NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
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.
NOTE 2 – SEPARATION FROM DOWDUPONT
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 agreements relating to Dow's separation from DowDuPont were primarily included in the consolidated financial statements of Dow Inc. At March 31, 2022, the Company had assets of $25 million (zero at December 31, 2021) included in "Other current assets" and $2 million ($20 million at December 31, 2021) included in "Noncurrent receivables," and liabilities of $136 million ($148 million at December 31, 2021) included in "Accrued and other current liabilities" and $37 million ($39 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 March 31, 2022, $15 million ($15 million at December 31, 2021) of this liability was recorded in "Accrued and other current liabilities" and $96 million ($96 million at December 31, 2021) was recorded in "Other noncurrent obligations" in the consolidated balance sheets of Dow Inc.
NOTE 3 – REVENUE
Revenue Recognition
The majority of the Company's revenue is derived from product sales. The Company's revenue related to product sales was 99 percent for the three months ended March 31, 2022 (98 percent for the three months ended March 31, 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 March 31, 2022, the Company had unfulfilled performance obligations of $869 million ($829 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 18 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.
Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by 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:
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| Net Trade Sales by Segment and Business | Three Months Ended | |
| In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| Hydrocarbons & Energy | $ | 2,416 | | $ | 1,751 | | | |
| Packaging and Specialty Plastics | 5,211 | | 4,331 | | | |
| Packaging & Specialty Plastics | $ | 7,627 | | $ | 6,082 | | | |
| Industrial Solutions | $ | 1,515 | | $ | 1,049 | | | |
| Polyurethanes & Construction Chemicals | 3,005 | | 2,556 | | | |
| Other | 4 | | 2 | | | |
| Industrial Intermediates & Infrastructure | $ | 4,524 | | $ | 3,607 | | | |
| Coatings & Performance Monomers | $ | 1,075 | | $ | 855 | | | |
| Consumer Solutions | 1,974 | | 1,268 | | | |
| Performance Materials & Coatings | $ | 3,049 | | $ | 2,123 | | | |
| Corporate | $ | 64 | | $ | 70 | | | |
| Total | $ | 15,264 | | $ | 11,882 | | | |
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| Net Trade Sales by Geographic Region | Three Months Ended | |
| In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| U.S. & Canada | $ | 5,537 | | $ | 4,028 | | | |
EMEAI 1 | 5,512 | | 4,329 | | | |
| Asia Pacific | 2,753 | | 2,365 | | | |
| Latin America | 1,462 | | 1,160 | | | |
| Total | $ | 15,264 | | $ | 11,882 | | | |
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 three months of 2022 from amounts included in contract liabilities at the beginning of the period was approximately $65 million (approximately $40 million in the first three months of 2021). In the first three 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.
The following table summarizes the contract assets and liabilities at March 31, 2022 and December 31, 2021:
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| Contract Assets and Liabilities | Balance Sheet Classification | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 7,423 | | $ | 6,841 | |
| Contract assets - current | Other current assets | $ | 36 | | $ | 34 | |
| Contract assets - noncurrent | Deferred charges and other assets | $ | 24 | | $ | 26 | |
| Contract liabilities - current | Accrued and other current liabilities | $ | 181 | | $ | 209 | |
| Contract liabilities - noncurrent | Other noncurrent obligations | $ | 1,922 | | $ | 1,925 | |
NOTE 4 – RESTRUCTURING 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. The following table summarizes the activities related to the 2020 Restructuring Program since January 1, 2021:
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| 2020 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Costs Associated with Exit and Disposal Activities | Total |
| In millions |
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| Reserve balance at Jan 1, 2021 | $ | 289 | | $ | — | | $ | 75 | | $ | 364 | |
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| Cash payments | (37) | | — | | (12) | | (49) | |
| Reserve balance at Mar 31, 2021 | $ | 252 | | $ | — | | $ | 63 | | $ | 315 | |
| Packaging & Specialty Plastics | $ | — | | $ | — | | $ | 8 | | $ | 8 | |
| Industrial Intermediates & Infrastructure | — | | 1 | | — | | 1 | |
| Performance Materials & Coatings | — | | 8 | | 2 | | 10 | |
| Corporate | — | | 3 | | — | | 3 | |
| Total restructuring charges | $ | — | | $ | 12 | | $ | 10 | | $ | 22 | |
| Charges against the reserve | — | | (12) | | — | | (12) | |
| Cash payments | (53) | | — | | (3) | | (56) | |
| Reserve balance at Jun 30, 2021 | $ | 199 | | $ | — | | $ | 70 | | $ | 269 | |
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| Cash payments | (55) | | — | | (2) | | (57) | |
| Reserve balance at Sep 30, 2021 | $ | 144 | | $ | — | | $ | 68 | | $ | 212 | |
| Restructuring charges - Corporate | $ | (10) | | $ | — | | $ | — | | $ | (10) | |
| Cash payments | (30) | | — | | (4) | | (34) | |
| Reserve balance at Dec 31, 2021 | $ | 104 | | $ | — | | $ | 64 | | $ | 168 | |
| Cash payments | (59) | | — | | (1) | | (60) | |
| Reserve balance at Mar 31, 2022 | $ | 45 | | $ | — | | $ | 63 | | $ | 108 | |
At March 31, 2022, $53 million of the reserve balance was included in "Accrued and other current liabilities" ($112 million at December 31, 2021) and $55 million was included in "Other noncurrent obligations" ($56 million at December 31, 2021) in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $585 million inception-to-date under the 2020 Restructuring Program, consisting of severance and related benefit costs of $287 million, asset write-downs and write-offs of $208 million and costs associated with exit and disposal activities of $90 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 $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.
NOTE 5 – SUPPLEMENTARY INFORMATION
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| Dow Inc. Sundry Income (Expense) – Net | | Three Months Ended |
| In millions | | | Mar 31, 2022 | Mar 31, 2021 |
Non-operating pension and other postretirement benefit plan net credits 1 | | | $ | 89 | | $ | 75 | |
| Foreign exchange gains (losses) | | | 2 | | (8) | |
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| Gains on sales of other assets and investments | | | 31 | | 48 | |
Indemnification and other transaction related costs 2 | | | 12 | | — | |
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| Other - net | | | 14 | | 13 | |
| Total sundry income (expense) – net | | | $ | 148 | | $ | 128 | |
1.See Note 16 for additional information.
