DOW INC. This Quarterly Report on Form 10-Q is a combined report being filed byDow Inc. andThe Dow Chemical Company and its consolidated subsidiaries ("TDCC" and together withDow Inc. , "Dow" or the "Company") due to the parent/subsidiary relationship betweenDow Inc. and TDCC. The information reflected in the report is equally applicable to bothDow Inc. and TDCC, except where otherwise noted. Each ofDow Inc. and TDCC is filing information in this report on its own behalf and neither company makes any representation to the information relating to the other company.
Pursuant to General Instruction H(1)(a) and (b) for Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," TDCC is filing this Form 10-Q with a reduced disclosure format.
Except as otherwise indicated by the context, the term "Union Carbide" means
Russia and Ukraine Conflict InFebruary 2022 ,Russia invadedUkraine resulting inthe United States ,Canada , theEuropean Union and other countries imposing economic sanctions onRussia . Dow is monitoring and evaluating the broader economic impact, including sanctions imposed, the potential for additional sanctions and any responses fromRussia that could directly affect the Company's supply chain, business partners or customers. At the time of this filing, the conflict betweenRussia andUkraine has not had and is not expected to have a material impact on the Company's financial condition or results of operations. Dow stands in solidarity with the people ofUkraine and denouncesRussia's invasion ofUkraine . Dow fully supports and is fully complying with the sanctions implemented againstRussia and the efforts of the international community to reestablish peace and safeguard democracy. Dow is prioritizing the safety and security of its colleagues inUkraine andRussia . Dow had previously suspended all purchases of feedstocks and energy fromRussia and has significantly reduced its operations and product offerings in the country. Dow has also stopped all investments inRussia and is only supplying limited essential goods toRussia , including food packaging, hygiene, cleaning and sanitation products and household goods.
In
Prior to the invasion, Dow's business activities in
The Company is also providing assistance with evacuation, financial assistance, housing and other support to help employees and their families inUkraine and is activating similar processes for the Company's Russian employees. Additionally, Dow announced humanitarian support, including a cash match for donations by Dow employees, to meet immediate needs inUkraine and nearby countries aiding refugees. In the first quarter of 2022, the Company recorded pretax asset related charges of$186 million due to theRussia andUkraine conflict and the expectation that certain assets will not be recoverable. The Company's remaining net asset exposure is not significant.
OUTLOOK
Dow continues to see strong demand across its end-markets. While the geopolitical environment remains dynamic, Dow's global scale, cost advantaged positions, and industry-leading feedstock and derivative flexibility continue to enable resilient financial and operating performance. At the same time, Dow continues to advance its strategy to decarbonize and grow underlying earnings by greater than$3 billion in the transition to a more sustainable world. Dow is well-positioned to achieve mid-cycle earnings above pre-pandemic levels as it captures increasing demand for low-carbon, sustainable and circular innovations. 41 -------------------------------------------------------------------------------- Table of Contents OVERVIEW The following is a summary of the results for the three months endedMarch 31, 2022 : •The Company reported net sales in the first quarter of 2022 of$15.3 billion , up 28 percent from$11.9 billion in the first quarter of 2021, with increases across all operating segments and geographic regions. Net sales were up 6 percent from$14.4 billion in the fourth quarter of 2021, with increases in Packaging & Specialty Plastics and Performance Materials & Coatings, partially offset by a decrease in Industrial Intermediates & Infrastructure. Net sales increased in all geographic regions, exceptLatin America , compared with the fourth quarter of 2021. •Local price increased 28 percent compared with the first quarter of 2021 with increases in all operating segments and geographic regions, primarily driven by tight supply and demand dynamics and increasing raw material prices. Local price increased in Packaging & Specialty Plastics (up 24 percent), Industrial Intermediates & Infrastructure (up 29 percent) and Performance Materials & Coatings (up 39 percent). Local price increased 2 percent compared with the fourth quarter of 2021.
•Volume increased 3 percent compared with the first quarter of 2021 with increases in all operating segments: Packaging & Specialty Plastics (up 4 percent), Industrial Intermediates & Infrastructure (up 1 percent) and Performance Materials & Coatings (up 8 percent). Volume increased 5 percent compared with the fourth quarter of 2021.
•Currency had an unfavorable impact of 3 percent on net sales compared with the first quarter of 2021, driven byEurope ,Middle East ,Africa andIndia ("EMEAI") (down 8 percent) andAsia Pacific (down 1 percent). •Equity in earnings of nonconsolidated affiliates was$174 million in the first quarter of 2022, compared with$224 million in the first quarter of 2021, primarily due to lower equity earnings atSadara Chemical Company ("Sadara") due to planned maintenance turnaround activity.
