) HTML 61K
92: R81 Leases Lease Position (Details) HTML 49K
93: R82 Leases Term and Rate (Details) HTML 39K
94: R83 Leases Maturities and Guarantees (Details) HTML 78K
95: R84 Accumulated Other Comprehensive Loss (Details) HTML 94K
96: R85 Stockholders' Equity (Treasury Stock) (Details) HTML 39K
97: R86 NONCONTROLLING INTERESTS Noncontrolling Interests HTML 51K
(Details)
98: R87 Pension Plans and Other Postretirement Benefits HTML 65K
(Details)
99: R88 Stock-Based Compensation (Stock Incentive Plan) HTML 58K
(Details)
100: R89 Fair Value of Financial Instruments (Details) HTML 122K
101: R90 Debt Investments (Details) HTML 75K
102: R91 Notional Amounts (Details) HTML 49K
103: R92 Schedule of Fair Value of Derivative Instruments HTML 109K
(Details)
104: R93 Effect of Derivative Instruments (Details) HTML 87K
105: R94 Expected Reclassification (Details) HTML 46K
106: R95 Fair Value Measurements (Summary of Recurring HTML 147K
Measured Fair Values) (Details)
107: R96 Schedule of Consolidated VIEs, Carrying Amounts of HTML 69K
Assets and Liabilities (Details)
108: R97 Schedule of Nonconsolidated VIEs (Details) HTML 36K
109: R98 Relatd Party Transactions (Details) HTML 33K
110: R99 SEGMENTS AND GEOGRAPHIC REGIONS Segment HTML 54K
Information (Details)
111: R100 SEGMENTS AND GEOGRAPHIC REGIONS EBIT HTML 59K
Reconciliation (Details)
112: R101 SEGMENTS AND GEOGRAPHIC REGIONS Significant Items HTML 62K
(Details)
115: XML IDEA XML File -- Filing Summary XML 217K
113: XML XBRL Instance -- dow-20220630_htm XML 5.89M
114: EXCEL IDEA Workbook of Financial Reports XLSX 232K
8: EX-101.CAL XBRL Calculations -- dow-20220630_cal XML 218K
9: EX-101.DEF XBRL Definitions -- dow-20220630_def XML 1.38M
10: EX-101.LAB XBRL Labels -- dow-20220630_lab XML 2.35M
11: EX-101.PRE XBRL Presentations -- dow-20220630_pre XML 1.69M
7: EX-101.SCH XBRL Schema -- dow-20220630 XSD 260K
116: JSON XBRL Instance as JSON Data -- MetaLinks 593± 904K
117: ZIP XBRL Zipped Folder -- 0001751788-22-000123-xbrl Zip 855K
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.
Dow
Inc.
☑
iYes
☐
No
The Dow Chemical Company
☑
iYes
☐
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).
Dow
Inc.
☑
iYes
☐
No
The Dow Chemical Company
☑
iYes
☐
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.
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.
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 Exchange Act).
Dow
Inc.
☐
Yes
☑
iNo
The Dow Chemical Company
☐
Yes
☑
iNo
Dow
Inc. had i718,167,477 shares of common stock, $i0.01 par value, outstanding at June 30, 2022. The Dow Chemical
Company had i100 shares of common stock, $i0.01 par value, outstanding at June 30, 2022, all of which were held by the registrant’s parent, Dow Inc.
The Dow Chemical Company meets the conditions set forth in General Instruction H(1)(a) and (b) for Form 10-Q and therefore is filing this form with a reduced disclosure format.
Dow Inc. and Subsidiaries The Dow Chemical Company and Subsidiaries
This Quarterly Report on Form 10-Q 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") due to the parent/subsidiary relationship between Dow Inc. and TDCC. The information reflected in the 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.
CAUTIONARY
STATEMENT ABOUT 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 continuing global and regional economic impacts of the coronavirus disease 2019 (“COVID-19”) pandemic and other public health-related risks and events on Dow’s business; any sanction, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflict between Russia and Ukraine; 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; 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 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 including the ongoing conflict between Russia and Ukraine; weather events and natural disasters; disruptions in Dow’s information technology networks and systems; and risks related to Dow’s separation from DowDuPont Inc. such 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 titled “Risk Factors” contained in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 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 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.
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"). The unaudited interim 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 reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the combined Dow Inc. and TDCC Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 10-K").
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 Quarterly Report on Form 10-Q. 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 21 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.
For additional information on the separation from DowDuPont Inc. ("DowDuPont"), see Note 3 to the Consolidated Financial Statements included in the 2021 10-K.
Agreements Related to the Separation and Distribution
The impacts of indemnifications and other post-separation
matters relating to Dow's separation from DowDuPont were primarily included in the consolidated financial statements of Dow Inc. At June 30, 2022, the Company had assets of $i19 million (izero
at December 31, 2021) included in "Other current assets" and $i2 million ($i20 million at December 31, 2021) included in "Noncurrent
receivables," and liabilities of $i123 million ($i148 million at December 31, 2021) included in "Accrued and other current liabilities" and $i33 million
($i39 million at December 31, 2021) included in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. related to these agreements.
In addition, the Company deferred a portion 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 June 30, 2022,
$i10 million ($i15 million at December 31, 2021) of this liability was recorded in "Accrued and other current liabilities" and $i96 million
($i96 million at December 31, 2021) was recorded in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc.
NOTE 3 – iREVENUE
Revenue
Recognition
The majority of the Company's revenue is derived from product sales. The Company's revenue related to product sales was ii99/
percent for the three and six months ended June 30, 2022(ii98/
percent for the three and six months ended June 30, 2021). The remaining sales were primarily related to the Company's insurance operations and licensing of patents and technologies. 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. The Company enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from the Company’s licenses for patents and technology is derived from sales-based royalties and licensing arrangements based on billing schedules established in each contract.
Remaining Performance Obligations
Remaining performance obligations
represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. At June 30, 2022, the Company had unfulfilled performance obligations of $i911 million ($i829 million
at December 31, 2021) related to the licensing of technology. The Company expects revenue to be recognized for the remaining performance obligations over the next five years.
The remaining performance obligations are for product sales that have expected durations of one year or less, product sales of materials delivered through a pipeline for which the Company has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to i18
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.
The Company 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
Three Months Ended
Six Months Ended
In millions
Jun
30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Hydrocarbons & Energy
$
i2,779
$
i2,008
$
i5,195
$
i3,759
Packaging
and Specialty Plastics
i5,454
i5,113
i10,665
i9,444
Packaging
& Specialty Plastics
$
i8,233
$
i7,121
$
i15,860
$
i13,203
Industrial
Solutions
$
i1,446
$
i1,201
$
i2,961
$
i2,250
Polyurethanes
& Construction Chemicals
i2,919
i3,012
i5,924
i5,568
Other
i5
i2
i9
i4
Industrial
Intermediates & Infrastructure
$
i4,370
$
i4,215
$
i8,894
$
i7,822
Coatings
& Performance Monomers
$
i1,129
$
i1,010
$
i2,204
$
i1,865
Consumer
Solutions
i1,874
i1,455
i3,848
i2,723
Performance
Materials & Coatings
$
i3,003
$
i2,465
$
i6,052
$
i4,588
Corporate
$
i58
$
i84
$
i122
$
i154
Total
$
i15,664
$
i13,885
$
i30,928
$
i25,767
Net
Trade Sales by Geographic Region
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
U.S. & Canada
$
i5,707
$
i4,927
$
i11,244
$
i8,955
EMEAI
1
i5,677
i5,102
i11,189
i9,431
Asia
Pacific
i2,673
i2,479
i5,426
i4,844
Latin
America
i1,607
i1,377
i3,069
i2,537
Total
$
i15,664
$
i13,885
$
i30,928
$
i25,767
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 the first six months of 2022 from amounts included in contract liabilities at the beginning of the period was approximately $i105
million (approximately $i180 million in the first six months of 2021). In the first six months of 2022 and 2021, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was insignificant.
1.The
decrease from December 31, 2021 to June 30, 2022 was due to the recognition of revenue on long-term product supply agreements and reclassification of deferred royalty payments from noncurrent to current.
/
NOTE 4 – iRESTRUCTURING
AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and other asset related charges, which includes asset impairments, are recorded in "Restructuring and asset related charges - net" in the consolidated statements of income. For additional information on the Company's restructuring programs, see Note 6 to the Consolidated Financial Statements included in the 2021 10-K.
2020 Restructuring Program
Actions related to the restructuring program approved by the Board of Dow Inc. on September 29, 2020 ("2020 Restructuring Program") were substantially complete at the end of 2021, with the exception of certain cash payments that will continue through 2022 and into 2023. iThe
following table summarizes the activities related to the 2020 Restructuring Program since January 1, 2021:
2020 Restructuring Program
Severance and Related Benefit Costs
Asset Write-downs and Write-offs
Costs Associated with Exit and Disposal Activities
At June 30, 2022, $i44 million of the reserve balance was included in "Accrued and other current liabilities" ($i112 million
at December 31, 2021) and $i54 million was included in "Other noncurrent obligations" ($i56 million at December 31,
2021) in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $i585 million inception-to-date under the 2020 Restructuring Program, consisting of severance and related benefit costs of $i287 million,
asset write-downs and write-offs of $i208 million and costs associated with exit and disposal activities of $i90 million.
The
Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities 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.
2022 Asset Related Charges
In the first quarter of 2022, the Company recorded pretax asset related charges of $i186 million
due to the Russia and Ukraine conflict and the expectation that certain assets will 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 were as follows: $i31 million in Packaging & Specialty Plastics, $i109 million
in Industrial Intermediates & Infrastructure, $i16 million in Performance Materials & Coatings and $i30 million
in Corporate.
NOTE 5 – iSUPPLEMENTARY INFORMATION
i
Dow
Inc. Sundry Income (Expense) – Net
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Non-operating pension and other postretirement benefit plan net credits 1
$
i89
$
i86
$
i178
$
i161
Foreign
exchange losses
(i17)
(i8)
(i15)
(i16)
Loss
on early extinguishment of debt 2
(i8)
(i102)
(i8)
(i102)
Gains
on sales of other assets and investments
i12
i14
i43
i62
Indemnification
and other transaction related costs 3
(i8)
(i5)
i4
(i5)
Other
- net
i7
i12
i21
i25
Total
sundry income (expense) – net
$
i75
$
(i3)
$
i223
$
i125
1.See
Note 16 for additional information.
2.See Note 11 for additional information.
3.See Note 2 for additional information.
TDCC Sundry Income (Expense) – Net
Three Months Ended
Six Months Ended
In millions
Jun
30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Non-operating pension and other postretirement benefit plan net credits 1
The following tables provide earnings per share calculations for Dow Inc. for the three and six months ended June 30, 2022 and 2021. 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
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Net income
$
i1,681
$
i1,932
$
i3,233
$
i2,938
Net
income attributable to noncontrolling interests
i20
i31
i3
i46
Net
income attributable to participating securities 1
i9
i10
i17
i15
Net
income attributable to common stockholders
$
i1,652
$
i1,891
$
i3,213
$
i2,877
Earnings
Per Share - Basic and Diluted
Three Months Ended
Six Months Ended
Dollars per share
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Earnings per common share - basic
$
i2.28
$
i2.53
$
i4.40
$
i3.86
Earnings
per common share - diluted
$
i2.26
$
i2.51
$
i4.37
$
i3.83
Share
Count Information
Three Months Ended
Six Months Ended
Shares in millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Weighted-average common shares outstanding - basic
i725.7
i747.0
i730.2
i745.9
Plus
dilutive effect of equity compensation plans
i5.8
i5.9
i5.4
i5.5
Weighted-average
common shares outstanding - diluted
i731.5
i752.9
i735.6
i751.4
Stock
options and restricted stock units excluded from EPS calculations 2
i4.0
i3.8
i5.4
i4.8
1.Restricted
stock units are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
2.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 7 – iINVENTORIES
i
The
following table provides a breakdown of inventories:
For additional information on the Company’s nonconsolidated affiliates, see Note 12 to the Consolidated Financial Statements included in the 2021 10-K.
i
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
Jun 30, 2022
Dec 31, 2021
In millions
Investment in nonconsolidated affiliates
$
i1,862
$
i2,045
Other
noncurrent obligations
(i103)
i—
Net
investment in nonconsolidated affiliates
$
i1,759
$
i2,045
Dividends
from Nonconsolidated Affiliates
Six Months Ended
In millions
Jun 30, 2022 1
Jun 30, 2021 2
Dividends from nonconsolidated affiliates
$
i736
$
i219
1.$i658 million
included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows and $i78 million included in "Accounts and notes receivable - Other" in the consolidated balance sheets.