2.See Note 2 for additional information.
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| TDCC Sundry Income (Expense) – Net | | Three Months Ended |
| In millions | | | Mar 31, 2022 | Mar 31, 2021 |
Non-operating pension and other postretirement benefit plan net credits 1 | | | $ | 89 | | $ | 75 | |
| Foreign exchange gains (losses) | | | 2 | | (12) | |
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| Gains on sales of other assets and investments | | | 31 | | 48 | |
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| Other - net | | | 14 | | 8 | |
| Total sundry income (expense) – net | | | $ | 136 | | $ | 119 | |
1.See Note 16 for additional information.
NOTE 6 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations for Dow Inc. for the three months ended March 31, 2022 and 2021. Earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.
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| Net Income for Earnings Per Share Calculations | | Three Months Ended |
| In millions | | | Mar 31, 2022 | Mar 31, 2021 |
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| Net income | | | $ | 1,552 | | $ | 1,006 | |
| Net income (loss) attributable to noncontrolling interests | | | (17) | | 15 | |
Net income attributable to participating securities 1 | | | 8 | | 5 | |
| Net income attributable to common stockholders | | | $ | 1,561 | | $ | 986 | |
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| Earnings Per Share - Basic and Diluted | | Three Months Ended |
| Dollars per share | | | Mar 31, 2022 | Mar 31, 2021 |
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| Earnings per common share - basic | | | $ | 2.12 | | $ | 1.32 | |
| Earnings per common share - diluted | | | $ | 2.11 | | $ | 1.32 | |
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| Share Count Information | | Three Months Ended |
| Shares in millions | | | Mar 31, 2022 | Mar 31, 2021 |
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| Weighted-average common shares outstanding - basic | | | 734.6 | | 744.8 | |
| Plus dilutive effect of equity compensation plans | | | 5.2 | | 5.0 | |
| Weighted-average common shares outstanding - diluted | | | 739.8 | | 749.8 | |
Stock options and restricted stock units excluded from EPS calculations 2 | | | 6.8 | | 5.9 | |
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 – INVENTORIES
The following table provides a breakdown of inventories:
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| Inventories | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Finished goods | $ | 4,755 | | $ | 4,554 | |
| Work in process | 1,857 | | 1,615 | |
| Raw materials | 929 | | 822 | |
| Supplies | 858 | | 866 | |
| Total | $ | 8,399 | | $ | 7,857 | |
| Adjustment of inventories to a LIFO basis | (639) | | (485) | |
| Total inventories | $ | 7,760 | | $ | 7,372 | |
NOTE 8 – NONCONSOLIDATED AFFILIATES
For additional information on the Company’s nonconsolidated affiliates, see Note 12 to the Consolidated Financial Statements included in the 2021 10-K.
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:
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| Investments in Nonconsolidated Affiliates | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Investment in nonconsolidated affiliates | $ | 1,821 | | $ | 2,045 | |
| Other noncurrent obligations | (103) | | — | |
| Net investment in nonconsolidated affiliates | $ | 1,718 | | $ | 2,045 | |
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| Dividends Received from Nonconsolidated Affiliates | Three Months Ended |
| In millions | Mar 31, 2022 | Mar 31, 2021 |
Dividends from nonconsolidated affiliates 1 | $ | 548 | | $ | 178 | |
1.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
In the first quarter of 2022, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") paid a dividend of $318 million ($79 million in the first quarter 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, the Company had a negative investment balance in EQUATE of $103 million included in "Other noncurrent obligations" (positive $115 million at December 31, 2021 included in "Investment in nonconsolidated affiliates") in the consolidated balance sheets.
NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows changes in the carrying amount of goodwill by reportable segment:
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| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total |
| In millions |
| Net goodwill at Dec 31, 2021 | $ | 5,105 | | $ | 1,096 | | $ | 2,563 | | $ | 8,764 | |
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| Foreign currency impact | (2) | | (1) | | (45) | | (48) | |
| Net goodwill at Mar 31, 2022 | $ | 5,103 | | $ | 1,095 | | $ | 2,518 | | $ | 8,716 | |
The following table provides information regarding the Company’s other intangible assets:
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| Other Intangible Assets | Mar 31, 2022 | Dec 31, 2021 |
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | | | | | |
| Developed technology | $ | 2,637 | | $ | (1,912) | | $ | 725 | | $ | 2,637 | | $ | (1,871) | | $ | 766 | |
| Software | 1,372 | | (936) | | 436 | | 1,396 | | (945) | | 451 | |
| Trademarks/tradenames | 352 | | (344) | | 8 | | 352 | | (344) | | 8 | |
| Customer-related | 3,173 | | (1,598) | | 1,575 | | 3,204 | | (1,565) | | 1,639 | |
| Total other intangible assets, finite lives | $ | 7,534 | | $ | (4,790) | | $ | 2,744 | | $ | 7,589 | | $ | (4,725) | | $ | 2,864 | |
| In-process research and development | 17 | | — | | 17 | | 17 | | — | | 17 | |
| Total other intangible assets | $ | 7,551 | | $ | (4,790) | | $ | 2,761 | | $ | 7,606 | | $ | (4,725) | | $ | 2,881 | |
The following table provides information regarding amortization expense related to intangible assets:
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| Amortization Expense | Three Months Ended | |
| In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| Other intangible assets, excluding software | $ | 88 | | $ | 101 | | | |
| Software, included in “Cost of sales” | $ | 20 | | $ | 22 | | | |
Total estimated amortization expense for 2022 and the five succeeding fiscal years, including amounts expected to be capitalized, is as follows:
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| Estimated Amortization Expense |
In millions |
| 2022 | $ | 419 | |
| 2023 | $ | 385 | |
| 2024 | $ | 365 | |
| 2025 | $ | 274 | |
| 2026 | $ | 200 | |
| 2027 | $ | 169 | |
NOTE 10 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains committed accounts receivable facilities with various financial institutions, including in the United States, which expires in November 2022 (“U.S. A/R Program”) and in Europe, which expires in July 2023 (“Europe A/R Program” and together with the U.S. A/R Program, "the Programs"). Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. A/R Program and up to €500 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 first quarter of 2022, the Company sold $250 million of receivables under the Programs (zero in the first quarter of 2021).
