Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

401K characters. Original on sec.gov · Markdown

Sales to Historical DuPont and its Affiliates

In millions

Cost of sales

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Dow Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Dow Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15(a)2 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Changes in Accounting Principles

As discussed in Note 1 to the financial statements, in the first quarter of 2018, the Company changed its method of accounting for revenue due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts with Customers and, in the first quarter of 2019, the Company changed the method of accounting for leases due to the adoption of ASC Topic 842, Leases.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill - Coatings & Performance Monomers Reporting Unit - Refer to Note 1 and Note 14 to the financial statements

Critical Audit Matter Description

The Company tests goodwill for impairment annually (in the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue growth rates, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”). Changes in these assumptions could have a significant impact on the fair value

of the reporting unit and the amount of any goodwill impairment charge. As of December 31, 2019, the Company has six reporting units, all but one of which have goodwill.

Throughout 2019, the Coatings & Performance Monomers reporting unit (“C&PM”) did not consistently meet expected financial targets and experienced volume reductions and reduced margins for products across the portfolio due to changes in customer buying patterns and supply and demand balances, as well as the continued trend of customer consolidation in end markets, which reduced its future revenue and profitability projections. Therefore, in 2019, the Company used a discounted cash flow methodology to determine the fair value of the C&PM reporting unit. These discounted cash flows did not support the carrying value of C&PM. As a result, the Company recorded a goodwill impairment charge of $1,039 million in the fourth quarter of 2019.

Given the significant judgments made by management to estimate the fair value of the C&PM reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin required a high degree of auditor judgment and an increased extent of effort, including the assistance of our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates and assumptions related to projected revenue growth rates, discount rates, EBITDA and EBITDA margin for the C&PM reporting unit included the following, among other procedures:


•	We tested the effectiveness of internal controls over the goodwill impairment evaluation, including controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.


•	We performed a retrospective review comparing actual revenue and EBITDA results of the reporting unit for 2019 to the forecasted results from 2018.


•	We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.


•	We evaluated the consistency of estimates and assumptions relating to revenue and EBITDA growth inherent in the discounted cash flow model for the reporting unit to those used by management in other annual forecasting activities.


•	With the assistance of our fair value specialists, we performed a benchmarking exercise comparing management’s estimates and assumptions related to revenue growth, EBITDA and EBITDA margin for the reporting unit as of the measurement date to the revenue growth, EBITDA and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.


•	With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and (2) the projections of long-term revenue growth and the discount rates by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.

Other-Than-Temporary-Impairment (“OTTI”) of the Sadara Chemical Company (“Sadara”) equity method investment - Refer to Note 13 to the financial statements

Critical Audit Matter Description

In 2011, the Company and Saudi Arabian Oil Company formed Sadara Chemical Company (“Sadara”), a joint venture between the two companies that subsequently constructed and now operates a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. The Company has a 35 percent equity interest in this joint venture and has been, and continues to be, responsible for marketing the majority of Sadara’s products through the Company’s established sales channels.

During the fourth quarter of 2019, Sadara tested its long-lived assets for impairment using long-term cash flow projections. Due to Sadara's financial condition and its long-lived asset impairment test, Dow evaluated its equity method investment in Sadara for other-than-temporary impairment. The Company utilized a discounted cash flow methodology to measure the estimated fair value of its investment in Sadara, which was estimated to be zero. The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around the prospects for recovery in Sadara’s financial condition. In the fourth quarter of 2019, the Company recorded

an impairment of its investment in Sadara and reserved certain accounts and notes receivable and accrued interest balances due to uncertainty around timing of collection for a total charge of $1,755 million.

We have identified the evaluation of the Sadara investment for other-than-temporary impairment as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of its investment, including the discount rate, terminal value, and long-term growth rates. This required a high degree of auditor judgment and increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s judgements, estimates and assumptions, related to the discount rate, terminal value, and long-term growth rate used in the discounted cash flow analysis used in the evaluation of other-than-temporary impairment of the Sadara investment included the following, among others:


•	We tested the effectiveness of internal controls over management’s evaluation of the Sadara investment for other-than-temporary impairment, including management’s evaluation of the assumptions used such as discount rate, terminal value, and long-term growth rate.


•	We evaluated the consistency of the assumptions and judgments relating to the discount rate, terminal value, and long-term growth rates by comparing to:


◦	Agreements in place between Sadara and Dow


◦	Independent third-party pricing study


•	We read external information included in press releases, earnings releases, regulatory filings, and other Sadara communications to search for contradictory information.


•	With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and model being used (2) the assumptions used such as the discount rate, terminal value, and the long-term growth rate by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.



/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Midland, Michigan

February 7, 2020

We have served as the Company's auditor since 1905.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholder and the Board of Directors of The Dow Chemical Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Dow Chemical Company and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15(a)2 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Changes in Accounting Principles

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Critical Audit Matters

Goodwill - Coatings & Performance Monomers Reporting Unit - Refer to Note 1 and Note 14 to the financial statements

Critical Audit Matter Description

How the Critical Audit Matter Was Addressed in the Audit


•	We tested the effectiveness of internal controls over the goodwill impairment evaluation, including controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.


•	We performed a retrospective review comparing actual revenue and EBITDA results of the reporting unit for 2019 to the forecasted results from 2018.


•	We performed a retrospective review comparing management’s estimates and assumptions relating to revenue, EBITDA, and EBITDA margin projections for the reporting unit used for the purpose of current year’s annual impairment test to the projections previously used in connection with the prior year annual impairment test.


•	We evaluated the consistency of estimates and assumptions relating to revenue and EBITDA growth inherent in the discounted cash flow model for the reporting unit to those used by management in other annual forecasting activities.


•	With the assistance of our fair value specialists, we performed a benchmarking exercise comparing management’s estimates and assumptions related to revenue growth, EBITDA and EBITDA margin for the reporting unit as of the measurement date to the revenue growth, EBITDA and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.


•	With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and (2) the projections of long-term revenue growth and the discount rates by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.

Other-Than-Temporary-Impairment (“OTTI”) of the Sadara Chemical Company (“Sadara”) equity method investment - Refer to Note 13 to the financial statements

Critical Audit Matter Description

How the Critical Audit Matter Was Addressed in the Audit


•	We tested the effectiveness of internal controls over management’s evaluation of the Sadara investment for other-than-temporary impairment, including management’s evaluation of the assumptions used such as discount rate, terminal value, and long-term growth rate.


•	We evaluated the consistency of the assumptions and judgments relating to the discount rate, terminal value, and long-term growth rates by comparing to:


◦	Agreements in place between Sadara and Dow


◦	Independent third-party pricing study


•	We read external information included in press releases, earnings releases, regulatory filings, and other Sadara communications to search for contradictory information.


•	With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and model being used (2) the assumptions used such as the discount rate, terminal value, and the long-term growth rate by testing the underlying source information, and by developing a range of independent estimates and comparing those to the rates selected by management.



/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Midland, Michigan

February 7, 2020

We have served as the Company's auditor since 1905.

Dow Inc. and Subsidiaries

Consolidated Statements of Income



(In millions, except per share amounts) For the years ended Dec 31,	2019			2018		2017
Net sales	$	42,951		$	49,604	$	43,730
Cost of sales	36,657			41,074		36,350
Research and development expenses	765			800		803
Selling, general and administrative expenses	1,590			1,782		1,795
Amortization of intangibles	419			469		400
Restructuring, goodwill impairment and asset related charges - net	3,219			221		2,739
Integration and separation costs	1,063			1,179		798
Equity in earnings (losses) of nonconsolidated affiliates	(94		)	555		394
Sundry income (expense) - net	461			96		(154		)
Interest income	81			82		66
Interest expense and amortization of debt discount	933			1,063		914
Income (loss) from continuing operations before income taxes	(1,247		)	3,749		237
Provision for income taxes on continuing operations	470			809		1,524
Income (loss) from continuing operations, net of tax	(1,717		)	2,940		(1,287		)
Income from discontinued operations, net of tax	445			1,835		1,882
Net income (loss)	(1,272		)	4,775		595
Net income attributable to noncontrolling interests	87			134		130
Net income (loss) available for Dow Inc. common stockholders	$	(1,359	)	$	4,641	$	465


Per common share data:
Earnings (loss) per common share from continuing operations - basic	$	(2.42	)	$	3.80	$	(1.88	)
Earnings per common share from discontinued operations - basic	0.58			2.41		2.48
Earnings (loss) per common share - basic	$	(1.84	)	$	6.21	$	0.60
Earnings (loss) per common share from continuing operations - diluted	$	(2.42	)	$	3.80	$	(1.88	)
Earnings per common share from discontinued operations - diluted	0.58			2.41		2.48
Earnings (loss) per common share - diluted	$	(1.84	)	$	6.21	$	0.60

Weighted-average common shares outstanding - basic	742.5			747.2		744.8
Weighted-average common shares outstanding - diluted	742.5			747.2		744.8

See Notes to the Consolidated Financial Statements.

Dow Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income



(In millions) For the years ended Dec 31,	2019			2018			2017
Net income (loss)	$	(1,272	)	$	4,775		$	595
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on investments	115			(67		)	(46		)
Cumulative translation adjustments	(32		)	(225		)	900
Pension and other postretirement benefit plans	(899		)	(40		)	391
Derivative instruments	(338		)	75			(14		)
Total other comprehensive income (loss)	(1,154		)	(257		)	1,231
Comprehensive income (loss)	(2,426		)	4,518			1,826
Comprehensive income attributable to noncontrolling interests, net of tax	99			97			172
Comprehensive income (loss) attributable to Dow Inc.	$	(2,525	)	$	4,421		$	1,654

See Notes to the Consolidated Financial Statements.

Dow Inc. and Subsidiaries

Consolidated Balance Sheets



(In millions, except share amounts) At Dec 31,	2019			2018
Assets
Current Assets
Cash and cash equivalents (variable interest entities restricted - 2019: $37; 2018: $71)	$	2,367		$	2,724
Marketable securities	21			100
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables - 2019: $45; 2018: $42)	4,844			5,646
Other	2,711			3,389
Inventories	6,214			6,899
Other current assets	658			712
Assets of discontinued operations - current	—			19,900
Total current assets	16,815			39,370
Investments
Investment in nonconsolidated affiliates	1,404			3,320
Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699)	2,588			2,646
Noncurrent receivables	1,063			360
Total investments	5,055			6,326
Property
Property	54,910			53,984
Less accumulated depreciation	33,914			32,566
Net property (variable interest entities restricted - 2019: $330; 2018: $683)	20,996			21,418
Other Assets
Goodwill	8,796			9,846
Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379)	3,759			4,225
Operating lease right-of-use assets	2,072			—
Deferred income tax assets	2,213			1,779
Deferred charges and other assets	818			735
Total other assets	17,658			16,585
Total Assets	$	60,524		$	83,699
Liabilities and Equity
Current Liabilities
Notes payable	$	586		$	298
Long-term debt due within one year	435			338
Accounts payable:
Trade	3,889			4,456
Other	2,064			2,479
Operating lease liabilities - current	421			—
Income taxes payable	522			557
Accrued and other current liabilities	2,762			2,931
Liabilities of discontinued operations - current	—			4,488
Total current liabilities	10,679			15,547
Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75)	15,975			19,253
Other Noncurrent Liabilities
Deferred income tax liabilities	347			501
Pension and other postretirement benefits - noncurrent	10,083			8,926
Asbestos-related liabilities - noncurrent	1,060			1,142
Operating lease liabilities - noncurrent	1,739			—
Other noncurrent obligations	6,547			4,709
Total other noncurrent liabilities	19,776			15,278
Stockholders’ Equity
Common stock (2019: authorized 5,000,000,000 shares and issued 751,228,644 shares of $0.01 par value each; 2018: authorized and issued 100 shares of $0.01 par value each)	8			—
Additional paid-in capital	7,325			7,042
Retained earnings	17,045			35,460
Accumulated other comprehensive loss	(10,246		)	(9,885		)
Unearned ESOP shares	(91		)	(134		)
Treasury stock at cost (2019: 9,729,834 shares; 2018: zero shares)	(500		)	—
Dow Inc.’s stockholders’ equity	13,541			32,483
Noncontrolling interests	553			1,138
Total equity	14,094			33,621
Total Liabilities and Equity	$	60,524		$	83,699

See Notes to the Consolidated Financial Statements.

Dow Inc. and Subsidiaries

Consolidated Statements of Cash Flows



(In millions) For the years ended Dec 31,	2019			2018			2017
Operating Activities
Net income (loss)	$	(1,272	)	$	4,775		$	595
Less: Income from discontinued operations, net of tax	445			1,835			1,882
Income (loss) from continuing operations, net of tax	(1,717		)	2,940			(1,287		)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	2,938			2,909			2,546
Provision (credit) for deferred income tax	(228		)	(429		)	1,413
Earnings of nonconsolidated affiliates less than dividends received	1,114			108			253
Net periodic pension benefit cost	144			279			1,032
Pension contributions	(261		)	(1,651		)	(1,672		)
Net gain on sales of assets, businesses and investments	(81		)	(38		)	(419		)
Restructuring, goodwill impairment and asset related charges - net	3,219			221			2,739
Other net loss	198			415			451
Changes in assets and liabilities, net of effects of acquired and divested companies:
Accounts and notes receivable	1,253			(855		)	(11,431		)
Inventories	668			(859		)	(891		)
Accounts payable	(948		)	787			1,081
Other assets and liabilities, net	(586		)	(731		)	(258		)
Cash provided by (used for) operating activities - continuing operations	5,713			3,096			(6,443		)
Cash provided by operating activities - discontinued operations	217			1,158			1,514
Cash provided by (used for) operating activities	5,930			4,254			(4,929		)
Investing Activities
Capital expenditures	(1,961		)	(2,091		)	(2,807		)
Investment in gas field developments	(76		)	(114		)	(121		)
Purchases of previously leased assets	(9		)	(26		)	(187		)
Proceeds from sales of property and businesses, net of cash divested	84			47			522
Acquisitions of property and businesses, net of cash acquired	—			(20		)	47
Investments in and loans to nonconsolidated affiliates	(638		)	(18		)	(749		)
Distributions and loan repayments from nonconsolidated affiliates	89			55			69
Purchases of investments	(899		)	(1,530		)	(642		)
Proceeds from sales and maturities of investments	1,252			1,214			1,165
Proceeds from interests in trade accounts receivable conduits	—			657			9,462
Other investing activities, net	—			—			34
Cash provided by (used for) investing activities - continuing operations	(2,158		)	(1,826		)	6,793
Cash provided by (used for) investing activities - discontinued operations	(34		)	(369		)	725
Cash provided by (used for) investing activities	(2,192		)	(2,195		)	7,518
Financing Activities
Changes in short-term notes payable	307			(178		)	268
Proceeds from issuance of long-term debt	2,287			1,999			—
Payments on long-term debt	(5,561		)	(3,054		)	(617		)
Purchases of treasury stock	(500		)	—			—
Proceeds from issuance of parent company stock	93			112			66
Proceeds from sales of common stock	—			—			423
Transaction financing, debt issuance and other costs	(119		)	(70		)	—
Employee taxes paid for share-based payment arrangements	(60		)	(77		)	(81		)
Distributions to noncontrolling interests	(77		)	(135		)	(101		)
Purchases of noncontrolling interests	(297		)	—			—
Dividends paid to stockholders	(1,550		)	—			(2,179		)
Dividends paid to DowDuPont Inc.	(535		)	(3,711		)	(1,056		)
Settlements and transfers related to separation from DowDuPont Inc.	1,935			(240		)	6
Other financing activities, net	—			3			(4		)
Cash used for financing activities - continuing operations	(4,077		)	(5,351		)	(3,275		)
Cash used for financing activities - discontinued operations	(18		)	(53		)	(50		)
Cash used for financing activities	(4,095		)	(5,404		)	(3,325		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(27		)	(99		)	320
Summary
Decrease in cash, cash equivalents and restricted cash	(384		)	(3,444		)	(416		)
Cash, cash equivalents and restricted cash at beginning of year	2,764			6,208			6,624
Cash, cash equivalents and restricted cash at end of year	$	2,380		$	2,764		$	6,208
Less: Restricted cash and cash equivalents, included in "Other current assets"	13			40			19
Cash and cash equivalents at end of year	$	2,367		$	2,724		$	6,189

See Notes to the Consolidated Financial Statements.

Dow Inc. and Subsidiaries

Consolidated Statements of Equity



(In millions, except per share amounts) For the years ended Dec 31,	2019			2018			2017
Common Stock
Balance at beginning of year	$	—		$	—		$	3,107
Merger impact	—			—			(3,107		)
Common stock issued	8			—			—
Balance at end of year	8			—			—
Additional Paid-in Capital
Balance at beginning of year	7,042			6,553			4,262
Common stock issued / sold	57			—			423
Issuance of parent company stock - DowDuPont Inc.	28			112			66
Stock-based compensation and allocation of ESOP shares	235			377			(368		)
Merger impact	—			—			2,172
Other	(37		)	—			(2		)
Balance at end of year	7,325			7,042			6,553
Retained Earnings
Balance at beginning of year	35,460			33,742			30,338
Adoption of accounting standards (Note 1)	(151		)	989			—
Net income (loss) available for Dow Inc.'s common stockholders	(1,359		)	4,641			465
Dividends to stockholders	(1,550		)	—			(1,673		)
Dividends to DowDuPont Inc.	(535		)	(3,711		)	(1,056		)
Common control transaction	(14,806		)	(182		)	5,693
Other	(14		)	(19		)	(25		)
Balance at end of year	17,045			35,460			33,742
Accumulated Other Comprehensive Loss
Balance at beginning of year	(9,885		)	(8,591		)	(9,822		)
Adoption of accounting standards (Note 1)	—			(1,037		)	—
Other comprehensive income (loss)	(1,154		)	(257		)	1,231
Common control transaction	793			—			—
Balance at end of year	(10,246		)	(9,885		)	(8,591		)
Unearned ESOP Shares
Balance at beginning of year	(134		)	(189		)	(239		)
Stock-based compensation and allocation of ESOP shares	45			55			50
ESOP shares acquired	(2		)	—			—
Balance at end of year	(91		)	(134		)	(189		)
Treasury Stock
Balance at beginning of year	—			—			(1,659		)
Common stock issued/sold	—			—			724
Treasury stock purchases	(500		)	—			—
Merger impact	—			—			935
Balance at end of year	(500		)	—			—
Dow Inc.'s stockholders' equity	13,541			32,483			31,515
Noncontrolling Interests	553			1,138			1,186
Total Equity	$	14,094		$	33,621		$	32,701

Dividends declared per share of common stock	$	2.10		$	—		$	1.38

See Notes to the Consolidated Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Income



(In millions) For the years ended Dec 31,	2019			2018		2017
Net sales	$	42,951		$	49,604	$	43,730
Cost of sales	36,657			41,074		36,350
Research and development expenses	765			800		803
Selling, general and administrative expenses	1,585			1,782		1,795
Amortization of intangibles	419			469		400
Restructuring, goodwill impairment and asset related charges - net	3,219			221		2,739
Integration and separation costs	1,039			1,179		798
Equity in earnings (losses) of nonconsolidated affiliates	(94		)	555		394
Sundry income (expense) - net	573			96		(154		)
Interest income	81			82		66
Interest expense and amortization of debt discount	952			1,063		914
Income (loss) from continuing operations before income taxes	(1,125		)	3,749		237
Provision for income taxes on continuing operations	470			809		1,524
Income (loss) from continuing operations, net of tax	(1,595		)	2,940		(1,287		)
Income from discontinued operations, net of tax	445			1,835		1,882
Net income (loss)	(1,150		)	4,775		595
Net income attributable to noncontrolling interests	87			134		130
Net income (loss) available for The Dow Chemical Company common stockholder	$	(1,237	)	$	4,641	$	465

See Notes to the Consolidated Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Comprehensive Income



(In millions) For the years ended Dec 31,	2019			2018			2017
Net income (loss)	$	(1,150	)	$	4,775		$	595
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on investments	115			(67		)	(46		)
Cumulative translation adjustments	(32		)	(225		)	900
Pension and other postretirement benefit plans	(899		)	(40		)	391
Derivative instruments	(338		)	75			(14		)
Total other comprehensive income (loss)	(1,154		)	(257		)	1,231
Comprehensive income (loss)	(2,304		)	4,518			1,826
Comprehensive income attributable to noncontrolling interests, net of tax	99			97			172
Comprehensive income (loss) attributable to The Dow Chemical Company	$	(2,403	)	$	4,421		$	1,654

See Notes to the Consolidated Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Balance Sheets



(In millions, except share amounts) At Dec 31,	2019			2018
Assets
Current Assets
Cash and cash equivalents (variable interest entities restricted - 2019: $37; 2018: $71)	$	2,367		$	2,724
Marketable securities	21			100
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables - 2019: $45; 2018: $42)	4,844			5,646
Other	2,716			3,389
Inventories	6,214			6,899
Other current assets	571			712
Assets of discontinued operations - current	—			19,900
Total current assets	16,733			39,370
Investments
Investment in nonconsolidated affiliates	1,404			3,320
Other investments (investments carried at fair value - 2019: $1,584; 2018: $1,699)	2,588			2,646
Noncurrent receivables	1,011			360
Total investments	5,003			6,326
Property
Property	54,910			53,984
Less accumulated depreciation	33,914			32,566
Net property (variable interest entities restricted - 2019: $330; 2018: $683)	20,996			21,418
Other Assets
Goodwill	8,796			9,846
Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379)	3,759			4,225
Operating lease right-of-use assets	2,072			—
Deferred income tax assets	2,213			1,779
Deferred charges and other assets	818			735
Total other assets	17,658			16,585
Total Assets	$	60,390		$	83,699
Liabilities and Equity
Current Liabilities
Notes payable	$	586		$	298
Long-term debt due within one year	435			338
Accounts payable:
Trade	3,889			4,456
Other	2,064			2,479
Operating lease liabilities - current	421			—
Income taxes payable	522			557
Accrued and other current liabilities	2,233			2,931
Liabilities of discontinued operations - current	—			4,488
Total current liabilities	10,150			15,547
Long-Term Debt (variable interest entities nonrecourse - 2019: $34; 2018: $75)	15,975			19,253
Other Noncurrent Liabilities
Deferred income tax liabilities	347			501
Pension and other postretirement benefits - noncurrent	10,083			8,926
Asbestos-related liabilities - noncurrent	1,060			1,142
Operating lease liabilities - noncurrent	1,739			—
Other noncurrent obligations	6,174			4,709
Total other noncurrent liabilities	19,403			15,278
Stockholder's Equity
Common stock (authorized and issued 100 shares of $0.01 par value each)	—			—
Additional paid-in capital	7,333			7,042
Retained earnings	17,313			35,460
Accumulated other comprehensive loss	(10,246		)	(9,885		)
Unearned ESOP shares	(91		)	(134		)
The Dow Chemical Company’s stockholder's equity	14,309			32,483
Noncontrolling interests	553			1,138
Total equity	14,862			33,621
Total Liabilities and Equity	$	60,390		$	83,699

See Notes to the Consolidated Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Cash Flows



(In millions) For the years ended Dec 31,	2019			2018			2017
Operating Activities
Net income (loss)	$	(1,150	)	$	4,775		$	595
Less: Income from discontinued operations, net of tax	445			1,835			1,882
Income (loss) from continuing operations, net of tax	(1,595		)	2,940			(1,287		)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	2,938			2,909			2,546
Provision (credit) for deferred income tax	(228		)	(429		)	1,413
Earnings of nonconsolidated affiliates less than dividends received	1,114			108			253
Net periodic pension benefit cost	144			279			1,032
Pension contributions	(261		)	(1,651		)	(1,672		)
Net gain on sales of assets, businesses and investments	(81		)	(38		)	(419		)
Restructuring, goodwill impairment and asset related charges - net	3,219			221			2,739
Other net loss	213			415			451
Changes in assets and liabilities, net of effects of acquired and divested companies:
Accounts and notes receivable	1,253			(855		)	(11,431		)
Inventories	668			(859		)	(891		)
Accounts payable	(948		)	787			1,081
Other assets and liabilities, net	(730		)	(731		)	(258		)
Cash provided by (used for) operating activities - continuing operations	5,706			3,096			(6,443		)
Cash provided by operating activities - discontinued operations	371			1,158			1,514
Cash provided by (used for) operating activities	6,077			4,254			(4,929		)
Investing Activities
Capital expenditures	(1,961		)	(2,091		)	(2,807		)
Investment in gas field developments	(76		)	(114		)	(121		)
Purchases of previously leased assets	(9		)	(26		)	(187		)
Proceeds from sales of property and businesses, net of cash divested	84			47			522
Acquisitions of property and businesses, net of cash acquired	—			(20		)	47
Investments in and loans to nonconsolidated affiliates	(638		)	(18		)	(749		)
Distributions and loan repayments from nonconsolidated affiliates	89			55			69
Purchases of investments	(899		)	(1,530		)	(642		)
Proceeds from sales and maturities of investments	1,252			1,214			1,165
Proceeds from interests in trade accounts receivable conduits	—			657			9,462
Other investing activities, net	—			—			34
Cash provided by (used for) investing activities - continuing operations	(2,158		)	(1,826		)	6,793
Cash provided by (used for) investing activities - discontinued operations	(34		)	(369		)	725
Cash provided by (used for) investing activities	(2,192		)	(2,195		)	7,518
Financing Activities
Changes in short-term notes payable	307			(178		)	268
Proceeds from issuance of long-term debt	2,287			1,999			—
Payments on long-term debt	(5,561		)	(3,054		)	(617		)
Proceeds from issuance of parent company stock	93			112			66
Proceeds from sales of common stock	—			—			423
Transaction financing, debt issuance and other costs	(119		)	(70		)	—
Employee taxes paid for share-based payment arrangements	(60		)	(77		)	(81		)
Distributions to noncontrolling interests	(77		)	(135		)	(101		)
Purchases of noncontrolling interests	(297		)	—			—
Dividends paid to stockholders	—			—			(2,179		)
Dividends paid to DowDuPont Inc.	(535		)	(3,711		)	(1,056		)
Dividends paid to Dow Inc.	(201		)	—			—
Settlements and transfers related to separation from DowDuPont Inc.	(61		)	(240		)	6
Other financing activities, net	—			3			(4		)
Cash used for financing activities - continuing operations	(4,224		)	(5,351		)	(3,275		)
Cash used for financing activities - discontinued operations	(18		)	(53		)	(50		)
Cash used for financing activities	(4,242		)	(5,404		)	(3,325		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(27		)	(99		)	320
Summary
Decrease in cash, cash equivalents and restricted cash	(384		)	(3,444		)	(416		)
Cash, cash equivalents and restricted cash at beginning of year	2,764			6,208			6,624
Cash, cash equivalents and restricted cash at end of year	$	2,380		$	2,764		$	6,208
Less: Restricted cash and cash equivalents, included in "Other current assets"	13			40			19
Cash and cash equivalents at end of year	$	2,367		$	2,724		$	6,189

See Notes to the Consolidated Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Equity



(In millions, except per share amounts) For the years ended Dec 31,	2019			2018			2017
Common Stock
Balance at beginning of year	$	—		$	—		$	3,107
Merger impact	—			—			(3,107		)
Balance at end of year	—			—			—
Additional Paid-in Capital
Balance at beginning of year	7,042			6,553			4,262
Common stock issued / sold	—			—			423
Issuance of parent company stock - Dow Inc.	65			—			—
Issuance of parent company stock - DowDuPont Inc.	28			112			66
Stock-based compensation and allocation of ESOP shares	235			377			(368		)
Merger impact	—			—			2,172
Other	(37		)	—			(2		)
Balance at end of year	7,333			7,042			6,553
Retained Earnings
Balance at beginning of year	35,460			33,742			30,338
Adoption of accounting standards (Note 1)	(151		)	989			—
Net income (loss) available for The Dow Chemical Company's common stockholder	(1,237		)	4,641			465
Dividends to stockholders	—			—			(1,673		)
Dividends to DowDuPont Inc.	(535		)	(3,711		)	(1,056		)
Dividends to Dow Inc.	(201		)	—			—
Common control transaction	(16,009		)	(182		)	5,693
Other	(14		)	(19		)	(25		)
Balance at end of year	17,313			35,460			33,742
Accumulated Other Comprehensive Loss
Balance at beginning of year	(9,885		)	(8,591		)	(9,822		)
Adoption of accounting standards (Note 1)	—			(1,037		)	—
Other comprehensive income (loss)	(1,154		)	(257		)	1,231
Common control transaction	793			—			—
Balance at end of year	(10,246		)	(9,885		)	(8,591		)
Unearned ESOP Shares
Balance at beginning of year	(134		)	(189		)	(239		)
Stock-based compensation and allocation of ESOP shares	45			55			50
ESOP shares acquired	(2		)	—			—
Balance at end of year	(91		)	(134		)	(189		)
Treasury Stock
Balance at beginning of year	—			—			(1,659		)
Common stock issued/sold	—			—			724
Merger impact	—			—			935
Balance at end of year	—			—			—
The Dow Chemical Company's stockholder's equity	14,309			32,483			31,515
Noncontrolling Interests	553			1,138			1,186
Total Equity	$	14,862		$	33,621		$	32,701

See Notes to the Consolidated Financial Statements.