2.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
/
In
the first half of 2022, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") paid dividends of $i397 million ($i79 million
in the first half of 2021), reflected in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows. As a result, at June 30, 2022, the Company had a negative investment balance in EQUATE of $i103 million included in "Other noncurrent obligations" (positive $i115 million
at December 31, 2021 included in "Investment in nonconsolidated affiliates") in the consolidated balance sheets.
The Company maintains committed accounts receivable facilities with various financial institutions, including in the United States, which expires in November 2022 (“U.S. A/R Program”) and in Europe, which expires in July 2023 (“Europe A/R Program” and together with the U.S. A/R Program, "the Programs").
Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $i900 million for the U.S. A/R Program and up to €i500
million for the Europe A/R Program. Under the terms of the Programs, the Company continues to service the receivables from the customer, but retains no interest in the receivables, and remits payment to the financial institutions. The Company also provides a guarantee to the financial institutions for the creditworthiness and collection of the receivables in satisfaction of the facility. See Note 12 for additional information related to guarantees. In the second quarter of 2022, the Company sold $i141 million
of receivables under the Programs ($i391 million in the first six months of 2022; iizero/
for the three and six months ended June 30, 2021).
NOTE 11 – iNOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
i
Notes
Payable
Jun 30, 2022
Dec 31, 2021
In millions
Commercial paper
$
i200
$
i—
Notes
payable to banks and other lenders
i95
i161
Total
notes payable
$
i295
$
i161
Period-end
average interest rates
i4.59
%
i5.78
%
/
i
Long-Term
Debt
2022 Average Rate
Jun 30, 2022
2021 Average Rate
Dec 31, 2021
In millions
Promissory notes and debentures:
Final maturity 2022
i—
%
$
i—
i8.64
%
$
i121
Final
maturity 2023
i7.63
%
i250
i7.63
%
i250
Final
maturity 2025
i5.63
%
i333
i5.63
%
i333
Final
maturity 2026
i—
%
i—
i3.63
%
i750
Final
maturity 2028 and thereafter 1
i5.15
%
i9,364
i5.15
%
i9,363
Other
facilities:
Foreign currency notes and loans, various rates and maturities
i1.16
%
i2,492
i1.17
%
i2,730
InterNotes®,
varying maturities through 2052
i3.44
%
i436
i3.37
%
i392
Finance
lease obligations 2
i826
i869
Unamortized
debt discount and issuance costs
(i275)
(i297)
Long-term
debt due within one year 3
(i361)
(i231)
Long-term
debt
$
i13,065
$
i14,280
1.Cost
includes net fair value hedge adjustment gains of $ii47/ million
at June 30, 2022 and December 31, 2021. See Note 18 for additional information.
2.See Note 13 for additional information.
3.Presented net of current portion of unamortized debt issuance costs.
/
i
Maturities
of Long-Term Debt for Next Five Years at Jun 30, 2022
In the second quarter of 2022, the Company redeemed $i750 million aggregate principal amount of i3.625
percent notes due May 2026. As a result of the redemption, the Company recognized a pretax loss on the early extinguishment of debt of $i8 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In the first six months of 2022, the Company issued an aggregate principal amount of $i49
million of InterNotes®. The Company also repaid approximately $i121 million of long-term debt at maturity.
2021 Activity
In the second quarter of 2021, the Company redeemed $i208 million
aggregate principal amount of i3.15 percent notes due May 2024 and $i811 million aggregate principal amount of i3.50
percent notes due October 2024. As a result of the redemptions, the Company recognized a pretax loss on the early extinguishment of debt of $i101 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In the first six months of 2021, the Company issued an aggregate principal amount of $i68 million
of InterNotes®, and redeemed an aggregate principal amount of $i18 million at maturity. In addition, the Company voluntarily repaid an aggregate principal amount of $i204 million
of InterNotes® with various maturities. As a result, the Company recognized a pretax loss on the early extinguishment of debt for the three and six months ended June 30, 2021 of $i1 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. The Company also repaid approximately $i120 million
of long-term debt at maturity and approximately $i13 million of long-term debt was repaid by consolidated variable interest entities.
Available Credit Facilities
i
The
following table summarizes the Company's credit facilities:
Committed and Available Credit Facilities at Jun 30, 2022
In millions
Committed Credit
Available Credit
Maturity Date
Interest
Five Year Competitive Advance
and Revolving Credit Facility
There were no material changes to the debt covenants and default provisions related to the Company's outstanding long-term debt and primary, private credit agreements in the first six months of 2022. For additional information on the Company's debt covenants and default provisions, see Note 15 to the Consolidated Financial Statements included in the 2021 10-K.
NOTE 12 – iCOMMITMENTS
AND CONTINGENCIES
A summary of the Company's commitments and contingencies can be found in Note 16 to the Consolidated Financial Statements included in the 2021 10-K, which is incorporated by reference herein.
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. At June 30, 2022, the Company had accrued obligations of $i1,238 million
for probable environmental remediation and restoration costs ($i1,220 million at December 31, 2021), including $i241 million
for the remediation of Superfund sites ($i237 million at December 31, 2021). This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately 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. 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 environmental liability.
Litigation
Asbestos-Related Matters of Union
Carbide Corporation
Each quarter, Union Carbide reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. Union Carbide also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of Union Carbide and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. Union Carbide's management considers these factors in conjunction with the most recent actuarial study and determines whether a change in the estimate is warranted. Based on Union Carbide's review of 2022 activity, it was determined that no adjustment to the accrual was required at June 30, 2022.
Union
Carbide’s total asbestos-related liability for pending and future claims and defense and processing costs was $i977 million at June 30, 2022 ($i1,016 million
at December 31, 2021). At June 30, 2022, approximately i27 percent of the recorded claim liability related to pending claims and approximately i73
percent related to future claims.
Dow Silicones Chapter 11 Related Matters
At June 30, 2022, Dow Silicones and its insurers have made life-to-date payments of $i1,817 million to the settlement program administered by an independent claims office (the “Settlement Facility”), created to resolve breast implant and other product liability claims. At June 30,
2022, Dow Silicones estimates that it will be obligated to contribute an additional $i106 million to the Settlement Facility which was included in “Accrued and other current liabilities” in the consolidated balance sheets ($i130 million
at December 31, 2021, which was included in “Accrued and other current liabilities” and "Other noncurrent obligations" in the consolidated balance sheets).
Indemnifications with Corning Incorporated
The Company had indemnification assets with Corning Incorporated of $i96 million at June 30, 2022 ($i95 million
at December 31, 2021), which were included primarily in "Noncurrent receivables" in the consolidated balance sheets.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
As a result of a 2017 damages judgment related to the patent infringement matter, Nova Chemicals Corporation ("Nova") was ordered to pay the Company $i645
million Canadian dollars, plus pre- and post-judgment interest, for which the Company received payment of $i501 million U.S. dollars in July 2017. At June 30, 2022, the Company had $i341 million
($i341 million at December 31, 2021) included in "Accrued and other current liabilities" in the consolidated balance sheets related to the disputed portion of the damages judgment.
Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter
As a result of a 2019 damages judgment related to the ethylene asset matter, Nova was ordered to pay the Company $i1.43 billion
Canadian dollars (equivalent to approximately $i1.08 billion U.S. dollars). In October 2019, Nova paid $i1.08 billion
Canadian dollars (equivalent to approximately $i0.8 billion U.S. dollars) directly to the Company, and remitted $i347 million
Canadian dollars to the Canada Revenue Agency ("CRA") for the tax account of one of the Company's subsidiaries. In March 2020, the Company received the full refund from the CRA, equivalent to $i259 million U.S. dollars. At June 30, 2022, $i323 million
($i323 million at December 31, 2021) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment.
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 $i112 million
in the second quarter of 2022 and $i61 million in the second quarter of 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 June 30, 2022, related tax credits available and expected to be applied to future required federal tax payments totaled $i139 million
($i52 million at December 31, 2021).
Guarantees
i
The following table provides a summary
of the final expiration, maximum future payments and recorded liability included in the consolidated balance sheets for guarantees:
Guarantees
Jun 30, 2022
Dec 31, 2021
In millions
Final Expiration
Maximum
Future
Payments 1
Recorded Liability
Final Expiration
Maximum
Future Payments 1
Recorded Liability
Guarantees
2038
$
i1,248
$
i210
2038
$
i1,273
$
i220
1.In
addition, TDCC has provided guarantees, in proportion to the Company's i35 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 $i443 million
at June 30, 2022 ($i446 million at December 31, 2021). Based on Sadara's current forecasted cash flows, the Company does not expect to be required to perform under the guarantees.
/
Guarantees arise during the ordinary course of business
from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than 1 year to 16 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 $i1.3 billion of Sadara’s debt, proportionate to the Company's i35
percent ownership interest. The debt re-profiling also 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 i35 percent ownership interest. As part of the debt re-profiling, Sadara established a $i500
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. Based on Sadara's current forecasted cash flows, recent ability to satisfy all current and near term debt maturities and no significant scheduled debt repayments over the next five years, the Company does not expect Sadara to draw on the facility.
NOTE 13 - iLEASES
For
additional information on the Company's leases, see Note 17 to the Consolidated Financial Statements included in the 2021 10-K.
i
The components of lease cost for operating and finance leases for the three and six months ended June 30, 2022 and 2021 were as follows:
The following table provides supplemental cash flow and other information related to leases:
Other Lease Information
Six Months Ended
In
millions
Jun 30, 2022
Jun 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
i196
$
i245
Operating
cash flows for finance leases
$
i17
$
i13
Financing
cash flows for finance leases
$
i53
$
i29
Right-of-use
assets obtained in exchange for lease obligations:
Operating leases
$
i37
$
i57
Finance
leases
$
i27
$
i72
/
i
The
following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at June 30, 2022 and December 31, 2021:
Lease Position
Balance Sheet Classification
Jun 30, 2022
Dec 31, 2021
In millions
Assets
Operating
lease assets
Operating lease right-of-use assets
$
i1,272
$
i1,412
Finance
lease assets
Property
i1,145
i1,158
Finance
lease amortization
Accumulated depreciation
(i395)
(i368)
Total
lease assets
$
i2,022
$
i2,202
Liabilities
Current
Operating
Operating
lease liabilities - current
$
i290
$
i314
Finance
Long-term
debt due within one year
i107
i106
Noncurrent
Operating
Operating
lease liabilities - noncurrent
i1,043
i1,149
Finance
Long-Term
Debt
i719
i763
Total lease liabilities
$
i2,159
$
i2,332
/
i
The
weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at June 30, 2022 and December 31, 2021 are provided below:
The following table provides the maturities of lease liabilities at June 30, 2022:
Maturities of Lease Liabilities
Jun 30, 2022
In
millions
Operating Leases
Finance Leases
2022
$
i179
$
i71
2023
i289
i164
2024
i225
i106
2025
i183
i76
2026
i148
i69
2027
and thereafter
i567
i551
Total
future undiscounted lease payments
$
i1,591
$
i1,037
Less:
Imputed interest
i258
i211
Total
present value of lease liabilities
$
i1,333
$
i826
/
At
June 30, 2022, Dow had additional leases of approximately $i91 million, primarily for equipment, which had not yet commenced. These leases are expected to commence in 2022 and 2025, with lease terms of up to i16 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 included in the consolidated balance sheets for residual value guarantees at June 30, 2022 and December 31, 2021. The lease agreements do not contain any material restrictive covenants.
i
Lease
Guarantees
Jun 30, 2022
Dec 31, 2021
In millions
Final Expiration
Maximum Future Payments
Recorded Liability
Final Expiration
Maximum Future Payments
Recorded Liability
Residual value guarantees
2031
$
i259
$
i—
2031
$
i280
$
i—
/
NOTE
14 – iSTOCKHOLDERS' EQUITY
Treasury Stock
Dow Inc.
