NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
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23
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NOTE
1
– CONSOLIDATED FINANCIAL STATEMENTS
Merger and Separation
On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") completed the separation of its materials science business and Dow Inc. became the direct parent company of The Dow Chemical Company and its consolidated subsidiaries (“TDCC” and together with Dow Inc., “Dow” or the “Company”). The separation was contemplated by the merger of equals transaction effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries (“Historical DuPont”) each merged with subsidiaries of DowDuPont and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business. See Note
3
for additional information.
Basis of Presentation
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 TDCC's Annual Report on Form 10-K for the year ended
December 31, 2018
.
Effective April 1, 2019, Dow Inc. owns all of the outstanding common shares of TDCC. TDCC is deemed the predecessor to Dow Inc. and the historical results of TDCC are deemed the historical results of Dow Inc. for periods prior to and including March 31, 2019. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and the expectation that the financial statements and disclosures of each company will be 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.
As of the effective date and time of the distribution, DowDuPont does not beneficially own any equity interest in Dow and no longer consolidates Dow and its consolidated subsidiaries into its financial results. The consolidated financial results of Dow for all periods presented reflect the distribution of TDCC’s agricultural sciences business (“AgCo”) and specialty products business (“SpecCo”) as discontinued operations, as well as the receipt of Historical DuPont’s ethylene and ethylene copolymers businesses (other than its ethylene acrylic elastomers business) (“ECP”) as a common control transaction from the closing of the Merger on August 31, 2017. See Note
3
and Dow Inc.'s Amendment No. 4 to the Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission ("SEC") on March 8, 2019 for additional information.
Effective with the Merger, the Company's business activities were components of DowDuPont's business operations and therefore, were reported as a single operating segment. Following the separation from DowDuPont, the Company changed the manner in which its business activities were managed. The Company's portfolio now includes six global businesses which are organized into the following operating segments: Performance Materials & Coatings, Industrial Intermediates & Infrastructure and Packaging & Specialty Plastics. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. See Note
23
for additional information.
From the Merger date through the separation, transactions between DowDuPont, TDCC and Historical DuPont and their affiliates were treated as related party transactions. Transactions between TDCC and Historical DuPont primarily consisted of the sale and procurement of certain raw materials that were consumed in each company's manufacturing process. Transactions between TDCC and Dow Inc. are treated as related party transactions for TDCC. See Note
22
for additional information.
Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation and "Dow Silicones" means Dow Silicones Corporation, both wholly owned subsidiaries of the Company.
Adoption of Accounting Standards
2019
In the first quarter of 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)," and associated ASUs (collectively, "Topic 842"). See Notes
2
and
14
for additional information. The Company added a significant accounting policy for leases as a result of the adoption of Topic 842:
Leases
The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.
Operating lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate (“IBR”) in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all classes of leased assets for which the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability.
Additionally, the Company's consolidated balance sheet reflects the impact of the adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" and the associated ASUs (collectively, "Topic 606") at January 1, 2019, by certain nonconsolidated affiliates of the Company, which were subsequently distributed as part of the separation. The impact to the Company's investment was a reduction to "Investment in nonconsolidated affiliates" of
$71 million
and an increase to "Other noncurrent obligations" of
$168 million
, as well as an increase to "Deferred income tax assets" of
$56 million
and a reduction to "Retained earnings" of
$183 million
in the consolidated balance sheets at January 1, 2019.
2018
In the first quarter of 2018, the Company adopted Topic 606, ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." The adoption of these ASUs resulted in a net decrease of
$68 million
to retained earnings and a decrease of
$20 million
to accumulated other comprehensive loss ("AOCL") in the consolidated statements of equity at January 1, 2018. In the second quarter of 2018, the Company early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")." The adoption of this standard resulted in a
$1,057 million
increase to retained earnings due to the reclassification from AOCL in the consolidated statements of equity at April 1, 2018.
Dividends
Effective with the Merger, TDCC no longer had publicly traded common stock. TDCC's common shares were owned solely by its parent company, DowDuPont, prior to separation and TDCC’s Board of Directors determined whether or not there would be a dividend distribution to DowDuPont. See Note
22
for additional information.
NOTE
2
– RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In the first quarter of 2019, the Company adopted ASU 2016-02, "Leases (Topic 842)," and associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from legacy U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance in Topic 606, issued in 2014. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption was permitted.
The Company adopted Topic 842 using the modified retrospective transition approach, applying the new standard to leases existing at the date of initial adoption. The Company elected to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods were not restated. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions, lease classification and initial direct lease costs. The Company did not elect to use the hindsight practical expedient in determining the lease term or assessing impairment of ROU assets. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of
$2.3 billion
at January 1, 2019. The net impact to retained earnings was an increase of
$72 million
and was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction. The adoption of the new guidance did not have a material impact on Dow's consolidated statements of income and had no impact on cash flows. See Note
14
for additional information.
Accounting Guidance Issued But Not Adopted at
June 30, 2019
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate
the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance.
NOTE
3
– SEPARATION FROM DOWDUPONT
On April 1, 2019, DowDuPont completed the previously announced separation of its materials science business. The separation was effected by way of a pro rata distribution of all of the then-issued and outstanding shares of Dow Inc. common stock to DowDuPont stockholders of record as of the close of business, Eastern Time, on March 21, 2019 (the “Record Date”). The shareholders of record of DowDuPont received one share of Dow Inc. common stock, par value
$0.01
per share, for every three shares of DowDuPont common stock, par value
$0.01
per share, held as of the Record Date ("Distribution Ratio"). No fractional shares of Dow Inc. common stock were issued. Instead, cash in lieu of any fractional shares was paid to DowDuPont registered shareholders. The number of shares of Dow Inc. common stock issued on April 1, 2019 was
748.8 million
shares. Dow Inc. is now an independent, publicly traded company and Dow Inc. common stock is listed on the NYSE under the symbol “DOW.” Dow Inc. common stock began regular-way trading on April 2, 2019, the first day following the distribution.
On April 1, 2019, Dow Inc. received a cash contribution of
$2,024 million
from DowDuPont as part of the internal reorganization and business realignment steps between Dow Inc., TDCC and DowDuPont. Dow Inc. recognized a reduction to "Retained earnings" of
$14,846 million
in the second quarter of 2019 as a result of the cash contribution, the distribution of AgCo and SpecCo, and other separation related adjustments. TDCC recognized a reduction to "Retained earnings" of
$16,025 million
in the second quarter of 2019 as a result of the distribution of AgCo and SpecCo.
Receipt of ECP
As the receipt of ECP was accounted for as a transfer between entities under common control, the consolidated financial statements have been retrospectively adjusted to reflect the receipt of ECP from the closing of the Merger on August 31, 2017. All intercompany transactions have been eliminated in consolidation. The ECP assets received and liabilities assumed were recorded at DowDuPont's historical cost basis as reflected in the following table:
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ECP Assets Received and Liabilities Assumed on Aug 31, 2017
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Carrying value
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In millions
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Cash and cash equivalents
|
$
|
1
|
|
|
Accounts and notes receivable - Trade
|
169
|
|
|
Accounts and notes receivable - Other
|
32
|
|
|
Inventories
|
529
|
|
|
Other current assets
|
6
|
|
|
Investment in nonconsolidated affiliates
|
116
|
|
|
Net property
|
817
|
|
|
Goodwill
|
3,617
|
|
|
Other intangible assets
|
1,484
|
|
|
Deferred income tax assets
|
9
|
|
|
Total Assets
|
$
|
6,780
|
|
|
Accounts payable - Trade
|
102
|
|
|
Accounts payable - Other
|
29
|
|
|
Accrued and other current liabilities
|
31
|
|
|
Deferred income tax liabilities
|
683
|
|
|
Pension and other postretirement benefits - noncurrent
|
6
|
|
|
Other noncurrent obligations
|
3
|
|
|
Total Liabilities
|
$
|
854
|
|
|
Net Assets (impact to "Retained earnings")
|
$
|
5,926
|
|
Distribution of AgCo and SpecCo
Upon distribution, the Company retrospectively adjusted the previously issued consolidated financial statements and presented AgCo and SpecCo as discontinued operations based on the guidance in Accounting Standards Codification (“ASC”) 205-20 “Discontinued Operations.” The results of operations of AgCo and SpecCo are presented as discontinued operations in the consolidated statements of income and are summarized in the table that follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations of AgCo and SpecCo
|
Three Months Ended
|
Six Months Ended
|
|
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
In millions
|
|
Net sales
|
$
|
3,397
|
|
$
|
2,953
|
|
$
|
6,456
|
|
|
Cost of sales
|
2,123
|
|
1,804
|
|
3,948
|
|
|
Research and development expenses
|
193
|
|
175
|
|
376
|
|
|
Selling, general and administrative expenses
|
272
|
|
262
|
|
555
|
|
|
Amortization of intangibles
|
63
|
|
61
|
|
127
|
|
|
Restructuring and asset related charges - net
|
56
|
|
78
|
|
138
|
|
|
Equity in earnings of nonconsolidated affiliates
|
41
|
|
28
|
|
83
|
|
|
Sundry income (expense) - net
|
1
|
|
(18
|
)
|
5
|
|
|
Interest income
|
3
|
|
3
|
|
11
|
|
|
Interest expense and amortization of debt discount
|
12
|
|
7
|
|
21
|
|
|
Income from discontinued operations before income taxes
|
$
|
723
|
|
$
|
579
|
|
$
|
1,390
|
|
|
Provision for income taxes
|
169
|
|
134
|
|
322
|
|
|
Income from discontinued operations, net of tax
|
$
|
554
|
|
$
|
445
|
|
$
|
1,068
|
|
The carrying amount of major classes of assets and liabilities related to the distribution of AgCo and SpecCo consisted of the following:
|
|
|
|
|
|
|
|
Carrying Values of AgCo and SpecCo
1
|
Dec 31, 2018
|
|
In millions
|
|
Accounts and notes receivable - Trade
|
$
|
2,768
|
|
|
Accounts and notes receivable - Other
|
773
|
|
|
Inventories
|
2,826
|
|
|
Other current assets
|
151
|
|
|
Investment in nonconsolidated affiliates
|
612
|
|
|
Other investments
|
2
|
|
|
Noncurrent receivables
|
35
|
|
|
Net property
|
3,014
|
|
|
Goodwill
|
7,590
|
|
|
Other intangible assets
|
1,830
|
|
|
Deferred income tax assets
|
239
|
|
|
Deferred charges and other assets
|
60
|
|
|
Total assets of discontinued operations
|
$
|
19,900
|
|
|
Notes payable
|
7
|
|
|
Long-term debt due within one year
|
4
|
|
|
Accounts payable - Trade
|
1,118
|
|
|
Accounts payable - Other
|
868
|
|
|
Income taxes payable
|
234
|
|
|
Accrued and other current liabilities
|
716
|
|
|
Long-Term Debt
|
5
|
|
|
Deferred income tax liabilities
|
568
|
|
|
Pension and other postretirement benefits - noncurrent
|
306
|
|
|
Other noncurrent obligations
|
662
|
|
|
Total liabilities of discontinued operations
|
$
|
4,488
|
|
|
|
|
|
1.
|
Includes assets and liabilities of consolidated variable interest entities related to discontinued operations.
|
Separation and Distribution, Tax Matters and Other Agreements
In connection with the separation, Dow Inc. entered into certain agreements with DuPont and/or Corteva, Inc. ("Corteva"), including the following: Separation and Distribution Agreement, Tax Matters Agreement and Employee Matters Agreement (collectively, the "Agreements"). In addition to establishing the terms of the separation, the Agreements provide a framework for Dow’s interaction with DuPont and Corteva after the separation and also provide for the allocation among Dow, DuPont and Corteva of assets, liabilities and obligations attributable to periods prior to, at and after the completion of the separation. The Agreements also contain certain indemnity and/or cross-indemnity provisions that are intended to set forth each party’s respective rights, responsibilities and obligations for matters subject to indemnification. Except in certain instances, the parties’ indemnification obligations are uncapped. Certain indemnification obligations will be subject to reduction by insurance proceeds or other third-party proceeds of the indemnified party that reduces the amount of the loss. In addition, indemnifiable losses will be subject to, in certain cases, “de minimis” threshold amounts and, in certain cases, deductible amounts.
The impacts of indemnifications and other post-separation matters relating to the Agreements were primarily reflected in the consolidated financial statements of Dow Inc. In the second quarter of 2019, the Company recorded pretax charges related to the Agreements of
$24 million
in "Integration and separation costs" and
$52 million
in "Sundry income (expense) - net" in the consolidated statements of income of Dow Inc. and related to the Corporate segment. At June 30, 2019, the Company had assets of
$167 million
included in "Other current assets" and liabilities of
$471 million
included in "Accrued and other current liabilities" and
$158 million
included in"Other noncurrent obligations" in the consolidated balance sheets of Dow Inc. related to the Agreements. Any adjustments to these assets and liabilities in subsequent periods will be recorded in Dow Inc.'s results of operations. In addition, the Company deferred approximately
$400 million
of the cash distribution received from DowDuPont at separation and recorded an associated liability in "Other noncurrent obligations," with an offset to "Retained earnings" in the consolidated balance sheets of Dow Inc. The final resolution of this liability is uncertain and any subsequent adjustments to the carrying value of this liability will be reflected in equity of Dow Inc. In the second quarter of 2019, Dow Inc. made cash payments of
$93 million
related to the Agreements, recorded in "Cash flows from operating activities - discontinued operations" in the Dow Inc. consolidated statements of cash flows. The Company also received
$25 million
related to the Agreements, recorded in "Other assets and liabilities, net" within "Cash flows from operating activities - continuing operations" in the Dow Inc. consolidated statements of cash flows.
Continuing Involvement
In addition, the Company has certain product and service agreements with DuPont and Corteva that were considered intercompany transactions prior to the separation, but are trade transactions subsequent to the separation. These transactions have been retrospectively reclassified as trade transactions in the consolidated financial statements. Based on the Company’s assessment of the specific factors identified in ASC Topic 205, “Presentation of Financial Statements,” the Company concluded that these agreements do not constitute significant continuing involvement in AgCo or SpecCo.
Integration and Separation Costs
Integration and separation costs, which reflect costs related to post-Merger integration and business separation activities, as well as the ownership restructure of Dow Silicones (through May 31, 2018), were
$348 million
and
$324 million
for Dow Inc. and TDCC, respectively, in the
second
quarter of
2019
, compared with
$262 million
in the
second
quarter of
2018
. Integration and separation costs were
$800 million
and
$776 million
for Dow Inc. and TDCC, respectively, in the first
six
months of
2019
compared with
$486 million
in the first
six
months of
2018
. Integration and separation costs related to post-Merger integration and business separation activities are expected to decline through the remainder of 2019.