Dow Inc. and Subsidiaries The Dow Chemical Company and Subsidiaries
Notes to the Consolidated Financial Statements

Table of Contents



Note		Page
1	Summary of Significant Accounting Policies	74
2	Recent Accounting Guidance	80
3	Merger with Historical DuPont	81
4	Separation from DowDuPont	82
5	Revenue	84
6	Divestitures	87
7	Restructuring, Goodwill Impairment and Asset Related Charges - Net	87
8	Supplementary Information	90
9	Income Taxes	91
10	Earnings Per Share Calculations	95
11	Inventories	96
12	Property	96
13	Nonconsolidated Affiliates	96
14	Goodwill and Other Intangible Assets	99
15	Transfers of Financial Assets	101
16	Notes Payable, Long-Term Debt and Available Credit Facilities	102
17	Commitments and Contingent Liabilities	105
18	Leases	112
19	Stockholders' Equity	115
20	Noncontrolling Interests	118
21	Pension Plans and Other Postretirement Benefits	119
22	Stock-Based Compensation	126
23	Financial Instruments	131
24	Fair Value Measurements	138
25	Variable Interest Entities	141
26	Related Party Transactions	142
27	Segments and Geographic Regions	143
28	Selected Quarterly Financial Data	147

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Merger and Separation

On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") completed the separation of its materials science business and Dow Inc. became the direct parent company of The Dow Chemical Company and its consolidated subsidiaries (“TDCC” and together with Dow Inc., “Dow” or the “Company”). The separation was contemplated by the merger of equals transaction effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017. 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 Notes 3 and 4 for additional information.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements of Dow Inc. and TDCC were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which Dow exercises control and, when applicable, entities for which Dow has a controlling financial interest or is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies or less than 20 percent owned companies over which significant influence is exercised) are accounted for using the equity method.

Effective April 1, 2019, Dow Inc. owns all of the outstanding common shares of TDCC. TDCC is deemed the predecessor to Dow Inc. and the historical results of TDCC are deemed the historical results of Dow Inc. for periods prior to and including March 31, 2019. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and the expectation that the financial statements and disclosures of each company will be substantially similar, the companies are filing a combined report for this Annual Report on Form 10-K. The information reflected in the report is equally applicable to both Dow Inc. and TDCC, except where otherwise noted.

As of the effective date 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 ("Merger Date"). See Notes 3 and 4 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: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure and Performance Materials & Coatings. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. See Note 27 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 26 for additional information.

Throughout this Annual Report on Form 10-K, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.

Except as otherwise indicated by the context, the terms "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of the Company, and "Dow Silicones" means Dow Silicones Corporation (formerly known as Dow Corning Corporation, which changed its name effective as of February 1, 2018), a wholly owned subsidiary of the Company.

Use of Estimates in Financial Statement Preparation

The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

Significant Accounting Policies

Asbestos-Related Matters

Accruals for asbestos-related matters, including defense and processing costs, are recorded based on an analysis of claim and resolution activity, defense spending, and pending and future claims. These accruals are assessed at each balance sheet date to determine if the asbestos-related liability remains appropriate. Accruals for asbestos-related matters are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent.” See Note 17 for additional information.

Legal Costs

The Company expenses legal costs as incurred, with the exception of defense and processing costs associated with asbestos-related matters.

Foreign Currency Translation

The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in "Accumulated other comprehensive loss" ("AOCL"). For certain subsidiaries, the U.S. dollar is used as the functional currency. This occurs when the subsidiary operates in an economic environment where the products produced and sold are tied to U.S. dollar-denominated markets, or when the foreign subsidiary operates in a hyper-inflationary environment. Where the U.S. dollar is used as the functional currency, foreign currency translation gains and losses are reflected in income.

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Other noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets in “Accounts and notes receivable - Other” or "Noncurrent receivables."

Environmental costs are capitalized if the costs extend the life of the property, increase its capacity and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.

Cash and Cash Equivalents

Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of purchase.

Financial Instruments

The Company calculates the fair value of financial instruments using quoted market prices when available. When quoted market prices are not available for financial instruments, the Company uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows.

The Company utilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair values of these instruments are reported in income or AOCL, depending on the use of the derivative and whether the Company has elected hedge accounting treatment.

Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCL until the underlying transactions are recognized in income. Gains and losses on derivative and non-derivative instruments used as hedges of the Company’s net investment in foreign operations are recorded in AOCL as part of the cumulative translation adjustment. Prior to the adoption of Accounting Standards Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" in 2018, the ineffective portions of hedges, if any, were recognized in income immediately.

Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income.

Inventories

Inventories are stated at the lower of cost or net realizable value. The method of determining cost for each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year. At December 31, 2019, approximately 32 percent, 58 percent and 10 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2018, approximately 34 percent, 57 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.

The Company routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time, freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.

Property

Land, buildings and equipment are carried at cost less accumulated depreciation or amortization. Property under finance lease agreements is carried at the present value of lease payments over the lease term less accumulated amortization. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method, unless the asset was capitalized before 1997 when the declining balance method was used. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

Impairment and Disposal of Long-Lived Assets

The Company evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.

Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized over the remaining useful life of the assets.

Goodwill and Other Intangible Assets

The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not that the fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, an impairment charge is recognized based on the difference between the reporting unit's carrying value and its fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units.

Finite-lived intangible assets such as purchased customer lists, developed technology, patents, trademarks and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3 to 20 years. Indefinite-lived intangible assets are reviewed for impairment or obsolescence annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows.

Asset Retirement Obligations

The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less.

Investments

Investments in debt securities, primarily held by the Company's insurance operations, are classified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Those classified as available-for-sale are reported at fair value with unrealized gains and losses recorded in AOCL. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is determined by FIFO or specific identification.

Investments in equity securities with a readily determinable fair value are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Equity securities without a readily determinable fair value are accounted for at cost, adjusted for impairments and observable price changes in orderly transactions.

The Company routinely reviews its investments for declines in fair value below the cost basis. When events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the security is written down to fair value, establishing a new cost basis.

Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the associated ASUs (collectively, “Topic 842”). The Company added the following significant accounting policy for leases as a result of the adoption of Topic 842.

The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.

Operating lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all classes of leased assets for which the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.

Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability. See Notes 2 and 18 for additional information.

Revenue

Effective with the January 1, 2018 adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," and the associated ASUs (collectively, "Topic 606"), the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 5 for additional information.

Revenue related to the Company's insurance operations includes third-party insurance premiums, which are earned over the terms of the related insurance policies and reinsurance contracts.

In periods prior to the adoption of Topic 606, the Company's accounting policy was to recognize revenue when it was realized or realizable, and the earnings process was complete. Revenue for product sales was recognized as risk and title to the product transferred to the customer, which usually occurred at the time shipment was made. As such, title to the product passed when the product was delivered to the freight carrier. The Company’s standard terms of delivery were included in its contracts of sale, order confirmation documents and invoices. Revenue related to the initial licensing of patent and technology was recognized when earned; revenue related to running royalties was recognized according to licensee production levels.

Severance Costs

The Company routinely reviews its operations around the world in an effort to ensure competitiveness across its businesses and geographic regions. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization activities, severance benefits are provided to employees primarily under the Company’s ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated.

Integration and Separation Costs

The Company classifies expenses related to the Merger and separation and the ownership restructure of Dow Silicones as "Integration and separation costs" in the consolidated statements of income. Merger and separation related costs include: costs incurred to prepare for and close the Merger, post-Merger integration expenses, costs incurred for the separation of AgCo and SpecCo and costs related to the integration of ECP. The Dow Silicones-related costs include integration expenses incurred after the close of the ownership restructure. Integration and separation costs primarily consist of financial adviser, information technology, legal, accounting, consulting and other professional advisory fees associated with preparation and execution of these activities.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date. The Company uses the portfolio approach for releasing income tax effects from AOCL.

Effective with the Merger, TDCC and Historical DuPont were subsidiaries of DowDuPont. Prior to the separation, TDCC was included in DowDuPont's consolidated tax groups and related income tax returns within certain jurisdictions. The Company records a separate tax liability for its share of the taxable income and tax attributes and obligations on DowDuPont’s consolidated income tax returns following a formula consistent with the economic sharing of tax attributes and obligations. The Company and Historical DuPont compute the amount due to DowDuPont for their share of taxable income and tax attributes and obligations on DowDuPont’s consolidated tax return. The amounts reported as income tax payable or receivable represent the Company’s payment obligation (or refundable amount) to DowDuPont based on a theoretical tax liability calculated based on the methodologies agreed, elected or required in each combined or consolidated filing jurisdiction.

The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

See Note 9 for further information relating to the enactment of the Tax Cuts and Jobs Act ("The Act") in 2017.

Earnings per Common Share

The calculation of earnings per common share is based on the weighted-average number of the Company's common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.

Adoption of Accounting Standards

Effective January 1, 2019, the Company adopted Topic 842 and added the accounting policy discussed in the section above. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $2.3 billion at January 1, 2019. The net impact to “Retained earnings” was an increase of $32 million and was primarily a result of the recognition of a deferred gain associated with a prior sale-leaseback transaction. The 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 Notes 2 and 18 for additional information.

Additionally, the Company's consolidated balance sheets reflect the impact of the adoption of Topic 606 at January 1, 2019, by certain nonconsolidated affiliates of the Company, which were subsequently distributed as part of the separation from DowDuPont. The net impact is reflected in assets and liabilities of discontinued operations with a corresponding reduction to "Retained earnings" of $183 million in the consolidated balance sheets at January 1, 2019.

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

Prior to the Merger, TDCC declared dividends of $1.38 per share in 2017, based on the historical number of shares of common stock of TDCC held by shareholders of record for each dividend. 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. Effective with the separation from DowDuPont, TDCC became a wholly owned subsidiary of Dow Inc. and TDCC's Board of Directors determines whether or not there will be a dividend distribution to Dow Inc. Subsequent to the separation from DowDuPont, Dow Inc. declared dividends of $2.10 per share in 2019. See Notes 19 and 26 for additional information.

NOTE 2 – RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance

In 2019, the Company adopted 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. 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 $32 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 Notes 1 and 18 for additional information.

Accounting Guidance Issued But Not Adopted at December 31, 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 expects to adopt the new guidance in the first quarter of 2020 and the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

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 expects to adopt the new guidance in the first quarter of 2020 and the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is currently evaluating the impact of adopting this guidance.

NOTE 3 - MERGER WITH HISTORICAL DUPONT

Effective August 31, 2017, TDCC and Historical DuPont completed the merger of equals transaction contemplated by the Merger Agreement, by and among TDCC, Historical DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuant to the Merger Agreement, (i) Diamond Merger Sub, Inc. was merged with and into TDCC, with TDCC surviving the merger as a subsidiary of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into Historical DuPont, with Historical DuPont surviving the merger as a subsidiary of DowDuPont (the "Orion Merger" and, together with the Diamond Merger, the "Mergers"). Following the consummation of the Mergers, each of TDCC and Historical DuPont became subsidiaries of DowDuPont. Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business.

Upon completion of the Diamond Merger, each share of common stock, par value $2.50 per share, of TDCC ("TDCC Common Stock") (excluding any shares of TDCC Common Stock that were held in treasury immediately prior to the effective time of the Diamond Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive one fully paid and non-assessable share of common stock, par value $0.01 per share, of DowDuPont ("DowDuPont Common Stock"). As provided in the Merger Agreement, at the effective time of the Mergers, (i) all options, deferred stock, performance deferred stock and other equity awards relating to shares of TDCC Common Stock outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options and deferred stock and other equity awards relating to shares of DowDuPont Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers. See Note 22 for additional information on the conversion of the equity awards.

In the third quarter of 2017, as a result of the Diamond Merger and the Merger, TDCC recorded a reduction in "Treasury stock" of $935 million, a reduction in "Common stock" of $3,107 million and an increase in "Additional paid in capital" of $2,172 million. At September 1, 2017, TDCC had 100 shares of common stock issued and outstanding, par value $0.01 per share, owned solely by its parent, DowDuPont. Following the separation from DowDuPont, these shares are now solely owned by Dow Inc.

On August 31, 2017, following the Diamond Merger, TDCC requested that the New York Stock Exchange ("NYSE") withdraw the shares of TDCC Common Stock from listing on the NYSE and filed a Form 25 with the SEC to report that the shares of TDCC Common Stock are no longer listed on the NYSE. The shares of TDCC Common Stock were suspended from trading on the NYSE prior to the open of trading on September 1, 2017.

As a condition of the regulatory approval of the Merger, TDCC and Historical DuPont agreed to certain closing conditions, which are as follows:


•	TDCC divested its global Ethylene Acrylic Acid copolymers and ionomers business ("EAA Business") to SK Global Chemical Co., Ltd., on September 1, 2017, as part of a divestiture commitment given to the European Commission ("EC") in connection with the EC's conditional approval of the Merger granted on March 27, 2017. See Note 6 for additional information on this transaction.


•	Historical DuPont divested its Cereal Broadleaf Herbicides and Chewing Insecticides portfolios as well as its Crop Protection research and development ("R&D") pipeline and organization (excluding seed treatment, nematicides, late-stage R&D programs and certain personnel needed to support marketed products and R&D programs that remained with Historical DuPont) (collectively, the "DuPont Divested Assets") to FMC Corporation ("FMC") on November 1, 2017, as part of the EC's conditional approval granted on March 27, 2017. Also on November 1, 2017, Historical DuPont completed its acquisition of FMC's Health and Nutrition business, excluding its Omega-3 products.

•

Historical DuPont divested its Cereal Broadleaf Herbicides and Chewing Insecticides portfolios as well as its Crop Protection research and development ("R&D") pipeline and organization (excluding seed treatment, nematicides, late-stage R&D programs and certain personnel needed to support marketed products and R&D programs that remained with Historical DuPont) (collectively, the "DuPont Divested Assets") to FMC Corporation ("FMC") on November 1, 2017, as part of the EC's conditional approval granted on March 27, 2017. Also on November 1, 2017, Historical DuPont completed its acquisition of FMC's Health and Nutrition business, excluding its Omega-3 products.


•	On May 2, 2017, TDCC and Historical DuPont announced that China's Ministry of Commerce ("MOFCOM") granted conditional regulatory approval for the companies' proposed merger of equals which included commitments already made to the EC including Historical DuPont's divestiture of the DuPont Divested Assets and TDCC's divestiture of the EAA Business. In addition, TDCC and Historical DuPont made commitments related to the supply and distribution in China of certain herbicide and insecticide ingredients and formulations for rice crops for five years after the closing of the Merger.

•

On May 2, 2017, TDCC and Historical DuPont announced that China's Ministry of Commerce ("MOFCOM") granted conditional regulatory approval for the companies' proposed merger of equals which included commitments already made to the EC including Historical DuPont's divestiture of the DuPont Divested Assets and TDCC's divestiture of the EAA Business. In addition, TDCC and Historical DuPont made commitments related to the supply and distribution in China of certain herbicide and insecticide ingredients and formulations for rice crops for five years after the closing of the Merger.


•	TDCC divested a select portion of Dow AgroSciences' corn seed business in Brazil to CITIC Agri Fund on November 30, 2017. The divestiture was part of the commitment given to Brazil's Administrative Council for Economic Defense ("CADE") in connection with the CADE's conditional approval of the Merger granted on May 17, 2017, which was incremental to commitments already made to the EC, China and regulatory agencies in other jurisdictions. This divestiture was included in discontinued operations of the Company.

•

TDCC divested a select portion of Dow AgroSciences' corn seed business in Brazil to CITIC Agri Fund on November 30, 2017. The divestiture was part of the commitment given to Brazil's Administrative Council for Economic Defense ("CADE") in connection with the CADE's conditional approval of the Merger granted on May 17, 2017, which was incremental to commitments already made to the EC, China and regulatory agencies in other jurisdictions. This divestiture was included in discontinued operations of the Company.


•	On June 15, 2017, TDCC and Historical DuPont announced that a proposed agreement had been reached with the Antitrust Division of the United States Department of Justice that permitted the companies to proceed with the proposed merger of equals transaction. The proposed agreement was consistent with commitments already made to the EC.

NOTE 4 – 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.

Effective April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. As of the effective date and time of the distribution, DowDuPont does not beneficially own any equity interest in Dow and will no longer consolidate Dow and its consolidated subsidiaries into its financial results. Beginning in the second quarter of 2019, Dow’s consolidated financial results reflect the results of Dow Inc. and its consolidated subsidiaries - that is, TDCC after giving effect to the distribution of AgCo and SpecCo and the receipt of ECP. The consolidated financial results of Dow for periods prior to April 1, 2019, reflect the distribution of AgCo and SpecCo as discontinued operations for each period presented as well as reflect the receipt of ECP as a common control transaction from the closing of the Merger on August 31, 2017.

On April 1, 2019, Dow Inc. received a cash contribution of $2,024 million from DowDuPont as part of the internal reorganization and business realignment steps between Dow Inc., TDCC and DowDuPont. Dow Inc. recognized a reduction to "Retained earnings" of $14,806 million in 2019 as a result of the cash contribution, the distribution of AgCo and SpecCo, and other separation related adjustments. TDCC recognized a reduction to "Retained earnings" of $16,009 million in 2019 as a result of the distribution of AgCo and SpecCo.

Receipt of ECP

As the receipt of ECP was accounted for as a transfer between entities under common control, the consolidated financial statements have been retrospectively adjusted to reflect the receipt of ECP from the closing of the Merger on August 31, 2017. All intercompany transactions have been eliminated in consolidation.

Distribution of AgCo and SpecCo

Upon distribution, the Company retrospectively adjusted the previously issued consolidated financial statements and presented AgCo and SpecCo as discontinued operations based on the guidance in Accounting Standards Codification (“ASC”) 205-20 “Discontinued Operations” (“ASC 205-20”). The results of operations of AgCo and SpecCo are presented as discontinued operations in the consolidated statements of income and are summarized in the following table:



Results of Operations of AgCo and SpecCo	2019 1			2018			2017
In millions
Net sales	$	2,953		$	12,187		$	12,337
Cost of sales	1,804			7,668			7,769
Research and development expenses	175			761			854
Selling, general and administrative expenses	262			1,108			1,143
Amortization of intangibles	61			249			255
Restructuring and asset related charges - net	78			411			376
Integration and separation costs	—			—			18
Equity in earnings of nonconsolidated affiliates	28			400			372
Sundry income (expense) - net	(18		)	(13		)	245
Interest income	3			26			40
Interest expense and amortization of debt discount	7			56			61
Income from discontinued operations before income taxes	$	579		$	2,347		$	2,518
Provision for income taxes	134			512			636
Income from discontinued operations, net of tax	$	445		$	1,835		$	1,882

Results through March 31, 2019.

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.

Agreements Related to the Separation and Distribution

In connection with the separation, Dow Inc. entered into certain agreements with DuPont and/or Corteva, Inc. ("Corteva"), including the following: Separation and Distribution Agreement, Tax Matters Agreement and Employee Matters Agreement (collectively, the "Agreements"). In addition to establishing the terms of the separation, the Agreements provide a framework for Dow’s interaction with DuPont and Corteva after the separation and also provide for the allocation among Dow, DuPont and Corteva of assets, liabilities and obligations attributable to periods prior to, at and after the completion of the separation. The Agreements also contain certain indemnity and/or cross-indemnity provisions that are intended to set forth each party’s respective rights, responsibilities and obligations for matters subject to indemnification. Except in certain instances, the parties’ indemnification obligations are uncapped. Certain indemnification obligations will be subject to reduction by insurance proceeds or other third-party proceeds of the indemnified party that reduces the amount of the loss. In addition, indemnifiable losses will be subject to, in certain cases, “de minimis” threshold amounts and, in certain cases, deductible amounts.

The impacts of indemnifications and other post-separation matters relating to the Agreements are primarily reflected in the consolidated financial statements of Dow Inc. In 2019, the Company recorded pretax charges related to the Agreements of $24 million in "Integration and separation costs" and $69 million in "Sundry income (expense) - net" in the consolidated statements of income of Dow Inc., and related to Corporate. At December 31, 2019, the Company had assets of $58 million included in "Other current assets" and $52 million included in "Noncurrent receivables," and liabilities of $352 million included in "Accrued and other current liabilities" and $96 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 with an offset to "Retained earnings" in the consolidated balance sheets of Dow Inc. At December 31, 2019, $130 million of this liability was recorded in "Accrued and other current liabilities" and $270 million was recorded in "Other noncurrent obligations" 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. Following the separation, Dow Inc. made cash payments of $215 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 $98 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

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 $1,063 million and $1,039 million for Dow Inc. and TDCC, respectively, in 2019, compared with $1,179 million in 2018 and $798 million in 2017. Integration and separation costs related to post-Merger integration and business separation activities are expected to be substantially complete by the end of 2020.

NOTE 5 – REVENUE

The majority of the Company's revenue is derived from product sales. In 2019, 98 percent of the Company's revenue related to product sales (99 percent in 2018 and 98 percent in 2017). The remaining sales were primarily related to the Company's insurance operations and licensing of patents and technologies.

Product Sales

Product sales consist of sales of the Company's products to manufacturers and distributors. The Company considers order confirmations or purchase orders, which in some cases are governed by master supply agreements, to be contracts with a customer. Product sale contracts are generally short-term contracts where the time between order confirmation and satisfaction of all performance obligations is less than one year. However, the Company has some long-term contracts which can span multiple years.

Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, usually upon shipment, with payment terms typically in the range of 30 to 60 days after invoicing, depending on business and geographic region. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to shipment), these are considered fulfillment activities, and accordingly, the costs are accrued when

the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company elected to use the practical expedient to expense cash and non-cash sales incentives, as the amortization period for the costs to obtain the contract would have been one year or less.

Certain long-term contracts include a series of distinct goods that are delivered continuously to the customer through a pipeline (e.g., feedstocks). For these types of product sales, the Company invoices the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date. As a result, the Company recognizes revenue based on the amount billable to the customer in accordance with the right to invoice practical expedient.

The transaction price includes estimates for reductions in revenue from customer rebates and right of returns on product sales. These amounts are estimated based upon the most likely amount of consideration to which the customer will be entitled. All estimates are based on historical experience, anticipated performance and the Company’s best judgment at the time to the extent it is probable that a significant reversal of revenue recognized will not occur. All estimates for variable consideration are reassessed periodically. The Company elected the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between payment and transfer of the goods will be one year or less.

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price. The standalone selling price is the observable price which depicts the price as if sold to a similar customer in similar circumstances.

Patents, Trademarks and Licenses

The Company enters into licensing arrangements in which it licenses certain rights of its patents and technology to customers. Revenue from the majority of the Company’s licenses for patents and technology is derived from sales-based royalties. The Company estimates the amount of sales-based royalties it expects to be entitled to based on historical sales to the customer. For the remaining revenue from licensing arrangements, payments are typically received from the Company's licensees based on billing schedules established in each contract. Revenue is recognized when the performance obligation is satisfied.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to unsatisfied or partially unsatisfied performance obligations. At December 31, 2019, the Company had unfulfilled performance obligations for the licensing of technology of $826 million, and expects revenue to be recognized for the remaining performance obligations over the next one to seven years.

The remaining performance obligations are for product sales that have expected durations of one year or less, product sales of materials delivered through a pipeline for which the Company has elected the right to invoice practical expedient, or variable consideration attributable to royalties for licenses of patents and technology. The Company has received advance payments from customers related to long-term supply agreements that are deferred and recognized over the life of the contract, with remaining contract terms that range up to 21 years. The Company will have rights to future consideration for revenue recognized when product is delivered to the customer. These payments are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.