•Net income available for
•Cash provided by operating activities - continuing operations was$1.6 billion in the first quarter of 2022, up$1.8 billion compared with the same period last year due to increased earnings and an elective pension contribution in the year-ago period. Sequentially, cash provided by operating activities decreased$945 million as higher dividends from joint ventures were more than offset by working capital on increased sales and raw material costs. •OnFebruary 10, 2022 ,Dow Inc. announced that its Board of Directors ("Board") declared a dividend of$0.70 per share, which was paid onMarch 11, 2022 , to shareholders of record as ofFebruary 28, 2022 .
•Dow Inc. repurchased
•OnMarch 22, 2022 , the Company announced thatJack Broodo , President of Dow Feedstocks and Energy, will retire at the end ofJuly 2022 after 40 years of service with Dow.
•Dow was named to
In addition to the highlights above, the following events occurred subsequent to the first quarter of 2022:
•OnApril 13, 2022 ,Dow Inc. announced that its Board declared a dividend of$0.70 per share, payable onJune 10, 2022 , to shareholders of record as ofMay 31, 2022 . •OnApril 13, 2022 ,Dow Inc.'s Board approved a new share repurchase program authorizing the repurchase of up to$3 billion of the Company's common stock, with no expiration date.
•Effective
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RESULTS OF OPERATIONS
Net Sales The following tables summarize net sales and sales variances by operating segment and geographic region from the prior year:
Summary of Sales Results Three Months Ended In millions Mar 31, 2022 Mar 31, 2021 Net sales$ 15,264 $ 11,882
Sales Variances by Operating Segment and
Three Months Ended
Local Price &
Percentage change from prior year Product Mix Currency Volume Total
Packaging & Specialty Plastics 24 % (3) % 4 % 25 %
Industrial Intermediates & Infrastructure 29 (5) 1 25
Performance Materials & Coatings 39 (3) 8 44
Total 28 % (3) % 3 % 28 %
Total, excluding the Hydrocarbons & Energy business 29 % (3) % 1 % 27 %
U.S. & Canada 24 % - % 13 % 37 %
EMEAI 37 (8) (2) 27
Asia Pacific 19 (1) (2) 16
Latin America 24 - 2 26
Total 28 % (3) % 3 % 28 %
Net sales in the first quarter of 2022 were $15.3 billion , up 28 percent from
$11.9 billion in the first quarter of 2021, with local price up 28 percent,
volume up 3 percent and an unfavorable currency impact of 3 percent. Net sales
increased in all operating segments and geographic regions. Local price
increased in all operating segments and geographic regions, primarily driven by
tight supply and demand dynamics and increasing raw material prices. Local price
increased in Packaging & Specialty Plastics (up 24 percent), Industrial
Intermediates & Infrastructure (up 29 percent) and Performance Materials &
Coatings (up 39 percent). Volume increases in the U.S. & Canada and Latin
America were partially offset by volume decreases in EMEAI and Asia Pacific .
Volume increased in Packaging & Specialty Plastics (up 4 percent), Industrial
Intermediates & Infrastructure (up 1 percent) and Performance Materials &
Coatings (up 8 percent). Currency unfavorably impacted net sales by 3 percent,
driven by EMEAI (down 8 percent) and Asia Pacific (down 1 percent). Excluding
the Hydrocarbons & Energy business, sales increased 27 percent.
Cost of Sales
Cost of sales was $12.4 billion in the first quarter of 2022, up from
$10.1 billion in the first quarter of 2021, primarily due to increased sales
volume and higher feedstocks, energy and other raw material costs, and logistics
costs. The first quarter of 2022 included $38 million ($29 million in the first
quarter of 2021) of costs associated with implementing the Company's digital
acceleration program (related to Corporate). Cost of sales as a percentage of
net sales in the first quarter of 2022 was 81.3 percent (84.7 percent in the
first quarter of 2021).
Research and Development Expenses
Research and development ("R&D") expenses totaled $218 million in the first
quarter of 2022, compared with $194 million in the first quarter of 2021. R&D
expenses increased primarily due to higher performance-based compensation costs.
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Selling, General and Administrative Expenses
Selling, general and administration ("SG&A") expenses totaled $498 million in
the first quarter of 2022, compared with $366 million in the first quarter of
2021. SG&A expenses increased primarily due to higher performance-based
compensation costs and an increase in bad debt reserves.