NOTE
4
– REVENUE
Revenue Recognition
The majority of Dow's revenue is derived from product sales. In the three and six months ended
June 30, 2019
,
98
percent of Dow's revenue related to product sales (
99
percent for the three and six months ended
June 30, 2018
), with the remaining balance primarily related to the Company's insurance operations and licensing of patents and technologies. Product sales consist of sales of Dow's products to manufacturers and distributors and considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. Dow enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from Dow’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, 2019
, Dow had unfulfilled performance obligations of
$652 million
(
$407 million
at December 31, 2018) related to the licensing of technology. Dow expects revenue to be recognized for the remaining performance obligations over the next one to six 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 Dow has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. Dow 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
22
years. Dow 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 Dow's consolidated balance sheets.
Disaggregation of Revenue
Dow disaggregates its revenue from contracts with customers by segment and business, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Trade Sales by Segment and Business
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Coatings & Performance Monomers
|
$
|
947
|
|
$
|
1,098
|
|
$
|
1,849
|
|
$
|
2,053
|
|
|
Consumer Solutions
|
1,409
|
|
1,526
|
|
2,789
|
|
2,898
|
|
|
Performance Materials & Coatings
|
$
|
2,356
|
|
$
|
2,624
|
|
$
|
4,638
|
|
$
|
4,951
|
|
|
Industrial Solutions
|
$
|
1,070
|
|
$
|
1,214
|
|
$
|
2,197
|
|
$
|
2,389
|
|
|
Polyurethanes & Construction Chemicals
|
2,269
|
|
2,752
|
|
4,619
|
|
5,371
|
|
|
Other
|
3
|
|
3
|
|
6
|
|
7
|
|
|
Industrial Intermediates & Infrastructure
|
$
|
3,342
|
|
$
|
3,969
|
|
$
|
6,822
|
|
$
|
7,767
|
|
|
Hydrocarbons & Energy
|
$
|
1,349
|
|
$
|
1,879
|
|
$
|
2,753
|
|
$
|
3,707
|
|
|
Packaging and Specialty Plastics
|
3,856
|
|
4,245
|
|
7,590
|
|
8,455
|
|
|
Packaging & Specialty Plastics
|
$
|
5,205
|
|
$
|
6,124
|
|
$
|
10,343
|
|
$
|
12,162
|
|
|
Corporate
|
$
|
111
|
|
$
|
72
|
|
$
|
180
|
|
$
|
146
|
|
|
Total
|
$
|
11,014
|
|
$
|
12,789
|
|
$
|
21,983
|
|
$
|
25,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Trade Sales by Geographic Region
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
U.S. & Canada
|
$
|
4,072
|
|
$
|
4,551
|
|
$
|
8,005
|
|
$
|
8,993
|
|
|
EMEAI
1
|
3,725
|
|
4,473
|
|
7,607
|
|
8,871
|
|
|
Asia Pacific
|
2,170
|
|
2,480
|
|
4,271
|
|
4,668
|
|
|
Latin America
|
1,047
|
|
1,285
|
|
2,100
|
|
2,494
|
|
|
Total
|
$
|
11,014
|
|
$
|
12,789
|
|
$
|
21,983
|
|
$
|
25,026
|
|
1. Europe, Middle East, Africa and India.
Contract Assets and Liabilities
Dow 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 Dow'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 realized when the associated revenue is recognized under the contract. "Contract liabilities - current" primarily reflects deferred revenue from prepayments from customers for product to be delivered in 12 months or less. "Contract liabilities - noncurrent" includes advance payments that Dow has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract.
The increase in contract liabilities from
December 31, 2018
to
June 30, 2019
was due to advanced payments from a customer related to long-term product supply agreements. Revenue recognized in the first six months of 2019 from amounts included in contract liabilities at the beginning of the period was approximately
$110 million
(approximately
$105 million
in the first six months of 2018). In the first six months of 2019, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was
$15 million
(insignificant in the first six months of 2018).
The following table summarizes the contract balances at June 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Contract Assets and Liabilities
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Accounts and notes receivable - Trade
|
$
|
5,661
|
|
$
|
5,646
|
|
|
Contract assets - current
1
|
$
|
34
|
|
$
|
19
|
|
|
Contract assets - noncurrent
2
|
$
|
2
|
|
$
|
1
|
|
|
Contract liabilities - current
3
|
$
|
205
|
|
$
|
134
|
|
|
Contract liabilities - noncurrent
4
|
$
|
1,648
|
|
$
|
1,318
|
|
|
|
|
|
1.
|
Included in "Other current assets" in the consolidated balance sheets.
|
|
|
|
|
2.
|
Included in "Deferred charges and other assets" in the consolidated balance sheets.
|
|
|
|
|
3.
|
Included in "Accrued and other current liabilities" in the consolidated balance sheets.
|
|
|
|
|
4.
|
Included in "Other noncurrent obligations" in the consolidated balance sheets.
|
NOTE
5
– RESTRUCTURING AND ASSET RELATED CHARGES - NET
Charges for restructuring programs and other asset related charges, which includes other asset impairments, were
$65 million
for the three months ended June 30, 2019 (
$40 million
for the three months ended June 30, 2018) and
$221 million
for the six months ended June 30, 2019 (
$127 million
for the six months ended June 30, 2018). These charges were recorded in "Restructuring and asset related charges - net" in the consolidated statements of income. Further details on these charges are as follows.
Restructuring Plans
DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the "Synergy Program") which was designed to integrate and optimize the organization following the Merger and in preparation for the business separations. The following table summarizes the activities related to the Synergy Program, which are reflected on a continuing operations basis. The Company expects actions related to the Synergy Program to be substantially complete by the end of 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DowDuPont Synergy Program
|
Severance and Related Benefit Costs
|
Asset Write-downs and Write-offs
|
Costs Associated with Exit and Disposal Activities
|
Total
|
|
In millions
|
|
Reserve balance at Dec 31, 2017
|
$
|
270
|
|
$
|
—
|
|
$
|
5
|
|
$
|
275
|
|
|
Industrial Intermediates & Infrastructure
|
$
|
—
|
|
$
|
—
|
|
$
|
11
|
|
$
|
11
|
|
|
Packaging & Specialty Plastics
|
—
|
|
—
|
|
3
|
|
3
|
|
|
Corporate
|
68
|
|
3
|
|
—
|
|
71
|
|
|
Total restructuring charges
|
$
|
68
|
|
$
|
3
|
|
$
|
14
|
|
$
|
85
|
|
|
Charges against the reserve
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
|
Cash payments
|
(48
|
)
|
—
|
|
(3
|
)
|
(51
|
)
|
|
Reserve balance at Mar 31, 2018
|
$
|
290
|
|
$
|
—
|
|
$
|
16
|
|
$
|
306
|
|
|
Corporate
|
$
|
17
|
|
$
|
13
|
|
$
|
—
|
|
$
|
30
|
|
|
Total restructuring charges
|
$
|
17
|
|
$
|
13
|
|
$
|
—
|
|
$
|
30
|
|
|
Charges against the reserve
|
—
|
|
(13
|
)
|
—
|
|
(13
|
)
|
|
Cash payments
|
(54
|
)
|
—
|
|
(6
|
)
|
(60
|
)
|
|
Reserve balance at Jun 30, 2018
|
$
|
253
|
|
$
|
—
|
|
$
|
10
|
|
$
|
263
|
|
|
Packaging & Specialty Plastics
|
$
|
—
|
|
$
|
4
|
|
$
|
—
|
|
$
|
4
|
|
|
Corporate
|
43
|
|
—
|
|
—
|
|
43
|
|
|
Total restructuring charges
|
$
|
43
|
|
$
|
4
|
|
$
|
—
|
|
$
|
47
|
|
|
Charges against the reserve
|
—
|
|
(4
|
)
|
—
|
|
(4
|
)
|
|
Cash payments
|
(56
|
)
|
—
|
|
—
|
|
(56
|
)
|
|
Reserve balance at Sep 30, 2018
|
$
|
240
|
|
$
|
—
|
|
$
|
10
|
|
$
|
250
|
|
|
Performance Materials & Coatings
|
$
|
—
|
|
$
|
7
|
|
$
|
—
|
|
$
|
7
|
|
|
Packaging & Specialty Plastics
|
—
|
|
6
|
|
—
|
|
6
|
|
|
Corporate
|
9
|
|
—
|
|
—
|
|
9
|
|
|
Total restructuring charges
|
$
|
9
|
|
$
|
13
|
|
$
|
—
|
|
$
|
22
|
|
|
Charges against the reserve
|
—
|
|
(13
|
)
|
—
|
|
(13
|
)
|
|
Cash payments
|
(39
|
)
|
—
|
|
(3
|
)
|
(42
|
)
|
|
Reserve balance at Dec 31, 2018
|
$
|
210
|
|
$
|
—
|
|
$
|
7
|
|
$
|
217
|
|
|
Packaging & Specialty Plastics
|
$
|
—
|
|
$
|
—
|
|
$
|
1
|
|
$
|
1
|
|
|
Corporate
|
52
|
|
76
|
|
15
|
|
143
|
|
|
Total restructuring charges
|
$
|
52
|
|
$
|
76
|
|
$
|
16
|
|
$
|
144
|
|
|
Charges against the reserve
|
—
|
|
(76
|
)
|
—
|
|
(76
|
)
|
|
Cash payments
|
(79
|
)
|
—
|
|
(4
|
)
|
(83
|
)
|
|
Reserve balance at Mar 31, 2019
|
$
|
183
|
|
$
|
—
|
|
$
|
19
|
|
$
|
202
|
|
|
Performance Materials & Coatings
|
$
|
—
|
|
$
|
22
|
|
$
|
—
|
|
$
|
22
|
|
|
Corporate
|
25
|
|
7
|
|
5
|
|
37
|
|
|
Total restructuring charges
|
$
|
25
|
|
$
|
29
|
|
$
|
5
|
|
$
|
59
|
|
|
Charges against the reserve
|
—
|
|
(29
|
)
|
(2
|
)
|
(31
|
)
|
|
Cash payments
|
(71
|
)
|
—
|
|
—
|
|
(71
|
)
|
|
Reserve balance at Jun 30, 2019
|
$
|
137
|
|
$
|
—
|
|
$
|
22
|
|
$
|
159
|
|
At
June 30, 2019
,
$139 million
was included in "Accrued and other current liabilities" (
$205 million
at
December 31, 2018
) and
$20 million
was included in "Other noncurrent obligations" (
$12 million
at
December 31, 2018
) in the Company's consolidated balance sheets.
The Company recorded pretax restructuring charges of
$786 million
inception-to-date under the Synergy Program, consisting of severance and related benefit costs of
$521 million
, asset write-downs and write-offs of
$225 million
and costs associated with exit and disposal activities of
$40 million
.
Asset Write-downs and Write-offs
The restructuring charges related to the write-down and write-off of assets for the three and six months ended June 30, 2019 and 2018, related primarily to miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets and certain corporate facilities.
Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities for the three and six months ended June 30, 2019, included contract cancellation penalties and environmental remediation liabilities.
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 plan 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.
Asset Related Charges
The Company recognized an additional pretax impairment charge of
$6 million
and
$18 million
for the three and six months ended
June 30, 2019
, respectively, related primarily to capital additions made to a biopolymers manufacturing facility in Santa Vitoria, Minas Gerais, Brazil, which was impaired in 2017 (charge of
$3 million
and
$6 million
for the three and six months ended June 30, 2018). The impairment charge was included in “Restructuring and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note
20
for additional information.
NOTE
6
– SUPPLEMENTARY INFORMATION
The Company uses "Sundry income (expense) – net" to record 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, and certain litigation matters.
TDCC
For the three months ended
June 30, 2019
, "Sundry income (expense) - net" was income of
$109 million
compared with expense of
$14 million
for the three months ended
June 30, 2018
. "Sundry income (expense) – net" increased primarily due to an increase in foreign currency exchange gains and non-operating pension and postretirement benefit plan credits compared with the second quarter of 2018. The second quarter of 2019 also included a
$44 million
loss on the early extinguishment of debt and a gain of
$14 million
on post-closing adjustments related to a previous divestiture (both related to the Corporate segment). The second quarter of 2018 included a
$20 million
loss for a post-closing adjustment related to the Dow Silicones ownership restructure (related to the Performance Materials & Coatings segment). "Sundry income (expense) - net" in the first six months of 2019 was income of
$178 million
compared with income of
$40 million
in the first six months of 2018. In addition to the amounts previously discussed, the first six months of 2018 included a
$20 million
gain related to the Company's sale of its equity interest in MEGlobal (related to the Industrial Intermediates & Infrastructure segment).
Dow Inc.
For the three months ended
June 30, 2019
, "Sundry income (expense) - net" was expense of
$1 million
compared with expense of
$14 million
for the three months ended
June 30, 2018
. For the six months ended
June 30, 2019
, "Sundry income (expense) - net" was income of
$68 million
compared with income of
$40 million
for the six months ended
June 30, 2018
. In addition to the amounts previously discussed above for TDCC, "Sundry income (expense) - net" for the three and six months ended
June 30, 2019
, included a
$58 million
loss on post-closing adjustments related to a previous divestiture and
$52 million
in charges associated with agreements entered into with DuPont and Corteva as part of the separation and distribution, which provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after completion of the separation (both related to the Corporate segment). See Notes
3
,
12
,
17
and
23
for additional information.