Disaggregation of Revenue

The Company 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. See details in the tables below:



Net Trade Sales by Segment and Business	2019		2018
In millions
Hydrocarbons & Energy	$	5,357	$	7,587
Packaging and Specialty Plastics	14,888		16,608
Packaging & Specialty Plastics	$	20,245	$	24,195
Industrial Solutions	$	4,310	$	4,812
Polyurethanes & Construction Chemicals	9,117		10,615
Others	13		20
Industrial Intermediates & Infrastructure	$	13,440	$	15,447
Coatings & Performance Monomers	$	3,517	$	3,979
Consumer Solutions	5,406		5,698
Performance Materials & Coatings	$	8,923	$	9,677
Corporate	$	343	$	285
Total	$	42,951	$	49,604



Net Trade Sales by Geographic Region	2019		2018
In millions
U.S. & Canada	$	15,549	$	17,809
EMEAI 1	14,612		17,406
Asia Pacific	8,676		9,404
Latin America	4,114		4,985
Total	$	42,951	$	49,604

Europe, Middle East, Africa and India.

Contract Assets and Liabilities

The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract, and are 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 the Company has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract.

The Company's contract liabilities increased from December 31, 2018 to December 31, 2019 due to advanced payments from customers related to long-term product supply agreements. Revenue recognized in 2019 from amounts included in contract liabilities at the beginning of the period was approximately $145 million ($205 million in 2018). In 2019, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $15 million ($12 million in 2018). The Company did not recognize any asset impairment charges related to contract assets in 2019 or 2018.

The following table summarizes the contract assets and liabilities at December 31, 2019 and 2018:



Contract Assets and Liabilities at Dec 31	2019		2018
In millions
Accounts and notes receivable - Trade	$	4,844	$	5,646
Contract assets - current 1	$	41	$	19
Contract assets - noncurrent 2	$	4	$	1
Contract liabilities - current 3	$	193	$	134
Contract liabilities - noncurrent 4	$	1,607	$	1,318

Included in "Other current assets" in the consolidated balance sheets.
Included in "Deferred charges and other assets" in the consolidated balance sheets.
Included in "Accrued and other current liabilities" in the consolidated balance sheets.
Included in "Other noncurrent obligations" in the consolidated balance sheets.

NOTE 6 – DIVESTITURES

Merger Remedy - Divestiture of the Global Ethylene Acrylic Acid Copolymers and Ionomers Business

On February 2, 2017, as a condition of regulatory approval of the Merger, the Company announced it would divest its global EAA Business to SK Global Chemical Co., Ltd. The divestiture included production assets located in Freeport, Texas, and Tarragona, Spain, along with associated intellectual property and product trademarks. Under terms of the purchase agreement, SK Global Chemical Co., Ltd will honor certain customer and supplier contracts and other agreements. On September 1, 2017, the sale was completed for $296 million, net of working capital adjustments, costs to sell and other adjustments, with proceeds subject to customary post-closing adjustments. As a result, in 2017, the Company recognized a pretax gain of $227 million on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Packaging & Specialty Plastics segment.

The Company evaluated the divestiture of the EAA Business and determined it did not represent a strategic shift that had a major effect on the Company’s operations and financial results and did not qualify as an individually significant component of the Company. As a result, this divestiture was not reported in discontinued operations.

NOTE 7 – RESTRUCTURING, GOODWILL IMPAIRMENT AND ASSET RELATED CHARGES - NET

The "Restructuring, goodwill impairment and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs, goodwill impairments, and other asset related charges, which includes other asset impairments.

DowDuPont Cost Synergy Program

In September and November 2017, DowDuPont approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the "Synergy Program") which was designed to integrate and optimize the organization following the Merger and in preparation for the business separations. The Company expected (prior to the impact of any discontinued operations) to record total pretax restructuring charges of approximately $1.3 billion, which included initial estimates of approximately $525 million to $575 million of severance and related benefit costs, $400 million to $440 million of asset write-downs and write-offs, and $290 million to $310 million of costs associated with exit and disposal activities. The restructuring charges below reflect charges from continuing operations.

The Company recorded pretax restructuring charges of $399 million in 2017, consisting of severance and related benefit costs of $307 million, asset write-downs and write-offs of $87 million and costs associated with exit and disposal activities of $5 million.

The Company recorded pretax restructuring charges of $184 million in 2018, consisting of severance and related benefit costs of $137 million, assets write-downs and write-offs of $33 million and costs associated with exit and disposal activities of $14 million.

For the year ended December 31, 2019, the Company recorded pretax restructuring charges of $292 million, consisting of severance and related benefit costs of $123 million, asset write-downs and write-offs of $143 million and costs associated with exit and disposal activities of $26 million. The impact of these charges is shown as "Restructuring, goodwill impairment and asset related charges ‑ net" in the consolidated statements of income. The Company expects the Synergy Program to be substantially complete by the end of the second quarter of 2020.

The following table summarizes the activities related to the Synergy Program. At December 31, 2019, $52 million was included in "Accrued and other current liabilities" ($205 million at December 31, 2018) and $19 million was included in "Other noncurrent obligations" ($12 million at December 31, 2018) in the consolidated balance sheets.



DowDuPont Synergy Program	Severance and Related Benefit Costs			Asset Write-downs and Write-offs			Costs Associated with Exit and Disposal Activities			Total
In millions
2017 restructuring charges
Packaging & Specialty Plastics	$	—		$	33		$	3		$	36
Industrial Intermediates & Infrastructure	—			12			—			12
Performance Materials & Coatings	—			9			2			11
Corporate	307			33			—			340
Total 2017 restructuring charges	$	307		$	87		$	5		$	399
Charges against the reserve	—			(87		)	—			(87		)
Cash payments	(37		)	—			—			(37		)
Reserve balance at Dec 31, 2017	$	270		$	—		$	5		$	275
2018 restructuring charges
Packaging & Specialty Plastics	$	—		$	10		$	3		$	13
Industrial Intermediates & Infrastructure	—			—			11			11
Performance Materials & Coatings	—			7			—			7
Corporate	137			16			—			153
Total 2018 restructuring charges	$	137		$	33		$	14		$	184
Charges against the reserve	—			(33		)	—			(33		)
Cash payments	(197		)	—			(12		)	(209		)
Reserve balance at Dec 31, 2018	$	210		$	—		$	7		$	217
2019 restructuring charges
Packaging & Specialty Plastics	$	—		$	—		$	1		$	1
Industrial Intermediates & Infrastructure	—			2			5			7
Performance Materials & Coatings	—			28			—			28
Corporate	123			113			20			256
Total 2019 restructuring charges	$	123		$	143		$	26		$	292
Charges against the reserve	—			(143		)	—			(143		)
Cash payments	(279		)	—			(16		)	(295		)
Reserve balance at Dec 31, 2019	$	54		$	—		$	17		$	71

Asset Write-downs and Write-offs

The restructuring charges related to the write-down and write-off of assets in 2017 are as follows:


•	The Company recorded a charge of $22 million for asset write-downs and write-offs aligned with an energy project, including the write-off of capital projects and other non-manufacturing assets in Packaging & Specialty Plastics.

•

The Company recorded a charge of $65 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets, certain corporate facilities and data centers. The charge related to Packaging & Specialty Plastics ($11 million), Industrial Intermediates & Infrastructure ($12 million), Performance Materials & Coatings ($9 million) and Corporate ($33 million). These manufacturing facilities were shut down primarily by the end of 2019.

The restructuring charges related to the write-down and write-off of assets in 2018 are as follows:

•

The Company recorded a charge of $33 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of leased, non-manufacturing assets and certain corporate facilities. The charge related to Packaging & Specialty Plastics ($10 million), Performance Materials & Coatings ($7 million) and Corporate ($16 million). These manufacturing facilities were shut down by the end of 2019.

The restructuring charges related to the write-down and write-off of assets in 2019 are as follows:

•

The Company recorded a charge of $143 million for other miscellaneous asset write-downs and write-offs, including the shutdown of several small manufacturing facilities and the write-off of non-manufacturing assets and certain corporate facilities. The charge related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million). These manufacturing facilities will be shut down by the end of the second quarter of 2020.

Costs Associated with Exit and Disposal Activities

The restructuring charges for costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation liabilities, totaled $5 million in 2017, $14 million in 2018 and $26 million in 2019.

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. 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.

Goodwill Impairment

Upon completion of the goodwill impairment testing in the fourth quarter of 2019, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount. As a result, the Company recorded an impairment charge of $1,039 million in the fourth quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings.

In 2017, upon completion of the annual goodwill impairment testing, the Company determined the fair value of the Coatings & Performance Monomers reporting unit was lower than its carrying amount and as a result, recorded an impairment charge of $1,491 million in the fourth quarter of 2017, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 14 for additional information on these impairment charges.

Asset Related Charges

2019 Charges

In 2019, the Company recognized additional pretax impairment charges of $58 million related primarily to capital additions made to a biopolymers manufacturing facility in Santa Vitoria, Minas Gerais, Brazil ("Santa Vitoria"), which was impaired in 2017. The impairment charges were included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($44 million), Performance Materials & Coatings ($9 million) and Corporate ($5 million). See Note 24 for additional information.

On August 13, 2019, the Company entered into a definitive agreement to sell its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land, utilities and certain railcars. The Company remains at the Institute site as a tenant. As a result of the planned transaction, the Company recognized a pretax impairment charge of $75 million in the third quarter of 2019, included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million). See Note 24 for additional information.

In the fourth quarter of 2019, upon completion of an evaluation of its equity method investment in Sadara Chemical Company ("Sadara") for other-than-temporary impairment, the Company determined that its investment in Sadara was other-than-temporarily impaired and it was written down to zero. Additionally, as part of Dow's evaluation of Sadara, the Company reserved certain of its notes and accounts receivable with Sadara due to uncertainty on the timing of collection. As a result, the Company recorded a $1,755 million charge related to Sadara, included in “Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million). See Notes 13 and 24 for additional information.

2018 Charges

In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions at Santa Vitoria. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note 24 for additional information.

2017 Charges

In 2017, the Company recognized a $622 million pretax impairment charge related to Santa Vitoria. The Company determined it would not pursue an expansion of the facility’s ethanol mill into downstream derivative products, primarily as a result of cheaper ethane-based production as well as the Company’s new assets coming online on the U.S. Gulf Coast which can be used to meet growing market demands in Brazil. As a result of this decision, cash flow analysis indicated the carrying amount of the impacted assets was not recoverable. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Note 24 for additional information.

The Company also recognized other pretax impairment charges of $246 million in the fourth quarter of 2017, including charges related to manufacturing assets of $159 million, an equity method investment of $81 million and other assets of $6 million. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($58 million), Industrial Intermediates & Infrastructure ($5 million), Performance Materials & Coatings ($83 million) and Corporate ($100 million). See Note 24 for additional information.

NOTE 8 – SUPPLEMENTARY INFORMATION



Sundry Income (Expense) – Net	Dow Inc.									TDCC
In millions	2019			2018			2017			2019			2018			2017
Non-operating pension and other postretirement benefit plan net credits (costs) 1	$	205		$	123		$	(676	)	$	205		$	123		$	(676	)
Foreign exchange gains (losses)	91			(119		)	(72		)	77			(119		)	(72		)
Gain related to Nova ethylene asset matter 2	170			—			—			170			—			—
Dow Silicones breast implant liability adjustment 2	85			—			—			85			—			—
Gain (loss) on Dow Silicones commercial creditor matters 2	(50		)	—			33			(50		)	—			33
Indemnification and other transaction related costs 3	(69		)	—			—			6			—			—
Loss on early extinguishment of debt 4	(102		)	(54		)	—			(102		)	(54		)	—
Gain (loss) on divestitures 5	(49		)	—			7			2			—			7
Gain on sales of other assets and investments	67			18			117			67			18			117
Reclassification of cumulative translation adjustments	10			4			8			10			4			8
Post-closing adjustments related to Dow Silicones ownership restructure	—			(20		)	—			—			(20		)	—
Post-closing adjustments on divestiture of MEGlobal	—			20			—			—			20			—
Gain on divestiture of the EAA business 6	—			—			227			—			—			227
Gain related to Nova patent infringement award 2	—			—			137			—			—			137
Other - net	103			124			65			103			124			65
Total sundry income (expense) – net	$	461		$	96		$	(154	)	$	573		$	96		$	(154	)


1.	See Note 21 for additional information.


2.	See Note 17 for additional information.


3.	See Note 4 for additional information.


4.	See Note 16 for additional information.


5.	Primarily related to post-closing adjustments on previous divestitures.


6.	See Note 6 for additional information.

Accrued and Other Current Liabilities

“Accrued and other current liabilities” were $2,762 million and $2,233 million at December 31, 2019 for Dow Inc. and TDCC, respectively, and $2,931 million at December 31, 2018. Accrued payroll, which is a component of "Accrued and other current liabilities" and includes liabilities related to payroll, incentive compensation and severance, was $284 million at December 31, 2019 and $759 million at December 31, 2018. No other components of "Accrued and other current liabilities" were more than 5 percent of total current liabilities.

Supplemental Cash Flow Information

The following table shows cash paid for interest and income taxes for the years ended December 31, 2019, 2018 and 2017:



Supplemental Cash Flow Information	2019		2018		2017
In millions
Cash paid during year for:
Interest, net of amounts capitalized	$	993	$	1,143	$	1,115
Income taxes	$	881	$	1,193	$	1,259

NOTE 9 – INCOME TAXES

The financial statements for Dow Inc. and TDCC are substantially similar, including the reporting of current and deferred tax expense (benefit), provision for income taxes on continuing operations, and deferred tax asset and liability balances. As a result, the following income tax discussion pertains to Dow Inc. only.



Geographic Allocation of Income and Provision for Income Taxes on Continuing Operations
In millions	2019			2018			2017
Income (loss) from continuing operations before income taxes
Domestic 1	$	(1,196	)	$	745		$	(2,226	)
Foreign 2	(51		)	3,004			2,463
Income (loss) from continuing operations before income taxes	$	(1,247	)	$	3,749		$	237
Current tax expense (benefit)
Federal	$	(287	)	$	324		$	(864	)
State and local	25			13			4
Foreign	960			901			971
Total current tax expense	$	698		$	1,238		$	111
Deferred tax expense (benefit)
Federal 3	$	52		$	(318	)	$	1,499
State and local	19			(32		)	85
Foreign	(299		)	(79		)	(171		)
Total deferred tax expense (benefit)	$	(228	)	$	(429	)	$	1,413
Provision for income taxes on continuing operations	$	470		$	809		$	1,524
Income (loss) from continuing operations, net of tax	$	(1,717	)	$	2,940		$	(1,287	)


1.	The 2019 amount includes approximately $1.4 billion of expense related to goodwill impairment and environmental matters. The 2017 amount includes approximately $1.4 billion of expense related to goodwill impairment and litigation settlements. See Notes 14 and 17 for additional information.


2.	The 2019 amount includes approximately $1.8 billion of expense related to Sadara related charges. See Note 13 for additional information.


3.	The 2018 and 2017 amounts reflect the tax impact of The Act which accelerated the utilization of tax credits and required remeasurement of all U.S. deferred tax assets and liabilities.

In 2017, as a result of the Merger and subsequent change in the Company's ownership, certain net operating loss carryforwards available for the Company’s consolidated German tax group were derecognized. In addition, the sale of stock between two consolidated subsidiaries in 2014 created a gain that was initially deferred for tax purposes. This deferred gain became taxable as a result of activities executed in anticipation of the business separations. As a result, in 2017, the Company recorded a charge of $267 million to “Provision for income taxes on continuing operations” in the consolidated statements of income.



Reconciliation to U.S. Statutory Rate	2019		2018		2017
Statutory U.S. federal income tax rate	21.0	%	21.0	%	35.0	%
Equity earnings effect	(3.2	)	(3.3	)	(52.7	)
Foreign income taxed at rates other than the statutory U.S. federal income tax rate 1	(14.8	)	6.7		(61.2	)
U.S. tax effect of foreign earnings and dividends	1.9		(0.7	)	(8.4	)
Unrecognized tax benefits	1.0		0.2		13.5
Divestitures 2	—		0.8		142.0
Impact of tax reform 3	11.1		(3.4	)	367.8
Federal tax accrual adjustment 4	10.4		—		—
State and local income taxes	(4.4	)	0.4		11.4
Sadara related charges 5	(29.5	)	—		—
Goodwill impairment 6	(17.5	)	—		220.8
Excess tax benefits from stock-based compensation	1.2		(1.0	)	(39.7	)
Other - net	(14.9	)	0.9		14.5
Effective Tax Rate	(37.7	)%	21.6	%	643.0	%


1.	Includes the impact of valuation allowances in foreign jurisdictions.


2.	See Note 6 for additional information.


3.	Includes the impact of tax reform in Switzerland and the U.S.


4.	Primarily related to the favorable impact of the restoration of tax basis in assets, driven by a recent court judgment that did not involve the Company.


5.	See Note 13 for additional information.


6.	See Note 14 for additional information.

On December 22, 2017, The Act was enacted. The Act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, created new provisions related to foreign sourced earnings, eliminated the domestic manufacturing deduction and moved to a hybrid territorial system. At December 31, 2017, the Company had not completed its accounting for the tax effects of The Act; however, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118, income tax effects of The Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018, the Company had completed its accounting for the tax effects of The Act.

•

As a result of The Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. The Company recorded a cumulative benefit of $81 million ($79 million benefit in 2018 and $2 million benefit in 2017) to “Provision for income taxes on continuing operations” in the consolidated statements of income with respect to the remeasurement of the Company's deferred tax balances.

•

The Act required a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits, which resulted in a one-time transition tax. The Company recorded a cumulative charge of $789 million ($85 million benefit in 2018 and $874 million charge in 2017) to "Provision for income taxes on continuing operations" in the consolidated statements of income with respect to the one-time transition tax.


•	In 2018, the Company recorded an indirect impact of The Act related to prepaid tax on the intercompany sale of inventory. The amount recorded related to inventory was a charge of $38 million to "Provision for income taxes on continuing operations" in the consolidated statements of income.


•	For tax years beginning after December 31, 2017, The Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred.



Deferred Tax Balances at Dec 31	2019					2018
In millions	Assets			Liabilities		Assets			Liabilities
Property	$	494		$	3,177	$	406		$	2,519
Tax loss and credit carryforwards	1,920			—		2,079			—
Postretirement benefit obligations	2,432			210		2,115			143
Other accruals and reserves	1,678			43		1,220			151
Intangibles	120			688		157			954
Inventory	28			234		53			239
Investments	125			48		190			84
Other – net	851			120		620			247
Subtotal	$	7,648		$	4,520	$	6,840		$	4,337
Valuation allowances	(1,262		)	—		(1,225		)	—
Total	$	6,386		$	4,520	$	5,615		$	4,337



Operating Loss and Tax Credit Carryforwards at Dec 31	2019		2018
In millions	Assets		Assets
Operating loss carryforwards
Expire within 5 years	$	263	$	245
Expire after 5 years or indefinite expiration	1,133		1,196
Total operating loss carryforwards	$	1,396	$	1,441
Tax credit carryforwards
Expire within 5 years	$	32	$	32
Expire after 5 years or indefinite expiration	492		606
Total tax credit carryforwards	$	524	$	638
Total operating loss and tax credit carryforwards	$	1,920	$	2,079

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $6,851 million at December 31, 2019 and $6,014 million at December 31, 2018. The Act imposed U.S. tax on all post-1986 foreign unrepatriated earnings accumulated through December 31, 2017. Unrepatriated earnings generated after December 31, 2017, are now subject to tax in the current year. All undistributed earnings are still subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.

The following table provides a reconciliation of the Company's unrecognized tax benefits:



Total Gross Unrecognized Tax Benefits
In millions	2019			2018			2017
Total unrecognized tax benefits at Jan 1	$	314		$	255		$	231
Decreases related to positions taken on items from prior years	(1		)	(8		)	(4		)
Increases related to positions taken on items from prior years	16			68			37
Increases related to positions taken in the current year	10			2			12
Settlement of uncertain tax positions with tax authorities	(19		)	—			(12		)
Decreases due to expiration of statutes of limitations	—			(1		)	(9		)
Foreign exchange gain	(1		)	(2		)	—
Total unrecognized tax benefits at Dec 31	$	319		$	314		$	255
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	234		$	235		$	245
Total amount of interest and penalties (benefit) recognized in "Provision for income taxes on continuing operations"	$	(11	)	$	(12	)	$	2
Total accrual for interest and penalties recognized in the consolidated balance sheets	$	100		$	109		$	110

On January 9, 2017, the U.S. Supreme Court denied certiorari in the Company’s tax treatment of partnerships and transactions associated with Chemtech, a wholly owned subsidiary. The Company has fully accrued the position and does not expect a future impact to “Provision for income taxes on continuing operations” in the consolidated statements of income as a result of the ruling.

Prior to the separation, TDCC and its consolidated subsidiaries were included in DowDuPont's consolidated federal income tax group and consolidated tax return. Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year will be apportioned among the members of the consolidated group based on each member’s separate taxable income. TDCC and DuPont intend that, to the extent federal and/or state corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax sharing agreement and/or tax matters agreement. At December 31, 2019, the Company had a receivable of $312 million as part of the tax sharing agreement, which is included in "Noncurrent receivables" in the consolidated balance sheets. At December 31, 2018, the Company had a receivable related to the tax sharing agreement of $89 million, included in "Accounts and notes receivable - Other" in the consolidated balance sheets.

Each year, the Company files tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.

Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:



Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2019	Earliest Open Year
Jurisdiction
Argentina	2013
Brazil	2006
Canada	2012
China	2009
Germany	2010
Italy	2015
The Netherlands	2016
Switzerland	2016
United States:
Federal income tax	2004
State and local income tax	2004

The reserve for non-income tax contingencies related to issues in the United States and foreign locations was $44 million at December 31, 2019 ($91 million at December 31, 2018). This is management’s best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions’ tax court systems. It is the opinion of the Company’s management that the possibility is remote that costs in excess of those accrued will have a material impact on the Company’s consolidated financial statements.

NOTE 10 - EARNINGS PER SHARE CALCULATIONS

The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2019, 2018, and 2017. In accordance with the accounting guidance for earnings per share, earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.



Net Income (Loss) for Earnings Per Share Calculations	2019			2018			2017
In millions
Income (loss) from continuing operations, net of tax	$	(1,717	)	$	2,940		$	(1,287	)
Net income attributable to noncontrolling interests - continuing operations	(74		)	(102		)	(102		)
Net income attributable to participating securities - continuing operations 1	(6		)	—			(8		)
Income (loss) from continuing operations attributable to common stockholders	$	(1,797	)	$	2,838		$	(1,397	)
Income from discontinued operations, net of tax	$	445		$	1,835		$	1,882
Net income attributable to noncontrolling interests - discontinued operations	(13		)	(32		)	(28		)
Net income attributable to participating securities - discontinued operations 1	—			—			(6		)
Income from discontinued operations attributable to common stockholders	$	432		$	1,803		$	1,848
Net income (loss) attributable to common stockholders	$	(1,365	)	$	4,641		$	451



Earnings Per Share Calculations - Basic	2019			2018		2017
Dollars per share
Income (loss) from continuing operations attributable to common stockholders	$	(2.42	)	$	3.80	$	(1.88	)
Income from discontinued operations, net of tax	0.58			2.41		2.48
Net income (loss) attributable to common stockholders	$	(1.84	)	$	6.21	$	0.60



Earnings Per Share Calculations - Diluted	2019			2018		2017
Dollars per share
Income (loss) from continuing operations attributable to common stockholders	$	(2.42	)	$	3.80	$	(1.88	)
Income from discontinued operations, net of tax	0.58			2.41		2.48
Net income (loss) attributable to common stockholders	$	(1.84	)	$	6.21	$	0.60



Share Count Information	2019	2018	2017
Shares in millions
Weighted-average common shares - basic 2, 3	742.5	747.2	744.8
Plus dilutive effect of equity compensation plans	—	—	—
Weighted-average common shares - diluted 2, 3, 4	742.5	747.2	744.8
Stock options and restricted stock units excluded from EPS calculations 5	20.8	—	1.1


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.

Share amounts for the year ended December 31, 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 year ended December 31, 2018 as the Company did not engage in activities giving rise to dilution.

Share amounts for the year ended December 31, 2017 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 ESOP shares that had not been released and were not considered outstanding, adjusted for the Distribution Ratio and further adjusted by 2.4 million shares for the effect of TDCC basic common shares outstanding during the pre-Merger period. The year ended December 31, 2017 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis.


4.	The year ended December 31, 2019 reflected a loss from continuing operations, and as such, the basic share count was used for purposes of calculating earnings per share on a diluted basis.


5.	These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive. For the year ended December 31, 2018, the Company did not engage in activities giving rise to dilution.

NOTE 11 – INVENTORIES

The following table provides a breakdown of inventories:



Inventories at Dec 31
In millions	2019		2018
Finished goods	$	3,505	$	4,313
Work in process	1,122		1,335
Raw materials	628		674
Supplies	845		826
Total	$	6,100	$	7,148
Adjustment of inventories to a LIFO basis	114		(249		)
Total inventories	$	6,214	$	6,899

Inventories valued on a LIFO basis represented 32 percent of the total inventories at December 31, 2019 and 34 percent of the total inventories at December 31, 2018.

NOTE 12 – PROPERTY

The following table provides a breakdown of property:



Property at Dec 31	Estimated Useful Lives (Years)	2019		2018
In millions
Land and land improvements	0-25	$	2,177	$	2,059
Buildings	5-50	4,742		4,745
Machinery and equipment	3-25	40,651		40,250
Other property	3-50	5,354		5,084
Construction in progress	—	1,986		1,846
Total property		$	54,910	$	53,984



In millions	2019		2018		2017
Depreciation expense	$	2,156	$	2,174	$	1,955
Capitalized interest	$	80	$	88	$	240

NOTE 13 – NONCONSOLIDATED AFFILIATES

The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”) and dividends received from nonconsolidated affiliates are shown in the following tables:



Investments in Nonconsolidated Affiliates at Dec 31	2019 1			2018 1
In millions
Investment in nonconsolidated affiliates	$	1,404		$	3,320
Other noncurrent obligations	(80		)	—
Net investment in nonconsolidated affiliates	$	1,324		$	3,320

The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2019, was $51 million less than its share of the investees’ net assets, ($39 million less at December 31, 2018), exclusive of additional differences relating to EQUATE Petrochemical Company K.S.C.C. ("EQUATE"), Sadara and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.