NOTE 11 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
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| Notes Payable | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
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| Notes payable to banks and other lenders | $ | 92 | $ | 161 |
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| Period-end average interest rates | 8.14 | % | 5.78 | % |
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| Long-Term Debt | 2022 Average Rate | Mar 31, 2022 | 2021 Average Rate | Dec 31, 2021 |
In millions |
| Promissory notes and debentures: | | | | |
| Final maturity 2022 | 8.64 | % | $ | 121 | | 8.64 | % | $ | 121 | |
| Final maturity 2023 | 7.63 | % | 250 | | 7.63 | % | 250 | |
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| Final maturity 2025 | 5.63 | % | 333 | | 5.63 | % | 333 | |
| Final maturity 2026 | 3.63 | % | 750 | | 3.63 | % | 750 | |
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Final maturity 2028 and thereafter 1 | 5.15 | % | 9,363 | | 5.15 | % | 9,363 | |
| Other facilities: | | | | |
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| Foreign currency notes and loans, various rates and maturities | 1.17 | % | 2,667 | | 1.17 | % | 2,730 | |
| InterNotes®, varying maturities through 2052 | 3.36 | % | 406 | | 3.37 | % | 392 | |
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Finance lease obligations 2 | | 862 | | | 869 | |
| Unamortized debt discount and issuance costs | | (289) | | | (297) | |
Long-term debt due within one year 3 | | (355) | | | (231) | |
| Long-term debt | | $ | 14,108 | | | $ | 14,280 | |
1.Cost includes net fair value hedge adjustment gains of $47 million at March 31, 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.
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| Maturities of Long-Term Debt for Next Five Years at Mar 31, 2022 |
In millions |
| 2022 | $ | 207 | |
| 2023 | $ | 391 | |
| 2024 | $ | 81 | |
| 2025 | $ | 386 | |
| 2026 | $ | 829 | |
| 2027 | $ | 1,161 | |
2022 Activity
In the first three months of 2022, the Company issued an aggregate principal amount of $16 million of InterNotes®.
Available Credit Facilities
The following table summarizes the Company's credit facilities:
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| Committed and Available Credit Facilities at Mar 31, 2022 |
| In millions | Committed Credit | Available Credit | Maturity Date | Interest |
| Five Year Competitive Advance and Revolving Credit Facility | $ | 5,000 | | $ | 5,000 | | November 2026 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | June 2022 | Floating rate |
| Bilateral Revolving Credit Facility | 200 | | 200 | | September 2022 | Floating rate |
| Bilateral Revolving Credit Facility | 200 | | 200 | | November 2022 | Floating rate |
| Bilateral Revolving Credit Facility | 200 | | 200 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | 250 | | 250 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | 300 | | 300 | | September 2023 | Floating rate |
| Bilateral Revolving Credit Facility | 300 | | 300 | | December 2023 | Floating rate |
| Bilateral Revolving Credit Facility | 300 | | 300 | | December 2023 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | October 2024 | Floating rate |
| Bilateral Revolving Credit Facility | 200 | | 200 | | November 2024 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | 250 | | 250 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | 350 | | 350 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | March 2025 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | March 2026 | Floating rate |
| Bilateral Revolving Credit Facility | 100 | | 100 | | October 2026 | Floating rate |
| Bilateral Revolving Credit Facility | 150 | | 150 | | November 2026 | Floating rate |
| Total committed and available credit facilities | $ | 8,400 | | $ | 8,400 | | | |
Debt Covenants and Default Provisions
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 three 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 – COMMITMENTS 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 March 31, 2022, the Company had accrued obligations of $1,281 million for probable environmental remediation and restoration costs ($1,220 million at December 31, 2021), including $240 million for the remediation of Superfund sites ($237 million at December 31, 2021). This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately one and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company's results of operations, financial condition and cash flows. It is the opinion of the Company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Company’s results of operations, financial condition 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 March 31, 2022.
Union Carbide’s total asbestos-related liability for pending and future claims and defense and processing costs was $1,005 million at March 31, 2022 ($1,016 million at December 31, 2021). At March 31, 2022, approximately 26 percent of the recorded claim liability related to pending claims and approximately 74 percent related to future claims.
Dow Silicones Chapter 11 Related Matters
At March 31, 2022, Dow Silicones and its insurers have made life-to-date payments of $1,795 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 March 31, 2022, Dow Silicones estimates that it will be obligated to contribute an additional $127 million to the Settlement Facility ($130 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 $93 million at March 31, 2022 ($95 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 $645 million Canadian dollars, plus pre- and post-judgment interest, for which the Company received payment of $501 million U.S. dollars in July 2017. At March 31, 2022, the Company had $341 million ($341 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 $1.43 billion Canadian dollars (equivalent to approximately $1.08 billion U.S. dollars). In October 2019, Nova paid $1.08 billion Canadian dollars (equivalent to approximately $0.8 billion U.S. dollars) directly to the Company, and remitted $347 million Canadian dollars to the Canada Revenue Agency ("CRA") for the tax account of one of the Company's subsidiaries. In March 2020, the Company received the full refund from the CRA, equivalent to $259 million U.S. dollars. At March 31, 2022, $323 million ($323 million at December 31, 2021) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment.
Guarantees
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 | Mar 31, 2022 | Dec 31, 2021 |
| In millions | Final
Expiration | Maximum Future Payments 1 | Recorded Liability | Final
Expiration | Maximum Future Payments 1 | Recorded Liability |
| Guarantees | 2038 | $ | 1,377 | | $ | 216 | | 2038 | $ | 1,273 | | $ | 220 | |
1.In addition, TDCC has provided guarantees, in proportion to the Company's 35 percent ownership interest, of all future interest payments that will become due on Sadara’s project financing debt during the grace period, which Dow's share is estimated to be $496 million at March 31, 2022 ($446 million at December 31, 2021). Based on Sadara's current forecasted cash flows, the Company does not expect to be required to perform under the guarantees.
Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than 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. The total of an Islamic bond and additional project financing outstanding at Sadara was $9.6 billion at March 31, 2022 ($9.6 billion at December 31, 2021). Sadara reached an agreement with its lenders to re-profile its outstanding project financing debt in the first quarter of 2021. In conjunction with the debt re-profiling, TDCC entered into a guarantee of up to approximately $1.3 billion of Sadara’s debt, proportionate to the Company's 35 percent ownership interest. The debt re-profiling 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 35 percent ownership interest. As part of the debt re-profiling, Sadara established a $500 million revolving credit facility guaranteed by Dow, which would be used to fund Dow’s pro-rata share of any potential shortfall during the grace period. Based on Sadara's current forecasted cash flows, the Company does not expect Sadara to draw on the facility.