NOTE
7
- EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the three and six months ended June 30, 2019 and 2018. In accordance with the accounting guidance for earnings per share, earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income for Earnings Per Share Calculations
|
Three Months Ended
|
Six Months Ended
|
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
|
|
|
Income from continuing operations, net of tax
|
$
|
90
|
|
$
|
810
|
|
$
|
246
|
|
$
|
1,735
|
|
|
|
Net income attributable to noncontrolling interests - continuing operations
|
15
|
|
25
|
|
47
|
|
46
|
|
|
|
Net income attributable to participating securities - continuing operations
1
|
2
|
|
—
|
|
2
|
|
—
|
|
|
|
Income from continuing operations attributable to common stockholders
|
$
|
73
|
|
$
|
785
|
|
$
|
197
|
|
$
|
1,689
|
|
|
|
Income from discontinued operations, net of tax
|
$
|
—
|
|
$
|
554
|
|
$
|
445
|
|
$
|
1,068
|
|
|
|
Net income attributable to noncontrolling interests - discontinued operations
|
—
|
|
6
|
|
13
|
|
20
|
|
|
|
Income from discontinued operations attributable to common stockholders
|
$
|
—
|
|
$
|
548
|
|
$
|
432
|
|
$
|
1,048
|
|
|
|
Net income attributable to common stockholders
|
$
|
73
|
|
$
|
1,333
|
|
$
|
629
|
|
$
|
2,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Basic
|
Three Months Ended
|
Six Months Ended
|
|
|
Dollars per share
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
|
|
|
Income from continuing operations attributable to common stockholders
|
$
|
0.10
|
|
$
|
1.05
|
|
$
|
0.26
|
|
$
|
2.26
|
|
|
|
Income from discontinued operations attributable to common stockholders
|
—
|
|
0.73
|
|
0.58
|
|
1.40
|
|
|
|
Net income attributable to common stockholders
|
$
|
0.10
|
|
$
|
1.78
|
|
$
|
0.84
|
|
$
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Calculations - Diluted
|
Three Months Ended
|
Six Months Ended
|
|
|
Dollars per share
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
|
|
|
Income from continuing operations attributable to common stockholders
|
$
|
0.10
|
|
$
|
1.05
|
|
$
|
0.26
|
|
$
|
2.26
|
|
|
|
Income from discontinued operations attributable to common stockholders
|
—
|
|
0.73
|
|
0.58
|
|
1.40
|
|
|
|
Net income attributable to common stockholders
|
$
|
0.10
|
|
$
|
1.78
|
|
$
|
0.84
|
|
$
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Count Information
|
Three Months Ended
|
Six Months Ended
|
|
|
Shares in millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
|
|
|
Weighted-average common shares - basic
2
|
742.8
|
|
747.2
|
|
745.0
|
|
747.2
|
|
|
|
Plus dilutive effect of equity compensation plans
|
5.1
|
|
—
|
|
2.6
|
|
—
|
|
|
|
Weighted-average common shares - diluted
2
|
747.9
|
|
747.2
|
|
747.6
|
|
747.2
|
|
|
|
Stock options and restricted stock units excluded from EPS calculations
3
|
6.4
|
|
—
|
|
3.2
|
|
—
|
|
|
|
|
|
1.
|
Restricted stock units (formerly termed deferred stock) are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
|
|
|
|
|
2.
|
Share amounts for the three and six months ended June 30, 2018, were based on
2,246.3 million
DowDuPont common shares outstanding as of the Record Date for the April 1, 2019 distribution, less
4.6 million
Employee Stock Ownership Plan ("ESOP") shares that had not been released and were not considered outstanding, adjusted for the Distribution Ratio. There was no dilutive effect for the three and six months ended June 30, 2018, as the Company did not engage in activities giving rise to dilution.
|
|
|
|
|
3.
|
These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive. For the three and six months ended June 30, 2018, the Company did not engage in activities giving rise to dilution.
|
NOTE
8
– INVENTORIES
The following table provides a breakdown of inventories:
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Finished goods
|
$
|
3,988
|
|
$
|
4,313
|
|
|
Work in process
|
1,272
|
|
1,335
|
|
|
Raw materials
|
692
|
|
674
|
|
|
Supplies
|
837
|
|
826
|
|
|
Total
|
$
|
6,789
|
|
$
|
7,148
|
|
|
Adjustment of inventories to a LIFO basis
|
52
|
|
(249
|
)
|
|
Total inventories
|
$
|
6,841
|
|
$
|
6,899
|
|
NOTE
9
– NONCONSOLIDATED AFFILIATES
The Company's investments in companies accounted for using the equity method ("nonconsolidated affiliates"), by classification in the consolidated balance sheets, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Investments in Nonconsolidated Affiliates
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Investment in nonconsolidated affiliates
|
$
|
2,968
|
|
$
|
3,320
|
|
|
Other noncurrent obligations
|
(178
|
)
|
—
|
|
|
Net investment in nonconsolidated affiliates
|
$
|
2,790
|
|
$
|
3,320
|
|
EQUATE
In the first quarter of 2019, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") paid a dividend of
$440 million
, reflected in "Earnings of nonconsolidated affiliates less than dividends received" in the consolidated statements of cash flows. As a result, the Company had a negative investment balance in EQUATE of
$178 million
at June 30, 2019, classified as "Other noncurrent obligations" in the consolidated balance sheets. At December 31, 2018, the Company had an investment balance in EQUATE of
$131 million
, classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
NOTE
10
– GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows changes in the carrying amount of goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
Performance Materials & Coatings
|
Industrial Intermediates & Infrastructure
|
Packaging & Specialty Plastics
|
Total
|
|
In millions
|
|
Net goodwill at Dec 31, 2018
|
$
|
3,650
|
|
$
|
1,095
|
|
$
|
5,101
|
|
$
|
9,846
|
|
|
Foreign currency impact
|
7
|
|
(1
|
)
|
(4
|
)
|
2
|
|
|
Net goodwill at Jun 30, 2019
|
$
|
3,657
|
|
$
|
1,094
|
|
$
|
5,097
|
|
$
|
9,848
|
|
The separation from DowDuPont did not impact the composition of the Company's six reporting units: Coatings & Performance Monomers, Consumer Solutions, Hydrocarbons & Energy, Industrial Solutions, Packaging and Specialty Plastics and Polyurethanes & Construction Chemicals. The ECP businesses received as part of the separation from DowDuPont are included in the Hydrocarbons & Energy and Packaging and Specialty Plastics reporting units.
The following table provides information regarding the Company’s other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
Gross
Carrying
Amount
|
Accum
Amort
|
Net
|
Gross
Carrying
Amount
|
Accum
Amort
|
Net
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
Developed technology
|
$
|
2,634
|
|
$
|
(1,363
|
)
|
$
|
1,271
|
|
$
|
2,634
|
|
$
|
(1,252
|
)
|
$
|
1,382
|
|
|
Software
|
1,426
|
|
(847
|
)
|
579
|
|
1,404
|
|
(805
|
)
|
599
|
|
|
Trademarks/tradenames
|
352
|
|
(342
|
)
|
10
|
|
352
|
|
(329
|
)
|
23
|
|
|
Customer-related
|
3,242
|
|
(1,105
|
)
|
2,137
|
|
3,211
|
|
(993
|
)
|
2,218
|
|
|
Total other intangible assets, finite lives
|
$
|
7,654
|
|
$
|
(3,657
|
)
|
$
|
3,997
|
|
$
|
7,601
|
|
$
|
(3,379
|
)
|
$
|
4,222
|
|
|
In-process research and development
|
3
|
|
—
|
|
3
|
|
3
|
|
—
|
|
3
|
|
|
Total other intangible assets
|
$
|
7,657
|
|
$
|
(3,657
|
)
|
$
|
4,000
|
|
$
|
7,604
|
|
$
|
(3,379
|
)
|
$
|
4,225
|
|
The following table provides information regarding amortization expense from continuing operations related to intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense from Continuing Operations
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Other intangible assets, excluding software
|
$
|
104
|
|
$
|
118
|
|
$
|
220
|
|
$
|
236
|
|
|
Software, included in “Cost of sales” from Continuing Operations
|
$
|
23
|
|
$
|
23
|
|
$
|
47
|
|
$
|
45
|
|
Total estimated amortization expense from continuing operations for
2019
and the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
Estimated Amortization Expense from Continuing Operations
|
|
In millions
|
|
2019
|
$
|
516
|
|
|
2020
|
$
|
490
|
|
|
2021
|
$
|
468
|
|
|
2022
|
$
|
406
|
|
|
2023
|
$
|
376
|
|
|
2024
|
$
|
363
|
|
NOTE
11
– TRANSFERS OF FINANCIAL ASSETS
The Company historically sold trade accounts receivable of select North American entities and qualifying trade accounts receivable of select European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). The proceeds received were comprised of cash and interests in specified assets of the conduits (the receivables sold by the Company) that entitled the Company to the residual cash flows of such specified assets in the conduits after the commercial paper was repaid. Neither the conduits nor the investors in those entities had recourse to other assets of the Company in the event of nonpayment by the debtors.
In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In September and October 2018, the North American and European facilities, respectively, were amended and the terms of the agreements changed from off-balance sheet arrangements to secured borrowing arrangements. See Note
12
for additional information on the secured borrowing arrangements.
The following represents the cash flows between the Company and the conduits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Proceeds
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30,
2019
|
Jun 30,
2018
|
Jun 30,
2019
|
Jun 30,
2018
|
|
Interests in conduits
1
|
$
|
—
|
|
$
|
211
|
|
$
|
—
|
|
$
|
656
|
|
|
|
|
|
1.
|
Presented in "Investing Activities" in the consolidated statements of cash flows.
|
NOTE
12
– NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
Jun 30,
2019
|
Dec 31,
2018
|
|
In millions
|
|
Commercial paper
|
$
|
—
|
|
$
|
10
|
|
|
Notes payable to banks and other lenders
|
468
|
|
288
|
|
|
Notes payable to related companies
1
|
76
|
|
—
|
|
|
Total notes payable
|
$
|
544
|
|
$
|
298
|
|
|
Period-end average interest rates
|
5.67
|
%
|
8.28
|
%
|
|
|
|
|
1.
|
In addition, "Notes payable" for TDCC includes a
$1.1 billion
note payable to Dow Inc., which is not reflected in the table above. See Note
22
for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
2019 Average Rate
|
Jun 30,
2019
|
2018
Average
Rate
|
Dec 31,
2018
|
|
In millions
|
|
Promissory notes and debentures:
|
|
|
|
|
|
Final maturity 2019
|
9.80
|
%
|
$
|
3
|
|
9.80
|
%
|
$
|
7
|
|
|
Final maturity 2020
|
8.44
|
%
|
76
|
|
4.46
|
%
|
1,547
|
|
|
Final maturity 2021
|
4.71
|
%
|
1,424
|
|
4.71
|
%
|
1,424
|
|
|
Final maturity 2022
|
3.50
|
%
|
1,372
|
|
3.50
|
%
|
1,373
|
|
|
Final maturity 2023
|
7.64
|
%
|
325
|
|
7.64
|
%
|
325
|
|
|
Final maturity 2024
|
3.37
|
%
|
1,396
|
|
3.50
|
%
|
896
|
|
|
Final maturity 2025 and thereafter
|
5.70
|
%
|
9,480
|
|
5.98
|
%
|
7,963
|
|
|
Other facilities:
|
|
|
|
|
|
U.S. dollar loans, various rates and maturities
|
3.46
|
%
|
2,000
|
|
3.59
|
%
|
4,533
|
|
|
Foreign currency loans, various rates and maturities
|
3.38
|
%
|
619
|
|
3.20
|
%
|
708
|
|
|
Medium-term notes, varying maturities through 2025
|
3.34
|
%
|
695
|
|
3.26
|
%
|
778
|
|
|
Finance lease obligations
1
|
|
399
|
|
|
371
|
|
|
Unamortized debt discount and issuance costs
|
|
(337
|
)
|
|
(334
|
)
|
|
Long-term debt due within one year
2
|
|
(297
|
)
|
|
(338
|
)
|
|
Long-term debt
|
|
$
|
17,155
|
|
|
$
|
19,253
|
|
|
|
|
|
1.
|
See Note
14
for additional information.
|
|
|
|
|
2.
|
Presented net of current portion of unamortized debt issuance costs.
|
|
|
|
|
|
|
|
|
Maturities of Long-Term Debt for Next Five Years at Jun 30, 2019
|
|
In millions
|
|
2019
|
$
|
148
|
|
|
2020
|
$
|
380
|
|
|
2021
1
|
$
|
3,767
|
|
|
2022
|
$
|
1,513
|
|
|
2023
|
$
|
508
|
|
|
2024
|
$
|
1,471
|
|
|
|
|
|
1.
|
Assumes the option to extend will be exercised for the
$2 billion
Dow Silicones Term Loan Facility.
|
2019 Activity
In the first six months of 2019, the Company redeemed an aggregate principal amount of
$80 million
of International Notes ("InterNotes") at maturity. In addition, approximately
$134 million
of long-term debt (net of
$16 million
of issuances) was repaid by consolidated variable interest entities.
In May 2019, the Company issued
$2.0 billion
of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included
$750 million
aggregate principal amount of
4.80 percent
notes due 2049;
$750 million
aggregate principal amount of
3.625 percent
notes due 2026; and
$500 million
aggregate principal amount of
3.15 percent
notes due 2024.
In June 2019 the Company redeemed
$1.5 billion
of
4.25 percent
notes issued by the Company with maturity in 2020. As a result, the Company recognized a pretax loss of
$42 million
on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment.
In the second quarter of 2019, Dow Silicones voluntarily repaid
$2.5 billion
of principal under a certain third party credit agreement ("Term Loan Facility"). As a result, Dow Silicones recognized a pretax loss of
$2 million
on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment. Dow Silicones also intends to exercise the 2-year extension option on the remaining principal balance of
$2 billion
.
2018 Activity
In the first six months of 2018, the Company redeemed
$333 million
of
5.7 percent
notes at maturity, and an aggregate principal amount of
$20 million
of InterNotes at maturity. In addition, approximately
$75 million
of long-term debt was repaid by consolidated variable interest entities. The Company also called an aggregate principal amount of
$125 million
tax-exempt bonds of various interest rates and maturities in 2029, 2033 and 2038. As a result of the redemptions, the Company recognized a pretax loss of
$1 million
on the early extinguishment of debt, included in “Sundry income (expense) - net” in the consolidated statements of income.
Available Credit Facilities
The following table summarizes the Company's credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed and Available Credit Facilities at Jun 30, 2019
|
|
In millions
|
Committed Credit
|
Credit Available
|
Maturity Date
|
Interest
|
|
Five Year Competitive Advance and Revolving Credit Facility
|
$
|
5,000
|
|
$
|
5,000
|
|
October 2023
|
Floating rate
|
|
Term Loan Facility
1
|
2,000
|
|
—
|
|
December 2021
|
Floating rate
|
|
North American Securitization Facility
|
800
|
|
800
|
|
September 2019
|
Floating rate
|
|
European Securitization Facility
2
|
456
|
|
456
|
|
October 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
100
|
|
100
|
|
October 2019
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
100
|
|
100
|
|
March 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
100
|
|
100
|
|
March 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
280
|
|
280
|
|
March 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
100
|
|
100
|
|
March 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
200
|
|
200
|
|
March 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
200
|
|
200
|
|
May 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
200
|
|
200
|
|
July 2020
|
Floating rate
|
|
Bilateral Revolving Credit Facility
|
100
|
|
100
|
|
August 2020
|
Floating rate
|
|
Total committed and available credit facilities
|
$
|
9,636
|
|
$
|
7,636
|
|
|
|
|
|
|
|
1.
|
Assumes the option to extend the Dow Silicones term loan facility will be exercised.
|
|
|
|
|
2.
|
Equivalent to
Euro 400 million
.
|
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 six months of 2019, except for what has been noted below. Information on the Company's debt covenants and default provisions can be found in Note 15 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended
December 31, 2018
.