On April 1, 2019, Dow Inc.'s Board ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $i3
billion to be spent on 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, Dow Inc.'s Board approved a new share repurchase program authorizing up to $i3 billion to be spent on the repurchase of the Company's common stock, with no expiration date. The Company repurchased $i800
million of its common stock in the second quarter of 2022 ($i1,400 million in the first six months of 2022). At June 30, 2022, approximately $i2,975
million of the new share repurchase program authorization remained available for repurchases.
The Company began issuing treasury shares to satisfy its obligation to make matching contributions to plan participants under The Dow Employees’ Savings Plan in the first quarter of 2022. The Company may satisfy these obligations using shares of Dow Inc. treasury stock or by issuing new shares of common stock.
The
changes in each component of accumulated other comprehensive loss ("AOCL") for the three and sixmonths ended June 30, 2022and 2021 were as follows:
Accumulated Other Comprehensive Loss
Three Months Ended
Six Months Ended
In
millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Unrealized Gains (Losses) on Investments
Beginning balance
$
(i37)
$
i55
$
i59
$
i104
Unrealized
gains (losses) on investments
(i203)
i39
(i324)
(i15)
Tax
(expense) benefit
i43
(i9)
i67
i2
Net
unrealized gains (losses) on investments
(i160)
i30
(i257)
(i13)
(Gains)
losses reclassified from AOCL to net income 1
i9
(i17)
i10
(i25)
Tax
expense (benefit) 2
(i2)
i4
(i2)
i6
Net
(gains) losses reclassified from AOCL to net income
i7
(i13)
i8
(i19)
Other
comprehensive income (loss), net of tax
(i153)
i17
(i249)
(i32)
Ending
balance
$
(i190)
$
i72
$
(i190)
$
i72
Cumulative
Translation Adjustment
Beginning balance
$
(i1,519)
$
(i1,183)
$
(i1,355)
$
(i930)
Gains
(losses) on foreign currency translation
(i500)
i67
(i665)
(i150)
Tax
(expense) benefit
(i3)
i1
i10
(i35)
Net
gains (losses) on foreign currency translation
(i503)
i68
(i655)
(i185)
(Gains)
losses reclassified from AOCL to net income 3
(i11)
(i3)
(i23)
(i3)
Other
comprehensive income (loss), net of tax
(i514)
i65
(i678)
(i188)
Ending
balance
$
(i2,033)
$
(i1,118)
$
(i2,033)
$
(i1,118)
Pension
and Other Postretirement Benefits
Beginning balance
$
(i7,225)
$
(i8,425)
$
(i7,334)
$
(i9,559)
Gains
(losses) arising during the period 4
i3
i—
i5
i1,268
Tax
(expense) benefit
i—
i—
i—
(i298)
Net
gains (losses) arising during the period
i3
i—
i5
i970
Amortization
of net loss and prior service credits reclassified from AOCL to net income 5
i156
i194
i313
i392
Tax
expense (benefit) 2
(i37)
(i45)
(i87)
(i79)
Net
loss and prior service credits reclassified from AOCL to net income
i119
i149
i226
i313
Other
comprehensive income (loss), net of tax
i122
i149
i231
i1,283
Ending
balance
$
(i7,103)
$
(i8,276)
$
(i7,103)
$
(i8,276)
Derivative
Instruments
Beginning balance
$
(i15)
$
(i360)
$
(i347)
$
(i470)
Gains
(losses) on derivative instruments
i260
(i10)
i680
i112
Tax
(expense) benefit
(i27)
i8
(i83)
(i1)
Net
gains (losses) on derivative instruments
i233
(i2)
i597
i111
(Gains)
losses reclassified from AOCL to net income 6
(i108)
i9
(i142)
i6
Tax
expense (benefit) 2
i12
(i1)
i14
(i1)
Net
(gains) losses reclassified from AOCL to net income
(i96)
i8
(i128)
i5
Other
comprehensive income (loss), net of tax
i137
i6
i469
i116
Ending
balance
$
i122
$
(i354)
$
i122
$
(i354)
Total
AOCL ending balance
$
(i9,204)
$
(i9,676)
$
(i9,204)
$
(i9,676)
1.Reclassified
to "Net sales" and "Sundry income (expense) - net."
2.Reclassified to "Provision for income taxes."
3.Reclassified to "Sundry income (expense) - net."
4.The 2021 impact relates to an interim remeasurement of U.S. pension plans due to the announced freeze of plan benefits in the first quarter of 2021.
5.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 16 for additional information.
6.Reclassified to "Cost of sales,""Sundry income (expense) - net" and "Interest expense
and amortization of debt discount."
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.
i
The following table summarizes the activity for equity attributable to noncontrolling interests for the three and
six months ended June 30, 2022 and 2021:
Noncontrolling Interests
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun
30, 2022
Jun 30, 2021
Balance at beginning of period
$
i545
$
i560
$
i574
$
i570
Net
income attributable to noncontrolling interests 1
i20
i31
i3
i46
Distributions
to noncontrolling interests 2
(i14)
(i12)
(i15)
(i20)
Cumulative
translation adjustments
(i16)
i1
(i27)
(i15)
Other
(i1)
i—
(i1)
(i1)
Balance
at end of period
$
i534
$
i580
$
i534
$
i580
1.The
six months ended June 30, 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 $ii7/
million for the three and six months ended June 30, 2022 ($ii8/
million for the three and six months ended June 30, 2021) in dividends paid to a joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income.
NOTE 16 – iPENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
A summary of the Company's pension and other postretirement benefit plans can be found in Note 20 to the Consolidated Financial Statements included in the 2021 10-K.
The Company's funding policy is to contribute to defined benefit pension plans in the United States and a number of other countries when pension laws and/or economics either require or encourage funding. The Company expects to contribute approximately $i250 million
to its pension plans in 2022, of which $i89 million has been contributed through June 30, 2022.
i
The
following table provides the components of the Company's net periodic benefit cost for all significant plans:
Net Periodic Benefit Cost for All Significant Plans
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun
30, 2022
Jun 30, 2021
Defined Benefit Pension Plans
Service cost
$
i99
$
i96
$
i198
$
i198
Interest
cost
i171
i150
i342
i293
Expected
return on plan assets
(i423)
(i435)
(i847)
(i857)
Amortization
of prior service credit
(i5)
(i5)
(i11)
(i10)
Amortization
of net loss
i165
i200
i332
i424
Curtailment
gain
i—
i—
i—
(i19)
Net
periodic benefit cost
$
i7
$
i6
$
i14
$
i29
Other
Postretirement Benefit Plans
Service cost
$
i2
$
i2
$
i3
$
i4
Interest
cost
i7
i5
i14
i11
Amortization
of net gain
(i4)
(i1)
(i8)
(i3)
Net
periodic benefit cost
$
i5
$
i6
$
i9
$
i12
/
Net
periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
A summary of the Company's stock-based compensation plans can be found in Note 21 to the Consolidated Financial Statements included in the 2021 10-K.
Stock Incentive Plan
The Company grants stock-based compensation to employees and non-employee directors under the 2019 Stock Incentive Plan, as amended. Most of the Company's stock-based compensation awards are granted in the first quarter of each year.
In the first quarter of 2022, Dow Inc. granted the following stock-based compensation awards to employees:
•i1.2
million stock options with a weighted-average exercise price of $i60.95 per share and a weighted-average fair value of $i11.08 per
share;
•i1.7 million restricted stock units with a weighted-average fair value of $i60.96
per share; and
•i1.2 million performance stock units with a weighted-average fair value of $i65.83
per share.
There was minimal grant activity in the second quarter of 2022.
Employee Stock Purchase Plan
The Dow Inc. 2021 Employee Stock Purchase Plan (the "2021 ESPP") was adopted by the Board on February 11, 2021, and approved by stockholders at the Company's annual meeting on April 15, 2021. Under the 2022 annual offering of the 2021 ESPP, most employees were eligible to purchase shares of common stock of Dow Inc. valued at up to i10 percent
of their annual total base salary or wages. The number of shares purchased is determined using the amount contributed by the employee divided by the plan price. The plan price of the stock is equal to i85 percent of the fair market value (closing price) of the common stock at April 1, 2022 (beginning) or October 7, 2022 (ending)
of the offering period, whichever is lower.
In the first quarter of 2022, employees subscribed to the right to purchase approximately i2 million shares under the 2021 ESPP. The plan price is fixed upon the close of the offering period and will be determined in the fourth quarter of 2022. The shares will be delivered to employees in the fourth quarter of 2022.
A summary of the Company's financial instruments, risk management policies, derivative instruments and hedging activities can be found in Note 22 to the Consolidated Financial Statements included in the 2021 10-K.
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. iThe following table provides investing results from available-for-sale securities for the six months ended June 30, 2022 and 2021:
Investing
Results
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Proceeds from sales of available-for-sale securities
The following table summarizes contractual maturities of the Company's investments in debt securities:
Contractual Maturities of Debt Securities at Jun 30, 2022 1
Cost
Fair
Value
In millions
Within one year
$
i31
$
i28
One
to five years
i449
i419
Six
to ten years
i1,014
i870
After
ten years
i508
i424
Total
$
i2,002
$
i1,741
1.Includes
marketable securities with maturities of less than one year.