NOTE 13 - LEASES
For additional information on the Company's leases, see Note 17 to the Consolidated Financial Statements included in the 2021 10-K.
The components of lease cost for operating and finance leases for the three months ended March 31, 2022 and 2021 were as follows:
| | | | | | | | | | |
| Lease Cost | Three Months Ended | |
| In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| Operating lease cost | $ | 97 | | $ | 121 | | | |
| Finance lease cost | | | | |
| Amortization of right-of-use assets - finance | $ | 26 | | $ | 15 | | | |
| Interest on lease liabilities - finance | 8 | | 7 | | | |
| Total finance lease cost | $ | 34 | | $ | 22 | | | |
| Short-term lease cost | 59 | | 49 | | | |
| Variable lease cost | 115 | | 71 | | | |
| Sublease income | (3) | | (2) | | | |
| Total lease cost | $ | 302 | | $ | 261 | | | |
The following table provides supplemental cash flow and other information related to leases:
| | | | | | | | |
| Other Lease Information | Three Months Ended |
| In millions | Mar 31, 2022 | Mar 31, 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows for operating leases | $ | 101 | | $ | 127 | |
| Operating cash flows for finance leases | $ | 8 | | $ | 7 | |
| Financing cash flows for finance leases | $ | 22 | | $ | 11 | |
| Right-of-use assets obtained in exchange for lease obligations: | | |
| Operating leases | $ | 16 | | $ | 35 | |
| Finance leases | $ | 17 | | $ | 57 | |
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2022 and December 31, 2021:
| | | | | | | | | | | |
| Lease Position | Balance Sheet Classification | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Assets | | | |
| Operating lease assets | Operating lease right-of-use assets | $ | 1,339 | | $ | 1,412 | |
| Finance lease assets | Property | 1,174 | | 1,158 | |
| Finance lease amortization | Accumulated depreciation | (393) | | (368) | |
| Total lease assets | | $ | 2,120 | | $ | 2,202 | |
| Liabilities | | | |
| Current | | | |
| Operating | Operating lease liabilities - current | $ | 306 | | $ | 314 | |
| Finance | Long-term debt due within one year | 110 | | 106 | |
| Noncurrent | | | |
| Operating | Operating lease liabilities - noncurrent | 1,092 | | 1,149 | |
| Finance | Long-Term Debt | 752 | | 763 | |
| Total lease liabilities | | $ | 2,260 | | $ | 2,332 | |
The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at March 31, 2022 and December 31, 2021 are provided below:
| | | | | | | | |
| Lease Term and Discount Rate | Mar 31, 2022 | Dec 31, 2021 |
| Weighted-average remaining lease term | | |
| Operating leases | 7.8 years | 7.9 years |
| Finance leases | 11.5 years | 11.8 years |
| Weighted-average discount rate | | |
| Operating leases | 3.82 | % | 3.72 | % |
| Finance leases | 4.16 | % | 4.17 | % |
The following table provides the maturities of lease liabilities at March 31, 2022:
| | | | | | | | |
| Maturities of Lease Liabilities | Mar 31, 2022 |
| In millions | Operating Leases | Finance Leases |
| 2022 | $ | 267 | | $ | 108 | |
| 2023 | 286 | | 167 | |
| 2024 | 221 | | 106 | |
| 2025 | 179 | | 76 | |
| 2026 | 144 | | 70 | |
| 2027 and thereafter | 569 | | 556 | |
| Total future undiscounted lease payments | $ | 1,666 | | $ | 1,083 | |
| Less: Imputed interest | 268 | | 221 | |
| Total present value of lease liabilities | $ | 1,398 | | $ | 862 | |
At March 31, 2022, Dow had additional leases of approximately $97 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 16 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 March 31, 2022 and December 31, 2021. The lease agreements do not contain any material restrictive covenants.
| | | | | | | | | | | | | | | | | | | | |
| Lease Guarantees | Mar 31, 2022 | Dec 31, 2021 |
| In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability |
| Residual value guarantees | 2031 | $ | 275 | | $ | — | | 2031 | $ | 280 | | $ | — | |
NOTE 14 – STOCKHOLDERS' 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 $3 billion to be spent on the repurchase of the Company's common stock, with no expiration date. The Company repurchased $600 million of its common stock in the first quarter of 2022. At March 31, 2022, approximately $775 million of the 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.
Accumulated Other Comprehensive Loss
The changes in each component of accumulated other comprehensive loss ("AOCL") for the three months ended March 31, 2022 and 2021 were as follows:
| | | | | | | | | | |
| Accumulated Other Comprehensive Loss | | Three Months Ended |
| In millions | | | Mar 31, 2022 | Mar 31, 2021 |
| Unrealized Gains (Losses) on Investments | | | | |
| Beginning balance | | | $ | 59 | | $ | 104 | |
| Unrealized gains (losses) on investments | | | (121) | | (54) | |
| Tax (expense) benefit | | | 24 | | 11 | |
| Net unrealized gains (losses) on investments | | | (97) | | (43) | |
(Gains) losses reclassified from AOCL to net income 1 | | | 1 | | (8) | |
Tax expense (benefit) 2 | | | — | | 2 | |
| Net (gains) losses reclassified from AOCL to net income | | | 1 | | (6) | |
| Other comprehensive income (loss), net of tax | | | (96) | | (49) | |
| Ending balance | | | $ | (37) | | $ | 55 | |
| Cumulative Translation Adjustment | | | | |
| Beginning balance | | | $ | (1,355) | | $ | (930) | |
| Gains (losses) on foreign currency translation | | | (165) | | (217) | |
| Tax (expense) benefit | | | 13 | | (36) | |
| Net gains (losses) on foreign currency translation | | | (152) | | (253) | |
(Gains) losses reclassified from AOCL to net income 3 | | | (12) | | — | |
| Other comprehensive income (loss), net of tax | | | (164) | | (253) | |
| Ending balance | | | $ | (1,519) | | $ | (1,183) | |
| Pension and Other Postretirement Benefits | | | | |
| Beginning balance | | | $ | (7,334) | | $ | (9,559) | |
Gains (losses) arising during the period 4 | | | 2 | | 1,268 | |
| Tax (expense) benefit | | | — | | (298) | |
| Net gains (losses) arising during the period | | | 2 | | 970 | |
Amortization of net loss and prior service credits reclassified from AOCL to net income 5 | | | 157 | | 198 | |
Tax expense (benefit) 2 | | | (50) | | (34) | |
| Net loss and prior service credits reclassified from AOCL to net income | | | 107 | | 164 | |
| Other comprehensive income (loss), net of tax | | | 109 | | 1,134 | |
| Ending balance | | | $ | (7,225) | | $ | (8,425) | |
| Derivative Instruments | | | | |
| Beginning balance | | | $ | (347) | | $ | (470) | |
| Gains (losses) on derivative instruments | | | 420 | | 122 | |
| Tax (expense) benefit | | | (56) | | (9) | |
| Net gains (losses) on derivative instruments | | | 364 | | 113 | |
(Gains) losses reclassified from AOCL to net income 6 | | | (34) | | (3) | |
Tax expense (benefit) 2 | | | 2 | | — | |
| Net (gains) losses reclassified from AOCL to net income | | | (32) | | (3) | |
| Other comprehensive income (loss), net of tax | | | 332 | | 110 | |
| Ending balance | | | $ | (15) | | $ | (360) | |
| Total AOCL ending balance | | | $ | (8,796) | | $ | (9,913) | |
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."