On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. In conjunction with the separation, Dow Inc. is obligated, substantially concurrently with the issuance of any guarantee in respect of outstanding or committed indebtedness under the Company's Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement"), to enter into a supplemental indenture with TDCC and the trustee under TDCC’s existing 2008 base indenture governing certain notes issued by TDCC. Under such supplemental indenture, Dow Inc. will guarantee all outstanding debt securities and all amounts due under such existing base indenture and will become subject to certain covenants and events of default under the existing base indenture.
In addition, the Revolving Credit Agreement includes an event of default which would be triggered in the event Dow Inc. incurs or guarantees third party indebtedness for borrowed money in excess of
$250 million
or engages in any material activity or directly owns any material assets, in each case, subject to certain conditions and exceptions. Dow Inc. may, at its option, cure the event of default by delivering an unconditional and irrevocable guarantee to the administrative agent within thirty days of the event or events giving rise to such event of default.
No such events have occurred or have been triggered at the time of the filing of this Quarterly Report on Form 10-Q.
NOTE
13
– COMMITMENTS AND CONTINGENT LIABILITIES
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, 2019
, Dow had accrued obligations of
$796 million
for probable environmental remediation and restoration costs, including
$156 million
for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s current estimate of the costs for remediation and restoration with respect to environmental matters for which Dow has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two 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 Dow’s results of operations, financial condition and cash flows. It is the opinion of Dow’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on Dow’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. In the second half of 2019, as a result of the business separations, and change in ownership of certain sites where there are remediation activities, additional costs may be incurred to effectively manage the ongoing activities. In addition, as a result of the potential culmination of long standing negotiations with regulators and/or agencies, additional charges for environmental matters may be recorded. Management believes that it is reasonably possible that the additional charges for environmental matters may be increased up to
$400 million
as a result of this review. At
December 31, 2018
, Dow had accrued obligations of
$810 million
for probable environmental remediation and restoration costs, including
$156 million
for the remediation of Superfund sites.
Litigation
Asbestos-Related Matters of Union Carbide Corporation
A summary of Asbestos-Related Matters of Union Carbide Corporation can be found in Note 16 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended
December 31, 2018
.
Introduction
Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.
Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
Estimating the Asbestos-Related Liability
Since 2003, Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review Union Carbide's historical asbestos-related claim and resolution activity in order to assist Union Carbide's management in estimating the asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study.
Based on the December 2018 Ankura review and Union Carbide's own review of the data, Union Carbide's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was
$1,260 million
at
December 31, 2018
, and included in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.
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 all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on Union Carbide's review of 2019 activity, it was determined that no adjustment to the accrual was required at
June 30, 2019
.
Union Carbide’s asbestos-related liability for pending and future claims and defense and processing costs was
$1,218 million
at
June 30, 2019
, and approximately
17 percent
of the recorded liability related to pending claims and approximately
83 percent
related to future claims.
Summary
Dow's management believes the amounts recorded by Union Carbide for the asbestos-related liability (including defense and processing costs) reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for Union Carbide to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.
Because of the uncertainties described above, Union Carbide cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. As a result, it is reasonably possible that an additional cost of disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on Dow's results of operations and cash flows for a particular period and on the consolidated financial position.
Dow Silicones Chapter 11 Related Matters
A summary of the Dow Silicones Chapter 11 Related Matters can be found in Note 16 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended December 31, 2018.
Introduction
In 1995, Dow Silicones, then a 50:50 joint venture between the Company and Corning Incorporated ("Corning"), voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve Dow Silicones’ breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Silicones emerged from the Chapter 11 Proceeding on June 1, 2004 (the “Effective Date”) and is implementing the Joint Plan of Reorganization (the “Plan”). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. As of June 1, 2016, Dow Silicones is a wholly owned subsidiary of the Company.
Breast Implant and Other Product Liability Claims
Under the Plan, a product liability settlement program administered by an independent claims office (the “Settlement Facility”) was created to resolve breast implant and other product liability claims. Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Dow Silicones has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At
June 30, 2019
, Dow Silicones and its insurers have made life-to-date payments of
$1,762 million
to the Settlement Facility and the Settlement Facility reported an unexpended balance of
$88 million
.
Dow Silicones' liability for breast implant and other product liability claims ("Implant Liability") was
$263 million
at
June 30, 2019
and
December 31, 2018
, of which
$201 million
at
June 30, 2019
(
$111 million
at
December 31, 2018
) was included in “Accrued and other current liabilities” and
$62 million
at
June 30, 2019
(
$152 million
at
December 31, 2018
) was included in "Other noncurrent obligations" in the consolidated balance sheets. Dow Silicones is not aware of circumstances that would change the factors used in estimating the Implant Liability and believes the recorded liability reflects the best estimate of the remaining funding obligations under the Plan; however, the estimate relies upon a number of significant assumptions, including: future claim filing levels in the Settlement Facility will be similar to those in a prior settlement program, which management uses to estimate future claim filing levels for the Settlement Facility; future acceptance rates, disease mix, and payment values will be materially consistent with historical experience; no material negative outcomes in future controversies or disputes over Plan interpretation will occur; and the Plan will not be modified. If actual outcomes related to any of these assumptions prove to be materially different, the future liability to fund the Plan may be materially different than the amount estimated. If Dow Silicones was ultimately required to fund the full liability up to the maximum capped value, the liability would be
$2,183 million
at
June 30, 2019
.
Commercial Creditor Issues
The Plan provides that each of Dow Silicones' commercial creditors (the “Commercial Creditors”) would receive in cash the sum of (a) an amount equal to the principal amount of their claims and (b) interest on such claims. The actual amount of interest that will ultimately be paid to these Commercial Creditors is uncertain due to pending litigation between Dow Silicones and the Commercial Creditors regarding the appropriate interest rates to be applied to outstanding obligations from the 1995 bankruptcy filing date through the Effective Date, as well as the presence of any recoverable fees, costs and expenses. Upon the Plan becoming effective, Dow Silicones paid approximately
$1,500 million
to the Commercial Creditors, representing principal and an amount of interest that Dow Silicones considers undisputed.
On May 10, 2017, the U.S. District Court for the Eastern District of Michigan entered a stipulated order resolving pending discovery motions and established a discovery schedule for the Commercial Creditors matter. As a result, Dow Silicones and its third party consultants conducted further analysis of the Commercial Creditors claims and defenses. This analysis indicated the estimated remaining liability to Commercial Creditors to be within a range of
$77 million
to
$260 million
. No single amount within the range appeared to be a better estimate than any other amount within the range. Therefore, Dow Silicones
recorded the minimum liability within the range. At
June 30, 2019
, the liability related to Dow Silicones' potential obligation to its Commercial Creditors in the Chapter 11 Proceeding was
$84 million
and is included in "Accrued and other current liabilities" in the consolidated balance sheets (
$82 million
at
December 31, 2018
). The actual amount of interest that will be paid to these creditors is uncertain and will ultimately be resolved through continued proceedings in the District Court.
Indemnifications
In connection with the June 1, 2016, ownership restructure of Dow Silicones, the Company is indemnified by Corning for
50
percent of future losses associated with certain pre-closing liabilities, including the Implant Liability and Commercial Creditors matters described above, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnification assets were insignificant at
June 30, 2019
(
zero
at December 31, 2018).
Summary
The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based on current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.
Other Litigation Matters
In addition to the specific matters described above, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. The Company has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
On December 9, 2010, Dow filed suit in the Federal Court in Ontario, Canada ("Federal Court") alleging that Nova Chemicals Corporation ("Nova") was infringing the Company's Canadian polyethylene patent 2,106,705. Nova counterclaimed on the grounds of invalidity and non-infringement. On June 29, 2017, the Federal Court issued a Confidential Supplemental Judgment, concluding that Nova must pay
$645 million
Canadian dollars (equivalent to
$495 million
U.S. dollars) to the Company, plus pre- and post-judgment interest, for which the Company received payment of
$501 million
from Nova on July 6, 2017. Although Nova is appealing portions of the damages judgment, certain portions of it are indisputable and will be owed to the Company regardless of the outcome of any further appeals by Nova. At
June 30, 2019
, the Company had
$341 million
(
$341 million
at
December 31, 2018
) included in "Other noncurrent obligations" in the consolidated balance sheets related to the disputed portion of the damages judgment. The Company is confident of its chances of defending the entire judgment on appeal, particularly the trial court's determinations on important factual issues, which will be accorded deferential review on appeal. See Note 16 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.
Guarantees
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
Final
Expiration
|
Maximum
Future Payments
|
Recorded
Liability
|
Final
Expiration
|
Maximum
Future Payments
|
Recorded
Liability
|
|
Guarantees
|
2023
|
$
|
4,123
|
|
$
|
11
|
|
2023
|
$
|
4,273
|
|
$
|
22
|
|
Guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to less than four years. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
The Company has entered into guarantee agreements ("Guarantees") related to project financing for Sadara Chemical Company ("Sadara"), a nonconsolidated affiliate. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately
$12.5 billion
. Sadara had
$11.2 billion
of Total Project Financing outstanding at
June 30, 2019
(
$11.7 billion
at
December 31, 2018
). The Company's guarantee of the Total Project Financing is in proportion to the Company's
35 percent
ownership interest in Sadara, or up to approximately
$4.1 billion
when the project financing is fully drawn. Sadara successfully completed an extensive operational testing program in December 2018, however, the Guarantees will be released upon the satisfactory fulfillment of certain project completion conditions, which is expected in the second half of 2019, and must occur no later than December 2020.
NOTE
14
- LEASES
Operating lease ROU assets are included in "Operating lease right-of-use assets" while finance lease ROU assets are included in "Net property" in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets.
Dow routinely leases sales and administrative offices, power plants, production facilities, warehouses and tanks for product storage, aircraft, motor vehicles, railcars, computers, office machines and equipment. Some leases contain renewal provisions, purchase options and escalation clauses and the terms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms that currently range from
1
to
50 years
. See Notes
1
and
2
for additional information on leases.
The components of lease cost for operating and finance leases for the three and six months ended
June 30, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
Three Months Ended
Jun 30, 2019
|
Six Months Ended Jun 30, 2019
|
|
In millions
|
|
Operating lease cost
|
$
|
139
|
|
$
|
264
|
|
|
Finance lease cost
|
|
|
|
Amortization of right-of-use assets - finance
|
11
|
|
17
|
|
|
Interest on lease liabilities - finance
|
7
|
|
13
|
|
|
Total finance lease cost
|
$
|
18
|
|
$
|
30
|
|
|
Short-term lease cost
|
50
|
|
100
|
|
|
Variable lease cost
|
63
|
|
107
|
|
|
Sublease income
|
(1
|
)
|
(2
|
)
|
|
Total lease cost
|
$
|
269
|
|
$
|
499
|
|
The following table provides supplemental cash flow information related to leases:
|
|
|
|
|
|
|
|
Other Lease Information
|
Six Months Ended Jun 30, 2019
|
|
In millions
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
269
|
|
|
Operating cash flows from finance leases
|
$
|
13
|
|
|
Financing cash flows from finance leases
|
$
|
9
|
|
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at
June 30, 2019
:
|
|
|
|
|
|
|
|
|
Lease Position
|
Balance Sheet Classification
|
Jun 30, 2019
|
|
In millions
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
1
|
|
$
|
2,385
|
|
|
Finance leases
|
|
$
|
60
|
|
|
Assets
|
|
|
|
Operating lease assets
|
Operating lease right-of-use assets
|
$
|
2,183
|
|
|
Finance lease assets
|
Property
|
466
|
|
|
Finance lease amortization
|
Accumulated depreciation
|
(145
|
)
|
|
Total lease assets
|
|
$
|
2,504
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating
|
Operating lease liabilities - current
|
$
|
421
|
|
|
Finance
|
Long-term debt due within one year
|
35
|
|
|
Noncurrent
|
|
|
|
Operating
|
Operating lease liabilities - noncurrent
|
1,779
|
|
|
Finance
|
Long-Term Debt
|
364
|
|
|
Total lease liabilities
|
|
$
|
2,599
|
|
|
|
|
|
1.
|
Includes
$2.3 billion
related to the adoption of Topic 842. See Note
2
for additional information.
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
Jun 30, 2019
|
|
Weighted-average remaining lease term
|
|
|
Operating leases
|
8.2 years
|
|
|
Finance leases
|
11.7 years
|
|
|
Weighted-average discount rate
|
|
|
Operating leases
|
4.21
|
%
|
|
Finance leases
|
6.72
|
%
|
The following table provides the maturities of lease liabilities at
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
Maturities of Lease Liabilities at Jun 30, 2019
|
Operating Leases
|
Finance Leases
|
|
In millions
|
|
2019
|
$
|
291
|
|
$
|
40
|
|
|
2020
|
510
|
|
70
|
|
|
2021
|
401
|
|
69
|
|
|
2022
|
346
|
|
52
|
|
|
2023
|
259
|
|
79
|
|
|
2024 and thereafter
|
979
|
|
308
|
|
|
Total future undiscounted lease payments
|
$
|
2,786
|
|
$
|
618
|
|
|
Less imputed interest
|
586
|
|
219
|
|
|
Total present value of lease liabilities
|
$
|
2,200
|
|
$
|
399
|
|
At
June 30, 2019
, Dow had additional leases of approximately
$90 million
, primarily for pipelines, buildings and equipment, which had not yet commenced. These leases are expected to commence later in 2019, with lease terms of up to
20 years
.
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
Minimum Lease Commitments at Dec 31, 2018
|
|
|
In millions
|
|
|
2019
|
$
|
366
|
|
|
2020
|
329
|
|
|
2021
|
296
|
|
|
2022
|
269
|
|
|
2023
|
227
|
|
|
2024 and thereafter
|
855
|
|
|
Total
|
$
|
2,342
|
|
Dow provides guarantees related to certain leased assets, specifying the residual value that will be available to the lessor at lease termination through the sale of the assets to the lessee or third parties. The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for residual value guarantees at June 30, 2019 and December 31, 2018. There was no recorded liability related to these residual value guarantees at
June 30, 2019
, as payment of such residual value guarantees was not determined to be probable. The lease agreements do not contain any material restrictive covenants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Guarantees
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
Final Expiration
|
Maximum Future Payments
|
Recorded Liability
|
Final Expiration
|
Maximum Future Payments
|
Recorded Liability
|
|
Residual value guarantees
|
2027
|
$
|
755
|
|
$
|
—
|
|
2028
|
$
|
885
|
|
$
|
130
|
|
NOTE
15
– STOCKHOLDERS' EQUITY
Common Stock
Dow Inc.