Dividends Received from Nonconsolidated Affiliates	2019		2018		2017 1
In millions
Dividends from nonconsolidated affiliates	$	1,020	$	663	$	654


1.	Includes a non-cash dividend of $7 million.

Except for AFSI, the nonconsolidated affiliates in which the Company has investments are privately held companies; therefore, quoted market prices are not available.

Sadara

In 2011, the Company and Saudi Arabian Oil Company formed Sadara - a joint venture between the two companies that subsequently constructed and now operates a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. The Company has a 35 percent equity interest in this joint venture and has been, and continues to be, responsible for marketing the majority of Sadara’s products through the Company’s established sales channels.

In 2017, Sadara achieved full commercial operations of all its facilities. In December 2018, the joint venture successfully completed its Creditors Reliability Test, an extensive operational testing program designed to demonstrate the reliability of the joint venture’s full chemical complex by operating at high rates for an extended period of time. While Sadara has reached these operational milestones and has been generating positive EBITDA (a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization), the joint venture has yet to report positive net income. During the fourth quarter of 2019, Sadara tested its long-lived assets for impairment using long-term cash flow projections. Sadara’s U.S. GAAP impairment test utilized an undiscounted cash flow methodology, under which Sadara concluded its long-lived assets were recoverable. Due to Sadara's financial condition and its long-lived asset impairment test, Dow evaluated its equity method investment in Sadara for other-than-temporary impairment. The Company utilized a discounted cash flow methodology to measure the estimated fair value of its investment in Sadara, which was estimated to be zero (see Note 24 for additional information on the fair value measurement). The Company determined the decline in value of its investment in Sadara was other-than-temporary due to Sadara’s financial performance since becoming commercially operational in 2017 and uncertainty around prospects for recovery in Sadara’s financial condition. In addition, the Company reserved certain accounts and notes receivable and accrued interest balances associated with Sadara due to uncertainty around the timing of collection. In total, the Company recorded a $1,755 million pretax charge in the fourth quarter of 2019 related to Sadara, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million).

At December 31, 2019, the Company’s investment in Sadara was $1,705 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara. This basis difference is attributed to the long-lived assets of Sadara and will be amortized over a period of 22 years as Sadara recognizes the associated depreciation expense, which represents the estimated remaining useful lives of Sadara’s long-lived assets. Due to the potential for Dow to continue providing financial support to Sadara, the Company expects to continue to recognize its share of potential future losses reported by Sadara.

Prior to the impairment of the Company’s investment in Sadara and reserve of certain notes receivable at December 31, 2019, the Company loaned $473 million to Sadara and converted $380 million of the notes and accounts receivable into equity during 2019. In 2018, the Company converted $382 million of outstanding notes and accounts receivable with Sadara into equity, primarily due to a shareholder loan reduction agreement with Sadara. In 2017, the Company loaned $735 million to Sadara and converted $718 million to equity. At December 31, 2019 and 2018, the Company's note receivable with Sadara was zero. Potential future loans and investments will continue to be subject to evaluation for reserve and impairments.

EQUATE

The Company had a negative investment balance in EQUATE of $80 million at December 31, 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. The Company's investment in EQUATE was $489 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 2019 ($502 million less at December 31, 2018), which represents the difference between the fair values of certain MEGlobal assets acquired by EQUATE and the Company's related valuation on a U.S. GAAP basis. A basis difference of $169 million at December 31, 2019 ($184 million at December 31, 2018) is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.

AFSI

At December 31, 2019, the Company had an investment in AFSI of $35 million ($48 million at December 31, 2018), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. At December 31, 2019, the Company's investment in AFSI was $102 million less than the Company's proportionate share of AFSI's underlying net assets ($101 million less at December 31, 2018). This amount primarily relates to an other-than-temporary decline in the Company's investment in AFSI. At December 31, 2019, the Company held a 41 percent ownership interest in AFSI (42 percent at December 31, 2018). See Note 25 for additional information on this investment.

Transactions with Nonconsolidated Affiliates

The Company has service agreements with certain nonconsolidated affiliates, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase, lease and sublease agreements.

The Company sells excess ethylene glycol produced at manufacturing facilities in the United States and Europe to MEGlobal, a subsidiary of EQUATE. The Company also sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in Canada. Sales of these products to MEGlobal represented 1 percent of total net sales in 2019, 2018 and 2017. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 1 percent of the segment's sales in 2019, 2018 and 2017. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2019, and 2 percent of the segment's sales in 2018 and 2017.

The Company is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company’s established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee. Purchases of Sadara products represented 8 percent of "Cost of sales" in 2019 (9 percent in 2018 and 4 percent in 2017).

The Company purchases products from The SCG-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCG-Dow Group represented 2 percent of "Cost of sales" in 2019 (2 percent in 2018 and 3 percent in 2017).

Sales to and purchases from other nonconsolidated affiliates were not material to the consolidated financial statements.

Balances due to or due from nonconsolidated affiliates at December 31, 2019 and 2018 were as follows:



Balances Due To or Due From Nonconsolidated Affiliates at Dec 31	2019		2018
In millions
Accounts and notes receivable - Other	$	211	$	556
Noncurrent receivables	—		8
Total assets	$	211	$	564
Accounts payable - Other	$	1,092	$	1,347

Principal Nonconsolidated Affiliates

The Company had an ownership interest in 37 nonconsolidated affiliates at December 31, 2019 (38 at December 31, 2018). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2019, 2018 and 2017 are as follows:



Principal Nonconsolidated Affiliates at Dec 31	Country	Ownership Interest
	2019		2018		2017
EQUATE Petrochemical Company K.S.C.C.	Kuwait	42.5	%	42.5	%	42.5	%
The Kuwait Olefins Company K.S.C.C.	Kuwait	42.5	%	42.5	%	42.5	%
The Kuwait Styrene Company K.S.C.C.	Kuwait	42.5	%	42.5	%	42.5	%
Map Ta Phut Olefins Company Limited 1	Thailand	32.77	%	32.77	%	32.77	%
Sadara Chemical Company	Saudi Arabia	35	%	35	%	35	%
The SCG-Dow Group:
Siam Polyethylene Company Limited	Thailand	50	%	50	%	50	%
Siam Polystyrene Company Limited	Thailand	50	%	50	%	50	%
Siam Styrene Monomer Company Limited	Thailand	50	%	50	%	50	%
Siam Synthetic Latex Company Limited	Thailand	50	%	50	%	50	%


1.	The Company's effective ownership of Map Ta Phut Olefins Company Limited ("Map Ta Phut") is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited.

The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are shown in the tables below:



Investment in Principal Nonconsolidated Affiliates at Dec 31	2019			2018
In millions
Investment in nonconsolidated affiliates	$	963		$	2,876
Other noncurrent obligations	(80		)	—
Net investment in principal nonconsolidated affiliates	$	883		$	2,876



Equity Earnings from Principal Nonconsolidated Affiliates	2019		2018		2017
In millions
Equity in earnings of principal nonconsolidated affiliates	$	21	$	561	$	347

The summarized financial information that follows represents the combined accounts (at 100 percent) of the principal nonconsolidated affiliates.



Summarized Balance Sheet Information at Dec 31	2019		2018
In millions
Current assets	$	5,302	$	7,553
Noncurrent assets	26,477		25,971
Total assets	$	31,779	$	33,524
Current liabilities	$	3,743	$	5,163
Noncurrent liabilities	20,271		19,089
Total liabilities	$	24,014	$	24,252
Noncontrolling interests	$	110	$	72



Summarized Income Statement Information 1	2019			2018		2017
In millions
Sales	$	10,905		$	14,461	$	11,629
Gross profit	$	644		$	2,320	$	1,992
Income (loss) from continuing operations, net of tax	$	(277	)	$	1,173	$	689


1.	The results in this table reflect purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.

NOTE 14 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows changes in the carrying amounts of goodwill by reportable segment for the years ended December 31, 2019 and 2018:



Goodwill	Packaging & Specialty Plastics			Industrial Intermediates & Infrastructure			Performance Materials & Coatings			Total
In millions
Balance at Jan 1, 2018	$	5,043		$	1,101		$	3,689		$	9,833
Foreign currency impact	(24		)	(6		)	(39		)	(69		)
Measurement period adjustment - ECP 1	82			—			—			82
Balance at Dec 31, 2018	$	5,101		$	1,095		$	3,650		$	9,846
Foreign currency impact	8			6			(24		)	(10		)
Goodwill impairment	—			—			(1,039		)	(1,039		)
Other	—			(1		)	—			(1		)
Balance at Dec 31, 2019	$	5,109		$	1,100		$	2,587		$	8,796

Goodwill recognized from the receipt of the ECP businesses as part of the separation from DowDuPont. See Note 4 for additional information.

The separation from DowDuPont did not impact the composition of the Company's six reporting units: Coatings & Performance Monomers, Consumer Solutions, Hydrocarbons & Energy, Industrial Solutions, Packaging and Specialty Plastics and Polyurethanes & Construction Chemicals. The ECP businesses received as part of the separation from DowDuPont are included in the Hydrocarbons & Energy and Packaging and Specialty Plastics reporting units. At December 31, 2019, goodwill was carried by all reporting units except Coatings & Performance Monomers (“C&PM”).

Goodwill Impairments

The carrying amounts of goodwill at December 31, 2019 were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure ($309 million at December 31, 2018) and $2,530 million in Performance Materials & Coatings ($1,491 million at December 31, 2018).

Goodwill Impairment Testing

The Company performs an impairment test of goodwill annually in the fourth quarter. In 2019, the Company performed quantitative testing for two reporting units (one in 2018 and four in 2017) and a qualitative assessment was performed for the remaining reporting units. The qualitative assessments indicated that it was not more likely than not that fair value was less than the carrying value for those reporting units included in the qualitative test.

Upon completion of the quantitative testing in the fourth quarter of 2017, the Company determined the C&PM reporting unit was impaired. Throughout 2017, the C&PM reporting unit did not consistently meet expected financial performance targets, primarily due to increasing commoditization in coatings markets and competition, as well as customer consolidation in end markets which reduced growth opportunities. As a result, the C&PM reporting unit lowered future revenue and profitability expectations. The fair value of the C&PM reporting unit was determined using a discounted cash flow methodology that reflected reductions in projected revenue growth rates, primarily driven by modified sales volume and pricing assumptions, as well as revised expectations for future growth rates. These discounted cash flows did not support the carrying value of the C&PM reporting unit. As a result, the Company recorded a goodwill impairment charge for the C&PM reporting unit of $1,491 million in the fourth quarter of 2017, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Performance Materials & Coatings segment. The C&PM reporting unit carried $1,071 million of goodwill at December 31, 2017. No other goodwill impairments were identified as a result of the 2017 testing.

Quantitative testing was performed on the C&PM reporting unit in the fourth quarter of 2018. The fair value of the reporting unit was determined using a discounted cash flow methodology that included plans to undertake modest, higher-return investments in several existing assets, improvements in cost performance and leveraging of technologies. While assessments supported a case for sustaining market growth consistent with GDP projections, the valuation also included adverse impacts related to increased customer purchasing leverage from ongoing customer consolidation. The resulting valuation was compared with the carrying value of the C&PM reporting and the Company concluded that no goodwill impairment existed.

Upon completion of the quantitative testing in the fourth quarter of 2019, the Company determined the C&PM reporting unit was impaired. During 2019, the C&PM reporting unit did not consistently meet expected financial performance targets, primarily due to the industry’s increased captive use of coatings products, which led to volume reductions; reduced margins for products across the portfolio due to changes in customer buying patterns and supply and demand balances; as well as a continuous trend of customer consolidation in end markets, which reduced growth opportunities. As a result, the C&PM reporting unit lowered its future revenue and profitability projections. The fair value of the C&PM reporting unit was determined using a discounted cash flow methodology that reflected reductions in projected revenue growth rates due to lower sales volume and price assumptions, as well as reductions to future growth rates. These discounted cash flows did not support the carrying value of the C&PM reporting unit. As a result, the Company recorded a goodwill impairment charge of $1,039 million in the fourth quarter of 2019, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Performance Materials & Coatings segment. The carrying value of the C&PM reporting unit's goodwill was zero at December 31, 2019. No other goodwill impairments were identified as a result of the 2019 testing.

Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets:



Other Intangible Assets at Dec 31	2019							2018
In millions	Gross Carrying Amount		Accum Amort			Net		Gross Carrying Amount		Accum Amort			Net
Intangible assets with finite lives:
Developed technology	$	2,634	$	(1,467	)	$	1,167	$	2,634	$	(1,252	)	$	1,382
Software	1,449		(893		)	556		1,404		(805		)	599
Trademarks/tradenames	352		(342		)	10		352		(329		)	23
Customer-related	3,207		(1,184		)	2,023		3,211		(993		)	2,218
Total other intangible assets, finite lives	$	7,642	$	(3,886	)	$	3,756	$	7,601	$	(3,379	)	$	4,222
In-process research and development	3		—			3		3		—			3
Total other intangible assets	$	7,645	$	(3,886	)	$	3,759	$	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	2019		2018		2017
In millions
Other intangible assets, excluding software	$	419	$	469	$	400
Software 1	$	96	$	93	$	82


1.	Included in "Cost of sales" in the consolidated statements of income.

Total estimated amortization expense from continuing operations for the next five fiscal years, including amounts expected to be capitalized, is as follows:



Estimated Amortization Expense for Next Five Years
In millions
2020	$	492
2021	$	472
2022	$	411
2023	$	380
2024	$	364

NOTE 15 – TRANSFERS OF FINANCIAL ASSETS

Accounts Receivable Securitization Facilities

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 had been repaid. Neither the conduits nor the investors in those entities had recourse to other assets of the Company in the event of nonpayment by the debtors.

In the fourth quarter of 2017, the Company suspended further sales of trade accounts receivable through these facilities and began reducing outstanding balances through collections of trade accounts receivable previously sold to such conduits. In 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 16 for additional information on the secured borrowing arrangements.

In 2018, the Company recognized a loss of $7 million on the sale of these receivables (loss of $25 million in 2017), which is included in “Interest expense and amortization of debt discount” in the consolidated statements of income. There were no sales of receivables through these facilities in 2019.

Following is an analysis of certain cash flows between the Company and the conduits:



Cash Proceeds
In millions	2018		2017
Sale of receivables	$	—	$	1
Collections reinvested in revolving receivables	$	—	$	21,293
Interests in conduits 1	$	657	$	9,462


1.	Presented in "Investing Activities" in the consolidated statements of cash flows.

North America Accounts Receivable Program

The Company maintains a committed accounts receivable facility in North America (“North America A/R Program”) with various financial institutions, which expires in November 2022. Under the terms of the North America A/R Program, the Company may sell certain eligible trade accounts receivable, up to $900 million, at any point in time. The Company continues to service the receivables from the customer, but retains no interest in the receivables, and remits payment to the financial institutions. The Company also provides a guarantee to the financial institutions for the creditworthiness and collection of the receivables in satisfaction of the facility. See Note 17 for additional information related to guarantees. There were no receivables sold during the year ended December 31, 2019.

NOTE 16 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES



Notes Payable at Dec 31
In millions	2019			2018
Commercial paper	$	151		$	10
Notes payable to banks and other lenders	435			288
Total notes payable	$	586		$	298
Year-end average interest rates	6.30		%	8.28		%



Long-Term Debt at Dec 31	2019 Average Rate		2019			2018 Average Rate		2018
In millions
Promissory notes and debentures:
Final maturity 2019	—	%	$	—		9.80	%	$	7
Final maturity 2020	8.44	%	76			4.46	%	1,547
Final maturity 2021	8.95	%	174			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	%	1,397			3.50	%	896
Final maturity 2025 and thereafter	5.70	%	9,482			5.98	%	7,963
Other facilities:
U.S. dollar loans, various rates and maturities	2.55	%	2,000			3.59	%	4,533
Foreign currency loans, various rates and maturities	3.26	%	592			3.20	%	708
InterNotes®, varying maturities through 2049	3.44	%	928			3.26	%	778
Finance lease obligations 1			395					371
Unamortized debt discount and issuance costs			(331		)			(334		)
Long-term debt due within one year 2			(435		)			(338		)
Long-term debt			$	15,975				$	19,253


1.	See Note 18 for additional information.


2.	Presented net of current portion of unamortized debt issuance costs.



Maturities of Long-Term Debt for Next Five Years at Dec 31, 2019
In millions
2020	$	435
2021	$	511
2022	$	1,513
2023 1	$	2,508
2024	$	1,528


1.	Assumes the option to extend maturity to 2023 will be exercised for the $2 billion Dow Silicones Term Loan Facility.

2019 Activity

In 2019, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $750 million aggregate principal amount of 4.80 percent notes due 2049; $750 million aggregate principal amount of 3.625 percent notes due 2026; and $500 million aggregate principal amount of 3.15 percent notes due 2024. In addition, the Company redeemed $1.5 billion of 4.25 percent notes with maturity in 2020 and $1.25 billion of 4.125 percent notes with maturity in 2021. As a result, the Company recognized a pretax loss of $100 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment. The Company also issued an aggregate principal amount of $277 million of InterNotes®, and redeemed an aggregate principal amount of $122 million at maturity. Approximately $149 million of long-term debt (net of $16 million of issuances) was repaid by consolidated variable interest entities.

In 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 amended the Term Loan Facility to extend the maturity date on the remaining principal balance of $2 billion, making amounts borrowed under the Term Loan Facility payable in September 2021. In addition, this amendment includes options to extend the maturity date through September 2023, at Dow Silicones' election, which the Company intends to exercise.

In October 2019, TDCC launched exchange offers for $4 billion of all the outstanding, unregistered senior notes that were issued in private offerings on November 30, 2018 and May 20, 2019, for identical, registered notes under the Securities Act of 1933 (the “Exchange Offers”). The Exchange Offers are with respect to the Company’s 3.15 percent notes due 2024, 4.55 percent notes due 2025, 3.625 percent notes due 2026, 4.80 percent notes due 2028, 5.55 percent notes due 2048 and 4.80 percent notes due 2049, and fulfilled the Company’s obligations contained in the registration rights agreements entered into in connection with the issuance of the aforementioned notes.

2018 Activity

In 2018, the Company redeemed $333 million of 5.70 percent notes at maturity and an aggregate principal amount of $91 million of InterNotes® at maturity. In addition, approximately $138 million of long-term debt was repaid by consolidated variable interest entities. The Company also called an aggregate principal amount of $343 million tax-exempt bonds of various interest rates and maturities in 2029, 2033 and 2038. As a result of these redemptions, the Company recognized a pretax loss of $6 million on the early extinguishment of debt, included in “Sundry income (expense) - net” in the consolidated statements of income and related to Corporate.

In November 2018, the Company issued $2 billion of senior unsecured notes in an offering under Rule 144A of the Securities Act of 1933. The offering included $900 million aggregate principal amount of 5.55 percent notes due 2048; $600 million aggregate principal amount of 4.80 percent notes due 2028; and $500 million aggregate principal amount of 4.55 percent notes due 2025.

In December 2018, the Company tendered and redeemed $2.1 billion of 8.55 percent notes issued by the Company with maturity in 2019. As a result, the Company recognized a pretax loss of $48 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.

2017 Activity

In 2017, the Company redeemed $436 million of 6.00 percent notes that matured on September 15, 2017, and an aggregate principal amount of $32 million of InterNotes® at maturity. In addition, approximately $119 million of long-term debt was repaid by consolidated variable interest entities.

Available Credit Facilities

The following table summarizes the Company's credit facilities:



Committed and Available Credit Facilities at Dec 31, 2019
In millions	Committed Credit		Credit Available		Maturity Date	Interest
Five Year Competitive Advance and Revolving Credit Facility	$	5,000	$	5,000	October 2024	Floating rate
Term Loan Facility 1	2,000		—		September 2023	Floating rate
European Securitization Facility 2	448		448		October 2020	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	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
Bilateral Revolving Credit Facility	300		300		December 2020	Floating rate
Bilateral Revolving Credit Facility	300		300		December 2021	Floating rate
Bilateral Revolving Credit Facility	100		100		October 2024	Floating rate
Bilateral Revolving Credit Facility	100		100		October 2024	Floating rate
Bilateral Revolving Credit Facility	200		200		November 2024	Floating rate
Total Committed and Available Credit Facilities	$	9,428	$	7,428


1.	Assumes the option to extend the Term Loan Facility will be exercised.


2.	Equivalent to Euro 400 million.

Secured Borrowings

In September 2018, the Company renewed its North American accounts receivable securitization facility for a one year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to $800 million. Under the structure of the amended agreement, the Company had the option to use select trade accounts receivable to collateralize the credit facility with certain lenders. In November 2019, the facility was amended and is no longer a secured borrowing arrangement. It had not been drawn upon during its term as a secured borrowing arrangement.

In October 2018, the Company renewed its European accounts receivable securitization facility for a two year term and amended the terms of the agreement from an off-balance sheet arrangement to a secured borrowing arrangement, with a borrowing capacity up to Euro 400 million. Under the structure of the amended agreement, the Company will use select trade accounts receivable to collateralize the credit facility with certain lenders. At December 31, 2019 and 2018, the facility had not been drawn upon.

Letters of Credit

The Company utilizes letters of credit to support commitments made in the ordinary course of business. While the terms and amounts of letters of credit change, the Company generally has approximately $400 million of outstanding letters of credit at any given time.

Debt Covenants and Default Provisions

TDCC’s outstanding long-term debt has been issued primarily under indentures which contain, among other provisions, certain customary restrictive covenants with which TDCC must comply while the underlying notes are outstanding. Failure of TDCC to comply with any of its covenants, could result in a default under the applicable indenture and allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the underlying notes.

TDCC's indenture covenants include obligations to not allow liens on principal U.S. manufacturing facilities, enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, merge or consolidate with any other corporation, or sell, lease or convey, directly or indirectly, all or substantially all of TDCC’s assets. The outstanding debt also contains customary default provisions. TDCC remains in compliance with these covenants.

TDCC’s primary, private credit agreements also contain certain customary restrictive covenant and default provisions in addition to the covenants set forth above with respect to TDCC’s debt. Significant other restrictive covenants and default provisions related to these agreements include:


(a)	the obligation to maintain the ratio of TDCC’s consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement") dated October 30, 2018, equals or exceeds $500 million,

(b)

a default if TDCC or an applicable subsidiary fails to make any payment, including principal, premium or interest, under the applicable agreement on other indebtedness of, or guaranteed by, TDCC or such applicable subsidiary in an aggregate amount of $100 million or more when due, or any other default or other event under the applicable agreement with respect to such indebtedness occurs which permits or results in the acceleration of $400 million or more in the aggregate of principal, and


(c)	a default if TDCC or any applicable subsidiary fails to discharge or stay within 60 days after the entry of a final judgment against TDCC or such applicable subsidiary of more than $400 million.

Failure of TDCC to comply with any of the covenants or default provisions could result in a default under the applicable credit agreement which would allow the lenders to not fund future loan requests and to accelerate the due date of the outstanding principal and accrued interest on any outstanding indebtedness.

On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. In conjunction with the separation, Dow Inc. is obligated, substantially concurrently with the issuance of any guarantee in respect of outstanding or committed indebtedness under TDCC's Revolving Credit Agreement, to enter into a supplemental indenture with TDCC and the trustee under TDCC’s existing 2008 base indenture governing certain notes issued by TDCC. Under such supplemental indenture, Dow Inc. will guarantee all outstanding debt securities and all amounts due under such existing base indenture and will become subject to certain covenants and events of default under the existing base indenture.

In addition, the Revolving Credit Agreement includes an event of default which would be triggered in the event Dow Inc. incurs or guarantees third party indebtedness for borrowed money in excess of $250 million or engages in any material activity or directly owns any material assets, in each case, subject to certain conditions and exceptions. Dow Inc. may, at its option, cure the event of default by delivering an unconditional and irrevocable guarantee to the administrative agent within thirty days of the event or events giving rise to such event of default.

No such events have occurred or have been triggered at the time of the filing of this Annual Report on Form 10-K.

NOTE 17 – COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

Introduction

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. At December 31, 2019, the Company had accrued obligations of $1,155 million for probable environmental remediation and restoration costs, including $207 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 best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately one and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. It is the opinion of the Company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Company’s results of operations, financial condition or cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability. At December 31, 2018, the Company had accrued obligations of $810 million for probable environmental remediation and restoration costs, including $156 million for the remediation of Superfund sites.

In the third quarter of 2019, the Company recorded a pretax charge related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted from: the culmination of long-standing negotiations and discussions with regulators and agencies, including technical studies supporting higher cost estimates for final or staged remediation plans; the Company’s evaluation of the cost required to manage remediation activities at sites affected by Dow’s separation from DowDuPont and related agreements with Corteva and DuPont; and, the Company’s review of its closure strategies and obligations to monitor ongoing operations and maintenance activities. In addition, the Company recorded indemnification assets of $48 million related to Dow Silicones’ environmental matters. The Company recognized a pretax charge, net of indemnifications, of $399 million related to these environmental matters, included in “Cost of sales” in the consolidated statements of income and related to Packaging & Specialty Plastics ($5 million), Industrial Intermediates & Infrastructure ($8 million), Performance Materials & Coatings ($50 million) and Corporate ($336 million).

The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 2019 and 2018:



Accrued Obligations for Environmental Matters	2019			2018
In millions
Balance at Jan 1	$	810		$	865
Accrual adjustment	590			176
Payments against reserve	(241		)	(208		)
Foreign currency impact	(4		)	(23		)
Balance at Dec 31	$	1,155		$	810

The amounts charged to income on a pretax basis related to environmental remediation totaled $588 million in 2019, $176 million in 2018 and $163 million in 2017. Capital expenditures for environmental protection were $83 million in 2019, $55 million in 2018 and $57 million in 2017.

Midland Off-Site Environmental Matters

On June 12, 2003, the Michigan Department of Environmental Quality ("MDEQ") issued a Hazardous Waste Operating License (the "License") to the Company’s Midland, Michigan, manufacturing site (the “Midland Site”), which was renewed and replaced by the MDEQ on September 25, 2015, and included provisions requiring the Company to conduct an investigation to determine the nature and extent of off-site contamination in the City of Midland soils, the Tittabawassee River and Saginaw River sediment and floodplain soils, and the Saginaw Bay, and, if necessary, undertake remedial action. In 2016, final regulatory approval was received from the MDEQ for the City of Midland and the Company is continuing the long term monitoring requirements of the Remedial Action Plan.