NOTE 15 – NONCONTROLLING INTERESTS
Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income.
The following table summarizes the activity for equity attributable to noncontrolling interests for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | |
| Noncontrolling Interests | Three Months Ended | |
In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| Balance at beginning of period | $ | 574 | | $ | 570 | | | |
Net income (loss) attributable to noncontrolling interests 1 | (17) | | 15 | | | |
| | | | |
| Distributions to noncontrolling interests | (1) | | (8) | | | |
| | | | |
| | | | |
| | | | |
| Cumulative translation adjustments | (11) | | (16) | | | |
| Other | — | | (1) | | | |
| Balance at end of period | $ | 545 | | $ | 560 | | | |
1.The first quarter of 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.
NOTE 16 – PENSION 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 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 |
| In millions | | | Mar 31, 2022 | Mar 31, 2021 |
| Defined Benefit Pension Plans | | | | |
| Service cost | | | $ | 99 | | $ | 102 | |
| Interest cost | | | 171 | | 143 | |
| Expected return on plan assets | | | (424) | | (422) | |
| Amortization of prior service credit | | | (6) | | (5) | |
| Amortization of net loss | | | 167 | | 224 | |
| Curtailment gain | | | — | | (19) | |
| Net periodic benefit cost | | | $ | 7 | | $ | 23 | |
| | | | |
| Other Postretirement Benefit Plans | | | | |
| Service cost | | | $ | 1 | | $ | 2 | |
| Interest cost | | | 7 | | 6 | |
| Amortization of net gain | | | (4) | | (2) | |
| | | | |
| Net periodic benefit cost | | | $ | 4 | | $ | 6 | |
Net periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
NOTE 17 – STOCK-BASED COMPENSATION
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:
•1.2 million stock options with a weighted-average exercise price of $60.95 per share and a weighted-average fair value of $11.08 per share;
•1.7 million restricted stock units with a weighted-average fair value of $60.96 per share; and
•1.2 million performance stock units with a weighted-average fair value of $65.83 per share.
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 10 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 85 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 2.0 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.
NOTE 18 – FINANCIAL INSTRUMENTS
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.
The following table summarizes the fair value of financial instruments at March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments | Mar 31, 2022 | Dec 31, 2021 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Cash equivalents: | | | | | | | | |
Held-to-maturity securities 1 | $ | 377 | | $ | — | | $ | — | | $ | 377 | | $ | 317 | | $ | — | | $ | — | | $ | 317 | |
| Money market funds | 580 | | — | | — | | 580 | | 489 | | — | | — | | 489 | |
| Total cash equivalents | $ | 957 | | $ | — | | $ | — | | $ | 957 | | $ | 806 | | $ | — | | $ | — | | $ | 806 | |
Marketable securities 2 | $ | 238 | | $ | 4 | | $ | — | | $ | 242 | | $ | 237 | | $ | 8 | | $ | — | | $ | 245 | |
| Other investments: | | | | | | | | |
| Debt securities: | | | | | | | | |
Government debt 3 | $ | 734 | | $ | 5 | | $ | (64) | | $ | 675 | | $ | 746 | | $ | 17 | | $ | (28) | | $ | 735 | |
| Corporate bonds | 1,270 | | 51 | | (50) | | 1,271 | | 1,251 | | 93 | | (20) | | 1,324 | |
| Total debt securities | $ | 2,004 | | $ | 56 | | $ | (114) | | $ | 1,946 | | $ | 1,997 | | $ | 110 | | $ | (48) | | $ | 2,059 | |
Equity securities 4 | 5 | | 11 | | — | | 16 | | 7 | | 13 | | — | | 20 | |
Total other investments | $ | 2,009 | | $ | 67 | | $ | (114) | | $ | 1,962 | | $ | 2,004 | | $ | 123 | | $ | (48) | | $ | 2,079 | |
Total cash equivalents, marketable securities and other investments | $ | 3,204 | | $ | 71 | | $ | (114) | | $ | 3,161 | | $ | 3,047 | | $ | 131 | | $ | (48) | | $ | 3,130 | |
Long-term debt including debt due within one year 5 | $ | (14,463) | | $ | 567 | | $ | (1,424) | | $ | (15,320) | | $ | (14,511) | | $ | 27 | | $ | (2,641) | | $ | (17,125) | |
| Derivatives relating to: | | | | | | | | |
Interest rates 6 | $ | — | | $ | 27 | | $ | (13) | | $ | 14 | | $ | — | | $ | 1 | | $ | (140) | | $ | (139) | |
| Foreign currency | — | | 64 | | (64) | | — | | — | | 46 | | (18) | | 28 | |
Commodities 6 | — | | 331 | | (135) | | 196 | | — | | 142 | | (92) | | 50 | |
| Total derivatives | $ | — | | $ | 422 | | $ | (212) | | $ | 210 | | $ | — | | $ | 189 | | $ | (250) | | $ | (61) | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company’s investments in marketable securities are included in “Other current assets” in the consolidated balance sheets.
3.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities’ obligations.