Amortization of Intangibles
Amortization of intangibles was
Restructuring and Asset Related Charges - Net Restructuring and asset related charges - net were$186 million in the first quarter of 2022 (zero in the first quarter of 2021). In the first quarter of 2022, the Company recorded pretax asset related charges of$186 million due to theRussia andUkraine conflict and the expectation that certain assets will not be recoverable. These charges included the write-down of inventory, the recording of bad debt reserves, and the impairment of other assets. Asset related charges by segment were as follows:$31 million in Packaging & Specialty Plastics,$109 million in Industrial Intermediates & Infrastructure,$16 million in Performance Materials & Coatings and$30 million in Corporate. Equity in Earnings of Nonconsolidated AffiliatesThe Company's share of equity in earnings of nonconsolidated affiliates was$174 million in the first quarter of 2022, compared with$224 million in the first quarter of 2021, primarily due to lower equity earnings at Sadara due to planned maintenance turnaround activity. See Note 8 to the Consolidated Financial Statements for additional information. Sundry Income (Expense) - Net Sundry income (expense) - net includes a variety of income and expense items such as foreign currency exchange gains and losses, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other postretirement benefit plan credits or costs, losses on early extinguishment of debt and certain litigation matters. In the first quarter of 2022, Sundry income (expense) - net was income of$148 million and$136 million forDow Inc. and TDCC, respectively, compared with income of$128 million and$119 million in the first quarter of 2021. The first quarter of 2022 included non-operating pension and postretirement benefit plan credits and gains on sales of other assets and investments. In addition,Dow Inc. included a$12 million gain associated with adjustments related to the separation agreements with DuPont de Nemours, Inc. and Corteva Inc. (related to Corporate). The first quarter of 2021 included non-operating pension and postretirement benefit plan credits, a curtailment gain related to the remeasurement ofU.S. pension plans and asset sales, which were partially offset by foreign currency exchange losses. Interest Expense and Amortization of Debt Discount Interest expense and amortization of debt discount was$167 million in the first quarter of 2022, compared with$196 million in the first quarter of 2021. The decrease in interest expense is primarily due to the liability management actions taken in 2021. Provision for Income Taxes The Company's effective tax rate fluctuates based on, among other factors, where income is earned, the level of income relative to tax attributes and the level of equity earnings, since most earnings from the Company's equity method investments are taxed at the joint venture level. The effective tax rate for the first quarter of 2022 was 24.5 percent and 24.6 percent forDow Inc. and TDCC, respectively, compared with 24.0 percent and 24.1 percent for the first quarter of 2021. Net Income Available for Common Stockholder(s)Dow Inc. Net income available forDow Inc. common stockholders was$1,569 million , or$2.11 per share, in the first quarter of 2022, compared with$991 million , or$1.32 per share, in the first quarter of 2021. See Note 6 to the Consolidated Financial Statements for details onDow Inc.'s earnings per share calculations.
TDCC
Net income available for the TDCC common stockholder was$1,561 million in the first quarter of 2022, compared with$983 million in the first quarter of 2021. TDCC's common shares are owned solely byDow Inc. 44 -------------------------------------------------------------------------------- Table of Contents SEGMENT RESULTS Dow's measure of profit/loss for segment reporting purposes is Operating EBIT as this is the manner in which the Company's chief operating decision maker assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. Operating EBIT by segment includes all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate.
PACKAGING & SPECIALTY PLASTICS
The Packaging & Specialty Plastics operating segment consists of two highly integrated global businesses: Hydrocarbons &Energy and Packaging and Specialty Plastics. The segment employs the industry's broadest polyolefin product portfolio, supported by the Company's proprietary catalyst and manufacturing process technologies. These differentiators, plus collaboration at the customer's design table, enable the segment to deliver more reliable, durable, higher-performing solutions designed for recyclability and enhanced plastics circularity and sustainability. The segment serves customers, brand owners and ultimately consumers in key markets including food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; mobility and transportation; and infrastructure. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases. This segment also includes the results ofThe Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group , as well as a portion of the results ofEQUATE Petrochemical Company K.S.C.C . ("EQUATE"),The Kuwait Olefins Company K.S.C.C . ("TKOC"),Map Ta Phut Olefins Company Limited ("Map Ta Phut") and Sadara, all joint ventures of the Company. The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. In 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara's finished products to levels more consistent with each partner's equity ownership, which is being implemented over the next five years. This transition will not impact equity earnings but is expected to reduce the Company's sales of the Sadara products over the five year period. Packaging & Specialty Plastics Three Months Ended In millions Mar 31, 2022 Mar 31, 2021 Net sales$ 7,627 $ 6,082 Operating EBIT$ 1,234 $ 1,228 Equity earnings$ 110 $ 106 Packaging & Specialty Plastics Three Months Ended Percentage change from prior year Mar 31, 2022 Change inNet Sales from Prior Period due to: Local price & product mix 24 % Currency (3) Volume 4 Total 25 % Packaging & Specialty Plastics net sales were$7,627 million in the first quarter of 2022, up 25 percent from net sales of$6,082 million in the first quarter of 2021, with local price up 24 percent, volume up 4 percent and an unfavorable currency impact of 3 percent, primarily in EMEAI. Local price increased in both businesses and across all geographic regions, driven by robust demand. Local price increased in Hydrocarbons & Energy as prices for co-products are generally correlated to Brent crude oil prices, which, on average, increased 59 percent compared with 2021, primarily in EMEAI. Local price increased in Packaging and Specialty Plastics driven by favorable supply and demand dynamics in polyethylene, notably in industrial and consumer packaging and flexible food and beverage packaging applications. Volume increased in Hydrocarbons & Energy, primarily in theU.S. &Canada and EMEAI. Volume decreased in Packaging and Specialty Plastics, primarily inAsia Pacific and EMEAI, more than offsetting an increase in theU.S. &Canada . 