/
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 three months ended June 30, 2022. There was $i3 million
of net unrealized losses recognized in earnings on equity securities for the three months ended June 30, 2022 ($i1 million net unrealized loss for the three months ended June 30, 2021). There was $i6
million of net unrealized losses recognized in earnings on equity securities for the six months ended June 30, 2022 ($i1 million net unrealized loss for the six months ended June 30, 2021).
i
Investments
in Equity Securities
Jun 30, 2022
Dec 31, 2021
In millions
Readily determinable fair value
$
i12
$
i20
Not
readily determinable fair value
$
i204
$
i209
/
Derivative
Instruments
i
The notional amounts of the Company's derivative instruments presented on a net basis at June 30, 2022 and December 31, 2021 were as follows:
Notional
Amounts - Net
Jun 30, 2022
Dec 31, 2021
In millions
Derivatives designated as hedging instruments:
Interest rate contracts
$
i3,000
$
i3,000
Foreign
currency contracts
$
i5,173
$
i5,300
Derivatives
not designated as hedging instruments:
Interest rate contracts
$
i3
$
i36
Foreign
currency contracts
$
i14,393
$
i8,234
The
notional amounts of the Company's commodity derivatives presented on a net basis at June 30, 2022 and December 31, 2021 were as follows:
Commodity Notionals - Net
Jun 30, 2022
Dec 31, 2021
Notional Volume Unit
Derivatives designated as hedging instruments:
Hydrocarbon
derivatives
i17.3
i9.7
million
barrels of oil equivalent
Derivatives not designated as hedging instruments:
Maturity
Dates of Derivatives Designated as Hedging Instruments
Year
Interest rate contracts
2023
Foreign currency contracts
2023
Commodity contracts
2026
i
The
following tables provide the fair value and balance sheet classification of derivative instruments at June 30, 2022 and December 31, 2021:
Fair Value of Derivative Instruments
Jun 30, 2022
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
$
i501
$
(i334)
$
i167
Foreign
currency contracts
Other current assets
i309
(i228)
i81
Commodity
contracts
Other current assets
i670
(i348)
i322
Commodity
contracts
Deferred charges and other assets
i14
i—
i14
Total
$
i1,494
$
(i910)
$
i584
Derivatives
not designated as hedging instruments:
Foreign currency contracts
Other current assets
$
i66
$
(i59)
$
i7
Commodity
contracts
Other current assets
i34
(i4)
i30
Total
$
i100
$
(i63)
$
i37
Total
asset derivatives
$
i1,594
$
(i973)
$
i621
Liability
derivatives
Derivatives designated as hedging instruments:
Interest rate contracts
Accrued and other current liabilities
$
i334
$
(i334)
$
i—
Foreign
currency contracts
Accrued and other current liabilities
i247
(i228)
i19
Commodity
contracts
Accrued and other current liabilities
i564
(i366)
i198
Commodity
contracts
Other noncurrent obligations
i1
(i1)
i—
Total
$
i1,146
$
(i929)
$
i217
Derivatives
not designated as hedging instruments:
Foreign currency contracts
Accrued and other current liabilities
$
i153
$
(i59)
$
i94
Commodity
contracts
Accrued and other current liabilities
i52
(i16)
i36
Total
$
i205
$
(i75)
$
i130
Total
liability derivatives
$
i1,351
$
(i1,004)
$
i347
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.
Net Amounts Included in the Consolidated Balance Sheets
Asset derivatives
Derivatives designated as hedging instruments:
Interest
rate contracts
Other current assets
$
i14
$
(i14)
$
i—
Interest
rate contracts
Deferred charges and other assets
i130
(i130)
i—
Foreign
currency contracts
Other current assets
i24
(i13)
i11
Foreign
currency contracts
Deferred charges and other assets
i117
(i89)
i28
Commodity
contracts
Other current assets
i305
(i173)
i132
Commodity
contracts
Deferred charges and other assets
i9
(i2)
i7
Total
$
i599
$
(i421)
$
i178
Derivatives
not designated as hedging instruments:
Interest rate contracts
Other current assets
$
i1
$
i—
$
i1
Foreign
currency contracts
Other current assets
i23
(i16)
i7
Foreign
currency contracts
Deferred charges and other assets
i1
(i1)
i—
Commodity
contracts
Other current assets
i8
(i5)
i3
Total
$
i33
$
(i22)
$
i11
Total
asset derivatives
$
i632
$
(i443)
$
i189
Liability
derivatives
Derivatives designated as hedging instruments:
Interest rate contracts
Accrued and other current liabilities
$
i33
$
(i14)
$
i19
Interest
rate contracts
Other noncurrent obligations
i192
(i130)
i62
Foreign
currency contracts
Accrued and other current liabilities
i15
(i13)
i2
Foreign
currency contracts
Other noncurrent obligations
i90
(i89)
i1
Commodity
contracts
Accrued and other current liabilities
i267
(i192)
i75
Commodity
contracts
Other noncurrent obligations
i2
(i2)
i—
Total
$
i599
$
(i440)
$
i159
Derivatives
not designated as hedging instruments:
Interest rate contracts
Accrued and other current liabilities
$
i59
$
i—
$
i59
Foreign
currency contracts
Accrued and other current liabilities
i31
(i16)
i15
Foreign
currency contracts
Other noncurrent obligations
i1
(i1)
i—
Commodity
contracts
Accrued and other current liabilities
i25
(i8)
i17
Total
$
i116
$
(i25)
$
i91
Total
liability derivatives
$
i715
$
(i465)
$
i250
1.Counterparty
and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are netted with corresponding assets or liabilities, when applicable. The Company posted cash collateral of $i53
million at June 30, 2022 ($i71 million at December 31, 2021). No cash collateral was posted by counterparties with the Company at June 30, 2022 and December 31, 2021.
The following tables summarize the gain (loss) of derivative instruments in the consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022 and 2021:
Effect
of Derivative Instruments
Amount of gain (loss) recognized in OCI 1
Amount of gain (loss) recognized in income 2
Income Statement Classification
Three Months Ended
Three Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Derivatives
designated as hedging instruments:
Cash flow hedges:
Interest
rate contracts
$
i108
$
(i44)
$
(i2)
$
(i2)
Interest
expense and amortization of debt discount
Foreign currency contracts
i4
i1
i3
(i4)
Cost
of sales
Commodity contracts
i80
i41
i107
(i2)
Cost
of sales
Net foreign investment hedges:
Foreign currency contracts
i49
i3
i—
i—
Excluded
components 3
i5
i3
i11
i3
Sundry
income (expense) - net
Total derivatives designated as hedging instruments
$
i246
$
i4
$
i119
$
(i5)
Derivatives
not designated as hedging instruments:
Interest rate contracts
$
i—
$
i—
$
i—
$
(i1)
Interest
expense and amortization of debt discount
Foreign currency contracts
i—
i—
(i191)
(i5)
Sundry
income (expense) - net
Commodity contracts
i—
i—
i7
(i5)
Cost
of sales
Total derivatives not designated as hedging instruments
$
i—
$
i—
$
(i184)
$
(i11)
Total
derivatives
$
i246
$
i4
$
(i65)
$
(i16)
1.OCI
is defined as other comprehensive income (loss).
2.Pretax amounts.
3.The excluded components are related to the time value of the derivatives designated as hedges.
A summary of the Company's recurring and nonrecurring fair value measurements can be found in Note 23 to the Consolidated Financial Statements included in the 2021 10-K.
Fair Value Measurements on a Recurring Basis
i
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
Jun 30, 2022
Dec 31,
2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
In millions
Assets at fair value:
Cash
equivalents:
Held-to-maturity securities 1
$
i—
$
i277
$
i—
$
i277
$
i—
$
i317
$
i—
$
i317
Money
market funds
i—
i702
i—
i702
i—
i489
i—
i489
Marketable
securities 2
i—
i169
i—
i169
i—
i245
i—
i245
Equity
securities 3
i12
i—
i—
i12
i20
i—
i—
i20
Nonconsolidated
affiliates 4
i—
i—
i18
i18
i—
i—
i—
i—
Debt
securities: 3
Government debt 5
i—
i615
i—
i615
i—
i735
i—
i735
Corporate
bonds
i32
i1,094
i—
i1,126
i44
i1,280
i—
i1,324
Derivatives
relating to: 6
Interest rates
i—
i501
i—
i501
i—
i145
i—
i145
Foreign
currency
i—
i375
i—
i375
i—
i165
i—
i165
Commodities
i19
i699
i—
i718
i15
i307
i—
i322
Total
assets at fair value
$
i63
$
i4,432
$
i18
$
i4,513
$
i79
$
i3,683
$
i—
$
i3,762
Liabilities
at fair value:
Long-term debt including debt due within one year 7
$
i—
$
i12,726
$
i—
$
i12,726
$
i—
$
i17,125
$
i—
$
i17,125
Guarantee
liability 8
i—
i—
i210
i210
i—
i—
i220
i220
Derivatives
relating to: 6
Interest rates
i—
i334
i—
i334
i—
i284
i—
i284
Foreign
currency
i—
i400
i—
i400
i—
i137
i—
i137
Commodities
i46
i571
i—
i617
i37
i257
i—
i294
Total
liabilities at fair value
$
i46
$
i14,031
$
i210
$
i14,287
$
i37
$
i17,803
$
i220
$
i18,060
1.The
Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company’s investments in marketable securities are included in “Other current assets” in the consolidated balance sheets.
3.The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets.
4.Estimated asset for the Company's investment in a limited liability company included in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
5.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities’
obligations.
6.See Note 18 for the classification of derivatives in the consolidated balance sheets.
7.See Note 18 for information on fair value measurements of long-term debt.
8.Estimated liability for TDCC's guarantee of Sadara's debt which is included in "Other noncurrent obligations" in the consolidated balance sheets. See Note 12 for additional information.
/
For equity securities calculated at net asset value per share (or its equivalent), the Company had $i98 million
in private market securities and $i22 million in real estate at June 30, 2022 ($i106 million
in private market securities and $i22 million in real estate at December 31, 2021). There are no redemption restrictions and the unfunded commitments on these investments were $i77 million
at June 30, 2022 ($i59 million at December 31, 2021).
For assets classified as Level 3 measurements, fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The level 3 asset value represents the fair
value of the Company's investment in a nonconsolidated affiliate. The unfunded commitment on the investment was $i72 million at June 30, 2022.
For liabilities classified as Level 3 measurements,
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 accrued liability related to the guarantee of Sadara’s debt is in proportion to the Company’s 35 percent ownership interest in Sadara. The estimated fair value of the guarantee was calculated using a "with" and "without" method. The fair value of the debt was calculated "with" the guarantee less the fair value of the 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 12 for further information on guarantees classified as Level 3 measurements.
NOTE
20 – iVARIABLE INTEREST ENTITIES
A summary of the Company's variable interest entities ("VIEs") can be found in Note 24 to the Consolidated Financial Statements included in the 2021 10-K.
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 included in “Net income attributable to noncontrolling interests” in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.
i
The following table summarizes the carrying amounts of these entities' assets and liabilities included in the Company’s consolidated balance sheets at June 30, 2022 and December 31, 2021:
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at June 30, 2022 and December 31, 2021 are adjusted for intercompany eliminations.
Nonconsolidated
VIEs
i
The following table summarizes the carrying amounts of assets included in the consolidated balance sheets at June 30, 2022 and December 31, 2021, related to variable interests in joint ventures or entities for which the Company is not the primary beneficiary. The Company's maximum exposure to loss is the same as the carrying amounts.
Carrying
Amounts of Assets Related to Nonconsolidated VIEs
Jun 30, 2022
Dec 31, 2021
In millions
Description of asset
Silicon joint ventures
Equity method investments 1
$
i116
$
i110
1.Included
in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and share repurchases, as approved by Dow Inc.'s Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution to Dow Inc. to settle the intercompany loans. iThe following table summarizes cash dividends TDCC declared and paid to Dow Inc. for the three and six
months ended June 30, 2022 and 2021:
Dow’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 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.
i
Segment
Information
Pack. & Spec. Plastics
Ind. Interm. & Infrast.
Perf. Materials & Coatings
Corp.
Total
In millions
Three months ended Jun 30, 2022
Net sales
$
i8,233
$
i4,370
$
i3,003
$
i58
$
i15,664
Equity
in earnings (losses) of nonconsolidated affiliates
$
i138
$
i57
$
i2
$
(i2)
$
i195
Dow
Inc. Operating EBIT 1
$
i1,436
$
i426
$
i561
$
(i48)
$
i2,375
Three
months ended Jun 30, 2021
Net sales
$
i7,121
$
i4,215
$
i2,465
$
i84
$
i13,885
Equity
in earnings of nonconsolidated affiliates
$
i130
$
i144
$
i—
$
i4
$
i278
Dow
Inc. Operating EBIT 1
$
i2,014
$
i648
$
i225
$
(i59)
$
i2,828
Six
months ended Jun 30, 2022
Net sales
$
i15,860
$
i8,894
$
i6,052
$
i122
$
i30,928
Equity
in earnings (losses) of nonconsolidated affiliates
$
i248
$
i119
$
i5
$
(i3)
$
i369
Dow
Inc. Operating EBIT 1
$
i2,670
$
i1,087
$
i1,156
$
(i119)
$
i4,794
Six
months ended Jun 30, 2021
Net sales
$
i13,203
$
i7,822
$
i4,588
$
i154
$
i25,767
Equity
in earnings of nonconsolidated affiliates
$
i236
$
i259
$
i2
$
i5
$
i502
Dow
Inc. Operating EBIT 1
$
i3,242
$
i974
$
i287
$
(i121)
$
i4,382
1.Operating
EBIT for TDCC for the three and six months ended June 30, 2022 and 2021 is substantially the same as that of Dow Inc. and therefore has not been disclosed separately in the table above. A reconciliation of "Net income" to Operating EBIT is provided in the following table.