Dow Inc. was incorporated in 2018 with
100
authorized and issued shares of common stock, par value
$0.01
per share, owned solely by its parent company, DowDuPont. In the first quarter of 2019, in connection with the separation and distribution of DowDuPont’s materials science business, the number of authorized shares of common stock was increased to
5,000,000,000
shares, par value
$0.01
per share, and Dow Inc.'s
100
shares of issued common stock were recapitalized into
748,771,240
shares of common stock. Dow Inc.'s common stock was solely owned by DowDuPont through March 31, 2019, and on April 1, 2019, Dow Inc. became an independent, publicly traded company. Dow Inc. common stock is listed on the NYSE under the symbol “DOW.” See Note 3 for additional information.
TDCC
Effective with the Merger and through March 31, 2019, TDCC had
100
authorized and issued shares of common stock, par value
$0.01
per share, owned solely by DowDuPont. Effective with the separation from DowDuPont, TDCC became a wholly owned subsidiary of Dow Inc., which now holds all
100
authorized and issued shares of common stock of TDCC. See Note 3 for additional information.
Retained Earnings
Dow Inc.
There are no significant restrictions limiting Dow Inc.'s ability to pay dividends. On April 11, 2019, Dow Inc.'s Board of Directors ("Board") declared a dividend of
$0.70
per share, which was paid on June 14, 2019, to shareholders of record on May 31, 2019.
TDCC
Effective with the Merger, TDCC no longer had publicly traded common stock. TDCC's common shares were owned solely by DowDuPont, prior to the separation on April 1, 2019, and TDCC's Board of Directors determined whether or not there would be a dividend distribution to DowDuPont. Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. and TDCC's common shares are owned solely by its parent company, Dow Inc.
See Note 3 for information on the impact of the receipt of ECP, which was accounted for as a transfer between entities under common control.
Treasury Stock
Dow Inc.
On April 1, 2019, Dow Inc.'s Board of Directors ratified the share repurchase program originally approved on March 15, 2019, authorizing up to
$3.0 billion
to be spent on the repurchase of the Company's common stock, with no expiration date, to be launched subsequent to Dow's separation from DowDuPont. In the second quarter of 2019, Dow Inc. repurchased
$305 million
of Dow Inc. common stock. At June 30, 2019, approximately
$2.7 billion
of the share repurchase program authorization remained available for repurchases.
The following table provides a reconciliation of Dow Inc. common stock activity for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
Shares of Dow Inc. Common Stock
|
Issued
|
Held in Treasury
|
|
|
|
Balance at Jan 1, 2019
|
100
|
|
—
|
|
|
Impact of recapitalization
|
748,771,140
|
|
—
|
|
|
Issued
1
|
254,522
|
|
—
|
|
|
Repurchased
|
—
|
|
5,813,756
|
|
|
Balance at Jun 30, 2019
|
749,025,762
|
|
5,813,756
|
|
|
|
|
|
1.
|
Shares issued to employees under the Company's equity compensation plans.
|
Accumulated Other Comprehensive Loss
The changes in each component of AOCL for the three and six months ended June 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Unrealized Gains (Losses) on Investments
|
|
|
|
|
|
Beginning balance
|
$
|
16
|
|
$
|
(8
|
)
|
$
|
(51
|
)
|
$
|
17
|
|
|
Unrealized gains (losses) on investments
|
52
|
|
(18
|
)
|
138
|
|
(49
|
)
|
|
Less: Tax (expense) benefit
|
(11
|
)
|
3
|
|
(29
|
)
|
8
|
|
|
Net unrealized gains (losses) on investments
|
41
|
|
(15
|
)
|
109
|
|
(41
|
)
|
|
(Gains) losses reclassified from AOCL to net income
1
|
(11
|
)
|
1
|
|
(12
|
)
|
3
|
|
|
Less: Tax expense (benefit)
2
|
3
|
|
—
|
|
3
|
|
(1
|
)
|
|
Net (gains) losses reclassified from AOCL to net income
|
(8
|
)
|
1
|
|
(9
|
)
|
2
|
|
|
Other comprehensive income (loss), net of tax
|
33
|
|
(14
|
)
|
100
|
|
(39
|
)
|
|
Reclassification of stranded tax effects
3
|
—
|
|
(1
|
)
|
—
|
|
(1
|
)
|
|
Ending balance
|
$
|
49
|
|
$
|
(23
|
)
|
$
|
49
|
|
$
|
(23
|
)
|
|
Cumulative Translation Adjustment
|
|
|
|
|
|
Beginning balance
|
$
|
(1,844
|
)
|
$
|
(1,105
|
)
|
$
|
(1,813
|
)
|
$
|
(1,481
|
)
|
|
Gains (losses) on foreign currency translation
|
76
|
|
(443
|
)
|
64
|
|
(72
|
)
|
|
Less: Tax (expense) benefit
|
15
|
|
(25
|
)
|
14
|
|
(20
|
)
|
|
Net gains (losses) on foreign currency translation
|
91
|
|
(468
|
)
|
78
|
|
(92
|
)
|
|
(Gains) losses reclassified from AOCL to net income
4
|
(24
|
)
|
(2
|
)
|
(42
|
)
|
(2
|
)
|
|
Other comprehensive income (loss), net of tax
|
67
|
|
(470
|
)
|
36
|
|
(94
|
)
|
|
Impact of common control transaction
5
|
710
|
|
—
|
|
710
|
|
—
|
|
|
Reclassification of stranded tax effects
3
|
—
|
|
(107
|
)
|
—
|
|
(107
|
)
|
|
Ending balance
|
$
|
(1,067
|
)
|
$
|
(1,682
|
)
|
$
|
(1,067
|
)
|
$
|
(1,682
|
)
|
|
Pension and Other Postretirement Benefits
|
|
|
|
|
|
Beginning balance
|
$
|
(7,824
|
)
|
$
|
(6,872
|
)
|
$
|
(7,965
|
)
|
$
|
(6,998
|
)
|
|
Gains (losses) arising during the period
|
34
|
|
—
|
|
34
|
|
—
|
|
|
Less: Tax (expense) benefit
|
(10
|
)
|
—
|
|
(10
|
)
|
—
|
|
|
Net gains (losses) arising during the period
|
24
|
|
—
|
|
24
|
|
—
|
|
|
Amortization and recognition of net loss and prior service credits
6
|
108
|
|
158
|
|
274
|
|
312
|
|
|
Less: Tax expense (benefit)
2
|
(26
|
)
|
(34
|
)
|
(51
|
)
|
(62
|
)
|
|
Net loss and prior service credits reclassified from AOCL to net income
|
82
|
|
124
|
|
223
|
|
250
|
|
|
Other comprehensive income (loss), net of tax
|
106
|
|
124
|
|
247
|
|
250
|
|
|
Impact of common control transaction
5
|
83
|
|
—
|
|
83
|
|
—
|
|
|
Reclassification of stranded tax effects
3
|
—
|
|
(927
|
)
|
—
|
|
(927
|
)
|
|
Ending balance
|
$
|
(7,635
|
)
|
$
|
(7,675
|
)
|
$
|
(7,635
|
)
|
$
|
(7,675
|
)
|
|
Derivative Instruments
|
|
|
|
|
|
Beginning balance
|
$
|
(131
|
)
|
$
|
(103
|
)
|
$
|
(56
|
)
|
$
|
(109
|
)
|
|
Gains (losses) on derivative instruments
|
(263
|
)
|
108
|
|
(358
|
)
|
94
|
|
|
Less: Tax (expense) benefit
|
46
|
|
(17
|
)
|
73
|
|
(19
|
)
|
|
Net gains (losses) on derivative instruments
|
(217
|
)
|
91
|
|
(285
|
)
|
75
|
|
|
(Gains) losses reclassified from AOCL to net income
7
|
17
|
|
32
|
|
10
|
|
59
|
|
|
Less: Tax expense (benefit)
2
|
(4
|
)
|
(5
|
)
|
(4
|
)
|
(10
|
)
|
|
Net (gains) losses reclassified from AOCL to net income
|
13
|
|
27
|
|
6
|
|
49
|
|
|
Other comprehensive income (loss), net of tax
|
(204
|
)
|
118
|
|
(279
|
)
|
124
|
|
|
Reclassification of stranded tax effects
3
|
—
|
|
(22
|
)
|
—
|
|
(22
|
)
|
|
Ending balance
|
$
|
(335
|
)
|
$
|
(7
|
)
|
$
|
(335
|
)
|
$
|
(7
|
)
|
|
Total AOCL ending balance
|
$
|
(8,988
|
)
|
$
|
(9,387
|
)
|
$
|
(8,988
|
)
|
$
|
(9,387
|
)
|
|
|
|
|
1.
|
Reclassified to "Net sales" and "Sundry income (expense) - net."
|
|
|
|
|
2.
|
Reclassified to "Provision for income taxes."
|
|
|
|
|
3.
|
Amounts reclassified to "Retained earnings" as a result of the adoption of ASU 2018-02.
|
|
|
|
|
4.
|
Reclassified to "Sundry income (expense) - net."
|
|
|
|
|
5.
|
Reclassified to "Retained earnings" as a result of the separation from DowDuPont on April 1, 2019. See Note
3
for additional information.
|
6. 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
17
for additional information. For the six months ended June 30, 2019, a
$45 million
adjustment related to a joint venture was reclassified to "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
7. Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."
NOTE
16
– 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
and six months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Balance at beginning of period
|
$
|
1,180
|
|
$
|
1,190
|
|
$
|
1,138
|
|
$
|
1,186
|
|
|
Net income attributable to noncontrolling interests - continuing operations
|
15
|
|
25
|
|
47
|
|
46
|
|
|
Net income attributable to noncontrolling interests - discontinued operations
|
—
|
|
6
|
|
13
|
|
20
|
|
|
Distributions to noncontrolling interests
1
|
(5
|
)
|
(37
|
)
|
(14
|
)
|
(61
|
)
|
|
Impact of common control transaction
2
|
(353
|
)
|
—
|
|
(353
|
)
|
—
|
|
|
Purchase of noncontrolling interest
3
|
(254
|
)
|
—
|
|
(254
|
)
|
—
|
|
|
Cumulative translation adjustments
|
6
|
|
(34
|
)
|
13
|
|
(40
|
)
|
|
Other
|
—
|
|
2
|
|
(1
|
)
|
1
|
|
|
Balance at end of period
|
$
|
589
|
|
$
|
1,152
|
|
$
|
589
|
|
$
|
1,152
|
|
1. Distributions to noncontrolling interests are net of
$6 million
for the three and six months ended June 30, 2018 in dividends paid to a joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income. Also includes amounts attributable to discontinued operations of
zero
for the three months ended June 30, 2019 (
$23 million
for the the three months ended June 30, 2018) and
$7 million
for the six months ended June 30, 2019 (
$28 million
for the six months ended June 30, 2018).
|
|
|
|
2.
|
Relates to the separation from DowDuPont. See Note
3
for additional information.
|
|
|
|
|
3.
|
Relates to the pending acquisition of full ownership in a propylene oxide manufacturing joint venture, which is expected to occur in the fourth quarter of 2019. See Note
21
for additional information. As a result of this arrangement, the carrying value of the noncontrolling interest was removed, a liability of
$283 million
was recognized, and “Additional paid-in capital” was adjusted by
$29 million
. After adjustment for subsequent dividends of
$127 million
, paid to the noncontrolling interest holder in the second quarter of 2019, the liability at June 30, 2019 was
$156 million
and is reflected in “Accrued and other current liabilities” in the consolidated balance sheets.
|
NOTE
17
– PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
As a result of the Company’s separation from DowDuPont, the number of defined benefit pension plans administered by the Company decreased from
45
plans to
35
plans, of which approximately
$270 million
of net unfunded pension liabilities transferred to DowDuPont. Plans administered by other subsidiaries of DowDuPont that were transferred to the Company were not significant. There were no changes in the number of other postretirement benefit plans administered by the Company as a result of the separation. Existing Company plans that were significantly impacted by the transfer of active plan participants to DowDuPont were remeasured, resulting in curtailment gains and losses and recognition of special termination benefits.
A summary of the Company's pension plans and other postretirement benefits can be found in Note 19 to the Consolidated Financial Statements included in TDCC’s Annual Report on Form 10-K for the year ended December 31, 2018. 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,
2019
|
Jun 30,
2018
|
Jun 30,
2019
|
Jun 30,
2018
|
|
Defined Benefit Pension Plans:
|
|
|
|
|
|
Service cost
|
$
|
95
|
|
$
|
132
|
|
$
|
207
|
|
$
|
265
|
|
|
Interest cost
|
227
|
|
217
|
|
468
|
|
435
|
|
|
Expected return on plan assets
|
(421
|
)
|
(404
|
)
|
(838
|
)
|
(810
|
)
|
|
Amortization of prior service credit
|
(5
|
)
|
(6
|
)
|
(11
|
)
|
(12
|
)
|
|
Amortization of net loss
|
147
|
|
170
|
|
279
|
|
341
|
|
|
Curtailment/special termination benefits
1
|
(27
|
)
|
—
|
|
(27
|
)
|
—
|
|
|
Net periodic benefit cost
|
$
|
16
|
|
$
|
109
|
|
$
|
78
|
|
$
|
219
|
|
|
Less: discontinued operations
|
—
|
|
25
|
|
21
|
|
50
|
|
|
Net periodic benefit cost - continuing operations
|
$
|
16
|
|
$
|
84
|
|
$
|
57
|
|
$
|
169
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits:
|
|
|
|
|
|
Service cost
|
$
|
2
|
|
$
|
3
|
|
$
|
4
|
|
$
|
6
|
|
|
Interest cost
|
12
|
|
11
|
|
26
|
|
22
|
|
|
Amortization of net gain
|
(5
|
)
|
(6
|
)
|
(11
|
)
|
(12
|
)
|
|
Curtailment/special termination benefits
1
|
(3
|
)
|
—
|
|
(3
|
)
|
—
|
|
|
Net periodic benefit cost
|
$
|
6
|
|
$
|
8
|
|
$
|
16
|
|
$
|
16
|
|
|
Less: discontinued operations
|
—
|
|
1
|
|
—
|
|
2
|
|
|
Net periodic benefit cost - continuing operations
|
$
|
6
|
|
$
|
7
|
|
$
|
16
|
|
$
|
14
|
|
|
|
|
|
1.
|
The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation by employees transferred to DowDuPont.
|
Net periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
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
$285 million
to its pension plans in 2019, of which
$152 million
has been contributed through
June 30, 2019
.