45 -------------------------------------------------------------------------------- Table of Contents Operating EBIT was$1,234 million in the first quarter of 2022, up$6 million from Operating EBIT of$1,228 million in the first quarter of 2021. Operating EBIT was relatively flat due to higher selling prices which were offset by higher feedstocks and other raw material costs and increased logistic costs.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
The Industrial Intermediates & Infrastructure operating segment consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The businesses' global scale and reach, world-class technology, R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliance, building and construction, mobility and transportation, and adhesive and lubricant applications, among others. This segment also includes a portion of the results of EQUATE, TKOC, Map Ta Phut and Sadara, all joint ventures of the Company. The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. In 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara's finished products to levels more consistent with each partner's equity ownership, which is being implemented over the next five years. This transition will not impact equity earnings but is expected to reduce the Company's sales of the Sadara products over the five year period. Industrial Intermediates & Infrastructure Three Months Ended In millions Mar 31, 2022 Mar 31, 2021 Net sales$ 4,524 $ 3,607 Operating EBIT$ 661 $ 326 Equity earnings$ 62 $ 115
Industrial Intermediates & Infrastructure Three Months Ended Percentage change from prior year
Mar 31, 2022
Change in Net Sales from Prior Period due to:
Local price & product mix 29 %
Currency (5)
Volume 1
Total 25 %
Industrial Intermediates & Infrastructure net sales were $4,524 million in the
first quarter of 2022, up 25 percent from $3,607 million in the first quarter of
2021, with local price up 29 percent, volume up 1 percent, and an unfavorable
currency impact of 5 percent. Local price increased in both businesses and
across all geographic regions, primarily driven by strong supply and demand
dynamics and rising energy prices. Currency had an unfavorable impact on sales
in both businesses and was driven by EMEAI and Asia Pacific . Volume in
Industrial Solutions increased in all geographic regions driven by strong demand
in industrial, agriculture and coatings applications as well as improved supply
availability as the year-ago period was impacted by Winter Storm Uri. Volume in
Polyurethanes & Construction Chemicals increased in the U.S. & Canada , which was
more than offset by decreased volume in all other geographic regions. The volume
decrease in Polyurethanes & Construction Chemicals was primarily due to lower
supply availability from Sadara.
Operating EBIT was $661 million in the first quarter of 2022, up $335 million
from Operating EBIT of $326 million in the first quarter of 2021. Operating EBIT
increased primarily due to local price increases in both businesses which was
offset by lower equity earnings at Sadara and Map Ta Phut joint ventures.
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PERFORMANCE MATERIALS & COATINGS
The Performance Materials & Coatings operating segment includes industry-leading
franchises that deliver a wide array of solutions into consumer, infrastructure
and mobility end-markets. The segment consists of two global businesses:
Coatings & Performance Monomers and Consumer Solutions. These businesses
primarily utilize the Company's acrylics-, cellulosics- and silicone-based
technology platforms to serve the needs of the architectural and industrial
coatings; home care and personal care; consumer and electronics; mobility and
transportation; industrial and chemical processing; and building and
infrastructure end-markets. Both businesses employ materials science
capabilities, global reach and unique products and technology to combine
chemistry platforms to deliver differentiated, market-driven and sustainable
innovations to customers.
Performance Materials & Coatings Three Months Ended
In millions Mar 31, 2022 Mar 31, 2021
Net sales $ 3,049 $ 2,123
Operating EBIT $ 595 $ 62
Equity earnings $ 3 $ 2
Performance Materials & Coatings Three Months Ended
Percentage change from prior year Mar 31, 2022
Change in Net Sales from Prior Period due to:
Local price & product mix 39 %
Currency (3)
Volume 8
Total 44 %
Performance Materials & Coatings net sales were $3,049 million in the first
quarter of 2022, up 44 percent from net sales of $2,123 million in the first
quarter of 2021, with local price up 39 percent, volume up 8 percent and an
unfavorable currency impact of 3 percent. Local price increased in both
businesses and across all geographic regions. Consumer Solutions local price
increased in both upstream siloxanes and downstream silicones due to favorable
supply and demand dynamics and higher raw material prices. Local price increased
in Coatings & Performance Monomers primarily due to improved supply and demand
dynamics and higher raw material prices in acrylic monomers and architectural
coatings. Volume increased in the U.S. & Canada and Asia Pacific , which were
partially offset by a decrease in EMEAI. Volume increased in Consumer Solutions
due to increased supply availability in siloxanes and higher demand in all
geographic regions. Volume increased in Coatings & Performance Monomers in the
U.S. & Canada primarily due to improved supply availability as the year-ago
period was impacted by Winter Storm Uri which was partially offset by decreases
in Asia Pacific , EMEAI and Latin America . The unfavorable currency impact was
driven by EMEAI and Asia Pacific .