+
Interest expense and amortization of debt discount
ii165/
ii187/
ii332/
ii383/
- Significant
items
(i77)
(i198)
(i302)
(i241)
Operating
EBIT
$
i2,375
$
i2,828
$
i4,794
$
i4,382
/
i
The
following tables summarize the pretax impact of significant items by segment excluded from Operating EBIT:
Significant Items by Segment
Three
Months Ended Jun 30, 2022
Six Months Ended Jun 30, 2022
Pack. & Spec. Plastics
Ind. Interm. & Infrast.
Perf. Mat. & Coatings
Corp.
Total
Pack. & Spec. Plastics
Ind. Interm. & Infrast.
Perf. Mat. & Coatings
Corp.
Total
In
millions
Digitalization program costs 1
$
i—
$
i—
$
i—
$
(i51)
$
(i51)
$
i—
$
i—
$
i—
$
(i92)
$
(i92)
Restructuring,
implementation costs and asset related charges - net 2
i—
i—
i—
(i10)
(i10)
i—
i—
i—
(i20)
(i20)
Russia
/ Ukraine conflict charges 3
i—
i—
i—
i—
i—
(i31)
(i109)
(i16)
(i30)
(i186)
Loss
on early extinguishment of debt 4
i—
i—
i—
(i8)
(i8)
i—
i—
i—
(i8)
(i8)
Indemnification
and other transaction related costs 5
i—
i—
i—
(i8)
(i8)
i—
i—
i—
i4
i4
Total
$
i—
$
i—
$
i—
$
(i77)
$
(i77)
$
(i31)
$
(i109)
$
(i16)
$
(i146)
$
(i302)
1.Includes
costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program.
3.Asset related charges due to the Russia and Ukraine conflict. See Note 4 for additional information.
4.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 11 for additional information.
5.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. and Corteva, Inc. 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. See Note 2 for additional information.
Significant Items by Segment
Three Months Ended
Jun 30, 2021
Six Months Ended Jun 30, 2021
Pack. & Spec. Plastics
Ind. Interm. & Infrast.
Perf. Mat. & Coatings
Corp.
Total
Pack. & Spec. Plastics
Ind. Interm. & Infrast.
Perf. Mat. & Coatings
Corp.
Total
In
millions
Digitalization program costs 1
$
i—
$
i—
$
i—
$
(i48)
$
(i48)
$
i—
$
i—
$
i—
$
(i81)
$
(i81)
Restructuring,
implementation costs and asset related charges - net 2
(i8)
(i1)
(i10)
(i24)
(i43)
(i8)
(i1)
(i10)
(i34)
(i53)
Loss
on early extinguishment of debt 3
i—
i—
i—
(i102)
(i102)
i—
i—
i—
(i102)
(i102)
Indemnification
and other transactions related costs 4
i—
i—
i—
(i5)
(i5)
i—
i—
i—
(i5)
(i5)
Total
$
(i8)
$
(i1)
$
(i10)
$
(i179)
$
(i198)
$
(i8)
$
(i1)
$
(i10)
$
(i222)
$
(i241)
1.Includes
costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program.
3.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 11 for additional information.
4.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. and Corteva, Inc. 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. See Note 2 for additional information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q 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") due to the parent/subsidiary relationship between Dow Inc. and TDCC. The information reflected in the 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.
Pursuant
to General Instruction H(1)(a) and (b) for Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," TDCC is filing this Form 10-Q with a reduced disclosure format.
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.
Russia and Ukraine Conflict
In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. Dow is monitoring and evaluating the broader economic impact, including sanctions imposed, the potential for additional sanctions and any responses from Russia that could
directly affect the Company’s supply chain, business partners or customers. At the time of this filing, the conflict between Russia and Ukraine has not had and is not expected to have a material impact on the Company's financial condition or results of operations.
Dow stands in solidarity with the people of Ukraine and denounces Russia’s invasion of Ukraine. Dow fully supports and is fully complying with the sanctions implemented against Russia and the efforts of the international community to reestablish peace and safeguard democracy. Dow is prioritizing the safety and security of its colleagues in Ukraine and Russia. Dow had previously suspended all 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, including food
packaging, hygiene, cleaning and sanitation products and household goods.
In Russia, Dow operates a coatings facility, which is currently idled, as well as a consolidated joint venture which operates a polyurethanes systems facility. Dow’s sales from materials produced in Russia represents less than 1 percent of total net sales and net income.
Prior to the invasion, Dow’s business activities in Ukraine were limited to non-manufacturing facilities, including sales and marketing offices.
The Company is also providing assistance with evacuation, financial assistance, housing and other support to help employees and their families in Ukraine and is activating similar processes for the Company's Russian employees. Additionally,
Dow announced humanitarian support, including a cash match for donations by Dow employees, to meet immediate needs in Ukraine and nearby countries aiding refugees.
In the first quarter of 2022, the Company recorded pretax asset related charges of $186 million due to the Russia and Ukraine conflict and the expectation that certain assets will not be recoverable. The Company's remaining net asset exposure is not significant.
OUTLOOK
Dow continues to see long-term fundamentals driving growth across its end-markets. While the near-term market conditions are dynamic, Dow will continue to leverage its diverse, global portfolio and flexible operating model to capitalize
on attractive growth opportunities. Dow's actions to enhance the resiliency of its business position it well to deliver across a variety of economic environments. Dow's disciplined and balanced approach to capital allocation has delivered higher mid-cycle earnings, an improved credit profile, and cash generation above pre-pandemic levels. Dow remains well-positioned to continue advancing its decarbonize and grow strategy while delivering attractive shareholder remuneration.
The
following is a summary of the results for the three months ended June 30, 2022:
•The Company reported net sales in the second quarter of 2022 of $15.7 billion, up 13 percent from $13.9 billion in the second quarter of 2021, with increases across all operating segments and geographic regions. Net sales were up 3 percent from $15.3 billion in the first quarter of 2022, with increases in Packaging & Specialty Plastics, partially offset by decreases in Industrial Intermediates & Infrastructure and Performance Materials & Coatings. Net sales increased in all geographic regions, except Asia Pacific, compared with the first quarter of 2022.
•Local price increased 16 percent compared with the second quarter of 2021 with increases in all operating segments and geographic regions.
Local price increased in Packaging & Specialty Plastics (up 14 percent), Industrial Intermediates & Infrastructure (up 14 percent) and Performance Materials & Coatings (up 28 percent). Local price increased 6 percent compared with the first quarter of 2022.
•Volume was flat compared with the second quarter of 2021 with an increase in Packaging & Specialty Plastics (up 5 percent), which was offset by decreases in Industrial Intermediates & Infrastructure (down 6 percent) and Performance Materials & Coatings (down 3 percent). Volume decreased 2 percent compared with the first quarter of 2022.
•Currency had an unfavorable impact of 3 percent on net sales compared with the second quarter of 2021, driven by Europe, Middle East, Africa and India ("EMEAI") (down 9 percent) and Asia Pacific (down 3 percent).
•Equity
in earnings of nonconsolidated affiliates was $195 million in the second quarter of 2022, compared with $278 million in the second quarter of 2021, primarily due to the impact of pandemic-related lockdowns in China.
•Net income available for Dow Inc. and TDCC common stockholder(s) was $1,661 million and $1,667 million, respectively, in the second quarter of 2022, compared with $1,901 million and $1,914 million in the second quarter of 2021. Earnings per share for Dow Inc. was $2.26 per share in the second quarter of 2022, compared with $2.51 per share in the second quarter of 2021.
•Cash provided by operating activities - continuing operations was $1.9 billion in the second quarter of 2022, down $165 million compared with the same period last year. Sequentially, cash provided by operating activities - continuing operations increased
$244 million.
•In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026.
•Dow Inc. repurchased $800 million of the Company's common stock in the second quarter of 2022.
•On April 13, 2022, Dow Inc. announced that its Board of Directors ("Board") declared a dividend of $0.70 per share, which was paid on June 10, 2022, to shareholders of record as of May 31, 2022.
•On April 13, 2022, Dow Inc.'s Board approved a new share repurchase
program authorizing up to $3 billion for the repurchase of the Company's common stock, with no expiration date.
•Effective April 14, 2022, following the Company's Annual Meeting of Stockholders, Jerri DeVard, former Executive Vice President and Chief Customer Officer of Office Depot, Inc., was elected to the Company's Board.
•On May 31, 2022, Moody's Investors Service announced a credit rating upgrade for TDCC from Baa2 to Baa1, affirmed its P-2 rating and maintained a stable outlook. On June 6, 2022, Fitch Ratings affirmed TDCC’s BBB+ and F2 rating, and revised its outlook to positive from stable. On June 8, 2022, Standard & Poor’s
affirmed TDCC’s BBB and A-2 rating, and revised its outlook to positive from 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.
The following tables summarize net sales and sales variances by operating segment
and geographic region from the prior year:
Summary of Sales Results
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Net
sales
$
15,664
$
13,885
$
30,928
$
25,767
Sales
Variances by Operating Segment and Geographic Region
Three Months Ended Jun 30, 2022
Six Months Ended Jun 30, 2022
Local Price & Product Mix
Currency
Volume
Total
Local Price & Product Mix
Currency
Volume
Total
Percentage
change from prior year
Packaging & Specialty Plastics
14
%
(3)
%
5
%
16
%
20
%
(3)
%
3
%
20
%
Industrial
Intermediates & Infrastructure
14
(4)
(6)
4
21
(4)
(3)
14
Performance Materials & Coatings
28
(3)
(3)
22
34
(3)
1
32
Total
16
%
(3)
%
—
%
13
%
22
%
(3)
%
1
%
20
%
Total,
excluding the Hydrocarbons & Energy business
14
%
(4)
%
(2)
%
8
%
21
%
(3)
%
(1)
%
17
%
U.S. & Canada
13
%
—
%
3
%
16
%
19
%
—
%
7
%
26
%
EMEAI
24
(9)
(4)
11
31
(8)
(4)
19
Asia
Pacific
11
(3)
—
8
16
(2)
(2)
12
Latin America
8
1
8
17
16
—
5
21
Total
16
%
(3)
%
—
%
13
%
22
%
(3)
%
1
%
20
%
Net
sales in the second quarter of 2022 were $15.7 billion, up 13 percent from $13.9 billion in the second quarter of 2021, with local price up 16 percent, volume flat and an unfavorable currency impact of 3 percent. Net sales increased in all operating segments and geographic regions. Local price increased in all operating segments and geographic regions, primarily driven by tight supply and demand dynamics and increasing raw material prices. Local price increased in Packaging & Specialty Plastics (up 14 percent), Industrial Intermediates & Infrastructure (up 14 percent) and Performance Materials & Coatings (up 28 percent). Volume increased in Packaging & Specialty Plastics (up 5 percent) and decreased in Industrial Intermediates & Infrastructure (down 6 percent) and Performance Materials & Coatings (down 3 percent). Volume increases in the U.S. & Canada and Latin America were offset by a volume decrease in EMEAI. Currency unfavorably impacted
net sales by 3 percent, driven by EMEAI (down 9 percent) and Asia Pacific (down 3 percent). Excluding the Hydrocarbons & Energy business, net sales increased 8 percent.