4.Equity securities with a readily determinable fair value.
5.Cost includes fair value hedge adjustment gains of $47 million at March 31, 2022 and December 31, 2021 on $2,279 million of debt at March 31, 2022 and December 31, 2021.
6.Presented net of cash collateral where master netting arrangements allow.
Cost approximates fair value for all other financial instruments.
Debt Securities
The Company's investments in debt securities are primarily classified as available-for-sale. The following table provides the investing results from available-for-sale securities for the three months ended March 31, 2022 and 2021:
| | | | | | | | |
| Investing Results | Three Months Ended |
| In millions | Mar 31, 2022 | Mar 31, 2021 |
| Proceeds from sales of available-for-sale securities | $ | 113 | | $ | 187 | |
| Gross realized gains | $ | 12 | | $ | 13 | |
| Gross realized losses | $ | (13) | | $ | (5) | |
The following table summarizes the contractual maturities of the Company's investments in debt securities:
| | | | | | | | |
Contractual Maturities of Debt Securities at Mar 31, 2022 1 | Cost | Fair Value |
| In millions |
| Within one year | $ | 46 | | $ | 46 | |
| One to five years | 695 | | 701 | |
| Six to ten years | 730 | | 686 | |
| After ten years | 533 | | 513 | |
| Total | $ | 2,004 | | $ | 1,946 | |
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 March 31, 2022. There was $3 million of net unrealized losses recognized in earnings on equity securities for the three months ended March 31, 2022 (no unrealized gain or loss for the three months ended March 31, 2021).
| | | | | | | | |
| Investments in Equity Securities | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Readily determinable fair value | $ | 16 | | $ | 20 | |
| Not readily determinable fair value | $ | 208 | | $ | 209 | |
Derivative Instruments
The notional amounts of the Company's derivative instruments presented on a net basis at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | |
| Notional Amounts - Net | Mar 31, 2022 | Dec 31, 2021 |
| In millions |
| Derivatives designated as hedging instruments: | | |
| Interest rate contracts | $ | 3,000 | | $ | 3,000 | |
| Foreign currency contracts | $ | 6,502 | | $ | 5,300 | |
| Derivatives not designated as hedging instruments: | | |
| Interest rate contracts | $ | 7 | | $ | 36 | |
| Foreign currency contracts | $ | 13,492 | | $ | 8,234 | |
The notional amounts of the Company's commodity derivatives presented on a net basis at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| Commodity Notionals - Net | Mar 31, 2022 | Dec 31, 2021 | Notional Volume Unit |
| Derivatives designated as hedging instruments: | | | |
| Hydrocarbon derivatives | 8.5 | | 9.7 | | million barrels of oil equivalent |
| Derivatives not designated as hedging instruments: | | | |
| Hydrocarbon derivatives | 0.7 | | 0.1 | | million barrels of oil equivalent |
| Power derivatives | — | | 3.3 | | thousands of megawatt hours |
| | | | | |
| Maturity Dates of Derivatives Designated as Hedging Instruments | Year |
| Interest rate contracts | 2023 |
| Foreign currency contracts | 2023 |
| Commodity contracts | 2026 |
The following tables provide the fair value and balance sheet classification of derivative instruments at March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| Fair Value of Derivative Instruments | Mar 31, 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 | $ | 33 | | $ | (25) | | $ | 8 | |
| Interest rate contracts | Deferred charges and other assets | 237 | | (218) | | 19 | |
| Foreign currency contracts | Other current assets | 228 | | (171) | | 57 | |
| | | | |
| Commodity contracts | Other current assets | 507 | | (213) | | 294 | |
| Commodity contracts | Deferred charges and other assets | 19 | | — | | 19 | |
| Total | | $ | 1,024 | | $ | (627) | | $ | 397 | |
| Derivatives not designated as hedging instruments: | | | | |
| | | | |
| | | | |
| Foreign currency contracts | Other current assets | $ | 38 | | $ | (31) | | $ | 7 | |
| | | | |
| Commodity contracts | Other current assets | 53 | | (35) | | 18 | |
| | | | |
| Total | | $ | 91 | | $ | (66) | | $ | 25 | |
| Total asset derivatives | | $ | 1,115 | | $ | (693) | | $ | 422 | |
| | | | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 25 | | $ | (25) | | $ | — | |
| Interest rate contracts | Other noncurrent obligations | 219 | | (218) | | 1 | |
| Foreign currency contracts | Accrued and other current liabilities | 172 | | (171) | | 1 | |
| | | | |
| Commodity contracts | Accrued and other current liabilities | 330 | | (230) | | 100 | |
| | | | |
| Total | | $ | 746 | | $ | (644) | | $ | 102 | |
| Derivatives not designated as hedging instruments: | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 12 | | $ | — | | $ | 12 | |
| | | | |
| Foreign currency contracts | Accrued and other current liabilities | 94 | | (31) | | 63 | |
| | | | |
| Commodity contracts | Accrued and other current liabilities | 91 | | (56) | | 35 | |
| | | | |
| Total | | $ | 197 | | $ | (87) | | $ | 110 | |
| Total liability derivatives | | $ | 943 | | $ | (731) | | $ | 212 | |
1.Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
| | | | | | | | | | | | | | |
| Fair Value of Derivative Instruments | Dec 31, 2021 |
| In millions | Balance Sheet Classification | Gross | Counterparty and Cash Collateral Netting 1 | Net Amounts Included in the Consolidated Balance Sheets |
| Asset derivatives | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate contracts | Other current assets | $ | 14 | | $ | (14) | | $ | — | |
| Interest rate contracts | Deferred charges and other assets | 130 | | (130) | | — | |
| Foreign currency contracts | Other current assets | 24 | | (13) | | 11 | |
| Foreign currency contracts | Deferred charges and other assets | 117 | | (89) | | 28 | |
| Commodity contracts | Other current assets | 305 | | (173) | | 132 | |
| Commodity contracts | Deferred charges and other assets | 9 | | (2) | | 7 | |
| Total | | $ | 599 | | $ | (421) | | $ | 178 | |
| Derivatives not designated as hedging instruments: | | | | |
| Interest rate contracts | Other current assets | $ | 1 | | $ | — | | $ | 1 | |
| Foreign currency contracts | Other current assets | 23 | | (16) | | 7 | |
| Foreign currency contracts | Deferred charges and other assets | 1 | | (1) | | — | |
| Commodity contracts | Other current assets | 8 | | (5) | | 3 | |
| | | | |
| Total | | $ | 33 | | $ | (22) | | $ | 11 | |
| Total asset derivatives | | $ | 632 | | $ | (443) | | $ | 189 | |
| | | | |
| Liability derivatives | | | | |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 33 | | $ | (14) | | $ | 19 | |
| Interest rate contracts | Other noncurrent obligations | 192 | | (130) | | 62 | |
| Foreign currency contracts | Accrued and other current liabilities | 15 | | (13) | | 2 | |
| Foreign currency contracts | Other noncurrent obligations | 90 | | (89) | | 1 | |
| Commodity contracts | Accrued and other current liabilities | 267 | | (192) | | 75 | |
| Commodity contracts | Other noncurrent obligations | 2 | | (2) | | — | |
| Total | | $ | 599 | | $ | (440) | | $ | 159 | |
| Derivatives not designated as hedging instruments: | | | | |
| Interest rate contracts | Accrued and other current liabilities | $ | 59 | | $ | — | | $ | 59 | |
| | | | |
| Foreign currency contracts | Accrued and other current liabilities | 31 | | (16) | | 15 | |
| Foreign currency contracts | Other noncurrent obligations | 1 | | (1) | | — | |
| Commodity contracts | Accrued and other current liabilities | 25 | | (8) | | 17 | |
| Total | | $ | 116 | | $ | (25) | | $ | 91 | |
| Total liability derivatives | | $ | 715 | | $ | (465) | | $ | 250 | |
1.Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are netted with corresponding assets or liabilities, when applicable. The Company posted cash collateral of $54 million at March 31, 2022 ($71 million at December 31, 2021). Cash collateral of $1 million was posted by counterparties with the Company at March 31, 2022 (zero at December 31, 2021).