Operating EBIT was $595 million in the first quarter of 2022, up $533 million
from Operating EBIT of $62 million in the first quarter of 2021. Operating EBIT
increased primarily due to margin expansion and higher volume in Consumer
Solutions.
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CORPORATE
Corporate includes certain enterprise and governance activities (including
insurance operations, environmental operations, etc.); non-business aligned
joint ventures; non-business aligned litigation expenses; and discontinued or
non-aligned businesses.
Corporate Three Months Ended
In millions Mar 31, 2022 Mar 31, 2021
Net sales $ 64 $ 70
Operating EBIT $ (71) $ (62)
Equity earnings (losses) $ (1) $ 1
Net sales for Corporate, which primarily relate to the Company's insurance
operations, were
Operating EBIT was a loss of
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of$3,143 million atMarch 31, 2022 and$2,988 million atDecember 31, 2021 , of which$1,897 million atMarch 31, 2022 and$1,745 million atDecember 31, 2021 was held by subsidiaries in foreign countries, includingU.S. territories. For each of its foreign subsidiaries, Dow makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated tothe United States . The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. Dow has the ability to repatriate additional funds to theU.S. , which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/orU.S. state income taxes and the impact of foreign currency movements. AtMarch 31, 2022 , management believed that sufficient liquidity was available inthe United States . The Company has and expects to continue repatriating certain funds from its nonU.S. subsidiaries that are not needed to finance local operations; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company. 48 -------------------------------------------------------------------------------- Table of Contents The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table: Cash Flow Summary Dow Inc. TDCC Three Months Ended Three Months Ended In millions Mar 31, 2022 Mar 31, 2021 Mar 31, 2022 Mar 31, 2021 Cash provided by (used for): Operating activities - continuing operations$ 1,612 $ (228) $ 1,611 $ (109) Operating activities - discontinued operations (9) (63) - - Operating activities 1,603 (291) 1,611 (109) Investing activities (367) (13) (367) (13) Financing activities (1,017) (595) (1,025) (777) Effect of exchange rate changes on cash, cash equivalents and restricted cash (45) (48) (45) (48)
Summary
Increase (decrease) in cash, cash equivalents and restricted cash 174 (947) 174 (947)
Cash, cash equivalents and restricted cash at beginning of period
3,033 5,108 3,033 5,108
Cash, cash equivalents and restricted cash at end of period
$ 3,207 $
4,161
64 28 64 28
Cash and cash equivalents at end of period $ 3,143 $
4,133
Cash Flows from Operating Activities Cash provided by operating activities from continuing operations in the first three months of 2022 was primarily driven by the Company's cash earnings and dividends from equity method investments, which were partially offset by cash used for working capital requirements and performance-based compensation payments. Cash used for operating activities from continuing operations in the first three months of 2021 was primarily driven by elective pension contributions, cash used for working capital requirements and performance-based compensation payments, which were partially offset by the Company's cash earnings and dividends from equity method investments. Net Working Capital Dow Inc. TDCC In millions Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Current assets$ 22,165 $ 20,848 $ 22,136 $ 20,837 Current liabilities 13,054 13,226 12,885 13,046 Net working capital$ 9,111 $ 7,622 $ 9,251 $ 7,791 Current ratio 1.70:1 1.58:1 1.72:1 1.60:1 Working Capital Metrics Three Months
Ended
Mar 31, 2022 Mar
31, 2021
Days sales outstanding in trade receivables 42 41
Days sales in inventory 55 53
Days payables outstanding 60 53
Cash used for operating activities from discontinued operations in the first three months of 2022 and 2021 primarily related to cash payments and receiptsDow Inc. had with DuPont de Nemours, Inc. and Corteva Inc. that related to certain agreements and matters related to the separation from DowDuPont Inc. ("DowDuPont"). See Note 2 to the Consolidated Financial Statements for additional information. 49 -------------------------------------------------------------------------------- Table of Contents Cash Flows from Investing Activities Cash used for investing activities in the first three months of 2022 was primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments. Cash used for investing activities in the first three months of 2021 was primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments, which included partial monetization of the Company's investment in company-owned life insurance policies. The Company's capital expenditures were$315 million in the first three months of 2022, compared with$289 million in the first three months of 2021. The Company expects full year capital spending in 2022 to be approximately$2.2 billion . The Company will adjust its spending through the year as economic conditions evolve. Cash Flows from Financing Activities Cash used for financing activities in the first three months of 2022 included debt related activity, partially offset by collections related to securitization programs and proceeds from the issuance of common stock. In addition,Dow Inc. included a cash outflow for dividends paid to stockholders and purchases of treasury stock. TDCC included a cash outflow for dividends paid toDow Inc. Cash used for financing activities in the first three months of 2021 included payments on long-term debt, which was partially offset by proceeds from issuance of common stock. In addition,Dow Inc. included a cash outflow for dividends paid to stockholders and TDCC included a cash outflow