Net sales for the first six months of 2022 were $30.9 billion, up 20 percent from $25.8 billion in the same period last year, with local price up 22 percent, volume up 1 percent and an unfavorable currency impact of 3 percent. Net sales increased in all operating segments and geographic regions. Local price increased in all operating segments and geographic regions, primarily driven by tight supply and demand dynamics and increasing raw material prices. Local price increased in Packaging & Specialty Plastics (up 20 percent), Industrial Intermediates & Infrastructure (up 21 percent) and Performance Materials & Coatings (up 34 percent). Volume increased in Packaging & Specialty Plastics (up 3 percent)
and Performance Materials & Coatings (up 1 percent) and decreased in Industrial Intermediates & Infrastructure (down 3 percent). Volume increases in the U.S. & Canada and Latin America were partially offset by volume decreases in EMEAI and Asia Pacific. Currency unfavorably impacted net sales by 3 percent compared with the same period last year, driven by EMEAI (down 8 percent) and Asia Pacific (down 2 percent). Excluding the Hydrocarbons & Energy business, net sales increased 17 percent.
Cost of sales ("COS") was $12.9 billion in the second
quarter of 2022, up from $10.7 billion in the second quarter of 2021, primarily due to higher feedstocks, energy and other raw material costs, and logistics costs. For the first six months of 2022, COS was $25.3 billion, up from $20.8 billion in the first six months of 2021, primarily due to increased sales volume and higher feedstocks, energy and other raw material costs, and logistics costs. The second quarter of 2022 included $44 million ($41 million in the second quarter of 2021) and $82 million in the first six months of 2022 ($70 million in the first six months of 2021) of costs associated with implementing the Company's digital acceleration program (related to Corporate). Cost of sales as a percentage of net sales in the second quarter of 2022 was 82.3 percent (77.3 percent in the second quarter of 2021) and 81.8 percent for the first six months of 2022 (80.7 percent for the first six months of 2021).
Research
and Development Expenses
Research and development ("R&D") expenses totaled $217 million in the second quarter of 2022, compared with $228 million in the second quarter of 2021. R&D expenses decreased in the second quarter of 2022 primarily due to lower fringe benefit expenses driven by stock market declines. R&D expenses for the first six months of 2022 were $435 million, compared with $422 million in the first six months of 2021. R&D expenses for the first six months of 2022 increased primarily due to higher performance-based compensation costs, which more than offset a decrease in fringe benefit expenses due to stock market declines.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses totaled $435 million in the second
quarter of 2022, compared with $440 million in the second quarter of 2021. SG&A expenses decreased in the second quarter of 2022 due to lower fringe benefit expenses driven by stock market declines. For the first six months of 2022, SG&A expenses were $933 million, compared with $806 million in the first six months of 2021. SG&A expenses for the first six months of 2022 increased primarily due to higher performance-based compensation costs and an increase in bad debt reserves, which more than offset a decrease in fringe benefit expenses due to stock market declines.
Amortization of Intangibles
Amortization of intangibles was $85 million in the second quarter of 2022, compared with $100 million in the first quarter of 2021. In the first six months of 2022, amortization of intangibles was $173 million, compared with $201 million in the first
six months of 2021. See Note 9 to the Consolidated Financial Statements for additional information on intangible assets.
Restructuring and Asset Related Charges - Net
Asset Related Charges
In the first quarter of 2022, the Company recorded pretax asset related charges of $186 million due to the Russia and Ukraine conflict and the expectation that certain assets will 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 were as follows: $31 million in Packaging & Specialty Plastics, $109 million in Industrial Intermediates &
Infrastructure, $16 million in Performance Materials & Coatings and $30 million in Corporate.
2020 Restructuring Program
Actions related to the restructuring program approved by the Board of Dow. Inc. on September 29, 2020 were substantially complete at the end of 2021, with the exception of certain cash payments that will continue through 2022. In the second quarter of 2021, the Company recorded pretax restructuring charges of $12 million for asset write-downs and write-offs and $10 million for costs associated with exit and disposal activities. Restructuring charges by segment were as follows: $8 million in Packaging & Specialty Plastics, $1 million in Industrial Intermediates & Infrastructure, $10 million in Performance Materials & Coatings and $3 million in Corporate.
Equity
in Earnings of Nonconsolidated Affiliates
The Company's share of equity in earnings of nonconsolidated affiliates was $195 million in the second quarter of 2022, compared with $278 million in the second quarter of 2021, primarily due to impacts from pandemic-related lockdowns in China. Equity in earnings of nonconsolidated affiliates was $369 million in the first six months of 2022, compared with $502 million in the first six months of 2021, primarily due to lower equity earnings at Sadara Chemical Company ("Sadara") due to planned maintenance turnaround activity and pandemic-related lockdowns in China. See Note 8 to the Consolidated Financial Statements for additional information.
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.
For the three months ended June 30, 2022, Sundry income (expense) - net was income of $75 million and $78 million for Dow Inc. and TDCC, respectively, compared with expense of $3 million and income of $6 million, respectively, for the three months ended June 30, 2021. The second quarter of 2022
included 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). In addition, Dow Inc. included an $8 million charge associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution (related to Corporate). The second quarter of 2021 included a $102 million loss on the early extinguishment of debt (related to Corporate) and foreign currency exchange losses. These were partially offset by non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments. In addition, Dow Inc. included a $5 million charge associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate).
For
the six months ended June 30, 2022, Sundry income (expense) - net was income of $223 million and $214 million for Dow Inc. and TDCC, respectively, compared with income of $125 million for Dow Inc. and TDCC for the six months ended June 30, 2021. The first six months of 2022 included 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). In addition, Dow Inc. included a $4 million gain associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate). The first six months of 2021 included non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments, which were
partially offset by a $102 million loss on the early extinguishment of debt (related to Corporate) and foreign currency exchange losses. In addition, Dow Inc. included a $5 million charge 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 $165 million in the second quarter of 2022, compared with $187 million in the second quarter of 2021. Interest expense and amortization of debt discount was $332 million in the first six months of 2022, compared with $383 million in the first six months of 2021. The decrease in interest expense is primarily due to the liability management actions taken in 2021.
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 effective tax rate for the second quarter of 2022 was 22.5 percent and 22.4 percent for Dow Inc. and TDCC, respectively, compared with 21.3 percent and 21.1 percent for the second quarter of 2021. For the first six months of 2022, the effective tax rate was 23.5 percent for Dow Inc. and TDCC, compared with 22.3 percent and 22.2 percent for Dow Inc. and TDCC, respectively, for the first six months of 2021. The effective tax rate increased in 2022 primarily due to return to provision adjustments and the recognition of uncertain tax positions in multiple jurisdictions.
Net
Income Available for Common Stockholder(s)
Dow Inc.
Net income available for Dow Inc. common stockholders was $1,661 million, or $2.26 per share, in the second quarter of 2022, compared with $1,901 million, or $2.51 per share, in the second quarter of 2021. Net income available for Dow Inc. common stockholders was $3,230 million, or $4.37 per share, in the first six months of 2022, compared with $2,892 million, or $3.83 per share, in the first six months of 2021. See Note 6 to the Consolidated Financial Statements for details on Dow Inc.'s earnings per share calculations.
Net
income available for the TDCC common stockholder was $1,667 million in the second quarter of 2022, compared with $1,914 million in the second quarter of 2021. Net income available for the TDCC common stockholder was $3,228 millionin the first six months of 2022, compared with $2,897 million in the first six months of 2021. TDCC's common shares are owned solely by Dow Inc.
SEGMENT RESULTS
Dow’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 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.
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. These differentiators, plus collaboration at the customer’s design table, enable the segment to deliver more reliable, durable, higher-performing
solutions designed for recyclability and enhanced plastics circularity and sustainability. 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. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases. This segment also includes the results of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group, as well as a portion of the results of EQUATE Petrochemical Company K.S.C.C. ("EQUATE"), The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut Olefins Company Limited ("Map Ta Phut") and Sadara, all joint ventures of 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.
Packaging & Specialty Plastics net sales were $8,233 million in the second quarter of 2022, up 16 percent from net sales of $7,121 million in the second quarter of 2021, with local price up 14 percent, volume up 5 percent and an unfavorable currency impact of 3 percent, primarily in EMEAI. Local price increased in both businesses and across all geographic regions, driven by tight supply and demand dynamics. Local price increased in Hydrocarbons & Energy, primarily in EMEAI, as prices for co-products are generally correlated to Brent crude oil prices, which, on average, increased 62 percent compared with the second quarter of 2021. Local price increased in Packaging and Specialty Plastics driven by favorable supply and demand dynamics in elastomers and specialty resins. Volume increased in Hydrocarbons & Energy, primarily in EMEAI and the U.S. & Canada. Volume increased in Packaging and
Specialty Plastics in Asia Pacific, Latin America and the U.S. & Canada, which more than offset a decrease in EMEAI.
Operating EBIT was $1,436 million in the second quarter of 2022, down $578 million from Operating EBIT of $2,014 million in the second quarter of 2021. Operating EBIT decreased due to higher feedstock and raw material costs, which more than offset higher selling prices and increased equity earnings.
Packaging & Specialty Plastics net sales were $15,860 million in the first six months of 2022, up 20 percent from net sales of $13,203 million in the first six months of 2021, with local price up 20 percent, volume up 3 percent and an unfavorable currency impact of 3 percent, primarily in EMEAI. Local price increased in both businesses and across all geographic regions, driven by tight
supply and demand dynamics. Local price increased in Hydrocarbons & Energy, primarily in EMEAI and the U.S. & Canada, as prices for co-products are generally correlated to Brent crude oil prices, which, on average, increased 61 percent compared with the first six months of 2021. Local price increased in Packaging and Specialty Plastics driven by favorable supply and demand dynamics in polyethylene and elastomers, notably in flexible food and beverage packaging and infrastructure material applications. Volume increased in Hydrocarbons & Energy, primarily in the U.S. & Canada and EMEAI. Volume decreased in Packaging and Specialty Plastics, primarily in EMEAI, which more than offset increases in all other geographic regions.
Operating EBIT was $2,670 million in the first six months of 2022, down $572 million from Operating EBIT of $3,242 million in the first six months
of 2021. Operating EBIT decreased due to higher feedstock and raw material costs, which more than offset higher selling prices and increased equity earnings.
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, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The businesses' global scale and reach, world-class technology, 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 appliance, building and construction, mobility and transportation, and adhesive and lubricant applications, among others. This segment also includes a portion of the results of EQUATE, TKOC, Map Ta Phut and Sadara, all joint ventures of 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.
Industrial
Intermediates & Infrastructure net sales were $4,370 million in the second quarter of 2022, up 4 percent from $4,215 million in the second quarter of 2021, with local price up 14 percent, volume down 6 percent, and an unfavorable currency impact of 4 percent. Local price increased in both businesses and across all geographic regions, except Asia Pacific. Currency had an unfavorable impact on sales in both businesses and was driven by EMEAI and Asia Pacific. Volume declines in Polyurethanes & Construction Chemicals were partially offset by gains in Industrial Solutions. Volume increased in Industrial Solutions in all geographic regions, driven by higher supply availability and strong demand for pharmaceutical, agricultural and oil and gas-related applications. Volume in Polyurethanes & Construction Chemicals decreased in all geographic regions, excluding Latin America, driven by lower demand, particularly for consumer durables, combined with reduced supply
from planned maintenance turnaround activity and third-party outages.