Tittabawassee and Saginaw Rivers, Saginaw Bay

The Company, the U.S. Environmental Protection Agency (“EPA”) and the State of Michigan ("State") entered into an administrative order on consent (“AOC”), effective January 21, 2010, that requires the Company to conduct a remedial investigation, a feasibility study and a remedial design for the Tittabawassee River, the Saginaw River and the Saginaw Bay, and pay the oversight costs of the EPA and the State under the authority of the Comprehensive Environmental Response, Compensation, and Liability Act. These actions, to be conducted under the lead oversight of the EPA, will build upon the investigative work completed under the State Resource Conservation Recovery Act program from 2005 through 2009.

The Tittabawassee River, beginning at the Midland Site and extending down to the first six miles of the Saginaw River, are designated as the first Operable Unit for purposes of conducting the remedial investigation, feasibility study and remedial design work. This work will be performed in a largely upriver to downriver sequence for eight geographic segments of the Tittabawassee and upper Saginaw Rivers. In the first quarter of 2012, the EPA requested the Company address the Tittabawassee River floodplain ("Floodplain") as an additional segment. In January 2015, the Company and the EPA entered into an order to address remediation of the Floodplain. The remedial work is expected to continue over the next three years. The remainder of the Saginaw River and the Saginaw Bay are designated as a second Operable Unit and the work associated with that unit may also be geographically segmented. The AOC does not obligate the Company to perform removal or remedial action; that action can only be required by a separate order. The Company and the EPA have been negotiating orders separate from the AOC that obligate the Company to perform remedial actions under the scope of work of the AOC. The Company and the EPA have entered into six separate orders to perform limited remedial actions in seven of the eight geographic segments in the first Operable Unit, including the Floodplain. Dow has received from the EPA a Notice of Completion of Work for three of these six orders and the Company continues the long-term monitoring requirements.

Alternative Dispute Resolution Process

The Company, the EPA, the U.S. Department of Justice ("DOJ"), and the natural resource damage trustees (which include the Michigan Office of the Attorney General, the Michigan Department of Environment, Great Lakes and Energy, the Michigan Department of Natural Resources, the U.S. Fish and Wildlife Service, the U.S. Bureau of Indian Affairs and the Saginaw-Chippewa Indian Tribe of Michigan) have been engaged in negotiations to seek to resolve potential governmental claims against the Company for natural resource damages related to historical off-site contamination associated with the City of Midland, the Tittabawassee and Saginaw Rivers and the Saginaw Bay. The Company and the governmental parties started meeting in the fall of 2005 and entered into a Confidentiality Agreement in December 2005.

On November 8, 2019, a proposed consent decree on this matter was filed in the U.S. District Court for the Eastern District of Michigan ("District Court"), Civil Action No. 1:19-cv-13292 between the Company and federal, state and tribal trustees to resolve allegations of natural resource damages arising from the historic operations of the Company’s Midland Site. On November 14, 2019, a Notice of Lodging and Notice of Availability and Request for Comments on Draft Restoration Plan/Environmental Assessment was published in the Federal Register. Public comments on the proposed consent decree and the draft Restoration Plan/Environmental Assessment were required to be submitted within 45 days of that publication.

At December 31, 2019, the accrual for these off-site matters was $135 million (included in the total accrued obligation of $1,155 million). At December 31, 2018, the Company had an accrual for these off-site matters of $95 million (included in the total accrued obligation of $810 million).

Environmental Matters Summary

It is the opinion of the Company’s management that the possibility is remote that costs in excess of those disclosed will have a material impact on the Company’s results of operations, financial condition or cash flows.

Litigation

Asbestos-Related Matters of Union Carbide Corporation

Introduction

Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products. Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Estimating the Asbestos-Related Liability

Based on a study completed by Ankura Consulting Group, LLC ("Ankura") in January 2003, Union Carbide increased its December 31, 2002, asbestos-related liability for pending and future claims for a 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. In subsequent years, Union Carbide compared current asbestos claim and resolution activity to the results of the most recent Ankura study at each balance sheet date to determine whether the accrual continued to be appropriate.

In 2016, Ankura completed a study to provide estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049, including a reasonable forecast of future defense and processing costs. Based on the study and Union Carbide’s internal review of asbestos claim and resolution activity, Union Carbide determined estimating the liability through the terminal year of 2049 was more appropriate due to increased knowledge and data about the costs to resolve claims and diminished volatility in filing rates. Union Carbide and the Company also determined that estimating and accruing a liability for future asbestos-related defense and processing costs was more appropriate as such costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities of Union Carbide and the Company and is also reflective of the manner in which Union Carbide manages its asbestos-related exposure, including careful monitoring of the correlation between defense spending and resolution costs. As a result, in the fourth quarter of 2016, Union Carbide recorded a $1,113 million increase in its asbestos-related liability for pending and future claims, including future defense and processing costs. Each October, Union Carbide requests Ankura to review its historical asbestos claim and resolution activity through the third quarter of the current year, including asbestos-related defense and processing costs, to determine the appropriateness of updating the most recent study.

In December 2017, Ankura stated that an update of its December 2016 study would not provide a more likely estimate of future events than the estimate reflected in the study and, therefore, the estimate in the study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required.

In December 2018, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2018, including asbestos-related defense and processing costs, and provided estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem through the terminal year of 2049. Based on the study and Union Carbide's internal review process, it was determined that no adjustment to the accrual was required. At December 31, 2018, Union Carbide's asbestos-related liability for pending and future claims and defense and processing costs was $1,260 million, and approximately 16 percent of the recorded liability related to pending claims and approximately 84 percent related to future claims.

In December 2019, Ankura stated that an update of its December 2018 study would not provide a more likely estimate of future events than the estimate reflected in the study and, therefore, the estimate in the study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no change to the accrual was required. At December 31, 2019, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $1,165 million, and approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.

Summary

The Company's management believes the amounts recorded by Union Carbide for the asbestos-related liability, including defense and processing costs, reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for Union Carbide to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Because of the uncertainties described above, Union Carbide cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. As a result, it is reasonably possible that an additional cost of disposing of Union Carbide's asbestos-related claims, including future defense and processing costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position.

Dow Silicones Chapter 11 Related Matters

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”). Under the Plan, total payments committed by Dow Silicones to resolving product liability claims are capped at a maximum $2,350 million net present value (“NPV”) determined as of the Effective Date using a discount rate of seven percent (approximately $4,019 million undiscounted at December 31, 2019). Of this amount, no more than $400 million NPV determined as of the Effective Date can be used to fund the Litigation Facility.

Dow Silicones has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. At December 31, 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 $74 million.

In accordance with ASC 450 "Accounting for Contingencies," the Company records a liability for breast implant and other product liability claims (“Implant Liability”), which reflects the estimated impact of the settlement of future claims primarily based on reported claim filing levels in the Revised Settlement Program (the “RSP”) and on the resolution of almost all cases pending against the Litigation Facility. The RSP was a program sponsored by certain other breast implant manufacturers in the context of multi-district, coordinated federal breast implant cases and was open from 1995 through 2010. The RSP was also a revised successor to an earlier settlement plan involving Dow Silicones (prior to its bankruptcy filing). While Dow Silicones withdrew from the RSP, many of the benefit categories and payment levels in Dow Silicones settlement program were drawn from the RSP. Based on the comparability in design and actual claim experience of both plans, management concluded that claim information from the RSP provides a reasonable basis to estimate future claim filing levels for the Settlement Facility.

In the third quarter of 2019, with the assistance of a third party consultant ("Consultant"), Dow Silicones updated its Implant Liability estimate to $165 million, primarily reflecting a decrease in Class 16 claims, a decrease resulting from the passage of time, decreased claim filing activity and administrative costs compared with the previous estimate, and an increase in investment income resulting from insurance proceeds. Based on the Consultant's updated estimate and Dow Silicones own review of claim filing activity, Dow Silicones determined that an adjustment to the Implant Liability was required. Accordingly, Dow Silicones decreased its Implant Liability in the third quarter of 2019 by $98 million, included in "Sundry income (expense) - net" in the consolidated statements of income, and also decreased its corresponding Class 16 receivable in the third quarter of 2019, resulting in a charge of $13 million, included in “Sundry income (expense) - net” in the consolidated statements of income (both related to the Corporate segment). Dow Silicones' Implant Liability was $165 million at December 31, 2019 ($263 million at December 31, 2018), of which $20 million at December 31, 2019 ($111 million at December 31, 2018) was included in “Accrued and other current liabilities” and $145 million at December 31, 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 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 $2,257 million at December 31, 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. 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.

In 2006, the U.S. Court of Appeals for the Sixth Circuit concluded that there is a general presumption that contractually specified default interest should be paid by a solvent debtor to unsecured creditors (the “Interest Rate Presumption”) and permitting the Commercial Creditors to recover fees, costs, and expenses where allowed by relevant loan agreements. The matter was remanded to the U.S. District Court for the Eastern District of Michigan ("District Court") for further proceedings, including rulings on the facts surrounding specific claims and consideration of any equitable factors that would preclude the application of the Interest Rate Presumption. On May 10, 2017, the District Court 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 the 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, which resulted in a decrease to the Commercial Creditor liability of $33 million in the second quarter of 2017, which was included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. At December 31, 2018, the liability related to Dow Silicones' potential obligation to its Commercial Creditors was $82 million, included in "Accrued and other current liabilities" in the consolidated balance sheets.

On August 19, 2019, Dow Silicones entered into a settlement agreement with the Commercial Creditors, obligating Dow Silicones to pay $172 million, inclusive of the Commercial Creditors' legal costs. The settlement was approved by the District Court. As a result of the settlement agreement, in the third quarter of 2019, the Company recorded a pretax charge of $50 million, net of indemnifications of $37 million, included in "Sundry Income (expense) - net" in the consolidated statements of income and related to the Corporate segment. The settlement was paid to the Commercial Creditors in the fourth quarter of 2019. The litigation is now concluded.

Summary

The amounts recorded by Dow Silicones for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause the actual costs for Dow Silicones to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Other Litigation Matters

In addition to the specific matters described above, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. The Company has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.

Indemnifications with Corning

In connection with the June 1, 2016 ownership restructure of Dow Silicones, the Company is indemnified by Corning for at least 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability, Commercial Creditors issues and certain environmental matters described in the preceding sections, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnified losses are capped at (1) $1 billion between May 31, 2018 and May 31, 2023, and (2) no recoveries are permitted after May 31, 2023. The Company had indemnification assets of $100 million at December 31, 2019 (zero at December 31, 2018), of which $37 million was included in "Other current assets" and $63 million was included in "Noncurrent receivables" in the consolidated balance sheets.

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 (the "'705 Patent"). Nova counterclaimed on the grounds of invalidity and non-infringement. In accordance with Canadian practice, the suit was bifurcated into a merits phase, followed by a damages phase. Following trial in the merits phase, in May 2014 the Federal Court ruled that the Company's '705 Patent was valid and infringed by Nova. Nova appealed to the Canadian Federal Court of Appeal, which affirmed the Federal Court decision in August 2016. Nova then sought leave to appeal its loss to the Supreme Court of Canada, which dismissed Nova’s petition in April 2017. As a result, Nova has exhausted all appeal rights on the merits, and it is undisputed that Nova owes the Company the profits it earned from its infringing sales as determined in the trial for the damages phase.

On April 19, 2017, the Federal Court issued a Public Judgment in the damages phase, which detailed its conclusions on how to calculate the profits to be awarded to the Company. The Company and Nova submitted their respective calculations of the damages to the Federal Court in May 2017. 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. As a result of these actions and in accordance with ASC 450-30 "Gain Contingencies," the Company recorded a $160 million pretax gain in the second quarter of 2017, related to the Packaging & Specialty Plastics segment, of which $137 million was included in "Sundry income (expense) - net" and $23 million was included in "Selling, general and administrative expenses" in the consolidated statements of income. At December 31, 2019, the Company had $341 million ($341 million at December 31, 2018) included in "Other noncurrent obligations" 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.

Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter

On September 18, 2019, the Court of the Queen’s Bench in Alberta, Canada, signed a judgment ordering Nova to pay the Company $1.43 billion Canadian dollars (equivalent to approximately $1.08 billion U.S. dollars) by October 11, 2019, for damages the Company incurred through 2012 related to the companies’ jointly-owned ethylene asset in Joffre, Alberta, Canada. The Court, which initially ruled in June 2018, found that Nova failed to operate the ethylene asset at full capacity for more than ten years, and furthermore, that Nova violated several contractual agreements related to the Company receiving its share of the asset’s ethylene production. These actions resulted in reduced productivity and sales for the Company. Nova has appealed the judgment, however, certain portions of it are not in dispute and are owed to the Company regardless of the outcome of Nova's appeal. As a result of these actions and in accordance with ASC 450-30 “Gain Contingencies,” the Company recorded a $186 million pretax gain in the third quarter of 2019, of which $170 million was included in "Sundry income (expense) - net" and $16 million was included in

"Selling, general and administrative expenses" in the consolidated statements of income and related to Packaging & Specialty Plastics. In October 2019, Nova paid $1.08 billion Canadian dollars (equivalent to approximately $0.8 billion U.S. dollars) directly to the Company, and remitted $347 million Canadian dollars to the Canada Revenue Agency ("CRA") for the tax account of one of the Company's subsidiaries. The Company has sought a refund of the entire amount remitted to the CRA. At December 31, 2019, $265 million was included in "Noncurrent receivables" in the Company's consolidated balance sheets related to the withholding tax and $893 million was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment. Dow is confident of its chances of defending the entire judgment on appeal, particularly the trial court's determinations on important factual and discretionary issues, which will be accorded deferential review on appeal.

Purchase Commitments

The Company has outstanding purchase commitments and various commitments for take-or-pay or throughput agreements. The Company was not aware of any purchase commitments that were negotiated as part of a financing arrangement for the facilities that will provide the contracted goods or services or for the costs related to those goods or services at December 31, 2019 and 2018.

Guarantees

The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for guarantees:



Guarantees	Dec 31, 2019					Dec 31, 2018
In millions	Final Expiration	Maximum Future Payments		Recorded Liability		Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees	2023	$	3,952	$	10	2023	$	4,273	$	22

Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to less than 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. The total of an Islamic bond and additional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately $12.5 billion. Sadara had $10.8 billion of Total Project Financing outstanding at December 31, 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 $3.9 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 by the end of the first quarter of 2020, and must occur no later than December 2020.

Asset Retirement Obligations

The Company has 109 manufacturing sites in 31 countries. Most of these sites contain numerous individual manufacturing operations, particularly at the Company’s larger sites. Asset retirement obligations are recorded as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The retirement of assets may involve such efforts as remediation and treatment of asbestos, contractually required demolition, and other related activities, depending on the nature and location of the assets; and retirement obligations are typically realized only upon demolition of those facilities. In identifying asset retirement obligations, the Company considers identification of legally enforceable obligations, changes in existing law, estimates of potential settlement dates and the calculation of an appropriate discount rate to be used in calculating the fair value of the obligations. The Company has a well-established global process to identify, approve and track the demolition of retired or to-be-retired facilities; and no assets are retired from service until this process has been followed. The Company typically forecasts demolition projects based on the usefulness of the assets; environmental, health and safety concerns; and other similar considerations. Under this process, as demolition projects are identified and approved, reasonable estimates are determined for the time frames during which any related asset retirement obligations are expected to be settled. For those assets where a range of potential settlement dates may be reasonably estimated, obligations are recorded. The Company routinely reviews all changes to items under consideration for demolition to determine if an adjustment to the value of the asset retirement obligation is required.

The Company has recognized asset retirement obligations for the following activities: demolition and remediation activities at manufacturing sites primarily in the United States, Canada, Brazil, Argentina, Japan, United Arab Emirates, Australia and Europe; and capping activities at landfill sites in the United States, Canada and Brazil. The Company has also recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites primarily in the United States, Canada, Argentina, Australia and Europe. The aggregate carrying amount of conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown below) was $19 million at December 31, 2019 ($22 million at December 31, 2018).

The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 2019 and 2018:



Asset Retirement Obligations	2019			2018
In millions
Balance at Jan 1	$	109		$	100
Additional accruals	10			9
Liabilities settled	(7		)	(3		)
Accretion expense	2			3
Revisions in estimated cash flows	3			—
Other	(13		)	—
Balance at Dec 31	$	104		$	109

The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2019, was 2.12 percent (3.54 percent at December 31, 2018). These obligations are included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."

The Company has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. Assets that have not been submitted/reviewed for potential demolition activities are considered to have continued usefulness and are generally still operating normally. Therefore, without a plan to demolish the assets or the expectation of a plan, such as shortening the useful life of assets for depreciation purposes in accordance with the accounting guidance related to property, plant and equipment, the Company is unable to reasonably forecast a time frame to use for present value calculations. As such, the Company has not recognized obligations for individual plants/buildings at its manufacturing sites where estimates of potential settlement dates cannot be reasonably made. In addition, the Company has not recognized conditional asset retirement obligations for the capping of its approximately 36 underground storage wells and 131 underground brine mining and other wells at Company-owned sites when there are no plans or expectations of plans to exit the sites. It is the opinion of the Company’s management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material impact on the Company’s consolidated financial statements based on current costs.

NOTE 18 - LEASES

Operating lease ROU assets are included in "Operating lease right-of-use assets" while finance lease ROU assets are included in "Net property" in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets.

Dow routinely leases sales and administrative offices, power plants, production facilities, warehouses and tanks for product storage, aircraft, motor vehicles, railcars, computers, office machines and equipment. Some leases contain renewal provisions, purchase options and escalation clauses and the terms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms of up to 50 years. See Notes 1 and 2 for additional information on leases.

The components of lease cost for operating and finance leases for the year ended December 31, 2019 were as follows:



Lease Cost	Year Ended Dec 31, 2019
In millions
Operating lease cost	$	532
Finance lease cost
Amortization of right-of-use assets - finance	$	39
Interest on lease liabilities - finance	25
Total finance lease cost	$	64
Short-term lease cost	$	204
Variable lease cost	198
Sublease income	(4		)
Total lease cost	$	994

The following table provides supplemental cash flow information related to leases:



Other Lease Information	Year Ended Dec 31, 2019
In millions
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	544
Operating cash flows for finance leases	$	25
Financing cash flows for finance leases	$	34

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at December 31, 2019.



Lease Position	Balance Sheet Classification	Dec 31, 2019
In millions
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 1		$	2,476
Finance leases		$	89
Assets
Operating lease assets	Operating lease right-of-use assets	$	2,072
Finance lease assets	Property	486
Finance lease amortization	Accumulated depreciation	(167		)
Total lease assets		$	2,391
Liabilities
Current
Operating	Operating lease liabilities - current	$	421
Finance	Long-term debt due within one year	32
Noncurrent
Operating	Operating lease liabilities - noncurrent	1,739
Finance	Long-Term Debt	363
Total lease liabilities		$	2,555


1.	Includes $2.3 billion related to the adoption of Topic 842. See Note 2 for additional information.



Lease Term and Discount Rate	Dec 31, 2019
Weighted-average remaining lease term
Operating leases	8.0 years
Finance leases	12.3 years
Weighted-average discount rate
Operating leases	4.09	%
Finance leases	6.28	%

The following table provides the maturities of lease liabilities at December 31, 2019:



Maturities of Lease Liabilities at Dec 31, 2019	Operating Leases		Finance Leases
In millions
2020	$	492	$	60
2021	422		55
2022	355		50
2023	285		84
2024	219		29
2025 and thereafter	803		310
Total future undiscounted lease payments	$	2,576	$	588
Less imputed interest	416		193
Total present value of lease liabilities	$	2,160	$	395

At December 31, 2019, Dow had additional leases of approximately $71 million, primarily for equipment, which had not yet commenced. These leases are expected to commence in 2020 and 2021, 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 December 31, 2019 and 2018. There was no recorded liability related to these residual value guarantees at December 31, 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	Dec 31, 2019					Dec 31, 2018
In millions	Final Expiration	Maximum Future Payments		Recorded Liability		Final Expiration	Maximum Future Payments		Recorded Liability
Residual value guarantees	2028	$	792	$	—	2028	$	885	$	130

NOTE 19 – STOCKHOLDERS’ EQUITY

Merger with Historical DuPont

Effective with the Merger, each share of TDCC Common Stock (excluding any shares of TDCC Common Stock that were held in treasury, which were automatically canceled and retired for no consideration) was converted into the right to receive one fully paid and non-assessable share of DowDuPont Common Stock. As a result, in the third quarter of 2017, the Company recorded a reduction in "Treasury stock" of $935 million, a reduction in "Common stock" of $3,107 million and an increase in "Additional paid in capital" of $2,172 million in the consolidated balance sheets. See Note 3 for additional information.

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 Notes 3 and 4 for additional information.

The Company may issue Dow Inc. common stock shares out of treasury stock or as new common stock shares for purchases under the Employee Stock Purchase Plan ("ESPP"), for options exercised and for the release of restricted stock units ("RSUs") (formerly termed deferred stock), performance stock units ("PSUs") (formerly termed performance deferred stock) and restricted stock. Subsequent to the separation from DowDuPont, the number of new Dow Inc. common stock shares issued to employees and non-employee directors was approximately 2.5 million in 2019. Prior to the Merger, the number of new TDCC common stock shares issued to employees and non-employee directors was zero in 2017. See Note 22 for additional information on changes to the Company's equity awards in connection with the Merger and separation from DowDuPont.

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 Notes 3 and 4 for additional information.

Retained Earnings

Dow Inc.

There are no significant restrictions limiting Dow Inc.’s ability to pay dividends. Subsequent to the separation from DowDuPont, Dow Inc. declared dividends of $2.10 per share in 2019.

Undistributed earnings of nonconsolidated affiliates included in retained earnings were $852 million at December 31, 2019 and $1,856 million at December 31, 2018.

TDCC

Prior to the Merger, TDCC declared dividends of $1.38 per share in 2017. 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 Board of Directors determines whether or not there will be a dividend distribution to Dow Inc. See Note 26 for additional information on dividends paid by TDCC to DowDuPont and Dow Inc.

See Note 4 for information on the impact of the receipt of ECP, which was accounted for as a transfer between entities under common control.

Employee Stock Ownership Plan

The Dow Employee Stock Ownership Plan (the “ESOP”) is an integral part of The Dow Chemical Company Employees’ Savings Plan (the “Plan”). A significant majority of full-time employees in the United States are eligible to participate in the Plan. The Company uses the ESOP to provide its matching contribution in the form of stock to Plan participants. Prior to the Merger, contributions were in the form of TDCC Common Stock. Effective with the Merger, shares of TDCC Common Stock held by the ESOP were converted into shares of DowDuPont Common Stock at a ratio of 1:1. Effective with the separation from DowDuPont, the DowDuPont Common Stock held by the ESOP received a Dow Inc. Common Stock share dividend at a ratio of 3:1, resulting

in the ESOP holding both DowDuPont and Dow Inc. shares. Subsequent to the separation from DowDuPont, the ESOP independent fiduciary sold the DowDuPont shares and purchased additional Dow Inc. shares with the proceeds.

In connection with the acquisition of Rohm and Haas on April 1, 2009, the Rohm and Haas Employee Stock Ownership Plan (the "Rohm and Haas ESOP") was merged into the Plan, and the Company assumed the $78 million balance of debt at 9.8 percent interest with final maturity in 2020 that was used to finance share purchases by the Rohm and Haas ESOP in 1990. The outstanding balance of the debt was $3 million at December 31, 2019 and $10 million at December 31, 2018.

Dividends on unallocated shares held by the ESOP are used by the ESOP to make debt service payments and to purchase additional shares if dividends exceed the debt service payments. Dividends on allocated shares are used by the ESOP to make debt service payments to the extent needed; otherwise, they are paid to the Plan participants. Shares are released for allocation to participants based on the ratio of the current year’s debt service to the sum of the principal and interest payments over the life of the loan. The shares are allocated to Plan participants in accordance with the terms of the Plan.

Compensation expense for allocated shares is recorded at the fair value of the shares on the date of allocation. Compensation expense reflected in income from continuing operations for ESOP shares was $77 million in 2019, $144 million in 2018 and $200 million in 2017. At December 31, 2019, 12.6 million shares out of a total 16.1 million shares held by the ESOP had been allocated to participants’ accounts and 3.5 million shares, at a fair value of $190 million, were considered unearned.

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 billion to be spent on the repurchase of the Company's common stock, with no expiration date. In 2019, Dow Inc. repurchased $500 million of Dow Inc. common stock. At December 31, 2019, $2.5 billion of the share repurchase program authorization remained available for repurchases.

TDCC

In 2013, TDCC's Board of Directors approved a share buy-back program. As a result of subsequent authorizations approved by TDCC's Board of Directors, the total authorized amount of the share repurchase program was $9.5 billion. Effective with the Merger, the share repurchase program was canceled. Over the duration of the program, a total of $8.1 billion was spent on the repurchase of TDCC Common Stock.

The Company may issue shares for purchases under the ESPP, for options exercised as well as for the release of RSUs, PSUs and restricted stock out of treasury stock or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under the Company’s stock-based compensation programs are summarized in the following table. See Note 22 for additional information on changes to the Company equity awards in connection with the Merger and separation from DowDuPont.