for dividends paid toDow Inc. See Note 11 to the Consolidated Financial Statements for additional information related to the issuance and retirement of debt.Dow Inc. Non-GAAP Cash Flow Measures Free Cash Flow Dow defines free cash flow as "Cash provided by (used for) operating activities - continuing operations," less capital expenditures. Under this definition, free cash flow represents the cash generated by Dow from operations after investing in its asset base. Free cash flow, combined with cash balances and other sources of liquidity, represents the cash available to fund obligations and provide returns to shareholders. Free cash flow is an integral financial measure used in the Company's financial planning process. Operating EBITDA Dow defines Operating EBITDA as earnings (i.e., "Income before income taxes") before interest, depreciation and amortization, excluding the impact of significant items. Cash Flow Conversion (Operating EBITDA to Cash Flow From Operations) Dow defines cash flow conversion (Operating EBITDA to cash flow from operations) as "Cash provided by (used for) operating activities - continuing operations," divided by Operating EBITDA. Management believes cash flow conversion is an important financial metric as it helps the Company determine how efficiently it is converting its earnings into cash flow. 50 -------------------------------------------------------------------------------- Table of Contents These financial measures are not recognized in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP") and should not be viewed as alternatives toU.S. GAAP financial measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, Dow's definitions may not be consistent with the methodologies used by other companies. Reconciliation of Free Cash Flow
Three Months Ended
In millions
$ 1,612 $ (228) Capital expenditures (315) (289) Free cash flow (non-GAAP) 1
1.Free cash flow in the first quarter of 2021 reflects a
Reconciliation of Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations) Three Months Ended In millions Mar 31, 2022 Mar 31, 2021 Net income (GAAP)$ 1,552 $ 1,006 + Provision for income taxes 503 317 Income before income taxes$ 2,055 $ 1,323 - Interest income 28 8 + Interest expense and amortization of debt discount 167 196 - Significant items ¹ (225) (43) Operating EBIT (non-GAAP)$ 2,419 $ 1,554 + Depreciation and amortization 752 717 Operating EBITDA (non-GAAP)$ 3,171 $ 2,271
Cash provided by (used for) operating activities - continuing operations (GAAP)
$ 1,612 $ (228)
Cash flow conversion (Operating EBITDA to cash flow from operations) (non-GAAP) 2
50.8 % (10.0) %
1.The three months ended March 31, 2022 includes costs associated with
implementing the Company's Digital Acceleration program and 2020 Restructuring
Program, asset related charges due to the Russia and Ukraine conflict and
activity related to the separation from DowDuPont. The three months ended March
31, 2021 includes costs associated with implementing the Company's Digital
Acceleration program and 2020 Restructuring Program. See Note 22 to the
Consolidated Financial Statements for additional information.
2.Cash flow conversion in the first quarter of 2021 reflects a $1 billion
elective pension contribution.
Liquidity & Financial Flexibility
The Company's primary source of incremental liquidity is cash flows from
operating activities. The generation of cash from operations and the Company's
ability to access capital markets is expected to meet the Company's cash
requirements for working capital, capital expenditures, debt maturities,
contributions to pension plans, dividend distributions to stockholders, share
repurchases and other needs. In addition to cash from operating activities, the
Company's current liquidity sources also include TDCC's U.S. and Euromarket
commercial paper programs, committed and uncommitted credit facilities,
committed accounts receivable facilities, a U.S. retail note program
("InterNotes®") and other debt markets.
The Company continues to maintain a strong financial position with all of its
committed credit facilities undrawn and fully available at March 31, 2022 . Cash
and committed and available forms of liquidity were $12.8 billion at March 31,
2022 . The Company also has no substantive long-term debt maturities due until
2026. Additional details on sources of liquidity are as follows:
Commercial Paper
TDCC issues promissory notes under its U.S. and Euromarket commercial paper
programs. TDCC had no commercial paper outstanding at March 31, 2022 . TDCC
maintains access to the commercial paper market at competitive rates. Amounts
outstanding under TDCC's commercial paper programs during the period may be
greater, or less than, the amount reported at the end of the period. Subsequent
to March 31, 2022 , TDCC issued approximately $790 million of commercial paper.
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Committed Credit Facilities
The Company also has the ability to access liquidity through TDCC's committed
and available credit facilities. At March 31, 2022 , TDCC had total committed and
available credit facilities of $8.4 billion . See Note 11 to the Consolidated
Financial Statements for additional information on committed and available
credit facilities.
Committed Accounts Receivable Facilities
In addition to the above committed credit facilities, the Company maintains a
committed accounts receivable facility in the U.S. where eligible trade accounts
receivable, up to $900 million , may be sold at any point in time. The Company
also maintains a committed accounts receivable facility in Europe where eligible
trade accounts receivable, up to €500 million, may be sold at any point in time.
In the first quarter of 2022, the Company sold $250 million of receivables under
the U.S. and Europe committed accounts receivable facilities. See Note 10 to the
Consolidated Financial Statements for additional information.