Operating EBIT was $426 million in the second quarter of 2022, down $222 million from Operating EBIT of $648 million in the second quarter of 2021. Operating EBIT decreased primarily due to rising raw material and energy costs; lower equity earnings at Sadara and the Map Ta Phut joint ventures; and increased planned maintenance turnaround activity, which were partially offset by higher selling prices.
Industrial Intermediates & Infrastructure net sales were $8,894 million in the first six months of 2022, up 14 percent from net sales of $7,822 million in the first six months of 2021, with local price up 21 percent, volume down 3 percent, and an unfavorable currency impact of 4 percent. Local price increased in both businesses and
across all geographic regions, primarily driven by strong supply and demand dynamics and rising energy prices. Currency had an unfavorable impact on sales in both businesses, driven by EMEAI. Volume in Industrial Solutions increased in all geographic regions driven by improved supply availability as the year-ago period was impacted by Winter Storm Uri, and by strong demand in agricultural, pharmaceutical and oil and gas-related applications. Volume in Polyurethanes & Construction Chemicals decreased in all geographic regions, except Latin America, primarily due to lower supply availability from Sadara, slowing demand, particularly for consumer durables, combined with reduced supply from planned maintenance turnaround activity and third-party outages.
Operating EBIT was $1,087 million in the first six months of 2022, up $113 million from Operating EBIT of $974 million in the first
six months of 2021. Operating EBIT increased primarily due to local price increases in both businesses and was partially offset by increases in raw material and energy costs and lower equity earnings at Sadara and the Map Ta Phut joint ventures.
The Performance Materials & Coatings operating segment includes industry-leading franchises that deliver a wide array of solutions into consumer, infrastructure and mobility 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, market-driven and sustainable innovations to customers.
Performance
Materials & Coatings
Three Months Ended
Six Months Ended
In millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Net sales
$
3,003
$
2,465
$
6,052
$
4,588
Operating
EBIT
$
561
$
225
$
1,156
$
287
Equity earnings
$
2
$
—
$
5
$
2
Performance
Materials & Coatings
Three Months Ended
Six Months Ended
Percentage change from prior year
Jun 30, 2022
Jun 30, 2022
Change in Net Sales from Prior Period due to:
Local price & product mix
28
%
34
%
Currency
(3)
(3)
Volume
(3)
1
Total
22
%
32
%
Performance
Materials & Coatings net sales were $3,003 million in the second quarter of 2022, up 22 percent from net sales of $2,465 million in the second quarter of 2021, with local price up 28 percent, volume down 3 percent and an unfavorable currency impact of 3 percent. Local price increased in both businesses and across all geographic regions due to favorable supply and demand dynamics and higher raw material prices. Volume decreased in Consumer Solutions in Asia Pacific, EMEAI and Latin America, which were partially offset by strong consumer demand in the U.S. & Canada. Volume decreased in Coatings & Performance Monomers in Asia Pacific, EMEAI and Latin America, which were partially offset by the U.S. & Canada primarily due to improved supply availability as the year-ago period was impacted by Winter Storm Uri. Volume decreased in both businesses as a result of pandemic-related lockdowns in China. The unfavorable currency impact was driven by EMEAI and Asia
Pacific.
Operating EBIT was $561 million in the second quarter of 2022, up $336 million from Operating EBIT of $225 million in the second quarter of 2021. Operating EBIT increased primarily due to margin expansion in Consumer Solutions.
Performance Materials & Coatings net sales were $6,052 million in the first six months of 2022, up 32 percent from net sales of $4,588 million in the first six months of 2021, with local price up 34 percent, volume up 1 percent and an unfavorable currency impact of 3 percent. Local price increased in both businesses and across all geographic regions due to favorable supply and demand dynamics and higher raw material prices. Volume increased in the U.S. & Canada, which was partially offset by decreases in EMEAI, Asia Pacific and Latin America. Volume increased
in Consumer Solutions in the U.S. & Canada due to strong consumer demand, which was partially offset by decreases in Asia Pacific, EMEAI and Latin America. Volume increased in Coatings & Performance Monomers in the U.S. & Canada primarily due to improved supply availability as the year-ago period was impacted by Winter Storm Uri, which was partially offset by decreases in Asia Pacific and EMEAI. The unfavorable currency impact was driven by EMEAI and Asia Pacific.
Operating EBIT was $1,156 million in the first six months of 2022, up $869 million from Operating EBIT of $287 million in the first six months of 2021. Operating EBIT increased primarily due to margin expansion and higher volume in Consumer Solutions.
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
Three Months Ended
Six Months Ended
In
millions
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Net sales
$
58
$
84
$
122
$
154
Operating EBIT
$
(48)
$
(59)
$
(119)
$
(121)
Equity
earnings (losses)
$
(2)
$
4
$
(3)
$
5
Net sales for Corporate, which primarily relate to the Company's insurance operations, were $58 million in the second quarter of 2022, a decrease from net sales of $84 million in the second quarter of 2021. Net sales were $122 million in the first six months of 2022,
a decrease from net sales of $154 million in the first six months of 2021.
Operating EBIT was a loss of $48 million in the second quarter of 2022, compared with a loss of $59 million in the second quarter of 2021. Operating EBIT improved primarily due to decreased environmental costs. Operating EBIT was a loss of $119 million in the first six months of 2022, compared with a loss of $121 million in the first six months of 2021.
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $2,367 million at June 30, 2022 and $2,988 million at December 31,
2021, of which $1,397 million at June 30, 2022 and $1,745 million at December 31, 2021 was held by subsidiaries in foreign countries, including U.S. territories. For each of its foreign subsidiaries, Dow makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States.
Cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. Dow has the ability to repatriate additional funds to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S. state income taxes and the impact of foreign currency movements. At June
30, 2022, management believed that sufficient liquidity was available in the United States. The Company has and expects to continue repatriating certain funds from its non‑U.S. subsidiaries that are not needed to finance local operations; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company.
The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table:
Cash
Flow Summary
Dow Inc.
TDCC
Six Months Ended
Six Months Ended
Jun 30, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
In millions
Cash provided by (used for):
Operating
activities - continuing operations
$
3,468
$
1,793
$
3,493
$
1,912
Operating activities - discontinued operations
(11)
(80)
—
—
Operating activities
3,457
1,713
3,493
1,912
Investing
activities
(763)
(768)
(763)
(768)
Financing activities
(3,096)
(2,500)
(3,132)
(2,699)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(162)
(12)
(162)
(12)
Summary
Decrease
in cash, cash equivalents and restricted cash
(564)
(1,567)
(564)
(1,567)
Cash, cash equivalents and restricted cash at beginning of period
3,033
5,108
3,033
5,108
Cash, cash equivalents and restricted cash at end of period
$
2,469
$
3,541
$
2,469
$
3,541
Less:
Restricted cash and cash equivalents, included in "Other current assets"
102
50
102
50
Cash and cash equivalents at end of period
$
2,367
$
3,491
$
2,367
$
3,491
Cash
Flows from Operating Activities
Cash provided by operating activities from continuing operations in the first six months of 2022 was primarily driven by the Company's cash earnings and dividends from equity method investments, which were partially offset by cash used for working capital requirements and performance-based compensation payments. Cash provided by operating activities from continuing operations in the first six months of 2021 was primarily driven by the Company's cash earnings, which were partially offset by elective pension contributions, cash used for working capital requirements and performance-based compensation payments.
Net
Working Capital
Dow Inc.
TDCC
Jun 30, 2022
Dec 31, 2021
Jun 30, 2022
Dec 31, 2021
In millions
Current assets
$
21,769
$
20,848
$
21,733
$
20,837
Current
liabilities
13,309
13,226
13,156
13,046
Net working capital
$
8,460
$
7,622
$
8,577
$
7,791
Current ratio
1.64:1
1.58:1
1.65:1
1.60:1
Working
Capital Metrics
Three Months Ended
Jun 30, 2022
Mar 31, 2022
Jun 30, 2021
Days sales outstanding in trade receivables
43
42
41
Days sales in inventory
56
55
56
Days
payables outstanding
58
60
55
Cash used for operating activities from discontinued operations in the first six months of 2022 and 2021 primarily related to cash payments and receipts Dow Inc. had with DuPont and Corteva that related to certain agreements and matters related to the separation from DowDuPont Inc. ("DowDuPont"). See Note 2 to the Consolidated Financial Statements for additional information.
Cash used for investing activities in the first six months of 2022 was primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments. Cash used for investing activities in the first six months of 2021 was primarily for capital expenditures, purchases of investments and acquisitions of property and businesses, which were partially offset by proceeds from sales and maturities of investments.
The Company's capital expenditures were $772 million in the first six months of 2022, compared with $622 million in the first six months of 2021. The Company expects full year capital spending in 2022 to be approximately $2.1 billion. The Company will adjust its spending
through the year as economic conditions evolve.
Cash Flows from Financing Activities
Cash used for financing activities in the first six months of 2022 was primarily for payments on long-term debt, which was partially offset by proceeds from the issuance of common stock. In addition, Dow Inc. included a cash outflow for dividends paid to stockholders and purchases of treasury stock. TDCC included a cash outflow for dividends paid to Dow Inc. Cash used for financing activities in the first six months of 2021 included payments on long-term debt, which was partially offset by proceeds from issuance of common stock. In addition, Dow Inc. included a cash outflow for dividends paid to stockholders and purchases of treasury stock. TDCC included a cash outflow for dividends paid to Dow Inc. See Note 11 to the Consolidated Financial Statements for
additional information related to the issuance and retirement of debt.
Dow Inc. Non-GAAP Cash Flow Measures
Free Cash Flow
Dow defines free cash flow as "Cash provided by operating activities - continuing operations," less capital expenditures. Under this definition, Free Cash Flow represents the cash generated by Dow from operations after investing in its asset base. Free 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 Flow is an integral financial measure used in the Company's financial planning process.
Operating EBITDA
Dow defines Operating EBITDA as
earnings (i.e., "Income before income taxes") before interest, depreciation and amortization, excluding the impact of significant items.
Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations)
Dow defines Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations) as "Cash provided by operating activities - continuing operations," divided by Operating EBITDA. Management believes Cash 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.
Reconciliation of Free Cash Flow
Six Months Ended
Jun 30,
2022
Jun 30, 2021
In millions
Cash provided by operating activities - continuing operations (GAAP)
$
3,468
$
1,793
Capital expenditures
(772)
(622)
Free Cash Flow (non-GAAP) 1
$
2,696
$
1,171
1.Free
cash flow in the first six months of 2021 reflects a $1 billion elective pension contribution.
Reconciliation of Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations)
Six Months Ended
Jun 30, 2022
Jun 30, 2021
In millions
Net income (GAAP)
$
3,233
$
2,938
+
Provision for income taxes
991
841
Income before income taxes
$
4,224
$
3,779
- Interest income
64
21
+ Interest expense and amortization of debt discount
332
383
- Significant items ¹
(302)
(241)
Operating
EBIT (non-GAAP)
$
4,794
$
4,382
+ Depreciation and amortization
1,436
1,462
Operating EBITDA (non-GAAP)
$
6,230
$
5,844
Cash provided by operating activities - continuing operations (GAAP)
$
3,468
$
1,793
Cash
Flow Conversion (Operating EBITDA to cash flow from operations) (non-GAAP) 2
55.7
%
30.7
%
1.The six months ended June 30, 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 loss on the early extinguishment of debt and activity related to the separation from DowDuPont. The six months ended June 30, 2021 includes costs associated with implementing the Company's Digital Acceleration program and 2020 Restructuring Program, a loss on early
extinguishment of debt and activity related to the separation from DowDuPont. See Note 22 to the Consolidated Financial Statements for additional information.
2.Cash flow conversion in the first six months of 2021 reflects a $1 billion elective pension contribution.