Treasury Shares Issued Under Stock-Based Compensation Programs	2019 1	2018	2017 2
To employees and non-employee directors	—	N/A	14,194,282


1.	Reflects Dow Inc. activity subsequent to the separation from DowDuPont.


2.	Reflects TDCC activity prior to the Merger.

The following table provides a reconciliation of Dow Inc. common stock activity for the years ended December 31, 2019 and 2018:



Shares of Dow Inc. Common Stock	Issued	Held in Treasury

Balance at Jan 1, 2018	—	—
Issued 1	100	—
Balance at Jan 1, 2019	100	—
Impact of recapitalization	748,771,140	—
Issued 2	2,457,404	—
Repurchased	—	9,729,834
Balance at Dec 31, 2019	751,228,644	9,729,834


1.	Dow Inc. was incorporated in 2018 with 100 authorized and issued shares of common stock, par value $0.01 per share.


2.	Shares issued to employees and non-employee directors under the Company's equity compensation plans.

Accumulated Other Comprehensive Loss

The changes in each component of AOCL for the years ended December 31, 2019, 2018 and 2017 were as follows:



Accumulated Other Comprehensive Loss	2019			2018			2017
In millions
Unrealized Gains (Losses) on Investments
Beginning balance 1	$	(51	)	$	17		$	43
Unrealized gains (losses) on investments	178			(93		)	38
Less: Tax (expense) benefit	(38		)	19			(13		)
Net unrealized gains (losses) on investments	140			(74		)	25
(Gains) losses reclassified from AOCL to net income 2	(33		)	9			(110		)
Less: Tax expense (benefit) 3	8			(2		)	39
Net (gains) losses reclassified from AOCL to net income	(25		)	7			(71		)
Other comprehensive income (loss), net of tax	115			(67		)	(46		)
Reclassification of stranded tax effects 4	—			(1		)	—
Ending balance	$	64		$	(51	)	$	(3	)
Cumulative Translation Adjustment
Beginning balance	$	(1,813	)	$	(1,481	)	$	(2,381	)
Gains (losses) on foreign currency translation	59			(215		)	1,006
Less: Tax (expense) benefit	(2		)	(6		)	(98		)
Net gains (losses) on foreign currency translation	57			(221		)	908
(Gains) losses reclassified from AOCL to net income 5	(89		)	(4		)	(8		)
Other comprehensive income (loss), net of tax	(32		)	(225		)	900
Impact of common control transaction 6	710			—			—
Reclassification of stranded tax effects 4	—			(107		)	—
Ending balance	$	(1,135	)	$	(1,813	)	$	(1,481	)
Pension and Other Postretirement Benefits
Beginning balance	$	(7,965	)	$	(6,998	)	$	(7,389	)
Gains (losses) arising during the period	(1,699		)	(625		)	(3		)
Less: Tax (expense) benefit	413			130			(20		)
Net gains (losses) arising during the period	(1,286		)	(495		)	(23		)
Amortization and recognition of net loss and prior service credits 7	504			594			607
Less: Tax expense (benefit) 3	(117		)	(139		)	(193		)
Net loss and prior service credits reclassified from AOCL to net income	387			455			414
Other comprehensive income (loss), net of tax	(899		)	(40		)	391
Impact of common control transaction 6	83			—			—
Reclassification of stranded tax effects 4	—			(927		)	—
Ending balance	$	(8,781	)	$	(7,965	)	$	(6,998	)
Derivative Instruments
Beginning balance	$	(56	)	$	(109	)	$	(95	)
Gains (losses) on derivative instruments	(470		)	6			2
Less: Tax (expense) benefit	101			(2		)	(1		)
Net gains (losses) on derivative instruments	(369		)	4			1
(Gains) losses reclassified from AOCL to net income 8	44			89			(13		)
Less: Tax expense (benefit) 3	(13		)	(18		)	(2		)
Net (gains) losses reclassified from AOCL to net income	31			71			(15		)
Other comprehensive income (loss), net of tax	(338		)	75			(14		)
Reclassification of stranded tax effects 4	—			(22		)	—
Ending balance	$	(394	)	$	(56	)	$	(109	)
Total AOCL ending balance	$	(10,246	)	$	(9,885	)	$	(8,591	)


1.	The beginning balance of "Unrealized gains (losses) on investments" for 2018 was increased by $20 million to reflect the impact of adoption of ASU 2016-01.


2.	Reclassified to "Net sales" and "Sundry income (expense) - net."


3.	Reclassified to "Provision for income taxes."


4.	Amounts reclassified to "Retained earnings" as a result of the adoption of ASU 2018-02.


5.	Reclassified to "Sundry income (expense) - net."


6.	Reclassified to "Retained earnings" as a result of the separation from DowDuPont on April 1, 2019. See Note 4 for additional information.

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 21 for additional information.
Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."

NOTE 20 – NONCONTROLLING INTERESTS

Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income.

The following table summarizes the activity for equity attributable to noncontrolling interests for the years ended December 31, 2019, 2018 and 2017:



Noncontrolling Interests
In millions	2019			2018			2017
Balance at Jan 1	$	1,138		$	1,186		$	1,242
Net income attributable to noncontrolling interests - continuing operations	74			102			102
Net income attributable to noncontrolling interests - discontinued operations	13			32			28
Distributions to noncontrolling interests 1	(77		)	(145		)	(109		)
Impact of common control transaction 2	(353		)	—			—
Purchase of noncontrolling interests 3	(254		)	—			—
Deconsolidation of noncontrolling interests 4	—			—			(119		)
Cumulative translation adjustments	12			(39		)	41
Other	—			2			1
Balance at Dec 31	$	553		$	1,138		$	1,186

Distributions to noncontrolling interests are net of $7 million in 2019 ($27 million in 2018 and $20 million in 2017) 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 $7 million in 2019 ($37 million in 2018 and $28 million in 2017)


2.	Related to the separation from DowDuPont. See Note 4 for additional information.


3.	Relates to the acquisition of full ownership in a propylene oxide manufacturing joint venture, which occurred on October 1, 2019. See Note 25 for additional information. As a result of this arrangement, the carrying value of the noncontrolling interest was removed, and “Additional paid-in capital” was adjusted by $38 million.


4.	On June 30, 2017, the Company sold its ownership interest in the SKC Haas Display Films group of companies.

NOTE 21 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

As a result of the Company’s separation from DowDuPont, the number of significant defined benefit pension plans administered by the Company decreased from 45 plans to 35 plans, with approximately $270 million of net unfunded pension liabilities transferred to DowDupont. Plans administered by other subsidiaries of DowDuPont that were transferred to the Company were not significant. There were no changes in the number of significant other postretirement benefit plans administered by the Company as a 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.

Defined Benefit Pension Plans

The Company has both funded and unfunded defined benefit pension plans that cover employees in the United States and a number of other countries. The U.S. qualified plan covering the parent company is the largest plan. Benefits for employees hired before January 1, 2008, are based on length of service and the employee’s three highest consecutive years of compensation. Employees hired after January 1, 2008, earn benefits that are based on a set percentage of annual pay, plus interest.

The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2019, the Company contributed $261 million to its continuing operations pension plans ($266 million, including contributions to plans of discontinued operations). Total contributions in 2019 also included contributions to fund benefit payments for the Company's non-qualified pension plans. The Company expects to contribute approximately $250 million to its pension plans in 2020.

The provisions of a U.S. non-qualified pension plan require the payment of plan obligations to certain participants upon a change in control of the Company, which occurred at the time of the Merger. Certain participants could elect to receive a lump-sum payment or direct the Company to purchase an annuity on their behalf using the after-tax proceeds of the lump sum. In the fourth quarter of 2017, the Company paid $940 million to plan participants and $230 million to an insurance company for the purchase of annuities, which were included in "Pension contributions" in the consolidated statements of cash flows. The Company also paid $205 million for income and payroll taxes for participants electing the annuity option, of which $201 million was included in "Cost of sales" and $4 million was included in "Selling, general and administrative expenses" in the consolidated statements of income and related to the Corporate segment. The Company recorded a settlement charge of $687 million associated with the payout in the fourth quarter of 2017, which was included in "Sundry income (expense) - net" in the consolidated statements of income and related to the Corporate segment.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for all plans are summarized in the table below:



Weighted-Average Assumptions for All Pension Plans	Benefit Obligations at Dec 31				Net Periodic Costs for the Year Ended
	2019		2018		2019		2018		2017
Discount rate	2.81	%	3.69	%	3.50	%	3.17	%	3.52	%
Interest crediting rate for applicable benefits	3.51	%	3.72	%	3.72	%	3.61	%	3.45	%
Rate of compensation increase	3.92	%	3.84	%	3.92	%	3.88	%	3.90	%
Expected return on plan assets	—		—		7.11	%	7.11	%	7.16	%

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for U.S. plans are summarized in the table below:



Weighted-Average Assumptions for U.S. Pension Plans	Benefit Obligations at Dec 31				Net Periodic Costs for the Year Ended
	2019		2018		2019		2018		2017
Discount rate	3.41	%	4.39	%	4.15	%	3.66	%	4.11	%
Interest crediting rate for applicable benefits	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%
Rate of compensation increase	4.25	%	4.25	%	4.25	%	4.25	%	4.25	%
Expected return on plan assets	—		—		7.92	%	7.92	%	7.91	%

Other Postretirement Benefit Plans

The Company provides certain health care and life insurance benefits to retired employees and survivors. The Company’s plans outside of the United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under the plans.

The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2019, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2019. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2020.

The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit costs for the U.S. plans are provided below:



Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans	Benefit Obligations at Dec 31				Net Periodic Costs for the Year Ended
	2019		2018		2019		2018		2017
Discount rate	3.19	%	4.24	%	4.01	%	3.51	%	3.83	%
Health care cost trend rate assumed for next year	6.25	%	6.50	%	6.50	%	6.75	%	7.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate)	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate health care cost trend rate	2025		2025		2025		2025		2025

Assumptions

The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Company’s historical experience with the pension fund asset performance is also considered.

The Company uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs for the U.S. and other selected countries. Under the spot rate approach, the Company calculates service costs and interest costs by applying individual spot rates from the Willis Towers Watson RATE:Link yield curve (based on high-quality corporate bond yields) for each selected country to the separate expected cash flow components of service cost and interest cost. Service cost and interest cost for all other plans are determined on the basis of the single equivalent discount rates derived in determining those plan obligations.

The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the Company’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.

The Company utilizes a modified version of the Society of Actuaries’ mortality tables released in 2014 and a modified version of the generational mortality improvement scale released in 2018 for purposes of measuring the U.S. pension and other postretirement obligations, based on an evaluation of the mortality experience of the Company’s pension plans.

Summarized information on the Company's pension and other postretirement benefit plans is as follows:



Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans	Defined Benefit Pension Plans						Other Postretirement Benefit Plans
In millions	2019			2018			2019			2018
Change in projected benefit obligations:
Benefit obligations at beginning of year	$	29,600		$	31,851		$	1,478		$	1,567
Impact of plans transferred to DowDuPont at separation	(331		)	—			—			—
Service cost	396			520			8			12
Interest cost	921			886			49			45
Plan participants' contributions	12			19			—			—
Actuarial changes in assumptions and experience	3,904			(1,754		)	148			(13		)
Benefits paid	(1,684		)	(1,476		)	(148		)	(123		)
Plan amendments	—			17			—			—
Acquisitions/divestitures/other 1	(37		)	(45		)	—			—
Effect of foreign exchange rates	14			(418		)	3			(10		)
Termination benefits/curtailments/settlements	(174		)	—			(3		)	—
Benefit obligations at end of year	$	32,621		$	29,600		$	1,535		$	1,478

Change in plan assets:
Fair value of plan assets at beginning of year	$	22,544		$	23,401		$	—		$	—
Impact of plans transferred to DowDuPont at separation	(61		)	—			—			—
Actual return on plan assets	3,790			(742		)	—			—
Employer contributions	266			1,656			—			—
Plan participants' contributions	12			19			—			—
Benefits paid	(1,684		)	(1,476		)	—			—
Effect of foreign exchange rates	41			(314		)	—			—
Fair value of plan assets at end of year	$	24,908		$	22,544		$	—		$	—

Funded status:
U.S. plans with plan assets	$	(4,768	)	$	(4,066	)	$	—		$	—
Non-U.S. plans with plan assets	(2,207		)	(2,041		)	—			—
All other plans	(738		)	(695		)	(1,535		)	(1,478		)
Plans of discontinued operations	—			(254		)	—			—
Funded status at end of year	$	(7,713	)	$	(7,056	)	$	(1,535	)	$	(1,478	)

Amounts recognized in the consolidated balance sheets at Dec 31:
Deferred charges and other assets	$	623		$	491		$	—		$	—
Accrued and other current liabilities	(49		)	(50		)	(128		)	(131		)
Pension and other postretirement benefits - noncurrent	(8,287		)	(7,227		)	(1,407		)	(1,347		)
Liabilities of discontinued operations - current	—			(270		)	—			—
Net amount recognized	$	(7,713	)	$	(7,056	)	$	(1,535	)	$	(1,478	)

Pretax amounts recognized in accumulated other comprehensive loss at Dec 31:
Net loss (gain)	$	11,761		$	10,841		$	(147	)	$	(315	)
Prior service credit	(177		)	(224		)	—			—
Pretax balance in accumulated other comprehensive loss at end of year	$	11,584		$	10,617		$	(147	)	$	(315	)


1.	The 2019 impact includes the divestiture of a business with pension benefit obligations of $53 million.The 2018 impact includes the divestiture of a business with pension benefit obligations of $37 million.

A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2019 was due to the change in weighted-average discount rates, which decreased from 3.69 percent at December 31, 2018 to 2.81 percent at December 31, 2019. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2018 was due to the change in weighted-average discount rates, which increased from 3.17 percent at December 31, 2017 to 3.69 percent at December 31, 2018.

The accumulated benefit obligation for all significant pension plans was $31.4 billion and $28.3 billion at December 31, 2019 and 2018, respectively.



Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31	2019		2018
In millions
Accumulated benefit obligations	$	26,959	$	25,392
Fair value of plan assets	$	19,571	$	18,902



Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31	2019		2018
In millions
Projected benefit obligations	$	28,013	$	26,599
Fair value of plan assets	$	19,677	$	19,051



Net Periodic Benefit Costs for All Significant Plans for the Year Ended Dec 31	Defined Benefit Pension Plans									Other Postretirement Benefit Plans
In millions	2019			2018			2017			2019			2018			2017
Net Periodic Benefit Costs:
Service cost	$	396		$	520		$	506		$	8		$	12		$	14
Interest cost	921			886			883			49			45			54
Expected return on plan assets	(1,679		)	(1,644		)	(1,548		)	—			—			—
Amortization of prior service credit	(20		)	(24		)	(25		)	—			—			—
Amortization of unrecognized (gain) loss	574			642			638			(20		)	(24		)	(6		)
Curtailment/settlement/other 1	(27		)	—			683			(3		)	—			—
Net periodic benefit costs	$	165		$	380		$	1,137		$	34		$	33		$	62
Less: discontinued operations	21			101			105			—			3			3
Net periodic benefit costs - continuing operations	$	144		$	279		$	1,032		$	34		$	30		$	59
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net (gain) loss	$	1,606		$	584		$	845		$	145		$	(13	)	$	(199	)
Prior service cost	—			17			14			—			—			—
Amortization of prior service credit	20			24			25			—			—			—
Amortization of unrecognized gain (loss)	(574		)	(642		)	(638		)	20			24			6
Common control transaction 2	(112		)	—			—			—			—			—
Curtailment and settlement (gain) loss 1	27			—			(687		)	3			—			—
Total recognized in other comprehensive (income) loss	$	967		$	(17	)	$	(441	)	$	168		$	11		$	(193	)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	1,132		$	363		$	696		$	202		$	44		$	(131	)


1.	The 2019 impact relates to plan curtailments and associated special termination benefits resulting from the reduction in plan participation due to the separation of the Company from DowDuPont. The 2017 impact relates to the settlement of a U.S. non-qualified plan triggered by a change in control provision.


2.	The 2019 impact is the result of the separation of the Company from DowDuPont.

Net periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income. See Note 8 for additional information.

Estimated Future Benefit Payments

The estimated future benefit payments of continuing operations, reflecting expected future service, as appropriate, are presented in the following table:



Estimated Future Benefit Payments at Dec 31, 2019	Defined Benefit Pension Plans		Other Postretirement Benefit Plans
In millions
2020	$	1,561	$	129
2021	1,571		124
2022	1,603		121
2023	1,636		118
2024	1,646		114
2025-2029	8,523		496
Total	$	16,540	$	1,102

Plan Assets

Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments such as real estate, private market securities and absolute return strategies. At December 31, 2019, plan assets totaled $24.9 billion and included no directly held common stock of Dow Inc. At December 31, 2018, plan assets totaled $22.5 billion and included no directly held DowDuPont common stock.

The Company's investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plans.

The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposure and rebalancing the asset allocation. The plans use value-at-risk, stress testing, scenario analysis and Monte Carlo simulations to monitor and manage both the risk within the portfolios and the surplus risk of the plans.

Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities include investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Alternative investments primarily include investments in real estate, private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges.

The Company mitigates the credit risk of investments by establishing guidelines with investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Company and external managers. Credit risk related to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements and centralized clearing, where appropriate.

The Northern Trust Collective Government Short Term Investment money market fund is utilized as the sweep vehicle for the U.S. plans, which from time to time can represent a significant investment. For one U.S. plan, approximately 34 percent of the liability is covered by a participating group annuity issued by Prudential Insurance Company.

The weighted-average target allocation for plan assets of the Company's pension plans is summarized as follows:



Target Allocation for Plan Assets at Dec 31, 2019	Target Allocation
Asset Category
Equity securities	35	%
Fixed income securities	36
Alternative investments	28
Other investments	1
Total	100	%

Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.

Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.

The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 2019 and 2018:



Basis of Fair Value Measurements	Dec 31, 2019											Dec 31, 2018
In millions	Total			Level 1			Level 2			Level 3		Total			Level 1			Level 2			Level 3
Cash and cash equivalents	$	754		$	675		$	79		$	—	$	877		$	818		$	59		$	—
Equity securities:
U.S. equity securities 1	$	3,844		$	3,752		$	91		$	1	$	3,493		$	3,251		$	241		$	1
Non - U.S. equity securities	4,646			3,819			801			26		4,242			3,497			707			38
Total equity securities	$	8,490		$	7,571		$	892		$	27	$	7,735		$	6,748		$	948		$	39
Fixed income securities:
Debt - government-issued	$	4,992		$	197		$	4,795		$	—	$	4,751		$	285		$	4,466		$	—
Debt - corporate-issued	3,697			607			3,089			1		2,929			411			2,518			—
Debt - asset-backed	70			—			69			1		90			—			89			1
Total fixed income securities	$	8,759		$	804		$	7,953		$	2	$	7,770		$	696		$	7,073		$	1
Alternative investments:
Private market securities	$	11		$	—		$	—		$	11	$	1		$	—		$	—		$	1
Real estate	25			25			—			—		19			19			—			—
Derivatives - asset position	574			2			572			—		451			17			434			—
Derivatives - liability position	(513		)	(2		)	(511		)	—		(506		)	(19		)	(487		)	—
Total alternative investments	$	97		$	25		$	61		$	11	$	(35	)	$	17		$	(53	)	$	1
Other investments	$	411		$	28		$	383		$	—	$	380		$	47		$	333		$	—
Subtotal	$	18,511		$	9,103		$	9,368		$	40	$	16,727		$	8,326		$	8,360		$	41
Investments measured at net asset value:
Hedge funds	$	1,595										$	1,637
Private market securities	2,794											2,196
Real estate	2,110											2,080
Total investments measured at net asset value	$	6,499										$	5,913
Items to reconcile to fair value of plan assets:
Pension trust receivables 2	$	70										$	29
Pension trust payables 3	(172		)									(125		)
Total	$	24,908										$	22,544


1.	No Dow Inc. common stock was directly held at December 31, 2019. No DowDuPont common stock was directly held at December 31, 2018.


2.	Primarily receivables for investment securities sold.


3.	Primarily payables for investment securities purchased.

The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 2019 and 2018:



Fair Value Measurement of Level 3 Pension Plan Assets	Equity Securities			Fixed Income Securities			Alternative Investments			Other Investments			Total
In millions
Balance at Jan 1, 2018	$	40		$	16		$	—		$	—		$	56
Actual return on assets:
Relating to assets sold during 2018	—			4			(1		)	1			4
Relating to assets held at Dec 31, 2018	(3		)	(4		)	—			—			(7		)
Purchases, sales and settlements, net	2			(15		)	2			(1		)	(12		)
Balance at Dec 31, 2018	$	39		$	1		$	1		$	—		$	41
Actual return on assets:
Relating to assets sold during 2019	(2		)	—			—			—			(2		)
Relating to assets held at Dec 31, 2019	1			—			(14		)	—			(13		)
Purchases, sales and settlements, net	(11		)	1			24			—			14
Balance at Dec 31, 2019	$	27		$	2		$	11		$	—		$	40

Defined Contribution Plans

U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia, Brazil, Canada, Italy, Spain and the United Kingdom. Expense of continuing operations recognized for all defined contribution plans was $163 million in 2019, $186 million in 2018 and $286 million in 2017.

NOTE 22 – STOCK-BASED COMPENSATION

The Company grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, RSUs and restricted stock. The Company also provides stock-based compensation in the form of PSUs. The Company previously provided the Employee Stock Purchase Plan (“ESPP”), which granted eligible employees the right to purchase shares of the Company's common stock at a discounted price.

In connection with the Merger, on August 31, 2017 ("Conversion Date"), all outstanding TDCC stock options and RSU awards were converted into stock options and RSU awards with respect to DowDuPont common stock. The stock options and RSU awards had the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested PSU awards were converted into RSU awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. TDCC and Historical DuPont did not merge their stock-based compensation plans as a result of the Merger. TDCC and Historical DuPont stock-based compensation plans were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.

In connection with the separation on April 1, 2019, outstanding stock options, RSU and PSU awards were converted to Dow Inc. denominated awards under the “Employer Method,” or DowDuPont denominated awards under the “Shareholder Method,” and adjusted to maintain the intrinsic value of those awards before and after the date of the separation. In connection with the Corteva separation transaction on June 3, 2019, the outstanding DowDuPont denominated stock options, RSU and PSU awards were converted to Corteva and DuPont denominated awards and adjusted to maintain the intrinsic value of those awards before and after the date of the Corteva separation. The awards have the same terms and conditions under the applicable plans and award agreements prior to the separation transactions.

The conversions of stock awards resulted in no incremental compensation expense. Approximately 5,000 employees were impacted by the conversion on April 1, 2019 in connection with Dow Inc.'s separation from DowDuPont. Approximately 4,000 employees were impacted by the conversion on June 3, 2019 in connection with the Corteva separation transaction.

The total stock-based compensation expense included in continuing operations in the consolidated statements of income was $158 million, $188 million and $310 million in 2019, 2018 and 2017, respectively. The income tax benefits related to stock-based compensation arrangements were $36 million, $42 million and $115 million in 2019, 2018 and 2017, respectively. Amounts disclosed throughout the remainder of this footnote are inclusive of activity attributable to both continuing operations and discontinued operations, as the impact of discontinued operations is not significant.

Accounting for Stock-Based Compensation

The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments (granted to executive employees subject to stock ownership requirements, that provide the recipient the option to elect to receive a cash payment equal to the value of the stock award on the date of delivery) is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.

The Company historically used a lattice-based option valuation model to estimate the fair value of stock options and used a Monte Carlo simulation for the market portion of PSU awards. Effective with the first quarter of 2018 grant, the Company began using the Black-Scholes option valuation model to estimate the fair value of stock options. This valuation methodology was adopted as a result of the Merger to align valuation methodologies with Historical DuPont and better align with industry practice. The Company used the Black-Scholes option valuation model for subscriptions to purchase shares under the ESPP. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:



Weighted-Average Assumptions	2019		2018		2017
Dividend yield	5.10	%	2.13	%	3.01	%
Expected volatility	26.10	%	23.34	%	23.71	%
Risk-free interest rate	2.43	%	2.83	%	1.28	%
Expected life of stock options granted during period (years)	6.1		6.2		7.5
Life of Employee Stock Purchase Plan (months)	0		0		3

The dividend yield assumption was equal to the dividend yield on the grant date, which reflected the Company's quarterly dividend payments of $0.70 per share in 2019 on Dow Inc. Common Stock ($0.38 per share in 2018 on DowDuPont Common Stock and $0.46 per share in 2017 on TDCC Common Stock). The expected volatility assumptions for the 2017 stock options and ESPP were based on an equal weighting of the historical daily volatility for the contractual term of the awards and current implied volatility from exchange-traded options. The expected volatility assumptions for the 2018 and 2019 stock options were based on an equal weighting of the historical daily volatility for the expected term of the awards and current implied volatility from exchange-traded options. The expected volatility assumption for the market portion of the 2017 and 2019 PSU awards were based on historical daily volatility for the term of the award. The risk-free interest rate was based on the weighted-average of U.S. Treasury strip rates over the contractual term of the 2017 options. The risk-free interest rate was based on the U.S. Treasury strip rates over the expected life of the 2018 and 2019 options. The expected life of stock options granted was based on an analysis of historical exercise patterns.

Stock Incentive Plan

The Company has historically granted equity awards under various plans (the "Prior Plans"). On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by stockholders at TDCC's annual meeting on May 10, 2012 ("2012 Plan Effective Date") and became effective on that date. On February 13, 2014, the Board adopted The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Restated Plan"). The 2012 Restated Plan was approved by stockholders at TDCC's annual meeting on May 15, 2014, and became effective on that date. The Prior Plans were superseded by the 2012 Plan and the 2012 Restated Plan (collectively, the "2012 Plan"). Under the 2012 Plan, the Company may grant options, RSUs, PSUs, restricted stock, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the 2012 Plan Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. TDCC's stock-based compensation programs were assumed by DowDuPont and continued in place with the ability to grant and issue DowDuPont common stock until separation.

On April 1, 2019 ("Original Effective Date"), in connection with the separation, the Company adopted the 2019 Stock Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company may grant stock options, RSUs, PSUs, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the Original Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. At December 31, 2019, there were approximately 25 million shares of common stock available for grant under the 2019 Plan.

Stock Options

The Company grants stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of the common stock on the grant date. Options vest from one to three years and have a maximum term of ten years.

The following table summarizes stock option activity for 2019:



Stock Options	2019
Shares in thousands	Shares			Exercise Price 1
Outstanding at Jan 1, 2019	28,846			$	46.70
Granted	1,588			$	54.89
Exercised	(3,196		)	$	30.02
Forfeited/Expired	(239		)	$	60.77
Conversion impact 2	(5,734		)	$	59.62
Outstanding at Dec 31, 2019	21,265			$	45.96
Remaining contractual life in years				4.62
Aggregate intrinsic value in millions	$	237
Exercisable at Dec 31, 2019	18,248			$	43.34
Remaining contractual life in years				3.99
Aggregate intrinsic value in millions	$	237

Weighted-average per share.
Awards converted at April 1 and June 3 separations.