The following table summarizes the gain (loss) of derivative instruments in the consolidated statements of income and comprehensive income for the three months ended March 31, 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 | Mar 31, 2022 | Mar 31, 2021 | Mar 31, 2022 | Mar 31, 2021 |
Derivatives designated as hedging
instruments: | | | | | |
| Fair value hedges: | | | | | |
| Interest rate contracts | $ | — | | $ | — | | $ | — | | $ | (25) | | Interest expense and amortization of debt discount 3 |
Excluded components 4 | — | | 2 | | — | | — | | Interest expense and amortization of debt discount |
| Cash flow hedges: | | | | | |
| Interest rate contracts | 99 | | — | | (3) | | (3) | | Interest expense and amortization of debt discount |
| Foreign currency contracts | 2 | | 5 | | 3 | | (8) | | Cost of sales |
| | | | | |
| Commodity contracts | 207 | | 65 | | 34 | | 13 | | Cost of sales |
| Net foreign investment hedges: | | | | | |
| Foreign currency contracts | (2) | | 10 | | — | | — | | |
Excluded components 4 | 29 | | 5 | | 12 | | 1 | | Sundry income (expense) - net |
| Total derivatives designated as hedging instruments | $ | 335 | | $ | 87 | | $ | 46 | | $ | (22) | | |
| Derivatives not designated as hedging instruments: | | | | | |
| Interest rate contracts | $ | — | | $ | — | | $ | (1) | | $ | (2) | | Interest expense and amortization of debt discount |
| Foreign currency contracts | — | | — | | (85) | | (113) | | Sundry income (expense) - net |
| Commodity contracts | — | | — | | 22 | | (30) | | Cost of sales |
Total derivatives not designated as
hedging instruments | $ | — | | $ | — | | $ | (64) | | $ | (145) | | |
| Total derivatives | $ | 335 | | $ | 87 | | $ | (18) | | $ | (167) | | |
1.OCI is defined as other comprehensive income (loss).
2.Pretax amounts.
3.Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of hedged item.
4.The excluded components are related to the time value of the derivatives designated as hedges.
The following table provides the net after-tax gains and (losses) expected to be reclassified from AOCL to income within the next 12 months:
| | | | | |
| Expected Reclassifications from AOCL within the next 12 months | Mar 31, 2022 |
| In millions |
| Cash flow hedges: | |
| Interest rate contracts | $ | (8) | |
| Commodity contracts | $ | (217) | |
| Foreign currency contracts | $ | 8 | |
| Net foreign investment hedges: | |
| Excluded components | $ | 40 | |
NOTE 19 – FAIR VALUE MEASUREMENTS
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
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 | Mar 31, 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 | $ | — | | $ | 377 | | $ | — | | $ | 377 | | $ | — | | $ | 317 | | $ | — | | $ | 317 | |
| Money market funds | — | | 580 | | — | | 580 | | — | | 489 | | — | | 489 | |
Marketable securities 2 | — | | 242 | | — | | 242 | | — | | 245 | | — | | 245 | |
Equity securities 3 | 16 | | — | | — | | 16 | | 20 | | — | | — | | 20 | |
Debt securities: 3 | | | | | | | | |
Government debt 4 | — | | 675 | | — | | 675 | | — | | 735 | | — | | 735 | |
| Corporate bonds | 37 | | 1,234 | | — | | 1,271 | | 44 | | 1,280 | | — | | 1,324 | |
Derivatives relating to: 5 | | | | | | | | |
| Interest rates | — | | 270 | | — | | 270 | | — | | 145 | | — | | 145 | |
| Foreign currency | — | | 266 | | — | | 266 | | — | | 165 | | — | | 165 | |
| Commodities | 13 | | 566 | | — | | 579 | | 15 | | 307 | | — | | 322 | |
| Total assets at fair value | $ | 66 | | $ | 4,210 | | $ | — | | $ | 4,276 | | $ | 79 | | $ | 3,683 | | $ | — | | $ | 3,762 | |
| Liabilities at fair value: | | | | | | | | |
Long-term debt including debt due within one year 6 | $ | — | | $ | 15,320 | | $ | — | | $ | 15,320 | | $ | — | | $ | 17,125 | | $ | — | | $ | 17,125 | |
Guarantee liability 7 | — | | — | | 215 | | 215 | | — | | — | | 220 | | 220 | |
Derivatives relating to: 5 | | | | | | | | |
| Interest rates | — | | 256 | | — | | 256 | | — | | 284 | | — | | 284 | |
| Foreign currency | — | | 266 | | — | | 266 | | — | | 137 | | — | | 137 | |
| Commodities | 45 | | 376 | | — | | 421 | | 37 | | 257 | | — | | 294 | |
| Total liabilities at fair value | $ | 45 | | $ | 16,218 | | $ | 215 | | $ | 16,478 | | $ | 37 | | $ | 17,803 | | $ | 220 | | $ | 18,060 | |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company’s investments in marketable securities are included in “Other current assets” in the consolidated balance sheets.