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 accounts receivable facilities, a U.S. retail note program (“InterNotes®”) and other debt markets.
The Company continues to maintain a strong financial position with all of its committed credit facilities undrawn and fully available at June 30, 2022. Cash and committed and available forms of liquidity were $12.2 billion at June 30, 2022. The Company also has no substantive long-term debt maturities due until 2027. Additional details on sources of liquidity are as follows:
Commercial Paper
TDCC issues promissory notes under its U.S. and
Euromarket commercial paper programs. TDCC had $200 million of commercial paper outstanding at June 30, 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 June 30, 2022, TDCC issued approximately $600 million of commercial paper.
The Company also has the ability to access liquidity through TDCC's committed and available credit facilities. At June 30, 2022, TDCC had total committed and available credit facilities of $8.4 billion. See Note 11 to the Consolidated Financial Statements for additional information on committed and available credit facilities.
Committed Accounts Receivable Facilities
In addition to the above committed credit facilities, the Company maintains a committed accounts receivable facility in the U.S. where eligible trade accounts receivable, up to $900 million, may be sold at any point in time. The Company also maintains a committed accounts receivable facility in Europe where eligible trade accounts receivable, up to €500 million, may be sold at
any point in time. In the second quarter of 2022, the Company sold $141 million ($391 million in the first six months of 2022) of receivables under the U.S. and Europe committed accounts receivable facilities. See Note 10 to the Consolidated Financial Statements for additional information.
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. The Company had no outstanding monetization of its existing COLI policies' surrender value at June 30, 2022. For additional information, see Note 7 to the Consolidated Financial Statements included in
the 2021 10-K.
Uncommitted Credit Facilities
The Company has entered into various uncommitted bilateral credit arrangements as a potential source of excess liquidity. These lines can be used to support short-term liquidity needs and for general purposes, including letters of credit. The Company had no drawdowns outstanding at June 30, 2022.
Shelf Registration - U.S.
On June 13, 2022, Dow Inc. and TDCC filed a shelf registration statement with the 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. In the third quarter of 2022, TDCC intends to file a prospectus supplement under this shelf registration to register an undetermined amount of securities for issuance under InterNotes®. Also, in the third quarter of 2022, TDCC intends to file a prospectus supplement under this shelf registration to register an undetermined amount of securities for issuance under a medium-term notes program.
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."
Total Debt
Dow
Inc.
TDCC
Jun 30, 2022
Dec 31, 2021
Jun 30, 2022
Dec 31, 2021
In millions
Notes payable
$
295
$
161
$
295
$
161
Long-term
debt due within one year
361
231
361
231
Long-term debt
13,065
14,280
13,065
14,280
Gross debt
$
13,721
$
14,672
$
13,721
$
14,672
-
Cash and cash equivalents
2,367
2,988
2,367
2,988
- Marketable securities 1
169
245
169
245
Net debt
$
11,185
$
11,439
$
11,185
$
11,439
Total
equity
$
19,507
$
18,739
$
19,754
$
19,029
Gross debt as a percent of total capitalization
41.3
%
43.9
%
41.0
%
43.5
%
Net
debt as a percent of total capitalization
36.4
%
37.9
%
36.2
%
37.5
%
1.Included in "Other current assets" in the consolidated balance sheets.
In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026.
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 0.70 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 to consolidated capitalization as defined in the Revolving Credit Agreement was 0.38 to 1.00 at June 30, 2022. Management believes TDCC was in compliance with all of its covenants and default provisions at June 30, 2022. For information on TDCC's debt covenants and default provisions, see Note 15 to the Consolidated Financial Statements included in the 2021 10-K. 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 the first six months of 2022.
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.
At June 30, 2022, TDCC's credit ratings were as follows:
Credit Ratings
Long-Term
Rating
Short-Term Rating
Outlook
Fitch Ratings
BBB+
F2
Positive
Moody’s Investors Service
Baa1
P-2
Stable
Standard & Poor’s
BBB
A-2
Positive
On
May 31, 2022, Moody's Investors Service announced a credit rating upgrade for TDCC from Baa2 to Baa1, affirmed its P-2 rating and maintained a stable outlook. On June 6, 2022, Fitch Ratings affirmed TDCC’s BBB+ and F2 rating, and revised its outlook to positive from stable. On June 8, 2022, Standard & Poor’s affirmed TDCC’s BBB and A-2 rating, and revised its outlook to positive from 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.
Dividends
Dow Inc.
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 Board. The dividends declared by the Board align to the Company's strategy announced in 2018 of returning approximately 45 percent of operating net income1 to the shareholders through the dividend and total shareholder remuneration of approximately 65 percent, when including share repurchases, over the economic cycle. The following table summarizes cash dividends declared by the Board and paid to common stockholders of record by Dow Inc. in 2022:
TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and share repurchases, as approved by Dow Inc.'s Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution to Dow Inc. to settle the intercompany
loans. For the three months ended June 30, 2022, TDCC declared and paid a dividend to Dow Inc. of $1,333 million ($2,454 million for the six months ended June 30, 2022). At June 30, 2022, TDCC's intercompany loan balance with Dow Inc. was insignificant. See Note 21 to the Consolidated Financial Statements for additional information.
Share Repurchase Program
On April 1, 2019, Dow Inc.'s Board ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3 billion to be spent on the repurchase of the Company's common stock, with no expiration date. The Company completed
the April 1, 2019 share repurchase program in the second quarter of 2022. On April 13, 2022, Dow Inc.'s Board approved a new share repurchase program authorizing up to $3 billion for the repurchase of the Company's common stock, with no expiration date. The Company repurchased $800 million of its common stock in the second quarter of 2022 ($1,400 million in the first six months of 2022). At June 30, 2022, approximately $2,975 million of the new share repurchase program authorization remained available for repurchases. As previously announced, the Company intends to, at a minimum, repurchase shares to cover dilution. With the announcement of the new share repurchase program, 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, is intended to implement the long-term strategy of ensuring shareholder remuneration is approximately 65 percent over the economic cycle.
1.Operating net income is a non-GAAP measure that Dow defines as "Net income available for Dow Inc. common stockholders," excluding the impact of significant items.
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 Company's funding policy is to contribute to funded plans when pension laws and/or economics either require or encourage funding. The Company expects to contribute approximately $250 million to its pension plans in 2022, of which $89 million has been contributed through June 30, 2022. See Note 16 to the Consolidated Financial Statements and Note 20 to the Consolidated Financial Statements included in the 2021 10-K for additional information related to the Company's pension plans.
Restructuring
The actions related to the 2020 Restructuring Program are expected to result in additional cash expenditures of $98 million, primarily through the end of 2022
and into 2023, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation. Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions, are expected to result in additional cash expenditures of approximately $20 million, primarily through the end of 2022. Restructuring implementation costs totaled $10 million in the second quarter of 2022 ($20 million in the first six months of 2022).
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 4 to the Consolidated Financial Statements for additional information on the Company's restructuring activities.
Digital Acceleration
In 2021, Dow announced plans to further advance and expand its digitalization efforts to deliver long-term value creation by accelerating investment in three key areas: expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and 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 $140 million, primarily through the end of 2022. Digital acceleration expenses totaled $51 million in the second quarter of 2022 ($92 million in the first six months of 2022).
Contractual Obligations
Information related to the Company’s contractual obligations, commercial commitments and expected cash requirements for interest can be found in Notes 15, 16, 17 and 20 to the Consolidated Financial Statements included in the 2021 10-K. With the exception of the items noted below, there have been no material changes in the Company’s contractual obligations since December 31, 2021.
Contractual
Obligations at Jun 30, 2022
Payments Due In
In millions
2022
2023-2024
2025-2026
2027 and beyond
Total
Long-term debt obligations 1
$
58
$
469
$
464
$
12,710
$
13,701
Expected
cash requirements for interest 2
$
302
$
1,151
$
1,106
$
7,387
$
9,946
1.Excludes
unamortized debt discount and issuance costs of $275 million. Includes finance lease obligations of $826 million.
2.Cash requirements for interest on long-term debt was calculated using current interest rates at June 30, 2022, and includes $56 million of various floating rate notes.
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 20 to the Consolidated Financial Statements).
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. Additional information related to guarantees can be found in the "Guarantees" section of Note 12 to the Consolidated Financial Statements.
Fair Value Measurements
See Note 19
to the Consolidated Financial Statements for information concerning fair value measurements.
OTHER MATTERS
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America 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 included in the 2021 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The Company’s critical accounting
policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 10-K. Since December 31, 2021, there have been no material changes in the Company’s accounting policies that are impacted by judgments, assumptions and estimates.
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”). 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.
The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants:
Asbestos-Related
Claim Activity
2022
2021
Claims unresolved at Jan 1
8,747
9,126
Claims filed
2,388
2,081
Claims settled, dismissed or otherwise resolved
(2,275)
(2,184)
Claims unresolved at Jun 30
8,860
9,023
Claimants
with claims against both Union Carbide and Amchem
(2,106)
(2,498)
Individual claimants at Jun 30
6,754
6,525
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 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 Asbestos-Related Matters of Union Carbide Corporation in Note 12 to the Consolidated Financial Statements; Part II, Item 1. Legal Proceedings; and Note 16 to the Consolidated Financial Statements included in the 2021 10-K.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 18 to the Consolidated Financial Statements and Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the combined Dow Inc. and TDCC Annual Report on Form 10-K for the year ended December 31, 2021, for information on the Company's utilization of financial instruments and an analysis of the sensitivity of these instruments.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, Dow Inc. and The Dow Chemical Company (the "Companies") carried out an evaluation, under the supervision and with the participation of the Companies' Disclosure Committee and the Companies' management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Companies' disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companies' disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in
the Companies' internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companies' internal control over financial reporting.
Asbestos-Related Matters of Union Carbide Corporation
No material developments regarding this matter occurred in the first six months of 2022. For a current status of this matter, see Note 12 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. The complaint, filed in the 250th District Court of Travis County, Texas, alleges environmental violations at the Company's Freeport, Texas, site involving 12 discrete air emissions events. The State is seeking monetary relief of no more than $1 million and injunctive relief to prevent recurrence. On August 31, 2021, the State informed the Company that it would be including additional air emissions events in the complaint, which may impact the monetary relief sought by the State. Discussions between the Company and the Texas Office of the Attorney General are ongoing.
On February 3, 2022, the U.S. Environmental Protection Agency (“EPA”)
proposed a draft administrative order to resolve alleged violations at the Rohm and Haas Chemicals facility in Kankakee, Illinois, relating to a storage tank at the site that does not have certain control equipment specified by EPA Clean Air Act regulations. This issue was self-disclosed by the facility to the Illinois Environmental Protection Agency in 2015. Negotiations with the agencies are ongoing.
ITEM 1A. RISK FACTORS
Since December 31, 2021, there have been no material changes to the Company's Risk
Factors, except as noted below:
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. As a result, market uncertainty or an economic downturn driven by inflationary pressures; political tensions; war, including the ongoing conflict between Russia and Ukraine and 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 reduce demand for these products and result in decreased sales volume, 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 all 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 raw materials and energy; and heightened cybersecurity
threats.
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, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, the Company enters into hedging 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 June 30, 2022:
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
April 2022
1,153,050
$
67.64
1,153,050
$
3,697
May
2022
8,057,999
$
67.74
8,057,999
$
3,151
June 2022
2,598,049
$
67.81
2,598,049
$
2,975
Second quarter 2022
11,809,098
$
67.74
11,809,098
$
2,975
1.On
April 1, 2019, Dow Inc.'s Board of Directors ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3.0 billion to be spent on 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, Dow Inc.'s Board approved a new share repurchase program authorizing up to $3.0 billion for the repurchase of the Company's common stock, with no expiration date.
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.
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.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