NOTE
18
– STOCK-BASED COMPENSATION
A summary of the Company's stock-based compensation plans can be found in Note 20 to the Consolidated Financial Statements included in TDCC’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
Stock Incentive Plan
The Company grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, restricted stock units ("RSUs") (formerly termed deferred stock) and restricted stock. The Company also provides stock-based compensation in the form of performance stock units ("PSUs") (formerly termed performance deferred stock).
The Company has historically granted stock-based compensation to employees and non-employee directors under The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Plan"). In connection with the Merger, on August 31, 2017 ("Conversion Date") all outstanding TDCC stock options and RSU awards were converted into stock options and RSU awards with respect to DowDuPont common stock. The stock options and RSU awards had the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested PSU awards were converted into RSU awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. TDCC and Historical DuPont did not merge their stock-based compensation plans as a result of the Merger. TDCC and Historical DuPont stock-based compensation plans were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation. There was minimal grant activity in the first quarter of 2019.
In connection with the separation on April 1, 2019, outstanding stock options, RSU and PSU awards were converted to Dow Inc. denominated awards under the “Employer Method,” or DowDuPont denominated awards under the “Shareholder Method,” and adjusted to maintain the intrinsic value of those awards before and after the date of the separation. In connection with the Corteva separation transaction on June 3, 2019, the outstanding DowDuPont denominated stock options, RSU and PSU awards were converted to Corteva and DuPont denominated awards and adjusted to maintain the intrinsic value of those awards before and after the date of the Corteva separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the separation transactions.
The conversions of stock awards resulted in
no
incremental compensation expense. Approximately
5,000
employees were impacted by the conversion on April 1, 2019 in connection with the separation. Approximately
4,000
employees were impacted by the conversion on June 3, 2019 in connection with the Corteva separation transaction.
On April 1, 2019 ("Original Effective Date"), in connection with the separation, the Company adopted the 2019 Stock Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company may grant stock options, RSUs, PSUs, restricted stock, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the Original Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. In the second quarter of 2019, Dow Inc. granted the following stock-based compensation awards to employees and non-employee directors:
|
|
|
|
•
|
1.6 million
stock options with a weighted-average exercise price of
$54.89
and a weighted-average fair value of
$7.99
per share;
|
|
|
|
|
•
|
1.8 million
RSUs with a weighted-average fair value of
$54.85
per share; and
|
|
|
|
|
•
|
1.2 million
PSUs with a weighted-average fair value of
$57.58
per share.
|
NOTE
19
– FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments, risk management policies, derivative instruments and hedging activities can be found in Note 21 of the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended
December 31, 2018
. If applicable, updates have been included in the respective section below.
The following table summarizes the fair value of financial instruments at
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
Cost
|
Gain
|
Loss
|
Fair Value
|
Cost
|
Gain
|
Loss
|
Fair Value
|
|
Cash equivalents
|
$
|
530
|
|
$
|
—
|
|
$
|
—
|
|
$
|
530
|
|
$
|
566
|
|
$
|
—
|
|
$
|
—
|
|
$
|
566
|
|
|
Marketable securities
|
$
|
20
|
|
$
|
—
|
|
$
|
—
|
|
$
|
20
|
|
$
|
100
|
|
$
|
—
|
|
$
|
—
|
|
$
|
100
|
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
Government debt
1
|
$
|
540
|
|
$
|
28
|
|
$
|
(5
|
)
|
$
|
563
|
|
$
|
714
|
|
$
|
9
|
|
$
|
(23
|
)
|
$
|
700
|
|
|
Corporate bonds
|
1,054
|
|
63
|
|
(13
|
)
|
1,104
|
|
1,026
|
|
20
|
|
(63
|
)
|
983
|
|
|
Total debt securities
|
$
|
1,594
|
|
$
|
91
|
|
$
|
(18
|
)
|
$
|
1,667
|
|
$
|
1,740
|
|
$
|
29
|
|
$
|
(86
|
)
|
$
|
1,683
|
|
|
Equity securities
2
|
15
|
|
7
|
|
(1
|
)
|
21
|
|
16
|
|
1
|
|
(1
|
)
|
16
|
|
|
Total other investments
|
$
|
1,609
|
|
$
|
98
|
|
$
|
(19
|
)
|
$
|
1,688
|
|
$
|
1,756
|
|
$
|
30
|
|
$
|
(87
|
)
|
$
|
1,699
|
|
|
Total cash equivalents, marketable securities and other investments
|
$
|
2,159
|
|
$
|
98
|
|
$
|
(19
|
)
|
$
|
2,238
|
|
$
|
2,422
|
|
$
|
30
|
|
$
|
(87
|
)
|
$
|
2,365
|
|
|
Long-term debt including debt due within one year
3
|
$
|
(17,452
|
)
|
$
|
2
|
|
$
|
(1,922
|
)
|
$
|
(19,372
|
)
|
$
|
(19,591
|
)
|
$
|
351
|
|
$
|
(972
|
)
|
$
|
(20,212
|
)
|
|
Derivatives relating to:
|
|
|
|
|
|
|
|
|
|
Interest rates
4
|
$
|
—
|
|
$
|
11
|
|
$
|
(225
|
)
|
$
|
(214
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(64
|
)
|
$
|
(64
|
)
|
|
Foreign currency
|
—
|
|
52
|
|
(38
|
)
|
14
|
|
—
|
|
120
|
|
(43
|
)
|
77
|
|
|
Commodities
4
|
—
|
|
84
|
|
(170
|
)
|
(86
|
)
|
—
|
|
91
|
|
(178
|
)
|
(87
|
)
|
|
Total derivatives
|
$
|
—
|
|
$
|
147
|
|
$
|
(433
|
)
|
$
|
(286
|
)
|
$
|
—
|
|
$
|
211
|
|
$
|
(285
|
)
|
$
|
(74
|
)
|
1. U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
|
|
|
|
2.
|
Equity securities with a readily determinable fair value.
|
|
|
|
|
3.
|
Cost includes fair value hedge adjustments of
$1 million
at
June 30, 2019
and
$18 million
at
December 31, 2018
on
$2,590 million
of debt at
June 30, 2019
and
$2,290 million
of debt at
December 31, 2018
.
|
|
|
|
|
4.
|
Presented net of cash collateral where master netting arrangements allow.
|
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
six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
Investing Results
|
Six Months Ended
|
|
In millions
|
Jun 30,
2019
|
Jun 30,
2018
|
|
Proceeds from sales of available-for-sale securities
|
$
|
534
|
|
$
|
625
|
|
|
Gross realized gains
|
$
|
22
|
|
$
|
15
|
|
|
Gross realized losses
|
$
|
(10
|
)
|
$
|
(18
|
)
|
Equity Securities
The Company’s investments in equity securities with a readily determinable fair value totaled
$21 million
at
June 30, 2019
(
$16 million
at
December 31, 2018
). The aggregate carrying value of the Company’s investments in equity securities where fair value is not readily determinable totaled
$206 million
at
June 30, 2019
(
$204 million
at
December 31, 2018
), reflecting the carrying value of the investments. There were no adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the three and six months ended
June 30, 2019
and
2018
. The net unrealized gain recognized in earnings on equity securities totaled
$1 million
for the
three
months ended
June 30, 2019
(
$1 million
net unrealized loss for the
three
months ended
June 30, 2018
) and a net unrealized gain of
$6 million
for the
six
months ended
June 30, 2019
(
$8 million
net unrealized gain for the
six
months ended
June 30, 2018
).
Derivatives
The following tables provide the fair value and balance sheet classification of derivative instruments at
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
Jun 30, 2019
|
|
In millions
|
Balance Sheet Classification
|
Gross
|
Counterparty and Cash Collateral Netting
1
|
Net Amounts Included in the Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
Other current assets
|
$
|
11
|
|
$
|
—
|
|
$
|
11
|
|
|
Foreign currency contracts
|
Other current assets
|
104
|
|
(85
|
)
|
19
|
|
|
Commodity contracts
|
Other current assets
|
53
|
|
(17
|
)
|
36
|
|
|
Commodity contracts
|
Deferred charges and other assets
|
42
|
|
(7
|
)
|
35
|
|
|
Total
|
|
$
|
210
|
|
$
|
(109
|
)
|
$
|
101
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
Other current assets
|
$
|
1
|
|
$
|
(1
|
)
|
$
|
—
|
|
|
Foreign currency contracts
|
Other current assets
|
44
|
|
(11
|
)
|
33
|
|
|
Commodity contracts
|
Other current assets
|
14
|
|
(4
|
)
|
10
|
|
|
Commodity contracts
|
Deferred charges and other assets
|
4
|
|
(1
|
)
|
3
|
|
|
Total
|
|
$
|
63
|
|
$
|
(17
|
)
|
$
|
46
|
|
|
Total asset derivatives
|
|
$
|
273
|
|
$
|
(126
|
)
|
$
|
147
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
Accrued and other current liabilities
|
$
|
98
|
|
$
|
—
|
|
$
|
98
|
|
|
Interest rate contracts
|
Other noncurrent obligations
|
127
|
|
—
|
|
127
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
116
|
|
(85
|
)
|
31
|
|
|
Commodity contracts
|
Accrued and other current liabilities
|
117
|
|
(20
|
)
|
97
|
|
|
Commodity contracts
|
Other noncurrent obligations
|
57
|
|
(12
|
)
|
45
|
|
|
Total
|
|
$
|
515
|
|
$
|
(117
|
)
|
$
|
398
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
Accrued and other current liabilities
|
$
|
2
|
|
$
|
(2
|
)
|
$
|
—
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
18
|
|
(11
|
)
|
7
|
|
|
Commodity contracts
|
Accrued and other current liabilities
|
31
|
|
(6
|
)
|
25
|
|
|
Commodity contracts
|
Other noncurrent obligations
|
4
|
|
(1
|
)
|
3
|
|
|
Total
|
|
$
|
55
|
|
$
|
(20
|
)
|
$
|
35
|
|
|
Total liability derivatives
|
|
$
|
570
|
|
$
|
(137
|
)
|
$
|
433
|
|
|
|
|
|
1.
|
Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
Dec 31, 2018
|
|
In millions
|
Balance Sheet Classification
|
Gross
|
Counterparty and Cash Collateral Netting
1
|
Net Amounts Included in the Consolidated Balance Sheet
|
|
Asset derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
98
|
|
$
|
(42
|
)
|
$
|
56
|
|
|
Commodity contracts
|
Other current assets
|
47
|
|
(13
|
)
|
34
|
|
|
Commodity contracts
|
Deferred charges and other assets
|
18
|
|
(3
|
)
|
15
|
|
|
Total
|
|
$
|
163
|
|
$
|
(58
|
)
|
$
|
105
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
128
|
|
$
|
(64
|
)
|
$
|
64
|
|
|
Commodity contracts
|
Other current assets
|
41
|
|
(1
|
)
|
40
|
|
|
Commodity contracts
|
Deferred charges and other assets
|
4
|
|
(2
|
)
|
2
|
|
|
Total
|
|
$
|
173
|
|
$
|
(67
|
)
|
$
|
106
|
|
|
Total asset derivatives
|
|
$
|
336
|
|
$
|
(125
|
)
|
$
|
211
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Interest rate swaps
|
Other noncurrent obligations
|
$
|
64
|
|
$
|
—
|
|
$
|
64
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
46
|
|
(42
|
)
|
4
|
|
|
Commodity contracts
|
Accrued and other current liabilities
|
111
|
|
(18
|
)
|
93
|
|
|
Commodity contracts
|
Other noncurrent obligations
|
86
|
|
(9
|
)
|
77
|
|
|
Total
|
|
$
|
307
|
|
$
|
(69
|
)
|
$
|
238
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Accrued and other current liabilities
|
$
|
103
|
|
$
|
(64
|
)
|
$
|
39
|
|
|
Commodity contracts
|
Accrued and other current liabilities
|
7
|
|
(4
|
)
|
3
|
|
|
Commodity contracts
|
Other noncurrent obligations
|
8
|
|
(3
|
)
|
5
|
|
|
Total
|
|
$
|
118
|
|
$
|
(71
|
)
|
$
|
47
|
|
|
Total liability derivatives
|
|
$
|
425
|
|
$
|
(140
|
)
|
$
|
285
|
|
|
|
|
|
1.
|
Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
|
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
$36 million
at
June 30, 2019
(
$26 million
at
December 31, 2018
). There was
no
counterparty cash collateral posted with the Company at
June 30, 2019
(
$34 million
at
December 31, 2018
).
Net Foreign Investment Hedges
For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or loss on the derivative is included in “Cumulative Translation Adjustments” in AOCL. The Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of
$186 million
at
June 30, 2019
(
$182 million
at
December 31, 2018
). For the
six
months ended
June 30, 2019
, the results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss of
$101 million
after tax (net gain of
$53 million
after tax for the
six
months ended
June 30, 2018
). The Company recognized after-tax gains of
$66 million
related to excluded components of net foreign investment hedges included in “Cumulative Translation Adjustments” in AOCL for the
three
months ended
June 30, 2019
and after-tax gains of
$152 million
for the
six
months ended
June 30, 2019
. For the
three
months ended
June 30, 2019
, gains of
$25 million
were amortized to “Sundry income (expense) - net” in the consolidated statements of income. For the
six
months ended
June 30, 2019
, gains of
$50 million
were amortized to “Sundry income (expense) - net” in the consolidated statements of income.
Cash Flow Hedges
For derivatives that are designated and qualify as cash flow hedging instruments, the gain or loss on the derivative is recorded in AOCL; it is reclassified to income in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCL fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCL and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period.
For the
six
months ended
June 30, 2019
, the Company terminated certain interest rate contracts and realized net losses in AOCL of
$113 million
after tax. The net loss from open and realized interest rate contract hedges included in AOCL at
June 30, 2019
was
$213 million
after tax (net gain of
$23 million
after tax at
December 31, 2018
).
Fair Value Hedges
For interest rate instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedge item attributable to the hedged risk are recognized in current period income and reflected as “Interest expense and amortization of debt discount” in the consolidated statements of income, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.
During the second quarter of 2019, the Company entered into interest rate contracts designated as fair value hedges of underlying fixed rate debt obligations with maturity dates extending through 2048. The fair value adjustment resulting from these contracts was a net gain on the derivative of
$16 million
, with a net loss of
$4 million
after tax for excluded components recognized in AOCL.