Company-Owned Life Insurance
The Company has investments in company-owned life insurance ("COLI") policies,
which are recorded at their cash surrender value as of each balance sheet date.
The Company has the ability to monetize its investment in its COLI policies as
an additional source of liquidity. The Company had no outstanding monetization
of its existing COLI policies' surrender value at March 31, 2022 . For additional
information, see Note 7 to the Consolidated Financial Statements included in the
2021 10-K.
Uncommitted Credit Facilities
The Company has entered into various uncommitted bilateral credit arrangements
as a potential source of excess liquidity. These lines can be used to support
short-term liquidity needs and for general purposes, including letters of
credit. The Company had no drawdowns outstanding at March 31, 2022 .
Debt
As the Company continues to maintain its strong balance sheet and financial flexibility, management is focused on net debt (a non-GAAP financial measure), as the Company believes this is the best representation of its financial leverage at this point in time. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents" and "Marketable securities." Total Debt Dow Inc. TDCC In millions Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Notes payable $ 92 $ 161 $ 92 $ 161 Long-term debt due within one year 355 231 355 231 Long-term debt 14,108 14,280 14,108 14,280 Gross debt$ 14,555 $ 14,672 $ 14,555 $ 14,672 - Cash and cash equivalents 3,143 2,988 3,143 2,988 - Marketable securities 1 242 245 242 245 Net debt$ 11,170 $ 11,439 $ 11,170 $ 11,439 Total equity$ 19,425 $ 18,739 $ 19,699 $ 19,029 Gross debt as a percent of total capitalization 42.8 % 43.9 % 42.5 % 43.5 % Net debt as a percent of total capitalization 36.5 % 37.9 % 36.2 % 37.5 %
1.Included in "Other current assets" in the consolidated balance sheets.
The Company may at any time repurchase certain debt securities in the open
market or in privately negotiated transactions subject to: the applicable terms
under which any such debt securities were issued, certain internal approvals of
the Company, and applicable laws and regulations of the relevant jurisdiction in
which any such potential transactions might take place. This in no way obligates
the Company to make any such repurchases nor should it be considered an offer to
do so.
TDCC's public debt instruments and primary, private credit agreements contain,
among other provisions, certain customary restrictive covenant and default
provisions. TDCC's most significant debt covenant with regard to its financial
position is the obligation to maintain the ratio of its consolidated
indebtedness to consolidated capitalization at no greater than 0.70 to 1.00 at
any time the aggregate outstanding amount of loans under the Five Year
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Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit
Agreement") equals or exceeds $500 million . The ratio of TDCC's consolidated
indebtedness to consolidated capitalization as defined in the Revolving Credit
Agreement was 0.40 to 1.00 at March 31, 2022 . Management believes TDCC was in
compliance with all of its covenants and default provisions at March 31, 2022 .
For information on TDCC's debt covenants and default provisions, see Note 15 to
the Consolidated Financial Statements included in the 2021 10-K. There were no
material changes to the debt covenants and default provisions related to TDCC's
outstanding long-term debt and primary, private credit agreements in the first
three months of 2022.
While taking into consideration the current economic environment, management expects that the Company will continue to have sufficient liquidity and financial flexibility to meet all of its business obligations.
Credit Ratings AtMarch 31, 2022 , TDCC's credit ratings were as follows: Credit Ratings Long-Term Rating Short-Term Rating Outlook Fitch Ratings BBB+ F2 Stable Moody's Investors Service Baa2 P-2 Stable Standard & Poor's BBB A-2 Stable Dividends Dow Inc.Dow Inc. has paid dividends on a quarterly basis since the separation from DowDuPont and expects to continue to do so, subject to approval by the Board. The dividends declared by the Board align to the Company's strategy announced in 2018 of returning approximately 45 percent of operating net income1 to the shareholders through the dividend and total shareholder remuneration of approximately 65 percent, when including share repurchases, over the economic cycle. The following table summarizes cash dividends declared by the Board and paid to common stockholders of record byDow Inc. in 2022:
Declaration Date Record Date Payment Date Amount (per share) February 10, 2022 February 28, 2022 March 11, 2022 $ 0.70 April 13, 2022 May 31, 2022 June 10, 2022 $ 0.70 TDCC TDCC has committed to fundDow Inc.'s dividends paid to common stockholders and share repurchases, as approved byDow Inc.'s Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution toDow Inc. to settle the intercompany loans. For the three months endedMarch 31, 2022 , TDCC declared and paid a dividend toDow Inc. of$1,121 million ($703 million for the three months endedMarch 31, 2021 ). AtMarch 31, 2022 , TDCC's intercompany loan balance withDow Inc. was insignificant. See Note 21 to the Consolidated Financial Statements for additional information.