Additional Information about Stock Options
In millions, except per share amounts	2019		2018		2017
Weighted-average fair value per share of options granted	$	7.99	$	15.38	$	14.44
Total compensation expense for stock option plans	$	23	$	68	$	37
Related tax benefit	$	5	$	15	$	14
Total amount of cash received from the exercise of options	$	93	$	112	$	310
Total intrinsic value of options exercised 1	$	77	$	160	$	286
Related tax benefit	$	17	$	36	$	106

Difference between the market price at exercise and the price paid by the employee to exercise the options.

Total unrecognized compensation cost related to unvested stock option awards of $18 million at December 31, 2019, is expected to be recognized over a weighted-average period of 1.37 years.

Restricted Stock Units

The Company grants RSUs to certain employees and non-employee directors. The grants vest after a designated period of time, generally three years for employees and two years for non-employee directors. The following table shows changes in nonvested RSUs:



RSU Awards	2019
Shares in thousands	Shares		Grant Date Fair Value 1
Nonvested at Jan 1, 2019	9,735		$	57.41
Granted	1,821		$	54.78
Vested	(7,045	)	$	53.22
Canceled	(156	)	$	60.84
Conversion impact 2	(1,901	)	$	65.87
Nonvested at Dec 31, 2019	2,454		$	59.98

Weighted-average per share.
Awards converted at April 1 and June 3 separations.



Additional Information about RSUs
In millions, except per share amounts	2019		2018		2017
Weighted-average fair value per share of RSUs granted	$	54.78	$	71.46	$	61.29
Total fair value of RSUs vested 1	$	375	$	382	$	179
Related tax benefit	$	84	$	86	$	66
Total compensation expense for RSU awards	$	110	$	144	$	178
Related tax benefit	$	25	$	32	$	66


1.	Includes the fair value of shares vested in prior years and delivered in the reporting year.

In 2019, the Company paid $17 million in cash, equal to the value of the stock award on the date of delivery, to certain executive employees to settle approximately 341,000 RSUs (625,000 RSUs settled in cash for $45 million in 2018 and no RSUs settled in cash in 2017). Total unrecognized compensation cost related to RSU awards of $80 million at December 31, 2019 is expected to be recognized over a weighted-average period of 1.83 years. At December 31, 2019, approximately 2.2 million RSUs with a grant date weighted-average fair value per share of $60.79 had previously vested, but were not issued. These shares are scheduled to be issued to employees within six months to three years or upon retirement.

Total incremental pretax compensation expense resulting from the conversion of PSU awards into RSU awards was $25 million ($20 million was recognized in the second half of 2017 and $5 million was recognized over the remaining service period). Approximately 5,000 employees were impacted by the conversion.

Performance Stock Units

The Company grants PSUs to certain employees. The grants vest when the Company attains specified performance targets, such as return on capital and relative total shareholder return, over a predetermined period, generally one to three years. In November 2017, the Company granted PSUs to senior leadership measured on the realization of cost savings in connection with cost synergy commitments, as well as the Company’s ability to complete the business separations. Performance and payouts are determined independently for each metric. Compensation expense related to PSU awards is recognized over the lesser of the service or performance period. Changes in the fair value of liability instruments are recognized as compensation expense each quarter.

The following table shows the PSU awards granted:



PSU Awards		Target Shares Granted 1	Grant Date Fair Value 2
Shares in thousands
Year	Performance Period
2019	Apr 1, 2019 – Dec 31, 2021	1,173	$	57.58
2017	Sep 1, 2017 – Aug 31, 2019	232	$	71.16
2017 3	Jan 1, 2017 – Dec 31, 2019	1,728	$	81.99


1.	At the end of the performance period, the actual number of shares issued can range from zero to 200 percent of target shares granted.


2.	Weighted-average per share.

Converted to RSUs as a result of the Merger.

The following table shows changes in nonvested PSUs:



PSUs	2019
Shares in thousands	Shares		Grant Date Fair Value 1
Nonvested at Jan 1, 2019	232		$	71.16
Granted	1,173		$	57.58
Vested	(232	)	$	71.16
Canceled	(52	)	$	57.58
Nonvested at Dec 31, 2019	1,121		$	57.58

Weighted-average per share.



Additional Information about PSUs
In millions, except share amounts	2019		2018		2017
Total fair value of PSUs vested and delivered 1	$	18	$	—	$	202
Related tax benefit	$	4	$	—	$	75
Total compensation expense for PSU awards	$	25	$	12	$	106
Related tax benefit	$	6	$	3	$	39
Shares of PSUs settled in cash (in thousands) 2	162		—		616
Total cash paid to settle PSUs 3	$	13	$	—	$	38


1.	Includes the fair value of shares vested in prior years and delivered in the reporting year.


2.	PSU awards vested in prior years and delivered in the reporting year.


3.	Cash paid to certain executive employees for PSU awards vested in prior periods and delivered in the reporting year, equal to the value of the stock award on the date of delivery.

Total unrecognized compensation cost related to PSU awards of $12 million at December 31, 2019, is expected to be recognized over a weighted-average period of 1.86 years.

Restricted Stock

Under the 2012 Plan, the Company granted shares (including options, stock appreciation rights, stock units and restricted stock) to non-employee directors over the 10-year duration of the program, subject to the plan's aggregate limit as well as annual individual limits. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferred by the non-employee director, until retirement or termination of service to the Company. The following table shows the restricted stock issued under this plan:



Restricted Stock	Shares Issued (in thousands)	Weighted-Average Fair Value
Year
2019	N/A	N/A
2018	36	$	62.82
2017	33	$	62.04

Employee Stock Purchase Plan

On February 9, 2012, the Board authorized The Dow Chemical Company 2012 Employee Stock Purchase Plan (the "2012 ESPP") which was approved by stockholders at TDCC’s annual meeting on May 10, 2012. When offered, most employees are eligible to purchase shares of common stock of TDCC valued at up to 10 percent of their annual base salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan price of the stock is set at an amount equal to at least 85 percent of the fair market value (closing price) of the common stock on a date during the fourth quarter of the year prior to the offering, or the average fair market value (closing price) of the common stock over a period during the fourth quarter of the year prior to the offering, in each case, specified by the Chief Human Resources Officer. The most recent offering of the 2012 ESPP closed on July 15, 2017. The ESPP was not offered in 2018 and 2019 and no current offerings remain outstanding.



Additional Information about Employee Stock Purchase Plan
In millions, except per share amounts	2017
Weighted-average fair value per share of purchase rights granted	$	10.70
Total compensation expense for ESPP	$	38
Related tax benefit	$	14
Total amount of cash received from the exercise of purchase rights	$	179
Total intrinsic value of purchase rights exercised 1	$	48
Related tax benefit	$	18


1.	Difference between the market price at exercise and the price paid by the employee to exercise the purchase rights.

NOTE 23 – FINANCIAL INSTRUMENTS

The following table summarizes the fair value of financial instruments at December 31, 2019 and 2018:



Fair Value of Financial Instruments at Dec 31 1	2019											2018
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Cash equivalents:
Held to maturity securities 2	$	220		$	—	$	—		$	220		$	410		$	—	$	—		$	410
Money market funds	408			—		—			408			156			—		—			156
Total cash equivalents	$	628		$	—	$	—		$	628		$	566		$	—	$	—		$	566
Marketable securities	$	21		$	—	$	—		$	21		$	100		$	—	$	—		$	100
Other investments:
Debt securities:
Government debt 3	$	533		$	33	$	(11	)	$	555		$	714		$	9	$	(23	)	$	700
Corporate bonds	944			80		(10		)	1,014			1,026			20		(63		)	983
Total debt securities	$	1,477		$	113	$	(21	)	$	1,569		$	1,740		$	29	$	(86	)	$	1,683
Equity securities 4	10			6		(1		)	15			16			1		(1		)	16
Total other investments	$	1,487		$	119	$	(22	)	$	1,584		$	1,756		$	30	$	(87	)	$	1,699
Total cash equivalents, marketable securities and other investments	$	2,136		$	119	$	(22	)	$	2,233		$	2,422		$	30	$	(87	)	$	2,365
Long-term debt including debt due within one year 5	$	(16,410	)	$	7	$	(2,258	)	$	(18,661	)	$	(19,591	)	$	351	$	(972	)	$	(20,212	)
Derivatives relating to:
Interest rates 6	$	—		$	8	$	(283	)	$	(275	)	$	—		$	—	$	(64	)	$	(64	)
Foreign currency	—			101		(21		)	80			—			120		(43		)	77
Commodities 6	—			59		(115		)	(56		)	—			91		(178		)	(87		)
Total derivatives	$	—		$	168	$	(419	)	$	(251	)	$	—		$	211	$	(285	)	$	(74	)


1.	Prior period amounts were updated to conform with the current year presentation.


2.	The Company had held-to-maturity securities (primarily treasury bills and time deposits) classified as cash equivalents.


3.	U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.


4.	Equity securities with a readily determinable fair value.


5.	Cost includes fair value hedge adjustment gains of $1 million at December 31, 2019 and losses of $18 million at December 31, 2018 on $3,490 million of debt at December 31, 2019 and $2,290 million of debt at December 31, 2018.


6.	Presented net of cash collateral where master netting arrangements allow.

Cost approximates fair value for all other financial instruments.

Debt Securities

The Company’s investments in debt securities are primarily classified as available-for-sale. The following table provides the investing results from available-for-sale securities for the years ended December 31, 2019, 2018 and 2017.



Investing Results
In millions	2019		2018		2017
Proceeds from sales of available-for-sale securities	$	1,138	$	1,053	$	245
Gross realized gains	$	51	$	21	$	5
Gross realized losses	$	18	$	30	$	—

The following table summarizes the contractual maturities of the Company’s investments in debt securities:



Contractual Maturities of Debt Securities at Dec 31, 2019 1	Amortized Cost		Fair Value
In millions
Within one year	$	36	$	39
One to five years	391		406
Six to ten years	534		554
After ten years	516		570
Total	$	1,477	$	1,569

Includes marketable securities with maturities of less than one year.

Portfolio managers regularly review the Company’s holdings to determine if any investments in debt securities are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired.

The credit rating of the issuer, current credit rating trends, the trends of the issuer’s overall sector, the ability of the issuer to pay expected cash flows and the length of time the security has been in a loss position are considered in determining whether unrealized losses represent an other-than-temporary impairment. The Company did not have any credit-related losses in 2019, 2018 or 2017.

The following table provides the fair value and gross unrealized losses of the Company’s investments in debt securities that were deemed to be temporarily impaired at December 31, 2019 and 2018, aggregated by investment category:



Temporarily Impaired Debt Securities at Dec 31	Less than 12 months						12 months or more						Total
Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
In millions
2019
Government debt 1	$	55		$	(3	)	$	23		$	(8	)	$	78		$	(11	)
Corporate bonds	79			(3		)	52			(7		)	131			(10		)
Total temporarily impaired debt securities	$	134		$	(6	)	$	75		$	(15	)	$	209		$	(21	)
2018
Government debt 1	$	287		$	(17	)	$	187		$	(6	)	$	474		$	(23	)
Corporate bonds	724			(58		)	64			(5		)	788			(63		)
Total temporarily impaired debt securities	$	1,011		$	(75	)	$	251		$	(11	)	$	1,262		$	(86	)


1.	U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations.

Equity Securities

The Company’s investments in equity securities with a readily determinable fair value totaled $15 million at December 31, 2019 ($16 million at December 31, 2018). The net unrealized gains recognized in earnings on readily determinable equity securities totaled $5 million for the year ended December 31, 2019 ($7 million for the year ended December 31, 2018). The aggregate carrying value of the Company's investments in equity securities where fair value is not readily determinable totaled $189 million at December 31, 2019 ($204 million at December 31, 2018), reflecting the carrying value of the investments. There were no material adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the year ended December 31, 2019.

Repurchase and Reverse Repurchase Agreement Transactions

The Company enters into repurchase and reverse repurchase agreements. These transactions are accounted for as collateralized borrowings and lending transactions bearing a specified rate of interest and are short-term in nature with original maturities of 30 days or less. The underlying collateral is typically treasury bills with longer maturities than the repurchase agreement. The impact of these transactions is not material to the Company’s results. There were no repurchase or reverse repurchase agreements outstanding at December 31, 2019 and 2018.

Risk Management

The Company’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and

hedging activities, where appropriate. A secondary objective is to add value by creating additional non-specific exposure within established limits and policies; derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional exposures is not material to the Company’s results. Accounting guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value.

The Company’s risk management program for interest rate, foreign currency and commodity risks is based on fundamental, mathematical and technical models that take into account the implicit cost of hedging. Risks created by derivative instruments and the mark-to-market valuations of positions are strictly monitored at all times, using value-at-risk and stress tests. Counterparty credit risk arising from these contracts is not significant because the Company minimizes counterparty concentration, deals primarily with major financial institutions of solid credit quality, and the majority of its hedging transactions mature in less than three months. In addition, the Company minimizes concentrations of credit risk through its global orientation by transacting with large, internationally diversified financial counterparties. It is the Company’s policy to not have credit risk-related contingent features in its derivative instruments. No significant concentration of counterparty credit risk existed at December 31, 2019. The Company does not anticipate losses from credit risk, and the net cash requirements arising from counterparty risk associated with risk management activities are not expected to be material in 2020.

The Company revises its strategies as market conditions dictate and management reviews its overall financial strategies and the impacts from using derivatives in its risk management program with the Company’s senior leadership who also reviews these strategies with the Dow Inc. Board and/or relevant committees thereof.

The notional amounts of the Company's derivative instruments presented on a net basis at December 31, 2019 and 2018, were as follows:



Notional Amounts - Net	Dec 31, 2019		Dec 31, 2018
In millions
Derivatives designated as hedging instruments:
Interest rate contracts	$	922	$	2,049
Foreign currency contracts	$	6,253	$	4,457
Derivatives not designated as hedging instruments:
Interest rate contracts	$	145	$	5
Foreign currency contracts	$	5,567	$	19,285

The notional amounts of the Company's commodity derivatives at December 31, 2019 and 2018, were as follows:



Commodity Notionals - Net	Dec 31, 2019	Dec 31, 2018	Notional Volume Unit

Derivatives designated as hedging instruments:
Hydrocarbon derivatives	6.1	39.9	million barrels of oil equivalent
Derivatives not designated as hedging instruments:
Hydrocarbon derivatives	0.1	1.2	million barrels of oil equivalent
Power derivatives	87.5	73.9	thousands of megawatt hours



Maturity Dates of Derivatives Designated as Hedges	Year

Interest rate contracts	2021
Foreign currency contracts 1	2020
Commodity contracts	2022


1.	The Company had foreign currency contracts primarily through 2020 with a nominal impact into the first quarter of 2021.

Interest Rate Risk Management

The main objective of interest rate risk management is to reduce the total funding cost to the Company and to alter the interest rate exposure to the desired risk profile. To achieve this objective, the Company hedges using interest rate swaps, “swaptions,” and exchange-traded instruments.

Foreign Currency Risk Management

The global nature of the Company's business requires active participation in the foreign exchange markets. The Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company's foreign currency risk management is to optimize the U.S. dollar value of net assets and cash flows. To achieve this objective, the Company hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps and nonderivative instruments in foreign currencies. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities.

Commodity Risk Management

The Company has exposure to the prices of commodities in its procurement of certain raw materials. The primary purpose of commodity hedging activities is to manage the price volatility associated with these forecasted inventory purchases.

Derivatives Not Designated in Hedging Relationships

Foreign Currency Contracts

The Company also uses foreign exchange forward contracts, options and cross-currency swaps that are not designated as hedging instruments primarily to manage foreign currency exposure.

Commodity Contracts

The Company utilizes futures, options and swap instruments that are effective as economic hedges of commodity price exposures, but do not meet hedge accounting criteria for derivatives and hedging, to reduce exposure to commodity price fluctuations on purchases of raw materials and inventory.

Interest Rate Contracts

The Company uses swap instruments that are not designated as hedging instruments to manage interest rate exposures. The Company uses interest rate swaps, "swaptions," and exchange-traded instruments to accomplish this objective.

Accounting for Derivative Instruments and Hedging Activities

Cash Flow Hedges

For derivatives that are designated and qualify as cash flow hedging instruments, the gain or loss on the derivative is recorded in AOCL; it is reclassified to income in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCL fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCL and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period.

The portion of the mark-to-market effects of the foreign currency contracts is recorded in AOCL; it is reclassified to income in the same period or periods that the underlying item affects income.

Commodity swaps, futures and option contracts with maturities of not more than 48 months are utilized and designated as cash flow hedges of forecasted commodity purchases. The designated portion of the mark-to-market effect of the cash flow hedge instrument is recorded in AOCL; it is reclassified to income in the same period or periods that the underlying commodity purchase affects income.

Fair Value Hedges

For interest rate instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedge item attributable to the hedged risk are recognized in current period income and reflected as “Interest expense and amortization of debt discount” in the consolidated statements of income, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.

Net Foreign Investment Hedges

The Company designates derivatives that qualify as effective net foreign investment hedges, the results of which are presented in the effect of derivative instruments table. In addition, the Company utilizes non-derivative instruments as net foreign investment hedges. The Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $184 million at December 31, 2019 ($182 million at December 31, 2018).

The following tables provide the fair value and gross balance sheet classification of derivative instruments at December 31, 2019 and 2018:



Fair Value of Derivative Instruments		Dec 31, 2019
In millions	Balance Sheet Classification	Gross		Counterparty and Cash Collateral Netting 1			Net Amounts Included in the Consolidated Balance Sheets
Asset derivatives:
Derivatives designated as hedging instruments:
Interest rate contracts	Other current assets	$	21	$	(13	)	$	8
Foreign currency contracts	Other current assets	105		(36		)	69
Commodity contracts	Other current assets	44		(25		)	19
Commodity contracts	Deferred charges and other assets	28		(3		)	25
Total		$	198	$	(77	)	$	121
Derivatives not designated as hedging instruments:
Interest rate contracts	Other current assets	$	14	$	(14	)	$	—
Interest rate contracts	Deferred charges and other assets	—		—			—
Foreign currency contracts	Other current assets	44		(12		)	32
Commodity contracts	Other current assets	18		(3		)	15
Commodity contracts	Deferred charges and other assets	—		—			—
Total		$	76	$	(29	)	$	47
Total asset derivatives		$	274	$	(106	)	$	168

Liability derivatives:
Derivatives designated as hedging instruments:
Interest rate contracts	Accrued and other current liabilities	$	23	$	(13	)	$	10
Interest rate contracts	Other noncurrent obligations	1		—			1
Foreign currency contracts	Accrued and other current liabilities	46		(36		)	10
Commodity contracts	Accrued and other current liabilities	95		(29		)	66
Commodity contracts	Other noncurrent obligations	38		(4		)	34
Total		$	203	$	(82	)	$	121
Derivatives not designated as hedging instruments:
Interest rate contracts	Accrued and other current liabilities	$	136	$	(14	)	$	122
Interest rate contracts	Other noncurrent obligations	150		—			150
Foreign currency contracts	Accrued and other current liabilities	23		(12		)	11
Commodity contracts	Accrued and other current liabilities	17		(3		)	14
Commodity contracts	Other noncurrent obligations	1		—			1
Total		$	327	$	(29	)	$	298
Total liability derivatives		$	530	$	(111	)	$	419


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 Sheets
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 contracts	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 $5 million at December 31, 2019 ($26 million at December 31, 2018). Counterparties posted cash collateral of $3 million with the Company at December 31, 2019 ($34 million at December 31, 2018).



Effect of Derivative Instruments	Amount of gain (loss) recognized in OCI 1									Amount of gain (loss) recognized in income 2
In millions	2019			2018			2017			2019			2018			2017			Income Statement Classification
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate contracts	$	—		$	—		$	—		$	17		$	—		$	(2	)	Interest expense and amortization of debt discount 3
Excluded components 4	(3		)	—			—			—			—			—
Cash flow hedges:
Interest rate contracts	(316		)	26			2			1			(3		)	4			Interest expense and amortization of debt discount
Foreign currency contracts	16			19			(30		)	28			(18		)	7			Cost of sales
Foreign currency contracts	10			(3		)	(5		)	8			—			(17		)	Sundry income (expense) - net
Commodity contracts	(6		)	(46		)	37			(81		)	(69		)	10			Cost of sales
Net investment hedges:
Foreign currency contracts	(52		)	116			(73		)	—			—			—
Excluded components 4	162			—			—			99			—			—			Sundry income (expense) - net
Total derivatives designated as hedging instruments	$	(189	)	$	112		$	(69	)	$	72		$	(90	)	$	2
Derivatives not designated as hedging instruments:
Interest rate contracts	$	—		$	—		$	—		$	(4	)	$	—		$	—		Interest expense and amortization of debt discount
Foreign currency contracts	—			—			—			45			101			(289		)	Sundry income (expense) - net
Commodity contracts	—			—			—			(28		)	(12		)	(9		)	Cost of sales
Total derivatives not designated as hedging instruments	$	—		$	—		$	—		$	13		$	89		$	(298	)
Total derivatives	$	(189	)	$	112		$	(69	)	$	85		$	(1	)	$	(296	)


1.	OCI is defined as other comprehensive income (loss).


2.	Pretax amounts.


3.	Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of the hedged item.


4.	The excluded components are related to the time value of the derivatives designated as hedges.

The following table provides the net after-tax amounts to be reclassified from AOCL to income within the next 12 months:



Expected Reclassifications from AOCL within the next 12 months	Dec 31, 2019

Cash flow hedges
Interest rate contracts	$	2
Commodity contracts	$	(23	)
Foreign currency contracts	$	5
Net investment hedges
Excluded components	$	26

NOTE 24 – FAIR VALUE MEASUREMENTS

Fair Value Measurements on a Recurring Basis

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis:



Basis of Fair Value Measurements on a Recurring Basis 1	Dec 31, 2019						Dec 31, 2018
In millions	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets at fair value:
Cash equivalents
Held to maturity securities 2	$	—	$	220	$	220	$	—	$	410	$	410
Money market funds	—		408		408		—		156		156
Marketable securities	—		21		21		—		100		100
Equity securities 3	15		—		15		16		—		16
Debt securities: 3
Government debt 4	—		555		555		—		700		700
Corporate bonds	22		992		1,014		—		983		983
Derivatives relating to: 5
Interest rates	—		35		35		—		—		—
Foreign currency	—		149		149		—		226		226
Commodities	23		67		90		17		93		110
Total assets at fair value	$	60	$	2,447	$	2,507	$	33	$	2,668	$	2,701
Liabilities at fair value:
Long-term debt including debt due within one year 6	$	—	$	18,661	$	18,661	$	—	$	20,212	$	20,212
Derivatives relating to: 5
Interest rates	—		310		310		—		64		64
Foreign currency	—		69		69		—		149		149
Commodities	14		137		151		23		189		212
Total liabilities at fair value	$	14	$	19,177	$	19,191	$	23	$	20,614	$	20,637


1.	Prior period amounts were updated to conform with the current year presentation.


2.	The Company had held-to-maturity securities (primary treasury bills and time deposits) classified as cash equivalents.


3.	The Company’s investments in debt securities, which are primarily available-for-sale, and equity securities are included in “Other investments” in the consolidated balance sheets.


4.	U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.


5.	See Note 23 for the classification of derivatives in the consolidated balance sheets.


6.	See Note 23 for information on fair value measurements of long-term debt.

For assets and liabilities classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.

For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.

For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models. See Note 23 for further information on the types of instruments used by the Company for risk management.

There were no transfers between Levels 1 and 2 in the years ended December 31, 2019 and 2018.

For assets classified as Level 3 measurements, the fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The fair value of the Company’s interests held in trade accounts receivable conduits is determined by calculating the expected amount of cash to be received using the key input of anticipated credit losses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the underlying receivables, discount rate and prepayments are not factors in determining the fair value of the interests. See Note 15 for further information on assets classified as Level 3 measurements.

For equity securities calculated at net asset value per share (or its equivalent), the Company had $117 million in private market securities and $18 million in real estate at December 31, 2019 ($120 million in private market securities and $29 million in real estate at December 31, 2018). There are no redemption restrictions and the underfunded commitments on these investments were $76 million at December 31, 2019 ($89 million at December 31, 2018).

The following table summarizes the changes in fair value measurements using Level 3 inputs for the year ended December 31, 2018:



Fair Value Measurements Using Level 3 Inputs for Interests Held in Trade Accounts Receivable Conduits 1	2018
In millions
Balance at Jan 1	$	677
Gain (loss) included in earnings 2	3
Settlements 3	(680		)
Balance at Dec 31	$	—


1.	Included in "Accounts and notes receivable – Other" in the consolidated balance sheets. See Note 15 for additional information.


2.	Included in "Selling, general and administrative expenses" in the consolidated statements of income.


3.	Includes noncash transactions of $23 million for the year ended December 31, 2018.

Fair Value Measurements on a Nonrecurring Basis

The following table summarizes the bases used to measure certain assets at fair value on a nonrecurring basis in the consolidated balance sheets in 2019, 2018 and 2017:



Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31	(Level 3)		Total Losses
In millions
2019
Assets at fair value:
Long-lived assets, other assets and equity method investments	$	162	$	(2,031	)
Goodwill	$	—	$	(1,039	)
2018
Assets at fair value:
Long-lived assets and other assets	$	—	$	(67	)
2017
Assets at fair value:
Long-lived assets, intangible assets, other assets and equity method investments	$	61	$	(955	)
Goodwill	$	—	$	(1,491	)

2019 Fair Value Measurements on a Nonrecurring Basis

As part of the Synergy Program, the Company has or will shut down and write-off several small manufacturing facilities, non-manufacturing assets and certain corporate facilities around the world. In 2019, manufacturing facilities associated with this plan were written down to zero. In addition, impairments of leased, non-manufacturing facilities, which were classified as Level 3 measurements, resulted in a write-down of right-of-use assets to a fair value of $152 million using unobservable inputs. The impairment charges related to the Synergy Program, totaling $143 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure ($2 million), Performance Materials & Coatings ($28 million) and Corporate ($113 million).

In 2019, the Company recognized an additional pretax impairment charge of $44 million related to capital additions made to Santa Vitoria, which was impaired in 2017. The assets were written down to zero in 2019. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics.

In 2019, the Company recognized impairment charges of $14 million related to non-manufacturing assets. The assets, classified as Level 3 measurements, were valued at $10 million using unobservable inputs. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Performance Materials & Coatings ($9 million) and Corporate ($5 million).