Income Statement Effect of Derivative Instruments
Foreign currency derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The amounts charged on a pretax basis related to foreign currency derivatives not designated as a hedge, which were included in “Sundry income (expense) - net” in the consolidated statements of income, were a gain of
$38 million
for the
three
months ended
June 30, 2019
(gain of
$82 million
for the
three
months ended
June 30, 2018
) and a gain of
$6 million
for the
six
months ended
June 30, 2019
(gain of
$65 million
for the
six
months ended
June 30, 2018
). The income statement effects of other derivatives were immaterial.
Reclassification from AOCL
The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a
$1 million
gain for interest rate contracts, a
$49 million
loss for commodity contracts, a
$6 million
gain for foreign currency contracts and a
$60 million
gain for excluded components.
NOTE
20
– FAIR VALUE MEASUREMENTS
A summary of the Company's recurring and nonrecurring fair value measurements can be found in Note 22 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended
December 31, 2018
. If applicable, updates have been included in the respective section below.
Fair Value Measurements on a Recurring Basis
The following tables summarize 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, 2019
|
Dec 31, 2018
|
|
Quoted Prices in Active Markets for Identical Items
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Total
|
Quoted Prices in Active Markets for Identical Items
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Total
|
|
In millions
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
Cash equivalents
1
|
$
|
—
|
|
$
|
530
|
|
$
|
530
|
|
$
|
—
|
|
$
|
566
|
|
$
|
566
|
|
|
Marketable securities
|
—
|
|
20
|
|
20
|
|
—
|
|
100
|
|
100
|
|
|
Equity securities
2
|
21
|
|
—
|
|
21
|
|
16
|
|
—
|
|
16
|
|
|
Debt securities:
2
|
|
|
|
|
|
|
|
Government debt
3
|
—
|
|
563
|
|
563
|
|
—
|
|
700
|
|
700
|
|
|
Corporate bonds
|
22
|
|
1,082
|
|
1,104
|
|
—
|
|
983
|
|
983
|
|
|
Derivatives relating to:
4
|
|
|
|
|
|
|
|
Interest rates
|
—
|
|
12
|
|
12
|
|
—
|
|
—
|
|
—
|
|
|
Foreign currency
|
—
|
|
148
|
|
148
|
|
—
|
|
226
|
|
226
|
|
|
Commodities
|
15
|
|
98
|
|
113
|
|
17
|
|
93
|
|
110
|
|
|
Total assets at fair value
|
$
|
58
|
|
$
|
2,453
|
|
$
|
2,511
|
|
$
|
33
|
|
$
|
2,668
|
|
$
|
2,701
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
Long-term debt including debt due within one year
5
|
$
|
—
|
|
$
|
19,372
|
|
$
|
19,372
|
|
$
|
—
|
|
$
|
20,212
|
|
$
|
20,212
|
|
|
Derivatives relating to:
4
|
|
|
|
|
|
|
|
Interest rates
|
—
|
|
227
|
|
227
|
|
—
|
|
64
|
|
64
|
|
|
Foreign currency
|
—
|
|
134
|
|
134
|
|
—
|
|
149
|
|
149
|
|
|
Commodities
|
18
|
|
191
|
|
209
|
|
23
|
|
189
|
|
212
|
|
|
Total liabilities at fair value
|
$
|
18
|
|
$
|
19,924
|
|
$
|
19,942
|
|
$
|
23
|
|
$
|
20,614
|
|
$
|
20,637
|
|
|
|
|
|
1.
|
Treasury bills, time deposits, and money market funds included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized cost, which approximates fair value.
|
|
|
|
|
2.
|
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.
|
|
|
|
|
3.
|
U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
|
|
|
|
|
4.
|
See Note
19
for the classification of derivatives in the consolidated balance sheets.
|
|
|
|
|
5.
|
See Note
19
for information on fair value measurements of long-term debt.
|
For equity securities calculated at net asset value per share (or its equivalent), the Company had
$122 million
in private market securities and
$29 million
in real estate at
June 30, 2019
(
$120 million
in private market securities and
$29 million
in real estate at
December 31, 2018
). There are no redemption restrictions and the unfunded commitments on these investments were
$86 million
at
June 30, 2019
(
$89 million
at
December 31, 2018
).
Fair Value Measurements on a Nonrecurring Basis
As part of the Synergy Program, the Company has or will shut down a number of manufacturing and corporate facilities around the world. In the first six months of 2019, manufacturing facilities associated with this plan were written down to zero. In addition, impairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to
$104 million
using unobservable inputs. The impairment charges related to the Synergy Program, totaling
$105 million
, were included in "Restructuring and asset related charges - net" in the consolidated statements of income.
In the first six months of 2019, the Company recognized an additional pretax impairment charge of
$18 million
related primarily to capital additions made to the biopolymers manufacturing facility in Santa Vitoria, Minas Gerais, Brazil, that was impaired in 2017. The assets were written down to zero in 2019. The impairment charge was included in “Restructuring and asset related charges - net” in the consolidated statements of income. See Note
5
for additional information on the Company's restructuring activities.
NOTE
21
– VARIABLE INTEREST ENTITIES
A summary of the Company's variable interest entities ("VIEs") can be found in Note 23 to the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended December 31, 2018.
Assets and Liabilities of Consolidated VIEs
The Company's consolidated financial statements include the assets, liabilities and results of operations of VIEs for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in “Net income attributable to noncontrolling interests” in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.
The following table summarizes the carrying amounts of these entities' assets and liabilities included in the Company’s consolidated balance sheets at
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities of Consolidated VIEs
|
Jun 30,
2019
|
Dec 31,
2018
|
|
In millions
|
|
Cash and cash equivalents
|
$
|
26
|
|
$
|
71
|
|
|
Other current assets
|
101
|
|
101
|
|
|
Net property
|
657
|
|
683
|
|
|
Other noncurrent assets
|
23
|
|
14
|
|
|
Total assets
1
|
$
|
807
|
|
$
|
869
|
|
|
Current liabilities
|
$
|
436
|
|
$
|
307
|
|
|
Long-term debt
|
45
|
|
75
|
|
|
Other noncurrent obligations
|
22
|
|
14
|
|
|
Total liabilities
2
|
$
|
503
|
|
$
|
396
|
|
|
|
|
|
1.
|
All assets were restricted at
June 30, 2019
and
December 31, 2018
.
|
|
|
|
|
2.
|
All liabilities were nonrecourse at
June 30, 2019
and
December 31, 2018
.
|
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at
June 30, 2019
and
December 31, 2018
are adjusted for intercompany eliminations and parental guarantees.
The Company is a 50 percent indirect owner in a propylene oxide ("PO") manufacturing joint venture in Asia Pacific. The Company has a variable interest in this joint venture relating to arrangements between the joint venture and the Company involving the majority of the output on take-or-pay terms, with pricing ensuring a guaranteed return to the joint venture. On April 30, 2019, the Company executed an agreement to acquire full ownership in the PO manufacturing joint venture for an estimated cash purchase price of
$312 million
, with an expected closing date in the fourth quarter of 2019. Approximately half of the purchase price is expected to be attributed to the Company’s proportionate equity interest in the entity that owns the PO manufacturing joint venture.
Nonconsolidated VIEs
The following table summarizes the carrying amounts of assets included in the consolidated balance sheets at
June 30, 2019
and
December 31, 2018
, 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, unless otherwise noted below.
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amounts of Assets Related to Nonconsolidated VIEs
|
|
Jun 30,
2019
|
Dec 31,
2018
|
|
In millions
|
Description of asset
|
|
Silicon joint ventures
|
Equity method investments
1
|
$
|
98
|
|
$
|
100
|
|
|
AgroFresh Solutions, Inc.
|
Equity method investment
1
|
$
|
31
|
|
$
|
48
|
|
|
Other receivable
2
|
$
|
8
|
|
$
|
8
|
|
|
|
|
|
1.
|
Classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
|
|
|
|
|
2.
|
Classified as "Accounts and notes receivable - Other" in the consolidated balance sheets.
|
NOTE
22
– RELATED PARTY TRANSACTIONS
Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. and reported transactions with Dow Inc. as related party transactions. From the Merger date through March 31, 2019, TDCC reported transactions with DowDuPont and Historical DuPont and its affiliates as related party transactions.
TDCC
TDCC committed to fund Dow Inc.'s dividends paid to common stockholders, share repurchases and certain governance expenses. Funding was accomplished through intercompany loans. At June 30, 2019, TDCC's outstanding intercompany loan balance with Dow Inc. was
$1,147 million
, included in "Notes payable" in the consolidated balance sheets.
DowDuPont
Pursuant to the Merger Agreement, TDCC committed to fund a portion of DowDuPont's dividends paid to common stockholders and certain governance expenses. In addition, share repurchases by DowDuPont were partially funded by TDCC through 2018. Funding was accomplished through intercompany loans. On a quarterly basis, TDCC's Board reviewed and determined a dividend distribution to DowDuPont to settle the intercompany loans. The dividend distribution considered the level of TDCC’s earnings and cash flows and the outstanding intercompany loan balances. For the three months ended March 31,
2019
, TDCC declared and paid dividends to DowDuPont of
$535 million
(
$1,053 million
and
$2,110 million
for the three and
six
months ended June 30, 2018, respectively). In addition, at
December 31, 2018
, TDCC had a receivable related to a tax sharing agreement with DowDuPont of
$89 million
, included in "Accounts and notes receivable - Other" in the consolidated balance sheets.
Historical DuPont and its Affiliates
TDCC sold to and procured from Historical DuPont and its affiliates certain raw materials that were consumed in each company's manufacturing process. The following table presents amounts due to or due from Historical DuPont and its affiliates:
|
|
|
|
|
|
|
|
|
|
|
Balances Due To or Due From Historical DuPont and its Affiliates
|
Jun 30, 2019
|
Dec 31, 2018
|
|
In millions
|
|
Accounts and notes receivable - Other
|
$
|
—
|
|
$
|
89
|
|
|
Accounts payable - Other
|
$
|
—
|
|
$
|
19
|
|
The following table presents revenue earned and expenses incurred related to transactions with Historical DuPont and its affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Historical DuPont and its Affiliates
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2019
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Net sales
|
$
|
—
|
|
$
|
13
|
|
$
|
12
|
|
$
|
25
|
|
|
Cost of sales
|
$
|
—
|
|
$
|
11
|
|
$
|
9
|
|
$
|
20
|
|
Purchases from Historical DuPont and its affiliates were insignificant for the three months ended March 31, 2019 and the three and
six
months ended June 30, 2018.
NOTE
23
– SEGMENTS AND GEOGRAPHIC REGIONS
Dow combines one of the broadest technology sets in the industry with asset integration, focused innovation and global scale to achieve profitable growth and become the most innovative, customer centric, inclusive and sustainable materials science company. Dow’s portfolio of performance materials, industrial intermediates and plastics businesses delivers a broad range of differentiated science-based products and solutions for our customers in high-growth segments, such as packaging, infrastructure and consumer care.
Effective with the Merger, TDCC's business activities were components of DowDuPont's business operations and were reported as a single operating segment. Following the separation from DowDuPont, the Company changed the manner in which its business activities were managed. The Company's portfolio now includes six global businesses which are organized into the following operating segments: Performance Materials & Coatings, Industrial Intermediates & Infrastructure and Packaging & Specialty Plastics. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. The Company did not aggregate any operating segments when determining its reportable segments.
Following the separation from DowDuPont, the Company changed its practice of transferring ethylene to its downstream derivative businesses at cost to transferring ethylene at market prices. The Company also changed certain of its Corporate segment allocation practices including costs previously assigned to AgCo and SpecCo, which are now allocated to the operating segments. These changes have been consistently applied to all periods presented.
Dow reported geographic information for the following regions: U.S. & Canada, Asia Pacific, Latin America and EMEAI. As a result of the separation from DowDuPont, the Company changed the geographic alignment for the country of India to be reflected in EMEAI (previously reported in Asia Pacific).
Dow’s measure of profit/loss for segment reporting purposes is pro forma Operating EBIT (for the six months ended June 30, 2019 and the three and six months ended June 30, 2018) and Operating EBIT (for the three months ended June 30, 2019) as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines pro forma Operating EBIT as earnings (i.e., "Income from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. The Company defines Operating EBIT as earnings (i.e., "Income from continuing operations before income taxes") before interest, excluding the impact of significant items. Pro forma Operating EBIT and Operating EBIT by segment include all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate. These measures have been reflected retrospectively for all periods presented, and reconciliations of these measures are provided at the end of this footnote. The Company also presents pro forma net sales for the six months ended June 30, 2019 and the three and six months ended June 30, 2018 in this footnote as it is included in management's measure of segment performance and is regularly reviewed by the CODM. Pro forma net sales includes the impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont.
Corporate Profile
Dow conducts its worldwide operations through global businesses which are reflected in the following reportable segments:
Performance Materials & Coatings
Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumer and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings, home care and personal care end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.
Coatings & Performance Monomers
Coatings & Performance Monomers consists of two businesses: Coating Materials and Performance Monomers. The Coating Materials business makes critical ingredients and additives that help advance the performance of paints and coatings. The business offers innovative and sustainable products to accelerate paint and coatings performance across diverse market segments, including architectural paints and coatings, as well as industrial coatings applications used in maintenance and protective industries, wood, metal packaging, traffic markings, thermal paper and leather. These products enhance coatings by improving hiding and coverage characteristics, enhancing durability against nature and the elements, reducing volatile organic compounds (“VOC”) content, reducing maintenance and improving ease of application. The Performance Monomers business manufactures critical building blocks based on acrylics needed for the production of coatings, textiles, and home and personal care products.
Consumer Solutions
Consumer Solutions consists of three businesses: Performance Silicones; Silicone Feedstocks & Intermediates; and Home & Personal Care. Performance Silicones uses innovative, versatile silicone-based technology to provide ingredients and solutions to customers in high performance building, consumer goods, elastomeric applications and the pressure sensitive adhesives industry that help them meet modern consumer preferences in attributes such as texture, feel, scent, durability and consistency. The Company’s wide array of silicone-based products and solutions enables customers to: increase the appeal of their products; extend shelf life; improve performance of products under a wider range of conditions; and provide a more sustainable offering. Silicone Feedstocks & Intermediates provides standalone silicone materials that are used as intermediates in a wide range of applications including adhesion promoters, coupling agents, crosslinking agents, dispersing agents and surface modifiers. The Home & Personal Care business collaborates closely with global and regional brand owners to deliver innovative solutions for creating new and unrivaled consumer benefits and experiences in cleaning, laundry and skin and hair care applications, among others.
Industrial Intermediates & Infrastructure
Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others.