3.The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets.
4.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities’ obligations.
5.See Note 18 for the classification of derivatives in the consolidated balance sheets.
6.See Note 18 for information on fair value measurements of long-term debt.
7.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 $138 million in private market securities and $24 million in real estate at March 31, 2022 ($106 million in private market securities and $22 million in real estate at December 31, 2021). There are no redemption restrictions and the unfunded commitments on these investments were $59 million at March 31, 2022 and December 31, 2021.
For liabilities classified as Level 3 measurements, the fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The fair value of the Company’s 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 – VARIABLE 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 (loss) attributable to noncontrolling interests” in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.
The following table summarizes the carrying amounts of these entities' assets and liabilities included in the Company’s consolidated balance sheets at March 31, 2022 and December 31, 2021:
| | | | | | | | |
| Assets and Liabilities of Consolidated VIEs | Mar 31, 2022 | Dec 31, 2021 |
In millions |
| Cash and cash equivalents | $ | 48 | | $ | 40 | |
| Other current assets | 38 | | 40 | |
| Net property | 181 | | 184 | |
| Other noncurrent assets | 15 | | 15 | |
Total assets 1 | $ | 282 | | $ | 279 | |
| Current liabilities | $ | 34 | | $ | 37 | |
| Long-term debt | 2 | | 3 | |
| Other noncurrent obligations | 13 | | 13 | |
Total liabilities 2 | $ | 49 | | $ | 53 | |
1.All assets were restricted at March 31, 2022 and December 31, 2021.
2.All liabilities were nonrecourse at March 31, 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 March 31, 2022 and December 31, 2021 are adjusted for intercompany eliminations.
Nonconsolidated VIEs
The following table summarizes the carrying amounts of assets included in the consolidated balance sheets at March 31, 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 | | Mar 31, 2022 | Dec 31, 2021 |
| In millions | Description of asset |
| Silicon joint ventures | Equity method investments 1 | $ | 113 | | $ | 110 | |
1.Included in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
NOTE 21 – RELATED PARTY TRANSACTIONS
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. The following table summarizes cash dividends TDCC declared and paid to Dow Inc. for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | |
| TDCC Cash Dividends Declared and Paid | Three Months Ended | |
| Mar 31, 2022 | Mar 31, 2021 | | |
| In millions |
| Cash dividends declared and paid | $ | 1,121 | | $ | 703 | | | |
At March 31, 2022 and December 31, 2021, TDCC's outstanding intercompany loan balance with Dow Inc. was insignificant.
NOTE 22 – SEGMENTS AND GEOGRAPHIC REGIONS
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.
| | | | | | | | | | | | | | | | | |
| Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total |
| In millions |
| Three months ended Mar 31, 2022 | | | | | |
| Net sales | $ | 7,627 | | $ | 4,524 | | $ | 3,049 | | $ | 64 | | $ | 15,264 | |
| Equity in earnings (losses) of nonconsolidated affiliates | $ | 110 | | $ | 62 | | $ | 3 | | $ | (1) | | $ | 174 | |
Dow Inc. Operating EBIT 1 | $ | 1,234 | | $ | 661 | | $ | 595 | | $ | (71) | | $ | 2,419 | |
| | | | | |
| Three months ended Mar 31, 2021 | | | | | |
| Net sales | $ | 6,082 | | $ | 3,607 | | $ | 2,123 | | $ | 70 | | $ | 11,882 | |
| Equity in earnings of nonconsolidated affiliates | $ | 106 | | $ | 115 | | $ | 2 | | $ | 1 | | $ | 224 | |
Dow Inc. Operating EBIT 1 | $ | 1,228 | | $ | 326 | | $ | 62 | | $ | (62) | | $ | 1,554 | |
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1.Operating EBIT for TDCC for the three months ended March 31, 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.
| | | | | | | | | | |
| Reconciliation of "Net income" to Operating EBIT | Three Months Ended | |
| In millions | Mar 31, 2022 | Mar 31, 2021 | | |
| Net income | $ | 1,552 | | $ | 1,006 | | | |
| + Provision for income taxes | 503 | | 317 | | | |
| Income before income taxes | $ | 2,055 | | $ | 1,323 | | | |
| - Interest income | 28 | | 8 | | | |
| + Interest expense and amortization of debt discount | 167 | | 196 | | | |
| - Significant items | (225) | | (43) | | | |
| Operating EBIT | $ | 2,419 | | $ | 1,554 | | | |
The following tables summarize the pretax impact of significant items by segment excluded from Operating EBIT:
| | | | | | | | | | | | | | | | | | | | | | |
| Significant Items by Segment | | Three Months Ended Mar 31, 2022 |
| | | | | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Mat. & Coatings | Corp. | Total |
| In millions |
| | | | | | | | | | |
| | | | | | | | | | |
Digitalization program costs 1 | | | | | | $ | — | | $ | — | | $ | — | | $ | (41) | | $ | (41) | |
Restructuring, implementation costs and asset related charges - net 2 | | | | | | — | | — | | — | | (10) | | (10) | |
Russia / Ukraine conflict charges 3 | | | | | | (31) | | (109) | | (16) | | (30) | | (186) | |
Indemnification and other transaction related costs 4 | | | | | | — | | — | | — | | 12 | | 12 | |
| Total | | | | | | $ | (31) | | $ | (109) | | $ | (16) | | $ | (69) | | $ | (225) | |
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.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.
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| Significant Items by Segment | | Three Months Ended Mar 31, 2021 |
| | | | | | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Mat. & Coatings | Corp. | Total |
| In millions |
Digitalization program costs 1 | | | | | | $ | — | | $ | — | | $ | — | | $ | (33) | | $ | (33) | |
Restructuring, implementation costs and asset related charges - net 2 | | | | | | — | | — | | — | | (10) | | (10) | |
| Total | | | | | | $ | — | | $ | — | | $ | — | | $ | (43) | | $ | (43) | |
1.Includes costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program.