In 2019, the Company recognized an impairment charge of $75 million resulting from the planned divestiture of its acetone derivatives business to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019 and included the Company's acetone derivatives related inventory and production assets, located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The assets, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero in 2019, except for inventory, which was sold at the lower of cost or market. The impairment charge was included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($24 million) and Corporate ($51 million).

In the fourth quarter of 2019, the Company performed its annual goodwill impairment testing utilizing a discounted cash flow methodology as its valuation technique. As a result, the Company determined the fair value of the C&PM reporting unit was lower than its carrying amount and recorded an impairment charge of $1,039 million, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 14 for additional information on the impairment charge.

In the fourth quarter of 2019, the Company concluded that its equity method investment in Sadara, classified as a Level 3 measurement and valued using unobservable inputs, was other-than-temporarily impaired and written down to zero. Additionally, the Company reserved certain accounts and notes receivable and accrued interest balances due to uncertainty on the timing of collection. As a result, the Company recorded a $1,755 million charge related to Sadara. The charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Packaging & Specialty Plastics ($370 million), Industrial Intermediates & Infrastructure ($1,168 million) and Corporate ($217 million). See Note 13 for additional information.

2018 Fair Value Measurements on a Nonrecurring Basis

The Company has or will shut down a number of manufacturing and other non-manufacturing facilities and corporate facilities around the world as part of its restructuring programs. In 2018, the manufacturing facilities and related assets and corporate facilities associated with these programs were written down to zero. The impairment charges related to the restructuring programs, totaling $33 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($10 million), Performance Materials & Coatings ($7 million) and Corporate ($16 million).

In 2018, the Company recognized an additional pretax impairment charge of $34 million related primarily to capital additions made to Santa Vitoria, which was impaired in 2017. The assets were written down to zero in 2018. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment.

2017 Fair Value Measurements on a Nonrecurring Basis

The Company has or will shut down a number of manufacturing, R&D and corporate facilities around the world as part of the Synergy Program. The manufacturing facilities and related assets (including intangible assets), corporate facilities and data centers associated with this plan were written down to zero in the fourth quarter of 2017. The impairment charges related to the Synergy Program, totaling $87 million, were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($33 million), Industrial Intermediates & Infrastructure ($12 million), Performance Materials & Coatings ($9 million) and Corporate ($33 million). See Note 7 for additional information on the Company's restructuring activities.

In the fourth quarter of 2017, the Company recognized a $622 million pretax impairment charge related to Santa Vitoria. The Company determined it would not pursue an expansion of the facility’s ethanol mill into downstream derivative products, primarily as a result of cheaper ethane-based production as well as the Company’s new assets coming online on the U.S. Gulf Coast which can be used to meet growing market demands in Brazil. As a result of this decision, cash flow analysis indicated the carrying amount of the impacted assets was not recoverable and the assets were written down to zero in the fourth quarter of 2017. The impairment charge was included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to the Packaging & Specialty Plastics segment. See Notes 7 and 25 for additional information.

The Company also recognized other pretax impairment charges of $246 million in the fourth quarter of 2017, including charges related to manufacturing assets of $159 million, an equity method investment of $81 million and other assets of $6 million. The assets, classified as Level 3 measurements, were valued at $61 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets, which included projected cash flows. The impairment charges were included in "Restructuring, goodwill impairment and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($83 million), Industrial Intermediates & Infrastructure ($5 million), Performance Materials & Coatings ($58 million) and Corporate ($100 million). See Note 7 for additional information.

In the fourth quarter of 2017, the Company performed its annual goodwill impairment testing utilizing a discounted cash flow methodology as its valuation technique. As a result, the Company determined the fair value of the C&PM reporting unit was lower than its carrying amount and recorded an impairment charge of $1,491 million, included in “Restructuring, goodwill impairment and asset related charges - net” in the consolidated statements of income and related to Performance Materials & Coatings. See Note 14 for additional information on the impairment charge.

See Note 7 for additional information on the Company's restructuring activities.

NOTE 25 – VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities ("VIEs")

The Company holds a variable interest in the following joint ventures or entities for which it is the primary beneficiary:

Asia Pacific joint ventures

The Company has variable interests in two joint ventures that own and operate manufacturing and logistics facilities, which produce chemicals and provide services in Asia Pacific. The Company's variable interests in these joint ventures relate to arrangements between the joint ventures and the Company, involving the majority of the output on take-or-pay terms with pricing ensuring a guaranteed return to the joint ventures.

The Company was a 50 percent indirect owner in a propylene oxide ("PO") manufacturing joint venture in Asia Pacific. The Company had a variable interest in this joint venture relating to arrangements between the joint venture and the Company involving the majority of the output on take-or-pay terms, with pricing ensuring a guaranteed return to the joint venture. On April 30, 2019, the Company executed an agreement to acquire full ownership in the PO manufacturing joint venture. The transaction closed on October 1, 2019, for a cash purchase price of $331 million. Approximately half of the purchase price was attributed to the Company’s proportionate equity interest in the entity that owned the PO manufacturing joint venture, which is accounted for under the equity method of accounting, and was classified as "Investments in and loans to nonconsolidated affiliates" in the consolidated statements of cash flows. The remaining $166 million was classified as "Purchases of noncontrolling interests" in the consolidated statements of cash flows.

Ethylene storage joint venture

The Company has variable interests in a joint venture that provides ethylene storage in Alberta, Canada. The Company's variable interests relate to arrangements involving a majority of the joint venture's storage capacity on take-or-pay terms with pricing ensuring a guaranteed return to the joint venture; and favorably priced leases provided to the joint venture. The Company provides the joint venture with operation and maintenance services and utilities.

Cogeneration in Brazil

The Company holds variable interests in a cogeneration facility in Brazil related to the production of ethanol from sugarcane. The Company's variable interests are the result of a tolling arrangement where it provides fuel to the entity and purchases a majority of the cogeneration facility’s output on terms that ensure a return to the entity’s equity holders.

Assets and Liabilities of Consolidated VIEs

The Company's consolidated financial statements include the assets, liabilities and results of operations of VIEs for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in "Net income attributable to noncontrolling interests" in the consolidated statements of income and "Noncontrolling interests" in the consolidated balance sheets.

The following table summarizes the carrying amounts of these entities’ assets and liabilities included in the Company’s consolidated balance sheets at December 31, 2019 and 2018:



Assets and Liabilities of Consolidated VIEs at Dec 31
In millions	2019		2018
Cash and cash equivalents	$	37	$	71
Other current assets	51		101
Net property	330		683
Other noncurrent assets	18		14
Total assets 1	$	436	$	869
Current liabilities	$	141	$	307
Long-term debt	34		75
Other noncurrent obligations	21		14
Total liabilities 2	$	196	$	396


1.	All assets were restricted at December 31, 2019 and 2018.


2.	All liabilities were nonrecourse at December 31, 2019 and 2018.

Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 2019 and 2018 are adjusted for intercompany eliminations and parental guarantees.

Nonconsolidated VIEs

The Company holds a variable interest in the following entities for which the Company is not the primary beneficiary:

Silicon joint ventures

The Company holds minority voting interests in certain joint ventures that produce silicon inputs for the Company. These joint ventures operate under supply agreements that sell inventory to the equity owners using pricing mechanisms that guarantee a return, therefore shielding the joint ventures from the obligation to absorb expected losses. As a result of the pricing mechanisms of these agreements, these entities are determined to be VIEs. The Company is not the primary beneficiary, as it does not hold the power to direct the activities that most significantly impact the economic performance of these entities; therefore, the entities are accounted for under the equity method of accounting. The Company's maximum exposure to loss as a result of its involvement with these variable interest entities is determined to be the carrying value of the investment in these entities. At December 31, 2019, the Company's investment in these joint ventures was $100 million ($100 million at December 31, 2018), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, representing the Company's maximum exposure to loss.

AgroFresh Solutions Inc.

The Company held a variable interest in AgroFresh Solutions Inc. ("AFSI"), a company that produces and sells proprietary technologies for the horticultural market. The variable interest in AFSI related to a tax receivable agreement that entitled the Company to additional consideration in the form of tax savings, which was contingent on the operations and earnings of AFSI. The Company was not the primary beneficiary, as it is a minority shareholder in AFSI and AFSI is governed by a board of directors, the composition of which is mandated by AFSI's corporate governance requirements that a majority of the directors be independent. In December 2019, the Company and AFSI settled the tax receivable agreement and the Company's receivable with AFSI was zero at December 31, 2019 ($8 million at December 31, 2018, classified as "Accounts and notes receivable - Other" in the consolidated balance sheets). The Company continues to be a minority shareholder, but does not have a controlling financial interest in AFSI.

NOTE 26 – RELATED PARTY TRANSACTIONS

Effective with the separation from DowDuPont on April 1, 2019, TDCC became a wholly owned subsidiary of Dow Inc. and reported transactions with Dow Inc. as related party transactions. From the Merger date through March 31, 2019, TDCC reported transactions with DowDuPont and Historical DuPont and its affiliates as related party transactions.

TDCC

TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders, share repurchases and certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution to Dow Inc. to settle the intercompany loans. In the fourth quarter of 2019, TDCC declared and paid a dividend of $201 million to Dow Inc. At December 31, 2019, TDCC's intercompany loan balance with Dow Inc. was insignificant.

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. In 2019, TDCC declared and paid dividends to DowDuPont of $535 million ($3,711 million in 2018). At December 31, 2018, TDCC's outstanding intercompany loan balance was insignificant.

Historical DuPont and its Affiliates

Prior to the separation from DowDuPont, TDCC sold to and procured from Historical DuPont and its affiliates certain raw materials that were consumed in each company's manufacturing process. The following table presents amounts due to or due from Historical DuPont and its affiliates at December 31, 2018:



Balances Due To or Due From Historical DuPont and its Affiliates	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, prior to the separation from DowDuPont:

Purchases from Historical DuPont and its affiliates were insignificant for 2019 and 2018.

NOTE 27 – 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. Dow operates 109 manufacturing sites in 31 countries and employs approximately 36,500 people.

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: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure and Performance Materials & Coatings. Corporate contains the reconciliation between the totals for the operating segments and the Company's totals. The Company did not aggregate any operating segments when determining its reportable segments.

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 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. Pro forma 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. Pro forma Operating EBIT has been reflected retrospectively for all periods presented, and reconciliations are provided at the end of this footnote. The Company also presents pro forma net sales 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 ECP from January 1, 2017 through August 31, 2017, as well as the impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont.

Corporate Profile

Dow conducts its worldwide operations through global businesses which are reflected in the following reportable segments:

Packaging & Specialty Plastics

Packaging & Specialty Plastics consists of two highly integrated global businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The segment employs the industry’s broadest polyolefin product portfolio, supported by the Company’s proprietary catalyst and manufacturing process technologies, to work at the customer’s design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; automotive; and infrastructure. This segment includes the results of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group, as well as a portion of the results of EQUATE, The Kuwait Olefins Company K.S.C.C. ("TKOC"), Map Ta Phut and Sadara, all joint ventures of the Company.

Industrial Intermediates & Infrastructure

Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others. This segment includes a portion of the Company's share of the results of EQUATE, TKOC, Map Ta Phut and Sadara.

Performance Materials & Coatings

Performance Materials & Coatings includes industry-leading franchises that deliver a wide array of solutions into consumer and infrastructure end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings, home care and personal care end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated offerings to customers.

Corporate

Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; non-business aligned litigation expenses; and discontinued or non-aligned businesses.

Sales are attributed to geographic region based on customer location; long-lived assets are attributed to geographic region based on asset location.



Geographic Region Information	United States		EMEAI		Rest of World		Total
In millions
2019
Sales to external customers	$	14,437	$	14,612	$	13,902	$	42,951
Long-lived assets	$	14,571	$	2,649	$	3,776	$	20,996
2018
Sales to external customers	$	16,613	$	17,406	$	15,585	$	49,604
Long-lived assets	$	14,750	$	2,657	$	4,011	$	21,418
2017
Sales to external customers	$	15,316	$	15,226	$	13,188	$	43,730
Long-lived assets	$	14,771	$	2,547	$	4,266	$	21,584



Segment Information	Pack. & Spec. Plastics		Ind. Interm. & Infrast.			Perf. Materials & Coatings		Corp.			Total
In millions
2019
Net sales	$	20,245	$	13,440		$	8,923	$	343		$	42,951
Pro forma net sales	20,245		13,449			8,961		343			42,998
Restructuring, goodwill impairment and asset related charges - net 1	439		1,175			1,076		529			3,219
Equity in earnings (losses) of nonconsolidated affiliates	162		(241		)	5		(20		)	(94		)
Pro forma Operating EBIT 2	2,904		845			918		(315		)	4,352
Depreciation and amortization	1,435		594			877		32			2,938
Total assets	29,522		11,753			14,059		5,190			60,524
Investments in nonconsolidated affiliates	675		568			101		60			1,404
Capital expenditures	1,039		452			470		—			1,961
2018
Net sales	$	24,195	$	15,447		$	9,677	$	285		$	49,604
Pro forma net sales	24,237		15,465			9,865		285			49,852
Restructuring, goodwill impairment and asset related charges - net 1	46		11			21		143			221
Equity in earnings (losses) of nonconsolidated affiliates	287		284			4		(20		)	555
Pro forma Operating EBIT 2	3,593		1,767			1,246		(370		)	6,236
Depreciation and amortization	1,385		607			888		29			2,909
Total assets 3	30,279		14,092			16,050		3,378			63,799
Investments in nonconsolidated affiliates	1,278		1,850			99		93			3,320
Capital expenditures	1,231		433			427		—			2,091
2017
Net sales	$	21,504	$	12,951		$	8,892	$	383		$	43,730
Pro forma net sales	22,546		12,951			8,892		383			44,772
Restructuring, goodwill impairment and asset related charges - net 1	716		17			1,578		428			2,739
Equity in earnings (losses) of nonconsolidated affiliates	190		172			40		(8		)	394
Pro forma Operating EBIT 2	3,712		1,470			817		(422		)	5,577
Depreciation and amortization	1,055		572			885		34			2,546
Total assets 3	30,633		14,115			17,483		4,342			66,573
Investments in nonconsolidated affiliates	1,184		1,700			103		120			3,107
Capital expenditures	2,034		310			463		—			2,807


1.	See Note 7 for information regarding the Company's restructuring programs, goodwill impairment and other asset related charges.


2.	Pro forma Operating EBIT for TDCC in 2019 is substantially the same as that of Dow Inc. (same for 2018 and 2017) and therefore is not disclosed separately in the table above. A reconciliation of "Income (loss) from continuing operations, net of tax" to pro forma Operating EBIT is provided on the following page.


3.	Excludes assets of discontinued operations of $19,900 million and $19,279 million for 2018 and 2017, respectively.



Reconciliation of "Income (loss) from continuing operations, net of tax" to Pro Forma Operating EBIT	2019			2018			2017
In millions
Income (loss) from continuing operations, net of tax	$	(1,717	)	$	2,940		$	(1,287	)
+ Provision for income taxes on continuing operations	470			809			1,524
Income (loss) from continuing operations before income taxes	$	(1,247	)	$	3,749		$	237
- Interest income	81			82			66
+ Interest expense and amortization of debt discount	933			1,063			914
+ Pro forma adjustments 1	65			180			1,120
- Significant items	(4,682		)	(1,326		)	(3,372		)
Pro forma Operating EBIT	$	4,352		$	6,236		$	5,577

Pro forma adjustments include: (1) the margin impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont (included for 2019 and 2018 only), (2) the inclusion of ECP for the period of January 1, 2017 through August 31, 2017, (3) the removal of the amortization of ECP's inventory step-up recognized in connection with the Merger (4) 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) and (5) the elimination of the effect of a consummated divestiture agreed to with certain regulatory agencies as a condition of approval for the Merger.

The following tables summarize the pretax impact of significant items by segment that are excluded from pro forma Operating EBIT:



Significant Items by Segment for 2019	Pack. & Spec. Plastics			Ind. Interm. & Infrast.			Perf. Materials & Coatings			Corp.			Total
In millions
Indemnification and other transaction related costs 1	$	—		$	—		$	—		$	(144	)	$	(144	)
Integration and separation costs 2	—			—			—			(1,013		)	(1,013		)
Restructuring, goodwill impairment and asset related charges - net 3	(439		)	(1,175		)	(1,076		)	(529		)	(3,219		)
Loss on divestitures 4	—			(5		)	—			(44		)	(49		)
Loss on early extinguishment of debt 5	—			—			—			(102		)	(102		)
Environmental charges 6	(5		)	(8		)	(50		)	(336		)	(399		)
Warranty accrual adjustment of exited business 7	—			—			—			39			39
Litigation related charges, awards and adjustments 8	170			—			—			35			205
Total	$	(274	)	$	(1,188	)	$	(1,126	)	$	(2,094	)	$	(4,682	)


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. Excludes one-time transaction costs directly attributable to the Merger.


3.	Includes Board approved restructuring plans and asset-related charges (see Note 7 for additional information); a charge related to Sadara (see Note 13 for additional information) and an impairment charge related to goodwill associated with the Coatings & Performance Monomers reporting unit (see Note 14 for additional information).


4.	Includes post-closing adjustments on previous divestitures.


5.	The Company retired outstanding long-term debt resulting in a loss on early extinguishment. See Note 16 for additional information.


6.	Related to environmental remediation, primarily resulting from the culmination of long-standing negotiations with regulators and/or agencies and review of additional costs to manage ongoing remediation activities resulting from Dow’s separation from DowDuPont and related agreements with Corteva and DuPont. See Note 17 for additional information.


7.	Includes an adjustment to the warranty accrual of an exited business.


8.	Includes a gain associated with a legal settlement with Nova, as well as a gain related to an adjustment of the Dow Silicones breast implant liability and a charge related to the settlement of the Dow Silicones commercial creditor matters. See Note 17 for additional information.



Significant Items by Segment for 2018	Pack. & Spec. Plastics			Ind. Interm. & Infrast.			Perf. Materials & Coatings			Corp.			Total
In millions
Impact of Dow Silicones ownership restructure 1	$	—		$	—		$	(20	)	$	—		$	(20	)
Integration and separation costs 2	—			—			—			(1,074		)	(1,074		)
Restructuring, goodwill impairment and asset related charges - net 3	(46		)	(11		)	(21		)	(120		)	(198		)
Gain on divestiture 4	—			20			—			—			20
Transaction costs and productivity actions 5	—			—			—			(54		)	(54		)
Total	$	(46	)	$	9		$	(41	)	$	(1,248	)	$	(1,326	)


1.	Includes a loss related to a post-closing adjustment related to the Dow Silicones ownership restructure.


2.	Costs related to post-Merger integration and separation and distribution activities, and costs related to the Dow Silicones ownership restructure.


3.	Includes Board approved restructuring plans and asset-related charges, which include other asset impairments. See Note 7 for additional information.


4.	Includes a gain related to the Company's sale of its equity interest in MEGlobal.


5.	The Company retired outstanding notes payable resulting in a loss on early extinguishment. See Note 16 for additional information.



Significant Items by Segment for 2017	Pack. & Spec. Plastics			Ind. Interm. & Infrast.			Perf. Materials & Coatings			Corp.			Total
In millions
Litigation related charges, awards and adjustments 1	$	137		$	—		$	—		$	—		$	137
Integration and separation costs 2	—			—			—			(716		)	(716		)
Restructuring, goodwill impairment and asset related charges - net 3	(716		)	(17		)	(1,578		)	(431		)	(2,742		)
Gain on divestiture 4	—			—			—			7			7
Transaction costs and productivity actions 5	—			—			—			(58		)	(58		)
Total	$	(579	)	$	(17	)	$	(1,578	)	$	(1,198	)	$	(3,372	)


1.	Includes a gain associated with a patent infringement matter with Nova. See Note 17 for additional information.


2.	Costs related to post-Merger integration, separation and distribution activities, and costs related to the Dow Silicones ownership restructure.


3.	Includes Board approved restructuring plans, goodwill impairment and asset-related charges, which includes other asset impairments. See Note 7 for additional information.


4.	Includes post-closing adjustments related to the split-off of the Company's chlorine value chain.


5.	Includes implementation costs associated with the Company's restructuring programs and other productivity actions.

NOTE 28 - SELECTED QUARTERLY FINANCIAL DATA



2019
In millions, except per share amounts (Unaudited)	1st 1		2nd		3rd		4th			Year
Dow Inc.
Net sales	$	10,969	$	11,014	$	10,764	$	10,204		$	42,951
Cost of sales	$	9,142	$	9,420	$	9,377	$	8,718		$	36,657
Gross margin	$	1,827	$	1,594	$	1,387	$	1,486		$	6,294
Restructuring, goodwill impairment and asset related charges - net 2	$	156	$	65	$	147	$	2,851		$	3,219
Integration and separation costs 3	$	452	$	348	$	164	$	99		$	1,063
Income (loss) from continuing operations, net of tax	$	156	$	90	$	347	$	(2,310	)	$	(1,717	)
Income from discontinued operations net of tax	$	445	$	—	$	—	$	—		$	445
Net income (loss) 4	$	601	$	90	$	347	$	(2,310	)	$	(1,272	)
Net income (loss) attributable to Dow Inc.	$	556	$	75	$	333	$	(2,323	)	$	(1,359	)
Earnings (loss) per common share from continuing operations - basic 5	$	0.16	$	0.10	$	0.45	$	(3.14	)	$	(2.42	)
Earnings (loss) per common share from continuing operations - diluted 5	$	0.16	$	0.10	$	0.45	$	(3.14	)	$	(2.42	)
Dividends declared per share of common stock 6	N/A		$	0.70	$	0.70	$	0.70		$	2.10
Market price range of common stock:
High 6	N/A		$	59.71	$	52.79	$	55.99		$	59.71
Low 6	N/A		$	46.76	$	40.71	$	43.85		$	40.71
TDCC
Net sales	$	10,969	$	11,014	$	10,764	$	10,204		$	42,951
Cost of sales	$	9,142	$	9,419	$	9,377	$	8,719		$	36,657
Gross margin	$	1,827	$	1,595	$	1,387	$	1,485		$	6,294
Restructuring, goodwill impairment and asset related charges - net 2	$	156	$	65	$	147	$	2,851		$	3,219
Integration and separation costs	$	452	$	324	$	164	$	99		$	1,039
Income (loss) from continuing operations, net of tax	$	156	$	217	$	324	$	(2,292	)	$	(1,595	)
Income from discontinued operations net of tax	$	445	$	—	$	—	$	—		$	445
Net income (loss) 3	$	601	$	217	$	324	$	(2,292	)	$	(1,150	)
Net income (loss) attributable to The Dow Chemical Company	$	556	$	202	$	310	$	(2,305	)	$	(1,237	)


1.	The amounts presented for the first quarter of 2019 have been updated from the amounts reported in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019, to reflect the effects of the separation from DowDuPont. See reconciliation on the following page.


2.	See Note 7 for additional information.


3.	See Note 4 for additional information.

See Notes 4, 9, 16 and 17 for information on additional items materially impacting "Net income (loss)." The fourth quarter of 2019 included a gain related to the effects of Swiss tax reform and a loss on the early extinguishment of debt. The third quarter of 2019 included a charge related to environmental remediation, a charge related to the settlement of the Dow Silicones commercial creditor matters, a gain related to an adjustment to the Dow Silicones breast implant liability and a gain associated with a legal settlement with Nova. The second quarter of 2019 included charges associated with agreements entered into with DuPont and Corteva as part of the separation from DowDuPont.


5.	Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc. Due to quarterly changes in the share count and the allocation of income to participating securities, the sum of the four quarters does not equal the earnings per share amount calculated for the year.


6.	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.



2018
In millions, except per share amounts (Unaudited)	1st		2nd		3rd		4th		Year
Net sales	$	12,237	$	12,789	$	12,634	$	11,944	$	49,604
Cost of sales	$	9,980	$	10,540	$	10,456	$	10,098	$	41,074
Gross margin	$	2,257	$	2,249	$	2,178	$	1,846	$	8,530
Restructuring, goodwill impairment and asset related charges - net 1	$	87	$	40	$	48	$	46	$	221
Integration and separation costs 2	$	224	$	262	$	313	$	380	$	1,179
Income from continuing operations, net of tax	$	925	$	810	$	714	$	491	$	2,940
Income from discontinued operations, net of tax	$	514	$	554	$	335	$	432	$	1,835
Net income 3	$	1,439	$	1,364	$	1,049	$	923	$	4,775
Net income attributable to Dow Inc. and The Dow Chemical Company	$	1,404	$	1,333	$	1,013	$	891	$	4,641
Earnings per common share from continuing operations - basic 4	$	1.21	$	1.05	$	0.91	$	0.63	$	3.80
Earnings per common share from continuing operations - diluted 4	$	1.21	$	1.05	$	0.91	$	0.63	$	3.80


1.	See Note 7 for additional information.


2.	See Note 4 for additional information.


3.	Includes tax adjustments related to The Act, enacted on December 22, 2017. See Note 9 for additional information.


4.	Earnings per common share amounts relate only to Dow Inc. as TDCC common shares are not publicly traded and are all owned by Dow Inc.

Effective with the separation from DowDuPont, the Company's consolidated financial results reflect the distribution of AgCo and SpecCo as discontinued operations, as well as the receipt of ECP as a common control transaction from the closing of the Merger on August 31, 2017. The following table provides the reconciliation of the amounts reported in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019, to the amounts presented for the first quarter of 2019 on the previous page. See Note 4 for additional information on the separation from DowDuPont.



Reconciliation - First Quarter 2019	As Filed		Distribution of AgCo and SpecCo			Receipt of ECP		Updated
In millions (Unaudited)
Net sales	$	13,582	$	(2,954	)	$	341	$	10,969
Cost of sales	$	10,707	$	(1,805	)	$	240	$	9,142
Gross margin	$	2,875	$	(1,149	)	$	101	$	1,827
Restructuring, goodwill impairment and asset related charges - net	$	232	$	(78	)	$	2	$	156
Integration and separation costs	$	408	$	—		$	44	$	452
Income from continuing operations, net of tax	$	586	$	(445	)	$	15	$	156
Income from discontinued operations, net of tax	$	—	$	445		$	—	$	445
Net income	$	586	$	—		$	15	$	601
Net income available for common stockholders	$	541	$	—		$	15	$	556

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