Industrial Solutions
Industrial Solutions is the world’s largest producer of purified ethylene oxide. It provides a broad portfolio of solutions that address world needs by enabling and improving the manufacture of consumer and industrial goods and services. The business’ solutions minimize friction and heat in mechanical processes, manage the oil and water interface, deliver ingredients for maximum effectiveness, facilitate dissolvability, enable product identification and provide the foundational building blocks for the development of chemical technologies. The business supports manufacturers associated with a large variety of end-markets, notably better crop protection offerings in agriculture, coatings, detergents and cleaners, solvents for electronics processing, inks and textiles.
Polyurethanes & Construction Chemicals
Polyurethanes & Construction Chemicals consists of three businesses: Polyurethanes, Chlor-Alkali & Vinyl (“CAV”) and Construction Chemicals (“DCC”). The Polyurethanes business is the world’s largest producer of propylene oxide, propylene glycol and polyether polyols, and a leading producer of aromatic isocyanates and fully formulated polyurethane systems for rigid, semi-rigid and flexible foams, and coatings, adhesives, sealants, elastomers and composites that serve energy efficiency, consumer comfort, industrial and enhanced mobility market sectors. The CAV business provides cost-advantaged chlorine and caustic soda supply and markets caustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer. The DCC business provides cellulose ethers, redispersible latex powders, silicones and acrylic emulsions used as key building blocks for differentiated building and construction materials across many market segments and applications ranging from roofing and flooring to gypsum-, cement-, concrete- or dispersion-based building materials.
Joint Ventures
This segment includes a portion of the Company's share of the results of the following joint ventures:
|
|
|
|
•
|
EQUATE - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned
42.5 percent
by the Company.
|
|
|
|
|
•
|
The Kuwait Olefins Company K.S.C.C. (“TKOC”) - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned
42.5 percent
by the Company.
|
|
|
|
|
•
|
Map Ta Phut Olefins Company Limited ("Map Ta Phut") - a Thailand-based company that manufactures propylene and ethylene; the Company has an effective ownership of
32.77 percent
(of which
20.27 percent
is owned directly by the Company and aligned with the Industrial Intermediates & Infrastructure segment and
12.5 percent
is owned indirectly through the Company’s equity interest in Siam Polyethylene Company Limited, an entity that is part of The SCG-Dow Group and aligned with the Packaging & Specialty Plastics segment).
|
|
|
|
|
•
|
Sadara - a Saudi Arabian company that manufactures chlorine, ethylene, propylene and aromatics for internal consumption and manufactures and sells polyethylene, ethylene oxide and propylene oxide derivative products, and isocyanates; owned
35 percent
by the Company.
|
Packaging & Specialty Plastics
Packaging & Specialty Plastics is a world leader in plastics and consists of two highly integrated global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The segment employs the industry’s broadest polyolefin product portfolio, supported by the Company’s proprietary catalyst and manufacturing process technologies, to work at the customer’s design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; and infrastructure.
The Company’s unique advantages compared with its competitors include: the Company’s extensive low-cost feedstock positions around the world; unparalleled scale, footprint, and market reach, with world-class manufacturing sites in every geography; deep customer and brand owner understanding; and market-driven application development and technical support.
The segment remains agile and adaptive by participating in the entire ethylene-to-polyethylene chain integration, enabling the Company to manage market swings, and therefore optimize returns while reducing long-term earnings volatility. The Company’s unrivaled value chain ownership, combined with its Pack Studio locations in every geography, which help customers and brand owners deliver faster and more efficient packaging product commercialization through a global network of laboratories, technical experts and testing equipment, together differentiate the Company from its competitors.
Hydrocarbons & Energy
Hydrocarbons & Energy is the largest global producer of ethylene, an internal feedstock that is consumed primarily within the Packaging & Specialty Plastics segment. In addition to ethylene, the business is a leading producer of propylene and aromatics products that are used to manufacture materials that consumers use every day. The business also produces and procures the power and feedstocks used by the Company’s manufacturing sites.
Packaging and Specialty Plastics
Packaging and Specialty Plastics serves growing, high-value sectors using world-class technology, broad existing product lines, and a rich product pipeline that creates competitive advantages for the entire packaging value chain. The business is also a leader in polyolefin elastomers and ethylene propylene diene monomer ("EPDM") rubber serving automotive, consumer, wire and cable and construction markets. Market growth is expected to be driven by major shifts in population demographics; improving socioeconomic status in emerging geographies; consumer and brand owner demand for increased functionality; global efforts to reduce food waste; growth in telecommunications networks; global development of electrical transmission and distribution infrastructure; and renewable energy applications.
Joint Ventures
This segment also includes the results of the following joint ventures of the Company, as well as a portion of the results of EQUATE, TKOC, Map Ta Phut and Sadara:
|
|
|
|
•
|
The Kuwait Styrene Company K.S.C.C. - a Kuwait-based company that manufactures styrene monomer; owned
42.5 percent
by the Company.
|
|
|
|
|
•
|
The SCG-Dow Group - a group of Thailand-based companies (consisting of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; and Siam Synthetic Latex Company Limited) that manufacture polyethylene, polystyrene, styrene, latex and specialty elastomers; owned
50 percent
by the Company.
|
Corporate
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; gains and losses on sales of financial assets; non-business aligned litigation expenses; and discontinued or non-aligned businesses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information
|
Perf. Materials & Coatings
|
Ind. Interm. & Infrast.
|
Pack. & Spec. Plastics
|
Corp.
|
Total
|
|
In millions
|
|
Three months ended Jun 30, 2019
|
|
|
|
|
|
|
Net sales
|
$
|
2,356
|
|
$
|
3,342
|
|
$
|
5,205
|
|
$
|
111
|
|
$
|
11,014
|
|
|
Equity in earnings (losses) of nonconsolidated affiliates
|
1
|
|
(78
|
)
|
74
|
|
(12
|
)
|
(15
|
)
|
|
Dow Inc. Operating EBIT
1
|
214
|
|
154
|
|
768
|
|
(77
|
)
|
1,059
|
|
|
Three months ended Jun 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,624
|
|
$
|
3,969
|
|
$
|
6,124
|
|
$
|
72
|
|
$
|
12,789
|
|
|
Pro forma net sales
|
2,673
|
|
3,972
|
|
6,134
|
|
72
|
|
12,851
|
|
|
Equity in earnings (losses) of nonconsolidated affiliates
|
1
|
|
96
|
|
108
|
|
(12
|
)
|
193
|
|
|
Pro forma Operating EBIT
|
292
|
|
502
|
|
926
|
|
(81
|
)
|
1,639
|
|
|
Six months ended Jun 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
4,638
|
|
$
|
6,822
|
|
$
|
10,343
|
|
$
|
180
|
|
$
|
21,983
|
|
|
Pro forma net sales
|
4,676
|
|
6,831
|
|
10,343
|
|
180
|
|
22,030
|
|
|
Equity in earnings (losses) of nonconsolidated affiliates
|
1
|
|
(126
|
)
|
112
|
|
(16
|
)
|
(29
|
)
|
|
Dow Inc. pro forma Operating EBIT
2
|
485
|
|
431
|
|
1,458
|
|
(172
|
)
|
2,202
|
|
|
Six months ended Jun 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
4,951
|
|
$
|
7,767
|
|
$
|
12,162
|
|
$
|
146
|
|
$
|
25,026
|
|
|
Pro forma net sales
|
5,044
|
|
7,775
|
|
12,182
|
|
146
|
|
25,147
|
|
|
Equity in earnings (losses) of nonconsolidated affiliates
|
1
|
|
245
|
|
167
|
|
(19
|
)
|
394
|
|
|
Pro forma Operating EBIT
|
647
|
|
962
|
|
1,897
|
|
(170
|
)
|
3,336
|
|
|
|
|
|
1.
|
Operating EBIT for TDCC for the three months ended June 30, 2019 is substantially the same as that of Dow Inc. and therefore has not been disclosed separately in the table above. A reconciliation of "Income from continuing operations, net of tax" to Operating EBIT is provided below.
|
|
|
|
|
2.
|
Pro forma Operating EBIT for TDCC for the six months ended June 30, 2019 is substantially the same as that of Dow Inc. (same for the three and six months ended June 30, 2018) and therefore has not been disclosed separately in the table above. A reconciliation of "Income from continuing operations, net of tax" to pro forma Operating EBIT is provided below.
|
|
|
|
|
|
|
|
|
Reconciliation of "Income from continuing operations, net of tax" to Operating EBIT
|
Three Months Ended
|
|
In millions
|
Jun 30, 2019
|
|
Income from continuing operations, net of tax
|
$
|
90
|
|
|
+ Provision for income taxes on continuing operations
|
125
|
|
|
Income from continuing operations before income taxes
|
$
|
215
|
|
|
- Interest income
|
21
|
|
|
+ Interest expense and amortization of debt discount
|
237
|
|
|
- Significant items
|
(628
|
)
|
|
Operating EBIT
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of "Income from continuing operations, net of tax" to Pro Forma Operating EBIT
|
Three Months Ended
|
Six Months Ended
|
|
In millions
|
Jun 30, 2018
|
Jun 30, 2019
|
Jun 30, 2018
|
|
Income from continuing operations, net of tax
|
$
|
810
|
|
$
|
246
|
|
$
|
1,735
|
|
|
+ Provision for income taxes on continuing operations
|
249
|
|
266
|
|
475
|
|
|
Income from continuing operations before income taxes
|
$
|
1,059
|
|
$
|
512
|
|
$
|
2,210
|
|
|
- Interest income
|
18
|
|
39
|
|
38
|
|
|
+ Interest expense and amortization of debt discount
|
261
|
|
478
|
|
523
|
|
|
+ Pro forma adjustments
1
|
51
|
|
65
|
|
96
|
|
|
- Significant items
|
(286
|
)
|
(1,186
|
)
|
(545
|
)
|
|
Pro forma Operating EBIT
|
$
|
1,639
|
|
$
|
2,202
|
|
$
|
3,336
|
|
|
|
|
|
1.
|
Pro forma adjustments include (1) the margin impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont, (2) the removal of the amortization of ECP's inventory step-up recognized in connection with the Merger, and (3) the elimination of the impact of events directly attributable to the Merger, internal reorganization and business realignment, separation, distribution and other related transactions (e.g., one-time transaction costs).
|
The following tables summarize the pretax impact of significant items by segment that are excluded from Operating EBIT and pro forma Operating EBIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items by Segment
|
Three Months Ended Jun 30, 2019
|
Six Months Ended Jun 30, 2019
|
|
Perf. Mat. & Coatings
|
Ind. Interm. & Infrast.
|
Pack. & Spec. Plastics
|
Corp.
|
Total
|
Perf. Mat. & Coatings
|
Ind. Interm. & Infrast.
|
Pack. & Spec. Plastics
|
Corp.
|
Total
|
|
In millions
|
|
Indemnification and other transaction related costs
1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(127
|
)
|
$
|
(127
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(127
|
)
|
$
|
(127
|
)
|
|
Integration and separation costs
2
|
—
|
|
—
|
|
—
|
|
(348
|
)
|
(348
|
)
|
—
|
|
—
|
|
—
|
|
(750
|
)
|
(750
|
)
|
|
Restructuring and asset related charges - net
3
|
(22
|
)
|
—
|
|
(6
|
)
|
(37
|
)
|
(65
|
)
|
(22
|
)
|
—
|
|
(19
|
)
|
(180
|
)
|
(221
|
)
|
|
Loss on divestiture
4
|
—
|
|
—
|
|
—
|
|
(44
|
)
|
(44
|
)
|
—
|
|
—
|
|
—
|
|
(44
|
)
|
(44
|
)
|
|
Loss on early extinguishment of debt
5
|
—
|
|
—
|
|
—
|
|
(44
|
)
|
(44
|
)
|
—
|
|
—
|
|
—
|
|
(44
|
)
|
(44
|
)
|
|
Total
|
$
|
(22
|
)
|
$
|
—
|
|
$
|
(6
|
)
|
$
|
(600
|
)
|
$
|
(628
|
)
|
$
|
(22
|
)
|
$
|
—
|
|
$
|
(19
|
)
|
$
|
(1,145
|
)
|
$
|
(1,186
|
)
|
|
|
|
|
1.
|
Includes charges primarily associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
|
|
|
|
|
2.
|
Costs related to post-Merger integration and business separation activities. The six months ended June 30, 2019 excludes one-time transaction costs directly attributable to the Merger.
|
|
|
|
|
3.
|
Includes Board approved restructuring plans and asset-related charges, which includes other asset impairments. See Note 5 for additional information.
|
|
|
|
|
4.
|
Includes post-closing adjustments on a previous divestiture.
|
|
|
|
|
5.
|
The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 12 for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items by Segment
|
Three Months Ended Jun 30, 2018
|
Six Months Ended Jun 30, 2018
|
|
Perf. Mat. & Coatings
|
Ind. Interm. & Infrast.
|
Pack. & Spec. Plastics
|
Corp.
|
Total
|
Perf. Mat. & Coatings
|
Ind. Interm. & Infrast.
|
Pack. & Spec. Plastics
|
Corp.
|
Total
|
|
In millions
|
|
Impact of Dow Silicones ownership restructure
1
|
$
|
(20
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(20
|
)
|
$
|
(20
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(20
|
)
|
|
Integration and separation costs
2
|
—
|
|
—
|
|
—
|
|
(234
|
)
|
(234
|
)
|
—
|
|
—
|
|
—
|
|
(441
|
)
|
(441
|
)
|
|
Restructuring and asset related charges - net
3
|
(15
|
)
|
—
|
|
(3
|
)
|
(14
|
)
|
(32
|
)
|
(14
|
)
|
(11
|
)
|
(9
|
)
|
(70
|
)
|
(104
|
)
|
|
Gain on divestiture
4
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
20
|
|
—
|
|
—
|
|
20
|
|
|
Total
|
$
|
(35
|
)
|
$
|
—
|
|
$
|
(3
|
)
|
$
|
(248
|
)
|
$
|
(286
|
)
|
$
|
(34
|
)
|
$
|
9
|
|
$
|
(9
|
)
|
$
|
(511
|
)
|
$
|
(545
|
)
|
|
|
|
|
1.
|
Includes a loss related to a post-closing adjustment related to the Dow Silicones ownership restructure.
|
|
|
|
|
2.
|
Costs related to post-Merger integration and business separation activities, and costs related to the ownership restructure of Dow Silicones. Excludes one-time transaction costs directly attributable to the Merger.
|
|
|
|
|
3.
|
Includes Board approved restructuring plans and asset related charges, which include other asset impairments. See Note 5 for additional information. Excludes one-time transaction costs directly attributable to the Merger.
|
|
|
|
|
4.
|
Includes a gain related to the Company's sale of its equity interest in MEGlobal.
|