1.Operating net income is a non-GAAP measure that Dow defines as "Net income available forDow Inc. common stockholders," excluding the impact of significant items. 53 -------------------------------------------------------------------------------- Table of Contents Share Repurchase Program OnApril 1, 2019 ,Dow Inc.'s Board ratified the share repurchase program originally approved onMarch 15, 2019 , authorizing up to$3.0 billion to be spent on the repurchase of the Company's common stock, with no expiration date. The Company repurchased$600 million of its common stock in the first quarter of 2022. AtMarch 31, 2022 , approximately$775 million of the share repurchase program authorization remained available for repurchases. OnApril 13, 2022 ,Dow Inc.'s Board approved a new share repurchase program authorizing the repurchase of up to$3 billion of the Company's common stock, with no expiration date. The Company intends to complete the current share repurchase program before commencing the new one. As previously announced, the Company intends to, at a minimum, repurchase shares to cover dilution. With the announcement of the new share repurchase program, the Company will be opportunistic in expanding its share repurchases beyond dilution, based on a number of factors including macroeconomic conditions, free cash flow generation, and the Dow share price. Any share repurchases, when coupled with the Company's dividends, is intended to implement the long-term strategy of ensuring shareholder remuneration is approximately 65 percent over the economic cycle. Pension Plans The Company has both funded and unfunded defined benefit pension plans that cover employees inthe United States and a number of other countries. The Company's funding policy is to contribute to funded plans when pension laws and/or economics either require or encourage funding. See Note 16 to the Consolidated Financial Statements and Note 20 to the Consolidated Financial Statements included in the 2021 10-K for additional information related to the Company's pension plans.
Restructuring
The actions related to the 2020 Restructuring Program are expected to result in additional cash expenditures of$108 million , primarily through the third quarter of 2022, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation. Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions, are expected to result in additional cash expenditures of approximately$35 million , primarily through the third quarter of 2022. Restructuring implementation costs totaled$10 million in the first quarter of 2022. The Company expects to incur additional costs in the future related to its restructuring activities, which will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits related to its other optimization activities. These costs cannot be reasonably estimated at this time. See Note 4 to the Consolidated Financial Statements for additional information on the Company's restructuring activities. Digital Acceleration In 2021, Dow announced plans to further advance and expand its digitalization efforts to deliver long-term value creation, by accelerating investment in three key areas: expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and fulfillment experience for Dow's customers; and adopting real-time digital manufacturing insights, operational data intelligence and demand sensing to enhance the productivity and reliability of Dow's operations. The Company expects more than$300 million in incremental annual run rate Operating EBITDA generation by the end of 2025 related to digital acceleration, with an additional one-time$100 million in structural working capital efficiency gains, driven in part by enhanced planning from digital tools. The activities related to digital acceleration are expected to result in additional cash expenditures of approximately$190 million , primarily through the end of 2022. Digital acceleration expenses totaled$41 million in the first quarter of 2022. Contractual Obligations Information related to the Company's contractual obligations, commercial commitments and expected cash requirements for interest can be found in Notes 15, 16, 17 and 20 to the Consolidated Financial Statements included in the 2021 10-K. There have been no material changes in the Company's contractual obligations sinceDecember 31, 2021 . 54
-------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the primary beneficiary of these joint ventures and therefore is not required to consolidate these entities (see Note 20 to the Consolidated Financial Statements). Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specific triggering events occur. Additional information related to guarantees can be found in the "Guarantees" section of Note 12 to the Consolidated Financial Statements. Fair Value Measurements See Note 19 to the Consolidated Financial Statements for information concerning fair value measurements. OTHER MATTERS Critical Accounting Estimates The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted inthe United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements included in the 2021 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The Company's critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 10-K. Since December 31, 2021, there have been no material changes in the Company's accounting policies that are impacted by judgments, assumptions and estimates. Asbestos-Related Matters ofUnion Carbide Corporation Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestoscontaining products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary,Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide's products. The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants: Asbestos-Related Claim Activity 2022 2021 Claims unresolved at Jan 1 8,747 9,126 Claims filed 1,214 1,110 Claims settled, dismissed or otherwise resolved (1,154)
(1,428)
Claims unresolved atMar 31 8,807
8,808
Claimants with claims against both Union Carbide and Amchem (2,072) (2,541)
Individual claimants at
6,735 6,267
Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on
behalf of numerous claimants. As a result, the damages alleged are not expressly
identified as to Union Carbide, Amchem or any other particular defendant, even
when specific damages are alleged with respect to a specific disease or injury.
In fact, there are no personal injury cases in which only Union Carbide and/or
Amchem are the sole named defendants. For these reasons and based upon Union
Carbide's litigation and settlement experience, Union Carbide does not consider
the damages alleged against Union Carbide and Amchem to be a meaningful factor
in its determination of any potential asbestos-related liability.
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Table of Contents For additional information, see Asbestos-Related Matters ofUnion Carbide Corporation in Note 12 to the Consolidated Financial Statements; Part II, Item 1. Legal Proceedings; and Note 16 to the Consolidated Financial Statements included in the 2021 10-K.
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